**U.S.
      Securities and Exchange Commission**
  **Washington,
      D.C. 20549**
  
  **FORM
      10-QSB**
 
  x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
                for the quarterly period ended June 30,
                2007
  o
            TRANSITION
                REPORT UNDER 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
            65-0420146(State
                or other jurisdiction of
            (IRS
                Employer identification No.)incorporation
                or organization)
  100
      N.
      Barranca Ave. #810
 West
      Covina, California 91791
 (Address
      of principal executive offices)
  (626)
      839-9116
 (Issuer’s
      telephone number)
  Check
      whether the issuer (1) 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 x No o
  Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x
  Number
      of
      shares of common stock outstanding as of June 30, 2007: 19,971,758
  Transitional
      Small Business Disclosure Format: Yes o No x
  1
  **EVER-GLORY
      INTERNATIONAL GROUP, INC.**
  **FORM** **10-QSB**
  **INDEX**
  **Page****SPECIAL
                NOTE REGARDING
                FORWARD-LOOKING STATEMENTS**
            
            3**PART****I.
                FINANCIAL
                INFORMATION**
            
            4Item
                1.
            Financial
                Statements
                (Unaudited)
            
            4Condensed
                Consolidated Balance
                Sheet as of June 30, 2007
            
            4Condensed
                Consolidated Statements
                of Operations and Comprehensive income for three and six months ended
                June
                30, 2007 and 2006
            
            5Condensed
                Consolidated Statements
                of Cash Flows for the six months ended June 30, 2007 and
                2006
            
            6Notes
                to the Condensed
                Consolidated Financial Statements as of June 30,
                2007
            
            7Item
                2.
            Management’s
                Discussion and
                Analysis of Financial Condition and Results of
                Operations
            
            15Item
                3.
            Controls
                and
                Procedures
            
            26**PART****II.
                OTHER
                INFORMATION**
            
            27Item
                1.
            Legal
                proceedings
            
            27Item
                2.
            Unregistered
              Sales of Equity Securities and Use of Proceeds
            
            27Item
                3.
            Defaults
              Upon Senior Securities
            
            27Item
                4
            Submission
                of Matters to a Vote of Security Holders
            
            27Item
                5.
            Other
              Information
            
            27Item
                6.
            Exhibits
            
            28**SIGNATURES**
            
            29
   2
  **Forward-Looking
      Statements**
  This
      document contains certain statements of a forward-looking nature. Such
      forward-looking statements, including but not limited to growth and strategies,
      future operating and financial results, financial expectations and current
      business indicators are based upon current information and expectations and
      are
      subject to change based on factors beyond the control of the Company.
      Forward-looking statements typically are identified by the use of terms such
      as
“look,” “may,” “will,” “should,” “might,” “believe,” “plan,” “expect,”
“anticipate,” “estimate” and similar words, although some forward-looking
      statements are expressed differently. The accuracy of such statements may be
      impacted by a number of business risks and uncertainties that could cause actual
      results to differ materially from those projected or anticipated, including
      but
      not limited to:
  **•**
            the
                ability to timely and accurately complete product
                orders;
 **•**
            the
                ability to coordinate product design with its
                customers;
 **•**
            its
                dependence on a limited number of larger
                customers;
 **•**
            political
                and economic factors in the Peoples’ Republic of
                China;
 **•**
            the
                ability of the Company’s internal production operations to increase
                production volumes on finished goods in a timely fashion in response
                to
                increasing demand and enable the Company to achieve timely delivery
                of
                finished goods to its customers;
 **•**
            the
                Company’s ability to expand and grow its distribution
                channels;
 **•**
            unanticipated
                changes in general market conditions or other factors, which may
                result in
                cancellations of advance orders or a reduction in the rate of
                reorders;
 **•**
            a
                weakening of economic conditions which would reduce demand for products
                sold by the Company and could adversely affect
                profitability;
 **•**
            the
                effect of terrorist acts, or the threat thereof, on consumer confidence
                and spending, or the production and distribution of product and raw
                materials which could, as a result, adversely affect the Company’s
                operations and financial
                performance;
 **•**
            the
                acceptance in the marketplace of the Company’s new products and changes in
                consumer preferences;
 **•**
            reductions
                in sales of products, either as the result of economic or other
                conditions, or reduced consumer acceptance of a product, could result
                in a
                buildup of inventory;
 **•**
            the
                ability to source raw materials and finished products at favorable
                prices
                to the Company;
 **•**
            the
                potential impact of power crises on the Company’s operations including
                temporary blackouts at the Company’s
                facilities;
 **•**
            foreign
                currency exchange rate
                fluctuations;
 **•**
            earthquakes
                or other natural disasters;
 **•**
            the
                Company’s ability to identify and successfully execute cost control
                initiatives;
 **•**
            the
                impact of quotas, tariffs, or safeguards on the importation or exportation
                of the Company’s products; and
 **•**
            other
                risks outlined above and in the Company’s other filings made periodically
                by the Company.
  Readers
      are cautioned not to place undue reliance on these forward-looking statements,
      which speak only as of the date hereof. The Company undertakes no obligation
      to
      update this forward-looking information. Nonetheless, the Company reserves
      the
      right to make such updates from time to time by press release, periodic report
      or other method of public disclosure without the need for specific reference
      to
      this Report. No such update shall be deemed to indicate that other statements
      not addressed by such update remain correct or create an obligation to provide
      any other updates.
 3
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 CONDENSED
      CONSOLIDATED BALANCE SHEET
 AS
      OF
      JUNE 30, 2007 (UNAUDITED)
  **ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              430,217Accounts
                  receivable, net
              
              
              5,907,370Accounts
                  receivable - related companies
              
              
              153,721Inventories,
                  net
              
              
              973,777Other
                  receivables and prepaid expenses
              
              
              185,219Total
                  Current Assets
              
              
              7,650,304**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              10,906,513**LAND
                  USE RIGHTS, NET**
              
              
              2,555,790**TOTAL
                  ASSETS**
              
              $
              21,112,607**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,495,840Accounts
                  payable - related companies
              
              
              1,272,674Other
                  payables and accrued liabilities
              
              
              409,554Due
                  to related parties
              
              
              2,214,688Notes
                  payable
              
              
              1,967,265Value
                  added tax
              
              
              176,445Other
                  tax payables
              
              
              20,831Total
                  Current Liabilities
              
              
              7,557,297**LONG-TERM
                  LIABILITIES**Due
                  to a related company
              
              
              4,356,755**TOTAL
                  LIABILITIES**
              
              
              11,914,052**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 100,000,000 shares,issued
                  and outstanding 19,971,758 shares)
              
              
              1,997Common
                  stock to be issued for acquisition (20,833,333 shares)
              
              
              2,083Additional
                  paid-in capital
              
              
              161,666Retained
                  earningsUnappropriated
              
              
              5,635,829Appropriated
              
              
              2,425,711Accumulated
                  other comprehensive income
              
              
              971,268Total
                  Stockholders' Equity
              
              
              9,198,555**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              21,112,607
  The
      accompanying notes are an integral part of these condensed consolidated
      financial statements
  4
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (UNAUDITED)
  For
                  the three
              
              
              
              
              
              For
                  the sixFor
                  the three
              
              
              months
                  ended
              
              
              For
                  the six
              
              
              months
                  endedmonths
                  ended
              
              
              June
                  30, 2006
              
              
              months
                  ended
              
              
              June
                  30, 2006June
                  30, 2007
              
              
              (Restated)
              
