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


**WASHINGTON,
      DC 20549**





**FORM
      10-Q**





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


For
                the quarterly period ended**March
                31, 2008**





 ̈
            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




logo




**Ever-Glory
      International Group Inc.**





(Exact
      name of small business issuer as specified in its charter)





**Florida**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **65-0420146******
              (I.R.S.
                employer
              identification
                number)





**100
      N. Barranca Ave. #810**


**West
      Covina, California 91791**


(Address
      of principal executive offices and zip code)




**(626)
      839-9116**


(Registrant’s
      telephone number, including area code)





Securities
                registered pursuant to Section 12(b) of the Act:****
            **None**Securities
                registered pursuant to Section 12(g) of the Act:****
            **Common
                Stock, par value $0.001 per
                share**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.    Yes o No þ




Indicate
      by check mark whether the registrant is required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes þ No o




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes þ No o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained to the best
      of
      the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act (Check one):




Large
      Accelerated Filer o Accelerated
      Filer o Non-accelerated
      filer o Smaller
      reporting company þ




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




APPLICABLE
      ONLY TO CORPORATE ISSUERS:




As
      of
      March 31, 2008, the Registrant had 11,547,110 shares of common stock
      outstanding.









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


**FORM 10-Q**




**INDEX**




Page
              Number**SPECIAL
                NOTE REGARDING FORWARD-LOOKING STATEMENTS**
            3**PART
                I. FINANCIAL INFORMATION**
            4Item
                1.
            Financial
                Statements (unaudited)
            4Consolidated
                Balance Sheets as of March 31, 2008 and December 31, 2007
            4Consolidated
                Statements of Operations and Comprehensive Income for the Three Months
                Ended March 31, 2008 and 2007
            5Consolidated
                Statements of Cash Flows for the Three Months Ended March 31, 2008
                and
                2007
            6Notes
                to the Consolidated Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            27Item
                3.
            Quantitative
                  and Qualitative Disclosures About Market Risk
            41Item
                4.
            Controls
                and Procedures
            41**PART
                II. OTHER INFORMATION**
            42Item
                1.
            Legal
                Proceedings
            42Item
                1A.
            Risk
                Factors
            43Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            54Item
                3.
            Defaults
                Upon Senior Securities
            54Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            55Item
                5.
            Other
                Information
            55Item
                6.
            Exhibits
            55**SIGNATURES**
            56




2


**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
      document contains certain statements of a forward-looking nature. Such
      forward-looking statements, including but not limited to projected growth,
      trends and strategies, future operating and financial results, financial
      expectations and current business indicators are based upon current information
      and expectations and are subject to change based on factors beyond the control
      of the Company. Forward-looking statements typically are identified by the
      use
      of terms such as “look,” “may,” “will,” “should,” “might,” “believe,” “plan,”
“expect,” “anticipate,” “estimate” and similar words, although some
      forward-looking statements are expressed differently. The accuracy of such
      statements may be impacted by a number of business risks and uncertainties
      that
      could cause actual results to differ materially from those projected or
      anticipated, including but not limited to the following, which are discussed
      in
      further detail on page 43 of this report:





·
            the
                ability to timely and accurately complete product orders;


·
            the
                ability to coordinate product design with its customers;


·
            its
                dependence on a limited number of larger customers;


·
            political
                and economic factors in the Peoples’ Republic of China;


·
            the
                ability of the Company’s internal production operations to increase
                production volumes on finished goods in a timely fashion in response
                to
                increasing demand and enable the Company to achieve timely delivery
                of
                finished goods to its customers;


·
            the
                Company’s ability to expand and grow its distribution channels;


·
            unanticipated
                changes in general market conditions or other factors, which may
                result in
                cancellations of advance orders or a reduction in the rate of reorders;


·
            a
                weakening of economic conditions which would reduce demand for products
                sold by the Company and could adversely affect profitability;


·
            the
                effect of terrorist acts, or the threat thereof, on consumer confidence
                and spending, or the production and distribution of product and raw
                materials which could, as a result, adversely affect the Company’s
                operations and financial performance;


·
            the
                acceptance in the marketplace of the Company’s new products and changes in
                consumer preferences;


·
            reductions
                in sales of products, either as the result of economic or other
                conditions, or reduced consumer acceptance of a product, which could
                result in an unplanned buildup of inventory;


·
            the
                ability to source raw materials and finished products at favorable
                prices
                to the Company;


·
            the
                potential impact of power shortages on the Company’s operations including
                temporary blackouts at the Company’s facilities;


·
            foreign
                currency exchange rate fluctuations;


·
            earthquakes
                or other natural disasters;


·
            the
                Company’s ability to identify and successfully execute cost control
                initiatives;


·
            the
                impact of quotas, tariffs, or safeguards on the importation or exportation
                of the Company’s products; or


·
            other
                risks outlined above and in the Company’s other filings made periodically
                by the Company.





Readers
      are cautioned not to place undue reliance on these forward-looking statements,
      which speak only as of the date hereof. The Company undertakes no obligation
      to
      update this forward-looking information. Nonetheless, the Company reserves
      the
      right to make such updates from time to time by press release, periodic report
      or other method of public disclosure without the need for specific reference
      to
      this Report. No such update shall be deemed to indicate that other statements
      not addressed by such update remain correct or create an obligation to provide
      any other updates.




3


**PART
      I.** **FINANCIAL
      INFORMATION**





**ITEM
                  1.**
                **FINANCIAL
                    STATEMENTS.**





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


**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007**





**March
                31,**
            
            **December
                31,****2008**
            
            **2007****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            2,144,669
            
            $
            641,739Accounts
                receivable
            
            
            11,594,154
            
            
            13,035,299Accounts
                receivable - related parties
            
            
            -
            
            
            158,235Inventories
            
            
            1,851,672
            
            
            1,897,023Other
                receivables and prepaid expenses
            
            
            165,127
            
            
            150,855Advances
                on inventory purchase
            
            
            9,255
            
            
            -Advances
                on inventory purchase - related parties
            
            
            2,872,189
            
            
            2,568,040Deferred
                financing costs
            
            
            248,401
            
            
            191,995**Total
                Current Assets**
            
            
            18,885,467
            
            
            18,643,186**LAND
                USE RIGHT, NET**
            
            
            2,826,643
            
            
            2,729,183**PROPERTY
                AND EQUIPMENT, NET**
            
            
            12,503,848
            
            
            12,140,903**LONG
                TERM INVESTMENT**
            
            
            1,428,000
            
            
            -**TOTAL
                ASSETS**
            
            $
            35,643,958
            
            $
            33,513,272**LIABILITIES
                AND STOCKHOLDERS' EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            2,177,368
            
            $
            1,796,655Accounts
                payable - related parties
            
            
            -
            
            
            245,589Other
                payables- related party
            
            
            980,392
            
            
            650,000Other
                payables and accrued liabilities
            
            
            903,537
            
            
            1,069,682Value
                added tax payable
            
            
            518,312
            
            
            378,898Income
                tax payable and other taxes payable
            
            
            355,013
            
            
            146,226Bank
                loans
            
            
            2,856,000
            
            
            4,798,500Convertible
                notes payable,(net
                of unamortized discount of $1,625,160)
            
            
            35,140
            
            
            25,503**Total
                Current Liabilities**
            
            
            7,825,762
            
            
            9,111,053**COMMITMENTS
                AND CONTINGENCIES**
            
            
            -
            
            
            -**LONG-TERM
                LIABILITIES**Loan
                from related party under common control
            
            
            4,534,100
            
            
            4,474,985**TOTAL
                LIABILITIES**
            
            
            12,359,862
            
            
            13,586,038**MINORITY
                INTEREST**
            
            
            556,993
            
            
            -**STOCKHOLDERS'
                EQUITY**Preferred
                stock ($.001 par value, authorized 5,000,000 shares, 10,000 shares
                designated as "Series A Preferred Stock")
            
            
            -
            
            
            -Series
                A Convertible Preferred Stock (0 shares issued and outstanding as
                of March
                31, 2008 and December 31, 2007, respectively)
            
            
            -
            
            
            -Common
                stock ($.001 par value, authorized 50,000,000 shares, 11,547,110
                and
                11,379,309 shares issued and outstanding as of March 31, 2008 and
                December
                31, 2007, respectively)
            
            
            11,547
            
            
            11,379Common
                stock to be issued for acquisition (0 shares as of March 31, 2008
                and
                December 31, 2007, respectively)
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            2,656,892
            
            
            2,154,368Retained
                earnings
            
            
            13,445,041
            
            
            12,247,748Statutory
                reserve
            
            
            3,437,379
            
            
            3,437,379Accumulated
                other comprehensive income
            
            
            3,176,244
            
            
            2,076,360**Total
                Stockholders' Equity**
            
            
            22,727,103
            
            
            19,927,234**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            35,643,958
            
            $
            33,513,272




4





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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**





**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)**





**2008**
            
            **2007**Restated**NET
                SALES**To
                related parties
            
            $
            425,102
            
            $
            46,828To
                third parties
            
            
            19,322,106
            
            
            16,378,571**Total
                net sales**
            
            
            19,747,208
            
            
            16,425,399**COST
                OF SALES**From
                related parties
            
            
            402,748
            
            
            44,874From
                third parties
            
            
            15,623,424
            
            
            13,987,839**Total
                cost of sales**
            
            
            16,026,172
            
            
            14,032,713**GROSS
                PROFIT**
            
            
            3,721,036
            
            
            2,392,686**OPERATING
                EXPENSES**Selling
                expenses
            
            
            277,528
            
            
            175,898General
                and administrative expenses
            
            
            1,221,487
            
            
            772,888**Total
                Operating Expenses**
            
            
            1,499,015
            
            
            948,786**INCOME
                FROM OPERATIONS**
            
            
            2,222,021
            
            
            1,443,900**OTHER
                INCOME (EXPENSES)**Interest
                income
            
            
            31,974
            
            
            1,814Interest
                expenses
            
            
            (577,828
            )
            
            (132,290
            )Other
                income
            
            
            -
            
            
            96Other
                expenses
            
            
            (191,167
            )
            
            (84
            )**Total
                Other (Expenses)**
            
            
            (737,021
            )
            
            (130,464
            )**INCOME
                BEFORE INCOME TAXES AND MINORITY INTEREST**
            
            
            1,485,000
            
            
            1,313,436**INCOME
                TAX EXPENSE**
            
            
            (283,838
            )
            
            (75,694
            )**INCOME
                BEFORE MINORITY INTEREST**
            
            
            1,201,162
            
            
            1,237,742**LESS
                MINORITY INTEREST**
            
            
            3,869
            
            
            -**NET
                INCOME**
            
            
            1,197,293
            
            
            1,237,742**OTHER
                COMPREHENSIVE INCOME**Foreign
                currency translation gain
            
            
            1,099,884
            
            
            159,133**COMPREHENSIVE
                INCOME**
            
            $
            2,301,046
            
            $
            1,396,875Net
                income per share - basic
            
            $
            0.10
            
            $
            0.24Net
                income per share - diluted
            
            $
            0.10
            
            $
            0.11Weighted
                    average number of shares outstanding during the period -
                    basic
            
            
            11,449,682
            
            
            5,080,609Weighted
                    average number of shares outstanding during the period -
                    diluted
            
            
            12,204,363
            
            
            11,072,008




5





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





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)**





**2008**
            
            **2007**Restated**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            1,197,293
            
            $
            1,237,742Adjusted
                to reconcile net income to cash provided by
                operating activities:Minority
                interest
            
            
            3,869
            
            
            -Depreciation
            
            
            222,765
            
            
            207,412Amortization
            
            
            15,667
            
            
            14,424Amortization
                of discount on convertible notes
            
            
            349,337
            
            
            -Amortization
                of deferred financing costs
            
            
            73,676
            
            
            -Stock
                issued for interest
            
            
            2,006
            
            
            -Changes
                in operating assets and liabilitiesAccounts
                receivable
            
            
            1,941,016
            
            
            1,579,037Accounts
                receivable - related parties
            
            
            161,317
            
            
            (510,749
            )Inventories
            
            
            121,586
            
            
            238,961Other
                receivables and prepaid expenses
            
            
            (8,636
            )
            
            (138,761
            )Advance
                on inventory purchase
            
            
            (9,058
            )
            
            -Advance
                on inventory purchase to related party
            
            
            (44,291
            )
            
            -Accounts
                payable
            
            
            299,523
            
            
            118,312Accounts
                payable - related companies
            
            
            (68,882
            )
            
            (1,089,852
            )Other
                payables and accrued liabilities
            
            
            (204,734
            )
            
            (553,058
            )Payables
                to related parties
            
            
            
            
            
            -Value
                added tax payables
            
            
            121,036
            
            
            (24,551
            )Income
                tax and other tax payables
            
            
            198,408
            
            
            33,776Long
                term deferred expense
            
            
            (56,406
            )
            
            -Net
                cash provided by operating activities
            
            
            4,315,492
            
            
            1,112,693**CASH
                FLOWS FROM INVESTING ACTIVITIES**Investment
                in La Chapelle
            
            
            (1,397,700
            )
            
            -Purchase
                of property and equipment
            
            
            (84,333
            )
            
            (1,126,622
            )Proceeds
                from sale of equipment
            
            
            377
            
            
            -Net
                cash used in investing activities
            
            
            (1,481,656
            )
            
            (1,126,622
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Due
                to related parties
            
            
            -
            
            
            -Contribution
                from minority shareholders
            
            
            553,040
            
            
            -Proceeds
                from bank loan
            
            
            -
            
            
            1,292,959Repayment
                of bank loan
            
            
            (2,096,550
            )
            
            (1,292,959
            )Proceeds
                from long term loan
            
            
            59,116
            
            
            115,694Net
                proceeds from convertible notes
            
            
            -
            
            
            -Net
                cash (used in) provided by financing activities
            
            
            (1,484,394
            )
            
            115,694**EFFECT
                OF EXCHANGE RATE ON CASH**
            
            
            153,488
            
            
            382,142**NET
                DECREASE IN CASH AND CASH EQUIVALENTS**
            
            
            1,502,930
            
            
            483,907**CASH
                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
            
            
            641,739
            
            
            897,093**CASH
                AND CASH EQUIVALENTS AT END OF PERIOD**
            
            $
            2,144,669
            
            $
            1,381,000**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION**Cash
                paid during the period for:Interest
                expense
            
            $
            68,859
            
            $
            73,595Income
                taxes
            
            $
            84,576
            
            $
            41,827





6


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**NOTE
      1 - ORGANIZATION AND BASIS OF PRESENTATION**





Ever-Glory
      International Group, Inc. (the “Company”) was incorporated in Florida on October
      19, 1994. All of its businesses are operated through its four subsidiaries
      in
      the People’s Republic of China.





Perfect
      Dream Limited (“Perfect Dream”), a wholly owned subsidiary of the Company, was
      incorporated in the British Virgin Islands on July 1, 2004.





Nanjing
      Goldenway Garments Co. Ltd. (“Goldenway”), a wholly owned subsidiary of Perfect
      Dream, was incorporated in the People’s Republic of China (“PRC”) on December
      31, 1993. Goldenway is principally engaged in the manufacturing and sale of
      garments.





Nanjing
      New-Tailun Garments Co. Ltd. (“New-Tailun”), a wholly owned subsidiary of
      Perfect Dream, was incorporated in the PRC on March 27, 2006. New-Tailun is
      principally engaged in the manufacturing and sale of garments.





