**U.
        S. SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-QSB**





þ
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934


For
                the quarterly period ended **September 30,
                2007**





 ̈           Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934


For the transition period from __________ to
__________





Commission
      File Number 0-28806








**Ever-Glory
      International Group Inc.**





(Exact
      name of small business 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)





Check
      mark whether the issuer (1) has filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 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
       ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    YES  ̈    NO
þ





Number
      of
      shares of common stock outstanding as of September 30, 2007:  **53,882,014**





Transitional
      Small Business Disclosure Format     YES  ̈     NO
þ





1





**EVER-GLORY
      INTERNATIONAL GROUP, INC.**




**FORM 10-QSB**









**INDEX**




Page
                Number**SPECIAL
                NOTE REGARDING FORWARD-LOOKING STATEMENTS**
            3**PART
                I.  FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements (unaudited)
            4Condensed
                Consolidated Balance Sheet as of September 30, 2007
            6Condensed
                Consolidated Statements of Operations and Comprehensive Income for
                the
                Three Months and Nine Months Ended September 30, 2007 and
                2006
            7Consolidated
                Statements of Cash Flows for the Nine Months Ended September 30,
                2007 and
                2006
            8Notes
                to the Condensed Consolidated Financial Statements as of September
                30,
                2007
            9Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operations
            20Item
                3.
            Controls
                and Procedures
            31**PART
                II.  OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            33Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            33Item
                3.
            Defaults
                Upon Senior Securities
            33Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            33Item
                5.
            Other
                Information
            33Item
                6.
            Exhibits
            34**SIGNATURES**
            35




2


**SPECIAL
      NOTE REGARDING FORWARD-LOOKING
      STATEMENTS**





All
      statements contained in this Quarterly Report on Form 10-QSB, other than
      statements of historical facts, that address future activities, events or
      developments, are forward-looking statements, including, but not limited to,
      statements containing the words “believe,” “anticipate,” “expect” and words of
      similar import. These statements are based on certain assumptions and analyses
      made by us in light of our experience and our assessment of historical trends,
      current conditions and expected future developments as well as other factors
      we
      believe are appropriate under the circumstances. However, whether actual results
      will conform to the expectations and predictions of management is subject to
      a
      number of risks and uncertainties that may cause actual results to differ
      materially. Such risks are in the section entitled “Risk Factors” and in our
      previous SEC filings.





Consequently,
      all of the forward-looking statements made in this Quarterly Report on Form
      10-QSB are qualified by these cautionary statements and there can be no
      assurance that the actual results anticipated by management will be realized
      or,
      even if substantially realized, that they will have the expected consequences
      to
      or effects on our business operations.








3


**PART
      I.     FINANCIAL INFORMATION**





**ITEM
      1.                      FINANCIAL
      STATEMENTS**






EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 FINANCIAL
        STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
 
 
 
  
 
  4
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 CONTENTS
 
 **** **Pages**Condensed
                    Consolidated Balance Sheet as of September 30, 2007
                    (unaudited)
                6Condensed
                      Consolidated Statements of Operations and Comprehensive income
                      for three
                      and nine months ended
                    September
                      30, 2007 and 2006 (unaudited and
                      restated)
                7Condensed
                      Consolidated Statements of Cash Flows for the nine months ended
                      September
                      30, 2007 and 2006
                    (unaudited
                      and restated)
                8Notes to the Condensed Consolidated Financial
                    Statements
                    as of September 30, 2007 (unaudited)
                9
 
 
 
 
  5
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 CONDENSED
        CONSOLIDATED BALANCE SHEET
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  **ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              2,149,831Accounts
                  receivable, net
              
              
              8,718,326Accounts
                  receivable - related companies
              
              
              582,574Inventories,
                  net
              
              
              1,179,249Other
                  receivables and prepaid expenses
              
              
              234,307Total
                  Current Assets
              
              
              12,864,287**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              11,722,638**LAND
                  USE RIGHTS, NET**
              
              
              2,578,987**DEFERRED
                  FINANCING COSTS, NET**
              
              
              
              222,310**TOTAL
                  ASSETS**
              
              $
              27,388,222**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,625,292Accounts
                  payable - related companies
              
              
              59,673Other
                  payables and accrued liabilities
              
              
              678,079Due
                  to a related company
              
              
              600,000Notes
                  payable
              
              
              2,660,424Convertible
                  notes payable
              
              
              748,710(net
                  of unamortized discount of $1,251,290)Value
                  added tax payable
              
              
              228,783Other
                  tax payables
              
              
              118,408Total
                  Current Liabilities
              
              
              6,719,369**LONG-TERM
                  LIABILITIES**Due
                  to a related company
              
              
              4,415,870**TOTAL
                  LIABILITIES**
              
              
              11,135,239**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock ($.0001 par value, authorized 5,000,000 shares,Nil
                  shares issued and outstanding)
              
              
              -Series
                  A Convertible Preferred Stock ($.0001 par value,authorized
                  10,000 shares, 7,883 shares issued and outstanding)
              
              
              1Common
                  stock ($.0001 par value, authorized 500,000,000 shares,issued
                  and outstanding 53,882,014  shares)
              
              
              5,388Additional
                  paid-in capital
              
              
              1,979,947Retained
                  earningsUnappropriated
              
              
              10,195,076Appropriated
              
              
              2,659,360Accumulated
                  other comprehensive income
              
              
              1,413,211Total
                  Stockholders' Equity
              
              
              16,252,983**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              27,388,222
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
 6
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (UNAUDITED
        AND RESTATED)
 
 For
                    the three
                
                
                
                
                
                For
                    the nineFor
                    the three
                
                
                months
                    ended
                
                
                For
                    the nine
                
                
                months
                    endedmonths
                    ended
                
                
                September
                    30, 2006
                
                
                months
                    ended
                
                
                September
                    30, 2006September
                    30, 2007
                
                
                (Restated)
                
                
                September
                    30, 2007
                
                
                (Restated)**NET
                    SALES**To
                    related parties
                
                $
                486,318
                
                
                $
                209,927
                
                
                $
                940,334
                
                
                $
                383,198To
                    third parties
                
                
                18,991,475
                
                
                
                15,022,966
                
                
                
                49,060,893
                
                
                
                36,527,202Total
                    net sales
                
                
                19,477,793
                
                
                
                15,232,893
                
                
                
                50,001,227
                
                
                
                36,910,400**COST
                    OF SALES**From
                    related parties
                
                
                (1,689,855
                )
                
                
                (1,322,468
                )
                
                
                (2,550,181
                )
                
                
                (3,699,244
                )From
                    third parties
                
                
                (14,714,840
                )
                
                
                (11,395,982
                )
                
                
                (39,746,807
                )
                
                
                (27,007,051
                )Total
                    cost of sales
                
                
                (16,404,695
                )
                
                
                (12,718,450
                )
                
                
                (42,296,988
                )
                
                
                (30,706,295
                )**GROSS
                    PROFIT**
                
                
                3,073,098
                
                
                
                2,514,443
                
                
                
                7,704,239
                
                
                
                6,204,105**OPERATING
                    EXPENSES**Selling
                    expenses
                
                
                167,976
                
                
                
                147,841
                
                
                
                493,686
                
                
                
                432,028Professional
                    fees
                
                
                162,889
                
                
                
                170,548
                
                
                
                508,499
                
                
                
                543,276General
                    and administrative expenses
                
                
                617,529
                
                
                
                407,335
                
                
                
                1,826,456
                
                
                
                945,717Depreciation
                    and amortization
                
                
                72,006
                
                
                
                32,816
                
                
                
                223,632
                
                
                
                65,990Total
                    Operating Expenses
                
                
                1,020,400
                
                
                
                758,540
                
                
                
                3,052,273
                
                
                
                1,987,011**INCOME
                    FROM OPERATIONS**
                
                
                2,052,698
                
                
                
                1,755,903
                
                
                
                4,651,966
                
                
                
                4,217,094**OTHER
                    INCOME (EXPENSES)**Interest
                    income
                
                
                2,280
                
                
                
                3,057
                
                
                
                6,499
                
                
                
                4,616Interest
                    expenses
                
                
                (680,644
                )
                
                
                (59,544
                )
                
                
                (942,534
                )
                
                
                (117,674
                )Other
                    income
                
                
                19,611
                
                
                
                1,579
                
                
                
                25,179
                
                
                
                4,426Other
                    expenses
                
                
                -
                
                
                
                -
                
                
                
                (123
                )
                
                
                -Total
                    Other Expenses, net
                
                
                (658,753
                )
                
                
                (54,908
                )
                
                
                (910,979
                )
                
                
                (108,632
                )**INCOME
                    BEFORE INCOME TAX EXPENSE**
                
                
                1,393,945
                
                
                
                1,700,995
                
                
                
                3,740,987
                
                
                
                4,108,462**INCOME
                    TAX EXPENSE**
                
                
                (72,880
                )
                
                
                (113,352
                )
                
                
                (155,203
                )
                
                
                (255,883
                )**NET
                    INCOME**
                
                
                1,321,065
                
                
                
                1,587,643
                
                
                
                3,585,784
                
                
                
                3,852,579**OTHER
                    COMPREHENSIVE INCOME**Foreign
                    currency translation gain
                
                
                269,424
                
                
                
                247
                
                
                
                720,130
                
                
                
