UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 FORM
10-Q
  x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
quarterly period ended September 30, 2009
  o
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
transition period from ____________ to ____________
  Commission
file number:  0-28806
  Ever-Glory
International Group Inc.
 (Exact
name of registrant as specified in its charter)
  Florida
                    
                    65-0420146(State
      or other jurisdiction of
                      incorporation
      or organization)
                    
                    (I.R.S.
      Employer
                      Identification
      No.)
  100
N. Barranca Ave. #810
 West
Covina, California 91791
 (Address
of principal executive offices)
  (626)
859-6638
 (Registrant’s
telephone number, including area code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes  ̈    Nox
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  
No   ̈    Yes
  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer,, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  ̈
  Large
      accelerated filer
                 ̈
                Accelerated
      filer
                 ̈Non-accelerated
      filer
                 ̈
                Smaller
      reporting company
                x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes 
 ̈  No x
 As of
November  8, 2009, 13,560,240shares
of the Company’s common stock, $0.001 par value, were issued and
outstanding.
  
   EVER-GLORY
INTERNATIONAL GROUP, INC.
 FORM 10-Q
 
 INDEX
  Page
                      NumberSPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS
                    3PART
      I.  FINANCIAL INFORMATION
                    4Item
      1.
                    Financial
      Statements
                    4Condensed
      Consolidated Balance Sheets as of September 30, 2009 (unaudited) and
      December 31, 2008
                    4CondensedConsolidated
      Statements of Operations and Comprehensive Income for the Three and
      Nine Months Ended September 30, 2009 and 2008
    (unaudited)
                    5CondensedConsolidated
      Statements of Cash Flows for the Nine Months Ended September 30,
      2009 and 2008 (unaudited)
                    6Notes
      to the Condensed Consolidated Financial Statements
    (unaudited)
                    7Item
      2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    19Item
      3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    36Item
      4.
                    Controls
      and Procedures
                    36PART
      II.  OTHER INFORMATION
                    37Item
      1.
                    Legal
      Proceedings
                    37Item
      1A.
                    Risk
      Factors
                    37Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    37Item
      3.
                    Defaults
      Upon Senior Securities
                    37Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    37Item
      5.
                    Other
      Information
                    37Item
      6.
                    Exhibits
                    38SIGNATURES
                    38
  2
  Note
Regarding Forward-Looking Statements
  Statements
contained in this Quaterly Report on Form 10-Q, which are not historical facts,
are forward-looking statements, as the term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, whether
expressed or implied, are subject to risks and uncertainties which can cause
actual results to differ materially from those currently anticipated, due to a
number of factors, which include, but are not limited to:
  ·
              Competition within our
      industry;
 ·
              Seasonality of our
      sales;
 ·
              Success of our investments in
      new product development;
 ·
              Our plans to open new retail
      stores;
 ·
              Success of our acquired
      businesses;
 ·
              Our relationships with our
      major customers;
 ·
              The popularity of our
      products;
 ·
              Relationships with suppliers
      and cost of supplies;
 ·
              Financial and economic
      conditions in Asia, Japan, Europe and the
  U.S.;
 ·
              Anticipated effective tax
      rates in future years;
 ·
              Regulatory requirements
      affecting our business;
 ·
              Currency exchange rate
      fluctuations;
 ·
              Our future financing needs;
      and
 ·
              Our ability to attract
      additional investment capital on attractive
  terms.
  Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing or other such statements. When used in this report, the words “may,”
“will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “continue,” and similar expressions are generally
intended to identify forward-looking statements.
  Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management’s opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the factors
described in the following Management’s Discussion and Analysis of Financial
Condition and Results of Operation in this Form 10-Q in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2008 and other
documents we file from time to time with the Securities and Exchange Commission
(‘SEC’).
  3
  PART
I.  FINANCIAL INFORMATION
 ITEM
      1.
                FINANCIAL
      STATEMENTS.
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 AS
OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
 
 September
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                              
                              $
                              3,561,116
                              
                              
                              $
                              1,445,363Accounts
      receivable
                              
                              
                              14,590,133
                              
                              
                              
                              9,485,338Inventories
                              
                              
                              7,232,455
                              
                              
                              
                              3,735,227Value
      added  tax receivable
                              
                              
                              802,120
                              
                              
                              
                              -Other
      receivables and prepaid expenses
                              
                              
                              480,667
                              
                              
                              
                              945,191Advances
      on inventory purchases
                              
                              
                              381,850
                              
                              
                              
                              288,256Amounts
      due from related party
                              
                              
                              10,475,672
                              
                              
                              
                              11,565,574Total
      Current Assets
                              
                              
                              37,524,013
                              
                              
                              
                              27,464,949LAND
      USE RIGHT, NET
                              
                              
                              2,805,175
                              
                              
                              
                              2,854,508PROPERTY
      AND EQUIPMENT, NET
                              
                              
                              12,574,798
                              
                              
                              
                              12,494,452INVESTMENT
      AT COST
                              
                              
                              1,467,000
                              
                              
                              
                              1,467,000TOTAL
      ASSETS
                              
                              $
                              54,370,986
                              
                              
                              $
                              44,280,909LIABILITIES
      AND EQUITYCURRENT
      LIABILITIESBank
      loans
                              
                              $
                              5,398,560
                              
                              
                              $
                              6,542,820Loan
      from related party -short term
                              
                              
                              500,000Accounts
      payable
                              
                              
                              9,682,539
                              
                              
                              
                              3,620,543Accounts
      payable and other payables- related parties
                              
                              
                              739,437
                              
                              
                              
                              754,589Other
      payables and accrued liabilities
                              
                              
                              1,943,983
                              
                              
                              
                              1,683,977Value
      added and other taxes payable
                              
                              
                              371,655
                              
                              
                              
                              368,807Income
      tax payable
                              
                              
                              118,921
                              
                              
                              
                              257,946Deferred
      tax liabilities
                              
                              
                              304,670
                              
                              
                              
                              80,009Total
      Current Liabilities
                              
                              
                              19,059,765
                              
                              
                              
                              13,308,691LONG-TERM
      LIABILITIESLoan
      from related party
                              
                              
                              2,247,879
                              
                              
                              
                              2,660,085TOTAL
      LIABILITIES
                              
                              
                              21,307,644
                              
                              
                              
                              15,968,776COMMITMENTS
      AND CONTINGENCIESEQUITYStockholders'
      equity of the CompanyPreferred
      stock ($.001 par value, authorized 5,000,000 shares,no
      shares issued and outstanding)
                              
                              
                              -
                              
                              
                              
                              -Common
      stock ($.001 par value, authorized 50,000,000 shares,13,560,240
      and 12,373,567 shares issued and outstandingas
      of September 30,2009 and December 31, 2008, respectively)
                              
                              
                              13,560
                              
                              
                              
                              12,374Additional
      paid-in capital
                              
                              
                              4,592,971
                              
                              
                              
                              4,549,004Retained
      earnings
                              
                              
                              20,541,793
                              
                              
                              
                              15,807,539Statutory
      reserve
                              
                              
                              3,437,379
                              
                              
                              
                              3,437,379Accumulated
      other comprehensive income
                              
                              
                              3,919,913
                              
                              
                              
                              3,956,860Total
      Stockholders' Equity of the Company
                              
                              
                              32,505,616
                              
                              
                              
                              27,763,156Noncontrolling
      interest
                              
                              
                              557,726
                              
                              
                              
                              548,977Total
      Equity
                              
                              
                              33,063,342
                              
                              
                              
                              28,312,133TOTAL
      LIABILITIES AND EQUITY
                              
                              $
                              54,370,986
                              
                              
                              $
                              44,280,909
  4
 
 EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
 
 Threemonthsended
                          
                          
                          NinemonthsendedSeptember30,
                          
                          
                          September30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008NET
      SALESRelated
      parties
                          
                          $
                          66,221
                          
                          
                          $
                          17,582
                          
                          
                          $
                          75,572
                          
                          
                          $
                          510,145Third
      parties
                          
                          
                          24,870,500
                          
                          
                          
                          31,867,994
                          
                          
                          
                          66,494,465
                          
                          
                          
                          75,191,036Total
      net sales
                          
                          
                          24,936,721
                          
                          
                          
                          31,885,576
                          
                          
                          
                          66,570,037
                          
                          
                          
                          75,701,181COST
      OF SALESRelated
      parties
                          
                          
                          38,281
                          
                          
                          
                          10,989
                          
                          
                          
                          47,294
                          
                          
                          
                          472,373Third
      parties
                          
                          
                          20,264,735
                          
                          
                          
                          27,284,216
                          
                          
                          
                          52,667,322
                          
                          
                          
                          62,563,564Total
      cost of sales
                          
                          
                          20,303,016
                          
                          
                          
                          27,295,205
                          
                          
                          
                          52,714,616
                          
                          
                          
                          63,035,937GROSS
      PROFIT
                          
                          
                          4,633,705
                          
                          
                          
                          4,590,371
                          
                          
                          
                          13,855,421
                          
                          
                          
                          12,665,244OPERATING
      EXPENSESSelling
      expenses
                          
                          
                          1,097,840
                          
                          
                          
                          563,971
                          
                          
                          
                          2,903,655
                          
                          
                          
                          1,210,063General
      and administrative expenses
                          
                          
                          1,562,382
                          
                          
                          
                          1,683,713
                          
                          
                          
                          5,707,786
                          
                          
                          
                          4,918,696Total
      Operating Expenses
                          
                          
                          2,660,222
                          
                          
                          
                          2,247,684
                          
                          
                          
                          8,611,441
                          
                          
                          
                          6,128,759INCOME
      FROM OPERATIONS
                          
                          
                          1,973,483
                          
                          
                          
                          2,342,687
                          
                          
                          
                          5,243,980
                          
                          
                          
                          6,536,485OTHER
      INCOME (EXPENSES)Interest
      income
                          
                          
                          180,089
                          
                          
                          
                          41,052
                          
                          
                          
                          445,117
                          
                          
                          
                          121,616Interest
      expense
                          
                          
                          (94,016
                          )
                          
                          
                          (1,468,592
                          )
                          
                          
                          (332,900
                          )
                          
                          
                          (2,677,546
                          )Other
      income
                          
                          
                          269
                          
                          
                          
                          571
                          
                          
                          
                          45,252
                          
                          
                          
                          53,656Total
      Other Income (Expenses)
                          
                          
                          86,342
                          
                          
                          
                          (1,426,969
                          )
                          
                          
                          157,469
                          
                          
                          
                          (2,502,274
                          )INCOME
      BEFORE INCOME TAX EXPENSE
                          
                          
                          2,059,825
                          
                          
                          
                          915,718
                          
                          
                          
                          5,401,449
                          
                          
                          
                          4,034,211INCOME
      TAX EXPENSE
                          
                          
                          (130,479
                          )
                          
                          
                          (273,203
                          )
                          
                          
                          (692,206
                          )
                          
                          
                          (841,850
                          )NET
      INCOME
                          
                          
                          1,929,346
                          
                          
                          
                          642,515
                          
                          
                          
                          4,709,243
                          
                          
                          
                          3,192,361ADD:
      NET LOSS ATTRIBUTABLE TO THE NONCONTROLING INTEREST
                          
                          
                          7,552
                          
                          
                          
                          4,666
                          
                          
                          
                          25,011
                          
                          
                          
                          1,417NET
      INCOME ATTRIBUTABLE TO THE COMPANY
                          
                          $
                          1,936,898
                          
                          
                          $
                          647,181
                          
                          
                          $
                          4,734,254
                          
                          
                          $
                          3,193,778NET
      INCOME
                          
                          $
                          1,929,346
                          
                          
                          $
                          642,515
                          
                          
                          $
                          4,709,243
                          
                          
                          $
                          3,192,361Foreign
      currency translation gain (loss)
                          
                          
                          46,364
                          
                          
                          
                          107,468
                          
                          
                          
                          (36,947
                          )
                          
                          
                          1,818,706COMPREHENSIVE
      INCOME
                          
                          
                          1,975,710
                          
                          
                          
                          749,983
                          
                          
                          
                          4,672,296
                          
                          
                          
                          5,011,067COMPREHENSIVE
      (INCOME) LOSS  ATTRIBUTABLE TOTHE
      NONCONTROLING INTEREST
                          
                          
                          (6,752
                          )
                          
                          
                          34,441
                          
                          
                          
                          8,749
                          
                          
                          
                          11,419COMPREHENSIVE
      INCOME ATTRIBUTABLE TOTHE
      COMPANY
                          
                          $
                          1,968,958
                          
                          
                          $
                          784,424
                          
                          
                          $
                          4,681,045
                          
                          
                          $
                          5,022,486NET
      INCOME PER SHAREAttributable
      to the Company's common stockholdersBasic
                          
                          $
                          0.14
                          
                          
                          $
                          0.05
                          
                          
                          $
                          0.35
                          
                          
                          $
                          0.27Diluted
                          
                          $
                          0.14
                          
                          
                          $
                          0.05
                          
                          
                          $
                          0.35
                          
                          
                          $
                          0.27Weighted
      average number of shares outstandingBasic
                          
                          
                          13,558,326
                          
                          
                          
                          11,914,825
                          
                          
                          
                          13,546,116
                          
                          
                          
                          11,692,604Diluted
                          
                          
                          13,558,326
                          
                          
                          
                          12,002,908
                          
                          
                          
                          13,546,116
                          
                          
                          
                          11,715,332
  5
 
 EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
 
 2009
                          
                          
                          2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                          
                          $
                          4,709,243
                          
                          
                          $
                          3,192,361Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          1,512,089
                          
                          
                          
                          714,446Deferred
      income tax
                          
                          
                          224,493Amortization
      of discount on convertible notes
                          
                          
                          
                          
                          
                          
                          1,934,026Amortization
      of deferred financing costs
                          
                          
                          
                          
                          
                          
                          318,196Stock
      issued for interest
                          
                          
                          
                          
                          
                          
                          2,155Stock-based
      compensation
                          
                          
                          22,181
                          
                          
                          
                          12,855Changes
      in operating assets and liabilitiesAccounts
      receivable
                          
                          
                          (5,100,967
                          )
                          
                          
                          (3,306,125
                          )Accounts
      receivable - related parties
                          
                          
                          
                          
                          
                          
                          153,420Inventories
                          
                          
                          (3,494,605
                          )
                          
                          
                          (597,330
                          )Value
      added  tax receivable
                          
                          
                          (801,519
                          )Other
      receivables and prepaid expenses
                          
                          
                          (123,094
                          )
                          
                          
                          (631,466
                          )Other
      receivable - related parties
                          
                          
                          
                          
                          
                          
                          (37,823
                          )Advances
      on inventory purchases
                          
                          
                          (93,524
                          )
                          