Nanjing
      Catch-Luck Garments Co, Ltd. (“Catch-Luck”), a wholly owned subsidiary of
      Perfect Dream, was incorporated in the PRC on December 21, 1995. On January
      18,
      2006, Catch-Luck became a wholly owned foreign enterprise after its acquisition
      by Perfect Dream. Catch-Luck is principally engaged in the manufacture and
      sale
      of garments to customers located in Europe and Japan.





Shanghai
      LA GO GO Fashion Company Limited (“La Go Go”), a joint venture of Goldenway and
      Shanghai La Chapelle Garment and Accessories Company Limited, was incorporated
      in the PRC on January 24, 2008. Goldenway invested approximately $826,200 (RMB
      6.0 million) in cash for a 60% ownership interest in the joint venture. Shanghai
      La Chapelle owns the other 40% interest. The business objective of the joint
      venture is to establish and create a leading brand of ladies’ garments for the
      mainland Chinese market.





The
      Company, Perfect Dream, Goldenway, New-Tailun, Catch-Luck, and La Go Go are
      hereinafter referred to collectively as (the “Company”).





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principles
      of consolidation**





The
      accompanying consolidated financial statements of Ever-Glory International
      Group, Inc. reflect the activities of the Company, and its 100% owned
      subsidiaries Perfect Dream, Goldenway, New-Tailun, Catch-Luck and its 60% owned
      subsidiary La Go Go. These financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      All significant inter-company balances and transactions have been eliminated
      in
      consolidation.





We
      have
      included all normal recurring adjustments that we considered necessary to give
      a
      fair presentation of our operating results for the periods presented. Interim
      results are not necessarily indicative of results for a full year. The
      information included in this Form 10-Q should be read in conjunction with
      information included in the 2007 annual report filed on Form 10-K.





7




EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**Business
      combinations between entities under common control**





The
      Company entered into a purchase agreement, dated November 9, 2006, with
      Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) to acquire 100%
      interest of New-Tailun (the “New-Tailun transaction”). Pursuant to the terms of
      the purchase agreement, the Company paid to Ever-Glory Hong Kong an amount
      of
      $2,000,000 in cash and issued 20,833,333 shares of the Company’s restricted
      common stock having a value of $10,000,000, such value of shares were based
      on
      the preceding 30-day average of high bid and the low ask price for the common
      stock on the date of the transfer within 90 days of the closing of New-Tailun
      transaction. The New-Tailun transaction closed on December 30, 2006.





The
      Company entered into a purchase agreement, dated June 26, 2006, with Ever-Glory
      Enterprises (HK) Limited (“Ever-Glory Hong Kong”) to acquire 100% interest of
      Catch-Luck (the “Catch-Luck transaction”). Pursuant to the terms of the purchase
      agreement, the Company agreed to pay to Ever-Glory Hong Kong an amount of
      $600,000 in cash and issue 1,307,693 shares of the Company’s restricted common
      stock having a value of $3,400,000 such value of shares were based on the
      preceding 30-day average of high bid and the low ask price for the common stock
      on the date of the transfer within 90 days of the closing of the Catch-Luck
      transaction. On August 31, 2006, the Company entered into an amendment to the
      Agreement (the “Amendment”) whereupon the terms of payment on the purchase
      consideration was amended as follows:





1.  The
      Company will pay to Ever-Glory Hong Kong an amount of $600,000 in cash and
      issued 1,307,693 shares of the Company’s restricted common stock having a value
      of $3,400,000 on the date of the transfer within 90 days of the closing of
      the
      transaction;





2.  At
      the
      end of the year ending December 31, 2008 in which Catch-Luck generates gross
      revenues of at least $19,000,000 and net profit of $1,500,000, Perfect Dream
      will issue 1,153,846 shares of the Company’s restricted common stock having a
      deemed value of $3,000,000; and





3.  At
      the
      end of the year ending December 31, 2009 in which Catch-Luck generates gross
      revenues of at least $19,000,000 and net profit of $1,500,000, Perfect Dream
      will issue 1,153,846 shares of the Company’s restricted common stock having a
      deemed value of $3,000,000.





The
      number of shares of common stock to be delivered to Ever-Glory Hong Kong in
      satisfaction of the Stock Purchase Price shall be calculated based on the
      preceding 30-average high and low price for the Company’s common stock as quoted
      on the Over-the-Counter Bulletin Board as of the date of closing.





On
      August
      1, 2007, the Company filed a definitive 14C information statement to report
      stockholder approval of the acquisition of Catch-Luck. The information statement
      was mailed to the shareholders on August 7, 2007. The Catch-Luck transaction
      closed on August 27, 2007.





Because
      New-Tailun and Catch-Luck are also under ownership and management control by
      Mr.
      Kang Yihua, the Company’s CEO, these transactions were accounted for as a merger
      of entities under common control, accordingly, the operation results of
      New-Tailun and Catch-Luck for the three months ended March 31, 2007 were
      restated to include in the consolidated financial statements as if the
      transactions had occurred at the beginning of the first period presented. The
      balance sheet accounts were stated at its historical cost.




8




EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**Use
      of estimates**





The
      preparation of the financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amount of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      For
      example, the Company estimates its potential losses on uncollectible
      receivables. Management believes that the estimates utilized in preparing its
      financial statements are reasonable and prudent. Actual results could differ
      from these estimates.





**Cash
      and cash equivalents**





For
      purpose of the statements of cash flows, cash and cash equivalents include
      cash
      on hand and demand deposits with a bank with original maturities of less than
      three months.





**Accounts
      receivable**





The
      Company extends unsecured credit to its customers in the ordinary course of
      business but mitigates the associated risks by performing credit checks and
      actively pursuing past due accounts. An allowance for doubtful accounts is
      established and recorded based on managements’ assessment of the credit history
      with the customer and current relationships with them.





As
      of
      March 31, 2008 and December 31, 2007, the Company considers all its accounts
      receivable to be collectable and no provision for doubtful accounts has been
      made in the financial statements.





**Inventories**





Inventories
      are stated at lower of cost or market value, cost being determined on a specific
      identification method. The Company manufactures products upon receipt of orders
      from its customers. All the products must pass the customers’ quality assurance
      procedures before its delivery. Therefore, the products are rarely returned
      by
      the customers after delivery.





**Long-lived
      assets**





The
      Company accounts for long-lived assets under the Statements of Financial
      Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other
      Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived
      Assets” (“SFAS No. 142 and 144”). In accordance with SFAS No. 142 and 144,
      long-lived assets, goodwill and certain identifiable intangible assets held
      and
      used by the Company are reviewed for impairment at least annually or more often
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be recoverable. For purposes of evaluating the recoverability
      of long-lived assets, when undiscounted future cash flows will not be sufficient
      to recover an asset’s carrying amount, the asset is written down to its fair
      value. As of March 31, 2008, the Company expected these assets to be fully
      recoverable.





**Property
      and equipment**





Property
      and equipment are stated at cost, less accumulated depreciation. Expenditures
      for additions, major renewals and betterments are capitalized and expenditures
      for maintenance and repairs are charged to expense as incurred.




9




EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





Depreciation
      is provided on a straight-line basis, less an estimated residual value over
      the
      assets ’
      estimated useful lives. The estimated useful lives are as follows:





Property
                and plant
            15-20
                YearsLeasehold
                improvements
            10
                YearsMachinery
                & Equipment
            10
                YearsOffice
                equipment and furniture
            5
                YearsMotor
                vehicles
            5
                Years




**Intangible
      assets**





All
      land
      in the People’s Republic of China is owned by the government and cannot be sold
      to any individual or company. However, the government may grant “land use right”
to firms or individuals to occupy, develop and use land. The Company records
      the
      land use rights obtained as intangible assets.





Intangible
      assets of the Company are reviewed annually to determine whether their carrying
      value has become impaired. The Company considers assets to be impaired if the
      carrying value exceeds the future projected cash flows from related operations.
      The Company also re-evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      As of March 31, 2008 and December 31, 2007, the Company expected these assets
      to
      be fully recoverable.





**Long-term
      investments**





Investment
      in equity ownership lower than 20% is recorded using the cost method. The
      carrying value of the investments is reviewed periodically for impairment.
      As of
      March 31, 2008, the Company expected the long-term investment to be fully
      recoverable.




**Fair
      value of financial instruments**


SFAS
        No.
        157, Fair Value Measurements, defines fair value, establishes a three-level
        valuation hierarchy for disclosures of faire value measurement and enhances
        disclosures requirements for fair value measurements. The Company adopted
        SFAS
        No 157 and did not identify any assets and liabilities that are required
        to be
        presented on the balance sheet at fair value.
 
 The
        Company analyzes all financial instruments with features of both liabilities
        and
        equity under SFAS 150, “Accounting for Certain Financial Instruments with
        Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
        Derivative Financial Instruments Indexed to, and Potentially Settled in,
        a
        Company’s Own Stock.” During 2007, the Company issued 6% secured convertible
        debentures in a face amount of $2,000,000 which are due and payable in full
        in 2
        years from their issuance. As fixed prices are set for the conversion prices
        of
        such convertible debentures and the attached warrants, the Company is in
        a
        position to be sure it had adequate authorized shares for the future conversion
        of convertible debentures and warrants. Therefore, no embedded derivatives
        and
        warrants are required to be recorded at fair value and marked-to-market at
        each
        reporting period.
 
 As
        of
        March 31, 2008, the outstanding principal of the convertible notes was
        $1,660,300 and the discount resulted from the beneficial conversion feature
        and
        the warrants were $1,625,160. Since there is no quoted or observable market
        price for the fair value of identical notes, the Company then used the level
        3
        inputs for its valuation methodology, and used the Black Scholes Model to
        calculate the fair market value of the beneficial conversion feature and
        the
        warrants. In addition, due to the notes are expiring in 2009 and the Company
        does not anticipate any nonperformance risk and expects the note holders
        to
        convert the notes to the Company’s common stock within 2008, the Company
        determined that the fair value of the notes approximated the carrying value.


10




EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)




**Beneficial
      conversion feature of convertible notes**





The
      Company accounted for the secured convertible notes (the “Notes”) issued
      pursuant to the subscription agreement discussed in Note 9 under EITF 00-27,
      ‘‘Application of Issue 98-5 to Certain Convertible Instruments’’.  
Based on EITF 00-27, the Company has determined that the convertible notes
      contained a beneficial conversion feature because at August 2, 2007, the
      effective conversion price of the convertible notes was $1.10 when the market
      value per share was $2.70.





**Discount
      on notes payable**





A
      discount with respect to the Notes issued on August 2, 2007 was recorded by
      the
      Company. The amount of the discount was calculated to be the intrinsic value
      of
      the beneficial conversion feature and the fair value of the warrants included
      among the securities issued pursuant to the terms of the subscription agreement
      discussed in Note 10.





**Revenue
      and cost recognition**





The
      Company recognizes revenue, net of value added taxes, upon delivery for local
      sales and upon shipment of the products for export sales, at which time title
      passes to the customer provided that: there are no uncertainties regarding
      customer acceptance; persuasive evidence of an arrangement exists; the sales
      price is fixed and determinable; and collectibility is deemed probable.





Local
      transportation and unloading charges and product inspection charges are included
      in selling expenses and totaled $39,145 and $58,951 for the three month period
      ended March 31, 2008 and 2007, respectively.





Cost
      of
      goods sold includes the appropriate materials purchasing, receiving and
      inspection costs, inbound freight where applicable, direct labor cost and
      manufacturing overheads including depreciation of production equipment
      consistent with the revenue earned.





**Income
      taxes**





The
      Company accounts for income taxes under the Statement of Financial Accounting
      Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
      Statement 109, deferred tax assets and liabilities are recognized for the future
      tax consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. Under Statement 109, the
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period that included the enactment date.




11


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





The
      Company adopted FASB Interpretation 48, “Accounting
      for Uncertainty in Income Taxes” (“FIN 48”) as of January 1, 2007. A tax
      position is recognized as a benefit only if it is “more likely than not” that
      the tax position would be sustained in a tax examination, with a tax examination
      being presumed to occur. The amount recognized is the largest amount of tax
      benefit that is greater than 50% likely of being realized on examination. For
      tax positions not meeting the “more likely than not” test, no tax benefit is
      recorded. The adoption had no effect on the Company’s financial
      statements.





The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet date. Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit. In principle, deferred
      tax liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probably that
      taxable profit will be available against which deductible temporary differences
      can be utilized.





Deferred
      tax is calculated at the tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when it related to items credited
      or
      charged directly to equity, in which case the deferred tax is also dealt with
      in
      equity. Deferred tax assets and liabilities are offset when they relate to
      income taxes levied by the same taxation authority and the Company intends
      to
      settle its current tax assets and liabilities on a net basis.





**China
      income tax**





The
      Company’s subsidiaries are governed by the Income Tax Law of the People’s
      Republic of China (PRC) concerning Foreign Investment Enterprises and Foreign
      Enterprises and various local income tax laws (the Income Tax
      Laws).





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the old
      laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”).





The
      key
      changes are:





a.
            The
                new standard EIT rate of 25% replaces the 33% rate applicable to
                both DES
                and FIEs, except for High Tech companies that pay a reduced rate
                of
                15%;





b.
            Companies
                established before March 16, 2007 continue to enjoy tax holiday treatment
                approved by local government for a grace period of either for the
                next 5
                years or until the tax holiday term is completed, whichever is
                sooner.





The
      Company and its subsidiaries were established before March 16, 2007 and
      therefore are qualified to continue enjoying the reduced tax rate as described
      above.





Upon
      approval by the PRC tax authorities, FIE’s scheduled to operate for a period of
      10 years or more and engaged in manufacturing and production may by exempt
      from
      income taxes for two years, commencing
      with their first profitable year of operations, after taking into account any
      losses brought forward from prior years, and thereafter with a 50% reduction
      for
      the subsequent three years.


12


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





Goldenway
      has profit for more than five years, so from this year its income tax rate
      is
      25%.





New-Tailun
      and Catch-Luck were approved as wholly foreign-owned enterprises in 2006. This
      entity status allows New-Tailun and Catch-Luck a two-year income tax exemption
      beginning from the first year of profitability, and a 50% income tax reduction
      for the three years thereafter. New Tailun and Catch-Luck are entitled to the
      income tax exemptions for 2006 and 2007 and 50% income tax reduction that is
      12.5% for the calendar years ended December 31, 2008, 2009 and
      2010.





La
      Go Go
      was established on January 24, 2008, its income tax rate is 25%.





**Other
      comprehensive income**





The
      reporting currency of the Company is the US dollar. The functional currency
      of
      the Company and Perfect Dream is the US dollar. The functional currency of
      Goldenway, New Tailun Catch-luck and La Go Go is the Chinese Renminbi
      (RMB).





For
      the
      subsidiaries with the functional currency of RMB, all assets and liabilities
      accounts were translated at the exchange rate on the balance sheet date;
      stockholder’s equity are translated at the historical rates and items in the
      statement of operations items are translated at the average rate for the period.
      Translation adjustments resulting from this process are included in accumulated
      other comprehensive income in the statement of stockholders’ equity. The
      resulting translation gains and losses that arise from exchange rate
      fluctuations on transactions denominated in a currency other than the functional
      currency are included in the results of operations as incurred. Items in the
      cash flow statement are translated at the average exchange rate for the
      period.





