*Table
            of Contents*
 
 **U.
        S. SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        DC 20549**
 
 **FORM
        10-Q**
 
 þ
              Quarterly
                  report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934For
                  the quarterly period ended **September 30,
                  2008**
 
  ̈
              Transition
                  report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934For
                  the transition period from ___________ to
                  ___________.
  Commission
        File Number 0-28806
  
  **Ever-Glory
        International Group Inc.**
 (Exact
        name of issuer as specified in its charter)
 
 **Florida**
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              **65-0420146**
                (I.R.S.
                  employer
                identification
                  number)
 
 **100
        N. Barranca Ave. #810**
 **West
        Covina, California 91791**
 (Address
        of principal executive offices and zip code)
  **(626)
        839-9116**
 (Registrant’s
        telephone number, including area code)
 
 Securities
                  registered pursuant to Section 12(b) of the Act:****
              **None**Securities
                  registered pursuant to Section 12(g) of the Act:****
              **Common
                  Stock, par value $0.001 per
                  share**
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes þ No o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act (Check one):
  Large
                  Accelerated Filer o
              Accelerated
                  Filer oNon-accelerated
                  filer o
              Smaller
                  reporting company þ
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Act). Yes o No þ
  APPLICABLE
        ONLY TO CORPORATE ISSUERS:
  As
        of
        September 30, 2008, the Registrant had 12,350,839 shares of common stock
        outstanding.
   
 
 *Table
          of Contents*
  **EVER-GLORY
        INTERNATIONAL GROUP, INC.**
 **FORM 10-Q**
  **INDEX**
  Page
                Number**SPECIAL
                  NOTE REGARDING FORWARD-LOOKING
                  STATEMENTS**
              3**PART
                  I.  FINANCIAL
                  INFORMATION**
              4Item
                  1.
              Financial
                  Statements
              4Consolidated
                  Balance Sheet as of September 30, 2008 (unaudited)
                  and December 31, 2007
              4Consolidated
                  Statement of Operations and Comprehensive Income
                  for the Three and Nine Months Ended September 30, 2008 and 2007
                  (unaudited)
              5Consolidated
                  Statement of Cash Flows for the Nine Months Ended
                  September 30, 2008 and 2007 (unaudited)
              6Notes
                  to the Consolidated Financial Statements
                  (unaudited)
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              28Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              46Item
                  4.
              Controls
                  and Procedures
              47**PART
                  II.  OTHER INFORMATION**
              48Item
                  1.
              Legal
                  Proceedings
              48Item
                  1A.
              Risk
                  Factors
              48Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              57Item
                  3.
              Defaults
                  Upon Senior Securities
              57Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              57Item
                  5.
              Other
                  Information
              57Item
                  6.
              Exhibits
              58**SIGNATURES**
              59
  2
 *Table
            of Contents*
 
 **SPECIAL
        NOTE REGARDING FORWARD-LOOKING
        STATEMENTS**
 
 This
        document contains certain statements of a forward-looking nature. Such
        forward-looking statements, including but not limited to projected growth,
        trends and strategies, future operating and financial results, financial
        expectations and current business indicators are based upon current information
        and expectations and are subject to change based on factors beyond the control
        of the Company. Forward-looking statements typically are identified by the
        use
        of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,”
“expect,” “anticipate,” “estimate” and similar words, although some
        forward-looking statements are expressed differently. The accuracy of such
        statements may be impacted by a number of business risks and uncertainties
        that
        could cause actual results to differ materially from those projected or
        anticipated, including but not limited to the following, which are discussed
        in
        further detail on page 48 of this report:
 
 ·
              the
                  ability to timely and accurately complete product orders;·
              the
                  ability to coordinate product design with its customers;·
              its
                  dependence on a limited number of larger customers;·
              political
                  and economic factors in the Peoples’ Republic of China;·
              the
                  ability of the Company’s internal production operations to increase
                  production volumes on finished goods in a timely fashion in response
                  to
                  increasing demand, and to enable the Company to achieve timely
                  delivery of
                  finished goods to its customers;·
              the
                  Company’s ability to expand and grow its distribution
                  channels;·
              unanticipated
                  changes in general market conditions or other factors, which may
                  result in
                  cancellations of advance orders or a reduction in the rate of
                  reorders;·
              a
                  weakening of economic conditions which would reduce demand for
                  products
                  sold by the Company and could adversely affect profitability;·
              the
                  effect of terrorist acts, or the threat thereof, on consumer confidence
                  and spending, or the production and distribution of product and
                  raw
                  materials which could, as a result, adversely affect the Company’s
                  operations and financial performance;·
              the
                  acceptance in the marketplace of the Company’s new products and changes in
                  consumer preferences;·
              reductions
                  in sales of products, either as the result of economic or other
                  conditions, or reduced consumer acceptance of a product, which
                  could
                  result in an unplanned buildup of inventory;·
              the
                  ability to source raw materials and finished products at favorable
                  prices
                  to the Company;·
              the
                  potential impact of power shortages on the Company’s operations including
                  temporary blackouts at the Company’s facilities;·
              foreign
                  currency exchange rate fluctuations;·
              earthquakes
                  or other natural disasters;·
              the
                  Company’s ability to identify and successfully execute cost control
                  initiatives (including management of the cost of labor);·
              the
                  impact of quotas, tariffs, or safeguards on the importation or
                  exportation
                  of the Company’s products; or·
              other
                  risks outlined above and in the Company’s other filings made periodically
                  by the Company.
 
 Readers
        are cautioned not to place undue reliance on these forward-looking statements,
        which speak only as of the date hereof. The Company undertakes no obligation
        to
        update this forward-looking information. Nonetheless, the Company reserves
        the
        right to make such updates from time to time by press release, periodic report
        or other method of public disclosure without the need for specific reference
        to
        this Report. No such update shall be deemed to indicate that other statements
        not addressed by such update remain correct or create an obligation to provide
        any other updates.
  3
 *Table
            of Contents*
 
 **PART
        I.  FINANCIAL INFORMATION**
 
 **ITEM
                  1.**
              **FINANCIAL
                  STATEMENTS.**
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS**
 **AS
          OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007**
 
 September 30,
                  2008
                
                December 31,
                  2007(Unaudited)**ASSETS****CURRENT
                    ASSETS**Cash
                    and cash equivalents
                
                $
                882,548
                
                $
                641,739Accounts
                    receivable
                
                
                17,296,013
                
                
                13,035,299Accounts
                    receivable - related parties
                
                
                —
                
                
                158,235Inventories
                
                
                2,633,859
                
                
                1,897,023Other
                    receivable
                
                
                621,866
                
                
                150,855Other
                    receivable - related parties
                
                
                38,596
                
                
                —Advances
                    on inventory purchase
                
                
                339,794
                
                
                —Advances
                    on inventory purchase - related parties
                
                
                6,882,463
                
                
                2,568,040Refundable
                    deposit and prepaid expenses
                
                
                182,008
                
                
                —**Total
                    Current Assets**
                
                
                28,877,147
                
                
                18,451,191**DEFERRED
                    FINANCING COSTS**
                
                
                3,881
                
                
                191,995**LAND
                    USE RIGHT, NET**
                
                
                2,863,124
                
                
                2,729,183**PROPERTY
                    AND EQUIPMENT, NET**
                
                
                13,055,017
                
                
                12,140,903**INVESTMENT
                    IN SUBSIDIARY**
                
                
                1,463,000
                
                
                —**TOTAL
                    ASSETS**
                
                $
                46,262,169
                
                $
                33,513,272**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES**Accounts
                    payable
                
                $
                5,910,711
                
                $
                1,796,655Accounts
                    payable - related parties
                
                
                155,917
                
                
                245,589Other
                    payables - related party
                
                
                903,715
                
                
                650,000Other
                    payables and accrued liabilities
                
                
                1,582,121
                
                
                1,069,682Trade
                    notes payable
                
                
                419,967
                
                
                —Value
                    added tax payable
                
                
                589,078
                
                
                378,898Income
                    tax payable and other taxes payable
                
                
                429,856
                
                
                146,226Bank
                    loans
                
                
                5,793,480
                
                
                4,798,500Convertible
                    notes payable, net of unamortized discount of $40,469 and  
                    $1,974,497 at September 30, 2008 and December 31, 2007,
                    respectively
                
                
                9,531
                
                
                25,503**Total
                    Current Liabilities**
                
                
                15,794,376
                
                
                9,111,053**LONG-TERM
                    LOAN FROM PARTY RELATED BY COMMON CONTROL**
                
                
                2,630,821
                
                
                4,474,985**Total Liabilities**
                
                
                18,425,197
                
                
                13,586,038**COMMITMENTS
                    AND CONTINGENCIES**
                
                
                —
                
                
                —**MINORITY
                    INTEREST**
                
                
                551,623
                
                
                —**STOCKHOLDERS'
                    EQUITY**Preferred
                    stock ($.001 par value, authorized 5,000,000 shares, 10,000 shares
                    designated as "Series A Preferred Stock")
                
                
                —
                
                
                —Series
                    A Convertible Preferred Stock (no shares issued and outstanding
                    as of
                    September 30, 2008 and December 31, 2007
                
                
                —
                
                
                —Common
                    stock ($.001 par value, authorized 50,000,000 shares, 12,350,839
                    and
                    11,379,309 shares issued and outstanding as of September 30,
                    2008 and
                    December 31, 2007, respectively)
                
                
                12,351
                
                
                11,379Additional
                    paid-in capital
                
                
                4,499,027
                
                
                2,154,368Retained
                    earnings
                
                
                15,441,526
                
                
                12,247,748Statutory
                    reserve
                
                
                3,437,379
                
                
                3,437,379Accumulated
                    other comprehensive income
                
                
                3,895,066
                
                
                2,076,360**Total
                    Stockholders' Equity**
                
                
                27,285,349
                
                
                19,927,234**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                46,262,169
                
                $
                33,513,272
 
 The
          accompanying notes are an integral part of these
          statements.
  4
 *Table
              of Contents*
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS AND COMPREHENSIVE
          INCOME**
 
 **FOR
          THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
          2007**
 **(UNAUDITED)**
 
 Three months ended
                
                Nine months endedSeptember 30,
                
                September 30,2008
                
                2007
                
                2008
                
                2007**NET
                    SALES**Related
                    parties
                
                $
                17,582
                
                $
                486,318
                
                $
                510,145
                
                $
                940,334Third
                    parties
                
                
                31,867,994
                
                
                18,991,475
                
                
                75,191,036
                
                
                49,060,893**Total
                    net sales**
                
                
                31,885,576
                
                
                19,477,793
                
                
                75,701,181
                
                
                50,001,227**COST
                    OF SALES**Related
                    parties
                
                
                10,989
                
                
                456,689
                
                
                472,373
                
                
                878,673Third
                    parties
                
                
                27,284,216
                
                
                15,948,006
                
                
                62,563,564
                
                
                41,418,315**Total
                    cost of sales**
                
                
                27,295,205
                
                
                16,404,695
                
                
                63,035,937
                
                
                42,296,988**GROSS
                    PROFIT**
                
                
                4,590,371
                
                
                3,073,098
                
                
                12,665,244
                
                
                7,704,239**OPERATING
                    EXPENSES**Selling
                    expenses
                
                
                563,971
                
                
                167,976
                
                
                1,210,063
                
                
                493,686General
                    and administrative expenses
                
                
                1,626,375
                
                
                852,424
                
                
                4,625,257
                
                
                2,558,587**Total
                    operating expenses**
                
                
                2,190,346
                
                
                1,020,400
                
                
                5,835,320
                
                
                3,052,273**INCOME
                    FROM OPERATIONS**
                
                
                2,400,025
                
                
                2,052,698
                
                
                6,829,924
                
                
                4,651,966**OTHER
                    INCOME (EXPENSES)**Interest
                    expense
                
                
                (1,468,592
                )
                
                (680,644
                )
                
                (2,677,546
                )
                
                (942,534
                )Other
                    income (expense)
                
                
                (15,715
                )
                
                21,891
                
                
                (118,167
                )
                
                31,555**Total
                    other income (expenses)**
                
                
                (1,484,307
                )
                
                (658,753
                )
                
                (2,795,713
                )
                
                (910,979
                )**INCOME
                    BEFORE INCOME TAXES AND MINORITY INTEREST**
                
                
                915,718
                
                
                1,393,945
                
                
                4,034,211
                
                
                3,740,987**INCOME
                    TAX EXPENSE**
                
                
                (273,203
                )
                
                (72,880
                )
                
                (841,850
                )
                
                (155,203
                )**INCOME
                    BEFORE MINORITY INTEREST**
                
                
                642,515
                
                
                1,321,065
                
                
                3,192,361
                
                
                3,585,784**LESS
                    MINORITY INTEREST**
                
                
                (4,666
                )
                
                —
                
                
                (1,417
                )
                
                —**NET
                    INCOME**
                
                
                647,181
                
                
                1,321,065
                
                
                3,193,778
                
                
                3,585,784**OTHER
                    COMPREHENSIVE INCOME**Foreign
                    currency translation gain
                
                
                107,469
                
                
                269,424
                
                
                1,818,706
                
                
                720,130**COMPREHENSIVE
                    INCOME**
                
                $
                754,650
                
                $
                1,590,489
                
                $
                5,012,484
                
                $
                4,305,914**EARNINGS
                    PER SHARE**Net
                    income per shareBasic
                
                $
                0.05
                
                $
                0.25
                
                $
                0.27
                
                $
                0.67Diluted
                
                $
                0.05
                
                $
                0.16
                
                $
                0.27
                
                $
                0.36Weighted
                    average shares outstanding during the periodBasic
                
                
                11,914,825
                
                
                5,388,201
                
                
                11,692,604
                
                
                5,388,201Diluted
                
                
                12,002,908
                
                
                11,962,285
                
                
                11,715,332
                
                
                11,575,752
 
 The
          accompanying notes are an integral part of these
          statements.
  5
 *Table
              of Contents*
 
 **EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**
 **(UNAUDITED)**
 
 Nine
                    months ended
                  September
                    30,2008
                
                2007**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    income
                
                $
                3,193,778
                
                $
                3,585,784Adjustments
                    to reconcile net income to cash provided by operating
                    activities:Minority
                    interest
                
                
                (1,417
                )
                
                —Depreciation
                
                
                666,233
                
                
                629,793Amortization
                
                
                48,213
                
                
                38,926Beneficial
                    conversion feature
                
                
                —
                
                
                454,545Amortization
                    of discount on convertible notes
                
                
                1,934,028
                
                
                113,754Amortization
                    of deferred financing costs
                
                
                318,196
                
                
                20,210Common
                    stock issued for interest
                
                
                2,155
                
                
                —Stock
                    Compensation
                
                
                12,855
                
                
                —Changes
                    in operating assets and liabilitiesAccounts
                    receivable
                
                
                (3,306,125
                )
                
                89,336Accounts
                    receivable - related parties
                
                
                153,420
                
                
                1,476,411Inventories
                
                
                (597,330
                )
                
                82,364Other
                    receivable and prepaid expenses
                
                
                (631,466
                )
                
                (75,327
                )Other
                    receivable - related parties
                
                
                (37,823
                )
                
                —Advance
                    on inventory purchase
                
                
                (332,988
                )
                
                —Advance
                    on inventory purchase - related party
                
                
                (4,059,141
                )
                
                —Accounts
                    payable
                
                
                3,913,514
                
                
                305,706Accounts
                    payable - related companies
                
                
                (104,027
                )
                
                (1,522,087
                )Trade
                    notes payable
                
                
                411,556
                
                
                —Other
                    payables and accrued liabilities
                
                
                435,963
                
                
                (1,638,729
                )Value
                    added tax payables
                
                
                181,054
                
                
                (19,821
                )Income
                    tax and other tax payables
                
                
                268,334
                
                
                52,964Net
                    cash provided by operating activities
                
                
                2,468,982
                
                
                3,593,829**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Investment
                    in New Tailun
                
                
                —
                
                
                (2,000,000
                )Investment
                    in La Chapelle
                
                
                (1,397,700
                )
                
                —Purchase
                    of property and equipment
                
                
                (800,669
                )
                
                (527,254
                )Proceeds
                    from sale of equipment
                
                
                37,019
                
                
                714,213Net
                    cash used in investing activities
                
                
                (2,161,350
                )
                
                (1,813,041
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceed
                    from sales of convertible notes, net
                
                
                —
                
                
                1,757,480Advances
                    from related parties
                
                
                453,715
                
                
                980,544Repayment
                    to related parties
                
                
                (200,000
                )
                
                (740,984
                )Contribution
                    from minority shareholders
                
                
                553,040
                
                
                —Proceeds
                    from bank loan
                
                
                11,354,904
                
                
                5,211,183Repayment
                    of bank loan
                
                
                (10,695,402
                )
                
                (7,165,377
                )Repayment
                    of long term loan - related party under common control
                
                
                (1,844,164
                )
                
                —Exercise
                    of warrants
                
                
                219,635
                
                
                —Net
                    cash (used in) provided by financing activities
                
                
                (158,272
                )
                
                42,846**EFFECT
                    OF EXCHANGE RATE ON CASH**
                
                
                91,449
                
                
                (570,896
                )**NET
                    INCREASE IN CASH AND CASH EQUIVALENTS**
                
                
                240,809
                
                
                1,252,738**CASH
                    AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
                
                
                641,739
                
                
                897,093**CASH
                    AND CASH EQUIVALENTS AT END OF PERIOD**
                
                $
                882,548
                
                $
                2,149,831**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION**Cash
                    paid during the period for:Interest
                    expense
                
                $
                295,562
                
                $
                198,890Income
                    taxes
                
                $
                573,557
                
                $
                102,955
 
 The
          accompanying notes are an integral part of these statements.
  6
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **NOTE
          1 - ORGANIZATION AND BASIS OF PRESENTATION**
 
 Ever-Glory
          International Group, Inc. (“Ever-Glory”) was incorporated in Florida on October
          19, 1994. All of its businesses are operated through its subsidiaries in
          the
          People’s Republic of China (“PRC”).
 
 Perfect
          Dream Limited (“Perfect Dream”), a wholly owned subsidiary of Ever-Glory, was
          incorporated in the British Virgin Islands on July 1, 2004.
 
 Goldenway
          Nanjing Garments Co. Ltd. (“Goldenway”), a wholly owned subsidiary of Perfect
          Dream, was incorporated in the PRC on December 31, 1993. Goldenway is
          principally engaged in the manufacturing and sale of garments.
 
 Nanjing
          New-Tailun Garments Co. Ltd. (“New-Tailun’), a wholly owned subsidiary of
          Perfect Dream, was incorporated in the PRC on March 27, 2006. New-Tailun
          is
          principally engaged in the manufacturing and sale of garments.
 
 Nanjing
          Catch-Luck Garments Co, Ltd. (“Catch-Luck”), a wholly owned subsidiary of
          Perfect Dream, was incorporated in the PRC on December 21, 1995. On January
          18,
          2006, Catch-Luck became a wholly owned foreign enterprise after its acquisition
          by Perfect Dream. Catch-Luck is principally engaged in the manufacture
          and sale
          of garments to customers located in Europe and Japan.
 
 Shanghai
          LA GO GO Fashion Company Limited (“LA GO GO”), a joint venture of Goldenway and
          Shanghai La Chapelle Garment and Accessories Company Limited (“La Chapelle”),
          was incorporated in the PRC on January 24, 2008. Goldenway invested
          approximately $826,200 (RMB 6.0 million) in cash, and La Chapelle invested
          approximately $553,040 (RMB 4.0 million) in cash, for a 60% and 40% ownership
          interest, respectively, in the joint venture. The business objective of
          the
          joint venture is to establish and create a leading brand of ladies’ garments for
          the mainland Chinese market. As of September 30, 2008, LA GO GO opened
          55 retail
          stores in China to sell its own brand clothing.
 
 Ever-Glory,
          Perfect Dream, Goldenway, New-Tailun, Catch-Luck, and LA GO GO are hereinafter
          referred to as (the ”Company”).
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
          of Consolidation**
 
 The
          consolidated financial statements include our parent company and all
          subsidiaries are prepared in accordance with accounting principles generally
          accepted in the United States of America (“GAAP”). All significant transactions
          among our businesses have been eliminated.
 
 **Use
          of Estimates and Assumptions**
 
 In
          preparing the consolidated financial statements in conformity with GAAP,
          we use
          certain estimates and assumptions that affect the reported amount and
          disclosure. For example, the Company estimates its potential losses on
          uncollectible receivables. Management believes that the estimates utilized
          in
          preparing its financial statements are reasonable and prudent. Actual results
          could differ from these estimates.
  7
 *Table
              of Contents*
 
 EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 Management
          has included all normal recurring adjustments considered necessary to give
          a
          fair presentation of operating results for the periods presented. Interim
          results are not necessarily indicative of results for a full year. The
          information included in this Form 10-Q should be read in conjunction with
          information included in the 2007 annual report filed on Form 10-K.
 
 **Cash
          and Cash Equivalents**
 
 For
          purpose of the statements of cash flows, cash and cash equivalents include
          cash
          on hand and demand deposits with a bank with original maturities within
          three
          months.
 
 **Accounts
          Receivable**
 
 The
          Company extends unsecured credits to its customers in the ordinary course
          of
          business but mitigates the associated risks by performing credit checks
          and
          actively pursuing past due accounts. An allowance for doubtful accounts
          is
          established and recorded based on managements’ assessment of the credit history
          with the customer and current business relationships with them. The Company
          writes off accounts receivable when amounts are deemed uncollectible and
          will
          remove the receivable and the related reserve at that time.
 
 As
          of
          September 30, 2008 and December 31, 2007, the Company considers all its
          accounts
          receivable to be collectable and no provision for doubtful accounts has
          been
          made in the consolidated financial statements.
 
 **Inventories**
 
 Manufactured
          inventories are stated at lower of cost or market value, cost being determined
          on a specific identification method. The Company manufactures products
          upon
          receipt of orders from its customers. All the products must pass the customers’
quality assurance procedures before its delivery. Therefore, the products
          are
          rarely returned by our customers after delivery.
 
 Retail
          merchandise inventories are stated at the lower of average cost or market
          The
          Company has a limited history of retail operations, but to date, returns
          have
          been insignificant. The Company will continue to evaluate the need for
          a returns
          reserve each reporting period.
 
 **Long-Lived
          Assets**
 
 The
          Company accounts for long-lived assets under the Statements of Financial
          Accounting Standards (“SFAS”) No. 142 “Accounting for Goodwill and Other
          Intangible Assets” and SFAS No. 144 “Accounting for Impairment or Disposal of
          Long-Lived Assets”. In accordance with SFAS No. 142 and SFAS No.144, long-lived
          assets, goodwill and certain identifiable intangible assets held and used
          by the
          Company are reviewed for impairment at least annually or more often whenever
          events or changes in circumstances indicate that the carrying amount of
          an asset
          may not be recoverable. For purposes of evaluating the recoverability of
          long-lived assets, when undiscounted future cash flows will not be sufficient
          to
          recover an asset’s carrying amount, the asset is written down to its fair value.
          As of September 30, 2008, the Company expected these assets to be fully
          recoverable.
  8
 *Table
              of Contents*
 
 EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Property
          and Equipment**
 
 Property
          and equipment are stated at cost, less accumulated depreciation. Expenditures
          for additions, major renewals and betterments are capitalized and expenditures
          for maintenance and repairs are charged to expense as incurred.
 