              
              June
                  30, 2007
              
              
              (Restated)**NET
                  SALES**To
                  related parties
              
              $
              119,844
              
              
              $
              13,019
              
              
              $
              146,860
              
              
              $
              13,019To
                  third parties
              
              
              9,457,270
              
              
              
              9,213,532
              
              
              
              20,859,971
              
              
              
              14,443,052Total
                  net sales
              
              
              9,577,114
              
              
              
              9,226,551
              
              
              
              21,006,831
              
              
              
              14,456,071**COST
                  OF SALES**From
                  related parties
              
              
              (243,975
              )
              
              
              (1,482,686
              )
              
              
              (899,785
              )
              
              
              (2,292,860
              )From
                  third parties
              
              
              (7,911,144
              )
              
              
              (6,273,546
              )
              
              
              (16,980,266
              )
              
              
              (9,784,012
              )Total
                  cost of sales
              
              
              (8,155,119
              )
              
              
              (7,756,232
              )
              
              
              (17,880,051
              )
              
              
              (12,076,872
              )**GROSS
                  PROFIT**
              
              
              1,421,995
              
              
              
              1,470,319
              
              
              
              3,126,780
              
              
              
              2,379,199**OPERATING
                  EXPENSES**Selling
                  expenses
              
              
              108,936
              
              
              
              150,509
              
              
              
              264,195
              
              
              
              269,684Professional
                  fees
              
              
              139,607
              
              
              
              173,759
              
              
              
              318,097
              
              
              
              346,520General
                  and administrative expenses
              
              
              497,843
              
              
              
              287,637
              
              
              
              934,443
              
              
              
              436,470Depreciation
                  and amortization
              
              
              73,534
              
              
              
              8,151
              
              
              
              134,273
              
              
              
              16,860Total
                  Operating Expenses
              
              
              819,920
              
              
              
              620,056
              
              
              
              1,651,008
              
              
              
              1,069,534**INCOME
                  FROM OPERATIONS**
              
              
              602,075
              
              
              
              850,263
              
              
              
              1,475,772
              
              
              
              1,309,665**OTHER
                  INCOME (EXPENSES)**Interest
                  income
              
              
              2,159
              
              
              
              629
              
              
              
              3,537
              
              
              
              1,370Interest
                  expenses
              
              
              (129,600
              )
              
              
              (48,194
              )
              
              
              (261,890
              )
              
              
              (58,130
              )Other
                  income
              
              
              5,424
              
              
              
              4,848
              
              
              
              5,450
              
              
              
              12,083Other
                  expenses
              
              
              (41
              )
              
              
              -
              
              
              
              (125
              )
              
              
              -Total
                  Other Expenses, net
              
              
              (122,058
              )
              
              
              (42,717
              )
              
              
              (253,028
              )
              
              
              (44,677
              )**INCOME
                  BEFORE INCOME TAX EXPENSE**
              
              
              480,017
              
              
              
              807,546
              
              
              
              1,222,744
              
              
              
              1,264,988**INCOME
                  TAX EXPENSE**
              
              
              (6,629
              )
              
              
              (75,679
              )
              
              
              (82,323
              )
              
              
              (142,531
              )**NET
                  INCOME**
              
              
              473,388
              
              
              
              731,867
              
              
              
              1,140,421
              
              
              
              1,122,457**OTHER
                  COMPREHENSIVE INCOME**Foreign
                  currency translation gain
              
              
              231,744
              
              
              
              151,246
              
              
              
              362,080
              
              
              
              238,307**COMPREHENSIVE
                  INCOME**
              
              $
              705,132
              
              
              $
              883,113
              
              
              $
              1,502,501
              
              
              $
              1,360,764Net
                  income per share-basic
              
              $
              0.01
              
              
              $
              0.02
              
              
              $
              0.03
              
              
              $
              0.03Net
                  income per share-diluted
              
              $
              0.00
              
              
              $
              0.01
              
              
              $
              0.01
              
              
              $
              0.01Weighted
                  average number of sharesoutstanding
                  during the period-basic
              
              
              40,805,091
              
              
              
              40,805,091
              
              
              
              40,805,091
              
              
              
              40,805,091Weighted
                  average number of sharesoutstanding
                  during the period-diluted
              
              
              100,720,079
              
              
              
              100,720,079
              
              
              
              100,720,079
              
              
              
              100,720,079
  The
      accompanying notes are an integral part of these condensed consolidated
      financial statements
  5
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
      THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (UNAUDITED)
  For
                  the six monthsFor
                  the six months
              
              
              ended
                  June 30, 2006ended
                  June 30, 2007
              
              
              (Restated)**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              1,140,421
              
              
              $
              1,122,457Adjusted
                  to reconcile net income to cash (used in) providedby
                  operating activities:Depreciation
                  and amortization - cost of sales
              
              
              222,980
              
              
              
              94,565Depreciation
                  and amortization
              
              
              134,273
              
              
              
              16,860Loss
                  on disposal of fixed assets
              
              
              -
              
              
              
              2,467Changes
                  in operating assets and liabilities(Increase)decrease
                  in:Accounts
                  receivable
              
              
              462,349
              
              
              
              (1,211,181
              )Accounts
                  receivable - related companies
              
              
              3,996,241
              
              
              
              (3,449,231
              )Other
                  receivable and prepaid expenses
              
              
              (98,158
              )
              
              
              (41,533
              )Inventories
              
              
              (206,105
              )
              
              
              (88,570
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              568,736
              
              
              
              513,915Accounts
                  payable - related companies
              
              
              (1,774,575
              )
              
              
              2,196,303Other
                  payables and accrued liabilities
              
              
              (161,697
              )
              
              
              (169,563
              )Value
                  added tax payables
              
              
              (30,258
              )
              
              
              308,260Income
                  tax and other tax payables
              
              
              (41,615
              )
              
              
              (47,969
              )Net
                  cash provided by (used in) operating activities
              
              
              4,212,592
              
              
              
              (753,220
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Contribution
                  by stockholder
              
              
              -
              
              
              
              900,000Purchase
                  of property and equipment
              
              
              (1,538,683
              )
              
              
              (2,143,764
              )Net
                  cash used in investing activities
              
              
              (1,538,683
              )
              
              
              (1,243,764
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Due
                  to a related parties
              
              
              (286,263
              )
              
              
              2,595,158Repayment
                  of notes payable
              
              
              (4,527,814
              )
              
              
              -Proceeds
                  from notes payable
              
              
              1,940,492
              
              
              
              -Net
                  cash (used in) provided by financing activities
              
              
              (2,873,585
              )
              
              
              2,595,158**EFFECT
                  OF EXCHANGE RATE ON CASH**
              
              
              (30,203
              )
              
              
              105,189**NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              (229,879
              )
              
              
              703,363**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
              
              
              660,096
              
              
              
              1,467,245**CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD**
              
              $
              430,217
              
              
              $
              2,170,608**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION**Cash
                  paid during the period for:Interest
                  expenses
              
              $
              128,061
              
              
              $
              19,778Cash
                  paid during the period for:Income
                  taxes
              