                255,734**COMPREHENSIVE
                    INCOME**
                
                $
                1,590,489
                
                
                $
                1,587,890
                
                
                $
                4,305,914
                
                
                $
                4,108,313Net
                    income per share-basic
                
                $
                0.02
                
                
                $
                0.03
                
                
                $
                0.07
                
                
                $
                0.07Net
                    income per share-diluted
                
                $
                0.02
                
                
                $
                0.01
                
                
                $
                0.04
                
                
                $
                0.03Weighted
                    average number of sharesoutstanding
                    during the period-basic
                
                
                53,882,014
                
                
                
                53,882,014
                
                
                
                53,882,014
                
                
                
                53,882,014Weighted
                    average number of sharesoutstanding
                    during the period-diluted
                
                
                119,622,853
                
                
                
                113,792,814
                
                
                
                115,757,516
                
                
                
                113,792,814
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
 7
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (UNAUDITED AND
        RESTATED)
 For
                    the nine monthsFor
                    the nine months
                
                
                ended
                    September 30, 2006ended
                    September 30, 2007
                
                
                (Restated)**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    income
                
                $
                3,585,784
                
                
                $
                3,852,579Adjusted
                    to reconcile net income to cash (used in) providedby
                    operating activities:Stock
                    issued for services
                
                
                -
                
                
                
                -Depreciation
                    and amortization - cost of sales
                
                
                445,087
                
                
                
                266,933Depreciation
                    and amortization
                
                
                223,632
                
                
                
                65,990Loss
                    on disposal of fixed assets
                
                
                -
                
                
                
                11,612Beneficial
                    conversion feature
                
                
                454,545
                
                
                
                -Amortization
                    of deferred financing costs
                
                
                20,210
                
                
                
                -Amortization
                    of discount on convertible notes payable
                
                
                113,754
                
                
                
                -Changes
                    in operating assets and liabilities(Increase)decrease
                    in:Accounts
                    receivable
                
                
                89,336
                
                
                
                (702,918
                )Accounts
                    receivable - related companies
                
                
                1,476,411
                
                
                
                (1,637,405
                )Other
                    receivable and prepaid expenses
                
                
                (75,327
                )
                
                
                (740,280
                )Inventories
                
                
                82,364
                
                
                
                (478,990
                )Increase
                    (decrease) in:Accounts
                    payable
                
                
                305,706
                
                
                
                1,258,908Accounts
                    payable - related companies
                
                
                (1,522,087
                )
                
                
                (916,547
                )Other
                    payables and accrued liabilities
                
                
                (1,638,729
                )
                
                
                (642,360
                )Value
                    added tax payables
                
                
                (19,821
                )
                
                
                (81,902
                )Income
                    tax and other tax payables
                
                
                52,964
                
                
                
                192,995Net
                    cash provided by operating activities
                
                
                3,593,829
                
                
                
                448,615**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Investment
                    in subsidiary - New-Tailun
                
                
                (2,000,000
                )
                
                
                -Purchase
                    of property and equipment
                
                
                (527,254
                )
                
                
                (4,939,125
                )Proceed
                    from sales of equipment
                
                
                714,213
                
                
                
                -Net
                    cash used in investing activities
                
                
                (1,813,041
                )
                
                
                (4,939,125
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceed
                    from sales of convertible notes, net
                
                
                1,757,480
                
                
                
                -Due
                    to a related company, net
                
                
                239,560
                
                
                
                3,574,891Proceed
                    from note payable
                
                
                5,211,183
                
                
                
                -Repayment
                    of note payable
                
                
                (7,165,377
                )
                
                
                (611,247
                )Net
                    cash (used in) provided by financing activities
                
                
                42,846
                
                
                
                2,963,644**EFFECT
                    OF EXCHANGE RATE ON CASH**
                
                
                (570,896
                )
                
                
                73,642**NET
                    DECREASE IN CASH AND CASH EQUIVALENTS**
                
                
                1,252,738
                
                
                
                (1,453,224
                )-**CASH
                    AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
                
                
                897,093
                
                
                
                1,473,669**CASH
                    AND CASH EQUIVALENTS AT END OF PERIOD**
                
                $
                2,149,831
                
                
                $
                1,552,390**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION**Cash
                    paid during the period for:Interest
                    expenses
                
                $
                198,890
                
                
                $
                26,491Cash
                    paid during the period for:Income
                    taxes
                
                $
                102,955
                
                
                $
                227,487
 **SUPPLEMENTAL
        DISCLOSURE OF NON-CASH
        INVESTING AND FINANCING ACTIVITIES:**
 During
        2007, the Company issued 20,833,333 shares of restricted common stock as
        part
        consideration for 100% of Nanjing New-Tailun Garments Company
        Limited.
 During
        2007, the Company issued 13,076,923 shares of restricted common stock as
        part
        consideration for 100% of Nanjing Catch-Luck Garments Company
        Limited.
 
 The
        accompanying notes are an integral part of these****condensed
        consolidated financial statements.
 8
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  **NOTE
                  1.**
              **ORGANIZATION
                  AND BASIS OF PRESENTATION**
  Ever-Glory
        International Group, Inc. (“EGLY”) was incorporated in Florida on October 19,
        1994.
 
 Perfect
        Dream Limited (“Perfect Dream”), a wholly owned subsidiary of EGLY, was
        incorporated in the British Virgin Islands on July 1, 2004.
 
 Goldenway
        Nanjing Garments Company Limited (“Goldenway”), a wholly owned subsidiary of
        Perfect Dream, was incorporated in the People’s Republic of China (“PRC”) on
        December 31, 1993.  Goldenway is principally engaged in the
        manufacturing and sale of garments.
 
 Nanjing
        New-Tailun Garments Company Limited (“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, Limited (“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. Catch-Luck is
        principally engaged in the manufacturing and sale of garments to Europe and
        Japan.
 
 EGLY,
        Perfect Dream, Goldenway , New-Tailun and Catch-Luck are hereinafter referred
        to
        as (“the Company”).
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information and pursuant to
        the
        rules and regulations of the Securities and Exchange Commission. Accordingly,
        they do not include all of the information and footnotes required by generally
        accepted accounting principles for complete financial statements.
 
 In
        the
        opinion of management, the unaudited condensed consolidated financial statements
        contain all adjustments consisting only of normal recurring accruals considered
        necessary to present fairly the Company's financial position at September
        30,
        2007, the results of operations for the three-month and nine-month periods
        ended
        September 30, 2007 and 2006, and cash flows for the nine months ended September
        30, 2007 and 2006. The results for the period ended September 30, 2007 are
        not
        necessarily indicative of the results to be expected for the entire fiscal
        year
        ending December 31, 2007.
  **NOTE
                  2.**
              **PRINCIPLES
                  OF CONSOLIDATION**
  The
        accompanying September 30, 2007 unaudited condensed consolidated financial
        statements include the accounts of EGLY, its 100% owned subsidiary Perfect
        Dream, Goldenway, New-Tailun and Catch-Luck.
        All significant inter-company balances and transactions have been eliminated
        in
        consolidation.
  **NOTE
                3.**
              **BUSINESS
                COMBINATIONS BETWEEN ENTITIES UNDER COMMON
                CONTROL**
  The
        Company entered into a purchase agreement,dated November 9, 2006, with
        Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) to acquire 100%
        interest of New-Tailun (the “New-Tailun transaction”). Pursuant to the terms of
        the purchases agreement, the Company paid to Ever-Glory Hong Kong an amount
        of
        $2,000,000 in cash and issued 20,833,333 shares of the company’s restricted
        common stock having a value of $10,000,000, such value of shares were based
        on
        the preceding 30-day average of high bid and the low ask price for the common
        stock on the date of the transfer within 90 days of the closing of New-Tailun
        transaction. The New-Tailun transaction closed on December 30,
        2006.
 
 The
        Company entered into a purchase agreement ("the Agreement"), dated June 26,
        2006, with Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) to
        acquire 100% interest of Catch-Luck (the “Catch-Luck Transaction”). Pursuant to
        the terms of the Agreement, the Company will pay to Ever-Glory Hong Kong an
        amount of $600,000 in cash and issued 13,076,923 shares of the Company’s
        restricted common stock having a value of $3,400,000 such value of shares
        were
        based on the preceding 30-day average of high bid and the low ask price for
        the
        common stock on the date of the transfer within 90 days of the closing of
        the
        Catch-Luck Transaction.
  9
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  
 **NOTE
                  3.**
                **BUSINESS
                    COMBINATIONS BETWEEN ENTITIES UNDER COMMON CONTROL
                    (CONTINUED)**
 On
        August
        31, 2006, the Company entered into an amendment to the Agreement (“the
        Amendment”) whereupon the terms of payment on the purchase consideration was
        amended as follows:
 
 1.
              The
                  Company will pay to Ever-Glory Hong Kong an amount of $600,000
                  in cash and
                  issued 13,076,923 shares of the Company’s restricted common stock having a
                  value of $3,400,000 on the date of the transfer within 90 days
                  of the
                  closing of the transaction;
 
 2.
              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 11,538,462 shares of
                  the Company’s restricted common stock having a value of $3,000,000;
                  and
 
 3.
              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 11,538,462 shares of the
                  Company’s
                  restricted common stock having a value of
                  $3,000,000.
 
 The
        number of shares of common stock to be delivered to Ever-Glory Hong
        Kong  in satisfaction of the Stock Purchase Price shall be calculated
        based on the preceding 30-average high and low price for the Company’s common
        stock as quoted on the Over-the-Counter Bulletin Board as of the date of
        the
        closing.
 