 Depreciation
          is provided on a straight-line basis, less an estimated residual value
          over the
          assets’ estimated useful lives. The estimated useful lives are as
          follows:
 
 Property
                    and plant
                15-20 YearsLeasehold
                    improvements
                10 YearsMachinery
                    & Equipment
                10 YearsOffice
                    equipment and furniture
                5 YearsMotor
                    vehicles
                5 Years
 
 **Intangible
          Assets**
 
 All
          land
          in the PRC is owned by the government and cannot be sold to any individual
          or
          company. However, the government may grant “land use rights” to occupy, develop
          and use land. The Company records the land use rights obtained as intangible
          assets.
 
 **Investment
          in Subsidiary**
 
 Investment
          in equity ownership lower than 20% is recorded using the cost method. The
          carrying value of the investments is reviewed periodically for impairment.
          As of
          September 30, 2008, the Company expected the long-term investment to be
          fully
          recoverable.
 
 **Fair
          Value of Financial Instruments**
 
 On
          January 1, 2008, the Company adopted SFAS No. 157. SFAS No. 157, Fair Value
          Measurements, defines fair value, establishes a three-level valuation hierarchy
          for disclosures of fair value measurement and enhances disclosures requirements
          for fair value measures. The carrying amounts reported in the balance sheets
          for
          current assets and current liabilities qualify as financial instruments
          are a
          reasonable estimate of fair value because of the short period of time between
          the origination of such instruments and their expected realization and
          their
          current market rate of interest. The three levels are defined as
          follow:
 
 ·
                Level
                    1 - inputs to the valuation methodology are quoted prices (unadjusted)
                    for
                    identical assets or liabilities in active
                    markets.
 
 ·
                Level
                    2 - inputs to the valuation methodology include quoted prices
                    for similar
                    assets and liabilities in active markets, and inputs that are
                    observable
                    for the assets or liability, either directly or indirectly, for
                    substantially the full term of the financial
                    instruments.
 
 ·
                Level
                    3 - inputs to the valuation methodology are unobservable and
                    significant
                    to the fair value.
  9
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 The
          carrying value of cash and cash equivalents, accounts receivable (trade
          and
          others), accounts payable (trade and related party) and accrued liabilities
          approximate their fair value because of the short-term nature of these
          instruments. The Company places its cash and cash equivalents with what
          it
          believes to be high credit quality financial institutions. The Company
          has a
          diversified customer base, most of which are in Europe, Japan, the United
          States
          (U.S.) and the PRC. The Company controls credit risk related to accounts
          receivable through credit approvals, credit limit and monitoring procedures.
          The
          Company routinely assesses the financial strength of its customers and,
          based
          upon factors surrounding the credit risk, establishes an allowance, if
          required,
          for uncollectible accounts and, as a consequence, believes that its accounts
          receivable credit risk exposure beyond such allowance is limited.
 
 The
          Company analyzes all financial instruments with features of both liabilities
          and
          equity under SFAS No. 150, “Accounting for Certain Financial Instruments with
          Characteristics of Both Liabilities and Equity,” SFAS No. 133, “Accounting for
          Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
          Derivative Financial Instruments Indexed to, and Potentially Settled in,
          a
          Company’s Own Stock.” During 2007, the Company issued 6% secured convertible
          debentures in a face amount of $2,000,000 which are due and payable in
          full in 2
          years from their issuance. As fixed prices are set for the conversion prices
          of
          such convertible debentures and the attached warrants, the Company is in
          a
          position to be sure it had adequate authorized shares for the future conversion
          of convertible debentures and warrants. Therefore, no embedded derivatives
          or
          warrants were required to be recorded at fair value and marked-to-market
          at each
          reporting period.
  **Beneficial
          Conversion Feature of Convertible Notes**
 
 The
          Company accounted for the secured convertible notes issued pursuant to
          the
          subscription agreement discussed in Note 9 under EITF 00-27, ‘‘Application of
          Issue 98-5 to Certain Convertible Instruments’’.   Based on EITF
          00-27, the Company has determined that the convertible notes contained
          a
          beneficial conversion feature because at August 2, 2007, the effective
          conversion price of the convertible notes was $1.10 when the market value
          per
          share was $2.70.
 
 A
          discount was recorded on the secured convertible notes. The amount of the
          discount was calculated to be the intrinsic value of the beneficial conversion
          feature and the fair value of the warrants issued pursuant to the terms
          of the
          subscription agreement discussed in Note 11.
 
 **Revenue
          and Cost Recognition**
 
 The
          Company recognizes revenue, net of value added taxes, upon delivery for
          local
          sales and upon shipment of the products for export sales, at which time
          title
          passes to the customer provided that there are no uncertainties regarding
          customer acceptance, persuasive evidence of an arrangement exists, the
          sales
          price is fixed and determinable; and collectability is deemed probable.
 
 Local
          transportation and unloading charges and product inspection charges are
          included
          in selling expenses and totaled $15,973 and $42,650 for the three month
          period
          ended September 30, 2008 and 2007, respectively, and $82,267 and $158,940
          for
          the nine month period September 30, 2008 and 2007, respectively.
 
 Cost
          of
          goods sold includes the direct raw material cost, direct labor cost,
          manufacturing overheads including depreciation of production equipment
          and rent
          consistent with the revenue earned.
  10
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Income
          Taxes**
 
 The
          Company accounts for income taxes under the SFAS No. 109, “Accounting for Income
          Taxes”. Under SFAS No. 109, deferred tax assets and liabilities are recognized
          for the future tax consequences attributable to differences between the
          financial statement carrying amounts of existing assets and liabilities
          and
          their respective tax bases. Deferred tax assets and liabilities are measured
          using enacted tax rates expected to apply to taxable income in the years
          in
          which those temporary differences are expected to be recovered or settled.
          Under
          SFAS No. 109, the effect on deferred tax assets and liabilities of a change
          in
          tax rates is recognized in income in the period that included the enactment
          date.
 
 The
          Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
          Taxes” (“FIN 48”) as of January 1, 2007. A tax position is recognized as a
          benefit only if it is “more likely than not” that the tax position would be
          sustained in a tax examination, with a tax examination being presumed to
          occur.
          The amount recognized is the largest amount of tax benefit that is greater
          than
          50% likely of being realized on examination. For tax positions not meeting
          the
“more likely than not” test, no tax benefit is recorded. The adoption had no
          effect on the Company’s consolidated financial statements.
 
 The
          charge for taxation is based on the results for the year as adjusted for
          items,
          which are non-assessable or disallowed. It is calculated using tax rates
          that
          have been enacted or substantively enacted by the balance sheet date. Deferred
          tax is accounted for using the balance sheet liability method in respect
          of
          temporary differences arising from differences between the carrying amount
          of
          assets and liabilities in the financial statements and the corresponding
          tax
          basis used in the computation of assessable tax profit. In principle, deferred
          tax liabilities are recognized for all taxable temporary differences, and
          deferred tax assets are recognized to the extent that it is probably that
          taxable profit will be available against which deductible temporary differences
          can be utilized.
 
 Deferred
          tax is calculated at the tax rates that are expected to apply to the period
          when
          the asset is realized or the liability is settled. Deferred tax is charged
          or
          credited in the income statement, except when it related to items credited
          or
          charged directly to equity, in which case the deferred tax is also dealt
          with in
          equity. Deferred tax assets and liabilities are offset when they relate
          to
          income taxes levied by the same taxation authority and the Company intends
          to
          settle its current tax assets and liabilities on a net basis.
 
 **China
          Income Tax**
 
 The
          Company’s subsidiaries are governed by the Income Tax Law of the PRC concerning
          Foreign Investment Enterprises and Foreign Enterprises and various local
          income
          tax laws (the Income Tax Laws).
 
 Beginning
          January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the old
          laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
          (“FIEs”).
 
 The
          key
          changes are:
 
 a.
                The
                    new standard EIT rate of 25% replaces the 33% rate applicable
                    to both DES
                    and FIEs, except for High Tech companies that pay a reduced rate
                    of
                    15%;
  11
 *Table
              of Contents*
 
 EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 b.
                Companies
                    established before March 16, 2007 continue to enjoy tax holiday
                    treatment
                    approved by local government for a grace period of either for
                    the next 5
                    years or until the tax holiday term is completed, whichever is
                    sooner.
 
 The
          Company and its subsidiaries were established before March 16, 2007 and
          therefore are qualified to continue enjoying the reduced tax rate as described
          above.
 
 Upon
          approval by the PRC tax authorities, FIEs' scheduled to operate for a period
          of
          10 years or more and engaged in manufacturing and production may by exempt
          from
          income taxes for two years, commencing with their first profitable year
          of
          operations, after taking into account any losses brought forward from prior
          years, and thereafter with a 50% reduction for the subsequent three
          years.
  Goldenway
          has profit for more than five years, so from this year its income tax rate
          is
          25%.
 
 New-Tailun
          and Catch-Luck were approved as wholly foreign-owned enterprises in 2006.
          This
          entity status allows New-Tailun and Catch-Luck a two-year income tax exemption
          beginning from the first year of profitability, and a 50% income tax reduction
          for the three years thereafter. New Tailun and Catch-Luck are entitled
          to the
          income tax exemptions for 2006 and 2007 and 50% income tax reduction that
          is
          12.50% for the calendar years ended December 31, 2008, 2009 and
          2010.
 
 LA
          GO GO
          was established on January 24, 2008, its income tax rate is 25%.
 
 **Other
          Comprehensive Income**
 
 The
          reporting currency of the Company is the U.S. dollar. The functional currency
          of
          Ever-Glory and Perfect Dream is the US dollar. The functional currency
          of
          Goldenway, New-Tailun Catch-Luck and LA GO GO is the Chinese RMB.
 
 For
          the
          subsidiaries with the functional currency of RMB, all assets and liabilities
          accounts were translated at the exchange rate on the balance sheet date;
          stockholder's equity are translated at the historical rates and items in
          the
          statement of operations items are translated at the average rate for the
          period.
          Translation adjustments resulting from this process are included in accumulated
          other comprehensive income in the statement of stockholders’ equity. The
          resulting translation gains and losses that arise from exchange rate
          fluctuations on transactions denominated in a currency other than the functional
          currency are included in the results of operations as incurred. Items in
          the
          cash flow statement are translated at the average exchange rate for the
          period.
 
 Translation
          adjustments resulting from this process included in accumulated other
          comprehensive income in the consolidated statement of stockholders’ equity
          amounted to $3,895,066
          and $2,076,360 as of
          September 30, 2008 and December 31, 2007, respectively. Assets and liabilities
          at September 30, 2008 and December 31, 2007 were translated at 6.84 RMB
          and 7.29
          RMB to $1.00, respectively. The average translation rates applied to income
          statement accounts and statement of cash flows for the three months ended
          September 30, 2008 and 2007 were 6.83 RMB and 7.57 RMB to $1.00, respectively,
          and for the nine months ended September 30, 2008 and 2007 were 6.97 RMB
          and 7.68
          RMB to $1.00, respectively. As a result, amounts related to assets and
          liabilities reported on the statement of cash flows will not necessarily
          agree
          with changes in the corresponding balances on the balance
          sheet.
  12
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Earnings
          Per Share**
 
 The
          Company reports earnings per share in accordance with the provisions of
          SFAS No.
          128, "Earnings Per Share" (SFAS 128). SFAS 128 requires presentation of
          basic
          and diluted earnings per share in conjunction with the disclosure of the
          methodology used in computing such earnings per share. Basic earnings per
          share
          excludes dilution and is computed by dividing income available to common
          stockholders by the weighted average common shares outstanding during the
          period. Diluted earnings per share takes into account the potential dilution
          that could occur if securities or other contracts to issue common stock
          were
          exercised and converted into common stock. Further, according to SFAS 128,
          if
          the number of common shares outstanding increase as a result of a stock
          dividend
          or stock split or decrease as a result of a reverse stock split, the
          computations of a basic and diluted EPS shall be adjusted retroactively
          for all
          periods presented to reflect that change in capital structure.
 
 **Minority
          Interest**
  Minority
          interest consists of Shanghai La Chapelle Garment and Accessories Company
          Limited’s (“La Chapelle”) 40% interest in LA GO GO. As of September 30, 2008 and
          December 31, 2007, minority interest amounted to $551,623
          and $0, respectively.
 
 **Recent
          Accounting Pronouncements**
 
 In
          February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
          Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
          choose to measure many financial instruments and certain other items at
          fair
          value that are not currently required to be measured at fair value. The
          SFAS 159
          became effective for us on January 1, 2008. The Company chose not to elect
          the
          option to measure the fair value of eligible financial assets and liabilities.
 
 In
          December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
          Consolidated Financial Statements - an amendment of Accounting Research
          Bulletin
          No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
          ownership interests ** in
          subsidiaries held by parties other than the parent, the amount of consolidated
          net income attributable to the parent and to the noncontrolling interest,
          changes in a parent’s ownership interest and the valuation of retained
          non-controlling equity investments when a subsidiary is deconsolidated.
          The
          Statement also establishes reporting requirements that provide sufficient
          disclosures that clearly ** identify
          and distinguish between the interests of the parent and the interests of
          the
          non-controlling owners. SFAS 160 is effective for ** fiscal
          years beginning after December 15, 2008. The Company has not determined
          the
          effect that the application of SFAS 160 will ** have
          on
          its consolidated financial statements.
 
 In
          December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
          to all transactions or other events in which an entity obtains control
          of one or
          more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
          consideration. This statement replaces FASB Statement No. 141 and applies
          to all
          business entities, including mutual entities that previously used the
          pooling-of-interests method of accounting for some business combinations.
          The
          Company believes that adoption of the SFAS 141R will have a material effect
          on
          future acquisitions.
  13
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 In
          May
          2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
          Accounting Principles.” This Statement identifies the sources of accounting
          principles and the framework for selecting the principles to be used in
          the
          preparation of financial statements of nongovernmental entities that are
          presented in conformity with GAAP in the United States (the GAAP hierarchy).
          This Statement will not have any impact on the Company’s consolidated financial
          statements.
  In
          May
          2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
          Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
          this Statement is limited to financial guarantee insurance (and reinsurance)
          contracts, as described in this Statement, issued by enterprises included
          within
          the scope of Statement 60. Accordingly, this Statement does not apply to
          financial guarantee contracts issued by enterprises excluded from the scope
          of
          Statement 60 or to some insurance contracts that seem similar to financial
          guarantee insurance contracts issued by insurance enterprises (such as
          mortgage
          guaranty insurance or credit insurance on trade receivables). This Statement
          also does not apply to financial guarantee insurance contracts that are
          derivative instruments included within the scope of FASB Statement No.
          133,
“Accounting for Derivative Instruments and Hedging Activities.” This Statement
          will not have any impact on the Company’s consolidated financial
          statements.
 
 In
          June
          2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
          an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
          No. 07-5”). This Issue is effective for financial statements issued for fiscal
          years beginning after December 15, 2008, and interim periods within those
          fiscal
          years. Early application is not permitted. Paragraph 11(a) of Statement
          of
          Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
          Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
          definition of a derivative but is both (a) indexed to the Company’s own
          stock and (b) classified in stockholders’ equity in the statement of
          financial position would not be considered a derivative financial instrument.
          EITF No.07-5 provides a new two-step model to be applied in determining
          whether
          a financial instrument or an embedded feature is indexed to an issuer’s own
          stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
          This standard triggers liability accounting on all options and warrants
          exercisable at strike prices denominated in any currency other than the
          functional currency of the operating entity in China (Renminbi). The Company
          is
          currently evaluating the impact of adoption of EITF No. 07-5 on the Company’s
          consolidated financial statements.
 
 In
          June
          2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
          Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
          is to provide transition guidance for conforming changes made to EITF No.
          98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features
          or
          Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
          150, “Accounting for Certain Financial Instruments with Characteristics of both
          Liabilities and Equity”. This Issue is effective for financial statements issued
          for fiscal years ending after December 15, 2008. Early application is
          permitted. Management is currently evaluating the impact of adoption of
          EITF No. 08-4 on the accounting for the convertible notes and related warrants
          transactions.
 
 On
          October 10, 2008, the FASB issued FASB Staff Position (FSP) No.157-3,
“Determining the Fair Value of a Financial Asset When the Market for That
          Asset
          Is Not Active,” which clarifies the application of SFAS 157 in a market that is
          not active and provides an example to illustrate key considerations in
          determining the fair value of a financial asset when the market for that
          financial asset is not active. FSP 157-3 became effective October 10, 2008,
          and
          its adoption did not have a material impact on the Company’s financial position
          or results for the quarter ended September 30, 2008.
  14
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Reclassifications**
 
 Certain
          prior period amounts have been reclassified to conform to current period
          presentation. These reclassifications did not have a material effect on
          the
          accompanying financial statements.
 
 **Note
          3 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW**
 
 The
          Company prepares its statements of cash flows using the indirect method
          as
          defined under the SFAS 95. The following information relates to non-cash
          investing and financing activities for the nine months ended September
          2008 and
          2007.
 
 During
          the nine months ended September 30, 2008, investors of the convertible
          notes
          (See Note 11 for details) converted $1,950,000 of principal plus accrued
          interest of $2,155 into 887,348 shares of common stock of the Company.
          The
          Company issued warrants valued at $130,082 to the private placement agent
          in
          January 2008 in conjunction with the convertible notes.
 
 **NOTE
          4 - ACCOUNTS RECEIVABLE**
 
 Accounts
          receivable at September 30, 2008 and December 31, 2007 consisted of the
          following:
 
 2008
                
                2007(unaudited)Accounts
                    receivable
                
                $
                17,296,013
                
                $
                13,035,299Less:
                    allowance for doubtful accounts
                
                
                —
                
                
                —Accounts
                    receivable
                
                $
                17,296,013
                
                $
                13,035,299
 
 As
          of
          September 30, 2008 and December 31, 2007, the Company considered all accounts
          receivable collectable and did not record a provision for doubtful accounts.
 
 **NOTE
          5 - INVENTORIES**
 
 Inventories
          at September, 30 2008 and December 31, 2007 consisted of the
          following:
 
 2008
                
                2007(unaudited)Raw
                    materials
                
                $
                192,173
                
                $
                304,178Work-in-progress
                
                
                311,824
                
                
                338,599Finished
                    goods
                
                
                2,129,862
                
                
                1,254,246Inventories
                
                $
                2,633,859
                
                $
                1,897,023
 
 **NOTE
          6 –INVESTMENT IN SUBSIDIARY**
 
 On
          January 9, 2008, Goldenway entered into a Capital Contribution Agreement
          (“Capital Contribution Agreement”) with La Chapelle, a Shanghai-based garment
          maker, and several shareholders of La Chapelle. Under the terms of the
          Capital
          Contribution Agreement, Goldenway agreed to invest approximately $1.46
          million
          in cash (10 million RMB) for a 10% ownership interest in La Chapelle. This
          investment is accounted for using the cost method.
  15
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **NOTE
          7 - LAND USE RIGHTS**
 
 On
          September 24, 2006, the Company obtained a fifty-year land use right on
          112,442
          square meters of land in the Nanjing Jiangning Economic and Technological
          Development Zone.
 
 Land
          use
          rights at September 30, 2008 and December 31, 2007 consisted of the
          following:
 
 2008
                
                2007(Unaudited)Land
                    use rights
                
                $
                3,060,445
                
                $
                2,867,991Less:
                    accumulated amortization
                
                
                (197,321
                )
                
                (138,808
                )Land
                    use rights, net
                
                $
                2,863,124
                
                $
                2,729,183
 
 Amortization
          expense was $16,414 and $11,669 for the three months ended September 30,
          2008
          and 2007 respectively, and $48,213 and $38,926 for the nine months ended
          September 30, 2008 and 2007, respectively.
 
 **NOTE
          8 - PROPERTY AND EQUIPMENT**
 
 The
          following is a summary of property and equipment at September 30, 2008
          and
          December 31, 2007:
  2008
                
                2007(Unaudited)Property
                    and plant
                
                $
                11,824,887
                
                $
                11,354,623Equipment
                    and machinery
                
                
                4,065,134
                
                
                3,128,928Office
                    equipment and furniture
                
                
                275,092
                
                
                208,327Motor
                    vehicles
                
                
                208,728
                
                
                165,393Leasehold
                    improvement
                
                
                362,107
                
                
                —Construction
                    in progress
                
                
                18,386
                
                
                3,51916,754,334
                
                
                14,860,790Less:
                    accumulated depreciation
                
                
                3,699,317
                
                
                2,719,887Property
                    and equipment, net
                
                $
                13,055,017
                
                $
                12,140,903
 
 Depreciation
          expense was $212,033 and $219,858 for the three months ended September
          30, 2008
          and 2007 respectively and $666,233 and $629,793 for the nine months ended
          September 30, 2008 and 2007 respectively. For the three and nine months
          ended
          September 30, 2008 and 2007, no interest was capitalized.
 
 **NOTE
          9 - OTHER PAYABLES AND ACCRUED LIABILITIES**
 
 Other
          payables and accrued liabilities at September 30, 2008 and December 31,
          2007
          consisted of the following:
 
 2008
                
                2007(Unaudited)Building
                    construction costs payable
                
                $
                672,244
                
                $
                390,207Accrued
                    professional fees
                
                
                291,277
                
                
                252,495Accrued
                    wages and welfare
                
                
                468,296
                
                
                337,995Other
                    payables
                
                
                150,304
                
                
                88,985Other
                    payables and accrued liabilities
                
                $
                1,582,121
                
                $
                1,069,682
 
  16
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **NOTE
          10 - BANK LOANS**
 
 Bank
          loans represent amounts due to various banks and are due on demand or normally
          within one year. These loans generally can be renewed with the banks. As
          of
          September 30, 2008 and December 31, 2007, Short term bank loans consisted
          of the
          following:
 
 2008
                
                2007(Unaudited)Bank
                    loan, interest rate at 0.5442% per monthdue
                    February 9, 2008; paid in full, January 2008.
                
                $
                —
                
                $
                1,371,000Bank
                    loan, interest rate at 0.58482% per monthdue
                    May 11, 2008
                
                
                —
                
                
                685,500Bank
                    loan, interest rate at 0.58482% per monthdue
                    June 2, 2008
                
                
                —
                
                
                1,371,000Bank
                    loan, interest rate at 0.58482% per monthdue
                    June 12, 2008
                
                
                —
                
                
                1,371,000Bank
                    loan, interest rate at 0.60225% per monthdue
                    Feb 18, 2009
                
                
                5,793,480
                
                
                —Total
                    bank loans
                
                $
                5,793,480
                
                $
                4,798,500
  These
          bank loans are with Nanjing Bank, and are all collateralized by land use
          rights
          and buildings of the Company.
 
 Total
          interest expense on the bank loans was $76,481 and $49,761 for the three
          months
          ended September 30, 2008 and 2007, respectively, and $220,827 and $177,822
          for
          the nine months ended September 30, 2008 and 2007, respectively.
 