                          
                          (332,988
                          )Amounts
      due from related party
                          
                          
                          1,088,634
                          
                          
                          
                          (4,059,141
                          )Accounts
      payable
                          
                          
                          6,057,452
                          
                          
                          
                          4,325,070Accounts
      payable and other payables - related parties
                          
                          
                          72,399
                          
                          
                          
                          149,688Other
      payables and accrued liabilities
                          
                          
                          259,657
                          
                          
                          
                          435,963Value
      added and other taxes payable
                          
                          
                          2,845
                          
                          
                          
                          181,056Income
      tax payable
                          
                          
                          (138,920
                          )
                          
                          
                          268,334Net
      cash provided by operating activities
                          
                          
                          4,196,364
                          
                          
                          
                          2,722,697CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in La Chapelle
                          
                          
                          
                          
                          
                          
                          (1,397,700
                          )Purchase
      of property and equipment
                          
                          
                          (984,346
                          )
                          
                          
                          (800,669
                          )Proceeds
      from sale of equipment
                          
                          
                          28,537
                          
                          
                          
                          37,019Net
      cash used in investing activities
                          
                          
                          (955,809
                          )
                          
                          
                          (2,161,350
                          )CASH
      FLOWS FROM FINANCING ACTIVITIESContribution
      from minority shareholders
                          
                          
                          
                          
                          
                          
                          553,040Proceeds
      from bank loans
                          
                          
                          11,991,062
                          
                          
                          
                          11,354,904Repayment
      of bank loans
                          
                          
                          (13,134,464
                          )
                          
                          
                          (10,695,402
                          )Repayment
      of long term loan
                          
                          
                          
                          
                          
                          
                          (1,844,164
                          )Exercise
      of warrants
                          
                          
                          
                          
                          
                          
                          219,635Net
      cash used in financing activities
                          
                          
                          (1,143,402
                          )
                          
                          
                          (411,987
                          )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                          
                          
                          18,600
                          
                          
                          
                          91,449NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                          
                          
                          2,115,753
                          
                          
                          
                          240,809CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                          
                          
                          1,445,363
                          
                          
                          
                          641,739CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                          
                          $
                          3,561,116
                          
                          
                          $
                          882,548SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
      expense
                          
                          $
                          245,105
                          
                          
                          $
                          295,562Income
      taxes
                          
                          $
                          606,622
                          
                          
                          $
                          573,557
  6
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
 
 NOTE
1 BASIS OF PRESENTATION
 
 Ever-Glory
International Group, Inc. (the “Company”), together with its subsidiaries, is an
apparel manufacturer, supplier and retailer in China, with wholesale and retail
segments. The Company’s wholesale business consists of recognized brands for
department and specialty stores located in Europe, Japan and the United States.
The Company’s newly established retail business consists of 154 flagship
stores and store-in-stores for the Company’s own-brand products located in 23
province in China. The Company’s wholesale operations are provided primarily
through the Company’s wholly-owned subsidiaries, Goldenway Nanjing Garments
Co. Ltd. (“Goldenway”), Nanjing Catch-Luck Garments Co. Ltd. (“Catch-Luck”),
Nanjing New-Tailun Garments Co. Ltd (“New-Tailun”) and Perfect Dream
Limited (“Perfect-Dream”). The Company’s retail operations are provided
through its 60%-owned subsidiary, Shanghai LA GO GO Fashion Company Limited
(“LA GO GO”).
 
 In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements of Ever-Glory International Group, Inc. and its
subsidiaries (the “Company”) contain all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation of the
condensed consolidated balance sheets as of September 30, 2009 and
December 31, 2008, the condensed consolidated statements of operations and
comprehensive income for the three and nine months
ended September 30, 2009 and 2008, and the condensed consolidated
statements of cash flows for the nine months ended September 30, 2009 and
2008. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and
the instructions to Rule 10-01 of Regulation S-X of the Securities and
Exchange Commission (the “SEC”). Accordingly, they have been condensed and do
not include all of the information and footnotes required by GAAP for complete
financial statements. The results of operations for the three and
nine months ended September 30, 2009 are not necessarily indicative of
the results of operations to be expected for the full fiscal year. These
financial statements should be read in conjunction with the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008. The
Company has made certain reclassifications to the prior year’s condensed
consolidated financial statements to conform to classifications in the current
year. These reclassifications had no impact on previously reported results of
operations.
 
 Ever-Glory
International Group Apparel Inc.(“Ever-Glory Apparel”), a wholly owned
subsidiary of Goldenway, was incorporated in the PRC on January 6,
2009.  Goldenway invested approximately $735,000 (RMB 5.0 million) in
cash. As of September 30, 2009, Goldenway has increased
its investment to approximately $6,595,000 (RMB45.0 million).
Ever-Glory Apparel is principally engaged in the import and export of
apparel, fabric and accessories.
 
 On March
23, 2009, Goldenway transfered all of its ownership interest in LA GO GO to
Ever-Glory Apparel.
 
 Ever-Glory
International Group (HK) Ltd. (“Ever-Glory HK”), a wholly-owned subsidiary of
Perfect-Dream, was incorporated in Samoa on September 15, 2009. Ever-Glory
HK is principally engaged in the import and export of apparel, fabric
and accessories.
 
 NOTE
2 SIGNIFICANT ACCOUNTING POLICIES
 
 Financial
Instruments
 
 Management
has estimated that the carrying amounts of non-related party financial
instruments approximate their fair values due to their short-term maturities.
The fair value of amounts due from (to) related parties is not practicable to
estimate due to the related party nature of the underlying
transactions.
  Fair Value
Accounting
  Accounting
Standards Codification (“ASC”) 820 “Fair Value Measurements and
Disclosures”, previously FAS No.157, establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under ASC 820 are
described below:
  7
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
 
 Level 1
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities;
 
 Level 2
              Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;
 
 Level 3
              Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).
  At
September 30, 2009, the Company’s financial assets consist of cash placed with
financial institutions management considers to be of a high quality, which
management considers to be a Level 1 measurement..
  Effective
January 1, 2008, the Company also adopted ASC 825-10 “Financial Instruments”,
previously SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115”, which allows an entity
to choose to measure certain financial instruments and liabilities at fair value
on a contract-by-contract basis. Subsequent fair value measurement for the
financial instruments and liabilities an entity chooses to measure will be
recognized in earnings. As of September 30, 2009, the Company did not elect such
option for its financial instruments and liabilities.
  Foreign Currency Translation
and Other Comprehensive Income
 
 The
reporting currency of the Company is the U.S. dollar. The functional currency of
Ever-Glory, Perfect Dream and Ever-Glory HK is the U.S. dollar. The functional
currency of Goldenway, New Tailun, Catch-luck, LA GO GO and Ever-Glory Apparel
is the Chinese RMB.
 
 For the
subsidiaries whose functional currencies are the RMB, all assets and liabilities
are translated at the exchange rate on the balance sheet date; stockholders’
equity is translated at the historical rates and items in the statement of
operations are translated at the average rate for the period. Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the statement of stockholders’ equity. The resulting
translation gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred and amounted to $3,062,
$1,561, $72,094 and $289,539 for the three and nine month periods ended
September 30, 2009 and 2008 , respectively. Items in the cash flow statements
are translated at the average exchange rate for the periods.
 
 Recent Accounting
Pronouncements
 
 Embedded
Derivatives
 (Included
in ASC 815 “Derivatives and Hedging”, previously SFAS 133)
  In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
No. 07-5”). This Issue is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own
stock and (b) classified in stockholders’ equity in the statement of
financial position would not be considered a derivative financial instrument.
EITF No.07-5 provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
This standard triggers liability accounting on all options and warrants
exercisable at strike prices denominated in any currency other than the
functional currency of the operating entity in China (Renminbi). Adoption of
EITF No. 07-5 did not have a material impact on the Company’s condensed
consolidated financial statements.
  8
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
  Business
Combinations
 (Included
in ASC 805 “Business Combinations”, previously SFAS No. 141(R))
 
 This ASC
guidance revised SFAS No. 141, “Business Combinations” and
addresses the accounting and disclosure for identifiable assets acquired,
liabilities assumed, and noncontrolling interests in a business combination.
Adoption of this standard on January 1, 2009 did not have a material impact on
the Company’s condensed consolidated financial statements, as the Company did
not enter into a business combination during the nine months ended September 30,
2009.
 
 Noncontrolling
Interests
 (Included
in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51)
 
 SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. The Company adopted SFAS 160 on January 1, 2009. As a
result, the Company has reclassified financial statement line items within the
Company’s Condensed Consolidated Balance Sheets and Statements of Income and
Comprehensive Income for the prior period to conform to this
standard.
 
 Interim
Disclosures about Fair Value of Financial Instruments
 (Included in ASC 825 “Financial
Instruments”, previouslyFSP SFAS No. 107-1)
 
 This
guidance requires that the fair value disclosures required for all financial
instruments within the scope of SFAS 107, “Disclosures about Fair Value of
Financial Instruments”, be included in interim financial statements. This
guidance also requires entities to disclose the method and significant
assumptions used to estimate the fair value of financial instruments on an
interim and annual basis and to highlight any changes from prior periods. FSP
107-1 was effective for interim periods ending after September 15, 2009. The
adoption of FSP 107-1 did not have a material impact on the Company’s
Consolidated Financial Statements.
 
 Subsequent
Events
 (Included
in ASC 855 “Subsequent Events”, previously SFAS No. 165)
 
 SFAS
No.165, “Subsequent
Events” establishes accounting and disclosure requirements for subsequent
events.  SFAS 165 details the period after the balance sheet date during
which the Company should evaluate events or transactions that occur for
potential recognition or disclosure in the financial statements, the
circumstances under which the Company should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
required disclosures for such events.  The Company adopted this statement
and has evaluated all subsequent events through November 9, 2009.
 
 FASB
Accounting Standards Codification
 (Accounting
Standards Update (“ASU”) 2009-1)
 
 In June
2009, the FASB approved its Accounting Standards Codification (“Codification”)
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities, with the exception of
the SEC and its staff. The Codification is effective for interim or annual
financial periods ending after September 15, 2009 and impacts the Company’s
financial statements as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. There have
been no changes to the content of the Company’s financial statements or
disclosures as a result of implementing the Codification during the quarter
ended September 30, 2009.
  As a
result of the Company’s implementation of the Codification during the quarter
ended September 30, 2009, previous references to new accounting standards and
literature are no longer applicable. In the current quarter financial
statements, the Company will provide reference to both new and old guidance to
assist in understanding the impact of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
  9
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
  NOTE
3 INVENTORIES
 
 Inventories
at September 30, 2009 and December 31, 2008 consisted of the
following:
 
 2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    874,029
                    
                    
                    $
                    328,607Work-in-progress
                    
                    
                    3,090,625
                    
                    
                    
                    342,303Finished
      goods
                    
                    
                    3,267,801
                    
                    
                    
                    3,064,317Total
      inventories
                    
                    $
                    7,232,455
                    
                    
                    $
                    3,735,227
 
 NOTE
4 BANK LOANS
 
 Bank
loans represent amounts due to various banks and are due on demand or normally
within one year. These loans generally can be renewed with the banks. As of
September 30, 2009 and December 31, 2008, short-term bank loans consisted of the
following:
 
 2009
                                            
                                            
                                            2008Bank
      loan, interest rate at 0.4455% per month,due
      December 31,2009
                                            
                                            $
                                            2,640,600Bank
      loan, interest rate at 0.4455% per month,due
      January 14, 2010
                                            
                                            
                                            1,467,000Bank
      loan, interest rate at 0.4455% per month,due
      March 11, 2010
                                            
                                            
                                            1,026,900Bank
      loan, interest rate at 0.4050% per month,
                                              due
      November 24,2009
                                            
                                            
                                            264,060Bank
      loan, interest rate at 0.60225% per month,paid
      in full, February 2009
                                            
                                            
                                            
                                            
                                            
                                            $
                                            5,809,320Bank
      loan, interest rate at 0.48825% per month,paid
      in full, April 2009
                                            
                                            
                                            
                                            
                                            
                                            
                                            733,500Total
      bank loans
                                            
                                            $
                                            5,398,560
                                            
                                            
                                            $
                                            6,542,820
 
 On
July 31, 2008, Goldenway entered into a two-year revolving line of credit
agreement with a PRC Bank, which allows the Company to borrow up to
approximately $7.3 million (RMB50million). These borrowings are guaranteed by
Jiangsu Ever-Glory, an entity controlled by Mr. Kang, the Company’s Chief
Executive Officer. These borrowings are also collateralized by the Company’s
property and plant. In the third quarter of 2009 the company repaid
$3.2 million and borrowed $5.1 million under this agreement. As of
September 30, 2009, $5.1 million of bank loans are under this
agreement and approximately $2.2 million was unused and available.
 
 The bank
loan for $264,060 due in November 2009 which was borrowed in the third quarter
of 2009, is specifically for the development of LA GO GO.
 
 On June
30, 2009, HSBC bank approved a revolving credit facility of $2.5 million to
Perfect-Dream. To date nothing has been drawn down on this line of
credit.
 
 On July
3, 2009, Ever-Glory Apparel entered into one-year line of credit agreement for
approximately $5.9 million (RMB40 million) with Nanjing Bank. In the third
quarter of 2009 the Company borrowed $2.2 million and repaid $2.2 million under
this agreement.
 
 Total
interest expense on bank loans amounted to $64,750, $245,105, $76,481 and
$220,827 for the three and nine months ended September 30,2009 and 2008,
respectively.
 
 NOTE
5 INCOME TAX
 
 Pre-tax
income (loss) for the three and nine months ended September 30 2009 and 2008 was
taxable in the following jurisdictions.
 
 Three
      months ended
                          
                          
                          Nine
      months endedSeptember
      30,
                          
                          
                          September
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008PRC
                          
                          $
                          880,545
                          
                          
                          $
                          2,312,172
                          
                          
                          $
                          4,271,595
                          
                          
                          $
                          6,695,424Others
                          
                          
                          1,179,280
                          
                          
                          
                          (1,396,454
                          )
                          
                          
                          1,129,854
                          
                          
                          
                          (2,661,213
                          )$
                          2,059,825
                          
                          
                          $
                          915,718
                          
                          
                          $
                          5,401,449
                          
                          
                          $
                          4,034,211
  10
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
  The
Company’s operating subsidiaries are governed by the Income Tax Law of the PRC
concerning Foreign Investment Enterprises and Foreign Enterprises and various
local income tax laws (“the Income Tax Laws”).
 
 Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the old laws
for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”).
 
 The key
changes are:
 
 a.
              The
      new standard EIT rate of 25% replaces the 33% rate applicable to both DES
      and FIEs, except for High-Tech companies that pay a reduced rate of
      15%;
 
 b.
              Companies
      established before March 16, 2007 continue to enjoy tax holiday treatment
      approved by local governments for a grace period of either the next 5
      years, or until the tax holiday term is completed, whichever is
      sooner.
 