 On
        August
        1, 2007, the Company filed the Definitive 14C information statement for the
        acquisition of Catch-Luck. The Information Statement was mailed to the
        shareholders on August 7, 2007. The Catch-Luck Transaction closed on August
        27,
        2007.
 
 These
        transactions were accounted for as a merger of entities under common control.
        Accordingly, the operations of New-Tailun for the period from March 27, 2006
        (inception) to September 30, 2006 and operations of Catch-Luck for the period
        ended September 30, 2006 were included in the consolidated financial statements
        as if the transactions had occurred at the beginning of the first period
        presented, each account stated at its historical cost. In this regard, the
        prior
        year’s financial statements and financial information have been restated to
        combine the previously separate entities to furnish comparative information.
        The
        results of the restatement were to increase the total assets as of September
        30,
        2006, the total liabilities as of September 30, 2006, the shareholder’s equity
        as of September 30, 2006 and the net income for the nine months ended September
        30, 2006 by $5,414,094, $1,612,950, $2,426,181 and $2,497,674
        respectively.
  **NOTE
                    4.**
                **USE
                    OF ESTIMATES**
  The
        preparation of the financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amount of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
 **NOTE
                    5.**
                **CASH
                    AND CASH EQUIVALENTS**
 
 For
        purpose of the unaudited condensed consolidated statements of cash flows,
        cash
        and cash equivalents include cash on hand and demand deposits with a bank
        with a
        maturity of less than 3 months.
  10
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
   **NOTE
                    6.**
                **FAIR
                    VALUE OF FINANCIAL
                    INSTRUMENTS**
 Statement
        of Financial Accounting Standards No. 107, "Disclosure About Fair Value of
        Financial      Instruments," requires certain
        disclosures regarding the fair value of financial instruments.
        Trade   accounts receivable, accounts payable, and accrued
        liabilities are reflected in the financial statements at fair value because
        of
        the short-term maturity of the instruments. As these estimates are subjective
        in
        nature, involving uncertainties and matters of significant judgment, they
        cannot
        be determined with precision. Changes in assumptions can significantly affect
        estimated fair values.
 
 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
        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 accounts for non-hedging contracts that are indexed to, and potentially
        settled in, its own common stock in accordance with the provisions of Emerging
        Issues Task Force 00-19, “Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).
        These non-hedging contracts accounted for in accordance with EITF 00-19 include
        freestanding warrants to purchase the Company’s common stock as well as embedded
        conversion features that have been bifurcated from the host contract in
        accordance with the requirements of SFAS 133, “Accounting for Derivative
        Instruments and Hedging Activities” (“SFAS 133”). Under certain circumstances
        that could require the Company to settle these equity items in cash or stock,
        and without regard to probability, EITF 00-19 could require the classification
        of all or part of the item as a liability and the adjustment of that
        reclassified amount to fair value at each reporting period, with such
        adjustments reflected in the line item of change in valuation of derivative
        as
        other income (expenses) in the statements of operations.
 
 The
        Company analyzes all financial instruments with features of both liabilities
        and
        equity under SFAS 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
        notes (the "Notes") 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 Notes and the attached warrants, the Company is in a position
        to
        be sure it had adequate authorized shares for the future conversion of the
        Notes
        and warrants. Therefore, no embedded derivatives and warrants are required
        to be
        recorded at fair value and marked-to-market at each reporting
        period.
  **NOTE
                    7.**
                **BENEFICIAL
                    CONVERSION FEATURE OF CONVERTIBLE
                    INSTRUMENTS**
 The
        Company is accounting for the secured convertible notes (the “Notes”) issued
        pursuant to the subscription agreement discussed in Note 18 following under
        EITF
        00-27, *‘‘Application of Issue 98-5 to Certain Convertible
        Instruments’’*.  While the embedded conversion options are not
        required to be bifurcated, the Notes do contain a contingent beneficial
        conversion feature.  As discussed further in Note 20, the Note holders
        have the right to convert their Notes prior to the maturity date if the Company
        commences a Qualified Offering.
 
 Based
        on
        EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments
        (EITF No. 00-27), which provides guidance on the calculation of a beneficial
        conversion feature of a convertible instrument, the Company has determined
        that
        the Notes issued on August 2, 2007 contained a beneficial conversion
        feature.
 
 Based
        on
        the effective conversion price of the Notes of $0.22 and the market value
        per
        share of $0.27 at August 2, 2007, the intrinsic value was calculated to be
        $454,545. The amount of the discount allocated to the beneficial conversion
        feature of the convertible debt is realized at the earliest possible date
        the
        Notes can be converted. Therefore, the Company charged $454,545 of note discount
        as interest expenses for the nine months ended September 30,
        2007.
  11
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  **NOTE
                    8.**
                **DISCOUNT
                    ON NOTES PAYABLE**
  A
        discount with respect to the Notes issued during the period ended September
        30,
        2007 was recorded by the Company. The amount of the discount was calculated
        to
        be the fair market value of the warrants included in the Notes issued
        pursuant to the terms of the subscription agreement discussed in Note
        20.
 
 **NOTE
                    9.**
                **DEFERRED
                    FINANCING COSTS**
  Deferred
        financing costs include commissions and legal fees paid in connection with
        the
        subscription agreement discussed in Note 20.
 
 **NOTE
                    10.**
                **REVENUE
                    AND COST RECOGNITION**
  The
        Company recognizes revenue 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.
  Transportation,
        inspection charges, export quota fees, export charges, traveling and
        entertainment for the merchandisers are included in selling
        expenses.
 
 Cost
        of
        goods sold includes the appropriate materials purchasing, direct labor cost
        and
        manufacturing overheads consistent with the revenue earned.
 **NOTE
                    11.**
                **FOREIGN
                    CURRENCY
                    TRANSACTIONS**
  EGLY
        and
        Perfect Dream maintain their accounting records in their functional currencies
        of US$ while Goldenway, New-Tailun and Catch-Luck maintain their accounting
        records in their functional currency, the RMB.
 
 Foreign
        currency transactions during the year are translated to the functional currency
        at the approximate rates of exchange on the dates of
        transactions.  Monetary assets and liabilities denominated in foreign
        currencies at the balance sheet date are translated at the approximate rates
        of
        exchange at that date.  Non-monetary assets and liabilities are
        translated at the rates of exchange prevailing at the time the asset or
        liability was acquired.  Exchange gains or losses are recorded in the
        statement of operations.
 
 **NOTE
                    12.**
                **FOREIGN
                    CURRENCY TRANSLATION**
  The
        financial statements of Goldenway, New-Tailun and Catch-Luck (whose functional
        currency is the RMB) are translated into US$ using the closing rate
        method.  The balance sheet items are translated into US$ 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 year.  All exchange differences are
        recorded within equity. Translation gain for the periods ended September
        30,
        2007 and 2006 were
        $720,130and $255,734respectively.
 
 **NOTE
                    13.**
                **COMPREHENSIVE
                    INCOME**
  The
        foreign currency translation gain or loss resulting from translation of the
        financial statements expressed in RMB to US$ is reported as other comprehensive
        income in the statements of operations and stockholders’ equity.
 **NOTE
                    14.**
                **RECLASSIFICATION**
  Certain
        2006 balances in the Statement of Operation have been reclassified to conform
        with the 2007 balances.
  12
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
   **NOTE
                    15.**
                **INCOME
                    PER SHARE**
  Basic
        earnings per share are computed by dividing income available to common
        stockholders by the weighted average number common shares outstanding during
        the
        period. Diluted earnings per share is computed similar to basic earnings
        per
        share except that the denominator is increased to include the number of
        additional common shares that would have been outstanding if the potential
        common shares had been issued and if the additional common shares were
        dilutive.
 
 Warrants
        to purchase 9,090,909 shares of common stock at prices 0.32 per share were
        outstanding at September 30, 2007, but were excluded from the calculation
        of
        diluted earnings per share because the effect of stock warrants was
        anti-dilutive.
 **NOTE
                    16.**
                **SEGMENTS**
  The
        Company adopted Statement of Financial Accounting Standards No. 131, Disclosures
        about Segments of an Enterprise and Related Information (“SFAS 131”). SFAS
        establishes standards for operating information regarding operating segments
        in
        annual financial statements and requires selected information for those segments
        to be presented in interim financial reports issued to stockholders. SFAS
        131
        also establishes standards for related disclosures about products and services
        and geographic areas. Operating segments are identified as components of
        an
        enterprise about which separate discrete financial information is available
        for
        evaluation by the chief operating decision maker, or decision making group,
        in
        making decision how to allocate resources and assess performance. The
        information disclosed herein, materially represents all of the financial
        information related to the Company’s principal operating segments. The Company
        operates in a single segment.
  **NOTE
                    17.**
                **RECENT
                    ACCOUNTING
                    PRONOUNCEMENTS**
  In
        July
        2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
        in
        Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”), which clarifies
        the accounting for uncertainty in tax positions. This Interpretation provides
        that the tax effects from an uncertain tax position can be recognized in
        the
        Company’s financial statements, only if the position is more likely than not of
        being sustained on audit, based on the technical merits of the position.
        The
        provisions of FIN 48 are effective as of the beginning of fiscal 2007, with
        the
        cumulative effect of the change in accounting principle recorded as an
        adjustment to opening retained earnings. The Company do not expect the adoption
        of FIN 48 to have an impact on the Company’s results of operations or financial
        condition.
  In
        September 2006, FASB issued Statement 157, Fair Value Measurements. This
        statement defines fair value and establishes a framework for measuring fair
        value in generally accepted accounting principles (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, 2007. The Company do 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. SFAS
        159
        will become effective for us on January 1, 2008. The Company is currently
        evaluating the impact this new Standard, but believes that it will not have
        a
        material impact on the Company’s financial position.
  **NOTE
                    18.**
                **INVENTORIES**
  Inventories
        at September 30, 2007 consisted of the following:
  Raw
                    materials
                