 **NOTE
          11 - CONVERTIBLE NOTES PAYABLE**
 
 On
          August
          2, 2007, the Company consummated a private placement of $2,000,000 principal
          amount of 6% secured convertible notes with five-year common stock warrants
          to
          six accredited investors. Financing cost of $242,520 was paid out of the
          gross
          proceeds. Pursuant to APB 21, financing cost is amortized over the life
          of the
          notes to interest expense using the effective interest method. For the
          three and
          nine months ended September 30, 2008, the Company amortized $128,839 and
          $189,469 of financing costs to interest expense.
 
 The
          secured convertible notes are due August 2, 2009 and were originally convertible
          into 9,090,909 shares of common stock of the Company at a conversion price
          of
          $0.22 per share. In November 2007, a 10:1 reverse stock split was made
          effective
          on its common stock. Accordingly, the number of shares of common stock
          convertible from the notes was adjusted to 909,091 at a conversion price
          of
          $2.20 per share.
  17
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 The
          secured convertible notes are subject to full-ratchet anti-dilution protection,
          i.e. if the Company issues shares at an average per-share price below $2.20
          per
          share, the conversion price of the notes shall be adjusted downward to
          match the
          lower per-share price. Under the terms of the notes, the full-ratchet
          anti-dilution adjustments do not apply to (i) shares issued upon conversion
          of
          options under for a future stock option plan (ii) shares issued to third
          parties
          for acquisitions valued above $8 million; (iii) shares issued to non-affiliates
          for services rendered to the Company. The holders of the notes may convert
          the
          unpaid principal amount of the notes into common stock of the Company at
          any
          time prior to maturity, at the applicable conversion price. The Company
          may at
          any time at its option, redeem the notes by paying 125% of the unpaid principal
          and accrued interest.
 
 The
          Company issued warrants to the investors in the note financing, for the
          purchase
          of up to a total of 909,091 shares of common stock at an exercise price
          of
          $3.20.  The warrants are exercisable through September 29, 2013. The
          warrants are also subject to full-ratchet anti-dilution protection in the
          event
          that the Company issues shares (with certain exceptions) at an average
          per-share
          price below $3.20 per share, same as the notes. The registration statement
          was
          effective June 6, 2008. As of September 30, 2008, 68,636 shares of common
          stock
          were issued for exercise of warrants.
 
 The
          secured convertible notes are secured by all of the assets of the Company,
          excluding its subsidiaries. Pursuant to a security agreement, the Company’s
          performance of the notes and other obligations in connection with the financing
          is also secured by a pledge of 390 shares Preferred Stock (was converted
          into
          2,961,720 shares of common stock on November 30, 2007) personally held
          by the
          current CEO of the Company pursuant to a stock pledge agreement. Upon any
          event
          of default (as defined in the notes, the security agreement and the stock
          pledge
          agreement), the investors will be entitled to exercise their respective
          rights
          under the security agreement and stock pledge agreement. In addition, the
          subsidiaries of the Company, Perfect Dream and Goldenway, each guaranteed
          the
          performance of the Company’s obligations under the notes and the subscription
          agreement under a guaranty agreement.
 
 On
          the
          issuance date, the Company recorded a discount on the note related to the
          intrinsic value of the beneficial conversion feature totaling $943,797
          and
          $1,056,203 for the fair value of the warrants issued. The fair value of
          warrants
          was calculated using the Binomial model with the following assumptions:
          (i)
          risk-free interest rate of 4.62%; (ii) expected life (in years) of 6; (iii)
          expected volatility of 112%; (iv) expected dividend yield of 0.00%; and
          (v)
          stock market price of $2.70. The discount on notes payable is amortized
          using
          effective interest method over 2 years. For the three months and nine months
          ended September 30, 2008, the Company recorded amortization of $1,152,227
          and
          $1,934,028 as interest expense and for the three and nine months ended
          September
          30, 2007, the Company recorded amortization of $568,299 and $568,299 as
          interest
          expense in the statement of operations.
 
 As
          of
          September 30, 2008, the note holders had converted $1,950,000 of principal
          plus
          accrued interest of $2,155 into 887,348 shares of common stock of the Company.
          Due to the conversion, the Company recorded $1,152,227 of unamortized discount
          as interest expense for the period ended September 30, 2008.
 
 The
          secured convertible notes bear a 6% annual interest rate payable in arrears
          on
          the last business day of each calendar quarter thereafter and on the maturity
          date. For the three and nine months ended September 30, 2008, $12,674 and
          $58,659 were recorded as interest expense,and for the three and nine months
          ended September 30, 2007, $19,068 and $19,068 were recorded as interest
          expense
          respectively.
  18
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 On
          January 4, 2008, the Company issued 72,728 warrants to the placement agent
          with
          an exercise price of $3.20 per share (“Warrants”). The Warrants expire January
          4, 2011. These warrants were issued in connection with the private placement
          described above. The warrants were valued at $130,082 using the Black Scholes
          Model and will be amortized to interest expense over the life of the convertible
          notes. For the three months and nine months ended September 30, 2008, the
          Company recorded $69,106 and $128,727 for amortization of the debt issuance
          costs as interest expense in the statement of operations,
          respectively.
 
 On
          October 1, 2008, the last convertible notes holder converted $50,000 of
          the
          notes into 22,728 shares of common stock.
 
 **NOTE
          12 - INCOME TAX**
 
 Ever-Glory
          was incorporated in the U.S. and has incurred net operating losses for
          income
          tax purposes for 2008 and 2007. As
          of September 30, 2008, the net operating loss carry forwards for U.S. income
          taxes
          was $526,131 which may be available to reduce future years’ taxable income.
          These carry forwards will expire, if not utilized, through 2028. Management
          believes that the realization of the benefits from these losses appears
          uncertain due to the Company’ limited operating history and continuing losses
          for United States income tax purposes. Accordingly, the Company has provided
          a
          100% valuation allowance on the deferred tax asset benefit to reduce the
          asset
          to zero. The valuation allowance at September 30, 2008 was approximately
          $179,000. Management will review this valuation allowance periodically
          and make
          adjustments as warranted.
 
 Perfect
          Dream was incorporated in the British Virgin Islands and under the current
          laws
          of the British Virgin Islands, is not subject to tax on income or on
          capital.
 
 Goldenway
          was incorporated in the PRC and is subject to PRC income tax laws and
          regulations. The applicable tax rate has been 24%. In 2007, Goldenway is
          entitled to a refund of 50% of any income taxes paid for achieving export
          sales
          in excess of 70% of the total sales in a calendar year. In 2008, Goldenway’s
          income tax rate is 25%.
 
 New-Tailun
          and Catch-Luck were incorporated in the PRC and are subject to PRC income
          tax
          laws and regulations. According to the relevant laws and regulations in
          the PRC,
          enterprises with foreign investment in the PRC are entitled to full exemption
          from income tax for two years beginning from the first year the enterprises
          become profitable and has accumulated profits and a 50% income tax reduction
          for
          the subsequent three years. New-Tailun and Catch-Luck were approved as
          wholly
          foreign-owned enterprises in 2006 and are entitled to the income tax exemptions
          in 2006 and 2007. In 2007, no income tax was recorded by New-Tailun and
          Catch-Luck as these entities were entitled to full exemption from income
          tax.
          Starting from 2008 to 2010, New-Tailun and Catch-Luck are entitled to a
          50%
          reduction of the income tax rate of 25%. Therefore these two subsidiaries
          are
          taxed at 12.5% for the years of 2008, 2009 and 2010.
 
 LA
          GO GO
          was established on January 24, 2008, its income tax rate is 25%.
 
 Provision
          for income tax for the nine months ended September 31, 2008 and 2007 amounted
          to
          $841,850 and $155,203, respectively.
 
 The
          following table reconciles the statutory rates to the Company’s effective tax
          rate for the nine months ended September 30, 2008 and 2007:
  19
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 2008
                
                2007U.S.
                    Statutory rate
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recognized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                25.0
                
                
                33.0China
                    income tax exemption
                
                
                (12.4
                )
                
                (29.0
                )Effective
                    income tax rate
                
                
                12.6
                %
                
                4.0
                %
 
 **Value
          Added Tax**
 
 Enterprises
          or individuals who sell commodities, engage in repair and maintenance or
          import
          and export goods in the PRC are subject to a value added tax, VAT, in accordance
          with Chinese laws. The VAT standard rate is 17% of the gross sales price.
          A
          credit is available whereby VAT paid on the purchases of semi-finished
          products
          or raw materials used in the production of the Company’s finished products can
          be used to offset the VAT due on sales of the finished product.
 
 VAT
          on
          sales and VAT on purchases amounted to $5,499,390 and $4,803,033 for the
          three
          months ended September 30, 2008 and $3,502,331 and $3,041,517 for the three
          months ended September 30, 2007, respectively.
 
 VAT
          on
          sales and VAT on purchases amounted to $12,151,375 and $10,496,886 for
          the nine
          months ended September 30, 2008 and $7,634,927 and $6,814,646 for the nine
          months ended September 30, 2007, respectively.
 
 Sales
          and
          purchases are recorded net of VAT collected and paid as the Company acts
          as an
          agent because the VAT taxes are not impacted by the income tax
          holiday.
  20
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **NOTE
          13 - EARNINGS PER SHARE**
 
 As
          discussed in Note 2, all share and per share amounts used in the Company's
          consolidated financial statements and notes thereto have been retroactively
          restated to reflect the 10-for-1 reverse stock split, which occurred on
          November
          20, 2007.
 
 The
          following demonstrates the calculation for earnings per share for the three
          months and nine months ended September 30:
 For the three months ended
                  
                  For the nine months endedSeptember 30,
                  
                  September 30,2008
                  
                  2007
                  
                  2008
                  
                  2007Net
                      income
                  
                  $
                  647,181
                  
                  $
                  1,321,065
                  
                  $
                  3,193,778
                  
                  $
                  3,585,784Add:
                      interest expense related to convertible notes
                  
                  
                  756
                  
                  
                  587,367
                  
                  
                  2,252
                  
                  
                  587,367Subtract:
                      Unamortized issuance costs and discount on convertible
                      notes
                  
                  
                  (44,350
                  )
                  
                  —
                  
                  
                  (44,350
                  )
                  
                  —Adjusted
                      net income (loss) for calculating EPS-diluted
                  
                  $
                  603,587
                  
                  $
                  1,908,432
                  
                  $
                  3,151,680
                  
                  $
                  4,173,151Weighted
                      average number of common stock – Basic
                  
                  
                  11,914,825
                  
                  
                  5,388,201
                  
                  
                  11,692,604
                  
                  
                  5,388,201Effect
                      of dilutive securities:Convertible
                      notes
                  
                  
                  88,083
                  
                  
                  583,004
                  
                  
                  22,728
                  
                  
                  196,471Series
                      A Convertible preferred stock
                  
                  
                  —
                  
                  
                  5,991,080
                  
                  
                  —
                  
                  
                  5,991,080Weighted
                      average number of common stock – Diluted
                  
                  
                  12,002,908
                  
                  
                  11,962,285
                  
                  
                  11,715,332
                  
                  
                  11,575,752Earnings
                      per share - basic
                  
                  $
                  0.05
                  
                  $
                  0.25
                  
                  $
                  0.27
                  
                  $
                  0.67Earnings
                      per share -diluted
                  
                  $
                  0.05
                  
                  $
                  0.16
                  
                  $
                  0.27
                  
                  $
                  0.36
 
 As
          of
          September 30, 2008, the Company included all shares issuable upon conversion
          of
          the convertible notes and warrants in diluted earnings per share.
 
 **NOTE
          14 - STOCKHOLDERS’ EQUITY**
 
 **Stock
          Issued for Acquisitions Under Common Control**
 
 In
          September 2007, the Company issued 2,083,333 shares of restricted common
          stock
          at a market price of $4.80 per share totaling $10,000,000 as part of the
          consideration to a related company in the acquisition of
          New-Tailun.
 
 In
          September 2007, the Company issued 1,307,693 shares of restricted common
          stock
          at a market price of $2.6 per share totaling $3,400,000 as part of the
          consideration to a related company in the acquisition of
          Catch-Luck.
  21
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Conversion
          of Convertible Notes to Common Stock**
 
 On
          January 16, 2008, January 22, 2008 and February 6, 2008, the Company issued
          12,478 shares of common stock to pay fourth quarter interest of 2007 to
          six
          investors in connection with the senior convertible notes dated August
          2, 2007.
 
 During
          the nine months ended September 30, 2008, five investors converted $1,950,000
          of
          the convertible notes and $2,155 in accrued interest expense, into 887,348
          shares of common stock.
 
 **Stock
          Issued for Salary**
 
 On
          September 2, 2008, the Company issued 3,068 shares of common stock to pay
          the
          salaries for second quarter of 2008 to the three independent
          directors.
 
 **Statutory
          Reserve**
 
 The
          Company’s PRC subsidiaries are required to make appropriations to reserve funds,
          comprising the statutory surplus reserve, statutory public welfare fund
          and
          discretionary surplus reserve, based on after-tax net income determined
          in
          accordance with generally accepted accounting principles of the People’s
          Republic of China (the “PRC GAAP”). Appropriation to the statutory surplus
          reserve should be at least 10% of the after tax net income determined in
          accordance with PRC GAAP until the reserve is equal to 50% of the entities’
registered capital. Appropriations to the statutory public welfare fund
          are at
          10% of the after tax net income determined in accordance with PRC GAAP.
          The
          statutory public welfare fund is established for the purpose of providing
          employee facilities and other collective benefits to the employees and
          is
          non-distributable other than in liquidation. Appropriations to the discretionary
          surplus reserve are made at the discretion of the Board of Directors. Effective
          January 1, 2006, the Company is only required to contribute to one statutory
          reserve fund at 10% of net income after tax per annum, such contributions
          not to
          exceed 50% of the respective companies’ registered capital.
 
 As
          of
          September 30, 2008, New Tailun and Catch-Luck had fulfilled the 50% statutory
          reserve contribution requirement; therefore no further transfers are required
          for those entities. Goldenway and LA GO GO did not generate material net
          income
          in the current period; therefore no funds were transferred.
 
 As
          of
          September 30, 2008 and December 31, 2007, the Company recorded $3,437,379
          and
          $3,437,379, respectively, in the statutory reserve.
  22
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Warrants**
 
 Following
          is a summary of the warrant activity:
 
 Number of SharesOutstanding
                    as of January 1, 2007
                
                
                —Granted
                
                
                909,091Forfeited
                
                
                —Exercised
                
                
                —Outstanding
                    as of December 31, 2007
                
                
                909,091Granted
                
                
                72,728Forfeited
                
                
                —Exercised
                
                
                (68,636
                )Outstanding
                    as of September 30, 2008
                
                
                913,183
 
 Following
          is a summary of the status of warrants outstanding at September 30, 2008:
 
 Outstanding Warrants
                
                Exercisable WarrantsExercise Price
                
                Number of
                  Shares
                
                Average
                  Remaining
                  Contractual Life
                
                Average
                  Exercise Price
                
                Number of
                  Shares
                
                Average
                  Remaining
                  Contractual Life$3.20
                
                
                840,455
                
                
                4.68
                
                $
                3.20
                
                
                840,455
                
                
                4.68$3.20
                
                
                72,728
                
                
                2.26
                
                $
                3.20
                
                
                72,728
                
                
                2.26Total
                
                
                913,183
                
                
                
                
                
                
                
                
                913,183
 
 **NOTE
          15 - RELATED PARTY TRANSACTIONS**
 
 Mr.
          Edward Yihua Kang is the Company’s Chairman and Chief Executive Officer. The
          Company purchased materials, sub-contracted certain manufacturing work,
          and sold
          products to companies under the control of Mr. Kang, and the detail is
          listed
          below. All related party outstanding balances are short-tem in nature and
          are
          expected to be settled in cash.
 
 **Sales
          and Cost of Sales to Related Parties**
  The
          Company sells products to Nanjing High-Tech Knitting & Weaving Technology
          Development Co., Ltd (“Nanjing Knitting”), a company controlled by Ever-Glory
          Hong Kong.
  For
          the
          three months ended September 30, 2008, sales and related cost of sales
          in
          connection with Nanjing Knitting amounted to $17,582 and $10,989, respectively.
          For the same period of 2007, sales and related cost of sales in connection
          with
          Nanjing Knitting was $486,318 and $456,689, respectively.
  For
          the
          nine months ended September 30, 2008, sales and related cost of sales in
          connection with Nanjing Knitting amounted $510,145 and $472,372, respectively.
          For the same period of 2007, sales and related cost of sales in connection
          with
          Nanjing Knitting was $940,334 and $878,673, respectively.
  23
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Purchases
          from and Sub-contracts with Related Parties**
 
 The
          Company purchased raw materials from Nanjing Knitting. For the three months
          ended September 30, 2008 and 2007, raw materials amounted to $1,212,491
          and
          $212,874, respectively, were purchased. For the nine months ended September
          30,
          2008 and 2007, $1,903,440 and $500,005, respectively, were purchased. The
          Company provided raw materials to the sub-contractors who charged the Company
          a
          fixed labor charge for the sub-contracting work.
  In
          addition, the Company sub-contracted certain manufacturing work valued
          at
          $291,122 and $102,483 for the nine months ended September 30, 2008 and
          2007,
          respectively, to Nanjing Knitting.
  **Accounts
          Receivable – Related Parties**
 
 As
          of
          September 30, 2008 and 2007, accounts receivable from related parties amounted
          to $0 and $158,235, respectively, for sub-contracting services provided.
          Account
          receivables – related parties were as follows:
 
 Receivable from
                
                September 30,
                  2008
                
                December 31,
                  2007(Unaudited)Ever-Glory
                    Enterprises (Chuzhou) Co., Ltd
                
                $
                —
                
                $
                12,052Nanjing
                    High-Tech Knitting & Woving
                  Technology
                    Development Co., Ltd
                
                
                —
                
                
                146,183Total
                    accounts receivable – related parties
                
                $
                —
                
                $
                158,235
 
 **Other
          Receivable – Related Parties**
 
 As
          of
          September 30, 2008 and 2007, other receivable from related parties amounted
          to
          $38,596 and $0, respectively, for products sold. Other receivables – related
          parties were as follows:
 
 Receivable
                    from
                
                September 30,
                  2008
                
                December 31,
                  2007(Unaudited)Shanghai
                    La Chapelle Garment and Accessories Company Limited
                
                $
                38,596
                
                $
                —
 
 **Advance
          on Inventory Purchase – Related Party**
 
 As
          of
          September 30, 2008, the Company advanced funds to Jiangsu Ever-Glory
          International Group Corp. to purchase raw material inventory in amount
          of
          $6,882,463. Interest is charged at 0.5% per month according to the balance
          at
          the end of each month. Interest income earned for the three months ended
          September 30, 2008 and 2007, was $37,752 and $43,267, respectively, and
          for the
          nine months ended September 30, 2008 and 2007 was $113,216 and $82,597,
          respectively.
  24
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **Accounts
          Payable – Related Parties**
 
 The
          Company purchases raw material from and subcontracts some of its production
          to
          related parties which are under control of Mr. Kang.
  As
          of
          September 30, 2008 and December 31, 2007, the Company owed $155,917 and
          $245,589
          to the related parties
 
 Due
                    to
                
                September
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)Kunshan
                    Enjin Fashion Co.,Ltd.
                
                $
                —
                
                $
                245,589Nanjing
                    Ever-Kyowa Garment Washing Co.,
                
                
                71,179
                
                
                —Nanjing
                    High-Tech Knitting & Woving
                  Technology
                    Development Co., Ltd
                
                
                84,738
                
                
                —Accounts
                    payable – related parties
                
                $
                155,917
                
                $
                245,589
 
 **Other
          Payables – Related Parties**
 
 As
          of
          September 30, 2008 and December 31, 2007, amounts due to Ever-Glory
          Enterprises (HK) Ltd. were $903,715 and
          $650,000, respectively.
 
 In
          the
          amount of $903,715 due to Ever-Glory Enterprises (HK) Ltd. as of September
          30, 2008, $600,000 was due for the purchase of Catch-Luck and $303,715
          was due
          for the Company’s going public fees paid by Ever-Glory Enterprises (HK) Ltd..
 
 In
          the
          amount of $650,000 due to Ever-Glory Enterprises (HK) Ltd. as of December
          31, 2007, $600,000 was due for the purchase of Catch-Luck and $50,000 was
          due
          for the Company’s going public fees paid by Ever-Glory Enterprises (HK)
          Ltd..
 
 **Long
          Term Liability – Related Party**
 
 As
          of
          September 30, 2008 and December 31, 2007 the Company owed $2,630,821
          and $4,474,985, respectively
          to Blue Power Holdings Limited., a company controlled by the Company’s CEO Mr.
          Kang before December 31, 2007, for various advances received. Interest
          is
          charged at 6% per annum on the amounts due. The loans are due between July
          2010
          and April 2011. For the nine months ended Sep 30, 2008 and 2007, the Company
          accrued interest expense of $145,836 and $177,344, respectively. The accrued
          interest is included in the carrying amount of the loan in the accompanying
          balance sheets. On June 26, 2008, the Company repaid $1,990,000 to Blue
          Power
          Holdings Limited.
 
 **Lease
          from a Related Party**
 
 The
          Company leased factory and office space from Jiangsu Ever-Glory International
          Group Corp., an entity controlled by the Company’s CEO Mr. Kang. See Note 16 for
          the operating lease commitment.
  25
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **NOTE
          16 – COMMITMENTS AND CONTINGENCIES**
 
 **Capital
          Commitment**
 
 According
          to the Articles of Association of Goldenway, Goldenway has to fulfill its
          registered capital requirements of $17,487,894 within three years from
          February
          2, 2005. As of September 30, 2008, the Company had fulfilled $5,630,000
          of its
          registered capital requirements and had a registered capital commitment
          of
          $11,857,894 payable by February 1, 2008. In July 2008, the Company obtained
          an
          extension to April 25, 2009 to fulfill the remaining capital contribution
          of
          $11,857,894.
  **Operating
          Lease Commitment**
 
 The
          Company leases factory and office space from Jiangsu Ever-Glory International
          Group Corp. under an operating lease which expired on March 31, 2008 at
          an
          annual rental of $26,056 and an operating lease which expires on December
          31,
          2009 at an annual rental of $50,180.
 
 For
          the
          three months ended September 30, 2008 and 2007, the Company recognized
          rental
          expense of $12,813 and $6,412, respectively. $37,635 and $19,541 were recorded
          as rental expense for the nine months ended September 30, 2008 and 2007,
          respectively.
 
 As
          of
          September 30, 2008, the outstanding commitments of this non-cancelable
          lease for
          the years ended December 31, 2008 and 2009 are $50,180 and $100,360,
          respectively.
 