              $
              124,373
              
              
              $
              190,387
  The
      accompanying notes are an integral part of these****condensed
      consolidated financial statements
  6
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 NOTES
      TO
      THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
      OF
      JUNE 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.
  On
      November 9, 2006, Perfect Dream entered into a purchase agreement with
      Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) whereby Ever-Glory
      Hong Kong sold 100% interest of Nanjing New-Tailun Garments Company Limited
      (“New Tailun”) to Perfect Dream (the “New-Tailun transaction”). Pursuant to the
      terms of the purchases agreement, Perfect Dream paid Ever-Glory Hong Kong an
      amount of $2,000,000 in cash in June 2007 and will issue 20,833,333 shares
      of the EGLY’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 EGLY’s common stock on the date of the transfer within 90 days of
      the closing of the New-Tailun transaction. The New-Tailun transaction closed
      on
      December 30, 2006.
  New-Tailun
      is a wholly foreign-owned enterprise incorporated in PRC on March 27, 2006
      with
      its principal place of business in Nanjing, PRC and is principally engaged
      in
      the manufacturing and sale of garments.
  EGLY,
      Perfect Dream, Goldenway and New Tailun 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 June 30, 2007,
      the results of operations for the three-month and six-month periods ended June
      30, 2007 and 2006, and cash flows for the six months ended June 30, 2007 and
      2006. The results for the period ended June 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 June 30, 2007 unaudited condensed consolidated financial statements
      include the accounts of EGLY and its 100% owned subsidiaries Perfect Dream,
      Goldenway and New-Tailun. All significant inter-company balances and
      transactions have been eliminated in consolidation.
  7
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 NOTES
      TO
      THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
      OF
      JUNE 30, 2007 (UNAUDITED)
   **NOTE
                3.**
            **BUSINESS
                COMBINATIONS BETWEEN ENTITIES UNDER COMMON
                CONTROL**
 The
      Company entered into a purchase agreement, dated November 9, 2006, with
      Ever-Glory Hong Kong to acquire 100% interest of New-Tailun. Pursuant to the
      terms of the purchases agreement, the Company paid Ever-Glory Hong Kong an
      amount of $2,000,000 in cash in June 2007 and will issue 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 transaction. The New-Tailun transaction closed on December 30,
      2006.
  This
      transaction was 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 June 30, 2006 was 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 June 30, 2006, the total liabilities as of June 30, 2006 and the net income
      for the six months ended June 30, 2006 by $1,738,325, $2,492,807 and 345,271
      respectively, and to decrease the shareholder’s equity by $754,482.
  **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.
 
 **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.
  8
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 NOTES
      TO
      THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
      OF
      JUNE 30, 2007 (UNAUDITED)
  **NOTE
                7.**
            **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.
  Local
      transportation, unloading charges and export quota fees are included in selling
      expenses.
  Cost
      of
      goods sold includes the appropriate materials purchasing, receiving and
      inspection costs, inbound freight where applicable, direct labor cost and
      manufacturing overheads consistent with the revenue earned.
  **NOTE
                8.**
            **FOREIGN
                CURRENCY TRANSACTIONS**
  EGLY,
      Perfect Dream, Goldenway and New-Tailun maintain their accounting records in
      their functional currencies of US$, US$, RMB and RMB respectively.
  Foreign
      currency transactions during the period 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.
      No-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
                9.**
            **FOREIGN
                CURRENCY TRANSLATION**
  The
      financial statements of Goldenway and New-Tailun (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
      period. All exchange differences are recorded within equity. Translation gain
      for the periods ended June 30, 2007 and 2006 were $362,080 and $238,307
      respectively.
  **NOTE
                10.**
            **COMPREHENSIVE
                INCOME**
  The
      foreign currency translation gain or loss resulting from translation of the
      financial statements expressed in RMB to United States Dollar is reported as
      other comprehensive income in the statements of operations and stockholders’
equity.
  **NOTE
                11.**
            **RECLASSIFICATION**
  Certain
      2006 balances in the Statement of Operation have been reclassified to conform
      with the 2007 presentation.
  **NOTE
                12.**
            **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.
  9
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 NOTES
      TO
      THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
      OF
      JUNE 30, 2007 (UNAUDITED)
  **NOTE
                13.**
            **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
                14.**
            **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. We 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. We 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
                15.**
            **INVENTORIES**
  Inventories
      at June 30, 2007 consisted of the following:
  Raw
                  materials
              
              $
              261,499Work-in-progress
              
              
              118,600Finished
                  goods
              
              
              593,678973,777Less:
                  provision of obsolescence
              
              
              -Inventories,
                  net
              
              $
              973,777
  10
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 NOTES
      TO
      THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
      OF
      JUNE 30, 2007 (UNAUDITED)
  **NOTE
                16.**
            **NOTES
                PAYABLE**
  Balance
      at June 30, 2007:
  Note
                  payable to a bank, interest rate of 0.45035% per month,
              
              
              655,755collateralized
                  by buildings of the Company, due August 14, 2007Note
                  payable to a bank, interest rate of 0.51166% per month,
              
              
              655,755collateralized
                  by buildings of the Company, due December 6, 2007Note
                  payable to a bank, interest rate of 0.52796% per month,
              
              
              655,755collateralized
                  by buildings of the Company, due December 18, 20071,967,265Less:
                  current maturities
              
              
              (1,967,265
              )$
              -
  Maturities
      are as follows:
 For
                  the period ending June 30,2008
              
              $
              1,967,265
  Interest
      paid for the six months ended June 30, 2007 and 2006 was $128,061and $19,778
      respectively.
  **NOTE
                17.**
            **NET
                INCOME PER SHARE**
  The
      following is net income per share information at June 30:
  2007
              
              
              2006Net
                  income
              
              $
              1,140,421
              
              
              $
              1,122,457Basic
                  weighted-average common stock outstanding
              
              
              40,805,091
              
              
              
              40,805,091Effect
                  of dilutive securitiesSeries
                  A Convertible Perferred Stock
              
              
              59,914,988
              
              
              
              59,914,988Diluted
                  weighted-average common stock outstanding
              
              
              100,720,079
              
              
              