                $
                285,734Work-in-progress
                
                
                167,577Finished
                    goods
                
                
                725,9381,179,249Less:
                    provision of obsolescence
                
                
                -Inventories,
                    net
                
                $
                1,179,249
  13
  EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
 
 **NOTE
                    19.**
                **NOTES
                    PAYABLE**
  Balance
        at September 30, 2007:
 Note
                    payable to a bank, interest at bank's prime rate plus 0.83% per
                    annum,
                
                
                1,330,2120.5280%
                    at September 30, 2007, collateralized by buildings of the
                    Company,due
                    December 24, 2007Note
                    payable to a bank, interest at bank's prime rate plus 0.83% per
                    annum,
                
                
                1,330,2120.5442%
                    at September 30, 2007, collateralized by buildings of the
                    Company,due
                    February 15, 20082,660,424Less:
                    current maturities
                
                
                (2,660,424
                )$
                -
  Maturities
        are as follows:
 For
                    the period ending September 30,2008
                
                $
                2,660,424
  Interest
        paid for the nine months ended September 30, 2007 and 2006 was $177,822 and
        $26,491, respectively.
  **NOTE
                    20.**
                **CONVERTIBLE
                    NOTES PAYABLE**
  On
        August
        2, 2007, the Company consummated a private placement of $2,000,000 principal
        amount of 6% secured convertible notes (the "Notes") with five-year common
        stock
        warrants (the "Warrants") to six accredited investors.
****Financing cost of $242,520 was paid out of the gross
        proceeds. The financing cost is amortized over the life of the Notes. During
        2007, the Company recognized deferred financing cost of $20,210. The 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.
  The
        Notes
        are subject to full-ratchet anti-dilution protection, i.e. if the Company
        issues
        shares at an average per-share price below $0.22 per share, the conversion
        price
        of the Notes shall be adjusted downward to match such per-share price. Under
        the
        terms of the Notes, the full-ratchet anti-dilution adjustments do not apply
        to
        (i) the issuance of approximately up to $1.6 million shares or shares under
        options to employees and consultants, (ii) securities issued in connection
        with
        acquisitions of third parties valued above $8 million; (iii) the issuance
        of
        approximately up to $1.6 million shares or shares under warrants or other
        securities issued to non-affiliates for services rendered to the Company,
        as
        more fully described and set forth in the Notes. The holders of the Notes
        may
        convert the unpaid principal amount 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. For the specific terms including those relating
        to anti-dilution.
  The
        Company issued to the note holders a total of 9,090,909 warrants to purchase
        common stock with an exercise price of $0.32.  The warrants are exercisable
        for a five-year period until August 2, 2012.
  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 $0.32 per share, same as the Notes. If at any time after fifteen
        months after the closing date there is no effective registration statement
        covering the resale of the shared underlying the warrants, the warrant holders
        may exercise their warrants by means of a cashless exercise.
  14
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
 
 **NOTE
                  20.**
                **CONVERTIBLE
                    NOTES PAYABLE
                    (CONTINUED)**
 
 The
        Notes
        required that the Company secured 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 3,897 shares Series A Preferred Stock (convertible into 30
        million shares of common stock) 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.
 
 As
        of
        September 30, 2007, the investors have not converted the principal drawn
        by the
        Company in exchange for the common shares of the Company.
 
 As
        of
        September 30, 2007, the Company recorded beneficial conversion feature of
        $454,545 and a discount on notes payable of $1,365,044 for the warrants.
The
        fair market value of the stock options and warrants at the
        date of grant was estimated using the Black-Scholes option-pricing model
        with
        the following assumptions:
 
 Expected
                  Life
                2
                  yearsInterest
                  Rates
                4.59%Dividend
                  Yield
                $0Volatility
                112%Forfeiture
                  Rate
                0
 
 Expected
        life represents the period of time that options are expected to be outstanding
        and is based on the Company’s historical experience or the simplified method, as
        permitted by SEC Staff Accounting Bulletin No. 107 where appropriate. The
        risk-free interest rate is based on U.S. Treasury interest rates at the time
        of
        the grant whose term is consistent with the expected life of the stock options.
        Expected dividend yield was considered to be $0 in the option pricing formula
        since the Company does not pay dividends and has no
        current plans to do so in the future.  Expected volatility is based on
        the Company’s historical experience.
  The
        Notes
        are being accreted over the term of the obligations, for which $568,299 was
        included in interest expenses for the nine months ended September 30, 2007.
        The
        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 and for the
        nine
        months ended September 30, 2007, $19,068 was included in interest
        expense.
 
 **NOTE
                    21.**
                **NET
                    INCOME PER SHARE**
  Net
        income per share information is as follows:
 Three
                    months ended September 30
                
                
                Nine
                    months ended September 302007
                
                
                2006
                
                
                2007
                
                
                2006Net
                    income for basic earnings per share
                
                $
                1,321,065
                
                
                $
                1,587,643
                
                
                $
                3,585,784
                
                
                $
                3,852,579Add:
                    Interest expense for the Convertible Notes
                
                
                587,367
                
                
                
                -
                
                
                
                587,367
                
                
                
                -Net
                    income for diluted earnings per share
                
                $
                1,908,432
                
                
                $
                1,587,643
                
                
                $
                4,173,151
                
                
                $
                3,852,579Basic
                    weighted-average common stock outstanding
                
                
                53,882,014
                
                
                
                53,882,014
                
                
                
                53,882,014
                
                
                
                53,882,014Effect
                    of dilutive securitiesSeries
                    A Convertible Perferred Stock
                
                
                59,910,800
                
                
                
                59,910,800
                
                
                
                59,910,800
                
                
                
                59,910,800Convertible
                    notes
                
                
                5,830,039
                
                
                
                -
                
                
                
                1,964,702
                
                
                
                -Diluted
                    weighted-average common stock outstanding
                
                
                119,622,853
                
                
                
                113,792,814
                
                
                
                115,757,516
                
                
                
                113,792,814Net
                    income per share - basic
                
                $
                0.02
                
                
                $
                0.03
                
                
                $
                0.07
                
                
                $
                0.07Net
                    income per share - diluted
                
                $
                0.02
                
                
                $
                0.01
                
                
                $
                0.04
                
                
                $
                0.03
  15
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
 **NOTE
                    22.**
                **STOCKHOLDERS’
                    EQUITY**
  **(A)         Authorized
        Shares of Common Stock**
 
 On
        August
        10, 2006, a majority of the stockholders of the Company approved an amendment
        to
        the Company’s Articles of Incorporation, to increase the number of authorized
        shares of common stock from 100,000,000 to 500,000,000. On October 3, 2007,
        the
        Company filed a Certificate of Amendment to the Articles of Incorporation
        to
        amend the Articles of Incorporation to give effect to the
        amendment.
  **(B)         Series
        A Convertible Preferred Stock**
 
 The
        Company authorized 10,000 shares of Series A Convertible Preferred Stock,
        with a
        par value of $0.0001 per share.
 
 Each
        share of the Series A Convertible Preferred Stock had upon issuance the same
        voting, dividend and liquidation rights as 1,000 shares of common stock and
        will
        convert back into common stock at such time as the Company is able to increase
        the number of authorized shares of common stock. Effective November 8, 2005,
        the
        Company effected a 7.6-for-1 forward stock split on the remaining outstanding
        2,627,861 shares, which increased the number of outstanding shares to 19,971,743
        shares. Under the adjustment provisions of the Series A Convertible Preferred
        Stock, the conversion, voting, dividend and liquidation ratios of the Series
        A
        Convertible Preferred Stock were all increased by the forward stock split
        from
        1,000 for one to 7,600 for one. The Series A Convertible Preferred Stock
        will be
        converted back into common stock at such time as the number of shares of
        authorized common stock is increased to 100,000,000 or more via a proposed
        amendment to the Articles of Incorporation. The relative voting and equity
        ownership of the Company’s stockholders was unchanged by the exchange for Series
        A Convertible Preferred Stock and the forward stock split. If all the Series
        A
        Convertible Preferred Stock were converted as of September 30, 2007, there
        would
        be 113,792,814 outstanding shares of common stock.
  **(C)         Stock
        Issuances**
 
 Stock
        Issued for Acquisition
 
 In
        September 2007, the Company issued 20,833,333 shares of restricted common
        stock
        at $0.48 per share with a fair value $10,000,000 as part of the consideration
        to
        a related company in the acquisition of New-Tailun.
 