 **Contingent
          Shares to be Issued**
 
 Pursuant
          to the terms of the purchase agreement on acquisition of Catch-Luck, the
          Company
          will issue additional common shares to the original shareholder as
          follows:
 
 o
                At
                    the end of the first full fiscal year ending December 31, 2008
                    in which
                    Catch-Luck generates gross revenues of at least $19,000,000 and
                    net profit
                    of $1,500,000, Perfect Dream will issue 1,153,846 shares of the
                    Company’s
                    restricted common stock having a value of $3,000,000;
                    and
 
 o
                At
                    the end of the next full fiscal year ending December 31, 2009
                    in which
                    Catch-Luck generates gross revenues of at least $19,000,000 and
                    net profit
                    of $1,500,000, Perfect Dream will issue 1,153,846 shares of the
                    Company’s
                    restricted common stock having a value of
                    $3,000,000.
 
 **Legal
          Proceedings**
 
 The
          Company was named as a defendant in an action pending in the U.S. District
          Court
          for the Northern District of Ohio. The action was filed on February 22,
          2006 by
          Plaintiff Douglas G. Furth. The other principal parties are named defendants
          John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
          LLP. The action alleges that the Company breached an agreement to provide
          1,000,000 shares of common stock in exchange for certain assistance in
          marketing
          and financial public relations services. The action seeks an award of damages
          in
          excess of $75,000. The Company denies they we were a party to such an agreement,
          or were are otherwise liable. The Company intends to vigorously defend
          its
          position. The complaint was dismissed without prejudice from an action
          pending
          in the U.S. District Court for the Northern District of Ohio. In May 2007,
          Plaintiff Douglas G. Furth filed a Second Amended Complaint asserting claims
          against the Company. The Company denies all the claims, filed objections
          and
          asked for dismissal with prejudice. No payment was made to plaintiff and
          no
          settlement has been discussed between us and the Plaintiff. On November
          29,
          2007, we made a motion to dismiss the action for lack of personal jurisdiction,
          and a decision on this matter is pending.
  26
 *Table
              of Contents*
  EVER-GLORY
          INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
          30, 2008 (UNAUDITED)
 
 **NOTE
          17 - CONCENTRATIONS AND RISKS**
 
 Cash
          includes cash on hand and demand deposits in accounts maintained with
          state **** owned
          banks within the PRC and Hong Kong. Total cash deposited with these banks
          at
          September 30, 2008 and December 31, 2007 amounted to $882,548
          and $641,739, respectively, of which no deposits are covered by insurance. The Company
          has not
          experienced any losses in such accounts and believes it is not exposed
          to any
          risks on its cash in bank accounts.
 
 During
          the three and nine months ended September 30, 2008 and 2007, the Company
          did not
          rely on any single raw material supplier. For the three months ended September
          30, 2008 and 2007, the Company relied on one manufacturer for 19.0% and
          9.8% of
          purchased finished goods. For the nine months ended September 30, 2008
          and 2007,
          respectively, this largest contract manufacturer represented approximately
          17%
          and 14% of purchased finished goods. The Company does not have long-term
          written
          agreements with this manufacturer and does not anticipate entering into
          any such
          agreements in the near future. However, the Company always executes a written
          agreement for each order placed. Management does not believe that the loss
          of
          this manufacturer would have a material adverse effect on the Company’s ability
          to obtain finished goods manufacturer essential to the business because
          the
          management believes that the Company can locate other manufacturers in
          a timely
          manner.
 
 The
          Company has one major customer which represents approximately 25.7% and
          29.9% of
          the Company’s total sales for the three months ended September 30, 2008 and
          2007, respectively. For the nine months ended September 30, 2008 and 2007,
          this
          major customer represent approximately 29.4% and 33.9% of the Company’s total
          Sales, respectively. This customer accounted for 2.5% of total accounts
          receivable as of September 30, 2008.
 
 The
          following is geographic information of the Company’s revenue for the three and
          nine months ended September 30:
 
 (Unaudited)
                
                (Unaudited)Three months September, 30
                
                Nine months September, 302008
                
                2007
                
                2008
                
                2007China
                
                $
                2,897,857
                
                $
                1,669,649
                
                $
                6,594,818
                
                $
                3,464,453Europe
                
                
                14,923,858
                
                
                10,813,012
                
                
                42,178,290
                
                
                29,365,688Japan
                
                
                6,925,551
                
                
                2,962,062
                
                
                12,739,050
                
                
                6,543,188United
                    States
                
                
                6,056,882
                
                
                4,033,070
                
                
                12,734,839
                
                
                10,627,898Others
                
                
                43,284
                
                
                —
                
                
                43,284
                
                
                —Revenue
                    from Original design manufacturing
                
                
                30,847,432
                
                
                19,477,793
                
                
                74,290,281
                
                
                50,001,227Revenue
                    from retail sales-China
                
                
                1,038,144
                
                
                —
                
                
                1,410,900
                
                
                —Total
                    revenue
                
                $
                31,885,576
                
                $
                19,477,793
                
                $
                75,701,181
                
                $
                50,001,227
  The
          Company's operations are carried out in the PRC. Accordingly, the Company's
          business, financial condition and results of operations may be influenced
          by the
          political, economic and legal environments in the PRC, and by the general
          state
          of the economy in the regions where the Company’s customers are located. The
          Company's operations in the PRC are subject to specific considerations
          and
          significant risks not typically associated with companies in the North
          America
          and Western Europe. These include risks associated with, among others,
          the
          political, economic and legal environments and foreign currency exchange.
          The
          Company's results may be adversely affected by changes in governmental
          policies
          with respect to laws and regulations, anti-inflationary measures, currency
          conversion and remittance abroad, and rates and methods of taxation, among
          other
          things.
  27
 *Table
              of Contents*
 
 **ITEM
                  2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
 
 *The
        following discussion and analysis of our financial condition and results
        of
        operations for the three and nine months ended September 30, 2008 should
        be read
        in conjunction with the Financial Statements and corresponding notes included
        in
        this Quarterly Report on Form 10-Q. Our discussion includes forward-looking
        statements based upon current expectations that involve risks and uncertainties,
        such as our plans, objectives, expectations, and intentions. Actual results
        and
        the timing of events could differ materially from those anticipated in these
        forward-looking statements as a result of a number of factors, including
        those
        set forth under the Risk Factors and Special Note Regarding Forward-Looking
        Statements in this report. We use words such as “anticipate,” “estimate,”
“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions
        to identify forward-looking statements.*
  **Overview**
 
 We
        are a
        leading apparel manufacturer and supplier in China, and the first Chinese
        apparel company listed on the American Stock Exchange. We have a focus on
        well-known, middle-to-high grade casual wear, sportswear, and outerwear brands.
        We have global strategic business partners in Europe, the United States
        (“U.S.”), Japan and the People’s Republic of China (PRC), including famous
        brands and retail chain stores. We also manufacture, market and distribute
        our
        own branded products in the PRC domestic market.
 
 We
        manufacture our products in the PRC, including our three factories located
        in
        the Nanjing Jiangning Economic and Technological Development Zone and Shang
        Fang
        Town in the Jiangning District in Nanjing. We conduct our original design
        manufacturing (ODM) operations through three wholly-owned subsidiaries:
        Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing New-Tailun
        Garments Company Limited (“New Tailun”), and Nanjing Catch-Luck Garments Co.,
        Ltd. (“Catch-Luck”).
 
 We
        incorporated Shanghai LA GO GO Fashion Company Limited (“ LA
        GO
        GO ”),
        a
        joint venture of Goldenway and Shanghai La Chapelle Garment and Accessories
        Company Limited (“La Chapelle”) in the PRC on January 24, 2008. The business
        objective of the joint venture is to establish and create a leading brand
        of
        ladies’ garments and to build a nationwide retail distribution channel in
        China.
 
 Although
        we have our own manufacturing facilities, we currently outsource most of
        our
        manufacturing to contract manufacturers as part of our overall business
        strategy. Outsourcing allows us to maximize our production capacity and maintain
        production flexibility while reducing capital expenditures and costs associated
        with keeping skilled workers on production lines during seasonal slowdowns.
        We
        inspect products manufactured by our long-term contractors to ensure that
        they
        meet our high quality control standards.
 
 For
        the
        nine months ended September 30, 2008, approximately 56% of our net sales
        came
        from Europe, 17% from the U.S., 17% from Japan, and 10% from the PRC. For
        the nine months ending September 30, 2007, approximately 59% of our net
        sales came from Europe, 21% from the U.S, 13% from Japan, and 7% from the
        PRC.
        We believe our Company maintains a good relationship with our customers.
 
 We
        purchase the majority of our raw materials directly from numerous local fabric
        and accessories suppliers. We **** also
        purchase finished goods from contract manufacturers. For the nine months
        ended
        September 2008 and 2007, purchases from our five largest suppliers accounted
        for
        21% and 24% of total purchases, respectively. For the nine months ended
        September 30, 2008 and 2007, no single supplier provided more than 10% of
        our
        total purchases. We have not experienced difficulty in obtaining raw materials
        essential to our business, and we believe our Company has maintained a good
        relationship with our suppliers.
 
 As
        of
        September 30, 2008, our three manufacturing facilities in Nanjing had
        over 1,800
        employees, with an annual production capacity of over 12 million pieces.
        As of
        September 30, 2008, our new LA
        GO
        GO joint
        venture had approximately 230 employees. We consider our relationship with
        our
        employees to be excellent.
 
 We
        hold a
        fifty-year land use right on 112,442 square meters of land in the Nanjing
        Jiangning Economic and Technological Development Zone until April 2056. The
        land
        contains an existing facility of 26,629 square meters, which includes the
        manufacturing facility and office space. By the end of 2006, we completed
        the
        construction of our new office building and adjoining factory. We moved our
        headquarters into our new office building and consolidated part of our operation
        into our new manufacturing facility in January 2007. The new manufacturing
        facility occupies an area of 10,000 square meters and is equipped with
        state-of-the-art equipment.
 
   28
 *Table
            of Contents*
  Our
        four
        operating subsidiaries, all of which are incorporated in the PRC, are governed
        by the PRC income tax laws and are subject to the PRC enterprise income tax.
        Each of our consolidating entities files its own separate tax return. In
        addition, in 2007, Goldenway enjoyed a 50% reduction in its income tax as
        a
        foreign invested enterprise that exports over 70% of its output, and was
        entitled a lowered income tax rate of 12%. In 2008, the income tax rate for
        Goldenway was 25%. New-Tailun and Catch-Luck were entitled to two-year income
        tax exemptions effective for the 2006 and 2007 tax years, and for the three
        years thereafter (2008, 2009 and 2010) based on current income tax laws these
        entities will be entitled to a 50% reduction in enterprise income tax rate
        of
        25%. LA
        GO
        GOwas
        incorporated on January 24, 2008, and its income tax rate is 25%.All
        of
        our income before income taxes, and the income taxes we pay are related to
        our
        operations in the PRC.
 *Private
        Placement Financing*
 
 On
        August
        2, 2007, we completed a $2 million private placement involving the issuance
        of
        our secured convertible notes and warrants pursuant to subscription agreements
        (“Subscription Agreements”) with six accredited investors. This private
        placement financing closed on August 6, 2007. Under the terms of the financing,
        we issued and sold two-year secured convertible notes in the principal amount
        of
        $2,000,000 to investors, secured by all of the assets of Ever-Glory excluding
        its subsidiaries. As of September 30, 2008, the note holders had converted
        the
        entire principal amount of these notes, plus accrued interest, into an aggregate
        of 909,091 shares of common stock of the Company.
 
 *Recent
        Events*
 
 On
        July
        16, 2008, our shares of common stock began trading on the American Stock
        Exchange (“AMEX”) under the trading symbol “EVK.” We are the first Chinese
        apparel company to have its securities listed on AMEX.
  According
        to the Articles of Association of Goldenway, Goldenway had to fulfill registered
        capital requirements of $17,487,894 within three years from February 2, 2005.
        As
        of February 1, 2008, the Company fulfilled $3,630,000 of its registered capital
        requirements and had a registered capital commitment of $13,857,894 payable
        by
        February 1, 2008. In April 2008, we obtained approval from the government
        granting an extension to make the required capital contribution by July 25,
        2008. As of July 10, 2008, the Company fulfilled $5,630,000 of its registered
        capital requirements and had a registered capital commitment of $11,857,894
        payable by July 25, 2008. In July 2008, the Company obtained the approval
        from
        the government granting a further extension to make the required capital
        contribution until April 25, 2009.
  In
        July
        2008, we renewed our credit facility with Nanjing Bank, which provides us
        with
        short-term lending of up to $7.3 million for a two year term. The credit
        facility is used to fund daily operations, and is available until July 31,
        2010.
        As of September 30, 2008, we had an outstanding balance of $5.8 million,
        on
        which we pay interest at the rate of 7.22%. The loans with Nanjing Bank are
        secured by our land use rights and buildings.
 
 **Sales and
        Expenses**
  We
        market
        and sell our products through a combination of international distributors
        and
        direct sales to brands and retail chain stores primarily in Europe, the United
        States and Japan. We also manufacture, market, and distribute our own branded
        products in our domestic market through our LA GO GO joint venture.
 
 For
        our
        new customers, we ordinarily accept orders backed by a letter of credit.
        For our
        established customers, we generally accept payment within 30 to 120 days
        following delivery of finished goods to the customer.
 
 Cost
        of
        goods sold includes direct material cost, direct labor cost and manufacturing
        overheads, including depreciation of production equipment consistent with
        the
        revenue earned, and rent paid by our retail business.
  Our
        selling expenses consist primarily of transportation and unloading charges
        and
        product inspection charges.
 
 Our
        general and administrative expenses consist primarily of executive, finance,
        accounting, facilities and human resources personnel, office expenses and
        professional fees.
 
 **CRITICAL
        ACCOUNTING POLICIES**
 
 We
        have
        identified critical accounting policies that, as a result of judgments,
        uncertainties, uniqueness and complexities of the underlying accounting
        standards and operation involved could result in material changes to our
        financial position or results of operations under different conditions or
        using
        different assumptions.
  29
 *Table
            of Contents*
 
 The
        preparation of our financial statements in conformity with generally accepted
        accounting principles (GAAP) in the United States of America requires management
        to make estimates and assumptions that affect the reported amounts and
        disclosures. We are also subject to other risks and uncertainties that may
        cause
        actual results to differ from estimated amounts. Significant estimates in
        2008
        and 2007 include the estimated residual value and useful life of property
        and
        equipment and the assumptions made when we used the Black-Scholes option
        price
        model to value the warrants we have issued.
  Inventories,
        consisting of raw materials, work-in progress, and finished goods related
        to our
        products are stated at the lower of cost or market utilizing the specific
        identification method.
 
 We
        recognize revenue, net of value added taxes, upon delivery for local sales
        and
        upon shipment of the products for export sales, at which time title passes
        to
        the customer provided that: there are no uncertainties regarding customer
        acceptance; persuasive evidence of an arrangement exists; the sales price
        is
        fixed and determinable; and collectability is deemed probable.
 
 Details
        regarding our use of these policies and the related estimates are described
        in
        the accompanying notes to our Consolidated Financial Statements as of and
        for
        the three months and nine months ended September 30, 2008. There have been
        no
        material changes to our critical accounting policies that impacted our
        consolidated financial condition or results of operations.
 
 **RECENT
        ACCOUNTING PRONOUNCEMENTS**
 
 In
        September 2006, FASB issued Statement 157, Fair Value Measurements. This
        statement defines fair value and establishes a framework for measuring fair
        value in GAAP. More precisely, this statement sets forth a standard definition
        of fair value as it applies to assets or liabilities, the principle market
        (or
        most advantageous market) for determining fair value (price), the market
        participants, inputs and the application of the derived fair value to those
        assets and liabilities. The effective date of this pronouncement is for all
        full
        fiscal and interim periods beginning after November 15, 2008. The Company
        does
        not expect the adoption of SFAS 157 to have an impact on the Company’s results
        of operations or financial condition.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
        choose to measure many financial instruments and certain other items at fair
        value that are not currently required to be measured at fair value. The SFAS
        159
        became effective for us on January 1, 2008. The Company chose not to elect
        the
        option to measure the fair value of eligible financial assets and
        liabilities.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of Accounting Research Bulletin
        No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
        ownership interests ** in
        subsidiaries held by parties other than the parent, the amount of consolidated
        net income attributable to the parent and to the noncontrolling interest,
        changes in a parent’s ownership interest and the valuation of retained
        non-controlling equity investments when a subsidiary is deconsolidated. The
        Statement also establishes reporting requirements that provide sufficient
        disclosures that clearly ** identify
        and distinguish between the interests of the parent and the interests of
        the
        non-controlling owners. SFAS 160 is effective for ** fiscal
        years beginning after December 15, 2008. The Company has not determined the
        effect that the application of SFAS 160 will have on its consolidated financial
        statements.
 
 In
        December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
        to all transactions or other events in which an entity obtains control of
        one or
        more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
        consideration. This statement replaces FASB Statement No. 141 and applies
        to all
        business entities, including mutual entities that previously used the
        pooling-of-interests method of accounting for some business combinations.
        The
        Company believes that adoption of the FAS 141R will have a material effect
        on
        future acquisitions.
 
 In
        May
        2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
        Accounting Principles.” This Statement identifies the sources of accounting
        principles and the framework for selecting the principles to be used in the
        preparation of financial statements of nongovernmental entities that are
        presented in conformity with GAAP in the United States (the GAAP hierarchy).
        This Statement will not have any impact on the Company’s consolidated financial
        statements.
  30
 *Table
            of Contents*
  In
        May
        2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
        Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
        this Statement is limited to financial guarantee insurance (and reinsurance)
        contracts, as described in this Statement, issued by enterprises included
        within
        the scope of Statement 60. Accordingly, this Statement does not apply to
        financial guarantee contracts issued by enterprises excluded from the scope
        of
        Statement 60 or to some insurance contracts that seem similar to financial
        guarantee insurance contracts issued by insurance enterprises (such as mortgage
        guaranty insurance or credit insurance on trade receivables). This Statement
        also does not apply to financial guarantee insurance contracts that are
        derivative instruments included within the scope of FASB Statement No. 133,
        “Accounting for Derivative Instruments and Hedging Activities.” This Statement
        will not have any impact on the Company’s consolidated financial
        statements.
 
 In
        June
        2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
        an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
        No. 07-5”). This Issue is effective for financial statements issued for fiscal
        years beginning after December 15, 2008, and interim periods within those
        fiscal
        years. Early application is not permitted. Paragraph 11(a) of Statement of
        Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
        Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
        definition of a derivative but is both (a) indexed to the Company’s own stock
        and (b) classified in stockholders’ equity in the statement of financial
        position would not be considered a derivative financial instrument. EITF
        No.07-5
        provides a new two-step model to be applied in determining whether a financial
        instrument or an embedded feature is indexed to an issuer’s own stock and thus
        able to qualify for the SFAS 133 paragraph 11(a) scope exception. Management
        is
        currently evaluating the impact of adoption of EITF No. 07-5 on the Company
’ s
        financial statements.
 
 In
        June
        2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
        Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4 is
        to provide transition guidance for conforming changes made to EITF No. 98-5,
        “Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
        150, “Accounting for Certain Financial Instruments with Characteristics of both
        Liabilities and Equity”. This Issue is effective for financial statements issued
        for fiscal years ending after December 15, 2008. Early application is permitted.
        Management is currently evaluating the impact of adoption of EITF No. 08-4
        on
        the accounting for the convertible notes and related warrants
        transactions.
 
 On
        October 10, 2008, the FASB issued FASB Staff Position (FSP) No.157-3,
“Determining the Fair Value of a Financial Asset When the Market for That
        Asset
        Is Not Active,” which clarifies the application of SFAS 157 in a market that is
        not active and provides an example to illustrate key considerations in
        determining the fair value of a financial asset when the market for that
        financial asset is not active. FSP 157-3 became effective on October 10,
        2008,
        and its adoption did not have a material impact on the Company’s financial
        position or results for the quarter ended September 30, 2008.
  31
 *Table
            of Contents*
  **Results
        of Operations**
 
 The
        following is a discussion and analysis of our results of operations, comparing
        the three and nine months ended September 30, 2008 and 2007.
  ***Three
        Months Ended September 30, 2008 Compared to Three Months Ended September
        30,
        2007***
 
 The
        following table summarizes our results of operations for the three months
        ended
        September 30, 2008 and 2007. The table and the discussion below should be
        read
        in conjunction with the unaudited financial statements and the notes thereto
        appearing elsewhere in this report.
 **Three Months Ended September 30,****2008**
                
                
                **2007**
                
                
                **Increase**
                
                **%**
                  **Increase**Sales
                
                $
                31,885,576
                
                
                100.0
                %
                
                $
                19,477,793
                
                
                100.0
                %
                
                $
                12,407,783
                
                
                63.7
                %Cost
                    of Sales
                
                $
                27,295,205
                
                
                85.6
                %
                
                $
                16,404,695
                
                
                84.2
                %
                
                $
                10,890,510
                
                
                66.4
                %Gross
                    Profit
                
                $
                4,590,371
                
                
                14.4
                %
                
                $
                3,073,098
                
                
                15.8
                %
                
                $
                1,517,273
                
                
                49.4
                %Operating
                    Expense
                
                $
                2,190,346
                
                
                6.9
                %
                
                $
                1,020,400
                
                
                5.2
                %
                
                $
                1,169,946
                
                
                114.7
                %Income
                    From Operations
                
                $
                2,400,025
                
                
                7.5
                %
                
                $
                2,052,698
                
                
                10.5
                %
                
                $
                347,327
                
                
                16.9
                %Other
                    Expenses
                
                $
                -1,484,307
                
                
                -4.7
                %
                
                $
                -658,753
                
                
                -3.4
                %
                
                $
                -825,554
                
                
                125.3
                %Income
                    before income tax expenses
                
                $
                915,718
                
                
                2.9
                %
                
                $
                1,393,945
                
                
                7.2
                %
                
                $
                -478,227
                
                
                -34.3
                %Income
                    tax expenses
                
                $
                273,203
                
                
                0.9
                %
                
                $
                72,880
                
                
                0.4
                %
                
                $
                200,323
                
                
                274.9
                %Minority
                    interest
                
                $
                -4,666
                
                
                0.0
                %
                
                
                —
                
                
                —
                
                
                $
                -4,666
                
                
                —Net
                    Income
                
                $
                647,181
                
                
                2.0
                %
                
                $
                1,321,065
                
                
                6.8
                %
                
                $
                -673,884
                
                
                -51.0
                %
 **Sales**
 
 The
        following table sets forth a breakdown of our total sales revenue, by region,
        for the periods indicated:
 
 ****
              **Three Months Ended September 30,**
              ****
              
              ********
              **2008**
              ****
              **2007**
              ****
              
              ********
              **$**
              ****
              **% of total**
                **revenues**
              ****
              **$**
              ****
              **% of total**
                **revenues**
              ****
              **Growth in 2008**
                **Compared to 2007**(in
                  U.S. dollars, except for percentages)ODM
                  SalesEurope
              
              
              14,923,858
              
              
              46.8
              %
              
              10,813,012
              
              
              55.5
              %
              
              +
                  38.0
              %U.S.
              