              100,720,079Net
                  income per share - basic
              
              $
              0.03
              
              
              $
              0.03Net
                  income per share - diluted
              
              $
              0.01
              
              
              $
              0.01
  11
  EVER-GLORY
      INTERNATIONAL GROUP, INC.
 AND
      SUBSIDIARIES
 NOTES
      TO
      THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
      OF
      JUNE 30, 2007 (UNAUDITED)
  **NOTE
                18.**
            **STOCKHOLDERS’
                EQUITY**
  **(A)**
            **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 (a total of 59,914,988 shares of common stock
      fully converted). 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 June 30, 2007, there would be 79,886,746
      outstanding shares of common stock.
  **(B)**
            **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.
  **NOTE
                19.**
            **RELATED
                PARTY TRANSACTIONS**
  During
      2007 and 2006, the Company sub-contracted certain manufacturing work valued
      at
      $775,117 and $2,114,885 respectively to six related companies which are
      controlled by a shareholder and director of the Company. 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 valued at $124,668 and
      $177,975 respectively from a related company which is controlled by a
      shareholder and director of the Company.
  As
      of
      June 30, 2007 the Company owed $295,225, to four related companies which are
      controlled by a shareholder and director of the Company for sub-contracting
      work
      done and inventory purchases made.
  During
      2007 and 2006, the Company sold products and provided sub-contracting services
      totaling $146,860 and 13,019 respectively to a related company which is
      controlled by a shareholder and director of the Company. As of June 30, 2007
      accounts receivable from two related companies amounted to $153,721 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 by negotiating all of the Company’s
      letters of credit and receiving proceeds thereon and paying creditors for
      inventory purchases made by the Company. As of June 30, 2007, Company owed
      $977,449 to a related company.
  During 2007
      and 2006, the Company received rental income of $Nil and $9,375 respectively
      for
      the lease of factory space to a related company which is controlled by a
      shareholder and director of the Company.
  During
      2007, the Company paid rent of $12,937 for factory and office spaces leased
      from
      a related company which is controlled by a shareholder and director of the
      Company.
  As
      of
      June 30, 2007 the Company owed an aggregate of $4,356,755 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 $118,229 and $38,352 respectively to
      the
      related company.
  As
      of
      June 30, 2007, the Company owed a related company owned by a stockholder
      $1,650,000 for a short term advance which is interest free and repayable on
      demand.
  12
  As
      of
      June 30, 2007, the Company owed $564,688 for advances to a related company
      which is owned by a stockholder. Interest is charged at 6% per annum on the
      amounts due. During 2007, the Company paid interest of $15,600 to the
      related company.
  On
      November 9, 2006, the Company entered into a purchase agreement with a related
      company which is controlled by a shareholder and director of the Company whereby
      the related company sold all of its shares in New-Tailun to the Company. The
      Company paid to a related company an amount of $2,000,000 in cash in June 2007
      and will issue common stock of EGLY equivalent to $10,000,000.
  On
        June
        26, 2006, the Company entered into an Agreement for the purchase and sale
        of
        stock (the “Agreement”) with Ever-Glory Hong Kong and Nanjing Catch-Luck
        Garments Co, Limited (“Catch-Luck”) for the sale of all of Ever-Glory Hong
        Kong’s ownership interest in Catch-Luck to the Company (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 common stock of EGLY
        equivalent to $9,400,000 on the date of the transfer within 90 days of the
        closing of the Catch-Luck transaction.
 
 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
                  common stock of EGLY equivalent to $3,400,000 on the date of the
                  transfer
                  within 90 days of the closing of the Catch-Luck transaction. The
                  number of
                  shares of common stock to be issued to the 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;
  2.
              At
                  the end of the first full fiscal year ending December 31, 2006
                  in which
                  Catch-Luck generates gross revenues of at least $19,000,000 and
                  net profit
                  of at least $1,500,000, the Company will issue to Ever-Glory Hong
                  Kong
                  that number of shares of EGLY’s common stock having an aggregate fair
                  market value of $3,000,000; and
 
 3.
              At
                  the end of the second full fiscal year ending December 31, 2007
                  in which
                  Catch-Luck generates gross revenues of at least $19,000,000 and
                  net profit
                  of at least $1,500,000, the Company will issue to Ever-Glory Hong
                  Kong
                  that number of shares of EGLY’s common stock having an aggregate fair
                  market value of $3,000,000.
 
 On
        August
        1, 2007, the Company filed the Definitive 14C information statement for the
        acquisition of Nanjing Catch-Luck Garments Company Limited. The Information
        Statement was mailed to the shareholders on August 7, 2007 and the Catch-Luck
        transaction is expected to be legally closed on August 27,
        2007.
  **NOTE
                20.**
            **COMMITMENTS
                AND CONTINGENCIES**
  (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 June 30, 2007, the Company has fulfilled $2,630,000 of its registered capital
      requirements and has a registered capital commitment of $14,857,894, 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 $25,873.
      Accordingly, for the period ended June 30, 2007, the Company recognized rental
      expense for these spaces in the amount of $12,937
  As
      of
      June 30, 2007, the Company has outstanding commitments of $19,405 with respect
      to the above non-cancelable operating lease, which are due in 2008.
  13
 
  **NOTE
                    21.**
                **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 June 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.
 
 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 the
          Plaintiff. To date, no settlement agreement has been discussed 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.
 
 Accordingly,
          no provision has been made to the above claim as of June 30, 2007.
 **NOTE
                22.**
            **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 for the six months
      ended June 30, 2007 and on three customers for its revenue for the six months
      ended June 30, 2006, detail of which are as follows:
  Customer
                  A
              
              
              Customer
                  B
              
              
              Customer
                  CDuring2007
              
              
              36
              %
              
              
              21
              %2006
              
              
              26
              %
              
              
              26
              %
              
              
              14
              %
  At
      June
      30, 2007, accounts receivable to those customers totaled
      $3,971,077.
  The
      Company relied on one supplier for 16% and 26% respectively of its materials
      for
      the six months ended June 30, 2007 and 2006.
  The
      following is geographic information of the Company’s revenue earned for the
      period ended June 30:
  2007
              
              
              2006Europe
              
              $
              11,346,160
              
              
              $
              7,655,016United
                  States
              
              
              5,764,206
              
              
              
              3,310,159Japan
              
              
              3,185,660
              
              
              
              2,316,020The
                  People Republic of China
              
              
              698,418
              
              
              
              666,001Canada
              
              
              12,387
              
              
              
              243,553Russia
              
              
              -
              
              
              
