UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
quarterly period ended September 30, 2010




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from ____________ to ____________




Commission
file number:  0-28806




Ever-Glory
International Group Inc.


(Exact
name of registrant as specified in its charter)




Florida
              
              65-0420146(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)




Ever-Glory
Commercial Center,


509
Chengxin Road, Jiangning Development Zone,


Nanjing,
Jiangsu Province,


People’s Republic of China


(Address
of principal executive offices)




(8625)
5209-6875


(Registrant’s
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x    No ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).     ̈Yes   ̈No




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




Large
      accelerated filer
                 ̈
                Accelerated
      filer
                 ̈Non-accelerated
      filer
                 ̈
                Smaller
      reporting company
                x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes 
 ̈  No
x


As of
November 11, 2010, 14,750,783 shares of the Company’s common stock, $0.001
par value, were issued and outstanding.





EVER-GLORY
INTERNATIONAL GROUP, INC.


FORM 10-Q





INDEX




Page
                      NumberSPECIAL NOTE REGARDING
      FORWARD-LOOKING STATEMENTSPART I.  FINANCIAL
      INFORMATION
                    4Item
      1.
                    Financial
      Statements
                    4Condensed
      Consolidated Balance Sheets as ofSeptember30, 2010 (unaudited) and December
      31, 2009
                    4Condensed Consolidated Statements
      of Operations and Comprehensive Income for the Three andNineMonths EndedSeptember30, 2010 and 2009
      (unaudited)
                    5Condensed Consolidated Statements
      of Cash Flows for
      theNineMonths EndedSeptember30, 2010 and2009
      (unaudited)
                    6Notes
      to the Condensed Consolidated Financial Statements
      (unaudited)
                    7Item
      2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    18Item
      3.
                    Quantitative and Qualitative
      Disclosures About Market Risk
                    30Item
      4.
                    Controls and
      Procedures
                    30PART II.  OTHER
      INFORMATION
                    31Item
      1.
                    Legal
      Proceedings
                    31Item
      1A.
                    Risk
      Factors
                    31Item
      2.
                    Unregistered Sales of Equity
      Securities and Use of Proceeds
                    31Item
      3.
                    Defaults Upon Senior
      Securities
                    31Item
      4.
                    (Removed
      and Reserved)
                    31Item
      5.
                    Other
      Information
                    31Item
      6.
                    Exhibits
                    31SIGNATURES
                    32


2


Note
Regarding Forward-Looking Statements




Statements
contained in this Quarterly Report on Form 10-Q, which are not historical facts,
are forward-looking statements, as the term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, whether
expressed or implied, are subject to risks and uncertainties which can cause
actual results to differ materially from those currently anticipated, due to a
number of factors, which include, but are not limited to:




·
            Competition
      within our industry;


·
            Seasonality
      of our sales;


·
            Success of
      our investments in new product
  development


·
            Our plans to
      open new retail stores;


·
            Success of
      our acquired businesses;


·
            Our
      relationships with our major
customers;


·
            The
      popularity ofour
      products;


·
            Relationships
      with suppliers and cost of
supplies;


·
            Financial and
      economic conditions in Asia, Japan, Europe and the
      U.S.;


·
            Anticipated
      effective tax rates in future
years;


·
            Regulatory
      requirements affecting our
business;


·
            Currency
      exchange rate
      fluctuations;


·
            Our future
      financing needs; and


·
            Our ability
      to attract additional investment capital on attractive
      terms.




Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing or other such statements. When used in this report, the words “may,”
“will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “continue,” and similar expressions are generally
intended to identify forward-looking statements.




Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management’s opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the factors
described in the Section entitled “Risk Factors” on Form 10-K and
other documents we file from time to time with the Securities and Exchange
Commission (‘SEC’).