 In
        September 2007, the Company issued 13,076,923 shares of restricted common
        stock
        at $0.26 per share with a fair value $3,400,000 as part of the consideration
        to
        a related company in the acquisition of Catch-Luck.
  **(D)         Appropriated
        Retained Earnings**
 
 The
        Company’s PRC subsidiaries are required to make appropriations to reserve funds,
        comprising the statutory 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.
  16
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  **NOTE
                    23.**
                **RELATED
                    PARTY TRANSACTIONS**
  During
        2007 and 2006, the Company sub-contracted certain manufacturing work valued
        at
        $1,865,386 to six related companies which are controlled by a shareholder
        and
        director of the Company and $3,255,701 to four related companies which are
        controlled by a shareholder and director of the Company, respectively. The
        Company provided the raw materials to the sub-contractor who charged the
        Company
        a fixed labor charge for the sub-contracting work.
 
 During
        2007 and 2006, the Company purchased raw materials of $684,795 from two related
        companies which are controlled by a shareholder and director of the Company
        and
        $443,543 from three related companies which are controlled by a shareholder
        and
        director of the Company, respectively.
 
 As
        of
        September 30, 2007, the Company owed $59,673 to two related companies which
        are
        controlled by a shareholder and director of the Company for sub-contracting
        work
        done and inventory purchases.
 
 During
        2007 and 2006, the Company sold products and provided sub-contracting services
        totaling $940,334 to four related companies which are controlled by a
        shareholder and director of the Company and $383,198 to five related companies
        which are controlled by a shareholder and director of the Company, respectively.
        As of September 30, 2007 account accounts receivable from a related company
        amounted to $215,915 for products sold and sub-contracting services
        provided.
 
 A
        related
        company which is controlled by a shareholder and director of the Company
        provides treasury services to the Company free of service charges by negotiating
        all of the Company’s letters of credit and receiving proceeds thereon and paying
        creditors for purchases made by the Company. As of September 30, 2007, the
        Company prepaid $366,659 to a related company for purchasing raw
        materials.
 
 As
        of
        September 30, 2007 the Company owed an aggregate of $4,415,870 to a related
        company which is controlled by a shareholder and director of the Company
        for
        advances made. Interest is charged at 6% per annum on the amounts due. The
        loan
        is repayable to the related company between July 2010 and April 2011. During
        2007 and 2006, the Company paid interest of $177,344 and $91,183, respectively,
        to the related company.
 
 During
        2007, the Company paid $19,542 for the lease of factory space to a related
        company which is controlled by a shareholder and director of the
        Company.
 
 On
        November 9, 2006, Perfect Dream entered into a purchase agreement with a
        related
        company whereby a related company sold 100% interest of Nanjing New-Tailun
        Garments Company Limited (“New-Tailun”) to the Company. Pursuant to the terms of
        the purchases agreement, the Company paid to the related company an amount
        of
        $2,000,000 in cash and issued 20,833,333 shares of the Company’s restricted
        common stock having a value of $10,000,000 during 2007.
 
 On
        June
        26, 2006, Perfect Dream entered into an purchase agreement with a related
        company whereby a related company sold 100% interest of Nanjing Catch-Luck
        Garments Co, Limited (“Catch-Luck”) to the Company. Pursuant to the terms of the
        purchase agreement, the Company will pay to the related company an amount
        of $600,000 in cash and issued 13,076,923 shares of the Company’s restricted
        common stock having a value of $3,400,000 during 2007.
  17
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  
 **NOTE
                    24.**
                **COMMITMENTS**
  (A)        
           Commitments
 
 According
        to the Articles of Association of Goldenway, Goldenway has to fulfill registered
        capital requirements of $17,487,894 within three years from February 2,
        2005.  As of September 30, 2007, the Company has fulfilled $3,630,000
        of its registered capital requirements and has a registered capital commitment
        of $13,857,894, which is payable by February 1, 2008.
  (B)        
            Operating
          lease commitment
  The
        Company leases factory and office spaces from a related company under an
        operating lease which expires on March 31, 2008 at an annual rental of
        $26,056.  Accordingly, for the period ended September 30, 2007, the
        Company recognized rental expense for these spaces in the amount of
        $19,542.
 
 As
        of
        September 30, 2007, the Company has outstanding commitments of $13,028 with
        respect to the above non-cancelable operating lease, which are due in
        2008.
  (C)      
             Contingent consideration
  As
          stated
          in Note 3, the Company acquired all of the issued and outstanding capital
          of
          Catch-Luck for a total consideration of $10,000,000 of which $600,000 was
          payable in cash and $9,400,000 payable by the issue of shares of the Company’s
          restricted common stock. On the effective date of August 27, 2007, the
          Company
          will paid the cash consideration of $600,000 and issued 13,076,923 shares
          of the
          Company’s restricted common stock having a value of $3,400,000 were issued to
          the stockholders of Catch-Luck.
 
 At
        September 30, 2007, the Company is contingently liable to issue 23,076,923
        shares of common stock to the value of $6,000,000 two years from the effective
        date, adjusted proportionately for the achievement by Catch-Luck of gross
        revenues of at least $19,000,000 and net profit of $1,500,000 for each of
        the
        years ending December 31, 2008 and December 31, 2009.
 
 **NOTE
                  25.**
                **CONTINGENCIES**
  The
        Company accounts for loss contingencies in accordance with SFAS 5 “Accounting
        for Loss Contingencies”, and other related guidance. Set forth below is a
        description of certain loss contingencies as of September 30, 2007 and
        management’s opinion as to the likelihood of loss in respect of each loss
        contingency.
  On
        February 22, 2006, the Company is a named defendant in an action filed by
        Plaintiff Douglas G. Furth in the United States District Court for the Northern
        District of Ohio. The action alleges that Company breached an agreement with
        the
        plaintiff to provide 1,000,000 shares of its common stock in exchange for
        certain assistance in marketing and financial public relation services. The
        Plaintiff seeks an award of damages in excess of $75,000. After vigorously
        defending itself, the Company was voluntarily dismissed by the Plaintiff
        without
        prejudice from an action pending in the U.S. District Court for the Northern
        District of Ohio. No payment was made and no settlement agreement was entered
        into between the Company and the plaintiff.
 
 In
        May,
        2007, Plaintiff Douglas G. Furth has filed a Second Amended Complaint in
        the
        Litigation asserting claims against EGLY and other principal parties. The
        Company denied all the claims and has filed the responses and objections
        to
        Plaintiff’s First Request and asked for the dismissal with prejudice by the
        plaintiff. No payment was made to plaintiff and no settlement has been discussed
        between the Company and the Plaintiff.
  18
 EVER-GLORY
        INTERNATIONAL GROUP, INC.
 AND
        SUBSIDIARIES
 NOTES
        TO
        THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
        OF
        SEPTEMBER 30, 2007 (UNAUDITED)
  
 **NOTE
                  25.**
                **CONTINGENCIES
                  (CONTINUED)**
 On
        April
        17, 2006, Mark B. Aronson filed a Complaint against the Company in the United
        States Court of common pleas of Allegheny County Pennsylvania. The action
        alleges that Company violated the Pennsylvania Unsolicited Telecommunication
        Advertisement Act to spam emails to plaintiff to purchase its shares of common
        stock. The action seeks an award of damages in excess of $12,100. The Company
        denies that it was a party to such email spamming activities and intends
        to
        vigorously defend its legal position, with the case now in the initial phase
        of
        discovery.
  On
        January 4, 2007, the case was dismissed without prejudice by Mark B.
        Aronson. To date, no settlement agreement has been discussed between the
        Company and Mark B. Aronson.
 
 Accordingly,
        no provision has been made to the above claim as of September 30,
        2007.
 **NOTE
                    26.**
                **CONCENTRATIONS
                    AND RISKS**
  During
        2007 and 2006, 100% of the Company’s assets are located in China.
 
 The
        Company principally relied on two customers for its revenue during 2006 and
        2005, details of which are as follows:
 Customer
                    A
                
                
                Customer
                    BDuring2007
                
                
                34
                %
                
                
                10
                %2006
                
                
                26
                %
                
                
                14
                %
 The
        following is geographic information of the Company’s revenue earned for the
        period ended September 30:
 2007
                
                
                2006Europe
                
                $
                29,365,688
                
                
                $
                19,813,736United
                    States
                
                
                10,627,898
                
                
                
                7,151,963Japan
                
                
                6,543,188
                
                
                
                6,711,920The
                    People Republic of China
                
                
                2,856,866
                
                
                
                2,412,171Others
                
                
                607,587
                
                
                
                820,610$
                50,001,227
                
                
                $
                36,910,400
 **NOTE
                      27.**
                  **SUBSEQUENT
                        EVENTS**
  On
            October 3, 2007, the Company amended its Articles of Incorporation as
            filed with
            the Department of State of the State of Florida, thereby increasing the
            number
            of authorized shares of common stock to 500,000,000.
 
 On
            October 3, 2007, effective upon the filing of an amendment to its Articles
            of
            Incorporation, 7,883 shares of the Company’s Series A Preferred Stock were
            automatically converted into 59,910,800 shares of common stock of the
            Company.  Immediately following the conversion, the Company had a
            total of 113,792,814 shares of common stock issued and outstanding and
            no shares
            of preferred stock outstanding.
 
 On
            October 4, 2007, the Company approved the issuance of a three-year warrant
            to
            purchase up to 727,272 shares of restricted common stock to a placement
            agent at
            an exercise price of $0.32 per share. The value of this warrant was
            approximately $71,000.
 