              265,322$
              21,006,831
              
              
              $
              14,456,071
  **NOTE
                23.**
            **SUBSEQUENT
                EVENTS**
  As
      stated
      on note 19 on August 1, 2007 the Company filed the Definitive 14C information
      statement for the acquisition of Nanjing Catch-Luck Garments Company Limited.
      The Information Statement was mailed to the shareholders on August 7, 2007.
      The
      transaction is expected to be legally closed on August 27, 2007.
  On
      August
      2, 2007, the Company entered into subscription agreements with six accredited
      investors for the issuance and sale of $2,000,000 principal amount of its
      secured convertible notes and warrants in a private placement. The Financing
      closed on August 6, 2007.
   14
  **ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**
  **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 its products are
      exported to Japan, Europe and the United States. The Company’s customers include
      large retailers and well-known brands. The Company is 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 June 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 December 31, 2006, the Company has paid $2.63
      million of its registered capital requirements. The remaining $14.86 million
      is
      due on February 1, 2008.
  On
      December 30, 2006, the Company through its wholly owned subsidiary, Perfect
      Dream Ltd, a British Virgin Islands corporation, 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 EGLY’s common stock and $2,000,000 in cash.
      New Tailun is a 100% foreign-owned enterprise incorporated in People’s Republic
      of China 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 the
      Company’s consolidated financial statements. Management believes that the
      acquisition of New Tailun will enables Company to facilitate its increased
      production, strengthen the Company’s outsourcing bases and supplement the
      Company’s product lines.
  In
      the
      six months ended June 30, 2007, approximately 54 % of the Company’s revenues
      came from customers in Europe, 27 % from customers in the United States, 15
      %
      from customers in Japan, 3 % from customers in China. In the six months ended
      June 30, 2006, two customers represented approximately 57 % of the Company’s
      sales. Management believes that the relationship with these customers is
      good.
  The
      Company purchases the majority of its raw materials directly from numerous
      local
      fabric and accessories suppliers. The Company may also purchase finished goods
      from other contract manufacturers. One supplier represented approximately 16
      %
      of the Company’s raw materials purchases in the six months ended June 30,
      2007.****The Company has not experienced difficulty in
      obtaining raw materials essential to its business and management believes that
      the relationship with its suppliers is good.
  In
      2006,
      the Company operated two factories respectively in the Nanjing Jiangning
      Economic and Technological Development Zone and Shangfang Town,Jiangning
      District in Nanjing, China.
  The
      Company made a deposit to purchase a fifty-year land use right on 112,442 square
      meters of land in 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, the Company closed the
      transaction with the local government of Nanjing City. On June 24, 2006, the
      Company obtained the title to the land for the land use rights for 50 years.
      By
      the end of 2006, the Company completed the construction of the new office
      buildings and the new factory. The Company has been consolidating its operation
      into its 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 buildings,
      the
      Company conducted an appraisal of 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 the Company’s quality requirement. After
      much negotiation, the Company came up with a settlement 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 the second quarter financial
      statements.
  Two
      factories employ a staff of over 1200 people with an annual production capacity
      of over 3million pieces. All of the Company’s work force is non-union, and
      the Company considers its relations with its employees to be
      satisfactory.
  15
  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
      the
      Company’s 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 the Company based upon
      the
      amount of product that the Company exported in the prior year. The imposition
      of
      such quotas did not have a material affect on the Company’s net sales and its
      net margin. See Results of Operations below. As a result of the Company’s prior
      export performance, it was awarded a sufficient portion of the export quotas
      to
      enable it to increase its sales to customers in Europe and the U.S. despite
      the
      reinstitution of export quotas. The Company believes that its customer mix
      and
      its ability to adjust the types of apparel it man ufactures will mitigate its
      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, is 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
  The
      Company markets and sells its products through a combination of international
      distributors and direct sales to brands and retail chain stores primarily in
      Europe, the United States and in Japan.
  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 the Company’s 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 and unloading charges and product
      inspection charges.
  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 June 30, 2007 Compared To Three Months Ended June 30,
      2006**
  **Revenues,
      Cost of Sales and Gross Margin**
  Revenues
      for the quarter ended June 30, 2007 were $ 9,577,114 an increase of 3.8 % from
      $
      9,226,551 for same quarter in 2006. Our increase in revenues was primarily
      attributable to a slight increase in sales to customers in the U.S.market as
      compared to 2006.
  Cost
      of
      sales for the quarter ended June 30, 2007 was $8,155,119 , an increase of $
      398,887 from $ 7,756,232 for the quarter ended June 30, 2006. As a percentage
      of
      revenues, cost of sales increased to approximately 85.15 % for the three months
      ended June 30, 2007 from approximately 84.06 % for the quarter ended June 30,
      2006. Consequently, gross margin as a percentage of revenues decreased to
      approximately 14.85 % for the three months ended June 30, 2007 from
      approximately 15.94 % for the three months ended June 30, 2006. The 1% increase
      in costs of sales and decrease of gross margin was mainly due to the increase
      for purchase price of raw materials as a result of the appreciation of exchange
      rate of RMB to US dollars which could not be passed totally to our customers
      during the quarter. . From April 1 to June, 30, the RMB to US dollar exchange
      rate increased from 7.74 to 7.62. an increase of 1.5%.
  **Operating
      Expenses**
  Selling
      expenses as of June 30, 2007 decreased by 27.62 % from $ 150,509 in 2006 to
      $
      108,936 in 2007. The decrease in selling expenses was mainly attributable to
      an
      decrease in the bidding expenses for export quotas to Europe and US
      markets.
  General
      and Administrative expenses totaled $497,843 for the three months ended June
      30,
      2007, an increase of $210,206 or 73% from $ 287,637 for the three months ended
      June 30, 2006 . The great increase was mainly attributable to several factors.
      Firstly, the Company paid an annual tax of about $48,916 for our new land and
      building in which is due every May starting 2007. Secondly, the purchase
      expenses for the new manufacturing and office equipments increased by $40,913
      as
      a result of furnishing our new factory and office building. Thirdly, the
      management salaries and life insurance expenses increased by $77,184 due to
      the
      expansion of our businesses and lastly, the Company had a foreign exchange
      loss
      of $39,700 as a result of the appreciation of RMB against the US
      dollar.
   16
  Professional
      fees associated with our trading activities on the OTCBB market totaled $
      139,607 for the three months ended June 30, 2007 , an decrease of $34,152 from
      $
      173,759 for the three months ended June 30, 2006 .
  Depreciation
      and amortization
 Depreciation
      and amortization expenses increased $65,383 or 802 % from $8,151 in 2006 to
      $73,534 in 2007. The increase was mainly due to the completion of the new land
      and manufacturing facilities.
  Interest
      Expenses
 Interest
      Expenses increased $81,406 or 169% from $48,194 in 2006 to $129,600 in 2007.
      The
      increase was mainly attributable to the increase of our borrowings from local
      bank as compared to 2006.
  Income
      before income taxes expense for the three months ended June 30, 2007 was
      $480,017, an decrease of $327,529 or 40.56% from $807,546 for the three months
      ended June 30, 2006. The decrease was due largely to the big increase of our
      general and administrative expenses as well as the depreciation and amortization
      expenses as compared to the same quarter in 2006
  **Six
      Months Ended June 30, 2007 Compared To Six Months Ended June 30,
      2006**
  **Revenues,
      Cost of Sales and Gross Margin**
  Revenues
      for the six months ended June 30, 2007 were $21,006,831 an increase of 45.31
      %
      from $ 14,456,071 for same period in 2006. Our increase in revenues was
      primarily attributable to an overall increase in sales to customers in Europe,
      the U.S., Japan and China. As of June 30, 2007, sales to customers in Europe
      increased by $3,691,144 or 48 %, sales to customers in the U.S. increased by
      $2,454,047 or 74%, sales to customers in Japan increased by $869,640 or 37.5%,
      sales to customers in China increased by $ 32,417 or 4.87% as compared to
      2006.
  Cost
      of
      sales for the six months ended June 30, 2007 was $17,880,051, an increase of
      $
      5,803,179 from $12,076,872 for the six months ended June 30, 2006. As a
      percentage of revenues, cost of sales increased to approximately 85.12% for
      the
      six months ended June 30, 2007 from approximately 83.54% for the six months
      ended June 30, 2006. Consequently, gross margin as a percentage of revenues
      decreased to approximately 14.88% for the six months ended June 30, 2007 from
      approximately 16.46% for the six months ended June 30, 2006. The decrease of
      gross margin was mainly attributable to the increase of purchase price of raw
      materials as a result of the appreciation of exchange rate of RMB to US
      dollars.
  **Operating
      Expenses**
  Selling
      expenses as of June 30, 2007 decreased by 2% from $269,684 in 2006 to $264,195
      in 2007. The decrease in selling expenses was mainly attributable to the