Translation
      adjustments resulting from this process included in accumulated other
      comprehensive income in the consolidated statement of stockholders’ equity
      amounted to $3,176,244 and $2,076,360 as of March 31, 2008 and December 31,
      2007, respectively. Assets and liabilities at March 31, 2008 and December 31,
      2007 were translated at 7.00 RMB and 7.29 RMB to US $1.00, respectively. The
      average translation rates applied to income statement accounts and statement
      of
      cash flows for the three months ended March 31, 2008 and 2007 were 7.15 RMB
      and
      7.75 RMB to US $1.00, respectively. As a result, amounts related to assets
      and
      liabilities reported on the statement of cash flows will not necessarily agree
      with changes in the corresponding balances on the balance sheet.





**Earnings
      per share**





The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128, “Earnings Per Share.” SFAS No. 128 requires presentation of basic and
      diluted earnings per share in conjunction with the disclosure of the methodology
      used in computing such earnings per share. Basic earnings per share excludes
      dilution and is computed by dividing income available to common stockholders
      by
      the weighted average common shares outstanding during the period. Diluted
      earnings per share takes into account the potential dilution that could occur
      if
      securities or other contracts to issue common stock were exercised and converted
      into common stock. Further, according to SFAS No. 128, if the number of common
      shares outstanding increase as a result of a stock dividend or stock split
      or
      decrease as a result of a reverse stock split, the computations of a basic
      and
      diluted EPS shall be adjusted retroactively for all periods presented to reflect
      that change in capital structure.


13


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)




**Segments** ****





The
      Company adopted Statement of Financial Accounting Standards No. 131, Disclosures
      about Segments of an Enterprise and Related Information (“SFAS 131”). SFAS
      establishes standards for operating information regarding operating segments
      in
      annual financial statements and requires selected information for those segments
      to be presented in financial reports issued to stockholders. SFAS 131 also
      establishes standards for related disclosures about products and services and
      geographic areas. Operating segments are identified as components of an
      enterprise about which separate discrete financial information is available
      for
      evaluation by the chief operating decision maker, or decision making group,
      in
      making decision how to allocate resources and assess performance. The
      information disclosed herein, represents all material financial information
      related to the Company’s principal operating segment. As of March 31, 2008, the
      Company operates in a single segment.





**Minority
      interest**




Minority
      interest consists of the interest of minority shareholders in the subsidiaries
      of the Company. As of March 31, 2008 and December 31, 2007, minority interest
      amounted to $556,993 and $0, respectively.





**Recent
      accounting pronouncements**





In
      September 2006, FASB issued Statement 157, Fair Value Measurements. This
      statement defines fair value and establishes a framework for measuring fair
      value in generally accepted accounting principles (GAAP). More precisely, this
      statement sets forth a standard definition of fair value as it applies to assets
      or liabilities, the principle market (or most advantageous market) for
      determining fair value (price), the market participants, inputs and the
      application of the derived fair value to those assets and liabilities. The
      effective date of this pronouncement is for all full fiscal and interim periods
      beginning after November 15, 2007. The Company adpoted SFAS 157 as of
      January 1, 2008 and the adoption did not have a material impact on the
      Company’s results of operations or financial condition.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. The SFAS
      159
      became effective for us on January 1, 2008. The Company chose not to elect
      the
      option to measure the fair value of eligible financial assets and liabilities.





14


EVER-GLORY
        INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH
        31,
        2008 (UNAUDITED)




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests ** in
      subsidiaries held by parties other than the parent, the amount of consolidated
      net income attributable to the parent and to the noncontrolling interest,
      changes in a parent’s ownership interest and the valuation of retained
      non-controlling equity investments when a subsidiary is deconsolidated. The
      Statement also establishes reporting requirements that provide sufficient
      disclosures that clearly ** identify
      and distinguish between the interests of the parent and the interests of the
      non-controlling owners. SFAS 160 is effective for ** fiscal
      years beginning after December 15, 2008. The Company has not determined the
      effect that the application of SFAS 160 will ** have
      on
      its consolidated financial statements.





In
      December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
      to all transactions or other events in which an entity obtains control of one
      or
      more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
      consideration. This statement replaces FASB Statement No. 141 and applies to
      all
      business entities, including mutual entities that previously used the
      pooling-of-interests method of accounting for some business combinations. The
      Company believes that adoption of the FAS 141R will have an effect on future
      acquisitions.





**Reclassifications
      and restatements**





Certain
      prior period amounts have been reclassified to conform to current period
      presentation. These reclassifications have no effect on net income or cash
      flows.





In
      addition, due to the acquisition of Catch-Luck, an entity under common control,
      operation results of Catch-Luck for the three months ended March 31, 2007 were
      included in the consolidated financial statements as if the transactions had
      occurred at the beginning of the first period presented. In this regard, the
      prior period’s financial statements and financial information have been restated
      to furnish comparative information.





**NOTE
      3 - ACCOUNTS RECEIVABLE**





Accounts
      receivable at March 31, 2008 and December 31, 2007 consisted of the following:





March
                31,
              2008
            
            December
                31,
              2007Accounts
                receivable
            
            $
            11,594,154
            
            $
            13,035,299Less:
                allowance for doubtful accounts
            
            
            -
            
            
            -Accounts
                receivable, net of allowance
            
            $
            11,594,154
            
            $
            13,035,299





As
      of
      March 31, 2008 and December 31, 2007, the Company considered all accounts
      receivable collectable and did not record a provision for doubtful accounts.





**NOTE
      4 - INVENTORIES**





Inventories
      at March, 31 2008 and December 31, 2007 consisted of the following:





March
                  31,
                2008
            
            December
                  31,
                2007Raw
                materials
            
            $
            412,713
            
            $
            304,178Work-in-progress
            
            
            323,413
            
            
            338,599Finished
                goods
            
            
            1,115,546
            
            
            1,254,2461,851,672
            
            
            1,897,023Less:
                provision of obsolescence
            
            
            -
            
            
            -Inventories,
                net
            
            $
            1,851,672
            
            $
            1,897,023




**NOTE
      5 - INVESTMENT**





On
      January 9, 2008, Goldenway entered into a Capital Contribution Agreement
      (“Capital Contribution Agreement”) with Shanghai La Chapelle Garment and
      Accessories Company Limited (“La Chapelle”), a Shanghai-based garment maker, and
      several shareholders of La Chapelle. Under the terms of the Capital Contribution
      Agreement, Goldenway agreed to invest approximately $1.43 million in cash (RMB
      10 million) in La Chapelle for a 10% ownership interest in La Chapelle. This
      investment is accounted for using the cost method.


15





EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)




**NOTE
      6 - LAND USE RIGHTS**





On September
      24, 2006, the Company obtained a fifty-year land use right on 112,442 square
      meters of land in the Nanjing Jiangning Economic and Technological Development
      Zone.





Land
      use
      rights at March 31, 2008 and December 31, 2007 consisted of the
      following:





March
                31,
              2008
            
            December
                31,
              2007Land
                use rights
            
            $
            2,987,229
            
            $
            2,867,991Less:
                accumulated amortization
            
            
            (160,586
            )
            
            (138,808
            )Land
                use rights, net
            
            $
            2,826,643
            
            $
            2,729,183





Amortization
      expense for the three months ended March 31, 2008 and 2007 amounted to $15,667
      and $14,424, respectively.





**NOTE
      7 - PROPERTY AND EQUIPMENT**





The
      following is a summary of property and equipment at March 31, 2008 and December
      31, 2007:





March
                31,
            
            December
                31,2008
            
            2007Property
                and plant
            
            $
            11,856,378
            
            $
            11,354,623Equipment
                and machinery
            
            
            3,315,110
            
            
            3,128,928Office
                equipment and furniture
            
            
            216,989
            
            
            208,327Motor
                vehicles
            
            
            172,268
            
            
            165,393Construction
                in progress
            
            
            3,666
            
            
            3,51915,564,411
            
            
            14,860,790Less:
                accumulated depreciation
            
            
            3,060,563
            
            
            2,719,887Property
                and equipment, net
            
            $
            12,503,848
            
            $
            12,140,903





Depreciation
      expense for the three months ended March 31, 2008 and 2007 was $222,765 and
      $207,412, respectively. For the three months ended March 31, 2008 and 2007,
      $0
      and $0 of interest was capitalized into construction in progress and later
      transferred to property and plant when completed.


16





EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**NOTE
      8 - OTHER PAYABLES AND ACCRUED LIABILITIES**





Other
      payables and accrued liabilities at March 31, 2008 and December 31, 2007
      consisted of the following:





March
                31,
              2008
            
            December
                31, 2007Building
                construction costs payable
            
            $
            361,988
            
            $
            390,207Accrued
                professional fees
            
            
            98,809
            
            
            252,495Accrued
                wages and welfare
            
            
            301,937
            
            
            337,995Other
                payables
            
            
            140,803
            
            
            88,985Total
                other payables and accrued liabilities
            
            $
            903,537
            
            $
            1,069,682





**NOTE
      9 - 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
      March 31, 2008 and December 31, 2007, Short term bank loans consisted of the
      following:


March
                  31,
                2008
              
              December
                  31,
                2007Loan
                  from a bank, interest rate at 0.5442% per monthdue February 9, 2008;
                  paid in full, January 2008.
              
              $
              -
              
              $
              1,371,000Loan
                  from a bank, interest rate at 0.58482% per monthdue May 11,
                  2008
              
              
              -
              
              
              685,500Loan
                  from a bank, interest rate at 0.58482% per monthdue June 2,
                  2008
              
              
              1,428,000
              
              
              1,371,000Loan
                  from a bank, interest rate at 0.58482% per monthdue June 12,
                  2008
              
              
              1,428,000
              
              
              1,371,000Total
                  bank loans
              
              $
              2,856,000
              
              $
              4,798,500





These
      bank loans are all collateralized by land use rights and buildings of the
      company.





Total
      interest expense on the bank loans for the three months ended March 31, 2008
      and
      2007 amounted to $68,859 and $73,595, respectively.





**NOTE
      10 - CONVERTIBLE NOTES PAYABLE**





On
      August
      2, 2007, the Company consummated a private placement of $2,000,000 principal
      amount of 6% secured convertible notes with five-year common stock warrants
      to
      six accredited investors. Financing cost of $242,520 was paid out of the gross
      proceeds. Pursuant to SFAS 91, financing cost is amortized over the life of
      the
      notes to interest expense using the effective interest method. During 2008,
      the
      Company amortized $30,315 of financing costs in interest expenses. The secured
      convertible notes are due August 2, 2009 and were originally convertible into
      9,090,909 shares of common stock of the Company at a conversion price of $0.22
      per share. In November 2007, a 10:1 reverse stock split was made effective
      on
      the Company’s common stock. Accordingly, the number of share of common stock
      convertible from the notes was adjusted to 909,091 at a conversion price of
      $2.20 per share.


17


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





The
      notes
      are subject to full-ratchet anti-dilution protection, i.e. if the Company issues
      shares at an average per-share price below $2.20 per share, the conversion price
      of the notes shall be adjusted downward to match the lower per-share price.
      Under the terms of the notes, the full-ratchet anti-dilution adjustments do
      not
      apply to (i) shares issued upon conversion of options under for a future stock
      option plan (ii) shares issued to third parties for acquisitions valued above
      $8
      million; (iii) shares issued to non-affiliates for services rendered to the
      Company. The holders of the notes may convert the unpaid principal amount of
      the
      notes into common stock of the Company at any time prior to maturity, at the
      applicable conversion price. The Company may at any time at its option, redeem
      the notes by paying 125% of the unpaid principal and accrued interest.





The
      Company issued warrants to the investors in the note financing, for the purchase
      of up to a total of 909,091 shares of common stock at an exercise price of
      $3.20.  The warrants are exercisable for a five-year period until September
      29, 2013. The warrants are also subject to full-ratchet anti-dilution protection
      in the event that the Company issues shares (with certain exceptions) at an
      average per-share price below $3.20 per share, same as the notes. If at any
      time
      after fifteen months after the closing date there is no effective registration
      statement covering the resale of the shares underlying the warrants, the warrant
      holders may exercise their warrants by means of a cashless exercise.





The
      notes
      are secured by all of the assets of the Company, excluding its subsidiaries.
      Pursuant to a security agreement, the Company’s performance of the notes and
      other obligations in connection with the financing is also secured by a pledge
      of 390 shares Preferred Stock (has been converted into 2,961,720 shares of
      common stock on November 30, 2007) personally held by the current CEO of the
      Company pursuant to a stock pledge agreement. Upon any event of default (as
      defined in the notes, the security agreement and the stock pledge agreement),
      the investors will be entitled to exercise their respective rights under the
      security agreement and stock pledge agreement. In addition, the subsidiaries
      of
      the Company, Perfect Dream and Goldenway, each guaranteed the performance of
      the
      Company’s obligations under the notes and the subscription agreement under a
      guaranty agreement.





On
      the
      issuance date, the Company recorded a discount on the note related to the
      intrinsic value of the beneficial conversion feature totaling $943,797 and
      $1,056,203 for the fair value of the warrants issued. The fair value of warrants
      was calculated using the Binomial model with the following assumptions: (i)
      risk-free interest rate of 4.62%; (ii) expected life (in years) of 6; (iii)
      expected volatility of 112%;(iv) expected dividend yield of 0.00%; and (v)
      stock
      market price of $2.70. The discount on notes payable is amortized using
      effective interest method over 2 years. For the three months ended March 31,
      2008, the Company recorded amortization of $9,637 as interest expense in the
      statement of operations.





As
      of
      March 31, 2008, the note holders converted $339,700 of principal plus accrued
      interest of $2,006 into 155,323 shares of common stock of the Company. Due
      to
      the conversion, the Company recorded $339,700 of unamortized discount as
      interest expense for the period ended March 31, 2008.





The
      notes
      bear a 6% annual interest rate payable in arrears on the last business day
      of
      each calendar quarter thereafter and on the maturity date. For the three months
      ended March 31, 2008, $26,842 was recorded as interest expense.





On
      January 4, 2008, the Company issued warrants to the placement agent that are
      exercisable into 72,728 shares of common stock of the Company with an exercise
      price of $3.20 per share (“Warrants”). The Warrants expire January 4, 2011.
      These warrants were issued in connection with the private placement described
      above. These warrants were valued at $130,082 using the Black Scholes Model
      and
      will be amortized over the life of the convertible notes. For the three months
      ended March 31, 2008, the Company recorded $73,676 for amortization of the
      debt
      issuance costs as interest expense in the statement of
      operations.


18


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**NOTE
      11 - INCOME TAX**





Ever-Glory
      International Group, Inc. was
      incorporated in the United States and has incurred net operating losses for
      income tax purposes for 2008 and 2007.





Perfect
      Dream was incorporated in the British Virgin Islands and under the current
      laws
      of the British Virgin Islands, is not subject to tax on income or on
      capital.





Goldenway
      was incorporated in the PRC and is subject to PRC income tax laws and
      regulations. The applicable tax rate has been 24%. In 2007, Goldenway is
      entitled to a refund of 50% of any income taxes paid for achieving export sales
      in excess of 70% of the total sales in a calendar year. In 2008, Goldenway’s
      income tax rate is 25%.