 On
            November 9, 2007, the Company effected a 10-to-1 reverse stock split
            whereby
            each ten (10) issued and outstanding shares of the Company’s common stock will
            be combined and converted into one (1) share of the Company’s common stock (the
“Reverse Split”).  The Reverse Split will become effective on
            November 20, 2007.  On or about November 20, 2007, the Company will
            amend its Articles of Incorporation as filed with the Department of State
            of the
            State of Florida to effect the Reverse Split and decrease the number
            of
            authorized shares of common stock from 500,000,000 to
            50,000,000.
  19


**ITEM
      2. MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**





*The
      following discussion and analysis of our financial condition and results of
      operations for the nine months ended September 30, 2007 should be read in
      conjunction with the Financial Statements and corresponding notes included
      in
      this Quarterly Report on Form 10-QSB. 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,” and similar expressions to identify
      forward-looking statements.*





**Overview**





Ever-Glory
      and its subsidiaries (the "Company") manufacture apparel for men, women, and
      children for primarily middle to high-grade well-known casual wear, sportswear,
      and outerwear brands and for a variety of companies. All of our products are
      exported to Japan, Europe, and the United States. Our customers include large
      retailers and well-known brands. We are the result of a merger of Andean
      Development Corporation, a corporation organized under the laws of the State
      of
      Florida ("Andean"), and Perfect Dream Limited, a corporation organized under
      the
      laws of British Virgin Islands "Perfect Dream"). Andean was formed on October
      19, 1994 and engaged in the business of providing engineering and project
      management services and electrical and mechanical equipment for energy and
      private works projects. As of September 30, 2005, Andean had zero assets and
      liabilities of $57,000. Perfect Dream was incorporated on July 1, 2004 in the
      British Virgin Islands. In January of 2005, Perfect Dream acquired 100% of
      Goldenway Nanjing Garments Co., Ltd ("Goldenway").





Goldenway
      is a limited liability company, which was incorporated in the People's Republic
      of China (the "PRC") on December 31, 1993. Until December 2004, Goldenway was
      a
      subsidiary of Jiangsu Ever-Glory International Group Corporation (“Jiangsu
      Ever-Glory”). After its acquisition by Perfect Dream, Goldenway changed its
      status to that of a wholly foreign owned enterprise and increased its registered
      capital from $2,512,106 to $20,000,000. The increased registered capital will
      be
      paid-in in installments within three years of the issuance of Goldenway's
      updated business license. As of September 30, 2007, we have paid $3.63 million
      of our registered capital requirements. The remaining $13.86 million is due
      on
      February 1, 2008.





On
      December 30, 2006, we, through our wholly owned subsidiary, Perfect Dream,
      consummated the acquisition of 100% of the capital stock of Nanjing New-Tailun
      Garments Co, Ltd, a Chinese limited liability company (“New-Tailun”) from
      Ever-Glory Enterprises (HK) Ltd, a British Virgin Islands corporation
      (“Seller”).  The purchase price consisted of a combination of
      20,833,333 shares of our common stock and $2,000,000 in cash.  New
      Tailun is a 100% foreign-owned enterprise incorporated in the PRC and is engaged
      in the manufacturing and sale of garments. New-Tailun has a staff of over 800
      people with the annual production capacity of about 2.5million
      pieces.  New Tailun’s financial statements are included in our
      consolidated financial statements.  Management believes that the
      acquisition of New Tailun will enable us to facilitate our increased production,
      strengthen our outsourcing bases, and supplement our product lines.





On
      August
      27, 2007, we acquired Nanjing Catch-Luck Garments Co. Ltd., a Chinese limited
      liability company (“Catch-Luck”), which further expanded our production
      capacity. Catch-Luck is primarily engaged in the manufacturing and sale of
      garments to China, Europe, Japan, and the United States. Founded in 1995,
      Catch-Luck has more than 500 employees with annual production capacity of 1.2
      million garment pieces.  It currently operates one factory spanning
      6,000 square meters in the Nanjing Jiangning Economic and Technological
      Development Zone. The acquisition of Catch-Luck was financed by a combination
      of
      $0.6 million in cash and $9.4 million of our common stock. Upon completion
      of
      this transaction, Catch-Luck became our wholly owned subsidiary. Under the
      Agreement for the Purchase and Sale of Stock dated June 26, 2006 (the
“Agreement”) by and between us, our wholly owned subsidiary, Perfect Dream Ltd.,
      a British Virgin Islands corporation (“Perfect Dream”), Ever-Glory Enterprises
      (HK) Ltd., a British Virgin Islands company (“Ever-Glory Hong Kong”), and
      Nanjing Catch-Luck Garments Co. Ltd., a Chinese limited liability company
      (“Catch-Luck”), we will pay Ever-Glory Hong Kong an amount of
      $600,000, and we issued 13,076,923 shares of our common stock to Ever-Glory
      Hong
      Kong at closing. In addition, upon Catch-Luck’s achievement of certain financial
      targets for the fiscal years 2008 and 2009, we will issue an additional
      11,538,461 shares of our common stock to Ever-Glory Hong Kong for each of those
      two fiscal years (i.e., 11,538,461 shares for 2008 and 11,538,461 shares for
      2009).


20




In
      the
      nine months ended September 30, 2007, approximately 59% of our revenues came
      from customers in Europe, 21% from customers in the United States, 13% from
      customers in Japan, and 6% from customers in China. In the nine months ended
      September 30, 2007, two customers represented approximately 44% of our sales.
      Management believes that the relationship with these customers is
      good.





We
      purchase the majority of our raw materials directly from numerous local fabric
      and accessories suppliers. We****also purchase finished goods
      from other contract manufacturers. As of September 30, 2007, we did not rely
      on
      any supplier which exceeds 10% of our purchases**.**We have not
      experienced difficulty in obtaining raw materials essential to our business,
      and
      management believes that the relationship with our suppliers is
      good.





In
      2007,
      we operated three factories located in the Nanjing Jiangning Economic and
      Technological Development Zone and in Shangfang Town in the Jiangning
      District in Nanjing, China.





We
      made a
      deposit to purchase a fifty-year land use right on 112,442 square meters of
      land
      in the Nanjing Jiangning Economic and Technological Development Zone. The land
      contains an existing facility of 26,629 square meters, which includes
      manufacturing and office space. On April 7, 2006, we closed the transaction
      with
      the local government of Nanjing City. On September 24, 2006, we
      obtained the title to the land for the land use rights for 50 years. By the
      end
      of 2006, we completed the construction of the new office buildings and the
      new
      factory. We have been consolidating our operation into our new headquarters
      and
      manufacturing facility since January 2007. The new manufacturing facility
      occupies an area of 10,000 square meters and is equipped with state-of-the-art
      equipment**.******After moving into the new
      office space, we conducted an appraisal on the completed construction and the
      quality of raw materials used in construction, and found that some of the
      construction materials and workmanship did not meet our quality requirement.
      After much negotiation, we settled with the construction company, resulting
      in a
      reduction in the payment of construction cost of approximately $1.6 million.
      This amount was reflected as a reduction of our accounts payable and fixed
      assets in our financial statements for the quarter ending June 30,
      2007.





Our
      three
      factories employ a staff of over 1,800 people, with an annual production
      capacity, including outsourcing capacity, of over 8 million pieces. We consider
      relations with our employees to be satisfactory.





In
      2007,
      all Chinese manufacturers of certain garments were subject to aggregate export
      quotas, or limitations, to the United States and Europe. Although certain of
      our
      apparel products fall within the categories subject to the quotas with respect
      to exports to the United States and Europe, the Chinese government allocated
      a
      portion of the aggregate export quota to us based upon the amount of product
      that we exported in the prior year. The imposition of such quotas did not have
      a
      material negative effect on our net sales and our net margin. See Results of
      Operations below. As a result of our prior export performance, we were awarded
      a
      sufficient portion of the export quotas to enable it to increase our sales
      to
      customers in Europe and the United States despite the export quotas. We believe
      that our customer mix and our ability to adjust the types of apparel it
      manufactures will mitigate our exposure to such trade restrictions in the
      future.





Under
      the
      laws of the PRC, as a wholly foreign owned enterprise, in the fiscal year ended
      December 31, 2004, Goldenway was entitled to a 50% reduction in its income
      tax
      rate, from 24% to 12%. In the fiscal year ended December 31, 2005, Goldenway,
      as
      a wholly foreign owned enterprise that exported over 70% of its products outside
      the PRC, was eligible for a 50% reduction in its tax rate from 24% to 12%.
      From
      2006, Goldenway has an income tax rate of 12%.New-Tailun
      was approved as a wholly foreign-owned enterprise in 2006 and is entitled
      to the income tax exemptions for 2006 and 2007. Catch-Luck was a wholly foreign
      owned enterprise and eligible for income tax exemptions for 2006 and
      2007.





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.


21


Our
      cost
      of net revenues consists of the appropriate materials purchasing, receiving,
      and
      inspection costs, inbound freight where applicable, garment finishing fees,
      direct labor, and
      manufacturing overhead, including our contributions to a government mandated
      multi-employer defined contribution plan, packing materials, and others. In
      addition, from time to time we subcontract manufacturing, which costs are
      included in our cost of net revenues.





Selling
      expenses consist primarily of transportation, product inspection charges, export
      quote fees, export charges, traveling and entertainment for the
      merchandisers.





General
      and administrative expenses consist primarily of related expenses for executive,
      finance, accounting, facilities and human resources personnel, office expenses,
      and professional fees.