      decrease of bidding expenses for export quotas to Europe and US
      markets.
  General
      and administrative expenses totaled $934,443 for the six months ended June
      30,
      2007, a big increase of $ 497,973 from $ 436,470 for the six months ended June
      30, 2006. The increase was mainly attributable to several factors. Firstly,
      the
      Additional payment of $48,916 for our new land and building taxes incurred
      in
      every May from 2007. Secondly, the purchase price for new manufacturing and
      office equipments increased $82,434. Thirdly, the management salaries and life
      insurance expenses increased by 297,802 due to the expansion of our business
      and
      the acquisition of New-Tailun. Lastly, the Company had a foreign exchange loss
      of $39,700 as a result of the appreciation of RMB against the US
      dollar.
  Professional
      fees associated with our trading activities on the OTCBB market totaled $318,097
      for the six months ended June 30, 2007, an decrease of $28,423 or 8.2% from
      $346,520 for the six months ended June 30, 2006.
  Income
      before taxes for the six months ended June 30, 2007 was $1,140,421, an increase
      of $17,964 from $1,122,457 for the six months ended June 30, 2006. The slight
      increase was achieved as a result of the Company’s gradual digestion of the big
      increase of general and administrative and depreciation and amortization
      expenses for the six months ended June 30, 2007.
  **LIQUIDITY
      AND CAPITAL RESOURCES**
  As
      of
      June 30, 2007, the Company had cash and cash equivalents of $430,217, other
      current assets of $7,220,087 and current liabilities of $7,557,297. To date,
      the
      Company has financed its operations primarily from operations and cash flow
      from
      operations is expected to continue to be the Company’s primary source of funds
      to finance its short-term cash needs.
   17
  Net
      cash
      provided by operating activities as of June 30, 2007 was $4,212,592, compared
      with same quarter in 2006 net cash used in operating activities of $753,220.
      The Company’s primary source of operating cash flow was net income of
      $1,140,421. During this period, the Company has strengthened its effort in
      the
      collection of account receivables from its related parties. The increase in
      our
      net cash was attributable to a significant decrease in accounts receivable
      of
      $4,458,590.
  Net
      cash
      used in investing activities was approximately $ 1,538,683 as of June 30, 2007,
      compared with $ 1,243,764 in the same quarter of 2006. The increase was
      primarily attributable to increase of purchase expenses for the new
      manufacturing and office equipments.
  Net
      cash
      used in financing activities as of June 30, 2007 was $2,873,585, compared with
      same quarter in 2006 net cash provided by financing activities of $2,595,158.
      The big decrease was attributable to the payment of borrowings in the amount
      of
      $4,527,814 from the local bank during the quarter.
  On
      August
      15, 2006, Goldenway entered into credit agreements with the local bank, Nanjing
      City Commercial Bank, for the authorization of borrowing an aggregate principal
      amount of up to $6.41 million within 24 months. The loans were secured by our
      new facilities and were used to fund the construction costs as well as our
      daily
      operation. As of June 30, 2007, we have borrowed $1,967,265. The borrowings
      can****be extended upon maturities on demands within the 24
      months. We plan to repay the loans with the cash flows from our operation.
      In
      the event we do not have available cash flows from our operation to repay these
      loans, we will consolidate and refinance the loans upon maturities. There are
      no
      financial ratios or tests are included in the Company’s credit
      facility.
  In
      addition, as of June 30, 2007, the Company has borrowed $4,356,755 from a
      related party for the main purpose of funding the increased registered capital
      of Goldenway. Interest paid to this related party totaled $118,269 as of June
      30, 2007.
   **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 will be paid-in in installments within three years of the
      issuance of Goldenway’s updated business license. As of June 30, 2007, the
      Company has paid $2.6 million of its registered capital requirements. The
      remaining $14.9 million is due on February 1, 2008. The Company anticipates
      that
      cash flows from operations and borrowings from banks will be used to pay for
      these capital commitments.
  **Uses
      of Liquidity**
  The
      Company’s cash requirements as of June 30, 2007 are primarily to fund
      operations. The Company also plans to acquire additional manufacturing capacity
      in the future to strengthen and stabilize its manufacturing base. The Company
      is
      also looking to establish its own distribution and logistics channels in
      overseas markets and to launch its own brand directly to the Chinese market.
      In
      addition, the Company will need to make the required capital contributions
      to
      its subsidiary, Goldenway.
  **Sources
      of Liquidity**
  The
      Company’s primary source of liquidity for its short-term cash needs is expected
      to be cash flow generated from operations, and cash and cash equivalents
      currently on hand. The Company believes that will be able to borrow additional
      funds if needed.
  The
      Company believes its cash flow from operations together with its cash and cash
      equivalents currently on hand will be sufficient to meet its working capital,
      capital expenditure and other commitments through December 2007. For its
      long-term cash needs, the Company is currently considering a number of different
      financing opportunities including debt and equity financing. Adequate funds
      may
      not be available on terms acceptable to it. 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, the Company will
      develop or enhance its products or services and expand its business funded
      by
      its own operation cash flows.
  As
      of
      June 30, 2007, the Company had outstanding borrowings under a credit facility
      with a bank of approximately $1,967,265. As of June 30, 2007, the Company did
      not have any standby letters of credit or standby repurchase
      obligations.
  **Foreign
      Currency Translation Risk.**
  The
      Company’s 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 and the Chinese Renminbi. Sales
      of the Company’s 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 kept on appreciating to the dollar. As of June
      30,
      2007, the market foreign exchanges rate was increased to 7.62 RMB to one dollar.
      As a result, the ongoing appreciation of RMB to dollar negatively impacted
      our
      gross margins for the three and six months June 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 redu ce our
      exposure to exchange rate fluctuations in the future and pass some increase
      of
      the cost to our customers.
  18
  In
      addition, the financial statements of Goldenway and New-Tailun (whose functional
      currency is the RMB) are translated into US dollars using the closing rate
      method. The balance sheet items are translated into US dollars using the
      exchange rates at the respective balance sheet dates. The capital and various
      reserves are translated at historical exchange rates prevailing at the time
      of
      the transactions while income and expenses items are translated at the average
      exchange rate for the year. All exchange differences are recorded within equity.
      The foreign currency translation gain for the periods ended June 30, 2007 and
      2006 were $362,080 and $238,307, respectively.
   **RISK
      FACTORS**
  Our
      business is subject to certain risks, and we want you to review these risks
      while you are evaluating our business and our historical results. Please keep
      in
      mind that any of the following risks discussed below and elsewhere in this
      Annual Report could materially and adversely affect us, our operating results,
      our financial condition and our projections and beliefs as to our future
      performance. As such, our results could differ materially from those projected
      in our forward-looking statements.
  **Risks
      Relating to the Industry in Which We Compete.**
  **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;
  **•**
            result
                in reduced gross margins across our product
                lines;
  **•**
            increase
                pressure on us to further reduce our production costs and our operating
                expenses.
  Any
      of
      these factors could adversely affect our business and financial
      condition.
   19
  **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.
      The
      Company may also import specialty fabrics to meet specific customer
      requirements. The Company also purchases 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 15% of the Company’s raw materials purchases
      in the fiscal year ended December 31, 2006, two suppliers represented
      approximately 12% and 10%, respectively of the Company’s raw materials purchases
      in the fiscal year ended December 31, 2005, and one supplier represented
      approximately 17% of the Company’s 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 its 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.**
  Net
      sales
      to our two largest customers totaled approximately 57% and 52 % of total net
      sales for the six months ended June, 30 2007 and 2006, respectively. Our largest
      customer accounted for approximately 36% and 26% of net sales for the six months
      ended June 30, 2007 and 2006. 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 a 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 the Company’s 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
      effects on our financial condition in a long run. None of the Company or its
      affiliates are officers, directors or material shareholders of any of these
      three customers.
  **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 the Company’s Preliminary Information Statement on
      Form 14C, the Company and its independent registered public accounting firm
      recognized that our internal controls had material weaknesses. We are restating
      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 11,
      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.
  20
  **We
      will be required to evaluate our internal control over financial reporting
      under
      Section 404 of the Sarbanes-Oxley Act.**
  Failure
      to timely comply with the requirements of Section 404 or any adverse results
      from such evaluation could result in a loss of investor confidence in our