              
              6,056,882
              
              
              19.0
              %
              
              4,033,070
              
              
              20.7
              %
              
              +
                  50.2
              %Japan
              
              
              6,925,551
              
              
              21.7
              %
              
              2,962,062
              
              
              15.2
              %
              
              +
                  133.8
              %China
              
              
              2,897,857
              
              
              9.1
              %
              
              1,669,649
              
              
              8.6
              %
              
              +
                  73.6
              %Other
              
              
              43,284
              
              
              0.1
              %
              
              —
              
              
              —
              
              
              —Domestic
                  Retail SalesRetail
              
              
              1,038,144
              
              
              3.3
              %
              
              —
              
              
              —
              
              
              —Total
                  revenues
              
              
              31,885,576
              
              
              100.0
              %
              
              19,477,793
              
              
              100.0
              %
              
              +
                  63.7
              %
  32
 *Table
            of Contents*
 
 We
        generate revenues primarily from our ODM business mainly for the international
        markets. In 2008, we entered into our domestic retail market, with a focus
        on
        designing, manufacturing and selling our own branded garments. Total sales
        for
        the three months ended September 30, 2008 were $31,885,576, an increase of
        63.7%
        compared to the same period during 2007. This increase was primarily
        attributable to an operating growth in ODM sales to customers in Europe,
        U.S.,
        Japan and the PRC, and revenue contributions from our newly launched retail
        business “ LA
        GO
        GO ”
in
        2008.
 
 Sales
        to
        customers in Europe **** accounted
        for 46.8% of our net revenue for the three months ended September 30, 2008.
        Sales to our European customers increased 38.0% in the third quarter of 2008,
        as
        compared to the third quarter of 2007. The increase for the three months
        ended
        September 30, 2008 was primarily attributable to higher demand and increased
        order volume from several of our large European customers.
 
 Sales
        to
        customers in the U.S. **** accounted
        for 19.0% of our net revenue for the three months ended September 30, 2008.
        Sales to our U.S. customers increased 50.2% in the third quarter of 2008,
        as
        compared to the third quarter of 2007. This increase was due to our acquisition
        of new customers in the U.S.
 
 Sales
        to
        customers in Japan accounted for 21.7% of our net revenue for the three months
        ended September 30, 2008. Sales to our Japanese customers increased 133.8%
        for
        the third quarter of 2008, compared to the third quarter of 2007. This increase
        was attributable to our success in establishing a long-term relationship
        with
        premium brands in the Japanese market, and strong demand in the third quarter
        of
        2008 in anticipation of the holiday season.
  Sales
        to
        customers in the PRC accounted for 9.1% of our net revenue for the three
        months
        ended September 30, 2008. Sales to our PRC customers increased 73.6% in the
        third quarter of 2008, compared to the third quarter of 2007. The increase
        was
        attributable to a greater number of orders placed by our existing customers
        in
        Hong Kong,
 
 Sales
        generated by our LA
        GO GO retail
        division accounted for 3.3% of our net revenue for the three months ended
        September 30, 2008. As of September 30, 2008, we have opened and established
        55 LA
        GO
        GO retail
        stores, generating average sales of $8,500 per month per store.
 
 The
        table
        below breaks down our total revenues generated from related-party and
        unrelated-party during the periods indicated:
 
 **Three Months Ended September 30,****Net Sales**
              
              **2008**
              
              **2007**
              
              **Increase**
                **(Decrease)**
              
              **% C****hange**To
                  related parties
              
              $
              17,582
              
              
              0.1
              %
              $
              486,318
              
              
              2.5
              %
              $
              (468,736
              )
              
              -96.4
              %To
                  third parties
              
              $
              31,867,994
              
              
              99.9
              %
              $
              18,991,475
              
              
              97.5
              %
              $
              12,876,519
              
              
              67.8
              %Total
              
              $
              31,885,576
              
              
              100.0
              %
              $
              19,477,793
              
              
              100.0
              %
              $
              12,407,783
              
              
              63.7
              %
  Net
        sales
        to related parties accounted for 0.1% of our total sales for the three months
        ended September 30, 2008, a decrease from 2.5% for the same period of 2007.
        We
        expect sales to related parties will continue to constitute a relatively
        minor
        portion of our total sales.
 
 **Cost
        of Sales and Gross Profit**
 
 The
        following table sets forth the components of our cost of sales and gross
        profit
        both as a dollar amount and as a percentage of total net sales for the periods
        indicated.
  **Three Months Ended September 30,****2008**
                
                **2007**
                
                **Change**
                
                **%**
                  **Change**Total Net Sales
                
                $
                31,885,576
                
                
                100.0
                %
                $
                19,477,793
                
                
                100.0
                %
                $
                12,407,783
                
                
                63.7
                %Raw
                    materials
                
                
                13,735,548
                
                
                43.1
                %
                
                9,211,986
                
                
                47.3
                %
                
                4,523,562
                
                
                49.1
                %Labor
                
                
                849,187
                
                
                2.7
                %
                
                626,082
                
                
                3.2
                %
                
                223,105
                
                
                35.6
                %Outsource
                    Production Costs
                
                
                11,237,388
                
                
                35.2
                %
                
                5,826,534
                
                
                29.9
                %
                
                5,410,854
                
                
                92.9
                %Overhead
                    and Other
                
                
                805,447
                
                
                2.5
                %
                
                740,093
                
                
                3.8
                %
                
                65,354
                
                
                8.8
                %Retail-purchase
                    finished garments from other factories
                
                
                667,635
                
                
                2.1
                %
                
                0
                
                
                0.0
                
                
                667,635
                
                
                —Total
                    Cost of Sales
                
                $
                27,295,205
                
                
                85.6
                %
                $
                16,404,695
                
                
                84.2
                %
                $
                10,890,510
                
                
                66.4
                %Gross
                    Profit
                
                $
                4,590,371
                
                
                14.4
                %
                $
                3,073,098
                
                
                15.8
                %
                $
                1,517,273
                
                
                49.4
                %
  33
 *Table
            of Contents*
  Raw
        material costs for the three months ended September 30, 2008 increased 49.1%
        compared to the same period in 2007 while revenues increased 63.7% compared
        to
        the same period in 2007. These costs, as a percentage of total net sales,
        decreased from 47.3% to 43.1%. In the third quarter of 2008, we centralized
        our
        purchasing function to increase our negotiation power, and management believes
        this enabled us to control and reduce our raw material costs.
 
 Labor
        costs accounted for 2.7% of our total net sales for the three months ended
        September 30, 2008, which decreased from 3.2% for the same period in 2007.
        This
        decrease was mainly due to an internal headcount reduction. In 2008, after
        performing a comprehensive review of our processes and organization, management
        decided to increase outsourcing to independent contractors to improve
        performance and efficiency as well as better manage our labor costs.
 
 Outsource
        production costs accounted for 35.2% of our total net sales for the three
        months
        ended September 30, 2008, which increased from 29.9% for the same period
        in
        2007. This increase was primarily attributable to increased costs of outsourcing
        in the third quarter of 2008, linked to general inflation in the cost of
        goods
        and services in China.
 
 Overhead
        and other expenses accounted for 2.5% of our total net sales for the three
        months ended September 30, 2008, compared to 3.8% in the same period of 2007.
        This decrease was also due to a reduction in our employee headcount as a
        result
        of increased outsourcing.
 
 Our
        retail business cost accounted for 2.1% of our total net sales for the three
        months ended September 30, 2008. This consisted of purchases of finished
        goods
        from other suppliers for resale in our LA
        GO
        GO stores.
 
 Total
        cost of sales for the three months ended September 30, 2008 was $27,295,205,
        an
        increase of 66.4% compared to the same period in 2007. As a percentage of
        total
        net sales, cost of sales for the three months ended September 30, 2008,
        increased slightly to 85.6% in the third quarter of 2008, up from 84.2% in
        the
        same period in 2007. Consequently, the gross margin as a percentage of net
        sales
        decreased to approximately 14.4% in the three months ended September 30,
        2008,
        from 15.8% in the same period of 2007. The decrease in gross margin was
        primarily attributable to the increased outsourcing costs and salary increases
        for existing production line employees in
        the
        third quarter of 2008. Management increased pay for our workers in order
        to
        retain skilled tailors and professionals in a competitive environment in
        which,
        in recent quarters, salaries and the cost of labor have been rising.
 
 The
        following table sets forth our total net sales, gross profit and gross margin
        of
        the geographic market segments for the three months ended September 30, 2008
        and
        2007:
 **For the Three Months Ended**
                
                **For the Three Months Ended****September 30, 2008**
                
                **September 30, 2007****Gross**
                
                **Gross**
                
                
                
                **Gross**
                
                **Gross****Net Sales**
                
                **Profit**
                
                **Margin**
                
                **Net Sales**
                
                **Profit**
                
                **Margin**ODM
                    SalesEurope
                
                $
                14,924,436
                
                $
                1,991,898
                
                
                13.3
                %
                $
                10,813,012
                
                $
                1,910,695
                
                
                17.7
                %U.S.
                
                
                6,056,882
                
                
                400,026
                
                
                6.6
                %
                
                4,033,070
                
                
                350,254
                
                
                8.7
                %Japan
                
                
                6,925,551
                
                
                1,460,963
                
                
                21.1
                %
                
                2,962,062
                
                
                360,564
                
                
                12.2
                %China
                
                
                2,897,279
                
                
                368,109
                
                
                12.7
                %
                
                1,669,649
                
                
                451,585
                
                
                27.0
                %Other
                
                
                43,284
                
                
                -2,644
                
                
                -6.1
                %
                
                —
                
                
                —
                
                
                —Domestic
                    SalesRetail
                
                
                1,038,144
                
                
                372,019
                
                
                35.8
                %
                
                —
                
                
                —
                
                
                —Total
                
                $
                31,885,576
                
                $
                4,590,371
                
                
                14.4
                %
                $
                19,477,793
                
                $
                3,073,098
                
                
                15.8
                %
  34
 *Table
            of Contents*
 
 Gross
        margin in Europe was 13.3% for the three months ended September 30, 2008,
        compared to 17.7% for the same period in 2007. Although we have changed our
        product mix to improve our gross margin, this move toward higher-margin products
        was offset by higher price sensitivity on the part of our European customers,
        high inflation in China and the effect of an appreciating renminbi against
        currencies of importing nations. First, many of our customers have been
        negotiating for lower contract prices, as the retail environment has become
        more
        competitive, which we believe may be associated with a slowing economy in
        Europe. Also, inflation has persisted in China especially in early 2008,
        which
        has increased the prices of labor and materials, and this has added downward
        pressure to our margins. Finally, the Chinese renminbi has been appreciating
        against other world currencies, making Chinese imports more expensive,
        particularly to customers in Europe and the U.S., and this has put pressure
        on
        us to reduce prices in order to continue to be a top supplier to many of
        our
        customers.
 
 Gross
        margin in U.S. was 6.6% for the three months ended September 30, 2008, compared
        to 8.7% for the same period in 2007. In 2008, we adjusted our customer mix
        in
        the U.S., as we moved away from lower end mass market products, and entered
        higher quality upper market segments to improve our gross profit percentage.
        Generally, at the present time, we consider “upper market” or “premium” products
        as garments that we sell at an average cost to our customers of higher than
        US$8.00 per unit. In the third quarter of 2008, however, we believe that
        due to unfavorable economic conditions in the U.S., including an emerging
        credit
        crisis, our customers have become more cautious and price sensitive, and
        they
        are beginning to shift their buying patterns accordingly. In order to continue
        to achieve sales to our U.S. customers, we cut our prices in order to remain
        competitive with other suppliers. Currently, we are seeking to expand and
        acquire new customer relationships with middle-to upper
        market or premium retailers in the U.S. in order to offset this trend.
 Gross
          margin in Japan was 21.1% for the three months ended September 30, 2008,
          compared to 12.2% for the same period of 2007. In the third quarter of
          2008, we
          were able to successfully shift our product mix into premium brands in
          Japan, in
          order to achieve these higher margins. Specifically, one upper market Japanese
          casual wear retailer who we recently added as a customer generated approximately
          $1.9 million in sales in the three quarters ending September 30, 2008.
          Since our
          sales to Japan became more heavily weighted toward higher-end garments
          with very
          favorable margins, our overall gross margin on sales to Japanese customers
          increased.
 
 Gross
          margin in China, excluding our retail operations, was 12.7% for the three
          months
          ended September 30, 2008, compared to 27.1% for the same period of 2007.
          This
          reduction in gross margin was due to higher-than-expected inflation in
          the PRC
          and appreciation of the Chinese renminbi relative to the U.S. dollar. We
          managed
          to negotiate mild increases our contract prices with our Hong Kong customers,
          based on and to adjust for our internal forecasts regarding domestic inflation
          and Chinese renminbi appreciation, however, actual domestic inflation and
          appreciation in the renminbi turned out to be higher than we had originally
          forecast. As a result, we experienced a decline in gross margin on our
          PRC
          sales.
 
 Gross
          margin in retail for our new brand LA GO GO, which operates retail stores
          in the
          PRC, was 35.8% for the three months ended September 30, 2008. Since it
          was
          launched in the early part of 2008, our LA GO GO division did not operate
          during
          the third quarter of 2007.
 
 Overall
          gross margin for the three months ended September 30, 2008 was 14.4%, decrease
          from 15.8% for the same period of 2007. Management generally attributes
          this to
          higher inflation in the PRC, and a rising Chinese renminbi. We countered
          this
          trend, in some regions more than others as discussed above, by moving toward
          higher-margin products in those markets. Management expects that continued
          efforts to move toward upper-market premium products, if successful, will
          enable
          the company to combat the effects of inflation and an appreciating Chinese
          renminbi, and maintain and increase our overall gross profit margins. In
          addition, management expects that as the company’s domestic retail operation
          grows and becomes a larger part of our business, if this growth is realized,
          this would eventually have the effect of increasing the company’s overall profit
          margins.
  35
 *Table
            of Contents*
  **Operating
        Expenses**


****
                ****
                **For the Three Months Ended September 30,**
                ****
                ****
                ****
                ****
                ********
                ****
                **2008**
                ****
                **2007**
                ****
                ****
                ****
                ****
                ********
                ****
                
                ****
                **% of Total**
                ****
                
                ****
                **% of Total**
                ****
                
                ****
                **%**
                ********
                ****
                **$**
                ****
                **Net Sales**
                ****
                **$**
                ****
                **Net Sales**
                ****
                **change**
                ****
                **change**(in U.S. Dollars, except for percentages)Gross Profit
                
                $
                4,590,371
                
                
                14.4
                %
                $
                3,073,098
                
                
                15.8
                %
                $
                1,517,273
                
                
                49.4
                %Operating
                    Expenses:Selling
                    Expenses
                
                
                563,971
                
                
                1.8
                %
                
                167,976
                
                
                0.9
                %
                $
                395,995
                
                
                235.7
                %General
                    and Administrative Expenses
                
                
                1,626,375
                
                
                5.1
                %
                
                852,424
                
                
                4.4
                %
                $
                773,951
                
                
                90.8
                %Total
                
                
                2,190,346
                
                
                6.9
                %
                
                1,020,400
                
                
                5.2
                %
                $
                1,169,946
                
                
                114.7
                %Income
                    from Operations
                
                
                2,400,025
                
                
                7.5
                %
                
                2,052,698
                
                
                10.5
                %
                $
                347,327
                
                
                16.9
                %
 
 Selling
        expenses in 2008 increased by 235.7% to $563,971 for the three months ended
        September 30, 2008 as compared with the same period in 2007. The increase
        was
        attributable to increased travel and marketing expenses incurred by our
        international sales force to obtain new customers. In addition, we incurred
        increased export expenses, such as customs duties, port fees, export document
        fees, inspection fees, and other related costs. We also spent $247,786 during
        the third quarter of 2008 to promote LA
        GO
        GO ,
        our
        domestic retail brand, which is reflected in our selling expenses for the
        third
        quarter of 2008, but no such expenses applied during the same period in 2007.
 
 General
        and administrative expenses increased by 90.8% from $852,424 for the three
        months ended September 30, 2007 to $1,626,375 for the three months ended
        September 30, 2008. However, as a percentage of net sales, G&A expenses for
        the third quarter of 2008 increased modestly from 4.4% to 5.1%, as compared
        to the same quarter in 2007. The
        increase was mainly
        due to increases in salary expense, employee benefits, professional fees
        and
        depreciation expenses relating to our new office facilities. Payroll
        increased by approximately $250,000 in the third quarter of 2008, over the
        same
        quarter last year, as we hired more management professionals to handle our
        business expansion. An increase in direct expenses incurred by our US parent
        company relating to investor relations activities also added to our total
        general and administrative expenses for the third quarter of 2008.
 
 **Income
        from Operations**
  Income
        from operations increased by 16.9% from $2,052,698 for the three months ended
        September 30, 2007 to $2,400,025 for the three months ended September 30,
        2008,
        as we expanded market exposure, increased our sales volume and managed our
        costs
        during the current reporting period.
 
 **Interest
        Expenses**
 
 **Three Months Ended September 30,****2008**
              
              **2007**
              
              **Increase**
              
              **% Increase**Bank Loans
              
              $
              76,481.00
              
              $
              34,161.00
              
              $
              42,320.00
              
              
              123.88
              %Related party
              
              
              29,265.00
              
              
              59,115.00
              
              
              -29,850.00
              
              
              -50.49
              %Convertible
                  notes interest
              
              
              12,674.00
              
              
              —
              
              
              12,674.00Convertible
                  notes-amortization of discount
              
              
              1,350,172.00
              
              
              587,368.00
              
              
              762,804.00
              
              
              129.87
              %Total
              
              $
              1,468,592.00
              
              $
              680,644.00
              
              $
              787,948.00
              
              
              115.77
              %
  36
 *Table
            of Contents*
 
 Interest
        expense was $1,468,592 for the three months ended September 30, 2008 compared
        to
        $680,644 for the same period of 2007.
 
 This
        increase was mainly due to the interest expense incurred related to the
        convertible notes issued in August 2007. As disclosed in the note 11 to the
        accompanying financial statements, the Company consummated a private placement
        of $2,000,000 principal amount of 6% secured notes with five-year common
        stock
        warrants which were convertible to 909,091 shares of common stock of the
        Company
        at a conversion price of $2.20 per share. On the issuance date, the Company
        recorded a discount on the note related to the intrinsic value of the beneficial
        conversion feature totaling $943,797 and $1,056,203 for the fair value of
        the
        warrants issued. Financing cost related to this private placement was $372,602
        in which $242,520 was paid out of the gross proceeds and $130,082 was the
        value
        of the warrants granted to the replacement agents.
 
 Pursuant
        to the APB 21, financing cost is amortized over the life of the notes to
        interest expense using the effective interest method. Also according to the
        paragraph 21 of EITF 00-27, all unamortized discount at the time of the
        conversion must be recognized as interest expense. During the three months
        ended
        September 30, 2008, $1,200,000 in convertible notes had been converted to
        the
        Company’s common shares. Accordingly, for the three months ended September 30,
        2008, $197,946 of financing cost and $1,152,226 of amortization of discount
        was
        recorded as interest expense.
  **Income
        Tax Expenses**
  Income
        tax expense for the three months ended September 30, 2008 and 2007 amounted
        to
        $273,203 and $72,880, respectively. The increase in our income tax expenses
        were
        mainly due to the expiration of Goldenway’s tax holiday on December 31, 2007. In
        addition, Catch-Luck and New-Tailun were subject to higher preferential tax
        rates since the beginning of 2008.
 
 Our
        PRC
        subsidiaries were subject to various preferential tax policies and were entitled
        to the following income tax rates:
 
 2008
              
              2007Goldenway
              
              
              25.0
              %
              
              12.0
              %Catch-Luck
              
              
              12.5
              %
              
              0.0
              %New-Tailun
              
              
              12.5
              %
              
              0.0
              %LA
                  GO GO
              
              
              25.0
              %
              
              0.0
              %
 
 Goldenway
        was incorporated in the PRC and is subject to PRC income tax laws and
        regulations. Goldenway is presently subject to an income tax rate of 25%.
 
 New-Tailun
        and Catch-Luck were incorporated in the PRC and are subject to PRC income
        tax
        laws and regulations. According to the relevant laws and regulations in the
        PRC,
        enterprises with foreign investment in the PRC are entitled to full exemption
        from income tax for two years beginning from the first year the enterprises
        become profitable and has accumulated profits and a 50% income tax reduction
        for
        the subsequent three years. New-Tailun and Catch-Luck were approved as a
        wholly
        foreign-owned enterprise in 2006 and are entitled to 100% income tax exemptions
        in 2006 and 2007 and a 50% reduction for the next three years. In 2008,
        New-Tailun and Catch-Luck are subject to a 12.5% income tax rate.
 
 LA
        GO
        GO was established on January 24, 2008, and it is subject to an income tax
        rate of 25%.
 
 Perfect
        Dream Limited (“Perfect Dream”), was incorporated in the British Virgin Islands
        on July 1, 2004, its income tax rate is 0%.
 
 Ever-Glory
        International Group Inc., our parent corporation, was incorporated in the
        State
        of Florida, and it has incurred net operating losses for income tax purposes
        through September 30, 2008. The net operating loss carry forwards for United
        States income taxes may be available to reduce ad offset the company’s taxable
        income in future years. These carry forwards will expire, if not utilized,
        through 2028. Management believes that the realization of the benefits from
        these losses is uncertain due to our limited operating history and continuing
        losses for United States income tax purposes. Accordingly, we have provided
        a
        100% valuation allowance on the deferred tax asset benefit to reduce the
        asset
        to zero. Management will review this valuation allowance periodically and
        make
        adjustments as warranted.
  37
 *Table
            of Contents*
  **Net
        Income**
 
 Net
        income for the three months ended September 30, 2008 was $647,181, a decrease
        of
        51.0% compared to the $1,321,065 of net income reported for the third quarter
        of
        2007. Even though our income from operations increased 16.9% from the third
        quarter of 2007 to the third quarter of 2008, our net income decreased partly
        due to $1,350,172 in amortization costs which we recorded in the third quarter
        of 2008, related to our convertible note financing. In the third quarter
        of
        2008, a majority of the holders of the convertible notes we issued in August
        2007 converted their notes into common stock, requiring us to record this
        amortization expense in the third quarter of 2008. For further details
        concerning these amortization costs, see “Interest Expenses” above.
 