 Below is
a summary of the income tax rate for each of our PRC subsidiaries in 2008 and
2009.
 
 Goldenway
                            
                            
                            New-Tailun
                            
                            
                            Catch-Luck
                            
                            
                            LA GO GO
                            
                            
                            Ever-Glory Apparel2008
                            
                            
                            25.0
                            %
                            
                            
                            12.5
                            %
                            
                            
                            12.5
                            %
                            
                            
                            25.0
                            %
                            
                            
                            *2009
                            
                            
                            25.0
                            %
                            
                            
                            12.5
                            %
                            
                            
                            12.5
                            %
                            
                            
                            25.0
                            %
                            
                            
                            25.0
                            %
 
 *Ever-Glory
Apparel was established on January 6, 2009.
 
 Perfect
Dream was incorporated in the British Virgin Islands on July 1, 2004, and has
no liabilities to income tax.
 
 Ever-Glory
HK was incorporated in Samoa on September 15,2009, and has no liabilities
to income tax.
 
 Ever-Glory
International Group Inc. was incorporated in the United States and has incurred
net operating losses for income tax purposes through September 30, 2009.
The net operating loss carry forwards for United States income taxes may be
available to reduce future years’ taxable income. These carry forwards will
expire, if not utilized, through 2029. Management believes that the realization
of the benefits from these losses appears uncertain due to our limited operating
history and continuing losses for United States income tax purposes.
Accordingly, we have provided a 100% valuation allowance on the deferred tax
asset to reduce the asset to zero.
 
 Income
tax expense was $130,479, $692,206, $273,203, and $841,850 for the three and
nine months ended September 30,2009 and 2008 respectively.
 
 The
following table reconciles the PRC statutory rates to the Company’s effective
tax rate for the three and nine months ended September 30, 2009 and
2008:
 
 Three
      months ended
                      
                      
                      Nine
      months endedSeptember 30,
                      
                      
                      September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008PRC
      Statutory Rate
                      
                      
                      25.0
                      
                      
                      
                      25.0
                      
                      
                      
                      25.0
                      
                      
                      
                      25.0Income
      tax exemption
                      
                      
                      (9.1
                      )
                      
                      
                      (13.0
                      )
                      
                      
                      (11.0
                      )
                      
                      
                      (12.0
                      )Other
                      
                      
                      (1.1
                      )
                      
                      
                      
                      
                      
                      
                      2.2Effective
      income tax rate
                      
                      
                      14.8
                      %
                      
                      
                      12.0
                      %
                      
                      
                      16.2
                      %
                      
                      
                      13.0
                      %
  11
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
 Income
tax expense for the three and nine months ended September 30, 2009 and 2008 is
as follows:
 For
      the three months ended
                      September
      30
                    
                    
                    For
      the nine months ended
                      September
      302009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Current
                    
                    $
                    58,504
                    
                    
                    $
                    273,203
                    
                    
                    $
                    467,713
                    
                    
                    $
                    841,850Deferred
                    
                    
                    71,975
                    
                    
                    
                    -
                    
                    
                    
                    224,493
                    
                    
                    
                    -Income
      tax expense
                    
                    $
                    130,479
                    
                    
                    $
                    273,203
                    
                    
                    $
                    692,206
                    
                    
                    $
                    841,850
 
 NOTE
6 EARNINGS PER SHARE
 
 Earnings
per share is calculated as follows:
 
 For
      the three months ended
                        September
      30
                      
                      
                      For
      the nine months ended
                        September
      302009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Net
      income attributable to the Company
                      
                      $
                      1,936,898
                      
                      
                      $
                      647,181
                      
                      
                      $
                      4,734,254
                      
                      
                      $
                      3,193,778Add:
      interest expense related to convertible notes
                      
                      
                      
                      
                      
                      
                      756
                      
                      
                      
                      
                      
                      
                      
                      2,252Subtract:
      Unamortized issuance costs and discount on convertible
    notes
                      
                      
                      
                      
                      
                      
                      (44,350
                      )
                      
                      
                      
                      
                      
                      
                      (44,350
                      )Adjusted
      net income for calculating EPS-diluted
                      
                      $
                      1,936,898
                      
                      
                      $
                      603,587
                      
                      
                      $
                      4,734,254
                      
                      
                      $
                      3,151,680Weighted
      average number of common stock – Basic
                      
                      
                      13,558,326
                      
                      
                      
                      11,914,825
                      
                      
                      
                      13,546,116
                      
                      
                      
                      11,692,604Effect
      of dilutive securities:Convertible
      notes
                      
                      
                      
                      
                      
                      
                      88,083
                      
                      
                      
                      
                      
                      
                      
                      22,728Weighted
      average number of common stock – Diluted
                      
                      
                      13,558,326
                      
                      
                      
                      12,002,908
                      
                      
                      
                      13,546,116
                      
                      
                      
                      11,715,332Earnings
      per share - basic
                      
                      $
                      0.14
                      
                      
                      $
                      0.05
                      
                      
                      $
                      0.35
                      
                      
                      $
                      0.27Earnings
      per share -diluted
                      
                      $
                      0.14
                      
                      
                      $
                      0.05
                      
                      
                      $
                      0.35
                      
                      
                      $
                      0.27
 
 At
September 30, 2009, the Company had 913,182 warrants outstanding. For the three
and nine months ended September 30, 2009, these outstanding warrants were
excluded from the diluted earnings per share calculation as they are
anti-dilutive as the average stock price was less than the exercise price of the
warrants.  As of September 30, 2008, the Company included all shares
issuable upon conversion of the convertible notes and warrants in diluted
earnings per share.
 
 NOTE
7 STOCKHOLDERS’ EQUITY
 
 On March
13, 2009 and March 25, 2009, the Company issued 21,085 shares of common stock to
the Company’s three independent directors as compensation for their services in
the third and fourth quarters of 2008. The shares were valued at $1.05 per
share, being the average market price of the common stock for the five trading
days before the grant date.
 
 On April
28, 2009, the Company issued 1,153,846 shares of restricted common stock to a
related party as part of the consideration for the acquisition of
Catch-Luck.
 
 On July
16, 2009, the Company issued 11,742 shares of common stock to the Company’s
three independent directors as compensation for their services in the first and
second quarters of 2009. The shares were valued at $1.86 per share, being the
average market price of the common stock for the five trading days before
the grant date.
  12
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
 
 NOTE
8 RELATED PARTY TRANSACTIONS
 
 Mr. Kang
is the Company’s Chairman and Chief Executive Officer. Ever-Glory Hong Kong is
the Company’s major shareholder. Shanghai La Chapell is the shareholder of the
Company’s subsidiary LA GO GO. All transactions associated with the
following companies controlled by Mr. Kang, Ever-Glory Hong Kong and
Shanghai La Chapell are considered to be related party transactions. All
related party outstanding balances are short-tem in nature and are expected to
be settled in cash.
  Sales and Cost of Sales to
Related Parties
  
  Purchases of raw materials
and sub contractor agreements with Related Parties
 
 For the
three and nine months ended September 30, 2009 and 2008, the Company purchased
raw materials of $462,065, $818,214, $1,212,491, and $1,903,440, respectively,
from Nanjing Knitting.
 
 In
addition, for the wholesale business the Company sub-contracted certain
manufacturing work to related companies totaling $270,172, $1,173,830, $471,795
and $862,443 for the three and nine months ended September 30, 2009 and 2008,
respectively. The Company provided raw materials to the sub-contractors and was
charged a fixed fee for labor provided by the sub-contractors.
 
 Sub-contracts
with related parties included in cost of sales for the three and nine months
ended September 30, 2009 and 2008 are as follows:
 
 Three Months Ended
                                                                                                          September 30
                                                                                                        
                                                                                                        
                                                                                                        Nine Months Ended
                                                                                                          September 302009
                                                                                                        
                                                                                                        
                                                                                                        2008
                                                                                                        
                                                                                                        
                                                                                                        2009
                                                                                                        
                                                                                                        
                                                                                                        2008Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                                                                                                        
                                                                                                        $
                                                                                                        111,654
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        222,203
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        520,598
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        291,122Nanjing
      Ever-Kyowa Garment Washing Co., Ltd.,
                                                                                                        
                                                                                                        
                                                                                                        158,518
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        249,592
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        653,232
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        571,321$
                                                                                                        270,172
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        471,795
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,173,830
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        862,443
  For its
retail business the Company purchased finished goods from a related
party, Jiangsu Ever-Glory, totaling $554 and $19,695 for the three and nine
months ended September 30, 2009.
 
 AmountsDueFromRelatedParty
 
 Jiangsu
Ever-Glory International Group Corp., (“Jiangsu Ever-Glory”) is an entity
engaged in importing/exporting, apparel-manufacture, real-estate development,
car sales and other activities. Jiangsu Ever-Glory is controlled by the
Company’s Chief Executive Officer. Because of restrictions on the Company’s
ability to directly import and export products, the Company utilizes Jiangsu
Ever-Glory as its agent, to assist the Company with its import and export
transactions and its international transportation projects. Import transactions
primarily consist of purchases of raw materials and accessories designated by
the Company’s customers for use in garment manufacture. Export transactions
consist of the Company’s sales to foreign markets such as Japan, Europe and the
United States. As the Company’s agent, Jiangsu Ever-Glory’s responsibilities
include managing customs, inspection, transportation, insurance
and collections on behalf of the Company. Jiangsu Ever-Glory also manages
transactions denominated in currencies other than the Chinese RMB at rates of
exchange agreed between the Company and Jiangsu Ever-Glory and based upon rates
of exchange quoted by the People’s Bank of China. In return for these services,
Jiangsu Ever-Glory charges the Company a fee of approximately 3% of export
sales.  For import transactions, the Company may make advance
payments, through Jiangsu Ever-Glory, for the raw material purchases, or Jiangsu
Ever-Glory may make advance payments on the Company’s behalf. For export
transactions, accounts receivable for export sales are remitted by the Company’s
customers through Jiangsu Ever-Glory, who forwards the payments to the Company.
The Company and Jiangsu Ever-Glory have agreed that balances from import and
export transactions may be offset.  Amounts due to (from) Jiangsu
Ever-Glory are typically settled within 60-90 days. Interest of 0.5% is charged
on net amounts due at each month end. Interest income for the three and
nine months ended September 30, 2009 and 2008 was $179,560, $443,051,
$37,752 and $113,216, respectively. Following is a summary of import and export
transactions for the nine months ended September 30, 2009:
  13
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
 Accounts Receivable
                        
                        
                        Accounts Payable
                        
                        
                        NetAs
      of January 1,2009
                        
                        $
                        17,938,281
                        
                        
                        $
                        6,372,707
                        
                        
                        $
                        11,565,574Sales/Purchases
                        
                        $
                        52,789,443
                        
                        
                        $
                        30,469,297Payments
      Received/Made
                        
                        $
                        53,315,655
                        
                        
                        $
                        29,905,606As
      of September 30,2009
                        
                        $
                        17,412,069
                        
                        
                        $
                        6,936,397
                        
                        
                        $
                        10,475,672
 
 Approximately 53.8%
of the receivable balance at September 30, 2009 was settled by October 31,
2009.
 
 Accounts Payable andOther Payables–RelatedParties
 
 As
      of September 30, 2009 and December 31, 2008, accounts payable and
      other payables due to related parties
      were as follows:.
 
 2009
                      
                      
                      2008Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                      
                      $
                      30,714Ever-Glory
      Enterprise HK Limited
                      
                      
                      415,323
                      
                      
                      $
                      754,589Shanghai
      La Chapelle Garment and Accessories Company Limited
                      
                      
                      293,400Total
                      
                      $
                      739,437
                      
                      
                      $
                      754,589
 
 The
Company purchases raw materials from and subcontracts some of its production to
related parties. Accounts payable to Nanjing Knitting was $30,714 at September
30, 2009.
 
 As of
September 30, 2009, $415,323 was due for legal and professional fees paid by
Ever-Glory Enterprise HK Limited on behalf of the Company.
 
 As of
December 31, 2008, $200,000 was due for the purchase of Catch-Luck and $554,589
was due for legal and professional fees paid by Ever-Glory Enterprise HK
Limited on behalf of the Company.
 
 In February,
July and August 2009, LA GO GO borrowed $293,400 (RMB 2 million) from
Shanghai La Chapelle for operations. This loan is interest free and due on
demand. Management expects to repay this loan in cash from operations within the
next twelve months.
 
 Long-Term Liability –
Related Party
 
 As of
September 30, 2009 and December 31, 2008 the Company owed $2,747,879 ($500,000
is due within one year) and $2,660,085, respectively to Blue Power Holdings
Limited, a company controlled by the Company’s Chief Executive Officer, Mr.
Kang. Interest is charged at 6% per annum on the amounts due. The loans are due
between September 2010 and December 2010. For the three and nine months ended
September 30, 2009 and 2008, the Company incurred interest expense of $29,265,
$87,794, $29,265, and $145,836, respectively. The accrued interest is included
in the carrying amount of the loan in the accompanying balance
sheets.
 
 NOTE 9 CONCENTRATIONS
AND RISKS
 
 The
Company extends unsecured credit to its customers in the normal course of
business and generally does not require collateral. As a result, management
performs ongoing credit evaluations, and the Company maintains an allowance for
potential credit losses based upon its loss history and its aging analysis.
Based on management’s assessment of the amount of probable credit losses, if
any, in existing accounts receivable, management has concluded that no allowance
for doubtful accounts is necessary at September 30, 2009 and December 31, 2008
.. Management reviews the allowance for doubtful accounts each reporting
period based on a detailed analysis of accounts receivable. In the analysis,
management primarily considers the age of the customer’s receivable and also
considers the credit worthiness of the customer, the economic conditions of
the customer’s industry, and general economic conditions and trends, among other
factors. If any of these factors change, the Company may also change its
original estimates, which could impact the level of the Company’s future
allowance for doubtful accounts.  If judgments regarding the
collect ability of accounts receivable were incorrect, adjustments to
the allowance may be required, which would reduce
profitability.
  14
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
  For the
nine-month period ended September 30, 2009, the Company had two wholesale
customers that represented approximately 29.0% and 12.8% of the Company’s
 revenues. For the three-month period ended September 30, 2009, the Company
had two wholesale customers that represented approximately 20.9% and 23.6%
of the Company’s revenues. At September 30, 2009, approximately 4.9% and
30.7% of accounts receivable were due from these two customers. For the
nine-month period ended September 30, 2008, the Company had one customer that
represented approximately 29.4% of the Company’s revenues. For the
three-month period ended September 30, 2008, the Company had one customer that
represented approximately 25.7% of the Company’s revenues. At
September 30, 2008, approximately 2.5% of accounts receivable were due from
this customer.
  During
the three and nine months ended September 30, 2009 and 2008, no vendor supplied
more than 10% of total raw materials purchases.
 