      financial reports and have an adverse effect on the trading price of our debt
      securities. We are not currently an “accelerated filer” as defined in Rule 12b-2
      under the Securities Exchange Act of 1934, as amended. Beginning with our Annual
      Report for the year ending December 31, 2007, Section 404 of the Sarbanes-Oxley
      Act of 2002 will require us to include an internal control report with our
      Annual Report on Form 10-KSB. That report must include management’s assessment
      of the effectiveness of our internal control over financial reporting as of
      the
      end of the fiscal year. This report must also include disclosure of any material
      weaknesses in internal control over financial reporting that we have identified.
      Additionally, our independent registered public accounting firm will be required
      to issue reports on management’s assessment of our internal control over
      financial reporting and their evaluation of the operating effectiveness of
      our
      internal control over financial reporting. the auditor’s report is required for
      financial year ending December 31, 2008. Our assessment requires us to make
      subjective judgments and our independent registered public accounting firm
      may
      not agree with our assessment.
  Achieving
      compliance with Section 404 within the prescribed period may require us to
      incur
      significant costs and expend significant time and management resources. If
      we
      are not able to complete the assessment under Section 404 in a timely manner,
      we
      and our independent registered public accounting firm would be unable to
      conclude that our internal control over financial reporting is effective as
      of
      December 31, 2007. As a result, investors could lose confidence in our reported
      financial information, which could have an adverse effect on the trading price
      of our debt securities. In addition, our independent registered public
      accounting firm may not agree with our management’s assessment or conclude that
      our internal control over financial reporting is operating effectively. We
      will
      continue to consistently improve our internal control over the financial
      reporting with our best efforts and with the assistance from outside
      experts.
  **As
      the Company is listed on the over-the-counter bulletin board, the Company is
      subject to less stringent corporate governance requirements than a company
      listed on a national exchange. Specifically, the Company is not required to
      have
      a majority of independent directors or a separate audit committee. This provides
      less protection to our investors.**
  The
      Company’s board of directors currently does not have a separate audit committee
      or a member that qualifies as an audit committee financial expert or an
      independent director. The Company’s management and board of directors are
      considering the addition of an independent director who qualified as a financial
      expert but there can be no assurance the Company will be able to attract one
      or
      more qualified independent directors or that any such directors can be added
      to
      the Company’s board as it may require us to increase the number of director on
      the Company’s board of directors, seek the resignation of directors who are not
      independent, or some combination thereof. If the Company is unable to attract
      qualified independent directors or nominate or elect such directors, the
      Company’s security holders will not have the protections provided by having
      independent directors or audit committee members. Although we believe that
      all
      actions taken by our directors on our behalf will be in our best interests,
      whether or not they are deemed to be independent, we cannot assure you that
      this
      will actually be the case. If actions are taken, or expenses are incurred that
      are not in our best interests, it could have a material adverse effect on our
      business and operations and the price of our stock held by our
      stockholders.
  **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 $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.
   21
  **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, we could: 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 complement
      our current products, expand the breadth of our markets or enhance our technical
      capabilities, or that may otherwise offer growth opportunities. If we buy or
      invest in other businesses, products or technologies in the future, we
      could:
  **•**
            incur
                significant unplanned expenses and personnel
                costs;
  **•**
            issue
                stock that would dilute our current shareholders’ percentage
                ownership;
  **•**
            use
                cash, which may result in a reduction of our
                liquidity;
  **•**
            incur
                debt;
  **•**
            assume
                liabilities; and
  **•**
            spend
                resources on unconsummated
                transactions.
  **We
      may not realize the anticipated benefits of past or future acquisitions and
      strategic investments, and integration of acquisitions may disrupt our business
      and management.**
  We
      may in
      the future acquire or make strategic investments in additional companies. We
      may
      not realize the anticipated benefits of these or any other acquisitions or
      strategic investments, which involve numerous risks, including:
  **•**
            problems
                integrating the purchased operations, technologies, personnel or
                products
                over geographically disparate
                locations;
  **•**
            unanticipated
                costs, litigation and other contingent
                liabilities;
  **•**
            diversion
                of management’s attention from our core
                business;
  **•**
            adverse
                effects on existing business relationships with suppliers and
                customers;
  **•**
            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.
  22
  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;
                and
  **•**
            require
                us to take extra security precautions for our
                operations.
  Furthermore,
      to the extent that air or sea transportation is delayed or disrupted, our
      operations may be disrupted, particularly if shipments of our products are
      delayed.
  **Business
      interruptions could adversely affect our business.**
  Our
      operations and the operations of our suppliers and customers are vulnerable
      to
      interruption by fire, earthquake, hurricanes, power loss, telecommunications
      failure and other events beyond our control. In the event of a major natural
      disaster, we could experience business interruptions, destruction of facilities
      and loss of life. In the event that a material business interruption occurs
      that
      affects us or our suppliers or customers, shipments could be delayed and our
      business and financial results could be harmed.
  **The
      market for the Company’s common stock is illiquid.**
  The
      Company’s common stock is traded on the Over-the-Counter Bulletin Board. It is
      thinly traded compared to larger more widely known companies in its industry.
      Thinly traded common stock can be more volatile than stock trading in an active
      public market. The Company cannot predict the extent to which an active public
      market for its common stock will develop or be sustained. The high and low
      bid
      price of Ever-Glory’s common stock during the past 52 week period is $1.87 and
      $0.27 respectively.
  23
  **Our
      stock is a penny stock. Trading of our stock may be restricted by the SEC’s
      penny stock regulations which may limit a stockholder’s ability to buy and sell
      our stock.**
  Our
      stock
      is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9
      which generally defines “penny stock” to be any equity security that has a
      market price (as defined) less than $5.00 per share or an exercise price of
      less
      than $5.00 per share, subject to certain exceptions. Our securities are covered
      by the penny stock rules, which impose additional sales practice requirements
      on
      broker-dealers who sell to persons other than established customers and
      accredited investors. The penny stock rules require a broker-dealer, prior
      to a
      transaction in a penny stock not otherwise exempt from the rules, to deliver
      a
      standardized risk disclosure document in a form prepared by the SEC which
      provides information about penny stocks and the nature and level of risks in
      the
      penny stock market. The broker-dealer also must provide the customer with
      current bid and offer quotations for the penny stock, the compensation of the
      broker-dealer and its salesperson in the transaction and monthly account
      statements showing the market value of each penny stock held in the customer’s
      account. The bid and offer quotations, and the broker-dealer and salesperson
      compensation information, must be given to the customer orally or in writing
      prior to effecting the transaction and must be given to the customer in writing
      before or with the customer’s confirmation. In addition, the penny stock rules
      require that prior to a transaction in a penny stock not otherwise exempt from
      these rules, the broker-dealer must make a special written determination that
      the penny stock is a suitable investment for the purchaser and receive the
      purchaser’s written agreement to the transaction. These disclosure requirements
      may have the effect of reducing the level of trading activity in the secondary
      market for the stock that is subject to these penny stock rules. Consequently,
      these penny stock rules may affect the ability of broker-dealers to trade our
      securities. **We believe that the penny stock rules discourage investor
      interest in and limit the marketability of our common
      stock.**
  **NASD
      sales practice requirements may also limit a stockholder’s ability to buy and
      sell our stock.**
  In
      addition to the “penny stock” rules described above, the NASD has adopted rules
      that require that in recommending an investment to a customer, a broker-dealer
      must have reasonable grounds for believing that the investment is suitable
      for
      that customer. Prior to recommending speculative low priced securities to their
      non-institutional customers, broker-dealers must make reasonable efforts to
      obtain information about the customer’s financial status, tax status, investment
      objectives and other information. Under interpretations of these rules, the
      NASD
      believes that there is a high probability that speculative low priced securities