3


PART
I.  FINANCIAL INFORMATION


ITEM
1. Financial Statements





EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


AS
OF SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009




2010
                  
                  
                  2009ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  2,983,299
                  
                  
                  $
                  3,555,745Accounts
      receivable
                  
                  
                  18,068,118
                  
                  
                  
                  12,751,579Inventories
                  
                  
                  18,226,076
                  
                  
                  
                  12,419,622Value
      added tax receivable
                  
                  
                  3,745,509
                  
                  
                  
                  730,724Other
      receivables and prepaid expenses
                  
                  
                  2,776,096
                  
                  
                  
                  601,842Advances
      on inventory purchases
                  
                  
                  1,708,737
                  
                  
                  
                  443,331Amounts
      due from related party
                  
                  
                  13,533,360
                  
                  
                  
                  13,354,884Total
      Current Assets
                  
                  
                  61,041,195
                  
                  
                  
                  43,857,727LAND
      USE RIGHT, NET
                  
                  
                  2,795,418
                  
                  
                  
                  2,788,731PROPERTY
      AND EQUIPMENT, NET
                  
                  
                  12,007,052
                  
                  
                  
                  12,540,856INVESTMENT,
      AT COST
                  
                  
                  -
                  
                  
                  
                  1,467,000TOTAL
      ASSETS
                  
                  $
                  75,843,665
                  
                  
                  $
                  60,654,314LIABILITIES
      AND EQUITYCURRENT
      LIABILITIESBank
      loans
                  
                  $
                  13,114,750
                  
                  
                  $
                  7,305,660Loans
      from related party
                  
                  
                  1,987,089
                  
                  
                  
                  2,575,759Accounts
      payable
                  
                  
                  17,335,729
                  
                  
                  
                  13,241,962Accounts
      payable and other payables - related parties
                  
                  
                  768,312
                  
                  
                  
                  782,606Advances
      from customers
                  
                  
                  896,840
                  
                  
                  
                  -Other
      payables and accrued liabilities
                  
                  
                  2,684,212
                  
                  
                  
                  2,287,356Value
      added and other taxes payable
                  
                  
                  669,243
                  
                  
                  
                  186,895Income
      tax payable
                  
                  
                  76,689
                  
                  
                  
                  3,745Deferred
      tax liabilities
                  
                  
                  958,503
                  
                  
                  
                  421,899Total
      Current Liabilities
                  
                  
                  38,491,367
                  
                  
                  
                  26,805,882LONG-TERM
      LIABILITIESDerivative
      liability
                  
                  
                  935,037
                  
                  
                  
                  1,627,839Total
      Long-term Liabilities
                  
                  
                  935,037
                  
                  
                  
                  1,627,839TOTAL
      LIABILITIES
                  
                  
                  39,426,404
                  
                  
                  
                  28,433,721COMMITMENTS
      AND CONTINGENCIESEQUITYStockholders'
      equity of the Company:Preferred
      stock ($.001 par value, authorized 5,000,000 shares, no shares issued and
      outstanding)
                  
                  
                  -
                  
                  
                  
                  -Common
      stock ($.001 par value, authorized 50,000,000 shares, 14,750,783 and
      13,560,240 shares issued and outstanding as of September 30, 2010 and
      December 31, 2009, respectively)
                  
                  
                  14,751
                  
                  
                  
                  13,560Additional
      paid-in capital
                  
                  
                  3,526,068
                  
                  
                  
                  3,615,357Retained
      earnings
                  
                  
                  24,608,759
                  
                  
                  
                  20,406,245Statutory
      reserve
                  
                  
                  3,585,448
                  
                  
                  
                  3,585,448Accumulated
      other comprehensive income
                  
                  
                  4,682,235
                  
                  
                  
                  3,934,437Total
      Stockholders' Equity of the Company
                  
                  
                  36,417,261
                  
                  
                  
                  31,555,047Noncontrolling
      interest
                  
                  
                  -
                  
                  
                  
                  665,546Total
      Equity
                  
                  
                  36,417,261
                  
                  
                  
                  32,220,593TOTAL
      LIABILITIES AND EQUITY
                  
                  $
                  75,843,665
                  
                  
                  $
                  60,654,314


4


EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)