 For the
wholesale business, during the nine months ended September 30, 2009, the Company
relied on two different manufacturers for 17.9% and 11.4% of purchased finished
goods. During the nine months ended September 30, 2008, the Company relied on
one manufacturer for 17.0% of purchased finished goods. During the three months
ended September 30, 2009, the Company relied on two manufacturers for 15.1% and
17.7% of purchased finished goods. During the three months ended September 30,
2008, the Company relied on one manufacturer for 19.0% of purchased finished
goods. No other manufacturers represented more than 10% of purchased finished
goods.
 
 For the
retail business, during the three months ended September 30, 2009, the
Company did not rely on any manufacturer for purchased finished
goods.  During the nine months ended September 30, 2009, the Company
relied on one manufacturer for 10.0% of purchased finished goods.
 
 The
Company’s revenue for the three and nine months ended September 30, 2009 and
2008 were earned in the following geographic areas:
 
 Three months ended September
    30
                      
                      
                      Nine months ended September
    302009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008The
      People’s republic of China
                      
                      $
                      3,874,933
                      
                      
                      $
                      3,978,707
                      
                      
                      $
                      10,002,626
                      
                      
                      $
                      8,049,002Europe
                      
                      
                      11,973,636
                      
                      
                      
                      14,924,436
                      
                      
                      
                      35,450,762
                      
                      
                      
                      42,178,290Japan
                      
                      
                      3,106,221
                      
                      
                      
                      6,925,551
                      
                      
                      
                      10,347,924
                      
                      
                      
                      12,739,050United
      States
                      
                      
                      5,981,931
                      
                      
                      
                      6,056,882
                      
                      
                      
                      10,768,725
                      
                      
                      
                      12,734,839Total
                      
                      $
                      24,936,721
                      
                      
                      $
                      31,885,576
                      
                      
                      $
                      66,570,037
                      
                      
                      $
                      75,701,181
 
 NOTE
10 SEGMENTS
 
 The
Company reports financial and operating information in the following two
segments:
 
 (a)  Wholesale
segment
 
 (b)  Retail
segment
  15
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
  The
Company also provides general corporate services to its segments and these costs
are reported as "corporate and others."
  16
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 SEPTEMBER
30, 2009 (UNAUDITED)
  Wholesale
                                                                      segment
                                                                    
                                                                    
                                                                    Retail segment
                                                                    
                                                                    
                                                                    Corporate and
                                                                      others
                                                                    
                                                                    
                                                                    TotalNine
      months ended September 30,2009Segment
      profit or loss:Net
      revenue from external customers
                                                                    
                                                                    $
                                                                    59,369,406
                                                                    
                                                                    
                                                                    $
                                                                    7,188,520
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    66,557,926Net
      revenue from related parties
                                                                    
                                                                    $
                                                                    12,111
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    12,111Income
      from operations
                                                                    
                                                                    $
                                                                    5,311,244
                                                                    
                                                                    
                                                                    $
                                                                    -67,264
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    5,243,980Interest
      income
                                                                    
                                                                    $
                                                                    445,117
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    445,117Interest
      expense
                                                                    
                                                                    $
                                                                    245,105
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    87,795
                                                                    
                                                                    
                                                                    $
                                                                    332,900Depreciation
      and amortization
                                                                    
                                                                    $
                                                                    753,866
                                                                    
                                                                    
                                                                    $
                                                                    758,223
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    1,512,089Income
      tax expense
                                                                    
                                                                    $
                                                                    692,206
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    692,206Segment
      assets:Additions
      to property, plant and equipment
                                                                    
                                                                    $
                                                                    76,469
                                                                    
                                                                    
                                                                    $
                                                                    907,877
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    984,346Total
      assets
                                                                    
                                                                    $
                                                                    58,779,581
                                                                    
                                                                    
                                                                    $
                                                                    5,529,624
                                                                    
                                                                    
                                                                    $
                                                                    47,504,883
                                                                    
                                                                    
                                                                    $
                                                                    111,814,088Nine
      months ended September 30,2008Segment
      profit or loss:Net
      revenue from external customers
                                                                    
                                                                    $
                                                                    73,779,891
                                                                    
                                                                    
                                                                    $
                                                                    1,411,145
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    75,191,036Net
      revenue from related parties
                                                                    
                                                                    $
                                                                    510,145
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    510,145Income
      from operations
                                                                    
                                                                    $
                                                                    6,748,702
                                                                    
                                                                    
                                                                    $
                                                                    -7,612
                                                                    
                                                                    
                                                                    $
                                                                    -204,605
                                                                    
                                                                    
                                                                    $
                                                                    6,536,485Interest
      income
                                                                    
                                                                    $
                                                                    117,431
                                                                    
                                                                    
                                                                    $
                                                                    4,072
                                                                    
                                                                    
                                                                    $
                                                                    113
                                                                    
                                                                    
                                                                    $
                                                                    121,616Interest
      expense
                                                                    
                                                                    $
                                                                    220,827
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    2,456,719
                                                                    
                                                                    
                                                                    $
                                                                    2,677,546Depreciation
      and amortization
                                                                    
                                                                    $
                                                                    712,737
                                                                    
                                                                    
                                                                    $
                                                                    1,709
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    714,446Income
      tax expense
                                                                    
                                                                    $
                                                                    841,850
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    841,850Segment
      assets:Additions
      to property, plant and equipment
                                                                    
                                                                    $
                                                                    406,280
                                                                    
                                                                    
                                                                    $
                                                                    394,389
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    $
                                                                    800,669Total
      assets
                                                                    
                                                                    $
                                                                    44,383,899
                                                                    
                                                                    
                                                                    $
                                                                    3,086,252
                                                                    
                                                                    
                                                                    $
                                                                    40,286,454
                                                                    
                                                                    
                                                                    $
                                                                    87,756,605
  The
      reconciliations of segment information to the Company’s consolidated
      totals were as follows:September 30,2009
                    
                    
                    September 30,2008Revenues:Total
      reportable segments
                    
                    $
                    66,570,037
                    
                    
                    $
                    75,701,181Elimination
      of intersegment revenues
                    
                    
                    -Total
      consolidated
                    
                    $
                    66,570,037
                    
                    
                    $
                    75,701,181Income
      (loss) from operations:Total
      segments
                    
                    $
                    5,243,980
                    
                    
                    $
                    6,536,485Elimination
      of intersegment profits
                    
                    
                    -
                    
                    
                    
                    -Total
      consolidated
                    
                    $
                    5,243,980
                    
                    
                    $
                    6,536,485Total
      assets:Total
      segments
                    
                    $
                    111,814,088
                    
                    
                    $
                    87,756,605Elimination
      of intersegment receivables
                    
                    
                    (57,443,102
                    )
                    
                    
                    (43,475,696
                    )Total
      consolidated
                    
                    $
                    54,370,986
                    
                    
                    $
                    44,280,909
  17
  EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009 (UNAUDITED)
 Wholesale segment
                        
                        
                        Retail segment
                        
                        
                        Corporate and
                          others
                        
                        
                        TotalThree
      months ended September 30,2009Segment
      profit or loss:Net
      revenue from external customers
                        
                        $
                        22,311,223
                        
                        
                        $
                        2,622,738
                        
                        
                        $
                        -
                        
                        
                        $
                        24,933,961Net
      revenue from related parties
                        
                        $
                        2,760
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,760Income
      from operations
                        
                        $
                        1,992,626
                        
                        
                        $
                        -19,143
                        
                        
                        $
                        -
                        
                        
                        $
                        1,973,483Interest
      income
                        
                        $
                        180,088
                        
                        
                        $
                        -
                        
                        
                        $
                        1
                        
                        
                        $
                        180,089Interest
      expense
                        
                        $
                        64,750
                        
                        
                        $
                        -
                        
                        
                        $
                        29,266
                        
                        
                        $
                        94,016Depreciation
      and amortization
                        
                        $
                        250,528
                        
                        
                        $
                        274,420
                        
                        
                        $
                        -
                        
                        
                        $
                        524,948Income
      tax expense
                        
                        $
                        130,479
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        130,479Segment
      assets:Additions
      to property, plant and equipment
                        
                        $
                        13,526
                        
                        
                        $
                        847,941
                        
                        
                        $
                        -
                        
                        
                        $
                        861,467Total
      assets
                        
                        $
                        58,779,581
                        
                        
                        $
                        5,529,624
                        
                        
                        $
                        47,504,883
                        
                        
                        $
                        111,814,088Three
      months ended September 30,2008Segment
      profit or loss:Net
      revenue from external customers
                        
                        $
                        30,829,847
                        
                        
                        $
                        1,038,147
                        
                        
                        $
                        -
                        
                        
                        $
                        31,867,994Net
      revenue from related parties
                        
                        $
                        17,582
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        17,582Income
      from operations
                        
                        $
                        2,363,116
                        
                        
                        $
                        -16,070
                        
                        
                        $
                        -4,359
                        
                        
                        $
                        2,342,687Interest
      income
                        
                        $
                        39,336
                        
                        
                        $
                        1,698
                        
                        
                        $
                        18
                        
                        
                        $
                        41,052Interest
      expense
                        
                        $
                        76,481
                        
                        
                        $
                        -
                        
                        
                        $
                        1,392,111
                        
                        
                        $
                        1,468,592Depreciation
      and amortization
                        
                        $
                        331,498
                        
                        
                        $
                        1,268
                        
                        
                        $
                        -
                        
                        
                        $
                        332,766Income
      tax expense
                        
                        $
                        275,911
                        
                        
                        $
                        -2,708
                        
                        
                        $
                        -
                        
                        
                        $
                        273,203Segment
      assets:Additions
      to property, plant and equipment
                        
                        $
                        73,332
                        
                        
                        $
                        369,642
                        
                        
                        $
                        -
                        
                        
                        $
                        442,974Total
      assets
                        
                        $
                        44,383,899
                        
                        
                        $
                        3,086,252
                        
                        
                        $
                        40,286,454
                        
                        
                        $
                        87,756,605
  The
      reconciliations of segment information to the Company’s consolidated
      totals were as follows:September 30,2009
                              
                              
                              September 30,2008Revenues:Total
      reportable segments
                              
                              $
                              24,936,721
                              
                              
                              $
                              31,885,576Elimination
      of intersegment revenues
                              
                              
                              -
                              
                              
                              
                              -Total
      consolidated
                              
                              $
                              24,936,721
                              
                              
                              $
                              31,885,576Income
      (loss) from operations:Total
      segments
                              
                              $
                              1,973,483
                              
                              
                              $
                              2,342,687Elimination
      of intersegment profits
                              
                              
                              -
                              
                              
                              
                              -Total
      consolidated
                              
                              $
                              1,973,483
                              
                              
                              $
                              2,342,687Total
      assets:Total
      segments
                              
                              $
                              111,814,088
                              
                              
                              $
                              87,756,605Elimination
      of intersegment receivables
                              
                              
                              (57,443,102
                              )
                              
                              
                              (43,475,696
                              )Total
      consolidated
                              
                              $
                              54,370,986
                              
                              
                              $
                              44,280,909
  18
 ITEM
      2.
                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 The
following discussion and analysis of our financial condition and results of
operations for the three and nine months ended September 30, 2009 should be read
in conjunction with the Financial Statements and corresponding notes included in
this Quarterly Report on Form 10-Q. Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations, and intentions. Actual results and
the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under the Risk Factors and Special Note Regarding Forward-Looking
Statements in this report. We use words such as “anticipate,” “estimate,”
“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions to identify
forward-looking statements.
  Overview
  Our
Business
  We are a
leading apparel supply chain manager and retailer in China, and are listed on
the NYSE Amex.
  We
classify our businesses into two segments: wholesale and retail. Our wholesale
business consists of wholesale-channel sales made principally to established
brands, department stores and specialty stores located throughout Europe, the
U.S., Japan and the People’s Republic of China (PRC). We have a focus on
well-known, middle-to-high grade casual wear, sportswear, and outerwear brands.
Our retail business consists of retail-channel sales directly to consumers
through full-price retail stores located throughout the PRC.
  Although
we have our own manufacturing facilities, we currently outsource most of the
manufacturing to our strategic alliances as part of our overall business
strategy.  Outsourcing allows us to maximize our production capacity
and maintain flexibility while reducing capital expenditures and the costs of
keeping skilled workers on production lines during low season. Our management
oversees the long-term contractors and inspects products manufactured by them to
ensure that they meet our high quality control standards and timely delivery.
Our annual production capacity including outsourcing orders is in excess of 12
million pieces.
  On
January 6, 2009, we established Ever-Glory International Group Apparel Inc.
(“Ever-Glory Apparel”) a wholly-owned subsidiary of Goldenway. Ever-Glory
Apparel is principally engaged in the import and export of apparel, fabric and
accessories. On September 15, 2009, we established Ever-Glory International
Group (HK) Ltd.(“Ever-Glory HK”), a wholly-owned subsidiary of Perfect Dream.
Ever-Glory Apparel and Ever-Glory HK are principally engaged in the import and
export of apparel, fabric and accessories. In order to reduce transaction
related costs, we have been gradually shifting our import and export business to
Ever-Glory Apparel and Ever-Glory HK. We previously utilized Jiangsu Ever-Glory
International Group Corporation (“Jiangsu Ever-Glory”), an entity
controlled by Mr. Edward Yihua Kang, our Chairman of the Board and Chief
Executive Officer, to assist with our import and export
transactions.
  On March
23, 2009, Goldenway transferred all of its ownership interest in LA GO GO to
Ever-Glory Apparel.
  Wholesale
Business
  We
conduct our original design manufacturing (ODM) operations through four
wholly-owned subsidiaries which are located in the Nanjing Jiangning Economic
and Technological Development Zone and Shang Fang Town in the Jiangning District
in Nanjing, China: Ever-Glory International Group Apparel Inc. (“Ever-Glory
Apparel”), Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing
New-Talent Garments Company Limited (“New Talent”), and Nanjing Catch-Luck
Garments Co., Ltd. (“Catch-Luck”).
  19
  Retail
Business
  We
conduct our retail operations through Shanghai LA GO GO Fashion Company Limited
(“LA GO GO”), a joint venture of Ever-Glory Apparel and Shanghai La Chapelle
Garment and Accessories Company Limited, located in Shanghai, China. The
business objective of the joint venture is to establish a leading brand of
ladies’ garments and to build a retail and wholesale distribution channel for
the mainland Chinese market.
  Below is
a summary of our store statistics:
  3Q2008
                            
                            
                            FY2008
                            
                            
                            1Q2009
                            
                            
                            2Q2009
                            
                            
                            3Q2009Total
      stores
                            
                            
                            55
                            
                            
                            