      will not be suitable for at least some customers. The NASD requirements make
      it
      more difficult for broker-dealers to recommend that their customers buy our
      common stock, which may limit your ability to buy and sell our stock and have
      an
      adverse effect on the market for our shares.
  **Because
      our assets are located overseas, stockholders may not receive distributions
      that
      they would otherwise be entitled to if we were declared bankrupt or
      insolvent.**
  Our
      assets are, for the most part, located in the PRC. Because the Company’s assets
      are located overseas, the assets of the Company may be outside of the
      jurisdiction of U.S. courts to administer if the Company was the subject of
      an
      insolvency or bankruptcy proceeding. As a result, if the Company was declared
      bankrupt or insolvent, the Company’s stockholders may not receive the
      distributions on liquidation that they are otherwise entitled to under U.S.
      bankruptcy law.
  **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
      the Company.**
  Pursuant
      to the World Trade Organization (WTO) Agreement, effective January 1, 2005,
      the
      United States and other WTO member countries removed quotas from WTO members.
      In
      certain instances, the elimination of quotas affords the Company greater access
      to foreign markets; 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.
      Exports of each specified product category will continue to be admitted into
      the
      United States in the ordinary course until the restraint level for that category
      is reached, after which further exports will be embargoed and will not be
      cleared until after January 2006. Additionally, on September 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.
  Although
      certain of the Company’s 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 the Company
      based upon the amount of product that the Company exported in the prior year.
      The imposition of such quotas did not have a material affect on the Company’s
      net sales. See “Results of Operations” above. As a result of the Company’s prior
      export performance, it was awarded a sufficient portion of the export quotas
      to
      enable it to increase its sales to customers in Europe and the U.S. despite
      the
      reinstitution of export quotas. In order to increase the Company’s allocation of
      future export quotas, however, the Company will continue accepting orders from
      its customers. The Company believes that its customer mix and its ability to
      adjust the types of apparel it manufactures will mitigate its exposure to such
      trade restrictions in the future. However, there can be no assurance that
      additional trade restrictions will not be imposed on the exports of the
      Company’s products in the future. Such actions could result in increases in the
      cost of its products generally and may adversely affect the Company’s results of
      operations. The Company continues to monitor the developments described
      above.
  24
  **We
      expect to experience volatility in our stock price, which could negatively
      affect shareholders’ investments.**
  The
      market price for shares of the Company’s common stock may be volatile and may
      fluctuate based upon a number of factors, including, without limitation,
      business performance, news announcements or changes in general market
      conditions.
  Other
      factors, in addition to the those risks included in this section, that may
      have
      a significant impact on the market price of the Company’s common stock include,
      but are not limited to:
  **•**
            receipt
                of substantial orders or order cancellations of
                products;
  **•**
            quality
                deficiencies in services or
                products;
  **•**
            international
                developments, such as technology mandates, political developments
                or
                changes in economic policies;
  **•**
            changes
                in recommendations of securities
                analysts;
  **•**
            shortfalls
                in the Company’s backlog, revenues or earnings in any given period
                relative to the levels expected by securities analysts or projected
                by the
                Company;
  **•**
            government
                regulations, including stock option accounting and tax
                regulations;
  **•**
            energy
                blackouts;
  **•**
            acts
                of terrorism and war;
  **•**
            widespread
                illness;
  **•**
            proprietary
                rights or product or patent
                litigation;
  **•**
            strategic
                transactions, such as acquisitions and
                divestitures;
  **•**
            rumors
                or allegations regarding the Company’s financial disclosures or practices;
                or
  **•**
            earthquakes
                or other natural disasters concentrated in Nanjing, China where a
                significant portion of the Company’s operations are
                based.
  In
      the
      past, securities class action litigation has often been brought against a
      company following periods of volatility in the market price of its securities.
      Due to changes in the volatility of the Company’s common stock price, the
      Company may be the target of securities litigation in the future. Securities
      litigation could result in substantial costs and divert management’s attention
      and resources.
  25
  **ITEM
      3. CONTROLS AND PROCEDURES**
  **Disclosure
      Controls and Procedures**
  Internal
      Controls
  Under
      the
      supervision and with the participation of our management, including our chief
      executive officer and our chief financial officer, we 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 that assessment, our
      management has concluded that our internal control over financial reporting
      was
      not effective as of June 30, 2007 because of the material weaknesses identified
      and described below.
  Control
      Activities:
  The
      Company 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. Management determined that the disclosure controls and
      procedures for these periods were not effective.
  Remediation
      of Material Weaknesses in Internal Control over Financial Reporting
  In
      light
      of the need for these restatements and the material weaknesses described above,
      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; and
  **•**
            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.
  We
      believe that we will satisfactorily address the control deficiencies and
      material weakness relating to these matters by the end of the third quarter
      of
      2007, although there can be no assurance that we will do so.
  Given
      the
      presence of material weaknesses in our internal control over financial
      reporting, there is a more than a remote likelihood that a material misstatement
      of the annual or interim financial statements will not be prevented or detected.
      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
      have
      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) the report
      does not contain any untrue statements of a material fact or omits any material
      fact and (ii) the consolidated financial statements and other financial
      information included in this report for the quarter ended June 30, 2007 has
      been
      prepared in conformity with GAAP and fairly present in all material aspects
      our
      financial condition, results of operations and cash flows.
  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.
  26
  **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 Exchange Act) during the fiscal quarter ended June 30,
      2007 that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.
  **PART
      II - OTHER INFORMATION**
  **ITEM
      1. LEGAL PROCEEDINGS**
 The
      Company is a named defendant in an action pending in the U.S. District Court
      for
      the Northern District of Ohio. The action was filed on February 22, 2006 by
      Plaintiff Douglas G. Furth. The other principal parties are named defendants
      John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
      LLP. The action alleges that Company breached an agreement with the plaintiff
      under which it had promised to provide plaintiff 1,000,000 shares of its common
      stock in exchange for certain assistance in marketing and financial public
      relations services. The action seeks an award of damages in excess of $75,000.
      The Company denies that it was a party to such an agreement, that it breached
      the agreement or that it is otherwise liable. The Company intends to vigorously
      defend its legal position. 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 to plaintiff and no settlement agreement was entered into between the
      Company and plaintiff.
  The
      Company is also a named defendant in a civil action pending in the U.S. court
      of
      common pleas of Allegheny County, Pennsylvania. The civil action was filed
      on
      April 17, 2006 by Plaintiff Mark B. Aronson. The action alleges that the Company
      violated the Pennsylvania Unsolicited Telecommunication Advertisement Act by
      issuing ‘spam’ emails soliciting purchasers for its common stock. The action
      seeks an award of damages in excess of $12,100. The Company denies that it
      was a
      party to the alleged conduct. The Company 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 the Plaintiff.
      To
      date, no settlement agreement has been discussed between the Company and the
      Plaintiff
  The
      Company is aware that ‘spam’ emails soliciting purchasers for its common stock
      had originated from unknown sources; the company had never participated nor
      would it ever participate or authorize in the distribution of ‘spam’ email to
      solicit purchasers for its common stock.
  The
      Company has solemnly declared an anti-spamming policy on its
      website.
  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.
  **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.**ITEM
                6.**
            
            **EXHIBITS**
   27
  The
      following exhibits are filed herewith
  Exhibit
                No.
            Description31.1
            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.
   28
  **SIGNATURES**
  In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      Report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto
      duly authorized.
   EVER-GLORY
                INTERNATIONAL GROUP, INC.Date:
                August 14, 2007
            By:
            /s/
                Guo YanChief
                Financial Officer(Principal
                Financial and Accounting Officer)
  29