Three months
      ended
                  
                  
                  Nine months
      endedSeptember
      30,
                  
                  
                  September
      30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009NET
      SALESRelated
      parties
                  
                  $
                  -
                  
                  
                  $
                  66,221
                  
                  
                  $
                  -
                  
                  
                  $
                  75,572Third
      parties
                  
                  
                  31,935,974
                  
                  
                  
                  24,870,500
                  
                  
                  
                  81,178,018
                  
                  
                  
                  66,494,465Total
      net sales
                  
                  
                  31,935,974
                  
                  
                  
                  24,936,721
                  
                  
                  
                  81,178,018
                  
                  
                  
                  66,570,037COST
      OF SALESRelated
      parties
                  
                  
                  -
                  
                  
                  
                  38,281
                  
                  
                  
                  -
                  
                  
                  
                  47,294Third
      parties
                  
                  
                  25,583,832
                  
                  
                  
                  20,264,735
                  
                  
                  
                  64,888,871
                  
                  
                  
                  52,667,322Total
      cost of sales
                  
                  
                  25,583,832
                  
                  
                  
                  20,303,016
                  
                  
                  
                  64,888,871
                  
                  
                  
                  52,714,616GROSS
      PROFIT
                  
                  
                  6,352,142
                  
                  
                  
                  4,633,705
                  
                  
                  
                  16,289,147
                  
                  
                  
                  13,855,421OPERATING
      EXPENSESSelling
      expenses
                  
                  
                  2,283,606
                  
                  
                  
                  1,097,840
                  
                  
                  
                  6,032,491
                  
                  
                  
                  2,903,655General
      and administrative expenses
                  
                  
                  2,501,565
                  
                  
                  
                  1,562,382
                  
                  
                  
                  6,160,865
                  
                  
                  
                  5,707,786Total
      Operating Expenses
                  
                  
                  4,785,171
                  
                  
                  
                  2,660,222
                  
                  
                  
                  12,193,356
                  
                  
                  
                  8,611,441INCOME
      FROM OPERATIONS
                  
                  
                  1,566,971
                  
                  
                  
                  1,973,483
                  
                  
                  
                  4,095,791
                  
                  
                  
                  5,243,980OTHER
      INCOME (EXPENSES)Interest
      income
                  
                  
                  11,802
                  
                  
                  
                  180,089
                  
                  
                  
                  105,549
                  
                  
                  
                  445,117Interest
      expense
                  
                  
                  (93,470
                  )
                  
                  
                  (94,016
                  )
                  
                  
                  (326,290
                  )
                  
                  
                  (332,900
                  )Change
      in fair value of derivative liability
                  
                  
                  621,600
                  
                  
                  
                  (143,000
                  )
                  
                  
                  692,800
                  
                  
                  
                  (725,000
                  )Other
      income
                  
                  
                  4,076
                  
                  
                  
                  269
                  
                  
                  
                  36,870
                  
                  
                  
                  45,252Gain
      on sale of investment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  346,188
                  
                  
                  
                  -Total
      Other Income (Expenses)
                  
                  
                  544,008
                  
                  
                  
                  (56,658
                  )
                  
                  
                  855,117
                  
                  
                  
                  (567,531
                  )INCOME BEFORE INCOME TAX
      EXPENSE
                  
                  
                  2,110,979
                  
                  
                  
                  1,916,825
                  
                  
                  
                  4,950,908
                  
                  
                  
                  4,676,449INCOME
      TAX EXPENSE
                  
                  
                  (284,914
                  )
                  
                  
                  (130,479
                  )
                  
                  
                  (689,694
                  )
                  
                  
                  (692,206
                  )NET
      INCOME
                  
                  
                  1,826,065
                  
                  
                  
                  1,786,346
                  
                  
                  
                  4,261,214
                  
                  
                  
                  3,984,243ADD(LESS):
      NET LOSS(INCOME) ATTRIBUTABLE TO THE NONCONTROLING
INTEREST
                  
                  
                  -
                  
                  
                  
                  7,552
                  
                  
                  
                  (58,701
                  )
                  