New-Tailun
      and Catch-Luck were incorporated in the PRC and are subject to PRC income tax
      laws and regulations. According to the relevant laws and regulations in the
      PRC,
      enterprises with foreign investment in the PRC are entitled to full exemption
      from income tax for two years beginning from the first year the enterprises
      become profitable and has accumulated profits and a 50% income tax reduction
      for
      the subsequent three years. New-Tailun and Catch-Luck were approved as wholly
      foreign-owned enterprises in 2006 and are entitled to the income tax exemptions
      in 2006 and 2007. In 2007, no income tax was recorded by New-Tailun and
      Catch-Luck as these entities were entitled to full exemption from income tax.
      Starting from 2008 to 2010, New-Tailun and Catch-Luck are entitled to a 50%
      reduction of the income tax rate of 25%. Therefore these two subsidiaries are
      taxed at 12.5% for the years of 2008, 2009 and 2010.





La
      Go Go
      was established on January 24, 2008, its income tax rate is 25%.





Provision
      for income tax for the three months ended March 31, 2008 and 2007 amounted
      to
      $283,838 and $75,694, respectively.





The
      following table reconciles the statutory rates to the Company’s effective tax
      rate for the three months ended March 31, 2008 and 2007:





2008
            
            2007U.S.
                Statutory rate
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in USA
            
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            25.0
            
            
            33.0China
                income tax exemption
            
            
            (5.9
            )
            
            (27.2
            )Effective
                income tax rate
            
            
            19.1
            %
            
            5.8
            %





Ever-Glory
      International Group Inc. was incorporated in the United States and has incurred
      net operating losses for income tax purposes the periods ended March 31, 2008
      and 2007. The net operating loss carry forwards for United States income taxes
      amounted to $911,709 which may be available to reduce future years’ taxable
      income. These carry forwards will expire, if not utilized, through 2028.
      Management believes that the realization of the benefits from these losses
      appears uncertain due to Ever-Glory’ limited operating history and continuing
      losses for United States income tax purposes. Accordingly, Ever-Glory has
      provided a 100% valuation allowance on the deferred tax asset benefit to reduce
      the asset to zero. The valuation allowance at March 31, 2008 was $911,709.
      Management will review this valuation allowance periodically and make
      adjustments as warranted.


19


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**Value
      added tax**





Enterprises
      or individuals who sell commodities, engage in repair and maintenance or import
      and export goods in the PRC are subject to a value added tax, VAT, in accordance
      with Chinese laws. The VAT standard rate is 17% of the gross sales price. A
      credit is available whereby VAT paid on the purchases of semi-finished products
      or raw materials used in the production of the Company’s finished products can
      be used to offset the VAT due on sales of the finished product.





VAT
      on
      sales and VAT on purchases amounted to $17,324,072 and $14,702,018 for the
      periods ended March 31, 2008 and $14,697,506 and $12,868,314 for the period
      ended March 31, 2007, respectively. Sales and purchases are recorded net of
      VAT
      collected and paid as the Company acts as an agent because the VAT taxes are
      not
      impacted by the income tax holiday.





**NOTE
      12 - EARNINGS PER SHARE**





As
      discussed in Note 2, all share and per share amounts used in the
      Company ’s
      financial statements and notes thereto have been retroactively restated to
      reflect the 10-for-1 reverse stock split, which occurred on November 20,
      2007.





The
      following demonstrates the calculation for earnings per share for the three
      months ended March 31:





**2008**
            
            **2007**Net
                income
            
            $
            1,197,293
            
            $
            1,237,742Add:
                interest expense related to convertible notes
            
            
            26,842
            
            
            -Adjusted
                net income for calculating EPS-diluted
            
            $
            1,224,135
            
            $
            1,237,742Weighted
                average number of common stock – Basic
            
            
            11,449,682
            
            
            5,080,609Effect
                of dilutive securities:Convertible
                notes
            
            
            754,681
            
            
            -Series
                A Convertible preferred stock
            
            
            -
            
            
            5,991,499Weighted
                average number of common stock – Diluted
            
            
            12,204,363
            
            
            11,072,008Earnings
                per share - basic
            
            $
            0.10
            
            $
            0.24Earnings
                per share -diluted
            
            $
            0.10
            
            $
            0.11





As
      of
      March 31, 2008, the Company included all shares issuable upon conversion of
      the
      convertible notes of $1,660,300 outstanding in diluted earnings per share.
      The
      warrants outstanding to purchase 981,819 shares of the Company’s common stock
      were not included in the calculation of diluted earnings per share because
      the
      exercise price of $3.20 was higher than the average trading price of $3.06
      for
      the three months ended March 31, 2008, making these warrants anti-dilutive.
      There were no options or warrants outstanding at March 31,
      2007.


20


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**NOTE
      13 -** **STOCKHOLDERS’
      EQUITY**




**Authorized
      Shares of Common Stock**





On
      August
      10, 2006, holders of a majority of the capital stock of the Company approved
      an
      amendment to the Company’s Articles of Incorporation, to increase the number of
      authorized shares of common stock from 100,000,000 to 500,000,000. On October
      3,
      2007, the Company filed a Certificate of Amendment to the Articles of
      Incorporation to effect the amendment. Further in November, a 10-to-1 reverse
      stock split became effective. The 10-to-1 reverse stock split reduced both
      the
      number of outstanding shares and the number of authorized shares of common
      stock
      to 1/10 th of the
      amount immediately prior to the reverse stock split. As of March 31, 2008,
      the
      authorized number of common shares was 50,000,000 with a par value of $0.001
      per
      share.





**Series
      A Convertible Preferred stock**





On
      October 3, 2007, effective upon the filing of an amendment to its Articles
      of
      Incorporation, 789 shares of the Company’s Series A Preferred Stock were
      automatically converted into 59,914,988 shares, or 5,991,080 shares after the
      10-for-1 reverse split, of common stock of the Company. There was no outstanding
      series A convertible preferred stock at March 31, 2008.





**Stock
      issued for acquisitions under common control**





In
      September 2007, the Company issued 2,083,333 shares of restricted common stock
      at a market price of $4.80 per share totaling $10,000,000 as part of the
      consideration to a related company in the acquisition of
      New-Tailun.





In
      September 2007, the Company issued 1,307,693 shares of restricted common stock
      at a market price of $2.6 per share totaling $3,400,000 as part of the
      consideration to a related company in the acquisition of Catch-Luck





**Reverse
      stock split**





On
      November 20, 2007, the Company amended its Articles of Incorporation as filed
      with the Department of State of the State of Florida to effect a 10-to-1 reverse
      stock split which decreased the number of authorized shares of common stock
      from
      500,000,000 to 50,000,000 and reduced the number of outstanding shares from
      approximately 113 million to 11.3 million shares.





As
      of
      March 31, 2008, the post-split outstanding shares of common stock totaled
      11,547,110.





As
      a
      result of the reverse split of the Company’s common stock, the conversion price
      of the convertible notes was changed from $0.22 to $2.20 per share. The exercise
      price of the warrants issued in connection with the convertible notes was also
      changed from $0.32 to $3.20 per share.





**Conversion
      of convertible notes to common stock**





On
      January 16, 2008, January 22, 2008 and February 6, 2008, the Company issued
      12,478 shares of common stock to pay fourth quarter interest of 2007 to six
      investors in connection with the senior convertible notes dated August 2, 2007.


21





EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





On
      February 6, 2008 and February 25, 2008, the Company issued 50,083 and 64,013
      unrestricted shares, respectively, of the Company’s common stock to Whalehaven
      Capital Fund Limited in connection with the partial conversion of the
      Convertible Notes issued on August 2, 2007.





On
      March
      20, 2008 and March 25, 2008, the Company issued 31,325 and 9,902 unrestricted
      shares, respectively, of the Company’s common stock to Alpha Capital Anstalt in
      connection with the partial conversion of the Convertible Notes issued on August
      2, 2007.





**Statutory
      reserve**





The
      Company’s PRC subsidiaries are required to make appropriations to reserve funds,
      comprising the statutory surplus reserve, statutory public welfare fund and
      discretionary surplus reserve, based on after-tax net income determined in
      accordance with generally accepted accounting principles of the People’s
      Republic of China (the “PRC GAAP”). Appropriation to the statutory surplus
      reserve should be at least 10% of the after tax net income determined in
      accordance with PRC GAAP until the reserve is equal to 50% of the entities’
registered capital. Appropriations to the statutory public welfare fund are
      at
      10% of the after tax net income determined in accordance with PRC GAAP. The
      statutory public welfare fund is established for the purpose of providing
      employee facilities and other collective benefits to the employees and is
      non-distributable other than in liquidation. Appropriations to the discretionary
      surplus reserve are made at the discretion of the Board of Directors. Effective
      January 1, 2006, the Company is only required to contribute to one statutory
      reserve fund at 10% of net income after tax per annum, such contributions not
      to
      exceed 50% of the respective companies’ registered capital.





As
      of
      March 31, 2008 and December 31, 2007, the Company recorded $3,437,379 and
      $3,437,379, respectively, in the statutory reserve.





**NOTE
      14 - RELATED PARTY TRANSACTIONS**





Mr.
      Kang
      Yihua is the Company ’s
      chairman and chief executive officer. The Company purchased materials,
      sub-contracted certain manufacturing work, and sold products to companies under
      the control of Mr. Kang Yihua. 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**




For
      the
      three months ended March 31, 2008, the Company recognized sales of $425,102
      to
      Nanjing High-Tech Knitting & Weaving Technology Development Co., Ltd, a
      company controlled by Ever-Glory Enterprises (HK) Ltd. The related cost of
      sales
      was $402,748 for the three months ended March 31, 2008.




For
      the
      three months ended March 31, 2007, the Company recognized sales of $46,828
      to
      Nanjing High-Tech Knitting & Weaving Technology Development Co., Ltd, a
      company controlled by Ever-Glory Enterprises (HK) Ltd. The related cost of
      sales
      was $44,874 for the three months ended March 31, 2007.




**Purchases
      from and Sub-contracts with Related Parties**





For
      the
      three months ended March 31, 2008 and 2007, the Company purchased raw materials
      of $670,545 and $182,255, respectively, from Nanjing High-Tech Knitting &
Weaving Technology Development Co., Ltd., a company controlled by Ever-Glory
      Enterprises (HK) Ltd.


22


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





In
      addition, the Company sub-contracted certain manufacturing work valued at
      $12,418 and $0 for the three months ended March 31, 2008 and 2007, respectively,
      to Nanjing High-Tech Knitting & Weaving Technology Development Co., Ltd., a
      company controlled by Ever-Glory Enterprises (HK) Ltd.





The
      Company provided raw materials to the sub-contractors who charged the Company
      a
      fixed labor charge for the sub-contracting work.





**Accounts
      receivable – related parties**





As
      of
      March 31, 2008 and 2007, accounts receivable from entities controlled by the
      Company’s CEO amounted to $0 and $158,235 for products sold and sub-contracting
      services provided. Account receivables – related parties were as
      follows:





Receivable
                from
            
            March
                31,
              2008
            
            December
                31,
              2007Ever-Glory
                Enterprises (Chuzhou) Co., Ltd.
            
            $
            -
            
            $
            12,052Nanjing
                High-Tech Knitting & Weaving Technology Development Co.,
                Ltd.
            
            
            -
            
            
            146,183Jiangsu
                Ever-Glory International Group Corp.
            
            
            -
            
            
            -Total
                accounts receivable – related parties
            
            $
            -
            
            $
            158,235





**Advance
      on inventory purchase – related party**




As
      of
      March 31, 2008, the company advanced funds to purchase raw material inventory
      from Jiangsu Ever-Glory International Group Corp., a company controlled by
      the
      Company’s CEO, Kang Yihua before December 31, 2007, in amount of $2,872,189.
      Interest is charged at 0.5% per month according to the balance at the end of
      each month. Interest income earned for the three months ended March 31, 2008
      was
      $30,267.




**Accounts
      payable – related parties**





The
      Company purchases raw material from and subcontracts some of its productions
      to
      related parties. As of March
      31,
      2008 and December 31, 2007, the Company owed $0 and $245,589 to Kunshan Enjin
      Fashion Co., Ltd. which is controlled by the Company’s CEO before December 31,
      2007.





**Other
      payables – related parties**





As
      of
      March 31, 2008 and December 31, 2007, amounts due to Ever-Glory Enterprises
      (HK)
      Ltd. were $980,392 and $650,000.





For
      the
      amount of $980,392 due to Ever-Glory Hong Kong Limited as of March 31, 2008,
      $600,000 was due for the purchase of Catch-Luck while $380,392 was due for
      our
      going public fees paid by Ever-Glory Enterprises (HK) Ltd.





For
      the
      amount of $650,000 due to Ever-Glory Hong Kong Limited as of December 31, 2007,
      $600,000 was due for the purchase of Catch-Luck while $50,000 was due for our
      going public fees paid by Ever-Glory Hong Kong Limited.


23


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**Long
      term liability – related party**





As
      of
      March 31, 2008 and December 31, 2007 the Company owed $4,534,100 and $4,474,985,
      respectively to Blue Power (Hong Kong) Holding Inc., a company controlled by
      the
      Company’s CEO, for various advances received. Interest is charged at 6% per
      annum on the amounts due. The loans are due between July 2010 and April 2011.
      For the three months ended March 31, 2008 and 2007, the Company accrued interest
      expense of $59,116 and $58,695, respectively. The accrued interest is included
      in the carrying amount of the loan in the accompanying balance
      sheets.





**Lease
      from a related party**





The
      Company leased factory and office spaces from Jiangsu Ever-Glory International
      Group Corp., an entity controlled by the Company’s CEO. See Note
      15.





**NOTE
      15 – COMMITMENTS AND CONTINGENCIES**





**Capital
      commitment**





According
      to the Articles of Association of Goldenway, Goldenway had to fulfill registered
      capital requirements of $17,487,894 within three years from February 2, 2005.
      As
      of March 31, 2008, the Company had fulfilled $3,630,000 of its registered
      capital requirements and had a registered capital commitment of $13,857,894
      payable by February 1, 2008. In March 2008, the Company obtained the approval
      from the government granting the extension to make the required capital
      contribution until July 25, 2008.




**Operating
      lease commitment**





The
      Company leases factory and office space from Jiangsu Ever-Glory International
      Group Corp. under an operating lease which expires on March 31, 2008 at an
      annual rental of $26,256 and an operating lease which expires on December 31,
      2009 at an annual rental of $48,920. Accordingly, for the periods ended March
      31, 2008 and 2007, the Company recognized rental expense in amount of $12,230
      and $6,564, respectively. The outstanding commitments of this non-cancelable
      lease were $85,610 as of March 31, 2008.





**Contingent
      shares to be issued**





Pursuant
      to the terms of the purchase agreement on acquisition of Catch-Luck, the Company
      will issue additional common shares to the original shareholder as
      follows:





o
            At
                the end of the first full fiscal year ending December 31, 2008 in
                which
                Catch-Luck generates gross revenues of at least $19,000,000 and net
                profit
                of $1,500,000, Perfect Dream will issue 1,153,846 shares of the Company’s
                restricted common stock having a value of $3,000,000;
                and





o
            At
                the end of the next full fiscal year ending December 31, 2009 in
                which
                Catch-Luck generates gross revenues of at least $19,000,000 and net
                profit
                of $1,500,000, Perfect Dream will issue 1,153,846 shares of the Company’s
                restricted common stock having a value of $3,000,000.