                            93
                            
                            
                            
                            102
                            
                            
                            
                            130
                            
                            
                            
                            154Total
      square feet
                            
                            
                            59,341
                            
                            
                            
                            84,776
                            
                            
                            
                            97,220
                            
                            
                            
                            121,643
                            
                            
                            
                            142,632Sales
      per square foot per month
                            
                            $
                            7
                            
                            
                            $
                            13
                            
                            
                            $
                            12
                            
                            
                            $
                            7
                            
                            
                            $
                            8
 
 Business
Objectives
  We
believe the strength of our wholesale business is due to our consistent emphasis
on innovative and distinct product designs with exceptional styling and quality.
We maintain long-term relationships with a portfolio of well-known, middle to
higher class global brands, a strong and experienced management team and a
proven ability to design, market and distribute our own brand through
fast-growing retail channels in a highly populated country.
  Wholesale
Business
  The
primary business objective for our wholesale segment is to expand our portfolio
into higher class brands, expand our customer base and improve margins.
Opportunities and continued investment initiatives include:
  ·
              Expand
      our global sourcing network;
 ·
              Invest
      in our overseas low-cost manufacturing base (outside of mainland
      China);
 ·
              Focus
      on value and continue our Average Selling Price
  uptrend;
 ·
              Emphasize
      product design and new technology utilization;
  and
 ·
              Seek
      strategic acquisitions of international distributors that could enhance
      global sales and our distribution network
 Retail
Business
  The
business objective for our retail segment is to further establish a leading
brand of women’s apparel and to build a nationwide retail distribution channel
in China. As of September 30, 2009 we operated 154 stores. During the first
three quarters of 2009 we opened 63 stores and the Company’s goal is to open
between 80-100  new stores in total in 2009.
  20
  Opportunities
and continued investment initiatives include:
  ·
              Become
      a multi-brand operator;
 ·
              Build
      the LA GO GO brand to become a major Chinese mid-end mass market in
      women's wear;
 ·
              Seek
      opportunities for long-term cooperation with reputable international
      brands to expand our retail
business;
 ·
              Facilitate
      the entry of international brands into the PRC retail
    market;
 ·
              Expand
      the LA GO GO retail network;
 ·
              Improve
      the LA GO GO retail store efficiency and increase same store
      sales;
 ·
              Strengthen
      the LA GO GO brand promotion; and
 ·
              Launch
      LA GO GO flagship stores in Tier-1 Cities and increase penetration and
      coverage in Tier-2 and Tier-3
Cities
 Despite
the various risks and uncertainties associated with the current global economy,
we believe our core strengths will continue to allow us to execute our strategy
for long-term sustainable growth in revenue, net income and operating cash
flow.
  Seasonality
of Business
  Our
business is affected by seasonal trends, with higher levels of wholesale sales
in our third and fourth quarters and higher retail sales in our first and fourth
quarters. These trends result primarily from the timing of seasonal wholesale
shipments and holiday periods in the retail segment.
  Collection
Policy
  Wholesale
business
  For our
new customers, we generally require orders placed to be backed by letters of
credit. For our long-term and established customers with a good payment track
record, we generally provide payment terms between 30 to 120 days following
delivery of finished goods.
  Retail
business
  For
store-in-store shops, we generally receive payments from the stores between
60-90 days following the time of register receipt. For our own stores, we
receive payments at the point of sale. .
  Global
Economic Uncertainty
  Our
business is dependent on consumer demand for our products. We believe that the
significant uncertainty in the global economy and a slowdown in the U.S. and the
European economy have increased our clients’ sensitivity to the cost of our
products as reflected in our revenues for the three and nine months ended
September 30, 2009 when compared to the same periods in 2008. We have
experienced continued pricing pressure this year. If the global economic
environment continues to be weak, these worsening economic conditions could have
a negative impact on the Company’s sales growth and operating margins in our
wholesale segment in this year.
  In
addition, economic conditions in the United States and in foreign markets in
which we operate could substantially affect our sales and profitability and our
cash position and collection of accounts receivable.  Global credit
and capital markets have experienced unprecedented volatility and disruption.
Business credit and liquidity have tightened in much of the world. Some of our
suppliers and customers may face credit issues and could experience cash flow
problems and other financial hardships. These factors currently have not had an
impact on the timeliness of receivable collections from our customers. The
Company cannot predict at this point in time how this situation will develop and
whether accounts receivable may need to be allowed or for written off in the
coming quarter.
  21
  Summary
of Critical Accounting Policies
  We have
identified critical accounting policies that, as a result of judgments,
uncertainties, uniqueness and complexities of the underlying accounting
standards and operation involved could result in material changes to our
financial position or results of operations under different conditions or using
different assumptions.
  Revenue
Recognition
  We
recognize revenue, net of value added taxes, upon delivery for domestic sales
and upon shipment of the products for international 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. Retail
sales are recorded at the time of register receipt.
  Estimates
and Assumptions
  In
preparing our condensed consolidated financial statements, we use estimates and
assumptions that affect the reported amounts and disclosures. Our estimates are
often based on complex judgments, probabilities and assumptions that we believe
to be reasonable, but that are inherently uncertain and unpredictable. We are
also subject to other risks and uncertainties that may cause actual results to
differ from estimated amounts. Significant estimates in 2009 and 2008 include
the estimated residual value and useful lives of property and equipment, and the
assumptions we made when we used the Black-Scholes option price model to value
warrants granted.
  Inventory
  Inventories,
consisting of raw materials, work-in-process and finished goods related to our
products are stated at the lower of cost or market utilizing the specific
identification method. From July 1, 2009 we purchased raw materials through
Goldenway which previously purchased through Jiangsu Ever-Glory and then
deliveried those raw materials to the factories for manufacturing. Those raw
materials deliveried for manufacturing are included in work-in-process. Because
of this change the raw material and work-in-process increased rapidly by the end
of this quarter.
  Details
regarding our use of these policies and the related estimates are described in
the accompanying notes to the Condensed Consolidated Financial Statements. There
have been no material changes to our critical accounting policies that impacted
our financial condition or results of operations.
  Recent Accounting
Pronouncements
  Embedded
Derivatives
  (Included
in ASC 815 “Derivatives and Hedging”, previously SFAS 133)
  In June 2008, the FASB
issued Emerging Issues Task Force Issue 07-5 “Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF No. 07-5”).
This Issue is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own
stock and (b) classified in stockholders’ equity in the statement of
financial position would not be considered a derivative financial instrument.
EITF No.07-5 provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
This standard triggers liability accounting on all options and warrants
exercisable at strike prices denominated in any currency other than the
functional currency of the operating entity in China (Renminbi). Adoption of
EITF No. 07-5 did not have a material impact on the Company’s condensed
consolidated financial statements.
  22
  Business
Combinations
  (Included
in ASC 805 “Business Combinations”, previously SFAS No. 141(R))
  This ASC
guidance revised SFAS No. 141, “Business Combinations” and
addresses the accounting and disclosure for identifiable assets acquired,
liabilities assumed, and noncontrolling interests in a business combination.
Adoption of this standard on January 1, 2009 did not have a material impact on
the Company’s condensed consolidated financial statements, as the Company did
not enter into a business combination during the nine months ended September 30,
2009.
  Noncontrolling
Interests
  (Included
in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51)
  SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. The Company adopted SFAS 160 on January 1, 2009. As a
result, the Company has reclassified financial statement line items within the
Company’s Condensed Consolidated Balance Sheets and Statements of Income and
Comprehensive Income for the prior period to conform to this
standard.
  Interim
Disclosures about Fair Value of Financial Instruments
  (Included in ASC 825 “Financial
Instruments”, previouslyFSP SFAS No. 107-1)
  This
guidance requires that the fair value disclosures required for all financial
instruments within the scope of SFAS 107, “Disclosures about Fair Value of
Financial Instruments”, be included in interim financial statements. This
guidance also requires entities to disclose the method and significant
assumptions used to estimate the fair value of financial instruments on an
interim and annual basis and to highlight any changes from prior periods. FSP
107-1 was effective for interim periods ending after September 15, 2009. The
adoption of FSP 107-1 did not have a material impact on the Company’s
Consolidated Financial Statements.
  Subsequent
Events
 (Included
in ASC 855 “Subsequent Events”, previously SFAS No. 165)
 
 SFAS
No.165, “Subsequent
Events” establishes accounting and disclosure requirements for subsequent
events.  SFAS 165 details the period after the balance sheet date during
which the Company should evaluate events or transactions that occur for
potential recognition or disclosure in the financial statements, the
circumstances under which the Company should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
required disclosures for such events.  The Company adopted this statement
and has evaluated all subsequent events through November 9, 2009.
 
 FASB
Accounting Standards Codification
  (Accounting
Standards Update “ASU”) 2009-1)
  In June
2009, the FASB approved its Accounting Standards Codification (“Codification”)
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities, with the exception of
the SEC and its staff. The Codification is effective for interim or annual
financial periods ending after September 15, 2009 and impacts the Company’s
financial statements as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. There have
been no changes to the content of the Company’s financial statements or
disclosures as a result of implementing the Codification during the quarter
ended September 30, 2009.
  23
  As a
result of the Company’s implementation of the Codification during the quarter
ended September 30, 2009, previous references to new accounting standards and
literature are no longer applicable. In the current quarter financial
statements, the Company will provide reference to both new and old guidance to
assist in understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
  Results
of Operations for the three months ended September 30, 2009 as compared with the
three months ended September 30, 2008.
  The
following table summarizes our results of operations for the three months ended
September 30, 2009 and 2008. The table and the discussion below should be read
in conjunction with the condensed consolidated financial statements and the
notes thereto appearing elsewhere in this report.
  Three
      months ended September 302009
                                  
                                  
                                  2008(in
      U.S. Dollars, except for percentages)Sales
                                  
                                  $
                                  24,936,721
                                  
                                  
                                  
                                  100.0
                                  %
                                  
                                  $
                                  31,885,576
                                  
                                  
                                  
                                  100.0
                                  %Gross
      Profit
                                  
                                  
                                  4,633,705
                                  
                                  
                                  
                                  18.6
                                  
                                  
                                  
                                  4,590,371
                                  
                                  
                                  
                                  14.4Operating
      Expenses
                                  
                                  
                                  2,660,222
                                  
                                  
                                  
                                  10.7
                                  
                                  
                                  
                                  2,247,684
                                  
                                  
                                  
                                  7.0Income
      From Operations
                                  
                                  
                                  1,973,483
                                  
                                  
                                  
                                  7.9
                                  
                                  
                                  
                                  2,342,687
                                  
                                  
                                  
                                  7.3Other
      Income (Expenses)
                                  
                                  
                                  86,342
                                  
                                  
                                  
                                  0.3
                                  
                                  
                                  
                                  (1,426,969
                                  )
                                  
                                  
                                  (4.5
                                  )Income
      Tax Expense
                                  
                                  
                                  130,479
                                  
                                  
                                  
                                  0.5
                                  
                                  
                                  
                                  273,203
                                  
                                  
                                  
                                  0.9Net
      Income
                                  
                                  $
                                  1,929,346
                                  
                                  
                                  
                                  7.7
                                  %
                                  
                                  $
                                  642,515
                                  
                                  
                                  
                                  2.0
                                  %
   24
  Revenue
  The
following table sets forth a breakdown of our total sales, by region, for the
three months ended September 30, 2009 and 2008.
 Three months
                      ended September
                      30,2009
                    
                    
                    % of total
                      sales
                    
                    
                    Three months
                      ended September
                      30,2008
                    
                    
                    % of total
                      sales
                    
                    
                    Growth(Decrease)
                      in 2009 compared
                      with 2008Wholesale
      businessThe
      People’s Republic of China
                    
                    $
                    1,250,316
                    
                    
                    
                    5.0
                    %
                    
                    $
                    2,940,563
                    
                    
                    
                    9.2
                    %
                    
                    
                    (57.5
                    )%Europe
                    
                    
                    11,973,636
                    
                    
                    
                    48.0
                    %
                    
                    
                    14,924,436
                    
                    
                    
                    46.8
                    %
                    
                    
                    (19.8
                    )Japan
                    
                    
                    3,106,221
                    
                    
                    
                    12.5
                    %
                    
                    
                    6,925,551
                    
                    
                    
                    21.7
                    %
                    
                    
                    (55.1
                    )United
      States
                    
                    
                    5,981,931
                    
                    
                    
                    24.0
                    %
                    
                    
                    6,056,882
                    
                    
                    
                    19.0
                    %
                    
                    
                    (1.2
                    )Sub
      total
                    
                    
                    22,312,104
                    
                    
                    
                    89.5
                    %
                    
                    
                    30,847,432
                    
                    
                    
                    96.7
                    %
                    
                    
                    (27.7
                    )Retail
      business
                    
                    
                    2,624,617
                    
                    
                    
                    10.5
                    %
                    
                    
                    1,038,144
                    
                    
                    
                    3.3
                    %
                    
                    
                    152.8Total
                    
                    $
                    24,936,721
                    
                    
                    
                    100.0
                    %
                    
                    $
                    31,885,576
                    
                    
                    
                    100.0
                    %
                    
                    
                    (21.8
                    )%
  We
generate revenues primarily from our wholesale business from international
markets. We also generate revenues from our retail business from the Chinese
domestic market focusing on our own apparel brand: LA GO GO.
  Total
sales for the three months ended September 30, 2009 were $24.9 million a
decrease of 21.8% from the three months ended September 30, 2008. Although
sales in our retail business increased significantly during the third quarter of
2009, sales in our wholesale business decreased 27.7% due to the global economic
slowdown.
  Sales
generated from our wholesale business contributed 89.5%% or $22.3 million of our
total sales for the three months ended September 30, 2009, compared to $30.8
million in the three months ended September 30, 2008.
  Sales
generated from our retail business contributed 10.5% or $2.6 million of our
total sales for the three months ended September 30, 2009, an increase of
152.8% compared to $1.0 million in the three months ended September 30,
2008 due to we had 154 LA GO GO stores by the end of this quarter while 55 LA GO
GO stores in the same time of 2008 . In the third quarter of 2009 we opened 25
new LA GO GO stores and closed one store.
  Costs and
Expenses
  Cost of Sales and Gross
Margin
  Cost of
goods sold includes direct material cost, direct labor cost, and manufacturing
overhead, which includes depreciation of production equipment, consistent with
the revenue earned, as well as rent for store space used by our retail
business.
  The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the three months ended
September 30, 2009 and 2008.
  25
  Three
      Months Ended September 30,
                        
                        
                        Growth(Decrease)2009
                        
                        
                        2008
                        
                        
                        2009
      compared(in
      U.S. dollars, exceptfor percentages)
                        