 **Minority
        interest**
 
 On
        January 9, 2008, our subsidiary Goldenway entered into an Agreement with
        La
        Chapelle, to form a joint venture to develop, promote and market a new line
        of
        women’s wear in China, referred to as “ LA
        GO
        GO ”.
        We
        agreed to initially invest 6 Million RMB (approximately $826,200) in cash,
        and
        our joint venture partner La Chapelle agreed to invest 4 Million RMB
        (approximately $553,040) in cash, for 60% and 40% stakes, respectively, in
        the
        joint venture. The LA
        GO
        GO joint
        venture is consolidated in our financial statements, while the 40% stake
        held by
        La Chapelle is classified as a “minority interest”. As of September 30, 2008, we
        recorded $551,623 as minority interest. For the three month period ending
        September 30, 2008, we recorded a loss of $4,666, which represents La Chapelle’s
        40% of LA GO GO’s net loss for the third quarter of 2008.
  ***Nine
        months Ended September 30, 2008 Compared to Nine months Ended September 30,
        2007***
 
 The
        following table summarizes our results of operations for the nine months
        ended
        September 30, 2008 and 2007. The table and the discussion below should be
        read
        in conjunction with the unaudited financial statements and the notes thereto
        appearing elsewhere in this report.
 **Nine months Ended September 30,****2008**
                
                **2007**
                
                **Increase**
                
                **%****Increase**Sales
                
                $
                75,701,181
                
                
                100.0
                %
                $
                50,001,227
                
                
                100.0
                %
                $
                25,699,954
                
                
                51.4
                %Cost
                    of Sales
                
                $
                63,035,937
                
                
                83.3
                %
                $
                42,296,988
                
                
                84.6
                %
                $
                20,748,949
                
                
                49.0
                %Gross
                    Profit
                
                $
                12,665,244
                
                
                16.7
                %
                $
                7,704,239
                
                
                15.4
                %
                $
                4,961,005
                
                
                64.4
                %Operating
                    Expense
                
                $
                5,835,320
                
                
                7.7
                %
                $
                3,052,273
                
                
                6.1
                %
                $
                2,783,047
                
                
                91.2
                %Income
                    From Operations
                
                $
                6,829,924
                
                
                9.0
                %
                $
                4,651,966
                
                
                9.3
                %
                $
                2,177,958
                
                
                46.8
                %Other
                    Expenses
                
                $
                -2,795,713
                
                
                -3.7
                %
                $
                -910,979
                
                
                -1.8
                %
                $
                -1,884,734
                
                
                206.9
                %Income
                    before income tax expenses
                
                $
                4,034,211
                
                
                5.3
                %
                $
                3,740,987
                
                
                7.5
                %
                $
                293,224
                
                
                7.8
                %Income
                    tax expenses
                
                $
                841,850
                
                
                1.1
                %
                $
                155,203
                
                
                0.3
                %
                $
                686,647
                
                
                442.4
                %Minority
                    interest
                
                $
                -1,417
                
                
                0.0
                %
                
                0
                
                
                0.0
                
                $
                -1,417
                
                
                —Net
                    Income
                
                $
                3,193,778
                
                
                4.2
                %
                $
                3,585,784
                
                
                7.2
                %
                $
                -392,006
                
                
                -10.9
                %
  38
 *Table
            of Contents*




**Sales**





The
      following table sets forth a breakdown of our total sales revenue, by region,
      for the periods indicated:





**Nine months Ended September 30,****2008**
            
            **2007****$**
            ****
            **% of total**
              **revenues**
            ****
            **$**
            ****
            **% of total**
              **revenues**
            ****
            **Growth in 2008**
              **compared to**
              **2007**(in U.S. dollars, except for percentages)ODM
                SalesEurope
            
            
            42,178,290
            
            
            55.7
            %
            
            29,365,688
            
            
            58.7
            %
            
            43.6
            %U.S.
            
            
            12,734,839
            
            
            16.8
            %
            
            10,627,898
            
            
            21.3
            %
            
            19.8
            %Japan
            
            
            12,739,050
            
            
            16.8
            %
            
            6,543,188
            
            
            13.1
            %
            
            94.7
            %China
            
            
            6,594,818
            
            
            8.7
            %
            
            3,464,453
            
            
            6.9
            %
            
            90.4
            %Other
            
            
            43,284
            
            
            0.1
            %
            
            —
            
            
            —
            
            
            —Domestic
                Retail SalesRetail
            
            
            1,410,900
            
            
            1.9
            %
            
            —
            
            
            0.0
            %
            
            —Total
                revenues
            
            
            75,701,181
            
            
            100.0
            %
            
            50,001,227
            
            
            100.0
            %
            
            51.4
            %





We
      generate revenues primarily from our ODM business mainly for the international
      markets. In 2008, we entered into our domestic retail market, focusing on our
      own branded garments. Total sales for the nine months ended September 30, 2008
      were $75,701,181, an increase of 51.4% compared to the same period of 2007.
      This
      increase was primarily attributable to an operating growth in ODM sales to
      customers in Europe, U.S., Japan and the PRC, and revenue contributions from
      our
      newly launched retail “LA GO GO” in 2008.





Sales
      to
      customers in Europe **** accounted
      for 55.7% of our net revenue for the nine months ended September 30, 2008,
      an
      increase of 43.6% compared to the same period of 2007. This increase was
      primarily attributable to higher demand and increased order volume from our
      several largest Europe customers.





Sales
      to
      customers in the U.S. **** accounted
      for 16.8% of our net revenue for the nine months ended September 30, 2008,
      an
      increase of 19.8% compared to the same period of 2007, which was primarily
      due
      to the expansion of our customer base in the United States.





Sales
      to
      customers in Japan accounted for 16.8% of our net revenue for the nine months
      ended September 30, 2008, an increase of 94.7% compared to the same period
      of
      2007. The increase was attributable to our success with establishing a long-term
      relationship with premium brands in the Japanese market, and strong demand
      in
      the third quarter of 2008 for the upcoming holiday season.




Sales
      to
      customers in the PRC accounted for 8.7% of our net revenue for the nine months
      ended September 30, 2008, an increase of 90.4% compared to the same period
      of
      2007. The increase was attributable to an increase in order volume from our
      existing customers in Hong Kong, especially in the first two quarters of
      2008.





Sales
      generated from LA GO GO accounted for 1.9% of our net revenue for the nine
      months ended September 30, 2008. As of September 30, 2008, we have opened 55
      LA
      GO GO retail stores, generating average sales of $8,500 per month per
      store.




39
 *Table
          of Contents*




Below
      is
      a breakdown of our total revenues generated from related parties and third
      parties for the nine months ended September 30, 2008 and 2007.




**Nine months Ended September 30,****Net Sales**
            
            **2008**
            
            **2007**
            
            **Increase**
            
            **% Change**To related parties
            
            $
            510,145
            
            
            0.7
            %
            $
            940,334
            
            
            1.9
            %
            $
            (430,189
            )
            
            -45.7
            %To
                third parties
            
            $
            75,191,036
            
            
            99.3
            %
            $
            49,060,893
            
            
            98.1
            %
            $
            26,130,143
            
            
            53.3
            %Total
            
            $
            75,701,181
            
            
            100.0
            %
            $
            50,001,227
            
            
            100.0
            %
            $
            25,699,954
            
            
            51.4
            %




Net
      sales
      to related parties accounted for 0.7% of our total sales for the nine months
      ended September 30, 2008, a decrease from 1.9% for the same period in 2007.
      We
      expect sales to related parties will continue to constitute a small portion
      of
      our total sales.





**Cost
      of Sales and Gross Margin**





The
      following table sets forth the components of our cost of sales and gross profit
      both as an amount and as a percentage of total net sales for the periods
      indicated.




**Nine
                months Ended September 30,****2008**
            
            **2007**
            
            **Change**
            
            **%**
              **Change**Total
                Net Sales
            
            $
            75,701,181
            
            
            100.0
            %
            $
            50,001,227
            
            
            100.0
            %
            $
            25,699,954
            
            
            51.4
            %Raw
                materials
            
            
            34,860,446
            
            
            46.1
            %
            
            22,994,332
            
            
            46.0
            %
            
            11,866,114
            
            
            51.6
            %Labor
            
            
            2,232,520
            
            
            2.9
            %
            
            2,432,246
            
            
            4.9
            %
            
            -199,726
            
            
            -8.2
            %Outsource
                Production Costs
            
            
            23,791,931
            
            
            31.4
            %
            
            15,429,194
            
            
            30.9
            %
            
            8,362,737
            
            
            54.2
            %Overhead
                and Other
            
            
            1,365,079
            
            
            1.8
            %
            
            1,441,216
            
            
            2.9
            %
            
            -76,137
            
            
            -5.3
            %Retail-purchase
                finishing garments from other factories
            
            
            785,961
            
            
            1.0
            %
            
            0
            
            
            0.0
            
            
            785,961
            
            
            —Total
                Cost of Sales
            
            $
            63,035,937
            
            
            83.3
            %
            $
            42,296,988
            
            
            84.6
            %
            $
            20,738,949
            
            
            49.0
            %Gross
                Profit
            
            $
            12,665,244
            
            
            16.7
            %
            $
            7,704,239
            
            
            15.4
            %
            $
            4,961,005
            
            
            64.4
            %





Raw
      material costs, as a percentage of total net sales, remained flat for the nine
      months ended September 30, 2008 compared to the same period of 2007. In the
      third quarter of 2008, we took effective measures to control the cost of raw
      materials by centralizing our purchasing function.





Labor
      costs accounted for 2.9% of our total net sales for the nine months ended
      September 30, 2008, which decreased from 4.9% for the same period in 2007.
      This
      decrease was mainly due to an internal headcount reduction. In 2008, after
      performing a comprehensive review of our processes and organization, management
      decided to increase outsourcing from our Goldenway subsidiary to independent
      contractors to improve performance and efficiency as well as better manage
      our
      labor costs.





Outsource
      production costs accounted for 31.4% of our total net sales for the nine months
      ended September 30, 2008, which increased from 30.9% for the same period in
      2007. This increase was primarily attributable to the increased cost of
      outsourcing in relation to the output from outsourcing, especially in the third
      quarter of 2008. During 2008, there was a general increase in inflation, which
      included both wages and goods.





Overhead
      and other expenses accounted for 1.8% of our total net sales for the nine months
      ended September 30, 2008, compared to 2.9% for the same period of 2007. This
      decrease was also due to reduction in our employee headcount as a result of
      increased outsourcing.




40
 *Table
          of Contents*




Our
      retail business costs accounted for 1.0% of our total net sales for the nine
      months ended September 30, 2008. This consisted of purchases of finished goods
      from other suppliers for resale in our LA
      GO
      GO stores.





Total
      cost of sales for the nine months ended September 30, 2008 was $63,035,937,
      an
      increase of 49.0% compared to the same period in 2007. As a percentage of total
      net sales, cost of sales for the nine months ended September 30, 2008, decreased
      from 84.6% to 83.3%, compared to the same period in 2007. Consequently, the
      gross margin as a percentage of sales increased to approximately 16.7% from
      15.4% for the same period in 2007. The increase in gross margin was attributable
      to better control in our manufacture overhead and the improvement in our
      production efficiency in 2008.





The
      following table sets forth our total net sales, gross profit and gross margin
      of
      the geographic market segments for the nine months ended September 30, 2008
      and
      2007:


**Nine months Ended September 30,****2008**
              
              **2007****Net Sales**
              
              **Gross profit**
              
              **Gross**
                **margin**
              
              **Net Sales**
              
              **Gross profit**
              
              **Gross**
                **margin**ODM SalesEurope
              
              
              42,178,290
              
              
              6,986,953
              
              
              16.6
              %
              
              29,365,688
              
              
              5,143,983
              
              
              17.5
              %U.S.
              
              
              12,734,839
              
              
              1,321,872
              
              
              10.4
              %
              
              10,627,898
              
              
              664,656
              
              
              6.3
              %Japan
              
              
              12,739,050
              
              
              2,556,672
              
              
              20.1
              %
              
              6,543,188
              
              
              878,757
              
              
              13.4
              %China
              
              
              6,594,818
              
              
              1,177,452
              
              
              17.9
              %
              
              3,464,453
              
              
              1,016,843
              
              
              29.4
              %Other
              
              
              43,284
              
              
              -2,644
              
              
              -6.1
              %
              
              —
              
              
              —
              
              
              —Domestic
                  SalesRetail
              
              
              1,410,900
              
              
              624,939
              
              
              44.3
              %
              
              —
              
              
              0
              
              
              —Total
              
              
              75,701,181
              
              
              12,665,244
              
              
              16.7
              %
              
              50,001,227
              
              
              7,704,239
              
              
              15.4
              %




Gross
        margin in Europe was 16.6% for the nine months ended September 30, 2008,
        compared to 17.5% for the same period of 2007. As in the third quarter of
        2008,
        our gross margin experienced mild reduction in the nine month period ending
        September 30, 2008, as compared with the same nine month period in 2007.
        In the
        last nine months we changed our product mix to improve our gross margin,
        however, this was offset by other countervailing factors, such as higher
        price
        sensitivity on the part of our customers, inflation in China and the effect
        of
        an appreciating renminbi against currencies of importing nations. Many of
        our
        customers have been negotiating for lower contract prices, as the retail
        environment has become more competitive, which we believe may be associated
        with
        a slowing economy in Europe. Also, inflation has persisted in China in recent
        months, which has increased the prices of labor and materials, and this has
        added downward pressure to our margins. Finally, the Chinese renminbi has
        been
        appreciating against other world currencies, making Chinese imports more
        expensive, particularly to customers in Europe and the U.S., and this has
        put
        pressure on us to reduce prices in order to continue to be a top supplier
        to
        many of our customers.
 
 Gross
        margin in U.S. was 10.4% for the nine months ended September 30, 2008, compared
        to 6.3% for the same period of 2007. In 2008, we adjusted our customers mix
        in
        the U.S., we moved away from mass markets and entering into high quality
        upper
        market segments to improve our gross profit percentage. During the nine months
        ending September 30, 2008, particularly in the third quarter of 2008 as a
        financial crisis unfolded, consumers became more sensitive to price, we had
        to
        decrease our prices in order to compete with rival manufacturers. We are
        continuing to seek more business opportunities with middle- to upper market
        premium retailers in order to maintain or gross profit margins.
 
 Gross
        margin in Japan was 20.1% for the nine months ended September 30, 2008, compared
        to 13.4% for the same period in 2007 as we shifted toward the premium brand
        market. For the nine months ended September 30, 2008, we were able to shift
        our
        production to upper market premium garments which yielded higher gross margin
        than our previous product mix. As discussed in our quarterly analysis above,
        one
        upper market Japanese casual wear retailer who we recently added as a customer
        increased their order volume from approximately $14,000 in 2007, up to
        approximately $1.9 million as of September 30, 2008. Since our sales to Japan
        became more heavily weighted toward higher-end garments with very favorable
        margins, our overall gross margin on sales to Japanese customers
        increased.
 
 Gross
        margin in China, excluding our retail operations, was 17.9% for the nine
        months
        ended September 30, 2008, compared to 29.4% for the same period in 2007.
        This
        reduction in gross margin was due to higher-than-expected inflation in the
        PRC
        and appreciation of the Chinese renminbi relative to the U.S. Dollar. We
        managed
        to negotiate mild increases our contract prices with our Hong Kong customers,
        based on and to adjust for our internal forecasts regarding domestic inflation
        and Chinese renminbi appreciation, however, actual domestic inflation and
        appreciation in the renminbi turned out to be higher than we had originally
        forecast. As a result, we experienced a decline in gross margin on our sales
        in
        China.
  Gross
        margin for our recently launched retail brand, LA GO GO, was 44.3% for the
        nine
        months ended September 30, 2008. The decrease in gross margin between the
        three
        months ended September 30, 2008 as compared to the nine months ended September
        30, 2008 was primarily due to lower margins for summer clothing sold in the
        third quarter, in contrast to spring clothing sold in the second quarter
        of 2008
        which tends to carry a higher gross margin. Also, as is typical in the retail
        business, we often discount items during the summer season, which leads to
        lower
        margins for items sold in the third quarter of the year.


41
 *Table
          of Contents*




Overall
        gross margin for the nine months ended September 30, 2008 was 16.7%, increase
        from 15.4% for the same period in 2007. Management generally attributes this
        to
        higher inflation in the PRC, and a rising Chinese renminbi. We countered
        this
        trend, in some regions more than others as discussed above, by moving toward
        higher-margin products in those markets. Management expects that continued
        efforts to move toward upper-market premium products, if successful, will
        enable
        the company to combat the effects of inflation and an appreciating Chinese
        renminbi, and maintain and increase our overall gross profit margins. In
        addition, management expects that as the company’s domestic retail operation
        grows and becomes a larger part of our business, if this growth is realized,
        this would eventually have the effect of increasing the company’s overall profit
        margins.




**Selling,
      and General and Administrative Expenses**


**For the Nine months Ended September 30,****2008**
              
              **2007****$**
              ****
              **% of Total**
                **Sales**
              ****
              **$**
              ****
              **% of Total**
                **Sales**
              ****
              **change**
              ****
              **% change**(in U.S. Dollars, except for
                  percentages)Gross
                  Profit
              
              $
              12,665,244
              
              
              16.7
              %
              $
              7,704,239
              
              
              15.4
              %
              $
              4,961,005
              
              
              64.4
              %Operating
                  Expenses:Selling
                  Expenses
              
              
              1,210,063
              
              
              1.6
              %
              
              493,686
              
              
              1.0
              %
              
              716,377
              
              
              145.1
              %General
                  and Administrative
              
              
              4,625,257
              
              
              6.1
              %
              
              2,558,587
              
              
              5.1
              %
              
              2,066,670
              
              
              80.8
              %Total
              
              
              5,835,320
              
              
              7.7
              %
              
              3,052,273
              
              
              6.1
              %
              
              2,783,047
              
              
              41.2
              %Income
                  from Operations
              
              $
              6,829,924
              
              
              9.0
              %
              $
              4,651,966
              
              
              9.3
              %
              $
              2,177,958
              
              
              46.8
              %





Selling
      expenses in 2008 increased by 145.1% to $1,210,063 for the nine months ended
      September 30, 2008. The increase was attributable to increased travel and
      marketing expenses incurred by the international sales force to obtain new
      customers, and also the increased export expenses such as customs
      duties, port fees, export document fees, inspection fees, and other related
      costs, and promotion of our domestic brand, LA
      GO
      GO .





General
      and administrative expenses increased by 80.8% from $2,558,587 for the nine
      months ended September 30, 2007 to $4,625,257 for the nine months ended
      September 30, 2008. However, as a percentage of net sales, general and
      administrative expenses for the nine month period slightly increased from 5.1%
      to 6.1%. The increase was mainly
      due to increases in salary expense, employee benefits, professional fees and
      depreciation expenses relating to our new office facilities. Payroll
      also increased by approximately $1.1 million in the nine months ended September
      30, 2008, as compared to the same period last year, as we hired more management
      professionals as our business continued its expansion. The increase of the
      expenses incurred by the US parent company for investor relationship was also
      affect out total general and administrative expenses.





**Income
      from Operations**




Income
      from operations increased by 46.8% from $4,651,966 for the nine months ended
      September 30, 2007 to $6,829,924 for the nine months ended September 30 2008,
      as
      we expanded our market exposure, increased our sales volume and improved cost
      management during this period.




**Interest
      Expenses**




**Nine months Ended**
              **September 30,****2008**
            
            **2007**
            
            **Increase**
              **(Decrease)**
            
            **% Increase**Bank
                Loans
            
            $
            220,827.00
            
            $
            177,822.00
            
            $
            43,005.00
            
            
            24.18
            %Related
                party
            
            
            145,836.00
            
            
            177,344.00
            
            
            -31,508.00
            
            
            -17.77
            %Convertible
                notes interest
            
            
            58,659.00
            
            
            —
            
            
            58,659.00
            
            
            —Convertible
                notes-amortization of discount
            
            
            2,252,224.00
            
            
            587,368.00
            
            
            1,664,856.00
            
            
            283.44
            %Total
            
            $
            2,677,546.00
            
            $
            942,534.00
            
            $
            1,735,012.00
            
            
            184.08
            %





Interest
      expense was $2,677,546 for the nine months ended September 30, 2008 compared
      to
      $942,534 for the same period in 2007.





This
      increase was mainly due to the interest expense incurred related to the
      convertible notes issued in August 2007. As disclosed in the note 11 to the
      accompanying financial statements, the Company consummated a private placement
      of $2,000,000 principal amount of 6% secured notes with five-year common stock
      warrants which were convertible to 909,091 shares of common stock of the Company
      at a conversion price of $2.20 per share. On the issuance date, the Company
      recorded a discount on the note related to the intrinsic value of the beneficial
      conversion feature totaling $943,797 and $1,056,203 for the fair value of the
      warrants issued. Financing cost related to this private placement was $372,602
      in which $242,520 was paid out of the gross proceeds and $130,082 was the value
      of the warrants granted to the replacement agents.




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Pursuant
      to the APB 21, financing cost is amortized over the life of the notes to
      interest expense using the effective interest method. Also according to the
      paragraph 21 of EITF 00-27, all unamortized discount at the time of the
      conversion must be recognized as interest expense. During the nine months ended
      September 30, 2008, $1,950,000 in convertible notes had been converted to the
      Company’s common shares. Accordingly, for the nine months ended September 30,
      2008, $318,196 of financing cost and $1,934,028 amortization of discount were
      recorded as interest expense.





**Income
      Tax Expenses**




Income
      tax expense for the nine months ended September 30, 2008 and 2007 amounted
      to
      $841,850 and $155,203, respectively. Our effective income tax rates were 20.9%
      and 4.1% for the nine months ended September 30, 2008 and 2007, respectively.
      The increase in our income tax expenses were mainly due to the expiration of
      Goldenway’s tax holiday on December 31, 2007. In addition, Catch-Luck and
      New-Tailun were subject to higher preferential tax rates since the beginning
      of
      2008.





Our
      PRC
      subsidiaries were subject to various preferential tax policies and were entitled
      to the following income tax rates:


2008
              
              2007Goldenway
              
              
              25.0
              %
              
              12.0
              %Catch-Luck
              
              
              12.5
              %
              
              0.0
              %New-Tailun
              
              
              12.5
              %
              
              0.0
              %LA
                  GO GO
              
              
              25.0
              %
              
              0.0
              %


Goldenway
      was incorporated in the PRC and is subject to PRC income tax laws and
      regulations. Goldenway is presently subject to an income tax rate of 25%.





New-Tailun
      and Catch-Luck were incorporated in the PRC and are subject to PRC income tax
      laws and regulations. According to the relevant laws and regulations in the
      PRC,
      enterprises with foreign investment in the PRC are entitled to full exemption
      from income tax for two years beginning from the first year the enterprises
      become profitable and has accumulated profits and a 50% income tax reduction
      for
      the subsequent three years. New-Tailun and Catch-Luck were approved as a wholly
      foreign-owned enterprise in 2006 and are entitled to 100% income tax exemptions
      in 2006 and 2007 and a 50% reduction for the next three years. In 2008,
      New-Tailun and Catch-Luck are subject to a 12.5% income tax rate.





LA
      GO
      GO was established on January 24, 2008, and it is subject to an income tax
      rate of 25%.





Perfect
      Dream Limited (“Perfect Dream”), was incorporated in the British Virgin Islands
      on July 1, 2004, its income tax rate is 0%.





Ever-Glory
      International Group Inc., our parent corporation, was incorporated in the State
      of Florida, and it has incurred net operating losses for income tax purposes
      through September 30, 2008. The net operating loss carry forwards for United
      States income taxes may be available to reduce ad offset the company’s taxable
      income in future years. These carry forwards will expire, if not utilized,
      through 2028. Management believes that the realization of the benefits from
      these losses is uncertain due to our limited operating history and continuing
      losses for United States income tax purposes. Accordingly, we have provided
      a
      100% valuation allowance on the deferred tax asset benefit to reduce the asset
      to zero. Management will review this valuation allowance periodically and make
      adjustments as warranted.