                  
                  25,011NET
      INCOME ATTRIBUTABLE TO THE COMPANY
                  
                  $
                  1,826,065
                  
                  
                  $
                  1,793,898
                  
                  
                  $
                  4,202,513
                  
                  
                  $
                  4,009,254NET
      INCOME
                  
                  $
                  1,826,065
                  
                  
                  $
                  1,786,346
                  
                  
                  $
                  4,261,214
                  
                  
                  $
                  3,984,243Foreign
      currency translation gain (loss)
                  
                  
                  575,350
                  
                  
                  
                  46,364
                  
                  
                  
                  747,798
                  
                  
                  
                  (36,947
                  )COMPREHENSIVE
      INCOME
                  
                  
                  2,401,415
                  
                  
                  
                  1,832,710
                  
                  
                  
                  5,009,012
                  
                  
                  
                  3,947,296COMPREHENSIVE
      (INCOME) LOSS ATTRIBUTABLE TOTHE NONCONTROLING
      INTEREST
                  
                  
                  -
                  
                  
                  
                  (6,752
                  )
                  
                  
                  (58,721
                  )
                  
                  
                  8,749COMPREHENSIVE
      INCOME ATTRIBUTABLE TOTHE
      COMPANY
                  
                  $
                  2,401,415
                  
                  
                  $
                  1,825,958
                  
                  
                  $
                  4,950,291
                  
                  
                  $
                  3,956,045EARNINGS
      PER SHAREAttributable
      to the Company's common stockholdersBasic
                  
                  $
                  0.12
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.29
                  
                  
                  $
                  0.30Diluted
                  
                  $
                  0.12
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.29
                  
                  
                  $
                  0.30Weighted
      average number of shares outstandingBasic
                  
                  
                  14,750,294
                  
                  
                  
                  13,558,326
                  
                  
                  
                  14,734,919
                  
                  
                  
                  13,546,116Diluted
                  
                  
                  14,750,294
                  
                  
                  
                  13,558,326
                  
                  
                  
                  14,734,919
                  
                  
                  
                  13,546,116


5


EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)





2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                        
                        $
                        4,261,214
                        
                        
                        $
                        3,984,243Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        1,681,311
                        
                        
                        
                        1,512,089Change
      in fair value of derivative liability
                        
                        
                        (692,800
                        )
                        
                        
                        725,000Deferred
      income tax
                        
                        
                        536,604
                        
                        
                        
                        224,493Interest
      on loans from related party
                        
                        
                        61,360
                        
                        
                        
                        -Stock
      issued for services
                        
                        
                        71,699
                        
                        
                        
                        -Stock-based
      compensation
                        
                        
                        26,280
                        
                        
                        
                        22,181Gain
      on sale of investment
                        
                        
                        (347,156
                        )
                        
                        
                        -Changes
      in operating assets and liabilitiesAccounts
      receivable
                        
                        
                        (5,019,188
                        )
                        
                        
                        (5,100,967
                        )Inventories
                        
                        
                        (5,456,037
                        )
                        
                        
                        (3,494,605
                        )Value
      added tax receivable
                        
                        
                        (2,947,740
                        )
                        
                        
                        (801,519
                        )Other
      receivables and prepaid expenses
                        
                        
                        (247,655
                        )
                        
                        
                        (123,094
                        )Advances
      on inventory purchases
                        
                        
                        (1,293,110
                        )
                        
                        
                        (93,524
                        )Amounts
      due from related party
                        
                        
                        14,445
                        
                        
                        
                        1,088,634Accounts
      payable
                        
                        
                        3,790,613
                        
                        
                        
                        6,057,452Accounts
      payable and other payables- related parties
                        
                        
                        (29,772
                        )
                        
                        
                        72,399Advances
      from customers
                        
                        
                        881,263Other
      payables and accrued liabilities
                        
                        
                        (562,083
                        )
                        
                        
                        259,657Value
      added and other taxes payable
                        
                        
                        470,216
                        
                        
                        