**Results
      of Operations**





***Three
      Months Ended September 30, 2007 Compared To Three Months Ended September 30,
      2006***





Revenues,
      Cost ofSales, and Gross Margin





Revenues
      for the quarter ended September 30, 2007 were $19,477,793, an increase
      of approximately 28% from $15,232,893 for same quarter in 2006. The
      increase is attributable to the overall increase in sales to European, American,
      and Japanese markets. During the quarter ended September 30, 2007, sales to
      customers in Europe increased 38%, sales to customers in the United
      States increased 16%, and sales to customers in Japan increased 21%
      compared to the same period in 2006.





Cost
      of
      sales for the quarter ended September 30, 2007 was $16,404,695, an increase
      of
      approximately 29% from $12,718,450 for the quarter ended September 30, 2006.
      As
      a percentage of revenues, cost of sales increased to approximately 84 % for
      the
      three months ended September 30, 2007 from approximately 83 % for the quarter
      ended September 30, 2006. Consequently, gross margins as a percentage of
      revenues decreased to approximately 16 % for the three months ended September
      30, 2007 from approximately 17% for the three months ended September 30, 2006.
      The 1% increase in costs of sales and decrease of gross margins is mainly due
      to
      the increase in the purchase price of raw materials which could not be passed
      to
      our customers during the quarter.





Operating
      Expenses





Selling
      expenses for the quarter ended September 30, 2007 increased by approximately
      14
      % from $147,841 in 2006 to $167,976 in 2007. The increase is mainly due to
      the
      increase of our transportation expenses.





General
      and administrative expenses totaled $617,529 for the three months ended
      September 30, 2007, an increase of approximately 52% from $407,335 for the
      three months ended September 30, 2006. The increase is mainly attributable
      to an
      increase of $182,813 in management salaries and purchase of office equipment
      in
      the amount of $179,303 due to the expansion of our business.





Professional
      fees associated with our trading activities on the OTCBB market totaled $162,889
      for the three months ended September 30, 2007, a decrease of approximately
      4% from $170,548 for the three months ended September 30,
      2006.





Depreciation
      and Amortization





Depreciation
      and amortization expenses increased approximately 119% from $32,816 for the
      quarter ended September 30, 2006 to $72,006 for the same period in 2007. The
      increase is mainly due to the completion of the new land and manufacturing
      facilities.





Interest
      Expenses





Interest
      expenses increased 1043 % from $59,544 for the quarter ended September 30,
      2006
      to $680,644 for the same period in 2007. The increase is mainly attributable
      to
      our $2,000,000 private placement of senior secured convertible notes with
      five-year common stock warrants. We recorded an additional non-cash charge
      of
      $568,299, of which about $454,545 was the result of the discounted loss of
      the
      issuance of the convertible notes with the conversion price of $0.22 compared
      to
      the market price of $0.27 at the closing of the transaction and of which about
      $113,754 was recorded as interest expense on the warrants valued at $1,365,044
      which was amortized over the whole period of the convertible
      notes.


22




Net
      Income





Net
      income for the three months ended September 30, 2007 was $1,321,065, a decrease
      of approximately 17% from $1,587,643 for the three months ended September 30,
      2006. The decrease is mainly due to the non-cash charge accounting treatment
      of
      $568,299 associated with our $2,000,000 private placement of secured convertible
      notes with five-year common stock warrants. The fully diluted earnings per
      share
      for the quarter ended September 30, 2007 was $0.02 compared to $0.01 for the
      same period in 2006.





***Nine
      Months Ended September 30, 2007 Compared To Nine Months Ended September 30,
      2006***





Revenues,
      Cost ofSales,and Gross Margin





Revenues
      for the nine months ended September 30, 2007 were $50,001,227, an increase
      of 35
      % from $36,910,400 for same period in 2006. The increase in revenues is
      primarily attributable to an overall increase in sales to customers in Europe,
      the United States, and China. During the nine months ended September 30, 2007,
      sales to customers in Europe increased by $9,551,952 or 48 %, sales to customers
      in the United States increased by $3,475,935 or 49%, and sales to customers
      in
      China increased by $444,695 or 18 % as compared to the same period in
      2006.





Cost
      of
      sales for the nine months ended September 30, 2007 was $42,296,988, an increase
      of approximately 38% from $30,706,295 for the nine months ended September 30,
      2006. As a percentage of revenues, cost of sales increased to approximately
      85 %
      for the nine months ended September 30, 2007 from approximately 83% for the
      nine
      months ended September 30, 2006. Consequently, gross margins as a percentage
      of
      revenues decreased to approximately 15% for the nine months ended September
      30,
      2007 from approximately 17% for the nine months ended September 30, 2006. The
      decrease of gross margins is mainly attributable to an increase in the purchase
      price of raw materials as a result of the appreciation in the exchange rate
      of
      the Chinese Renminbi to the United States dollar.





Operating
      Expenses





Selling
      expenses for the nine months ended September 30, increased by approximately
      14%
      from $432,028 in 2006 to $493,686 in 2007. The increase is mainly associated
      with the increase of our transportation expenses.





General
      and administrative expenses totaled $1,826,456 for the nine months ended
      September 30, 2007, an increase of approximately 93% from $945,717 for the
      nine
      months ended September 30, 2006. The increase is mainly due to the following
      factors: (i) salary expenses increased by $656,422; (ii) the purchase of
      office equipment increased by $115,596; (iii) we paid land and housing taxes
      of
      $48,851; and (iv) we had a foreign exchange loss of $39,929 as a result of
      the
      appreciation in the exchange rate of the Chinese Renminbi to the United States
      dollar.





Professional
      fees associated with our trading activities on the OTCBB market totaled $508,499
      for the nine months ended September 30, 2007, a decrease of approximately 6%
      from $543,276 for the nine months ended September 30, 2006.





Depreciation
      and Amortization





Depreciation
      and amortization expenses increased approximately 239% from $65,990 for the
      nine months ended September 30, 2006 to $223,632 for the same period in 2007.
      The increase is mainly due to the completion of the new land and manufacturing
      facilities.


23


Interest
      Expenses





Interest
      expenses increased approximately 701 % from $117,674 for the nine months ended
      September 30, 2006 to $942,534 for the same period in 2007. The increase is
      mainly attributable to a non-cash charge of $568,299 associated with the
      issuance of senior secured convertible notes of $2,000,000 and five-year common
      stock warrants. We also paid an interest expense of $196,890 on a loan from
      a
      local Chinese bank.





Net
      Income





Net
      income for the nine months ended September 30, 2007 was $3,585,784, a decrease
      of approximately 7% from $3,852,579 for the nine months ended September 30,
      2006. The decrease is mainly due to the non-cash charge accounting treatment
      of
      $568,299 associated with our $2,000,000 private placement of secured convertible
      notes and five-year common stock warrants. The fully diluted earnings per share
      for the nine months ended September 30, 2007 was $0.04 compared to $0.03 for
      the
      same period in 2006.




**Liquidity
      and Capital Resources**





As
      of
      September 30, 2007, we had cash and cash equivalents of $2,149,831, other
      current assets of $10,714,456, and current liabilities of $6,719,369. To date,
      we have financed our operations primarily from operations, and cash flow from
      operations is expected to continue to be our primary source of funds to finance
      our short-term cash needs.





Net
      cash
      provided by operating activities during the nine months ended September 30,
      2007
      was $3,593,829 compared with $448,615 provided during the same quarter in 2006.
      The increase in net cash is mainly due to a significant decrease in account
      receivables from related parties as compared to the same period in
      2006.





Net
      cash
      used in investing activities was approximately $1,813,041 during the nine months
      ended September 30, 2007 compared with $4,939,125 during the same quarter in
      2006. The decrease is mainly attributable to the completion of our new
      headquarters and facilities.





Net
      cash
      provided by financing activities during the nine months ended September 30,
      2007
      was $42,846 compared with $2,963,644 provided during the same period in 2006.
      The decrease is attributable to the payment of borrowings in the amount of
      $7,165,377 to a local Chinese bank during the quarter ended September 30,
      2007.





On
      August
      15, 2006, Goldenway entered into credit agreements with a local Chinese bank,
      Nanjing City Commercial Bank, for the authorization to borrow an aggregate
      principal amount of up to $6.41 million within 24 months. The loan was secured
      by our new facilities and were used to fund the construction costs and our
      daily
      operation. As of September 30, 2007, we have borrowed $2,660,424. The
      borrowings can****be extended upon maturities on demands
      within the 24 months. We plan to repay the loan with cash flows from our
      operations. In the event we do not have available cash flows from our operations
      to repay this loan, we will consolidate and refinance the loans upon
      maturity.  There are no financial ratios or tests included in our
      credit facility.





On
      August
      6, 2007, we consummated a private placement of $2,000,000 in principal amount
      of
      6% per annum senior secured convertible notes with five-year common stock
      warrants to six accredited investors. The secured convertible notes are due
      August 2, 2009 and were originally convertible into 9,090,909 shares of our
      common stock at a conversion price of $0.22 per share. We received net proceeds
      of $1,757,480 from the financing excluding investment bank commissions and
      legal
      fees. The financing was mainly for the purpose of supplementing our working
      capital.




In
      addition, as of September 30, 2007, we owe $4,415,870 to a related party from
      a
      loan which served the main purpose of funding the increased registered capital
      of Goldenway. Interest paid to this related party totaled $177,344 as of
      September 30, 2007.