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**Net
      Income**





Net
      income for the nine months ended September 30, 2008 was $3,193,778, a decrease
      of 10.9% compared to the same period of 2007.





**Minority
      Interest**





On
      January 9, 2008, our subsidiary Goldenway entered into an Agreement with La
      Chapelle, to form a joint venture to develop, promote and market a new line
      of
      women’s wear in China, referred to as “LA GO GO ”.
      We
      agreed to initially invest 6 Million RMB (approximately $826,200) in cash,
      and
      our joint venture partner La Chapelle agreed to invest 4 Million RMB
      (approximately $553,040) in cash, for 60% and 40% stakes, respectively, in
      the
      joint venture. The LA
      GO
      GO joint
      venture is consolidated in our financial statements, while the 40% stake held
      by
      La Chapelle is classified as a “minority interest”. As of September 30, 2008, we
      recorded $551,623 as minority interest. For the nine month period ending
      September 30, 2008, we recorded a loss of $1,417, which represents La Chapelle’s
      40% of LA GO GO’s net loss for the nine months ended September 30,
      2008.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      September 30, 2008, we had cash and cash equivalents of $882,548, other current
      assets of $28,877,147 and current liabilities of $15,794,376. We presently
      finance our operations primarily from the cash flow from our operations, and
      we
      anticipate that this will continue to be our primary source of funds to finance
      our short-term cash needs.




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Net
      cash
      provided by operating activities for the nine months ended September 30, 2008
      was $2,468,982 compared with net cash provided by operating activities of
      $3,593,829 in the same period of 2007. This decrease was mainly attributable
      to
      the increase of our account receivable and advance on raw material purchases
      due
      to the increase of our sales.





Net
      cash
      used in investing activities for the nine months ended September 30, 2008 was
      $2,161,350, compared with $1,813,041 for the same period of 2007. On January
      9,
      2008, Goldenway entered into a Capital Contribution Agreement (“Capital
      Contribution Agreement”) with La Chapelle, a Shanghai-based garment maker, and
      several shareholders of La Chapelle. Pursuant to the terms of the Capital
      Contribution Agreement, Goldenway invested $1,397,700 in cash (10 million RMB)
      in La Chapelle for a 10% ownership interest in La Chapelle.





Net
      cash
      used in financing activities for the nine months ended September 30, 2008 was
      $158,272, compared with net cash provided by financing activities of $42,846
      for
      the same period of 2007. The decrease was mainly due to pay back $1,844,164
      to
      Blue Power Holding Ltd, partially offset by $553,040 received from La Chapelle
      for incorporating LA
      GO
      GO ,
      and
      $219,635 received from two convertible notes holders for exercising the
      warrants.





On
      July
      31, 2008, Goldenway entered into credit agreements with Nanjing Bank which
      allow
      the Company to borrow a principal amount up to $7.30 million (RMB 50 million)
      within a 24 month period. Bank loans are secured by our facilities and used
      to
      fund daily operations. As of September 30, 2008, we had borrowed approximately
      $5.8 million which matures on February 18, 2009 at an interest rate of 7.227%
      per annum. We plan to repay the loans with cash flow from operations. In the
      event we do not have available cash flow from operations to repay these loans,
      we will seek to consolidate and refinance the loans at maturity.





On
      August
      2, 2007, we consummated a private placement of $2,000,000 of our secured
      convertible notes. The net proceeds were $1,757,480 excluding financing costs.
      The purpose of the financing was primarily working capital.





In
      addition, as of September 30, 2008, we had borrowed $2,630,821 from a related
      party for the main purpose of funding the increased registered capital of
      Goldenway. Interest to be paid to this related party totaled $145,836 for the
      nine months ended September 30, 2008.





**Capital
      Commitments**





We
      have a
      continuing program for the purpose of improving our manufacturing facilities.
      We
      anticipate that cash flows from operations and bank borrowings will be used
      to
      pay for these capital commitments. The Articles of Association of our Goldenway
      subsidiary required that registered capital of approximately $17.5 million
      be
      paid into Goldenway by February 1, 2008. The increased registered capital is
      to
      be paid in installments within three years of the issuance of Goldenway’s
      updated business license. As of February 1, 2008, the Company had fulfilled
      $3.6
      million of its registered capital requirements and had a registered capital
      commitment of $13.9 million payable by February 1, 2008. In April 2008, the
      Company obtained the approval from the government granting the extension to
      make
      the required capital contribution by July 25, 2008. As of July 20, 2008, the
      Company had fulfilled $5.6 million of its registered capital requirements and
      had a registered capital commitment of $11.9 million payable by July 25, 2008.
      In July 2008, the Company obtained the approval from the government granting
      the
      extension to make the required capital contribution by April 25,
      2009.




On
      August
      2, 2007, the Company issued 6% secured convertible debentures in a face amount
      of $2,000,000. The notes had a two year term, unless sooner converted by the
      notes holders into our common stock. As of September 30 2008, the notes holders
      converted $1,950,000 of principal plus accrued interest of $2,155 to 887,348
      shares of common stock of the Company. On October 1, 2008, all of the 6%
      convertible notes, face amount $2,000,000, had been converted into shares of
      common stock.




**Uses
      of Liquidity**





Our
      cash
      requirements through the end of fiscal 2008 will be primarily to fund daily
      operations for the growth of our business. In addition, we will be required
      to
      fund our required capital contributions to Goldenway as discussed above in
      “Capital Commitments.”




45
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**Sources
      of Liquidity**





Our
      primary sources of liquidity for our short-term cash needs are expected to
      be
      from cash flows generated from operations and cash and cash equivalents
      currently on hand. We believe that we will be able to borrow additional funds
      if
      needed.





We
      believe our cash flow from operations together with our cash and cash
      equivalents currently on hand will be sufficient to meet our needs for working
      capital, capital expenditure and other commitments through the end of
      2008. No assurance can be made that such financing will be available to us,
      and adequate funds may not be available on terms acceptable to us. If
      funding is insufficient at any time in the future, we will develop or enhance
      our products or services and expand our business through our own cash flows
      from
      operations.





As
      of
      September 30, 2008, we had access to $7,315,000 of line of credit. Of this
      line
      of credit, $1,521,520 is available and unused, of which our lender has committed
      to loan to us upon request. This credit facility does not contain any covenants
      or impose any other restrictions on our operations.




**Foreign
      Currency Translation Risk**





Our
      operations are, for the most part, located in the PRC, which may give rise
      to
      significant foreign currency risks from fluctuations and the degree of
      volatility of foreign exchange rates between the United States dollar and the
      Chinese RMB. We price our exported products, and enter into sales
      contracts, based on the U.S. dollar. During 2003 and 2004 the exchange rate
      of
      RMB to the dollar remained constant at 8.26 RMB to the dollar. On July 21,
      2005,
      the Chinese government adjusted the exchange rate from 8.26 to 8.09 RMB to
      the
      dollar. In 2008, the RMB continued to appreciate against the U.S. dollar. As
      of
      September 30, 2008, the market foreign exchanges rate was increased to 6.85
      RMB
      to one U.S. dollar. As a result, the ongoing appreciation of RMB to U.S. dollar
      negatively impacted our gross margins for the nine months and three months
      ended
      September 30, 2008. We are always negotiating order price adjustments with
      most
      of our customers based on the daily market foreign exchange rates, which we
      believe will reduce our exposure to exchange rate fluctuations in the future
      and
      pass some of the increase in cost to our customers.





In
      addition, the financial statements of Goldenway, New-Tailun, Catch-Luck and
      LA
      GO GO (whose functional currency is the RMB) are translated into US dollars
      using the closing rate method. The balance sheet items are translated into
      US
      dollars using the exchange rates at the respective balance sheet dates. The
      capital and various reserves are translated at historical exchange rates
      prevailing at the time of the transactions while income and expenses items
      are
      translated at the average exchange rate for the period. All exchange differences
      are recorded within equity. The foreign currency translation gain for the nine
      months ended September 30, 2008 and 2007 were $1,818,706 and $720,130,
      respectively.





**OFF-BALANCE
      SHEET ARRANGEMENTS**




We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources that are material to our
      investors.




**ITEM
      3.****QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





We
      do not
      use derivative financial instruments in our investment portfolio and have no
      foreign exchange contracts. Our financial instruments consist of cash and cash
      equivalents, trade accounts receivable, accounts payable and long-term
      obligations. We consider investments in highly-liquid instruments purchased
      with
      an original maturity of 90 days or less at the date of purchase to be cash
      equivalents.




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*Interest
      Rates* .
      Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      short-term investments and short-term obligations; thus, fluctuations in
      interest rates would not have a material impact on the fair value of these
      securities. At September 30, 2008, we had approximately $0.9 million in cash
      and
      cash equivalents. A hypothetical 5% increase or decrease in either short-term
      or
      long-term interest rates would not have any material impact on our earnings
      or
      loss, or the fair market value or cash flows of these instruments.




*Foreign
      Exchange Rates* .
      We pay
      our suppliers and employees in Chinese RMB, however, we sell to customers in
      the
      U.S., Japan and Europe and we generate sales in U.S. dollars and Euros.
      Accordingly, our business has substantial exposure to changes in exchange rates
      between and among the Chinese RMB, the U.S. dollar and the Euro. In the last
      decade, the RMB has been pegged at 8.2765 yuan to one U.S. dollar. On July
      21,
      2005 it was revalued to 8.11 per U.S. dollar. Following the removal of the
      peg
      to the U.S. dollar and pressure from the U.S., the People’s Bank of China also
      announced that the RMB would be pegged to a basket of foreign currencies, rather
      than being strictly tied to the U.S. dollar, and would be allowed to float
      trade
      within a narrow 0.3% daily band against this basket of currencies. The PRC
      government has stated that the basket is dominated by the U.S. dollar, Euro,
      Japanese Yen and South Korean Won, with a smaller proportion made up of the
      British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar
      and
      Singapore Dollar. There can be no assurance that the relationship between the
      RMB and these currencies will remain stable over time, especially in light
      of
      the significant political pressure on the Chinese government to permit the
      free
      flotation of the RMB, which could result in greater and more frequent
      fluctuations in the exchange rate between the RMB, the U.S. dollar and the
      Euro.
      At September 30, 2008, the exchange rate between the RMB and dollar was 6.84
      RMB
      to one U.S. dollar. For additional discussion regarding our foreign currency
      risk, see the section titled “ *Risk
      Factors — Fluctuation in the value of Chinese RMB relative to other currencies
      may have a material adverse effect on our business and/or an investment in
      our
      shares* .”




**ITEM
        4. CONTROLS AND PROCEDURES**





**Disclosure
      Controls and Procedures**





As
      of
      September 30, 2008, we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our chief executive officer
      and
      our chief financial officer, of the effectiveness of the design and operation
      of
      our disclosure controls and procedures. Based on the foregoing, our chief
      executive officer and chief financial officer concluded that our disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934) were effective.





**Remediation
      of Material in Internal Control over Financial Reporting**





Management,
      including our chief executive officer and our chief financial officer, does
      not
      expect that our disclosure controls and internal controls will prevent all
      error
      or all fraud, even as the same are improved to address any deficiencies and/or
      weaknesses. A control system, no matter how well conceived and operated, can
      provide only reasonable, not absolute, assurance that the objectives of the
      control system are met. Over time, controls may become inadequate because of
      changes in conditions or deterioration in the degree of compliance with policies
      or procedures. Further, the design of a control system must reflect the fact
      that there are resource constraints, and the benefits of controls must be
      considered relative to their costs. Because of the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the Company have
      been
      detected. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the control.





Our
      financial reporting process includes extensive procedures we undertake in order
      to obtain assurance regarding the reliability of our published financial
      statements, notwithstanding the material weaknesses in internal control. We
      expanded our review of accounting for business combinations to help compensate
      for our material weaknesses in order to provide assurance that the financial
      statements are free of material inaccuracies or omissions of material fact.
      As a
      result, management, to the best of its knowledge, believes that (i) this
      Quarterly Report on Form 10-Q does not contain any untrue statements of a
      material fact or omit any material fact and (ii) the financial statements and
      other financial information included in this report have been prepared in
      conformity with GAAP and fairly present in all material aspects our financial
      condition, results of operations, and cash flows.





47
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          of Contents*




**Changes
      in Internal Control over Financial Reporting**





There
      were no changes in our internal control over financial reporting (as defined
      in
      Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended
      September 30, 2008 that have materially affected, or are reasonably likely
      to
      materially affect, our internal control over financial reporting.





**PART
      II.  OTHER INFORMATION**


**ITEM
        1. LEGAL PROCEEDINGS**





There
      have been no material developments in any of our legal proceedings since the
      last date covered by our quarterly report for the period ending June 30, 2008.


**ITEM 1A.
        RISK FACTORS**




*You
      should carefully consider the risks described below together with all of the
      other information included in this report before making an investment decision
      with regard to our securities. The statements contained in or incorporated
      into
      this report that are not historic facts are forward-looking statements that
      are
      subject to risks and uncertainties that could cause actual results to differ
      materially from those set forth in or implied by forward-looking statements.
      If
      any of the following events described in these risk
      factors actually occurs, our business, financial condition or results of
      operations could be harmed. In that case, the trading price of our common stock
      could decline.*





**Risks
      Relating to Our Industry**





**Our
      sales are influenced by general economic cycles. A prolonged period of depressed
      consumer spending would have a material adverse effect on our
      profitability.**





Apparel
      is a cyclical industry that is dependent upon the overall level of consumer
      spending. Purchase of apparel generally decline during recessionary periods
      when
      disposable income is low. Our customers anticipate and respond to adverse
      changes in economic conditions and uncertainty by reducing inventories and
      canceling orders. As a result, any substantial deterioration in general economic
      conditions, increases in energy costs or interest rates, acts of war, acts
      of
      nature or terrorist or political events that diminish consumer spending and
      confidence in any of the regions in which we compete, could reduce our sales
      and
      adversely affect our business and financial condition. We currently sell to
      customers in the U.S., the EU and Japan. Accordingly, economic conditions and
      consumer spending patterns in these regions could affect our sales, and an
      economic down turn in one or more of these regions could have an adverse
      effect on our business.





**Intense
      competition in the worldwide apparel industry could reduce our sales and
      prices.**





We
      face a
      variety of competitive challenges from other apparel manufacturers both in
      China
      and other countries. Some of these competitors have greater financial and
      marketing resources than we do and may be able to adapt to changes in consumer
      preferences or retail requirements more quickly, devote greater resources to
      the
      marketing and sale of their products or adopt more aggressive pricing policies
      than we can. As a result, we may not be able to compete successfully with them
      if we cannot continue enhancing our marketing and management strategies, quality
      and value or responding appropriately to consumers’ needs.





**The
      success of our business depends upon our ability to offer innovative and
      upgraded products at attractive price points.**





The
      worldwide apparel industry is characterized by constant product innovation
      due
      to changing consumer preferences and by the rapid replication of new products
      by
      competitors. As a result, our success depends in large part on our ability
      to
      continuously and rapidly respond to customer requirements for innovative and
      stylish products at a competitive pace, intensity, and price. Failure on our
      part to regularly and rapidly respond to customer requirements could adversely
      affect our ability to retain our existing customers or to acquire new customers
      which would limit our sales growth.




48
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          of Contents*




**The
      worldwide apparel industry is subject to ongoing pricing
      pressure.**





The
      apparel market is characterized by low barriers to entry for both suppliers
      and
      marketers, global sourcing through suppliers located throughout the world,
      trade
      liberalization, continuing movement of product sourcing to lower cost countries,
      ongoing emergence of new competitors with widely varying strategies and
      resources, and an increasing focus on apparel in the mass merchant channel
      of
      distribution. These factors contribute to ongoing pricing pressure throughout
      the supply chain. This pressure has and may continue to:




·
            require
                us to reduce wholesale prices on existing products;·
            result
                in reduced gross margins across our product lines;·
            increase
                pressure on us to further reduce our production costs and our operating
                expenses.





Any
      of
      these factors could adversely affect our business and financial
      condition.





**Fluctuation
      in the price, availability and quality of raw materials could increase our
      cost
      of goods and decrease our profitability.**





We
      purchase raw materials directly from local fabric and accessory suppliers.
      We
      may also import specialty fabrics to meet specific customer requirements. We
      also purchase finished goods from other contract manufacturers. The prices
      we
      charge for our products are dependent in part on the market price for raw
      materials used to produce them. The price, availability and quality of our
      raw
      materials may fluctuate substantially, depending on a variety of factors,
      including demand, crop yields, weather patterns, supply conditions,
      transportation costs, government regulation, economic climates and other
      unpredictable factors. Any raw material price increases could increase our
      cost
      of goods and decrease our profitability unless we are able to pass higher prices
      on to our customers.




We
      do not
      rely on any single source for our supplies, and we do not believe that loss
      of
      any of our suppliers would have a material adverse effect on our ability to
      obtain finished goods or raw materials essential to our business because we
      believe we can locate other suppliers in a timely manner.





**Risks
      Relating to Our Business**





**We
      are increasingly relying upon contract manufacturers, to whom we outsource
      a
      significant amount of our manufacturing. An interruption our business
      relationship these contract manufacturers may disrupt our operations.**





During
      the three months and nine months ended September 30, 2008 and 2007, we relied
      on
      one contract manufacturer for 17% and 14% of our outsourcing production,
      respectively . For the three months ended September 30, 2008 and 2007, respectively, this
      contract manufacturer handled approximately 19.0% and 9.8% of our outsourced
      production. We do not believe that loss of the relationship with our highest
      volume contract manufacturer would have any long term material adverse effect
      on
      our business, as we believe that we would be able to promptly find and engage
      an
      alternative manufacturer within a reasonable amount of time. However, a
      prolonged interruption with our contract manufacturers may cause an interruption
      in our operations, which could adversely affect our results.





**We
      depend on some key customers for a significant portion of our sales. A
      significant adverse change in a customer relationship or in a customer’s
      performance or financial position could harm our business and financial
      condition.**




For
      the
      nine months ended September 30, 2008 and 2007, respectively, our one largest
      customer represented approximately 29.4% and 33.9% of our total net sales.
      For
      the three months ended September 30, 2008 and 2007, respectively, this largest
      customer represented approximately 25.7% and 29.9% of our total net sales.
      As of
      September 30, 2008, this customer accounted for 2.5% of total accounts
      receivable. The garment manufacturing industry has experienced substantial
      consolidation in recent years, which has resulted in increased customer leverage
      over suppliers, greater exposure for suppliers to credit risk and an increased
      emphasis by customers on inventory management and productivity.




49
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          of Contents*




A
      decision by a major customer, whether motivated by competitive considerations,
      strategic shifts, financial requirements or difficulties, economic conditions
      or
      otherwise, to decrease its purchases from us or to change its manner of doing
      business with us, could adversely affect our business and financial condition.
      In addition, while we have long-standing customer relationships, we do not
      have
      long term contracts with any of our customers.




As
      a
      result, purchases generally occur on an order-by-order basis, and the
      relationship, as well as particular orders, can generally be terminated by
      either party at any time. We do not believe that there is any material risk
      of
      loss of any of these customers during the next 12 months. We also believe that
      the unexpected loss of these customers could have material adverse effect on
      our
      earnings or financial condition. While we believe that we could replace these
      customers within 12 months, the loss of which will not have material adverse
      effect on our financial condition in the long term. None of our affiliates
      are
      officers, directors, or material shareholders of any of these
      customers.





**Our
      internal controls and procedures have been materially deficient, and, although
      we have corrected our internal control deficiencies, if our internal controls
      and procedures are found to be materially deficient in the future, or if we
      fail
      to implement required new or improved controls and procedures, our operating
      results could be harmed by increased regulatory compliance or remedial costs,
      and in addition, the price of our stock could decline.**





In
      the
      second quarter of 2007, resulting from comments by and discussions with the
      staff of the SEC related to our Preliminary Information Statement on Form 14C,
      we and our independent registered public accounting firm recognized that our
      internal controls had material weaknesses.  We restated our results of
      operations for the year ended December 31, 2006 and our financial results
      for the three months and six months ended June 30, 2007 as a result of our
      purchase accounting for the acquisition of New-Tailun completed on December
      30,
      2006.





In
      2006
      and 2007, we did not maintain effective controls to ensure the completeness,
      accuracy, and valuation over the accounting for business combinations, including
      the inability to prepare financial statements and footnotes in accordance with
      SEC rules and regulations and with our 2006 acquisition of New-Tailun. We
      misapplied generally accepted accounting principles whereby we did not value
      the
      acquisitions and record the resulting purchase accounting in accordance with
      SFAS 141 and EITF 02-5. As a result, we were required to restate our financial
      results for the year ended December 31, 2006 and for the three months and six
      months ended June 30, 2007.





During
      the two quarters of 2008, we corrected our internal control deficiencies,
      but we cannot be certain that the measures we took will ensure that we implement
      and maintain adequate internal controls in the future. If we fail to maintain
      adequate internal controls and if we cannot rectify the material weaknesses
      through remedial measures and improvements to our systems and procedures,
      management may encounter difficulties in timely assessing business performance
      and identifying incipient strategic and oversight issues. Such focus will
      require management from time to time to devote its attention away from other
      planning, oversight and performance functions.   Any failure to implement
      required new or improved controls, or difficulties encountered in their
      implementation, could harm our operating results or cause us to fail to meet
      our
      reporting obligations.





**We
      will be required to evaluate our internal control over financial reporting
      under
      Section 404 of the Sarbanes-Oxley Act.**





Failure
      to timely comply with the requirements of Section 404 or any adverse results
      from such evaluation could result in a loss of investor confidence in our
      financial reports and have an adverse effect on the trading price of our debt
      and equity securities.





We
      currently are not an “accelerated filer” as defined in Rule 12b-2 under the
      Securities Exchange Act of 1934, as amended. Beginning with our Annual Report
      for the year ended December 31, 2007, Section 404 of the Sarbanes-Oxley Act
      of
      2002 requires us to include an internal control report with our Annual Report
      on
      Form 10-K. That report must include management’s assessment of the effectiveness
      of our internal control over financial reporting as of the end of the fiscal
      year. This report must also include disclosure of any material weaknesses in
      internal control over financial reporting that we have identified. Additionally,
      for the fiscal year ended December 31, 2009, our independent registered public
      accounting firm will be required to issue reports on management’s assessment of
      our internal control over financial reporting and their evaluation of the
      operating effectiveness of our internal control over financial reporting. Our
      assessment requires us to make subjective judgments and our independent
      registered public accounting firm may not agree with our
      assessment.




50
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Achieving
      compliance with Section 404 within the prescribed period may require us to
      incur
      significant costs and expend significant time and management resources. If
      we
      are not able to complete our assessments as required under Section 404 in a
      timely manner, we would be unable to conclude that our internal control over
      financial reporting is effective as of December 31, 2008. As a result, investors
      could lose confidence in our reported financial information, which could have
      an
      adverse effect on the trading price of our debt securities.