                        2,845Income
      tax payable
                        
                        
                        71,602
                        
                        
                        
                        (138,920
                        )Net
      cash (used in) provided by operating activities
                        
                        
                        (4,728,934
                        )
                        
                        
                        4,196,364CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                        
                        
                        (887,416
                        )
                        
                        
                        (984,346
                        )Proceeds
      from sale of property and equipment
                        
                        
                        29,109
                        
                        
                        
                        28,537Net
      cash used in investing activities
                        
                        
                        (858,307
                        )
                        
                        
                        (955,809
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from bank loans
                        
                        
                        18,415,439
                        
                        
                        
                        11,991,062Repayment
      of bank loans
                        
                        
                        (12,822,795
                        )
                        
                        
                        (13,134,464
                        )Repayment
      of loans from related party
                        
                        
                        (650,030
                        )
                        
                        
                        -Net
      cash provided by (used in) financing activities
                        
                        
                        4,942,614
                        
                        
                        
                        (1,143,402
                        )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                        
                        
                        72,181
                        
                        
                        
                        18,600NET
      (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS
                        
                        
                        (572,446
                        )
                        
                        
                        2,115,753CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                        
                        
                        3,555,745
                        
                        
                        
                        1,445,363CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                        
                        $
                        2,983,299
                        
                        
                        $
                        3,561,116SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
                        
                        $
                        264,928
                        
                        
                        $
                        245,105Income
      taxes
                        
                        $
                        93,626
                        
                        
                        $
                        606,622SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Other
      receivable arising on sale of investment
                        
                        $
                        1,813,088
                        
                        
                        
                        -Other
      payable for acquisition of noncontrolling interest
                        
                        $
                        909,078
                        
                        
                        
                        -


6




EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


NOTES TO THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




SEPTEMBER 30,
2010 (UNAUDITED)




NOTE
1 BASIS OF PRESENTATION





Ever-Glory
International Group, Inc. (the “Company”), together with its subsidiaries, is an
apparel manufacturer, supplier and retailer in China, with a wholesale segment
and a retail segment. The Company’s wholesale business consists of recognized
brands for department and specialty stores located in Europe, Japan, the United
States and China. The Company’s retail business consists of flagship stores and
store-in-stores for the Company’s own-brand products. The Company’s wholesale
operations are provided primarily through the Company’s wholly-owned PRC
subsidiaries, Ever-Glory International Group Apparel Inc. (“Ever-Glory
Apparel”),Goldenway Nanjing Garments Co. Ltd. (“Goldenway”), Nanjing Catch-Luck
Garments Co. Ltd. (“Catch-Luck”) and Nanjing New-Tailun Garments Co. Ltd
(“New-Tailun”). The Company’s retail operations are provided through its wholly
owned subsidiary, Shanghai LA GO GO Fashion Company Limited (“LA GO
GO”).





In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements of Ever-Glory International Group, Inc. and its
subsidiaries (the “Company”) contain all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation of the
condensed consolidated balance sheets as of September 30, 2010 and December 31,
2009, the condensed consolidated statements of operations and comprehensive
income for the three and nine months ended September 30, 2010 and 2009, and
the condensed consolidated statements of cash flows for the nine months ended
September 30, 2010 and 2009. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim
financial information and the instructions to Rule 10-01 of Regulation S-X
of the Securities and Exchange Commission (the “SEC”). Accordingly, they have
been condensed and do not include all of the information and footnotes required
by GAAP for complete financial statements. The results of operations for the
three and nine months ended September 30, 2010 are not necessarily indicative of
the results of operations to be expected for the full fiscal year. These
financial statements should be read in conjunction with the Company’s Annual
Report on Form 10-K for the year ended December 31,
2009.





In April,
2010, Goldenway sold its 10% equity interest in Shanghai La Chapelle Garment and
Accessories Company Limited (“La Chapelle”) to two unrelated third parties
for approximately RMB12 million ($1.8 million) and recorded a gain on the sale
of approximately RMB2 million ($300,000).