24


EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





**Legal
      Proceedings**





We
      were
      named as a defendant in an action pending in the U.S. District Court for the
      Northern District of Ohio. The action was filed on February 22, 2006 by
      Plaintiff Douglas G. Furth. The other principal parties are named defendants
      John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
      LLP. The action alleges that we breached an agreement with the plaintiff under
      which we had promised to provide plaintiff 1,000,000 shares of its common stock
      in exchange for certain assistance in marketing and financial public relations
      services. The action seeks an award of damages in excess of $75,000. We denied
      that we were a party to such an agreement, that we breached the agreement or
      that we are otherwise liable. We intend to vigorously defend our legal position.
      After vigorously defending this action, the complaint was voluntarily dismissed
      by the Plaintiff without prejudice from an action pending in the U.S. District
      Court for the Northern District of Ohio. In May 2007, Plaintiff Douglas G.
      Furth
      has filed a Second Amended Complaint in the Litigation asserting claims against
      us and other principal parties. We have denied all the claims and have filed
      the
      responses and objections to the Plaintiff and asked for dismissal with prejudice
      by the plaintiff. No payment was made to plaintiff and no settlement has been
      discussed between us and the Plaintiff.   On November 29, 2007, we made a
      motion to dismiss the action for lack of personal jurisdiction, and a decision
      on this matter is pending.







We
      were
      also named as a defendant in a civil action in the U.S. court of common pleas
      of
      Allegheny County, Pennsylvania. The civil action was filed on April 17, 2006
      by
      Plaintiff Mark B. Aronson. The action alleged that we violated the Pennsylvania
      Unsolicited Telecommunication Advertisement Act by issuing “spam” emails
      soliciting purchasers for our common stock. The action seeks an award of damages
      in excess of $12,100. Management believes the allegations made in this action
      are baseless. On January 4, 2007, the case was dismissed without prejudice
      by
      the Plaintiff.





**NOTE
      16 - CONCENTRATIONS AND RISKS**





Cash
      includes cash on hand and demand deposits in accounts maintained with
      state **** owned
      banks within the People’s Republic of China and Hong Kong. Total cash deposited
      with these banks at March 31, 2008 and December 31, 2007 amounted to $2,135,635
      and $625,947, respectively, of which no deposits are covered by insurance.
      The
      Company has not experienced any losses in such accounts and believes it is
      not
      exposed to any risks on its cash in bank accounts.





The
      Company principally relied on two customers for its revenue during 2008 and
      2007, details of which are as follows:





Customer
                A
            
            Customer
                BDuring2008
            
            
            31
            %
            
            18
            %2007
            
            
            42
            %
            
            11
            %




During
      the three months ended March 31, 2008, one supplier represented 13% of the
      Company’s raw material purchases. The Company did not rely on any one supplier
      for more than 10% of its overall supply purchases during the year
      2007.


25




EVER-GLORY
      INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS





MARCH
      31,
      2008 (UNAUDITED)





The
      following is geographic information of the Company’s revenue for the three
      months ended March 31:





2008
            
            2007The
                People’s republic of China
            
            $
            1,794,587
            
            $
            921,115Europe
            
            
            12,974,613
            
            
            10,624,733Japan
            
            
            2,499,972
            
            
            1,949,904United
                states
            
            
            2,357,838
            
            
            2,929,647The
                People’s republic of China – La Go Go
            
            
            120,198
            
            
            -Total
            
            $
            19,747,208
            
            $
            16,425,399





The
      Company ’s
      operations are carried out in the PRC. Accordingly, the Company’s business,
      financial condition and results of operations may be influenced by the
      political, economic and legal environments in the PRC, and by the general state
      of the economy in the regions where the Company’s customers are located. The
      Company’s operations in the PRC are subject to specific considerations and
      significant risks not typically associated with companies in the North America
      and Western Europe. These include risks associated with, among others, the
      political, economic and legal environments and foreign currency exchange. The
      Company’s results may be adversely affected by changes in governmental policies
      with respect to laws and regulations, anti-inflationary measures, currency
      conversion and remittance abroad, and rates and methods of taxation, among
      other
      things.




**NOTE
      17 - SUBSEQUENT EVENTS**





On
      March
      28, 2008, the Company filed an application to list its common stock on the
      American Stock Exchange (AMEX). The Company’s application is currently under
      review.





On
      April
      3, 2008, Goldenway’s new subisidary, La Go Go, obtained the new registration
      certificate approving its business operations in the PRC.





In
      April
      2008, the Company issued a total of 200,206 shares of common stock upon
      conversion of the convertible notes and exercise of the warrants issued in
      August 2007.




26




**ITEM
              2.**
            **MANAGEMENT****’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




**Overview**





*The
      following discussion and analysis of our financial condition and results of
      operations for the quarter and the fiscal year ended December 31, 2007 should
      be
      read in conjunction with the Financial Statements and corresponding notes
      included in this annual Report on Form 10-K. 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.*





We
      manufacture apparel for men, women, and children for primarily middle to
      high-grade well-known casual wear, sportswear, and outerwear brands and for
      a
      variety of companies. Most
      of
      our products are exported to Japan, Europe, and the United States. Our customers
      include large retailers and well-known brands. We manufacture our apparel
      products in China, including from our three factories located in the Nanjing
      Jiangning Economic and Technological Development Zone and Shang Fang town
      respectively in Nanjing, China. We conduct our operations through three
      wholly-owned subsidiaries in China: Goldenway Nanjing Garments Company Limited
      (“Goldenway”), Nanjing New-Tailun Garments Company Limited (PRC) (“New Tailun”),
      and Nanjing Catch-Luck Garments Co., Ltd. (“Catch-Luck”).





On
      January 9, 2008, we entered into a joint venture with Shanghai La Chapelle
      Garment and Accessories Company Limited, to establish a new brand of ladies’
garments and to develop a retail and wholesale distribution channel for the
      mainland Chinese market. Our new brand, jointly owned with La Chapelle, is
      referred to as “LA GO GO,” and the joint venture is operated under a newly
      formed entity called Shanghai LA GO GO Fashion Company Limited (“La Go Go”)
      which was formed on January 24, 2008.





Although
      we have our own manufacturing capacity, we currently outsource most of our
      manufacturing to our strategic contractors as a part of our overall sourcing
      strategy. Outsourcing much of the manufacturing work allows us to maximize
      production flexibility while managing capital expenditures and costs of
      maintaining what would otherwise be a massive workforce. Outsourcing also allows
      us to control costs, as our contract manufacturers are based in regions which
      continue to benefit from low-cost skilled labor. Our contract
      manufacturers’ factories are mainly located in cities in the Anhui province such
      as ChuZhou, TongLing and WuHu, or north of Jiangsu province such as JinTan,
      DanYang and TaiZhou. We
      inspect products manufactured by our contractors to ensure that they meet our
      rigorous quality standards. See “ *Production
      and Quality Control* .” While our three factories have a current production
      capacity
      of approximately 3 million garments per year, our contract manufacturers have
      a
      total combined capacity of approximately 9 million garments per
      year.




During
      the three months ended March 31, 2008, the majority of our sales was from our
      manufacturing operation, with approximately 65.7% of our
      revenues coming from customers in Europe, 11.94% from customers in the
      United States, 12.66%
      from customers in Japan, 9.09% from customers in China and 0.61% from our new
      retail business. During the three months ended March 31, 2007, approximately
      64.68% of our revenues came from customers in European countries, 11.87% from
      customers in Japan, 17.84% from customers in the United States, and 5.61% from
      customers in China. Management believes that the Company currently maintains
      good relationships with its customers.




27




We
      purchase the majority of our raw materials directly from numerous local fabric
      and accessories suppliers. We **** also
      purchase finished goods from other contract manufacturers. In the three months
      ended March 31, 2008 and 2007, we relied on one supplier exceeding 10% of our
      purchases. **** Purchases
      from our single largest supplier accounted for 13% and 12.5% of our total
      purchase respectively. In the three months ended 2008 and 2007, purchases from
      our five largest suppliers accounted for 31% and 30% of our total purchases
      respectively. We have not experienced difficulty in obtaining raw materials
      and
      supplies necessary to operate our business, and management believes that the
      Company currently maintains good relationship with its suppliers.





In
      2008,
      we operated three factories in the Nanjing Jiangning Economic and Technological
      Development Zone and in Shangfang Town in the Jiangning District in Nanjing,
      China. Our three factories employ over 1,800
      people. We consider our relations with our employees to be
      satisfactory.




Our
      joint
      venture, La Go Go, currently employs approximately 70 employees in 18 cities
      in
      China. These employees manage the day to day retail operations of La Go Go.
      As
      of April 3, 2008, La Go Go had 40 retail locations in 18 cities.





On
      April
      7, 2006, we completed the process of acquiring a fifty-year land use right
      on
      112,442 square meters of land in the Nanjing Jiangning Economic and
      Technological Development Zone. The land contains an existing facility of 26,629
      square meters, which includes manufacturing and office space. By the end of
      2006, we completed the construction of the new office building and adjoining
      factory. We consolidated our operation into our new headquarters and
      manufacturing facility in January 2007. The new manufacturing facility occupies
      an area of 10,000 square meters and is equipped with state-of-the-art
      equipment **.** The
      new
      land and its completed buildings were pledged as collateral to secure our
      obligations under a two year bank loan in the original principal amount of
      $7
      million (50,000,000 RMB) from Nanjing Bank maturing August 2008.





In
      2008,
      all Chinese manufacturers of certain garments were subject to aggregate export
      quotas, or limitations, to the United States. Although certain of our apparel
      products fall within the categories subject to the quotas with respect to
      exports to the United States, the Chinese government allocated a portion of
      the
      aggregate export quota to us based upon the amount of product that we exported
      in the prior year. Management believes that the imposition of such quotas did
      not have a material negative effect on our net sales and our net margin. See *Results
      of Operations* below.
      As a result of our prior export performance, we were awarded a sufficient
      portion of the export quotas to enable us to increase our sales to customers
      in
      the United States despite the export quotas. We believe that our customer mix
      and our ability to adjust the types of apparel it manufactures will mitigate
      our
      exposure to such trade restrictions in the future.





Our
      four
      operating subsidiaries, all of which are incorporated in the PRC, are governed
      by PRC income tax laws and are subject to the PRC enterprise income tax. Each
      of
      our consolidating entities files its own separate tax return, and we do not
      file
      a consolidated tax return. In 2007, Goldenway enjoyed a 50% reduction in its
      income tax as a foreign invested enterprise that exports over 70% of its output,
      and was entitled a lowered income tax rate of 12%. In 2008, the income tax
      rate
      for Goldenway was 25%. New-Tailun and Catch-Luck were entitled to two years
      of
      income tax exemptions effective for the 2006 and 2007 tax years, and for the
      three years thereafter (2008, 2009 and 2010), and based on current income
      tax laws these entities will be entitled to a 50% reduction in enterprise income
      tax rate of 25%, or 12.5%. Our joint venture La
      Go Go
      was established on January 24, 2008, its current income tax rate is 25%. All
      of
      our income, and the income tax we pay, is related to our operations in
      China.




28




*Private
      Placement Financing*





On
      August
      2, 2007, we completed a $2 million private placement involving the issuance
      of
      our secured convertible notes and warrants pursuant to subscription agreements
      (“Subscription Agreements”) with six accredited investors. This private
      placement financing closed on August 6, 2007. Under the terms of the financing,
      we issued and sold two-year secured convertible notes in the principal amount
      of
      $2,000,000 to investors, secured by all of the assets of Ever-Glory excluding
      its subsidiaries. As of
      March 31, 2008, the note holders converted $339,700 of principal plus accrued
      interest of $2,006 to 155,323 shares of common stock of the Company.





**Recent
      Events**





*Strategic
      Investment in La Chapelle*





On
      January 9, 2008, our subsidiary, Goldenway Nanjing Garment Company Limited
      (“Goldenway”), a PRC company entered into a Capital Contribution Agreement
      (“Capital Contribution Agreement”) with Shanghai La Chapelle Garment and
      Accessories Company Limited (“La Chapelle”), a Shanghai-based garment maker, and
      several shareholders of La Chapelle. Under the terms of the Capital Contribution
      Agreement, Goldenway agreed to invest RMB 10 million (approximately USD $1.43
      million) in La Chapelle for a 10% stake in La Chapelle.





*Joint
      Venture with Shanghai La Chapelle Garment and Accessories Company*





On
      January 9, 2008, concurrently with Goldenway’s investment, Goldenway entered
      into a Joint Venture Establishment Agreement with Shanghai La Chapelle Garment
      and Accessories Company Limited, to form a joint venture to develop, promote
      and
      market our new line of women’s wear in China referred to as “LA GO GO.” The
      joint venture is in the form of a jointly owned PRC-based company registered
      as
“Shanghai LA GO GO Fashion Company Limited.” Goldenway initially invested RMB 6
      million (USD $0.8 million) for a 60% stake in the joint venture. La Chapelle
      currently holds the other 40% stake. The
      joint
      venture is consolidated into the Company’s financial statements, while the 40%
      stake is classified as a minority interest. On April 3, 2008, La Go Go
      received a new business registration certificate, entitling it to conduct
      operations in the PRC.





The
      business objective of the joint venture is to establish a leading brand of
      ladies’ garments and to build a retail and wholesale distribution network for
      the mainland Chinese market. The joint venture plans to build a minimum of
      80
      retail stores in Shanghai, Chengdu, Nanjing, Suzhou, Beijing, and Tianjin to
      exclusively carry and sell the LA GO GO line of clothing, a retail brand owned
      by the joint venture.




As
      of
      April 30, 2008, La Go Go had opened 40 retail store locations in 18
      cities. These stores recently began operating and generating sales revenue.
      The
      roll-out of these retail locations began in mid-March of 2008. La Go Go
      generated $120,198 in revenue and $84,124 in gross profit from this new business
      segment during the quarter ended March 31, 2008. The Company invested an average
      of approximately $14,300 (100,000 RMB) per store in startup costs, which
      primarily involve build-out and decoration of each retail store interior. We
      lease retail space from various different building owners in malls and
      storefront buildings. The average floor space for store is approximately 80
      square meters. At the present time, approximately 10% of the products sold
      through these retail stores are supplied by us, with an additional 90% supplied
      by contract manufacturers. We typically furnish raw materials to these contract
      manufacturers to make our finished products, and we pay the manufacturers a
      fixed labor charge for the manufacturing work.




29




*Other
      Events*





On
      March
      28, 2008, the Company filed an application to list its common stock on the
      American Stock Exchange (AMEX). The Company’s application is currently under
      review.





On
      April
      3, 2008, Goldenway’s new subsidiary, La Go Go, obtained the new registration
      certificate approving its business operations in the PRC.





In
      April
      2008, the Company issued a total of 200,206 shares of common stock upon
      conversion of the convertible notes and exercise of the warrants issued in
      August 2007.





**Sales and
      Expenses**




We
      market
      and sell our products through a combination of international distributors and
      direct sales to brands and retail chain stores primarily in Europe, the United
      States and Japan.





For
      our
      new customers, we ordinarily accept orders backed by a letter of credit. For
      our
      established customers, we generally accept payment within 30 to 60 days
      following delivery of finished goods to the customer.





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





Our
      selling expenses consist primarily of transportation and unloading charges
      and
      product inspection charges.





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




**CRITICAL
      ACCOUNTING POLICIES**





We
      have
      identified critical accounting policies that, as a result of judgments,
      uncertainties, uniqueness and complexities of the underlying accounting
      standards and operation involved could result in material changes to our
      financial position or results of operations under different conditions or using
      different assumptions.





The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those estimates.
      Significant estimates in 2008 and 2007 include the allowance for the useful
      life
      of property and equipment.





Inventories,
      consisting of raw materials and finished goods related to our products are
      stated at the lower of cost or market utilizing the specific identification
      method.