24





**Capital
      Commitments**





Pursuant
      to the Articles of Association of Goldenway, registered capital of approximately
      $17.5 million must 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 September 30, 2007,
      we have paid $3.6 million of our registered capital requirements. The remaining
      $13.9 million is due on February 1, 2008. We anticipate that cash flows from
      operations and borrowings from banks will be used to pay these capital
      commitments.





**Uses
      of Liquidity**





Our
      cash
      requirements as of September 30, 2007 are primarily to fund operations. We
      also
      plan to acquire additional manufacturing capacity in the future to strengthen
      and stabilize our manufacturing base. We are looking to establish our own
      distribution and logistics channels in overseas markets and to launch our own
      brand directly to the Chinese market. In addition, we will need to make the
      required capital contributions to our subsidiary, Goldenway.





**Sources
      of Liquidity**





Our
      primary source of liquidity for our short-term cash needs is expected to be
      cash
      flow 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 that our cash flows from operations, together with our cash and cash
      equivalents currently on hand, will be sufficient to meet our working capital,
      capital expenditures, and other commitments through December 2007. For our
      long-term cash needs, we are currently considering a number of different
      financing opportunities including debt and equity financing. Adequate funds
      may
      not be available on terms acceptable to us. If additional funds are raised
      through the issuance of equity securities, dilution to existing stockholders
      may
      result. If funding is insufficient at any time in the future, we will develop
      or
      enhance our products or services and expand our business funded by our own
      cash
      flows from operations.





As
      of
      September 30, 2007, we had outstanding borrowings under a credit facility with
      a
      bank of approximately $2,660,424. As of September 30, 2007, we did not have
      any
      standby letters of credit or standby repurchase obligations.





**Foreign
      Currency Translation Risk**





Our
      major
      operations are 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 (“Dollar”) and the Chinese Renminbi (“RMB”).
      Sales of our products are in dollars. 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 2006, the RMB continued its appreciation. As of September 30, 2007,
      the market foreign exchange rate increased to 7.52 RMB to the Dollar. As a
      result, the ongoing appreciation of RMB to the Dollar negatively impacted our
      gross margins for the three and nine months ended September 30, 2007. We
      are always negotiating order price adjustments with most of our customers based
      on the changing 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 and New-Tailun (both of whose
      functional currencies are 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 year. All exchange differences are recorded within
      equity. The foreign currency translation gain for the periods ended September
      30, 2007 and 2006 were
      $720,130 and $255,734,
      respectively.


25





**RISK
      FACTORS**





*You
      should carefully consider the risks described below together with all of the
      other information included in this Quarterly Report on Form 10-QSB while
      evaluating our business and our historical results. 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.*





**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 affect 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.





**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 elsewhere. 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.





**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;


26





·
            result
                in reduced gross margins across our product lines; and·
            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.





One
      supplier represented approximately 11% of our raw materials purchases in the
      fiscal year ended December 31, 2006, two suppliers represented approximately
      12%
      and 10%, respectively, of our raw materials purchases in the fiscal year ended
      December 31, 2005, and one supplier represented approximately 17% of our raw
      materials purchases in the fiscal year ended December 31, 2004. We do not have
      long-term written
      agreements with any of these
      suppliers and do not anticipate entering into any such agreements in the near
      future. However, we always execute a written agreement for each order placed
      with our suppliers. We do not believe that loss on any of these suppliers would
      have a material adverse affect 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
      depend on a group of 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.**





As
      of
      December 31, 2006, three customers represented approximately 46% of our sales.
      Net sales to our three largest customers totaled approximately 46% and 54%
      of
      total net sales in 2006 and 2005, respectively. Our largest customer accounted
      for approximately 22% and 22% of net sales in 2006 and 2005. 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.





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 four customers could have material adverse effect
      on our earnings or financial condition. While we believe that we could replace
      these three 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
      three customers.





27


**Our
        internal controls and procedures have been materially deficient, and we are
        in
        the process of correcting**internal control
        deficiencies.





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 quarterly results for
      the quarter ended March 31, 2007 as a result of our purchase accounting for
      the
      acquisition of New-Tailun completed on December 30, 2006.





If
      we
      cannot rectify these 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. Management is currently focused on remedying
      internal control deficiencies, and this focus will require management from
      time
      to time to devote its attention away from other planning, oversight, and
      performance functions.





We
      cannot
      provide assurances as to the timing of the completion of these efforts. We
      cannot be certain that the measures we take will ensure that we implement and
      maintain adequate internal controls in the future. 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
      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 do anticipate that the
      aggregate cost of updating such systems will be approximately USD $600,000
      over
      the next 36 months. We will also continue to self-develop and update our
      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 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; or





·
            spend
                resources on unconsummated
                transactions.





28


**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;





·
            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;
              and





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





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 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.




29


**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**





**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 will be 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 will be 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 did not have a material effect on our net sales or our
      gross margins in both 2006 and 2007. See Management’s Discussion and Analysis or
      Plan 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
      E.U.
      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.





30


**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.





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





The
      value
      of RMB against the U.S. dollar and other currencies may fluctuate and is
      affected by, among other things, changes in political and economic conditions.
      Although the exchange rate between RMB and the U.S. dollar has been effectively
      pegged by the People’s Bank of China since 1994, there can be no assurance that
      the relationship between the RMB and the U.S. dollar will remain stable,
      especially in light of the significant political pressure on the Chinese
      government to permit the free flotation of the RMB, which would result in
      fluctuations in the exchange rate between the RMB and the U.S. dollar, and
      other
      economic and geopolitical factors. If the RMB were to increase in value against
      the U.S. dollar and other currencies, for example, consumers in the U.S. 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.




**ITEM
      3.                      CONTROLS
      AND PROCEDURES**





**Disclosure
      Controls and Procedures**





Our
      chief
      executive officer (principal executive officer) and chief financial officer
      (principal financial officer) have assessed the effectiveness of the design
      and
      operation of our disclosure controls and procedures pursuant to Securities
      Exchange Act of 1934 Rule 13a-15(e) as of the end of the period covered by
      this
      report. Based on such assessment, they have concluded that our internal control
      over financial reporting was not effective as of September 30, 2007 because
      of
      the material weaknesses identified and described below.





·
            Control
                Activities: 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 ended March
                31,
                2007.





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





In
      light
      of the need for the restatements and the material weaknesses described above,
      our management will undertake a review of our disclosure, financial information,
      and internal controls and procedures regarding these areas for future complex
      financing transactions and acquisitions. This review will include efforts by
      our
      management and directors, as well as the use of additional outside
      resources, as follows:





·
            Senior
                accounting personnel and our chief financial officer will continue
                to
                review any future acquisition or divestiture in order to evaluate,
                document, and approve its accounting treatment in accordance with
                SFAS 141
                and EITF 02-5;





·
            We
                will augment, as necessary, such procedures by obtaining concurrence
                with
                independent outside accounting experts prior to finalizing financial
                reporting for such transactions;
                and





·
            In
                conjunction with the measures outlined below, we believe these actions
                will strengthen our internal control over our valuation and purchase
                accounting of acquisitions, and this material weakness should be
                resolved.
                Management does not anticipate any extra cost from this change over
                the
                review of our valuation and purchase accounting of future
                acquisitions.


31





We
      believe that we will satisfactorily address the control deficiencies and
      material weakness relating to these matters by the end of our fiscal year,
      December 31, 2007, although there can be no assurance that we will do
      so.





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-QSB does not contain any untrue statements of a
      material fact or omits 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.





**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 fiscal quarter
      ended September 30, 2007 that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.











32


**PART
      II.    OTHER INFORMATION**





**ITEM
      1.   LEGAL PROCEEDINGS**





We
      were a
      named defendant in an action in the United States 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 were named defendants
      John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
      LLP. The action alleged that we breached an agreement with Plaintiff under
      which
      we had promised to provide Plaintiff 1,000,000 shares of our
      common stock in exchange for certain assistance in marketing and financial
      public relations services. The action sought an award of damages in excess
      of
      $75,000. We denied that we were a party to such an agreement, that we breached
      the agreement, or that we were otherwise liable. After vigorously defending
      ourselves, we were voluntarily dismissed by the Plaintiff without prejudice
      from
      the action. We made no payments to Plaintiff and did not enter into a
      settlement agreement with Plaintiff in connection with this dismissal. In May
      2007, Plaintiff filed a Second Amended Complaint asserting claims against us
      and
      other principal parties. We deny all the claims, have filed our responses and
      objections, and have asked the court for dismissal of the action with prejudice
      by Plaintiff. We have made no payments to Plaintiff, and there have been no
      settlement discussions to date between us and Plaintiff.





We
      were
      also a named defendant in a civil action in the United States Court of Common
      Pleas of Allegheny County, Pennsylvania. The civil action was filed on April
      17,
      2006 by Plaintiff Mark B. Aronson. The action alleged that we violated the
      Pennsylvania Unsolicited Telecommunication Advertisement Act by issuing
“spam” emails soliciting purchasers for our common stock. The action sought an
      award of damages in excess of $12,100. We denied that we were a party to the
      alleged conduct, and, on January 4, 2007, the case was dismissed without
      prejudice by Plaintiff. To date, there have been no settlement discussions
      between us and Plaintiff.








**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.








33


**ITEM
      6.   EXHIBITS**





The
      following exhibits are filed herewith:





**Exhibit
                No.**
            **Description**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.


34


**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
                13, 2007
            EVER-GLORY
                INTERNATIONAL GROUP, INC.By:
            /s/
                Guo YanGuo
                Yan
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)











35