Also in
April , 2010, Ever-Glory Apparel Inc. acquired 100% of the noncontrolling
interest in LA GO GO from La Chapelle for approximately RMB6 million
($900,000) which in accordance with ASC 810-10-45-23, was allocated to the
reduction of the noncontrolling interest balance of approximately $0.7 million
and additional paid in capital of approximately $0.2 million.


7


NOTE
2 SIGNIFICANT ACCOUNTING POLICIES





Financial
Instruments





Management
has estimated that the carrying amounts of non-related party financial
instruments approximate their fair values due to their short-term maturities.
The fair value of amounts due from (to) related parties is not practicable to
estimate due to the related party nature of the underlying
transactions.




Fair Value
Accounting




Accounting
Standards Codification (“ASC”) 820 “Fair Value Measurements and
Disclosures”, previously FAS No.157, establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under ASC 820
are described below:





Level 1
            Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities;





Level 2
            Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;





Level 3
            Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).




At
September 30, 2010, the Company’s financial assets consist of cash placed with
financial institutions management considers to be of a high quality, which
management considers to be a Level 1 measurement.




The
Company also applies ASC 825-10 “Financial Instruments”, previously SFAS No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115”, which allows an entity to choose to measure certain
financial instruments and liabilities at fair value on a contract-by-contract
basis. Subsequent fair value measurement for the financial instruments and
liabilities an entity chooses to measure will be recognized in earnings. As of
September 30, 2010, the Company did not elect such option for its financial
instruments and liabilities.





Foreign Currency Translation
and Other Comprehensive Income





The
reporting currency of the Company is the U.S. dollar. The functional currency of
Ever-Glory, Perfect Dream and Ever-Glory HK is the U.S. dollar. The functional
currency of Goldenway, New Tailun, Catch-luck, LA GO GO and Ever-Glory Apparel
is the Chinese RMB.




For
subsidiaries whose functional currency is the RMB, all assets and liabilities
were translated at the exchange rate on the balance sheet date; equity was
translated at historical rates and items in the statement of income were
translated at the average rate for the period. Translation adjustments resulting
from this process are included in accumulated other comprehensive income. 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.


8


NOTE
3 INVENTORIES





Inventories
at September 30, 2010 and December 31, 2009 consisted of the
following:





2010
                  
                  
                  2009Raw
      materials
                  
                  $
                  1,634,874
                  
                  
                  $
                  735,891Work-in-progress
                  
                  
                  7,337,514
                  
                  
                  
                  6,212,767Finished
      goods
                  
                  
                  9,313,651
                  
                  
                  
                  5,529,72618,286,039
                  
                  
                  
                  12,478,384Less:
      allowance for obsolete inventories
                  
                  
                  (59,963
                  )
                  
                  
                  (58,762
                  )Total
      inventories
                  
                  $
                  18,226,076
                  
                  
                  $
                  12,419,622





NOTE
4 BANK LOANS





Bank
loans represent amounts due to various banks and are generally due on demand or
within one year. These loans can be renewed with the banks. Short term bank
loans consisted of the following at September 30, 2010 and December 31,
2009:




2010
                      
                      
                      2009Bank
      loan, interest rate at 0.4455 % per month, due January
      2011
                      
                      $
                      1,497,000Bank
      loan, interest rate at 0.4455 % per month, due February
      2011
                      
                      
                      4,491,000Bank
      loan, interest rate at 0.4455 % per month, due March
    2011
                      
                      
                      1,497,000Bank
      loan, interest rate at 0.4455 % per month, due November
      2010
                      
                      
                      1,197,600Bank
      loan, interest rate at 0.4455 % per month, due December
      2010
                      
                      
                      898,200Bank
      loan, interest rate at 0.29373 % per month, paid in full, October
      2010
                      
                      
                      757,400Bank
      loan, interest rate at 0.29167 % per month, paid in full, October
      2010
                      
                      
                      510,570Bank
      loan, interest rate at 0.27417% per month, due December
      2010
                      
                      
                      373,280Bank
      loan, interest rate at 0.24096% per month, due December
      2010
                      