                        
                        with
      2008Wholesale
      sales
                        
                        $
                        22,312,104
                        
                        
                        
                        100.0
                        %
                        
                        $
                        30,847,432
                        
                        
                        
                        100.0
                        %
                        
                        
                        (27.7
                        )%Raw
      Materials
                        
                        
                        10,907,279
                        
                        
                        
                        48.9
                        
                        
                        
                        13,735,548
                        
                        
                        
                        44.5
                        
                        
                        
                        (20.6
                        )Labor
                        
                        
                        808,145
                        
                        
                        
                        3.6
                        
                        
                        
                        849,187
                        
                        
                        
                        2.8
                        
                        
                        
                        (4.8
                        )Outsourced
      Production Costs
                        
                        
                        6,846,590
                        
                        
                        
                        30.7
                        
                        
                        
                        11,846,954
                        
                        
                        
                        38.4
                        
                        
                        
                        (42.2
                        )Other
      and Overhead
                        
                        
                        165,919
                        
                        
                        
                        0.7
                        
                        
                        
                        195,881
                        
                        
                        
                        0.6
                        
                        
                        
                        (15.3
                        )Total
      Cost of Sales for Wholesale
                        
                        
                        18,727,934
                        
                        
                        
                        83.9
                        
                        
                        
                        26,627,570
                        
                        
                        
                        86.3
                        
                        
                        
                        (29.7
                        )Gross
      Profit for Wholesale
                        
                        
                        3,584,170
                        
                        
                        
                        16.1
                        
                        
                        
                        4,219,862
                        
                        
                        
                        13.7
                        
                        
                        
                        (15.1
                        )Net
      Sales for Retail
                        
                        
                        2,624,617
                        
                        
                        
                        100.0
                        
                        
                        
                        1,038,144
                        
                        
                        
                        100.0
                        
                        
                        
                        152.8Production
      Costs
                        
                        
                        686,195
                        
                        
                        
                        26.1
                        
                        
                        
                        212,659
                        
                        
                        
                        20.5
                        
                        
                        
                        222.7Rent
                        
                        
                        888,887
                        
                        
                        
                        33.9
                        
                        
                        
                        454,976
                        
                        
                        
                        43.8
                        
                        
                        
                        95.4Total
      Cost of Sales for Retail
                        
                        
                        1,575,082
                        
                        
                        
                        60.0
                        
                        
                        
                        667,635
                        
                        
                        
                        64.3
                        
                        
                        
                        135.9Gross
      Profit for Retail
                        
                        
                        1,049,535
                        
                        
                        
                        40.0
                        
                        
                        
                        370,509
                        
                        
                        
                        35.7
                        
                        
                        
                        183.3Total
      Cost of Sales
                        
                        
                        20,303,016
                        
                        
                        
                        81.4
                        
                        
                        
                        27,295,205
                        
                        
                        
                        85.6
                        
                        
                        
                        (25.6
                        )Gross
      Profit
                        
                        $
                        4,633,705
                        
                        
                        
                        18.6
                        %
                        
                        $
                        4,590,371
                        
                        
                        
                        14.4
                        %
                        
                        
                        0.9
                        %
 
 There are
two operational patterns in our apparel making and trading business CMT or
“Cutting, Making and Trim”, and FOB or “Freight on Board”. Under the CMT model,
our buyers supply us with the main raw materials, and we charge them for
production, whereby cash flow are reduced. FOB is a generally adopted business
model where the price is composed of both raw material and production
charges.
  Total raw
materials costs decreased 20.6% to $10.9 million in the quarter ended September
30, 2009 versus $13.7 million in the quarter ended September 30, 2008. As a
percent of sales, raw materials cost for our wholesale business accounted for
48.9% of our total wholesale sales in the three months ended September 30, 2009,
an increase of 4.4% compared to the three months ended September 30, 2008.
This increase was primarily due to an increase in our FOB orders during the
quarter.
  Total
labor costs decreased 4.8% to $808,145 during the three months ended September
30, 2009 versus $849,187 million during the three months ended September 30,
2008. As a percent of sales, labor costs for our wholesale business accounted
for 3.6% of our total wholesale sales during the three months ended September
30, 2009, an increase of 0.8% compared to the three months ended September 30,
2008. This increase was primarily due to decreased outsourcing
orders during the quarter.
  Total
outsourced production costs decreased 42.2% to $6.8 million during the three
months ended September 30, 2009 versus $11.8 million during the three months
ended September 30, 2008. This decrease was primarily due to decreased
sales during the quarter. As a percent of sales, outsourced production
costs for our wholesale business accounted for 30.7% of our total sales during
the three months ended September 30, 2009, a decrease of 7.7% compared to the
three months ended September 30, 2008.
  Total
other costs and overhead decreased 15.3% to $0.17 million during the three
months ended September 30, 2009 versus $0.20 million during the three months
ended September 30, 2008. As a percent of sales, overhead and other expenses for
our wholesale business accounted for 0.7% of our total sales during the three
months ended September 30, 2009, a slight increase compared to the three months
ended September 30, 2008.
  26
  Production
costs for our retail business were $0.67 million or 26.1% of our total retail
sales during the three months ended September 30, 2009 versus $0.21 million or
20.5% during the three months ended September 30, 2008. The increase was
due to the reduced selling prices and increasing the sales volume. Rent costs
for our retail business were $0.89 million or 33.9% of our total retail sales
during the three months ended June 30, 2009 versus $0.45 million or 43.8% during
the three months ended September 30, 2008.The decrease in rent costs as a
percentage of total retail sales was due to an increase of same store sales
during the quarter ended September 30, 2009.
  Total
cost of sales for the three months ended September 30, 2009 was $20.3 million, a
decrease of 25.6% compared to the three months ended September 30, 2008. As a
percentage of total sales, our cost of sales decreased to 81.4% of total sales
for the three months ended September 30, 2009, compared to 85.6% of
total sales for the three months ended September 30, 2008. Consequently,
gross margins increased to 18.6% for the three months ended September 30, 2009
from 14.4% for the three months ended September 30, 2008.
  Gross
profit in our wholesale business for the three months ended September 30, 2009
was $3.6 million, a decrease of 15.1% compared to the three months ended
September 30, 2008. Gross margin was 16.1% for our wholesale business for the
three months ended September 30, 2009 an increase of 2.4% compared to the three
months ended September 30, 2008. The increase in our gross margin was primarily
because we decreased lower margin orders as a continued effort to pursue higher
added value operation.
  Gross
profit in our retail business for the three months ended September 30, 2009 was
$1.0 million and gross margin was 40.0%.  Gross profit in our retail
business for the three months ended September 30, 2008 was $0.4 million and
gross margin was 35.7%.The increase was primarily due to an increase in same
store sales during the quarter ended September 30, 2009.
  Selling,
General and Administrative (SG&A) Expenses
  Our
selling expenses consist primarily of freight-out, unloading costs, product
inspection charges, salaries for retail staff, store renovation and marketing
expenses.
 
 Our
general and administrative (G&A) expenses consist primarily of payroll for
executive, finance, accounting, and human resources personnel, office expenses
and professional fees.
  For the three months ended September
      30,2009
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      Increase
                                                        (Decrease)(in U.S. Dollars, except for
      percentages)Gross
      Profit
                                                      
                                                      $
                                                      4,633,705
                                                      
                                                      
                                                      
                                                      18.6
                                                      %
                                                      
                                                      $
                                                      4,590,371
                                                      
                                                      
                                                      
                                                      14.4
                                                      %
                                                      
                                                      
                                                      0.9
                                                      %Operating
      Expenses:Selling
      Expenses
                                                      
                                                      
                                                      1,097,840
                                                      
                                                      
                                                      
                                                      4.4
                                                      
                                                      
                                                      
                                                      563,971
                                                      
                                                      
                                                      
                                                      1.8
                                                      
                                                      
                                                      
                                                      94.7General
      and Administrative Expenses
                                                      
                                                      
                                                      1,562,382
                                                      
                                                      
                                                      
                                                      6.3
                                                      
                                                      
                                                      
                                                      1,683,713
                                                      
                                                      
                                                      
                                                      5.3
                                                      
                                                      
                                                      
                                                      (7.2
                                                      )Total
                                                      
                                                      
                                                      2,660,222
                                                      
                                                      
                                                      
                                                      10.7
                                                      
                                                      
                                                      
                                                      2,247,684
                                                      
                                                      
                                                      
                                                      7.1
                                                      
                                                      
                                                      
                                                      18.4Income
      from Operations
                                                      
                                                      $
                                                      1,973,483
                                                      
                                                      
                                                      
                                                      7.9
                                                      %
                                                      
                                                      $
                                                      2,342,687
                                                      
                                                      
                                                      
                                                      7.3
                                                      %
                                                      
                                                      
                                                      (15.8
                                                      )%
  Selling
expenses were $1.1 million during the three months ended September 30, 2009 an
increase of 94.7% or $0.53 million compared to the three months ended September
30, 2008. The increase was attributable to an increase of approximately $0.29
million in salaries for retail staff, and approximately $0.24 million
for store renovation and marketing expenses associated with the
promotion of LA GO GO.
  27
  G&A
expenses were $1.6 million during the three months ended September 30, 2009 a
decrease of 7.21% or approximately $0.12 million compared to the three months
ended September 30, 2008. Although we increased payroll for additional
management, design and marketing staff as a result of our business expansion,
the total G&A expenses decreased because non-occurrence of the expenses
related to our AMEX listing which occured in the third quarter of 2008.
  Income
from Operations
  Income
from operations decreased 15.7% to $2.0 million for the three months ended
September 30, 2009 from $2.3 million in the three months ended September 30,
2008 as a result of the increasing of ourselling expenses.
  Interest
Expense
  Interest
expense was $0.09 million for the three months ended September 30, 2009, a
decrease of 93.6% compared to the same period during 2008. This decrease was
mainly due to the conversion of convertible notes into common stock in
2008.
  Income
Tax Expense
  Income
tax expense was $0.13 million for the three months ended September 30, 2009, a
decrease of 52.2% compared to the same period of 2008. The decrease is primarily
attributable to $1.2 million of pre-tax income being recorded by Perfect-Dream,
a BVI company which has no liabilities to income tax.
  Our PRC
subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign
Investment Enterprises and Foreign Enterprises and various local income tax laws
(“the Income Tax Laws”). Each of our consolidating entities files its own
separate tax return.
  Below is
a summary of the income tax rate for each of our PRC subsidiaries in 2008 and
2009.
  Goldenway
                    
                    
                    New-Tailun
                    
                    
                    Catch-Luck
                    
                    
                    LA GO GO
                    
                    
                    Ever-Glory Apparel2008
                    
                    
                    25.0
                    %
                    
                    
                    12.5
                    %
                    
                    
                    12.5
                    %
                    
                    
                    25.0
                    %
                    
                    
                    *2009
                    
                    
                    25.0
                    %
                    
                    
                    12.5
                    %
                    
                    
                    12.5
                    %
                    
                    
                    25.0
                    %
                    
                    
                    25.0
                    %
  *Ever-Glory
Apparel was established on Jan 6, 2009.
  Perfect
Dream was incorporated in the British Virgin Islands on July 1, 2004, and has no
income tax.
  Ever-Glory
HK was incorporated in Samoa on September 15,2009, and has no income
tax.
  Ever-Glory
International Group Inc. was incorporated in the United States and has incurred
net operating losses for income tax purposes through September 30, 2009. The net
operating loss carry forwards for United States income taxes may be available to
reduce future years’ taxable income. These carry forwards will expire, if not
utilized, through 2029. Management believes that the realization of the benefits
from these losses appears uncertain due to our limited operating history and
continuing losses for United States income tax purposes. Accordingly, we have
provided a 100% valuation allowance on the deferred tax asset benefit to reduce
the asset to zero.
  28
  Net Income
  Net
income was $1.9 million for the three months ended September 30, 2009
an increase of 200.3% compared to the three months ended September 30,
2008. Our diluted earnings per share were $0.14 and $0.05 for the three months
ended September 30, 2009 and 2008, respectively.
  Results
of Operations for the nine months ended September 30, 2009 as compared with the
nine months ended September 30, 2008.
  The
following table summarizes our results of operations for the nine months ended
September 30, 2009 and 2008. The table and the discussion below should be read
in conjunction with the condensed consolidated financial statements and the
notes thereto appearing elsewhere in this report.
  Nine
      months ended September 302009
                                      
                                      2008(in
      U.S. Dollars, except for percentages)Sales
                                      
                                      $
                                      66,570,037
                                      
                                      
                                      
                                      100.0
                                      %
                                      
                                      $
                                      75,701,181
                                      
                                      
                                      
                                      100.0
                                      %Gross
      Profit
                                      
                                      
                                      13,855,421
                                      
                                      
                                      
                                      20.8
                                      
                                      
                                      
                                      12,665,244
                                      
                                      
                                      
                                      16.7Operating
      Expenses
                                      
                                      
                                      8,611,441
                                      
                                      
                                      
                                      12.9
                                      
                                      
                                      
                                      6,128,759
                                      
                                      
                                      
                                      8.1Income
      From Operations
                                      
                                      
                                      5,243,980
                                      
                                      
                                      
                                      7.9
                                      
                                      
                                      
                                      6,536,485
                                      
                                      
                                      
                                      8.6Other
      Income(Expenses)
                                      
                                      
                                      157,469
                                      
                                      
                                      
                                      0.2
                                      
                                      
                                      
                                      (2,502,274
                                      )
                                      
                                      
                                      (3.3
                                      )Income
      Tax Expense
                                      
                                      
                                      692,206
                                      
                                      
                                      
                                      1.0
                                      
                                      
                                      
                                      841,850
                                      
                                      
                                      
                                      1.1Net
      Income
                                      
                                      $
                                      4,709,243
                                      
                                      
                                      
                                      7.1
                                      %
                                      
                                      $
                                      3,192,361
                                      
                                      
                                      
                                      4.2
                                      %
  Revenue
  The
following table sets forth a breakdown of our total sales, by region, for the
nine months ended September 30, 2009 and 2008.
  Nine months
                      ended
                      September
                      30,2009
                    
                    
                    % of
                      total
                      sales
                    
                    
                    Nine months
                      ended
                      September
                      30,2008
                    
                    
                    % of
                      total
                      sales
                    
                    
                    Growth(Decrease)
                      in 2009 compared
                      with 2008Wholesale
      businessThe
      People’s Republic of China
                    
                    $
                    2,814,106
                    
                    
                    
                    4.2
                    %
                    
                    $
                    6,638,102
                    
                    
                    
                    8.8
                    %
                    
                    
                    (57.6
                    )
      %Europe
                    
                    
                    35,450,762
                    
                    
                    
                    53.3
                    %
                    
                    
                    42,178,290
                    
                    
                    