30




We
      recognize revenue in compliance with Staff Accounting Bulletin (“SAB”) 104.
      Sales revenue is recognized upon delivery to our customers for local sales
      and
      upon shipment of the products for export sales, at which time title passes
      to
      the customer, a formal arrangement exists, the price is fixed or determinable,
      no other significant obligations of the Company exist and collectability is
      reasonably assured.





We
      recognize revenue upon delivery to our customers for local sales and upon
      shipment of the products for export sales, at which time title passes to the
      customer.





Details
      regarding our use of these policies and the related estimates are described
      in
      the accompanying financial statements for the three months ended March 31,
      2008.
      During the three months ended March 31, 2008, there have been no material
      changes to our critical accounting policies that impacted our consolidated
      financial condition or results of operations.





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      September 2006, FASB issued Statement 157, Fair Value Measurements. This
      statement defines fair value and establishes a framework for measuring fair
      value in generally accepted accounting principles (GAAP). More precisely, this
      statement sets forth a standard definition of fair value as it applies to assets
      or liabilities, the principle market (or most advantageous market) for
      determining fair value (price), the market participants, inputs and the
      application of the derived fair value to those assets and liabilities. The
      effective date of this pronouncement is for all full fiscal and interim periods
      beginning after November 15, 2007. The Company adopted SFAS 157 as of
      January 1, 2008 and the adoption did not have a material impact on the
      Company’s results of operations or financial condition.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. The SFAS
      159
      became effective for us on January 1, 2008. The Company chose not to elect
      the
      option to measure the fair value of eligible financial assets and liabilities.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests ** in
      subsidiaries held by parties other than the parent, the amount of consolidated
      net income attributable to the parent and to the noncontrolling interest,
      changes in a parent’s ownership interest and the valuation of retained
      non-controlling equity investments when a subsidiary is deconsolidated. The
      Statement also establishes reporting requirements that provide sufficient
      disclosures that clearly ** identify
      and distinguish between the interests of the parent and the interests of the
      non-controlling owners. SFAS 160 is effective for ** fiscal
      years beginning after December 15, 2008. The Company has not determined the
      effect that the application of SFAS 160 will ** have
      on
      its consolidated financial statements.





In
      December 2007, the FASB issued SFAS 141R, “Business Combinations,” which applies
      to all transactions or other events in which an entity obtains control of one
      or
      more businesses, including those sometimes referred to as “true mergers” or
“mergers of equals” and combinations achieved without the transfer of
      consideration. This statement replaces FASB Statement No. 141 and applies to
      all
      business entities, including mutual entities that previously used the
      pooling-of-interests method of accounting for some business combinations. The
      Company believes that adoption of the FAS 141R will have an effect on future
      acquisitions.




31




**RESULTS
      OF OPERATIONS**





The
      following is a discussion and analysis of our results of operations, comparing
      the three months ended March 31, 2008 and 2007.




**Three
      Months Ended March 31, 2008 Compared to Three Months Ended March 31,
      2007**





The
      following table summarizes our results of operations. The table and the
      discussion below should be read in conjunction with the unaudited financial
      statements and the notes thereto appearing elsewhere in this report.





**Results
      of Operations**





Three Months Ended March 312008
            
            2007
            
            Increase/Decrease
            
            % ChangeSales
            
            $
            19,747,208
            
            
            100.00
            %
            $
            16,425,399
            
            
            100.00
            %
            $
            3,321,809
            
            
            20.22
            %Gross
                Profit
            
            $
            3,721,036
            
            
            18.84
            %
            $
            2,392,686
            
            
            14.57
            %
            $
            1,328,350
            
            
            55.52
            %Operating
                Expense
            
            $
            1,499,015
            
            
            7.59
            %
            $
            948,786
            
            
            5.78
            %
            $
            550,229
            
            
            57.99
            %Income
                From Operations
            
            $
            2,222,019
            
            
            11.25
            %
            $
            1,443,900
            
            
            8.79
            %
            $
            778,119
            
            
            53.89
            %Other
                Expenses
            
            $
            737,021
            
            
            3.73
            %
            $
            130,464
            
            
            0.79
            %
            $
            606,557
            
            
            464.92
            %Income
                before income tax expenses
            
            $
            1,485,000
            
            
            7.52
            %
            $
            1,313,436
            
            
            8.00
            %
            $
            171,564
            
            
            13.06
            %Income
                tax expenses
            
            $
            283,838
            
            
            1.44
            %
            $
            75,694
            
            
            0.46
            %
            $
            208,144
            
            
            274.98
            %Net
                Income
            
            $
            1,197,293
            
            
            6.06
            %
            $
            1,237,742
            
            
            7.54
            %
            $
            (40,449
            )
            
            -3.27
            %




**Sales**




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





****
            **Three Months Ended March 31,**
            ********
            ****
            **2008**
            ****
            **2007**
            ********
            ****
            **$**
            ****
            **% of**
              **Sales**
            ****
            **Growth in Q1**
              **2008 compared**
              **with Q1 2007**
            ****
            **$**
            ****
            **% of**
              **Sales**
            ******Sales
                - In-house and Contract Manufacturing**Europe
            
            
            12,974,613
            
            
            65.70
            %
            
            22.12
            %
            
            10,624,733
            
            
            64.68
            %US
            
            
            2,357,838
            
            
            11.94
            %
            
            -19.52
            %
            
            2,929,647
            
            
            17.84
            %Japan
            
            
            2,499,972
            
            
            12.66
            %
            
            28.21
            %
            
            1,949,904
            
            
            11.87
            %China
            
            
            1,794,587
            
            
            9.09
            %
            
            94.83
            %
            
            921,115
            
            
            5.61
            %**Sales
                - Domestic Branded Retail**Retail
            
            
            120,198
            
            
            0.61
            %
            
            -
            
            
            -
            
            
            -Total
                sales
            
            
            19,747,208
            
            
            100.0
            %
            
            20.22
            %
            
            16,425,399
            
            
            100.0
            %




32




We
      generate revenues primarily from in-house and contract manufacturing
      of garments mainly for the export markets. In 2008, we have also entered into
      the domestic retail market focusing on our own branded garments, reflected
      in
      the above table as “domestic branded retail sales.” Sales results discussed
      below refer to sales from our manufacturing operations unless otherwise stated.





Sales
      for
      the three months ended March 31, 2008 were $19,747,208, an increase of 20.22%
      from $16,425,399 for the same period in 2007. We generated revenues primarily
      from the production and the sale of garments to overseas as well as domestic
      Chinese markets. The increase in our sales was primarily attributable to an
      overall increase in order volume from customers in Europe, Japan and the PRC.
      Management believes that satisfying our customers with regard to quality and
      workmanship of the products we produced, and by providing quality customer
      service, we earned repeat business from our existing customers.





Sales
      to
      customers in Europe **** accounted
      for 65.70% of our revenue in the first quarter of 2008, with sales to these
      customers grew by 22.12% as compared to the first quarter of last year. This
      growth in sales was primarily due to a significant increase in order volume
      from
      a major customer in France in the first quarter of 2008.





Sales
      to
      customers in the U.S. **** accounted
      for 11.94% of our revenue in the first quarter of 2008, with
      sales to these customers decreasing by 19.52% as compared to the same period in the prior year. The
      decrease in our sales was primarily due to a decrease in order volume from
      one
      large customer in the U.S. Due to a combination of factors, including higher
      cost of raw materials, we increased our prices in the first quarter of 2008.
      Faced with higher prices, and because of the customer’s focus on retailing
      low-priced mass market items, the said customer reduced the volume of
      orders from us. We experienced no decrease in orders from any other U.S.
      customers.





Sales
      to
      customers in Japan accounted for 12.66% of our revenue in the first quarter
      of
      2008, with sales to these customers increasing by 28.21% as compared to the
      same
      period in the prior year. Growth in sales to these customers was primarily
      due
      to an increase in order volume from our largest customer in Japan. In addition,
      we added several new Japanese customers in the first quarter of 2008, who
      are
      expected to contribute to our sales revenue over time.





Sales
      to
      customers in the Chinese market accounted for 9.09% of our revenue in the first
      quarter of 2008. Sales to Chinese customers grew by 94.83% as compared to the
      same period last year. This growth was primarily due to the increase of order
      volume from our customer in Hong Kong.





Sales
      from our new retail operations through our newly established joint venture
      (described above as “domestic branded garment retail sales”) accounted for 0.61%
      of our revenue in the first quarter of 2008. Our joint venture, Shanghai
      LA GO GO Fashion Company Limited (“La Go Go”), was formed on January 24, 2008.
      The business objective of the joint venture is to establish and create a new
      brand of ladies’ garments for the mainland Chinese market. On April 3, 2008, La
      Go Go obtained a new registration certificate, confirming its status as a valid
      business operation in the PRC. As
      of
      April 30, 2008, La Go Go had 40 retail stores in 18 cities in
      China. La
      Go Go plans to open 80-100 stores, with an average store size of 80 square
      meters, in China during 2008. Management projects that average revenue per
      store
      will be approximately $4,000 - $7,000 per month (which translates to
      approximately 30,000 to 50,000 RMB per month), by the end of this year.




33




Below
      is
      a breakdown of our total revenues generated from related-party and
      unrelated-party during the periods indicated:




**Three Months Ended March 31,**
            
            
            
            **%****2008**
            
            **2007**
            
            **Increase**
            
            **Change**Net
                sales to related parties
            
            $
            425,102
            
            
            2.15
            %
            $
            46,828
            
            
            0.29
            %
            $
            378,274
            
            
            807.79
            %Net
                sales to third parties
            
            $
            19,322,106
            
            
            97.85
            %
            $
            16,378,571
            
            
            99.71
            %
            $
            2,943,535
            
            
            17.97
            %Total
            
            $
            19,747,208
            
            
            100.00
            %
            $
            16,425,399
            
            
            100.00
            %
            $
            3,321,809
            
            
            20.22
            %





Net
      sales
      to related parties accounted for 2.15% of our total sales in the first three
      months of 2008, an increase from 0.29% in 2007. The increase was mainly
      attributable to an increase in new orders from our related party, who operates
      in the Chinese domestic market. Management expects sales to related parties
      will
      continue to constitute a small portion of our total sales.





**Cost
      of Sales and Gross Margin**





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





**Three Months Ended March 31,**
            
            
            
            **%****2008**
            
            **2007**
            
            **Change**
            
            **Change**Total
                Net Sales
            
            $
            19,747,208
            
            
            100.00
            %
            $
            16,425,399
            
            
            100.00
            %
            $
            3,321,809
            
            
            20.22
            %Raw
                materials
            
            $
            9,611,327
            
            
            48.67
            %
            $
            7,126,587
            
            
            43.39
            %
            $
            2,484,740
            
            
            34.87
            %Labor
            
            $
            604,412
            
            
            3.06
            %
            $
            978,740
            
            
            5.96
            %
            $
            -374,328
            
            
            -38.25
            %Outsource
                Production Costs
            
            $
            5,482,624
            
            
            27.76
            %
            $
            5,487,249
            
            
            33.41
            %
            $
            -4,625
            
            
            0.08
            %Other
                and Overhead
            
            $
            291,735
            
            
            1.48
            %
            $
            440,137
            
            
            2.68
            %
            $
            -148,402
            
            
            -33.72
            %Retail –
                purchase of finished garments from other factories
            
            $
            36,074
            
            
            0.18
            %
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                Cost of Sales
            
            $
            16,026,172
            
            
            81.16
            %
            $
            14,032,713
            
            
            85.43
            %
            $
            1,993,458
            
            
            14.21
            %Gross
                Profit
            
            $
            3,721,036
            
            
            18.84
            %
            $
            2,392,686
            
            
            14.57
            %
            $
            1,328,349
            
            
            55.52
            %





Raw
      material costs were $9.6 million in the first quarter of 2008, up from $7.1
      million in the same period of 2007, representing in increase of 34.87%. Raw
      material costs were 48.67% of our total net sales in the first three months
      of
      2008, compared to 43.39% in the same period last year. The increase in the
      dollar amount of raw material costs was due to an increase in order volume
      in
      the first quarter as compared with the same period last year. The increase
      in
      raw material costs as a percentage of sales was mainly due to increases in
      the
      per-unit prices of raw materials such as fabric,
      accessories (buttons, zippers, etc.) hangers, labels and packaging materials.
      We
      generally seek to manage raw material price increases using volume purchasing
      strategies in order to achieve volume discounts for materials wherever possible.
      In the first quarter of 2008 we were able to offset some of the effect of raw
      material price increases using this strategy.




34




Labor
      costs accounted for 3.06% of our total net sales in the first three months
      of
      2008, down from 5.96% from the same period last year. This decrease was mainly
      due to a workforce reduction by our Goldenway subsidiary. In the first quarter
      of 2008, Goldenway continued to increase the amount of outsourcing to
      independent contract manufacturers, and reduced its workforce in order to reduce
      direct labor costs.




Outsource
      production costs accounted for 27.76% of our total net sales in the first three
      months of 2008, a slight decrease from the prior year. These costs, as a
      percentage of our total net sales, decreased from 33.41% of total net sales
      in
      the first three months of 2007 to 27.76% of total net sales in the same period
      of 2008. These costs decreased because the Company was able to obtain favorable
      pricing from outside garment manufacturers to whom we outsource production,
      during the first quarter of 2008. Specifically, we established relationships
      with factories located in cities and provinces where lower-cost skilled labor
      is
      available, thereby achieving cost savings.





Overhead
      and other expenses accounted for 1.48% of our total net sales in the first
      three
      months of 2008, compared to 2.68% of total net sales for the same period in
      2007. This decrease was mainly due to a workforce reduction by our Goldenway
      subsidiary.





Total
      cost of sales for the three months of 2008 was $16,026,172, an increase of
      14.21% from $14,032,713 in the first three months of 2007. As a percentage
      of
      total net sales, our cost of sales decreased to approximately 81.16% of total
      net sales for the first quarter of 2008, compared to approximately 85.43% of
      total net sales for the same period in 2007. Consequently, gross margin as
      a
      percentage of revenues increased to approximately 18.84% for the first quarter
      of 2008 from approximately 14.57% for the first quarter of 2007. The 4.27%
      increase in gross margin was attributable to our focus on producing and selling
      higher-margin (such as ladies garments) and higher quality products, as we
      began
      moving from mass market products to higher-quality upper market products, and
      launched higher margin women’s wear products. Gross margin also increased as a
      result of favorable pricing that we have been able to achieve from our contract
      manufacturers. These factors helped to increase our gross margin in the first
      quarter of 2008, despite higher raw material prices.





The
      following table sets forth our total net sales, cost of sales, gross profit
      and
      gross margin of the geographic market segments for the periods
      indicated.