                      
                      246,000Bank
      loan, interest rate at 0.4425 % per month, due December
      2010
                      
                      
                      898,200Bank
      loan, interest rate at 0.4425 % per month, due December
      2010
                      
                      
                      748,500
                      
                      
                      $
                      733,500Bank
      loan, interest rate at 0.44583% per month, paid in full, May
      2010
                      
                      
                      
                      
                      
                      
                      3,374,100Bank
      loan, interest rate at 0.44583% per month, paid in full, January
      2010
                      
                      
                      
                      
                      
                      
                      1,467,000Bank
      loan, interest rate at 0.44583% per month, paid in full, March
      2010
                      
                      
                      
                      
                      
                      
                      1,026,900Bank
      loan, interest rate at 0.4455% per month, paid in full, March
      2010
                      
                      
                      
                      
                      
                      
                      440,100Bank
      loan, interest rate at 0.4050% per month, paid in full, March
      2010
                      
                      
                      
                      
                      
                      
                      264,060Total
      bank loans
                      
                      $
                      13,114,750
                      
                      
                      $
                      7,305,660


9


On August
2, 2010, Goldenway entered into a new two-year revolving line of credit
agreement with Nanjing Bank, which allows the Company to borrow up to
approximately $7.5 million (RMB50 million). The Company is required to
apply for a loan each time it needs to draw from this line of credit. The terms
of each loan, such as maturity date and interest rate, are set out in each
individual loan agreement. As of September 30, 2010, The Company had borrowed
approximately $7.5 million (RMB50 million) under this agreement. These
borrowings are guaranteed by Jiangsu Ever-Glory, an entity controlled by Mr.
Kang, the Company’s Chairman and Chief Executive Officer. These borrowings are
also collateralized by the Company’s property and equipment.





On March
11, 2010, Ever-Glory Apparel entered into a new one-year line of credit
agreement for approximately $7.5 million (RMB50 million) with Nanjing Bank.As
of September 30, 2010, $2.1 million of bank loans outstanding under this
agreement were guaranteed by Jiangsu Ever-Glory and Goldenway, $1.6 million of
bank loans outstanding under this agreement were guaranteed by Jiangsu
Ever-Glory and Goldenway and were collateralized by approximately $2
million of accounts receivable from wholesale customers. Approximately $3.8
million was unused and available. During October 2010, approximately $1.3
million of loans were repaid and an additional $0.4 million was borrowed
under this agreement.  The loans which were collateralized by accounts
receivable from wholesale customers are to be repaid upon receipt of payments
from customers.





As of
September 30, 2010, Ever-Glory Apparel had borrowed $246,000 from Bank of
Communications which wasguaranteed by Jiangsu
Ever-Glory and Mr. Kang and collateralized by the approximately
$330,000 of accounts receivable from wholesale customers. The maturity date for
this loan is December, 2010. If the Company receives certain payments from
customers before December 2010, the Company is to repay this loan at the same
time the payments are received.





On
December 7, 2009, Ever-Glory Apparel had borrowed approximately $0.7 million
(RMB5 million) from Bank of Jiangsu. The loan is due in December 2010, bears
interest at 5.31%, and is guaranteed by Jiangsu Ever-Glory.





As of
September 30, 2010, Ever-Glory Apparel had borrowed $0.9 million (RMB6
million) from the Industry and Commercial Bank of China. The loan
is due in December 2010, bears interest at 5.31%, and is guaranteed by
Jiangsu Ever-Glory.





Total
interest expense on bank loans amounted to $76,956, $264,928, $64,750 and
$245,105 for the three and nine months ended September 30, 2010 and 2009,
respectively.