                    55.7
                    %
                    
                    
                    (16.0
                    )Japan
                    
                    
                    10,347,924
                    
                    
                    
                    15.5
                    %
                    
                    
                    12,739,050
                    
                    
                    
                    16.8
                    %
                    
                    
                    (18.8
                    )United
      States
                    
                    
                    10,768,725
                    
                    
                    
                    16.2
                    %
                    
                    
                    12,734,839
                    
                    
                    
                    16.8
                    %
                    
                    
                    (15.4
                    )Sub
      total
                    
                    
                    59,381,517
                    
                    
                    
                    89.2
                    %
                    
                    
                    74,290,281
                    
                    
                    
                    98.1
                    %
                    
                    
                    (20.1
                    )Retail
      business
                    
                    
                    7,188,520
                    
                    
                    
                    10.8
                    %
                    
                    
                    1,410,900
                    
                    
                    
                    1.9
                    %
                    
                    
                    409.5Total
                    
                    $
                    66,570,037
                    
                    
                    
                    100.0
                    %
                    
                    $
                    75,701,181
                    
                    
                    
                    100.0
                    %
                    
                    
                    (12.1
                    )
      %
  Sales for
the nine months ended September 30, 2009 were $66.6 million, a decrease of 12.1%
from the nine months ended September 30, 2008. Although sales in our retail
business increased significantly during 2009, sales in our wholesale business
decreased 20.1% due to the global economic slowdown.
  Sales
generated from our wholesale business contributed 89.2% or $59.4 million of our
total sales for the nine months ended September 30, 2009, compared to $74.3
million in the nine months ended September 30, 2008.
  29
  Sales
generated from our retail business contributed 10.8% or $7.2 million of our
total sales for the nine months ended September 30, 2009, compared to $1.4
million in the nine months ended September 30, 2008. In 2009 we opened 63 new LA
GO GO stores. As of September 30, 2009, we had 154 LA GO GO retail stores open
and average revenue per store was approximately $7,200 per
month.
  Costs and
Expenses
  Cost of Sales and Gross
Margin
  The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the nine months ended
September 30, 2009 and 2008.
  Nine
      Months Ended September 30,
                        
                        
                        Growth(Decrease)2009
                        
                        
                        2008
                        
                        
                        in
      2009 compared(in
      U.S. dollars, except for percentages)
                        
                        
                        with
      2008Wholesale
      Sales
                        
                        $
                        59,381,517
                        
                        
                        
                        100.0
                        %
                        
                        $
                        74,290,281
                        
                        
                        
                        100.0
                        %
                        
                        
                        (20.1
                        )%Raw
      Materials
                        
                        
                        26,962,460
                        
                        
                        
                        45.4
                        
                        
                        
                        34,860,446
                        
                        
                        
                        46.9
                        
                        
                        
                        (22.7
                        )Labor
                        
                        
                        2,265,873
                        
                        
                        
                        3.8
                        
                        
                        
                        2,232,520
                        
                        
                        
                        3.0
                        
                        
                        
                        1.5Outsourced
      Production Costs
                        
                        
                        18,523,838
                        
                        
                        
                        31.2
                        
                        
                        
                        24,579,064
                        
                        
                        
                        33.1
                        
                        
                        
                        (24.6
                        )Other
      and Overhead
                        
                        
                        569,559
                        
                        
                        
                        1.0
                        
                        
                        
                        577,946
                        
                        
                        
                        0.8
                        
                        
                        
                        (1.5
                        )Total
      Cost of Sales for Wholesale
                        
                        
                        48,321,731
                        
                        
                        
                        81.4
                        
                        
                        
                        62,249,976
                        
                        
                        
                        83.8
                        
                        
                        
                        (22.4
                        )Gross
      Profit for Wholesale
                        
                        
                        11,059,786
                        
                        
                        
                        18.6
                        
                        
                        
                        12,040,305
                        
                        
                        
                        16.2
                        
                        
                        
                        (8.1
                        )Net
      Sales for Retail
                        
                        
                        7,188,520
                        
                        
                        
                        100.0
                        
                        
                        
                        1,410,900
                        
                        
                        
                        100.0
                        
                        
                        
                        409.5Production
      Costs
                        
                        
                        1,800,716
                        
                        
                        
                        25.0
                        
                        
                        
                        330,985
                        
                        
                        
                        23.5
                        
                        
                        
                        444.0Rent
                        
                        
                        2,592,169
                        
                        
                        
                        36.1
                        
                        
                        
                        454,976
                        
                        
                        
                        32.2
                        
                        
                        
                        469.7Total
      Cost of Sales for Retail
                        
                        
                        4,392,885
                        
                        
                        
                        61.1
                        
                        
                        
                        785,961
                        
                        
                        
                        55.7
                        
                        
                        
                        458.9Gross
      Profit for Retail
                        
                        
                        2,795,635
                        
                        
                        
                        38.9
                        
                        
                        
                        624,939
                        
                        
                        
                        44.3
                        
                        
                        
                        347.3Total
      Cost of Sales
                        
                        
                        52,714,616
                        
                        
                        
                        79.2
                        
                        
                        
                        63,035,937
                        
                        
                        
                        83.3
                        
                        
                        
                        (16.4
                        )Gross
      Profit
                        
                        $
                        13,855,421
                        
                        
                        
                        20.8
                        %
                        
                        $
                        12,665,244
                        
                        
                        
                        16.7
                        %
                        
                        
                        9.4
                        %
  Total raw
materials costs decreased 22.7% to $27.0 million for the nine months ended
September 30, 2009 versus $34.9 million for the nine months ended September 30,
2008. As a percent of sales, raw materials cost for our wholesale business
accounted for 45.4% of our total sales for the nine months ended September 30,
2009, a decrease of 1.5% compared to the nine months ended September 30, 2008.
This decrease was primarily due to our recently implemented centralized
purchasing function to increase our negotiation power and the increased CMT
orders in the second quarter. Because no material supplied by the buyers is
included in the pricing, only production charges account for the sales
volume. As a result the sales volume appears low while the gross profit is
higher.
  Total
labor costs increased 1.5% to $2.3 million for the nine months ended September
30, 2009 versus $2.2 million for the nine months ended September 30, 2008. As a
percent of sales, labor costs for our wholesale business accounted for 3.8% of
our total sales in the nine months ended September 30, 2009, an increase of 80
basis points compared to the nine months ended September
30, 2008.
  Total
outsourced production costs for our wholesale business decreased 24.6% to $18.5
million in the nine months ended September 30, 2009 versus $24.6 million in the
nine months ended September 30, 2008. As a percent of sales, outsource
production costs were 31.2% of our total sales in the nine months ended
September 30, 2009, a 1.9% decrease compared to the nine months ended
September 30, 2008. This decrease in total cost was primarily due to lower
sales volume during the nine months ended September 30,
2009.
  30
  Overhead
and other expenses for our wholesale business accounted for 1.0% of our total
sales for the nine months ended September 30, 2009, compared to 0.8% of total
sales for the nine months ended September 30, 2008. This decrease was due
to lower sales volume.
  Production
costs for our retail business were to $1.8 million for the nine months ended
September 30, 2009 as compared to $0.3 million for the nine months ended
September 30, 2008. As a percent of sales, retail production costs accounted for
25.0% of our total sales in the nine months ended September 30, 2009, compared
to 23.5% of total sales in the nine months ended September 30, 2008. The
increase was due to reduced selling prices in exchange for higher selling
volume.
  Rent
costs for our retail business were $2.6 million for the nine months ended
September 30, 2009 compared to $0.5 for the nine months ended September 30,
2008. As a percent of sales, rent costs accounted for 36.1% of our total sales
in the nine months ended September 30, 2009, compared to 32.2% of total sales in
the nine months ended September 30, 2008. The increase was due to opening more
flagship stores, which generally have a higher cost per square foot, during
the nine months ended September 30, 2009.
  Total
cost of sales for the nine months ended September 30, 2009 was $52.7
million, compared to $63.0 million for the nine months ended September 30, 2008,
a decrease of 16.4%. As a percentage of total sales, cost of sales decreased to
79.2% of total sales for the nine months ended September 30, 2009, compared
to 83.3% of total sales for the nine months ended September 30, 2008.
Consequently, gross margin increased to 20.8% for the nine months ended
September 30, 2009 from 16.7% for the nine months ended September 30,
2008.
 
 We
purchase the majority of our raw materials directly from numerous local fabric
and accessories suppliers. Some of our customers also furnish us with raw
materials so that we can manufacture their products. For our wholesale business,
purchases from our five largest suppliers represented approximately 18.3% and
21.2% of raw materials purchases for the nine months ended September 30, 2009
and 2008, respectively. No one supplier provided more than 10% of our raw
materials purchases for the nine months ended September 30, 2009 and 2008. For
our retail business, purchases from our five largest suppliers represented
approximately 31.8% and 49.1% of raw materials purchases for the nine months
ended September 30, 2009. No supplier provided more than 10% of our total
purchases for the nine months ended September 30, 2009. Three suppliers provided
14.5%, 12.7%, 11.2% of our total purchases for the nine months ended September
30, 2008. We have not experienced difficulty in obtaining raw materials
essential to our business, and we believe we maintain good relationships with
our suppliers.
  We also
purchase finished goods from contract manufacturers. For our wholesale business,
purchases from our five largest contract manufacturers represented approximately
41.6% and 37.9% of finished goods purchases for the nine months ended September
30, 2009 and 2008, respectively. Two contract manufacturers provided
approximately 17.9% and 11.4% of our finished goods purchases for the nine
months ended September 30, 2009. One contract manufacturer provided
approximately 17.9% of our finished goods purchases for the nine months
ended September 30, 2008. For our retail business, our five largest contract
manufacturers represented approximately 37.8% and 67.9% of finished goods
purchases for the nine months ended September 30, 2009 and 2008, respectively.
One contract manufacturer provided 10.0% of our finished goods purchases for the
nine months ended September 30, 2009. Two contract manufacturers provided 40.8%
and 10.0% of our finished goods purchases for the nine months ended September
30, 2008. We have not experienced difficulty in obtaining finished products
from our contract manufacturers and we believe we maintain good
relationships with our contract manufacturers.
 
 Gross
profit in our wholesale business for the nine months ended September 30, 2009
was $11.1 million, a decrease of 8.1% compared to the nine months ended
September 30, 2008. Gross margin was 18.6% for our wholesale business for the
nine months ended September 30, 2009 an increase of 2.4% compared to the nine
months ended September 30, 2008. The increase in our gross margin
was primarily due to the increase in CMT orders versus FOB orders in
2009.
  31
  Gross
profit in our retail business for the nine months ended September 30, 2009 and
2008 was $2.8 million and $0.62 million respectively. Gross margin in our retail
business for the nine months ended September 30, 2009 and 2008 was 38.9% and
44.3% respectively.
  Selling,
General and Administrative (SG&A) Expenses
  Our
selling expenses and general and administrative (G&A) expenses for the nine
months ended September 30, 2009 and 2008 are as follows:
  For the nine months ended September
      30,2009
                              
                              
                              2008
                              
                              
                              Increase
                                (Decrease)(in
      U.S. Dollars, except for percentages)Gross
      Profit
                              
                              $
                              13,855,421
                              
                              
                              
                              20.8
                              %
                              
                              $
                              12,665,244
                              
                              
                              
                              16.7
                              %
                              
                              
                              9.4Operating
      Expenses:Selling
      Expenses
                              
                              
                              2,903,655
                              
                              
                              
                              4.4
                              
                              
                              
                              1,210,063
                              
                              
                              
                              1.6
                              
                              
                              
                              140.0General
      and Administrative Expenses
                              
                              
                              5,707,786
                              
                              
                              
                              8.5
                              
                              
                              
                              4,918,696
                              
                              
                              
                              6.5
                              
                              
                              
                              16.0Total
                              
                              
                              8,611,441
                              
                              
                              
                              12.9
                              
                              
                              
                              6,128,759
                              
                              
                              
                              8.1
                              
                              
                              
                              40.5Income
      from Operations
                              
                              $
                              5,243,980
                              
                              
                              
                              7.9
                              %
                              
                              $
                              6,536,485
                              
                              
                              