**We
      must successfully maintain and/or upgrade our information technology
      systems.**





We
      rely
      on various information technology systems to manage our operations, and we
      regularly evaluate these systems against our current and expected requirements.
      Although we have no current plans to implement modifications or upgrades to
      our
      systems, we will eventually be required to make changes to legacy systems and
      acquiring new systems with new functionality. We are considering additional
      investments in updating our ERP system to help us improve our internal control
      system and to meet compliance requirements under Section 404. We are also
      continuing to develop and update our internal information systems on a timely
      basis to meet our business expansion needs. Any information technology system
      disruptions, if not anticipated and appropriately mitigated, could have an
      adverse effect on our business and operations.





**We
      may engage in future acquisitions and strategic investments that dilute the
      ownership percentage of our shareholders and require the use of cash, incur
      debt
      or assume contingent liabilities.**





As
      part
      of our business strategy, we expect to continue to review opportunities to
      buy
      or invest in other businesses or technologies that we believe would enhance
      our
      manufacturing capabilities, or that may otherwise offer growth opportunities.
      If
      we buy or invest in other businesses in the future, this may require the use
      of
      our cash, or we may incur debt or assume contingent liabilities.





As
      part
      of our business strategy, we expect to continue to review opportunities to
      buy
      or invest in other businesses or technologies that we believe would complement
      our current products, expand the breadth of our markets or enhance our technical
      capabilities, or that may otherwise offer growth opportunities. If we buy or
      invest in other businesses, products or technologies in the future, we
      could:




·
            incur
                significant unplanned expenses and personnel costs;·
            issue
                stock that would dilute our current shareholders’ percentage
                ownership;




·
            use
                cash, which may result in a reduction of our
                liquidity;




·
            incur
                debt;




·
            assume
                liabilities; and




·
            spend
                resources on unconsummated transactions.





**We
      may not realize the anticipated benefits of past or future acquisitions and
      strategic investments, and integration of acquisitions may disrupt our business
      and management.**





We
      may in
      the future acquire or make strategic investments in additional companies. We
      may
      not realize the anticipated benefits of these or any other acquisitions or
      strategic investments, which involve numerous risks, including:




·
            problems
                integrating the purchased operations, technologies, personnel or
                products
                over   geographically disparate locations;·
            unanticipated
                costs, litigation and other contingent
                liabilities;




·
            diversion
                of management’s attention from our core
                business;




·
            Adverse
                effects on existing business relationships with suppliers and
                customers;




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·
            incurrence
                of acquisition-related costs or amortization costs for acquired intangible
                assets that   could impact our operating
                results;




·
            inability
                to retain key customers, distributors, vendors and other business
                partners
                of the acquired business;




·
            potential
                loss of our key employees or the key employees of an acquired
                organization; and




·
            If
                we are not be able to successfully integrate businesses, products,
                technologies or personnel that we acquire, or to realize expected
                benefits
                of our acquisitions or strategic investments, our business and financial
                results may be adversely affected.




**International
      political instability and concerns about other international crises may increase
      our cost of doing business and disrupt our business.**





International
      political instability may halt or hinder our ability to do business and may
      increase our costs. Various events, including the occurrence or threat of
      terrorist attacks, increased national security measures in the EU, the United
      States and other countries, and military action and armed conflicts, can
      suddenly increase international tensions. Increases in energy prices will also
      impact our costs and could harm our operating results. In addition, concerns
      about other international crises, such as the spread of severe acute respiratory
      syndrome (“SARS”), avian influenza, or bird flu, and West Nile viruses, may have
      an adverse effect on the world economy and could adversely affect our business
      operations or the operations of our OEM partners, contract manufacturer and
      suppliers. This political instability and concerns about other international
      crises may, for example:





·
            negatively
                affect the reliability and cost of
                transportation;




·
            negatively
                affect the desire and ability of our employees and customers to
                travel;




·
            adversely
                affect our ability to obtain adequate insurance at reasonable
                rates;




·
            require
                us to take extra security precautions for our operations;
                and




·
            furthermore,
                to the extent that air or sea transportation is delayed or disrupted,
                our
                operations may be disrupted, particularly if shipments of our products
                are
                delayed.




**Business
      interruptions could adversely affect our business.**





Our
      operations and the operations of our suppliers and customers are vulnerable
      to
      interruption by fire, earthquake, hurricanes, power loss, telecommunications
      failure and other events beyond our control. In the event of a major natural
      disaster, we could experience business interruptions, destruction of facilities
      and loss of life. In the event that a material business interruption occurs
      that
      affects us or our suppliers or customers, shipments could be delayed and our
      business and financial results could be harmed.





**Risks
      Related to Doing Business in China**





**Because
      our assets are located overseas, shareholders may not receive distributions
      that
      they would otherwise be entitled to if we were declared bankrupt or
      insolvent.**





Our
      assets are, for the most part, located in the PRC. Because our assets are
      located overseas, our assets may be outside of the jurisdiction of U.S. courts
      to administer if we are the subject of an insolvency or bankruptcy proceeding.
      As a result, if we declared bankruptcy or insolvency, our shareholders may
      not
      receive the distributions on liquidation that they would
      otherwise be entitled to if our assets were to be located within the
      U.S., under U.S. bankruptcy law.





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**Export
      quotas imposed by the WTO could negatively affect our business and operations,
      particularly if the Chinese government changes its allocation of such quotas
      to
      us.**





Pursuant
      to a World Trade Organization (WTO) agreement, effective January 1, 2005, the
      United States and other WTO member countries agreed to remove quotas applicable
      to textiles.  However, as the removal of quotas resulted in an import surge
      from China, the U.S. took action in May 2005 and imposed safeguard quotas on
      seven categories of goods, including certain classes of apparel products,
      arousing strong objection from China.





On
      June
      10, 2005, in response to the surge of Chinese imports into the European Union
      (EU), the EU Commission signed a Memorandum of Understanding (MOU) with China
      in
      which ten categories of textiles and apparel are subject to restraints.
      Additionally, on November 8, 2005, the U.S. and China entered into a Memorandum
      of Understanding in which 21 categories of textiles and apparel are subject
      to restraints.





Although
      certain of our apparel products fall within the categories subject to the
      safeguards in the U.S. and the EU, which could adversely affect our ability
      to
      export and sell these products, the imposition of quotas in 2005 did not have
      a
      material effect on our net sales, although it did impact our gross margin.
      The
      imposition of quotas have not had a material effect on our net sales
      or our gross margins from the time the quotas were instituted up to the present.
      See *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* .
       We believe that we will be able to obtain a sufficient quota allocation
      based on our experience in prior years.  In addition, we may bid for
      additional export quota allocation from the government for the U.S. and EU
      markets.  On a longer term basis, we believe that our customer mix and our
      ability to adjust the types of apparel we manufacture will mitigate our exposure
      to such trade restrictions in the future.





Nevertheless,
      there can be no assurance that additional trade restrictions will not be imposed
      on the exportation of our products in the future.  Such actions could
      result in increases in the cost of our products generally and may adversely
      affect our results of operations.




**Adverse
      changes in economic and political policies of the PRC government could have
      a
      material adverse effect on the overall economic growth of China, which could
      adversely affect our business.**




All
      of
      our business operations are currently conducted in the PRC, under the
      jurisdiction of the PRC government. Accordingly, our results of operations,
      financial condition and prospects are subject to a significant degree to
      economic, political and legal developments in China. China’s economy differs
      from the economies of most developed countries in many respects, including
      with
      respect to the amount of government involvement, level of development, growth
      rate, control of foreign exchange and allocation of resources. While the PRC
      economy has experienced significant growth in the past 20 years, growth has
      been
      uneven across different regions and among various economic sectors of China.
      The
      PRC government has implemented various measures to encourage economic
      development and guide the allocation of resources. Some of these measures
      benefit the overall PRC economy, but may also have a negative effect on us.
      For
      example, our financial condition and results of operations may be adversely
      affected by government control over capital investments or changes in tax
      regulations that are applicable to us. Since early 2004, the PRC government
      has
      implemented certain measures to control the pace of economic growth. Such
      measures may cause a decrease in the level of economic activity in China, which
      in turn could adversely affect our results of operations and financial
      condition.





**Unprecedented
      rapid economic growth in China may increase our costs of doing business, and
      may
      negatively impact our profit margins and/or profitability.**





Our
      business depends in part upon the availability of relatively low-cost labor
      and
      materials. Rising wages in China may increase our overall costs of production.
      In addition, rising raw material costs, due to strong demand and greater
      scarcity, may increase our overall costs of production. If we are not able
      to
      pass these costs on to our customers in the form of higher prices, our profit
      margins and/or profitability could decline.




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**Fluctuation
      in the value of Chinese Renminbi (RMB) relative to other currencies may have
      a
      material adverse effect on our business and/or an investment in our
      shares.**




The
      value
      of RMB against the U.S. dollar, the Euro and other currencies may fluctuate
      and
      is affected by, among other things, changes in political and economic
      conditions. In the last decade, the RMB has been pegged at 8.2765 Yuan to one
      U.S. dollar. On July 21, 2005 it was revalued to 8.11 per U.S. dollar. Following
      the removal of the peg to the U.S. dollar and pressure from the United States,
      the People’s Bank of China also announced that the RMB would be pegged to a
      basket of foreign currencies, rather than being strictly tied to the U.S.
      dollar, and would be allowed to float trade within a narrow 0.3% daily band
      against this basket of currencies. The PRC government has stated that the basket
      is dominated by the U.S. dollar, Euro, Japanese Yen and South Korean Won, with
      a
      smaller proportion made up of the British Pound, Thai Baht, Russian Ruble,
      Australian Dollar, Canadian Dollar and Singapore Dollar. There can be no
      assurance that the relationship between the RMB and these currencies will remain
      stable over time, especially in light of the significant political pressure
      on
      the Chinese government to permit the free flotation of the RMB, which could
      result in greater and more frequent fluctuations in the exchange rate between
      the RMB, the U.S. dollar, and the Euro. If the RMB were to increase in value
      against the U.S. dollar and other currencies, for example, consumers in the
      U.S., Japan and Europe would experience an increase in the relative prices
      of
      goods and services produced by us, which might translate into a decrease in
      sales. In addition, if the RMB were to decline in value against these other
      currencies, the financial value of your investment in our shares would also
      decline.




**You
      may face difficulties in protecting your interests, and your ability to protect
      your rights through the U.S. federal courts may be limited, because our
      subsidiaries are incorporated in non-U.S. jurisdictions, we conduct
      substantially all of our operations in China, and a majority of our
      officers and directors reside outside the United
      States.**




Although
      we are incorporated in Florida, we conduct substantially all of our operations
      in China through our wholly owned subsidiaries in China. The
      majority of our officers and directors reside outside the United
      States, and accordingly some or all of the assets of those persons are
      located outside of the United States. As a result, it may be difficult or
      impossible for you to bring an action against us or against individuals in
      China
      in the event that you believe that your rights have been infringed under the
      securities laws or otherwise. Even if you are successful in bringing an action
      of this kind, the laws of the PRC may render you unable to enforce a judgment
      against our assets or the assets of our directors and officers.





As
      a
      result of all of the above, our public shareholders may have more difficulty
      in
      protecting their interests through actions against our management, directors
      or
      major shareholders than would shareholders of a corporation doing business
      entirely within the United States.




**Risks
      Related to an Investment in Our Securities**




**Our
      common stock has limited liquidity.**





Our
      common stock is traded on the American Stock Exchange, but it is thinly traded
      compared to larger more widely known companies in the same industry. Thinly
      traded common stock can be more volatile than stock trading in an active public
      market. We cannot predict the extent to which an active public market for our
      common stock will develop or be sustained.




**Our
      stock may be categorized as a penny stock. Trading of our stock may be
      restricted by the SEC’s penny stock regulations which may limit a shareholder’s
      ability to buy and sell our stock.**





Our
      stock
      may categorized as a penny stock. The Securities and Exchange Commission has
      adopted Rule 15g-9 which generally defines “penny stock” to be any equity
      security that has a market price (as defined) less than $5.00 per share or
      an
      exercise price of less than $5.00 per share, subject to certain exceptions.
      Our
      securities may be covered by the penny stock rules, which impose additional
      sales practice requirements on broker-dealers who sell to persons other than
      established customers and accredited investors. The penny stock rules require
      a
      broker-dealer, prior to a transaction in a penny stock not otherwise exempt
      from
      the rules, to deliver a standardized risk disclosure document in a form prepared
      by the SEC which provides information about penny stocks and the nature and
      level of risks in the penny stock market. The broker-dealer also must provide
      the customer with current bid and offer quotations for the penny stock, the
      compensation of the broker-dealer and its salesperson in the transaction and
      monthly account statements showing the market value of each penny stock held
      in
      the customer’s account. The bid and offer quotations, and the broker-dealer and
      salesperson compensation information, must be given to the customer orally
      or in
      writing prior to effecting the transaction and must be given to the customer
      in
      writing before or with the customer’s confirmation. In addition, the penny stock
      rules require that prior to a transaction in a penny stock not otherwise exempt
      from these rules, the broker-dealer must make a special written determination
      that the penny stock is a suitable investment for the purchaser and receive
      the
      purchaser’s written agreement to the transaction. These disclosure requirements
      may have the effect of reducing the level of trading activity in the secondary
      market for the stock that is subject to these penny stock rules. Consequently,
      these penny stock rules may affect the ability of broker-dealers to trade our
      securities. **** We
      believe that the penny stock rules discourage investor interest in and limit
      the
      marketability of our common stock.




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**FINRA sales
      practice requirements may also limit a shareholder’s ability to buy and sell our
      stock.**





In
      addition to the “penny stock” rules described above, FINRA has adopted rules
      that require that in recommending an investment to a customer, a broker-dealer
      must have reasonable grounds for believing that the investment is suitable
      for
      that customer. Prior to recommending speculative low priced securities to their
      non-institutional customers, broker-dealers must make reasonable efforts to
      obtain information about the customer’s financial status, tax status, investment
      objectives and other information. Under interpretations of these rules, FINRA
      believes that there is a high probability that speculative low priced securities
      will not be suitable for at least some customers. The FINRA requirements make
      it
      more difficult for broker-dealers to recommend that their customers buy our
      common stock, which may limit your ability to buy and sell our stock and have
      an
      adverse effect on the market for our shares.





**We
      expect to experience volatility in our stock price, which could negatively
      affect shareholders’ investments.**





The
      market price for shares of our common stock may be volatile and may fluctuate
      based upon a number of factors, including, without limitation, business
      performance, news announcements or changes in general market
      conditions.





Other
      factors, in addition to the those risks included in this section, that may
      have
      a significant impact on the market price of our common stock include, but are
      not limited to:




·
            receipt
                of substantial orders or order cancellations of
                products;




·
            quality
                deficiencies in services or products;·
            international
                developments, such as technology mandates, political developments
                or
                changes   in economic policies;·
            changes
                in recommendations of securities
                analysts;




·
            shortfalls
                in our backlog, revenues or earnings in any given period relative
                to the
                levels expected by securities analysts or projected by
                us;




·
            government
                regulations, including stock option accounting and tax
                regulations;




·
            energy
                blackouts;




·
            acts
                of terrorism and war;




·
            widespread
                illness;




·
            proprietary
                rights or product or patent
                litigation;




·
            strategic
                transactions, such as acquisitions and
                divestitures;




·
            rumors
                or allegations regarding our financial disclosures or practices;
                or




·
            earthquakes
                or other natural disasters concentrated in Nanjing, China where a
                significant portion of our operations are based.




In
      the
      past, securities class action litigation has often been brought against a
      company following periods of volatility in the market price of its securities.
      Due to changes in the volatility of our common stock price, we may be the target
      of securities litigation in the future. Securities litigation could result
      in
      substantial costs and divert management’s attention and resources.




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**Conversion
      of our issued and outstanding convertible promissory notes into shares of our
      common stock will dilute the ownership interests of existing shareholders,
      including holders who will have already converted their
      notes.**





The
      conversion of some or all of the notes into our shares of our common stock
      will
      dilute the ownership interests of existing shareholders. Any sales in the public
      market of the shares of common stock issuable upon such conversion could
      adversely affect prevailing market prices of our shares of common stock. In
      addition, the existence of the notes may encourage short selling by market
      participants because the conversion of the notes could depress the price of
      our
      shares of common stock.





**To
      date, we have not paid any cash dividends and no cash dividends will be paid
      in
      the foreseeable future.**





We
      do not
      anticipate paying cash dividends on our common stock in the foreseeable future
      and we may not have sufficient funds legally available to pay dividends. Even
      if
      the funds are legally available for distribution, we may nevertheless decide
      not
      to pay any dividends. We presently intend to retain all earnings for our
      operations.





**Our
      common shares are not currently traded at high volume, and you may be unable
      to
      sell at or near ask prices or at all if you need to sell or liquidate a
      substantial number of shares at one time.**





We
      cannot
      predict the extent to which an active public market for our common stock will
      develop or be sustained.





Our
      common shares are currently traded, but currently with low volume, based on
      quotations on the American Stock Exchange, meaning that the number of persons
      interested in purchasing our common shares at or near bid prices at any given
      time may be relatively small or non-existent. This situation is attributable
      to
      a number of factors, including the fact that we are a small company which is
      still relatively unknown to stock analysts, stock brokers, institutional
      investors and others in the investment community that generate or influence
      sales volume, and that even if we came to the attention of such persons, they
      tend to be risk-averse and would be reluctant to follow an unproven company
      such
      as ours or purchase or recommend the purchase of our shares until such time
      as
      we became more seasoned and viable. As a consequence, there may be periods
      of
      several days or more when trading activity in our shares is minimal or
      non-existent, as compared to a seasoned issuer which has a large and steady
      volume of trading activity that will generally support continuous sales without
      an adverse effect on share price. We cannot give you any assurance that a
      broader or more active public trading market for our common stock will develop
      or be sustained, or that trading levels will be sustained.





**Our
      corporate actions are substantially controlled by our principal shareholders
      and
      affiliated entities.**




Our
      principal shareholders, including our officers and directors, and their
      affiliated entities own approximately 42% of our outstanding shares of common
      stock. These shareholders, acting individually or as a group, could exert
      substantial influence over matters such as electing directors and approving
      mergers or other business combination transactions. In addition, because of
      the
      percentage of ownership and voting concentration in these principal shareholders
      and their affiliated entities, elections of our board of directors will
      generally be within the control of these shareholders and their affiliated
      entities. While all of our shareholders are entitled to vote on matters
      submitted to our shareholders for approval, the concentration of shares and
      voting control presently lies with these principal shareholders and their
      affiliated entities. As such, it would be difficult for shareholders to propose
      and have approved proposals not supported by management. There can be no
      assurances that matters voted upon by our officers and directors in their
      capacity as shareholders will be viewed favorably by all of our
      shareholders.





**The
      elimination of monetary liability against our directors, officers and employees
      under Florida law and the existence of indemnification rights to our directors,
      officers and employees may result in substantial expenditures by our company
      and
      may discourage lawsuits against our directors, officers and
      employees.**





Our
      amended and restated Articles of Incorporation contain a provision permitting
      us
      to eliminate the liability of our directors for monetary damages to our company
      and shareholders to the extent provided by Florida law. We may also have
      contractual indemnification obligations under our employment agreements with
      our
      officers. The foregoing indemnification obligations could result in our company
      incurring substantial expenditures to cover the cost of settlement or damage
      awards against directors and officers, which we may be unable to recoup. These
      provisions and resultant costs may also discourage our company from bringing
      a
      lawsuit against directors and officers for breaches of their fiduciary duties,
      and may similarly discourage the filing of derivative litigation by our
      shareholders against our directors and officers even though such actions, if
      successful, might otherwise benefit our company and shareholders.




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**Legislative
      actions, higher insurance costs and potential new accounting pronouncements
      may
      impact our future financial position and results of
      operations.**





There
      have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
      there may potentially be new accounting pronouncements or additional regulatory
      rulings that will have an impact on our future financial position and results
      of
      operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as
      proposed legislative initiatives following the Enron bankruptcy are likely
      to
      increase general and administrative costs and expenses. In addition, insurers
      are likely to increase premiums as a result of high claims rates over the past
      several years, which we expect will increase our premiums for insurance
      policies. Further, there could be changes in certain accounting rules. These
      and
      other potential changes could materially increase the expenses we report under
      generally accepted accounting principles, and adversely affect our operating
      results.




**If
      we fail to maintain an effective system of internal controls, we may not be
      able
      to accurately report our financial results or prevent material
      misstatements.**




We
      are
      subject to reporting obligations concerning our internal controls, under the
      U.S. securities laws. The Securities and Exchange Commission, or the SEC, as
      required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
      requiring every public company to include a management report on such company’s
      internal controls over financial reporting in its annual report, which contains
      management’s assessment of the effectiveness of our internal controls over
      financial reporting. In addition, an independent registered public accounting
      firm must attest to management’s assessment of the effectiveness of our internal
      controls over financial reporting, and report on the effectiveness of these
      controls. These requirements will first apply to our annual report on Form
      10-K
      for the fiscal year ending December 31, 2007. Our management may conclude that
      our internal controls over our financial reporting are not effective. Moreover,
      even if our management concludes that our internal controls over financial
      reporting are effective, our independent registered public accounting firm
      may
      still decline to attest to our management’s assessment or may issue a report
      that is qualified if it is not satisfied with our controls or the level at
      which
      our controls are documented, designed, operated or reviewed, or if it interprets
      the relevant requirements differently from us. Our reporting obligations as
      a
      public company will place a significant strain on our management, operational
      and financial resources and systems for the foreseeable future. Effective
      internal controls, particularly those related to sales revenue recognition,
      are
      necessary for us to produce reliable financial reports and are important to
      help
      prevent material misstatements, or in certain extreme cases, fraud. As a result,
      our failure to achieve and maintain effective internal controls over financial
      reporting could result in the loss of investor confidence in the reliability
      of
      our financial statements, which in turn could harm our business and negatively
      impact the trading price of our stock. Furthermore, we anticipate that we will
      incur considerable costs and use significant management time and other resources
      in an effort to comply with Section 404 and other requirements of the
      Sarbanes-Oxley Act.




**ITEM
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**





None.




**ITEM 3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**





None.




**ITEM 4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITYHOLDERS**





None.




**ITEM 5.**
            **OTHER
                INFORMATION**





None.




57
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**ITEM 6.**
            **EXHIBITS**





The
      following exhibits are filed herewith:




**Exhibit No.**
            
            **Description**10.29
            
            Credit Agreement
              with
              Nanjing Bank (English Summary Translation)31.1
            
            Certifications
                pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                Act
                of 1934, as amended, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002. *31.2
            
            Certifications
                pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                Act
                of 1934, as amended, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002. *32.1
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002. *32.2
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002. *




*
            Filed
                herewith.





58
 *Table
          of Contents*




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




November
                11, 2008
            EVER-GLORY
                INTERNATIONAL GROUP, INC.By:
            /s/
                Edward Yihua KangEdward
                Yihua KangChief
                Executive Officer(Principal
                Executive Officer)




By:
            /s/
                Yan GuoYan
                GuoChief
                Financial Officer(Principal
                Financial and Accounting Officer)




59