**2008**
            
            **2007****Net Sales**
            
            **Cost of**
              **sales**
            
            **Gross**
              **profit**
            
            **Gross**
              **margin**
            
            **Net Sales**
            
            **Cost of**
              **sales**
            
            **Gross**
              **profit**
            
            **Gross**
              **margin****Cost
                of Sales - Manufacturing**Europe
            
            
            12,974,613
            
            
            10,575,358
            
            
            2,399,255
            
            
            18.49
            %
            
            10,624,733
            
            
            8,931,070
            
            
            1,693,663
            
            
            15.94
            %US
            
            
            2,357,838
            
            
            1,947,644
            
            
            410,194
            
            
            17.40
            %
            
            2,929,647
            
            
            2,662,669
            
            
            266,978
            
            
            9.11
            %Japan
            
            
            2,499,972
            
            
            2,112,172
            
            
            387,800
            
            
            15.51
            %
            
            1,949,904
            
            
            1,710,191
            
            
            239,713
            
            
            12.29
            %China
            
            
            1,794,587
            
            
            1,354,924
            
            
            439,663
            
            
            24.50
            %
            
            921,115
            
            
            728,783
            
            
            192,332
            
            
            20.88
            %**Cost
                of Sales - Domestic Branded Retail**Retail
            
            
            120,198
            
            
            36,074
            
            
            84,124
            
            
            69.99
            %
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            19,747,208
            
            
            16,026,172
            
            
            3,721,036
            
            
            18.84
            %
            
            16,425,399
            
            
            14,032,713
            
            
            2,392,686
            
            
            14.57
            %





As
      shown
      in the table above, our gross margin improved across all markets. Notably,
      for
      the U.S. market, gross margin jumped from 9.11% to 17.40%, and management
      attributes this to a clear focus in the first quarter of 2008 on higher-end
      customers and products, and a move away from low-priced mass market items and
      retailer customers who specialize in the lower end of the retail market.




35




**Selling,
      and General and Administrative Expenses**


**For
                  the Three Months Ended March 31,****2008**
              
              **2007****$**
              
              **%
                    of Total**
                  **Net
                    Sales**
              
              **$**
              
              **%
                    of Total**
                  **Net
                    Sales**
              
              **Change**
              
              **%
                  Change**Gross
                  Profit
              
              $
              3,721,036
              
              
              18.84
              %
              $
              2,392,686
              
              
              14.57
              %
              $
              1,328,350
              
              
              55.52
              %Operating
                  Expenses:Selling
                  Expenses
              
              
              277,528
              
              
              1.41
              %
              
              175,898
              
              
              1.07
              %
              $
              101,630
              
              
              57.78
              %General
                  and Administrative Expenses
              
              
              1,221,487
              
              
              6.19
              %
              
              772,888
              
              
              4.71
              %
              $
              448,599
              
              
              58.04
              %Total
              
              
              1,499,015
              
              
              7.59
              %
              
              948,786
              
              
              5.78
              %
              $
              550,229
              
              
              57.99
              %Income
                  from Operations
              
              
              2,222,021
              
              
              11.25
              %
              
              1,443,900
              
              
              8.79
              %
              $
              778,121
              
              
              53.89
              %





Selling
      expenses increased by 57.78% from $175,898 in the first quarter of 2007 to
      $277,528 in the first quarter of 2008. This was due to the increased travel
      expenses associated with greater sales activity. The Company also incurred
      $58,126 in selling expenses through La Go Go in the first quarter of 2008 which
      it did not incur previously.





General
      and administrative expenses increased by 58.04% from $772,888 in the first
      quarter of 2007 to $1,221,488 in the first quarter of 2008. As a percentage
      of
      net sales, general and administrative expenses increased from 4.71% of net
      sales
      in the first quarter of 2007 to 6.19% of net sales in the first quarter of
      2008.
      The increases were primarily due to increases in payroll expenses during the
      three months as a result of the hiring of new management staff to handle our
      business expansion. In addition, the increases were partially due to higher
      depreciation and amortization on office facilities and expenditures on office
      equipment. Finally, part of the increases in general and administrative
      expenses were attributable to an increase in investor relations related
      expenses incurred by our parent company in the U.S.





**Income
      from Operations**





Income
      from operations increased by 53.89% from $1,443,900 in the three months of
      2007
      to $2,222,021 in the first three months of 2008 as we gained new customers
      and
      new orders, and effectively managed our costs during this period.




36




**Interest
      Expenses**





Three Months Ended March 31,2008
            
            2007
            
            Change
            
            % ChangeBank Loans
            
            $
            68,857
            
            $
            73,595
            
            $
            -4,738
            
            
            -6.44
            %Related
                party
            
            $
            59,116
            
            $
            58,695
            
            $
            421
            
            
            0.72
            %Convertible
                notes interest
            
            $
            26,842
            
            $
            -
            
            $
            26,842
            
            
            n/aConvertible
                notes – non-cash expense
            
            $
            423,013
            
            $
            -
            
            $
            423,013
            
            
            -Total
            
            $
            577,828
            
            $
            132,290
            
            $
            445,538
            
            
            336.79
            %





Interest
      expense was $577,828 in the first quarter of 2008 compared to $132,290 in the
      first quarter of 2007. This increase was mainly due to $423,013 in “non-cash”
expenses resulting from the conversion of the convertible notes that we issued
      in August 2007. These convertible notes were converted by their holders into
      common stock valued in the aggregate of $423,013, and accordingly, we recorded
      this amount as a non-cash expense. In addition, we incurred interest, which
      we
      paid in cash, on the convertible notes in the amount of $26,842.





**Other
      expenses**





Other
      expenses increased $191,083 from $84 in the first three months of 2007 to
      $191,167 in the first three months of 2008. This increase was mainly due
      to the foreign exchange loss. As a result of the change in the exchange
      rate between the U.S. dollar, which was approximately 7.30 RMB to one U.S.
      dollar at the end of 2007, to 7.00 RMB for each U.S. dollar at March 31, 2007,
      we incurred a foreign exchange loss.





**Income
      Tax Expenses**




Income
      tax expense for the three months ended 2008 and 2007 amounted to $283,838 and
      $75,694, respectively, and our effective income tax rates were 19.11% and 5.76%
      during 2008 and 2007 respectively while Goldenway’s tax holidays expired and
      Catch-Luck and New-Tailun are subject to higher preferential tax rates in the
      first quarter of 2008.





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




2008
            
            2007Goldenway
            
            
            25.0
            %
            
            12.0
            %Catch-Luck
            
            
            12.5
            %
            
            0
            %New-Tailun
            
            
            12.5
            %
            
            0
            %La
                Go Go
            
            
            25.0
            %
            
            -




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




37




New-Tailun
      and Catch-Luck were incorporated in the PRC and are subject to PRC income tax
      laws and regulations. According to the relevant laws and regulations in the
      PRC,
      enterprises with foreign investment in the PRC are entitled to full exemption
      from income tax for two years beginning from the first year the enterprises
      become profitable and has accumulated profits and a 50% income tax reduction
      for
      the subsequent three years. New-Tailun and Catch-Luck were approved as a wholly
      foreign-owned enterprise in 2006 and are each entitled to 100% income tax
      exemptions in 2006 and 2007. For the three years following this period, these
      companies are entitled to a 50% partial tax exemption. As of March 31, 2008,
      the
      income tax rate for New-Tailun and Catch-Luck is 12.5%.




La
      Go Go
      was established on January 24, 2008, and its income tax rate is
      25%.





Ever-Glory
      International Group Inc. was incorporated in the United States and has incurred
      net operating losses for income tax purposes through March 31, 2008. 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 2028. 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. Management will review this valuation allowance periodically
      and make adjustments as warranted.





**Net
      Income**





Net
      income for the first three months ended March 31, 2008 was $1,197,293,
      a decrease of $40,449 or 3.27% from $1,237,742 compared to the same period
      in
      2007. This decrease was mainly attributable to the “non-cash” interest expense
      of $423,013 we paid due to the conversion by our convertible note holders of
      their notes into common stock, from the foreign exchange loss and from increased
      income tax expense.





**Minority
      Interest in La Go Go**





On
      January 9, 2008, concurrently with Goldenway’s investment in La Chapelle,
      Goldenway entered into an Agreement with Shanghai La Chapelle Garment and
      Accessories Company Limited, to form a joint venture to develop, promote and
      market a new line of women's wear in China. Goldenway agreed to invest
      approximately $826,200 (RMB 6 Million) in cash, and the joint venture partner
      La
      Chapelle agreed to invest approximately $553,040 (RMB 4 Million) in cash, for
      60% and 40% stake in the joint venture. As of March 31, 2008, Goldenway and
      La
      Chapelle had fully contributed the agreed amounts as capital to La Go Go. As
      a
      result, through Goldenway, the Company has majority ownership and management
      control in La Go Go. In accordance with the US GAAP, the financial position
      and
      operating results of La Go Go are included in the consolidated financial
      statements of the Company. The 40% interest of La Go Go owned by La Chapelle
      is
      classified and presented as a “minority interest.” As of March 31, 2008, the
      minority interest amounted to $556,993.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      March 31, 2008, we had cash and cash equivalents of $2,144,669, other current
      assets of $16,740,798 and current liabilities of $7,825,762. We presently
      finance our operations primarily from the cash flow from our operations, and
      we
      anticipate that this will continue to be our primary source of funds to finance
      our short-term cash needs. If we require additional capital to expand or enhance
      our existing facilities, we will consider debt or equity offerings or
      institutional borrowing as potential means of financing.





Net
      cash
      provided by operating activities in the first quarter of 2008 was $4,315,492
      compared with net cash provided by operating activities of $1,112,693 in the
      same period of 2007. This increase was mainly attributable to greater cash
      receipts from our customers.




38




Net
      cash
      used in investing activities was approximately $1,481,656 for the first quarter
      of 2008, compared with $1,126,622 during the same period in 2007. On January
      9,
      2008, Goldenway entered into a Capital Contribution Agreement (“Capital
      Contribution Agreement”) with Shanghai La Chapelle Garment and Accessories
      Company Limited (“La Chapelle”), a Shanghai-based garment maker, and several
      shareholders of La Chapelle. Pursuant to the terms of the Capital Contribution
      Agreement, Goldenway invested $1,428,000 in cash (RMB 10 million) in La Chapelle
      for a 10% stake in La Chapelle.





Net
      cash
      used in financing activities was $1,484,394 during the first quarter of 2008,
      compared with $115,694 provided by financing activities in the same period
      of 2007. This change was mainly because we repaid principal in the amount
      of $2,096,550 to Nanjing Bank in connection with a loan. Also we received
      $553,040 from Shanghai
      La Chapelle Garment and Accessories Company Limited for incorporating “Shanghai
      LA GO GO Fashion Company Limited” in connection with La Chapelle’s acquisition
      of a 40% equity interest in La Go Go.





On
      August
      15, 2006, Goldenway entered into credit agreements with Nanjing Bank to borrow
      an aggregate principal amount of up to $6.99 million within 24 months. The
      loans
      were secured by our new facilities and were used to fund construction costs
      as
      well as our daily operations. As of March 31, 2008, we owed a principal amount
      of $2,856,000 under this loan, for which the applicable interest rate is 7%
      per
      annum. The maturity of these borrowings can be extended at our option. We plan
      to repay the loans with cash flow from operations. In the event we do not have
      available cash flow from operations to repay these loans, we will seek to
      consolidate and refinance the loans at maturity.





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





In
      addition, in 2007 we had borrowed $4,534,100 from a related party for the main
      purpose of funding the increased registered capital of Goldenway. Interest
      to be
      paid to this related party totaled $59,116 for the first quarter of 2008.





**Capital
      Commitments**





We
      have a
      continuing program for the purpose of improving its manufacturing facilities.
      We
      anticipate that cash flows from operations and borrowings from banks will be
      used to pay for these capital commitments. The Articles of Association of our
      Goldenway subsidiary required that registered capital of approximately $17.5
      million be paid into Goldenway by February 1, 2008. The increased registered
      capital is to be paid in installments within three years of the issuance of
      Goldenway’s updated business license. As of March 31, 2008, we have paid $3.6
      million of our registered capital requirements. The remaining $13.9 million
      is
      due on January 28, 2008 but remains unpaid as of the date of this report. We
      have obtained approval for an extension of the deadline for payment of the
      remaining registered capital to July 28, 2008, with the Jiangsu Administration
      of Industry and Commerce.





On
      August
      2, 2007, the Company consummated a private placement of $2,000,000 senior
      secured convertible notes. The notes mature and become due and payable two
      years
      after the date they were issued, unless they are sooner converted by the note
      holders into our common stock. As
      of
      March 31, 2008, the note holders converted $339,700 of principal plus accrued
      interest of $2,006 to 155,323 shares of common stock of the Company. If
      the
      rest of the notes are not converted into common stock, we will be required
      to
      repay the outstanding principal balance of $1,660,300 plus accrued interest
      on
      August 2, 2009.




39




**Uses
      of Liquidity**





Our
      cash
      requirements through the end of fiscal 2008 will be primarily to fund daily
      operations for the growth of our business. Our management will consider
      acquiring additional manufacturing capacity in the future to strengthen and
      stabilize our manufacturing base. We intend to establish our own distribution
      and logistics channels in overseas markets. As discussed above, on January
      9,
      2008, we entered into a joint venture to launch a proprietary brand directly
      to
      the Chinese market which is expected to require additional cash investments
      in
      2008. Proceeds from this investment is expected to be used to fund rollout
      of
      additional retail locations, buildup of inventory for retail stores, and future
      marketing, brand promotion and advertising activities. In addition, we must
      make
      certain required capital contributions to our Goldenway subsidiary in accordance
      with a timetable to be determined with the input of applicable local
      authorities.





**Sources
      of Liquidity**





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





We
      believe our cash flow from operations together with our cash and cash
      equivalents currently on hand will be sufficient to meet our needs for working
      capital, capital expenditure and other commitments through the end of 2008.
      For
      our long-term cash needs, we are currently considering a number of different
      financing opportunities which may include debt and equity financing. No
      assurance can be made that such financing will be available to us, and adequate
      funds may not be available on terms acceptable to us. If additional funds are
      raised through the issuance of equity securities, dilution to existing
      shareholders may result. If funding is insufficient at any time in the future,
      we will develop or enhance our products or services and expand our business
      through our own cash flows from operations.





As
      of
      March 31, 2008 we had outstanding borrowings under a loan from Nanjing Bank
      of
      approximately $2,856,000. This credit facility does not require that we meet
      or
      maintain any financial ratios or tests. As of March 31, 2008, we did not have
      any standby letters of credit or standby repurchase obligations.





**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 Renminbi. Sales of our products are in dollars. During 2003 and 2004
      the
      exchange rate of RMB to the dollar remained constant at 8.26 RMB to the dollar.
      On July 21, 2005, the Chinese government adjusted the exchange rate from 8.26
      to
      8.09 RMB to the dollar. In 2008, the RMB continued to appreciate against the
      U.S. dollar. As of March 31, 2008, the market foreign exchanges rate was
      increased to 7 RMB to one U.S. dollar. As a result, the ongoing appreciation
      of
      RMB to U.S. dollar negatively impacted our gross margins for the three months
      ended March 31, 2008. We are always negotiating order price adjustments with
      most of our customers based on the daily market foreign exchange rates, which
      we
      believe will reduce our exposure to exchange rate fluctuations in the future
      and
      pass some increase of the cost to our customers.





In
      addition, the financial statements of Goldenway, New-Tailun, Catch-Luck and
      La
      Go Go (whose functional currency is the RMB) are translated into US dollars
      using the closing rate method. The balance sheet items are translated into
      US
      dollars using the exchange rates at the respective balance sheet dates. The
      capital and various reserves are translated at historical exchange rates
      prevailing at the time of the transactions while income and expenses items
      are
      translated at the average exchange rate for the period. All exchange differences
      are recorded within equity. The foreign currency translation gain for the
      periods ended March 31, 2008 and 2007 were $1,099,884 and $159,133,
      respectively.


40





**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. At March 31, 2008, we had approximately $2.1 million in cash
      and cash equivalents. A hypothetical 5% increase or decrease in either short
      term or long term interest rates would not have any material impact on our
      earnings or loss, or the fair market value or cash flows of these
      instruments.