                              8.6
                              %
                              
                              
                              (19.8
                              )
  Selling
expenses were $2.9 million for the nine months ended September 30, 2009 an
increase of 140% or $1.7 million compared to the nine months ended September 30,
2008. The increase was attributable to an increase of approximately $0.86
million of salaries for retail staff, and approximately $0.87 million for store
renovation and marketing expenses associated with the promotion of LA GO
GO.
  G&A
expenses were $5.7 million for the nine months ended September 30, 2009 an
decrease of 16.0% or approximately $0.78 million compared to the nine months
ended September 30, 2008. The increase was attributable to an increase
of payroll for additional management, design and marketing staff as a result of
our business expansion.
  Income
from Operations
  Income
from operations decreased 19.8% to $5.2 million for the nine months ended
September 30, 2009 from $6.5 million in the nine months ended September 30, 2008
as the result of the increasing operating expenses.
  Interest
Expense
  Interest
expense was $0.33 million for the nine months ended September 30, 2009, a
decrease of 87.6% compared to the same period of 2008. This decrease was mainly
due to the conversion of convertible notes into common stock in
2008.
  32
  Income
Tax Expense
 Income
tax expense was $0.69 million for the nine months ended September 30, 2009, a
decrease of 17.8% compared to the same period of 2008. The decrease is primarily
attributable to $1.2 million of pre-tax income being recorded by Perfect-Dream,
a BVI company which has no liabilities to income tax.
  Net
Income
  Net
income for the nine months ended September 30, 2009 was $4.7 million,
an increase of 47.5% compared to the same period of 2008. Our diluted
earnings per share were $0.35 and $0.27 for the nine months ended September 30,
2009 and 2008, respectively.
  Noncontrolling
Interest
  On
January 9, 2008, Goldenway entered into an Agreement with La Chapelle to form a
joint venture to develop, promote and market a new line of women’s wear in
China. Goldenway agreed to initially invest RMB 6 Million (approximately
$826,200) in cash, and La Chapelle agreed to invest RMB 4 Million (approximately
$553,040) in cash, for a 60%- and 40%- interest in the joint venture,
respectively. The joint venture is included in the Company’s consolidated
financial statements beginning in 2008, and the 40% interest held by La Chapelle
is classified as noncontrolling interest. As of September 30, 2009, the carrying
value in the noncontrolling interest was $557,726.
  Summary
of Cash Flows
  Net cash
provided by operating activities for the nine months ended September 30, 2009
was $4,196,364 compared with net cash provided by operating activities of
$2,722,697 for the nine months ended September 30, 2008. This increase was
mainly attributable to increases in accounts receivable and inventories,
partially offset by an increase in accounts payable and decreased amounts
due from related parties as we began to purchase raw materials through Goldenway
during the nine months ended September 30, 2009.
  Net cash
used in investing activities was $955,809 for the nine months ended September
30, 2009, compared with $2,161,350 during the nine months ended September 30,
2008. On January 9, 2008, Goldenway entered into a Capital Contribution
Agreement with La Chapelle, pursuant to which Goldenway invested $1,397,700 in
cash (RMB 10 million) in La Chapelle for a 10% ownership interest in La Chapelle
resulting in the decrease used in net investing activities during the nine
months ended September 30, 2009.
  Net cash
used in financing activities was $1,143,402 for the nine months ended September
30, 2009, compared with cash used in financing activities of $411,987
during the nine months ended September 30, 2008. During the nine months ended
September 30, 2009 we repaid $13,134,464 of bank loans while receiving loan
proceeds of $11,991,062 from the bank. During the nine months ended September
30, 2008 we repaid $1,990,000 to Blue Power Holding Ltd, an entity
controlled by Mr. Edward Yihua Kang, offset by $553,040 from La Chapelle’s
investment in LA GO GO.
  Liquidity
and Capital Resources
  As of
September 30, 2009, we had cash and cash equivalents of $3,561,116, other
current assets of $33,962,897 and current liabilities of $19,059,765. We
presently finance our operations primarily from cash flow from operations and we
anticipate that this will continue to be our primary source of funds to finance
our short-term cash needs.
  Bank
Loan
  In 2006,
we acquired a fifty-year land use right for 112,442 square meters (approximately
1,209,876 square feet) of land in the Nanjing Jiangning Economic and
Technological Development Zone, which houses our existing facility of 26,629
square meters (approximately 286,528 square feet), including our manufacturing
facility and office space. In 2006, we completed the construction of our new
facilities and moved our headquarters into the new office building and
consolidated part of our operations into our new manufacturing facility in
January 2007. The new manufacturing facility occupies an area of 10,000 square
meters (approximately 107,600 square feet) and is equipped with state-of-the-art
equipment. The land and building are being used as collateral for bank
loans.
  33
  On July
31, 2008, Goldenway entered into credit agreements with a PRC Bank which allows
the Company to borrow up to $7.3 million (RMB50million) for a 24 month
period. Bank loans are secured by our facilities and are used to fund daily
operations. As of September 30, 2009, we had borrowed approximately $5.1 million
which matures in December 31, 2009, January 14, 2010 and March 11, 2010, at an
interest rate of 5.35% per annum. The maturity of these borrowings can be
extended at our option.
  On June,
30, 2009, HSBC Bank (China) Company Limited, Shanghai
Branch,(“HSBC”)  granted revolving banking facilities in three
tranches ( “Banking Facilities”) to Perfect Dream.  Term of these
Banking Facilities is up to (and including) March 31, 2010, subject to annual
review and renewal at the Lender's sole discretion.  Tranche I, import
facilities of up to $0.5 million for up to 90 days, shall be solely used to
facilitate the Borrower's raw material sourcing needs. Tranche II, a
post-shipment finance of up to $1 million up to 60 days with an advance ratio of
85%, shall be solely used to finance receivables due from
Tesco.  Tranche III, a pre-shipment finance of up to $1 million with
maximum 90 days before shipment with 70% prepayment ratio, shall be solely used
to finance sourcing and production against copy of purchase order from Tesco.
The applicable interest rate for the Tranche I import facility and the Tranche
III pre-shipment finance shall be 2.5% per annum over Singapore Interbank Money
Market Offer Rate (SIBOR) of USD for 3 months or any other interest period as
may be determined by the Lender and the principal and all accrued interests
shall be paid on the due date of each drawing to the debit of Borrower’s
account. The applicable interest rate for the Tranche II post shipment financing
shall be 2% per annum over SIBOR of USD for 2 months or any other interest
period as may be determined by the Lender and the principal and all accrued
interests shall be paid on the due date of each drawing to the debit of the
Borrower’s account.  The Company shall apply the loan proceeds for the
purpose as set out above and shall comply with the relevant PRC laws and
regulations. HSBC may, at its sole and absolute discretion, refuse to allow
drawings under the facilities if the drawee is considered to be unacceptable and
/ or if the transaction in question does not meet HSBC’s operational
requirements in respect of these Banking Facilities. HSBC may renegotiate any of
the interest margins, fees and the applicable period of base rate in the event
of any change occurring in any applicable law or regulation or in PRC's
financial markets or the need to comply with any requirement of any
regulatory/governmental authority. The Banking Facilities are secured by a
guarantee of $2.75 million from Ever-Glory International Group, Inc., and a
personal guarantee of up to $2.75 million from our Chairman of the Board and
Chief Executive Officer, Mr. Edward Yihua Kang. To date nothing has been
drawn down on this line of credit.
  On July
3, 2009, Ever-Glory Apparel, entered into a one-year revolving line of credit
agreement (“Revolving Line of Credit Agreement”) with Bank of Nanjing Co.
Ltd., a PRC Bank, which allows the Company  to borrow up to
approximately $5.9 million (RMB 40 million ) during the
period from June 1, 2009 to June 1, 2010.  Borrower is required to apply
for each loan when it needs to draw from this revolving line of
credit.  The Revolving Line of Credit is guaranteed by Jiangsu
Ever-Glory, and Goldenway pursuant to certain guaranty agreements. We did
not pay any fee to Jiangsu Ever-Glory International Group Corporation or
Goldenway for such security. In the third quarter of 2009 the company borrowed
$2.2 million and repaid $2.2 million under this agreement.
  Long-term
Loan
  As of
September 30, 2009, the long-term loan to Blue Power was $2,247,879. Interest accrued
on the loan to Blue power totaled $29,265 and $87,794 for the three and nine months
ended September 30,2009.
 Obligations
under Material Contracts
  Below is
a table setting forth our material contractual obligations as of September 30,
2009:
 
 All amounts in millions of U.S. dollarsPayments due by periodLess thanTotal
                    
                    
                    1 year
                    
                    
                    1 - 3 years
                    
                    
                    3 - 5 yearsLoan
      From Related Party
                    
                    $
                    2.75
                    
                    
                    $
                    0.50
                    
                    
                    $
                    2.25
                    
                    
                    $
                    —Bank
      Loans
                    
                    
                    5.40
                    
                    
                    
                    5.40
                    
                    
                    
                    —
                    
                    
                    
                    —Operating
      Lease Obligations
                    
                    
                    1.21
                    
                    
                    
                    0.18
                    
                    
                    
                    1.02
                    
                    
                    
                    0.01$
                    9.36
                    
                    
                    
                    6.08
                    
                    
                    $
                    3.27
                    
                    
                    $
                    0.01
  34
  Capital
Commitments
  We have a
continuing program for the purpose of improving our manufacturing facilities and
extending our LA GO GO stores. We anticipate that cash flows from operations and
borrowings from banks will be used to pay for these capital
commitments.
 
 Uses
of Liquidity
  Our cash
requirements through the end of 2009 will be primarily to fund daily operations
and the growth of our business.
  Sources
of Liquidity
  Our
primary sources of liquidity for our short-term cash needs are expected to be
from cash flows generated from operations, cash and cash equivalents currently
on hand. We believe that we will be able to borrow additional funds if
necessary.
  We
believe our cash flows from operations together with our cash and cash
equivalents currently on hand will be sufficient to meet our needs for working
capital, capital expenditure and other commitments through the end of 2009. No
assurance can be made that additional financing will be available to us if
required, and adequate funds may not be available on terms acceptable to us. If
funding is insufficient at any time in the future, we will develop or enhance
our products or services and expand our business through our own cash flows from
operations.
  As of
September 30, 2009, we had access to a $7.3 million line of credit from a bank
located in Nanjing China. Of this line of credit, $2.2 million was unused and is
currently available. This credit facility include the standard covenants as
contemplated in agreement of such nature.
  Foreign
Currency Translation Risk
  Our
operations are, for the most part, located in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollar and the
Chinese RMB. Most of our sales 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. From that time, the RMB continued to appreciate against the
U.S. dollar. As of September 30, 2009, the market foreign exchange rate had
increased to 6.82 RMB to one U.S. dollar. We are continuously negotiating price
adjustments with most of our customers based on the daily market foreign
exchange rates, which we believe will reduce our exposure to exchange rate
fluctuations in the future, and will pass some of the increased cost to our
customers.
  In
addition, the financial statements of Goldenway, New-Tailun, Catch-Luck,
Ever-Glory Apparel and LA GO GO (whose functional currency is the RMB) are
translated into US dollars using the closing rate method. The balance sheet
items are translated into US dollars using the exchange rates at the respective
balance sheet dates. The capital and various reserves are translated at
historical exchange rates prevailing at the time of the transactions while
income and expenses items are translated at the average exchange rate for the
period. All exchange differences are recorded within equity. The foreign
currency translation (loss) gain for the three months ended September 30, 2009
and 2008 was $46,364 and $107,468, respectively. The foreign currency
translation (loss) gain for the nine months ended September 30, 2009 and
2008 was ($36,947) and $1,818,706, respectively.
  35
  OFF-BALANCE
SHEET ARRANGEMENTS
  We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our
investors.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 We do not
use derivative financial instruments in our investment portfolio and have no
foreign exchange contracts. Our financial instruments consist of cash and cash
equivalents, trade accounts receivable, accounts payable and long-term
obligations. We consider investments in highly-liquid instruments purchased with
a remaining maturity of 90 days or less at the date of purchase to be cash
equivalents.
 
 Interest
Rates. Our exposure to market risk for changes in interest rates relates
primarily to our short-term investments and short-term obligations; thus,
fluctuations in interest rates would not have a material impact on the fair
value of these securities. On September 30, 2009, we had approximately
$3,532,391 in cash and cash equivalents. A hypothetical 5% increase or decrease
in either short term or long term interest rates would not have any material
impact on our earnings or loss, or the fair market value or cash flows of these
instruments.
 
 Foreign
Exchange Rates. We pay our suppliers and employees in Chinese RMB, however, we
sell to customers in the U.S., Japan and Europe and we generate sales in
U.S. Dollars, Euros and British Pounds. Accordingly, our business has
substantial exposure to changes in exchange rates between and among the Chinese
RMB, the U.S. Dollar,the Euro and the British Pound. In the last decade, the RMB
has been pegged at 8.2765 RMB to one U.S. Dollar. On July 21, 2005 it was
revalued to 8.11 per U.S. Dollar. Following the removal of the peg to the U.S.
Dollar and pressure from the United States, the People’s Bank of China also
announced that the RMB would be pegged to a basket of foreign currencies, rather
than being strictly tied to the U.S. Dollar, and would be allowed to float trade
within a narrow 0.3% daily band against this basket of currencies. The PRC
government has stated that the basket is dominated by the U.S. Dollar, Euro,
Japanese Yen and South Korean Won, with a smaller proportion made up of the
British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar and
Singapore Dollar. There can be no assurance that the relationship between the
RMB and these currencies will remain stable over time, especially in light of
the significant political pressure on the Chinese government to permit the free
flotation of the RMB, which could result in greater and more frequent
fluctuations in the exchange rate between the RMB, the U.S. Dollar and the Euro.
On September 30, 2009, the exchange rate between the RMB and U.S. Dollar was
6.82RMB to one U.S. Dollar. For additional discussion regarding our foreign
currency risk, see the section titled Risk Factors in the Annual Report on Form
10-K for fiscal year ended on December 31, 2008.Fluctuation in the value of
Chinese RMB relative to other currencies may have a material adverse effect on
our business and/or an investment in our shares.
 
 ITEM
4. CONTROLS AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended ( the “Exchange Act”)  is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
  36
  As of
September 30, 2009, the end of the fiscal quarter covered by this report, we
carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive officer and our chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were
effective at the reasonable assurance level to ensure that information required
to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required
disclosure.
  Changes
in Internal Control over Financial Reporting
 
 There
were no changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended
September 30, 2009 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
  We know
of no pending legal proceedings to which we are a party which are material or
potentially material, either individually or in the aggregate. We are from time
to time, during the normal course of our business operations, subject to various
litigation claims and legal disputes. We do not believe that the ultimate
disposition of any of these matters will have a material adverse effect on our
financial position, results of operations or liquidity.
 
 ITEM 1A. RISK
FACTORS
  There has
been no material changes in the information provided in Item 1A of Form 10-K
Annual Report for the year ended December 31,2008 filed with the SEC on March
31, 2009.
 
 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
SECURITY HOLDERS
 
 None.
  ITEM 5. OTHER
INFORMATION
 
 None.
 37
 ITEM 6. EXHIBITS
 
 The
following exhibits are filed herewith:
  Exhibit No.
                
                Description10.1
                
                Letter
      regarding Banking Facility between HSBC Bank (China) Company Limited
      Shanghai Branch and Perfect Dream Limited dated June 30, 2009
      (incorporated by reference to Exhibit 10.1 of our Current Report on Form
      8-K, filed July 8, 2009);10.2
                
                Limited
      Guaranty provided by Ever-Glory International Group, Inc dated June 30,
      2009 (incorporated by reference to Exhibit 10.2 of our Current Report on
      Form 8-K, filed July 8, 2009);10.3
                
                Personal
      Guaranty provided by Edward Yihua Kang dated June 30, 2009 (incorporated
      by reference to Exhibit 10.3 of our Current Report on Form 8-K, filed July
      8, 2009);10.4
                
                Revolving
      Line of Credit Agreement between Ever-Glory International Group Apparel
      Inc. and Bank of Nanjing Co. Ltd. dated July 3, 2009 (incorporated by
      reference to Exhibit 10.1 of our Current Report on Form 8-K, filed July 9,
      2009);10.5
                
                Guaranty
      Agreement between Jiangsu Ever-Glory International Group Corporation
      and Bank of Nanjing Co. Ltd. dated July 3, 2009 (incorporated by
      reference to Exhibit 10.2 of our Current Report on Form 8-K, filed July 9,
      2009);10.6
                
                Guaranty
      Agreement between  Goldenway Nanjing Garment Co. Ltd. and Bank
      of Nanjing Co. Ltd. dated July 3, 2009 (incorporated by reference to
      Exhibit 10.3 of our Current Report on Form 8-K, filed July 9,
      2009);31.1
                
                Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *31.2
                
                Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *32.1
                
                Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002. *32.2
                
                Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
*
  *
                Filed
      herewith.
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  November
      9, 2009
                EVER-GLORY
      INTERNATIONAL GROUP, INC.By:
                /s/ Edward Yihua KangEdward
      Yihua KangChief
      Executive Officer(Principal
      Executive Officer)
  By:
                    /s/
      Yan GuoYan
      GuoChief
      Financial Officer(Principal
      Financial and Accounting
Officer)
  38