*Foreign
      Exchange Rates* .
      We pay
      our suppliers and employees in Chinese Renminbi (RMB), however, we sell to
      customers in the U.S., Japan and Europe and we generate sales in U.S.
      dollars and Euros. Accordingly, our business has substantial exposure to changes
      in exchange rates between and among the Chinese RMB, the U.S. dollar and the
      Euro. In the last decade, the RMB has been pegged at 8.2765 yuan to one U.S.
      dollar. On July 21, 2005 it was revalued to 8.11 per U.S. dollar. Following
      the
      removal of the peg to the U.S. dollar and pressure from the 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. At March 31, 2008, the exchange rate between the
      RMB
      and dollar was 7.00 RMB to one U.S. dollar. For additional discussion regarding
      our foreign currency risk, see the section titled “ *Risk
      Factors—* **** *Fluctuation
      in the value of Chinese Renminbi (RMB) relative to other currencies may have
      a
      material adverse effect on our business and/or an investment in our
      shares* .”




**ITEM
              4.**
            **CONTROLS
                AND PROCEDURES**





**Disclosure
      Controls and Procedures**





As
      of
      March 31, 2008, we carried out an evaluation, under the supervision and with
      the
      participation of our management, including our chief executive officer and
      our
      chief financial officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures. Based on the foregoing, our chief executive
      officer and chief financial officer concluded that our disclosure controls
      and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934) were effective.





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





In
      our
      annual report on Form 10-K for the year ended December 31, 2007, we reported
      certain material weaknesses involving control activities, specifically, that
      in
“2006 and 2007, we did not maintain effective controls to ensure the
      completeness, accuracy, and valuation over the accounting for business
      combinations, including the inability to prepare financial statements and
      footnotes in accordance with SEC rules and regulations and with our 2006
      acquisition of New-Tailun. We misapplied generally accepted accounting
      principles whereby we did not value the acquisitions and record the resulting
      purchase accounting in accordance with SFAS 141 and EITF 02-5. As a result,
      we
      were required to restate our financial results for the year ended December
      31,
      2006 and for the three months ended March 31, 2007.”





In
      light
      of the foregoing, our management undertook a review of our disclosure, financial
      information, and internal controls and procedures regarding these areas for
      future complex financing transactions and acquisitions. This review was to
      include efforts by our management and directors, as well as the use of
      additional outside resources, as follows:





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





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





·
            In
                conjunction with the measures outlined below, we believed these actions
                will strengthen our internal control over our valuation and purchase
                accounting of acquisitions, and that the material weakness would
                be
                resolved.





Management
      confirms that as of March 31, 2008, the foregoing review has been performed,
      and
      the former material weakness has been remedied.


41





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





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





**Changes
      in internal control over financial reporting.**





Except
      for the remedial actions taken as described above, 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 March 31, 2008 that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.





**PART
              II.**
            **OTHER
                INFORMATION**





**ITEM
              1.**
            **LEGAL
                PROCEEDINGS**





We
      were
      named as a defendant in an action pending in the U.S. District Court for the
      Northern District of Ohio. The action was filed on February 22, 2006 by
      Plaintiff Douglas G. Furth. The other principal parties are named defendants
      John Zanic, Wilson-Davis & Co., and Godwin, Pappas, Longley & Ronquillo,
      LLP. The action alleges that we breached an agreement with the plaintiff under
      which we had promised to provide
      plaintiff 1,000,000 shares of its common stock in exchange for certain
      assistance in marketing and financial public relations services. The action
      seeks an award of damages in excess of $75,000. We denied that we were a party
      to such an agreement, that we breached the agreement or that we are otherwise
      liable. We intend to vigorously defend our legal position. After vigorously
      defending this action, the complaint was voluntarily dismissed by the Plaintiff
      without prejudice from an action pending in the U.S. District Court for the
      Northern District of Ohio. In May 2007, Plaintiff Douglas G. Furth has filed
      a
      Second Amended Complaint in the Litigation asserting claims against us and
      other
      principal parties. We have denied all the claims and have filed the responses
      and objections to the Plaintiff and asked for dismissal with prejudice by the
      plaintiff. No payment was made to plaintiff and no settlement has been discussed
      between us and the Plaintiff.On
      November 29, 2007, we made a motion to dismiss the action for lack of personal
      jurisdiction, and a decision on this matter is pending.


42





We
      were
      also named as a defendant in a civil action in the U.S. court of common pleas
      of
      Allegheny County, Pennsylvania. The civil action was filed on April 17, 2006
      by
      Plaintiff Mark B. Aronson. The action alleged that we violated the Pennsylvania
      Unsolicited Telecommunication Advertisement Act by issuing “spam” emails
      soliciting purchasers for our common stock. The action seeks an award of damages
      in excess of $12,100. Management believes the allegations made in this action
      are baseless. On January 4, 2007, the case was dismissed without prejudice
      by
      the Plaintiff.





**ITEM 1A.**
            **RISK
                FACTORS**





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





**Risks
      Relating to Our Industry**





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





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





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





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





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





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


43





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





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





·
            require
                us to reduce wholesale prices on existing products;


·
            result
                in reduced gross margins across our product
                lines;


·
            increase
                pressure on us to further reduce our production costs and our operating
                expenses.





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





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





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





During
      the first quarter of 2008, our purchases from one supplier represented 13%
      of
      our total supply purchases during that quarter. However, in 2007, the Company
      did not rely on any one supplier for more than 10% of the Company’s overall
      supply purchases. We
      do not
      have any long-term
      written agreements with any of these suppliers and do not anticipate entering
      into any such agreements in the near future. However, we always execute a
      written agreement for each order placed with our suppliers. We do not believe
      that loss of any of these suppliers would have a material adverse effect on
      our
      ability to obtain finished goods or raw materials essential to our business
      because we believe we can locate other suppliers in a timely
      manner.





**Risks
      Relating to Our Business**





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





Net
      sales
      to our two largest customers totaled approximately 31% and 18% of total net
      sales in the first quarter of 2008 and approximately 42% and 11% for the same
      period in 2007. The garment manufacturing industry has experienced substantial
      consolidation in recent years, which has resulted in increased customer leverage
      over suppliers, greater exposure for suppliers to credit risk and an increased
      emphasis by customers on inventory management and productivity.


44





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





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





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





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





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





If
      we
      cannot rectify these material weaknesses through remedial measures and
      improvements to our systems and procedures, management may encounter
      difficulties in timely assessing business performance and identifying incipient
      strategic and oversight issues. Management is currently focused on remedying
      internal control deficiencies, and this focus will require management from
      time
      to time to devote its attention away from other planning, oversight and
      performance functions.





We
      cannot
      provide assurances as to the timing of the completion of these efforts. We
      cannot be certain that the measures we take will ensure that we implement and
      maintain adequate internal controls in the future. Any failure to implement
      required new or improved controls, or difficulties encountered in their
      implementation, could harm our operating results or cause us to fail to meet
      our
      reporting obligations.





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





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


45





We
      currently are not an “accelerated filer” as defined in Rule 12b-2 under the
      Securities Exchange Act of 1934, as amended. Beginning with our Annual Report
      for the year ended December 31, 2007, Section 404 of the Sarbanes-Oxley Act
      of
      2002 requires us to include an internal control report with our Annual Report
      on
      Form 10-K. That report must include management’s assessment of the effectiveness
      of our internal control over financial reporting as of the end of the fiscal
      year. This report must also include disclosure of any material weaknesses in
      internal control over financial reporting that we have identified. Additionally,
      for the fiscal year ended December 31, 2008 our independent registered public
      accounting firm will be required to issue reports on management’s assessment of
      our internal control over financial reporting and their evaluation of the
      operating effectiveness of our internal control over financial reporting. Our
      assessment requires us to make subjective judgments and our independent
      registered public accounting firm may not agree with our
      assessment.





Achieving
      compliance with Section 404 within the prescribed period may require us to
      incur
      significant costs and expend significant time and management resources. If
      we
      are not able to complete our assessments as required under Section
      404 in a timely manner, we and our independent registered public accounting
      firm
      would be unable to conclude that our internal control over financial reporting
      is effective as of December 31, 2008. As a result, investors could lose
      confidence in our reported financial information, which could have an adverse
      effect on the trading price of our debt securities. In addition, our independent
      registered public accounting firm may not agree with our management’s assessment
      or conclude that our internal control over financial reporting is operating
      effectively. We will continue to consistently improve our internal control
      over
      the financial reporting with our best efforts and we plan to engage assistance
      from outside experts in doing so.





**We
      are listed on the over-the-counter bulletin board, and therefore we are subject
      to less stringent corporate governance requirements as opposed to a company
      listed on a national exchange.**





Our
      board
      of directors currently has an audit committee and compensation committee
      comprised of independent directors. If, however, we are unable to attract
      qualified independent directors or nominate or elect such directors, our
      security holders will not have the protections provided by having independent
      directors or audit committee members. Although we believe that all actions
      taken
      by our directors on our behalf will be in our best interests, whether or not
      they are deemed to be independent, we cannot assure you that this will actually
      be the case. If actions are taken, or expenses are incurred that are not in
      our
      best interests, it could have a material adverse effect on our business and
      operations and the price of our stock held by our shareholders.





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





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


46





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





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





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





·
            incur
                significant unplanned expenses and personnel
                costs;


·
            issue
                stock that would dilute our current shareholders’ percentage
                ownership;


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


·
            incur
                debt;


·
            assume
                liabilities; and


·
            spend
                resources on unconsummated
                transactions.





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





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





·
            problems
                integrating the purchased operations, technologies, personnel or
                products
                over geographically disparate
                locations;


·
            unanticipated
                costs, litigation and other contingent
                liabilities;


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


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


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


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


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


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


47





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





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





·
            negatively
                affect the reliability and cost of
                transportation;


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


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


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


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





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





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





**Risks
      Related to Doing Business in China**





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





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





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





Pursuant
      to the World Trade Organization (WTO) Agreement, effective January 1, 2005,
      the
      United States and other WTO member countries removed quotas from WTO members.
      In
      certain instances, the elimination of quotas affords the Company greater access
      to foreign markets; however, as the removal of quotas resulted in an import
      surge from China, the U.S. took action in May 2005 and imposed safeguard quotas
      on seven categories of goods, including certain classes of apparel products.
      Exports of each specified product category will continue to be admitted into
      the
      United States in the ordinary course until the restraint level for that category
      is reached, after which further exports will be embargoed and will not be
      cleared until after January 2006. Additionally, on September 10, 2005, in
      response to the surge of Chinese imports into the European Union (EU), the
      EU
      Commission signed a Memorandum of Understanding (MOU) with China in which ten
      categories of textiles and apparel will be subject to
      restraints.


48





Although
      certain of the Company’s apparel products fall within the categories subject to
      the quotas with respect to exports to the United States and Europe, the Chinese
      government allocated a portion of the aggregate export quota to the Company
      based upon the amount of product that the Company exported in the prior year.
      The imposition of such quotas did not have a material affect on the Company’s
      net sales. See “Results of Operations” above. As a result of the Company’s prior
      export performance, it was awarded a sufficient portion of the export quotas
      to
      enable it to increase its sales to customers in Europe and the U.S. despite
      the
      reinstitution of export quotas. In order to increase the Company’s allocation of
      future export quotas, however, the Company will continue accepting orders from
      its customers. The Company believes that its customer mix and its ability to
      adjust the types of apparel it manufactures will mitigate its exposure to such
      trade restrictions in the future. However, there can be no assurance that
      additional trade restrictions will not be imposed on the exports of the
      Company’s products in the future. Such actions could result in increases in the
      cost of its products generally and may adversely affect the Company’s results of
      operations. The Company continues to monitor the developments described above.





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




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





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





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




49





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




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





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




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





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




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




**Our
      common stock has limited liquidity.**





Our
      common stock is traded on the Over-the-Counter Bulletin Board. It is thinly
      traded compared to larger more widely known companies in the same industry.
      Thinly traded common stock can be more volatile than stock trading in an active
      public market. We cannot predict the extent to which an active public market
      for
      our common stock will develop or be sustained. The high and low bid price of
      Ever-Glory’s common stock during the past 52 week period was between $4.80 and
      $1.60 per share.


50





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





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




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





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





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





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





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





·
            receipt
                of substantial orders or order cancellations of
                products;


·
            quality
                deficiencies in services or
                products;


·
            international
                developments, such as technology mandates, political developments
                or
                changes in economic policies;


·
            changes
                in recommendations of securities
                analysts;


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


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


·
            energy
                blackouts;


·
            acts
                of terrorism and war;


51





·
            widespread
                illness;


·
            proprietary
                rights or product or patent
                litigation;


·
            strategic
                transactions, such as acquisitions and
                divestitures;


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


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





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




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





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





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





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





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





We
      cannot
      predict the extent to which an active public market for its common stock will
      develop or be sustained. However, we do not rule out the possibility of having
      our shares listed on the American Stock Exchange or Nasdaq Capital Market or
      other markets.





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


52





Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      “penny stocks” has suffered in recent years from patterns of fraud and abuse.
      Such patterns include (1) control of the market for the security by one or
      a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the future volatility of our share price.




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




Our
      principal shareholders, which includes our officers and directors, and their
      affiliated entities own approximately 43% of our outstanding shares of common
      stock. These shareholders, acting individually or as a group, could exert
      substantial influence over matters such as electing directors and approving
      mergers or other business combination transactions. In addition, because of
      the
      percentage of ownership and voting concentration in these principal shareholders
      and their affiliated entities, elections of our board of directors will
      generally be within the control of these shareholders and their affiliated
      entities. While all of our shareholders are entitled to vote on matters
      submitted to our shareholders for approval, the concentration of shares and
      voting control presently lies with these principal shareholders and their
      affiliated entities. As such, it would be difficult for shareholders to propose
      and have approved proposals not supported by management. There can be no
      assurances that matters voted upon by our officers and directors in their
      capacity as shareholders will be viewed favorably by all of our
      shareholders.





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





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


53





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





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




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




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


**ITEM
                2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**
 
 On
        January 4, 2008, in connection with services rendered relating to our $2
        million
        private placement of convertible notes and warrants on August 2, 2007, the
        Company issued warrants to ETech Securities that are exercisable for 72,728
        shares of common stock of the Company with an exercise price of $3.20 per
        share.
        This warrant expires on January 4, 2011.






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





None.


54





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





None.





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





None.





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





The
      following exhibits are filed herewith:





**Exhibit No.******
            
            **Description**10.25
            
            Capital
                Contribution Agreement (La Chapelle). (1)10.26
            
            Joint
                Venture Establishment Agreement (La Go Go). (1)10.27
            
            Form
                of Independent Director Offer Letter. (2)10.28
            
            Form
                of Indemnification Agreement. (3)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.




(1)
              Incorporated
                  by reference to the registrant’s current report on Form 8-K filed on
                  January 15, 2008.
 
 (2)
              Incorporated
                  by reference to the registrant’s current report on Form 8-K filed on March
                  19, 2008.
 
 (3)
              Incorporated
                  by reference to the registrant’s current report on Form 8-K filed on March
                  28, 2008.




55


**SIGNATURES**





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




May
                6, 2008
            EVER-GLORY
                INTERNATIONAL GROUP, INC.By:
            /s/
                Guo YanGuo
                YanChief
                Financial Officer(Principal
                Financial and Accounting Officer)




56