Note
5 DERIVATIVE WARRANT LIABILITY




The
Company has outstanding certain warrants that, in accordance
with accounting guidance effective January 1, 2009, require liability
classification because of certain provisions that may result in an adjustment to
their exercise price. Accordingly, these warrants were retroactively
reclassified as liabilities at January 1, 2009, resulting in a decrease in paid
in capital of $976,000, an increase in retained earnings of $494,000, and the
recognition of a liability of $482,000. The liability has been adjusted to fair
value as of September 30, 2010 and 2009, resulting in an increase (decrease) in
the liability of $621,600, $692,800, ($143,000) and ($725,000) for the three and
nine months ended September 30, 2010 and 2009, respectively.




The
Company uses the Black-Scholes pricing model to calculate fair value of its
warrant liabilities. Key assumptions used to apply these models are as
follows:





September30,
                    2010
                  
                  
                  September30,
                    2009Expected
      term
                  
                  2.68
      years
                  
                  
                  3.68
      yearsVolatility
                  
                  
                  101.04
                  %
                  
                  
                  111.24
                  %Risk-free
      interest rate
                  
                  
                  1.0
                  %
                  
                  
                  2.4
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %


10


NOTE
6 INCOME TAX




Pre-tax
income for the three and nine months ended September 30, 2010 and 2009 was
taxable in the following jurisdictions.




Three
      months ended
                    
                    
                    Nine
      months endedSeptember
      30,
                    
                    
                    September
      30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009PRC
                    
                    $
                    1,019,792
                    
                    
                    $
                    880,545
                    
                    
                    $
                    3,015,835
                    
                    
                    $
                    4,271,595Others
                    
                    
                    1,091,187
                    
                    
                    
                    1,036,280
                    
                    
                    
                    1,935,073
                    
                    
                    
                    404,854$
                    2,110,979
                    
                    
                    $
                    1,916,825
                    
                    
                    $
                    4,950,908
                    
                    
                    $
                    4,676,449




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





In 2010
and 2009, Ever-Glory Apparel’s income tax rate was 25%.





In 2010
and 2009, Goldenway’s income tax rate was 25%.




New-Tailun
and Catch-Luck were approved as wholly foreign-owned enterprises in 2006 and,
for 2010 and 2009, are entitled to a 50% reduction to the income tax rate of
25%. Therefore these two subsidiaries are taxed at 12.5%.




In 2010
and 2009, LA GO GO’s income tax rate was 25%.





The
following table reconciles the PRC statutory rates to the Company’s effective
tax rate for the three and nine months ended September 30, 2010 and 2009,
respectively:





Three
      months ended
                    
                    
                    Nine
      months endedSeptember 30,
                    
                    
                    September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009PRC
      statutory rate
                    
                    
                    25.0
                    
                    
                    
                    25.0
                    
                    
                    
                    25.0
                    
                    
                    
                    25.0Income
      tax exemption
                    
                    
                    (0.5
                    )
                    
                    
                    (9.1
                    )
                    
                    
                    (1.6
                    )
                    
                    
                    (11.0
                    )Other
                    
                    
                    3.4
                    
                    
                    
                    (1.1
                    )
                    
                    
                    (0.5
                    )
                    
                    
                    2.2Effective
      income tax rate
                    
                    
                    27.9
                    %
                    
                    
                    14.8
                    %
                    
                    
                    22.9
                    %
                    
                    
                    16.2
                    %





Income
tax expense for the three and nine months ended September 30, 2010 and 2009 is
as follows:





For
      the three months ended
                      September
      30,
                    
                    
                    For
      the nine months ended
                      September
      30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Current
                    
                    $
                    17,038
                    
                    
                    $
                    58,504
                    
                    
                    $
                    153,090
                    
                    
                    $
                    467,713Deferred
                    
                    
                    267,876
                    
                    
                    
                    71,975
                    
                    
                    
                    536,604
                    
                    
                    
                    224,493Income
      tax expense
                    
                    $
                    284,914
                    
                    
                    $
                    130,479
                    
                    
                    $
                    689,694
                    
                    
                    $
                    692,206


11


NOTE
7 EARNINGS PER SHARE





Earnings
per share is calculated as follows:




For
      the three months ended
                        September
      30,
                      
                      
                      For
      the nine months ended
                        September
      30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      income attributable to the Company
                      
                      $
                      1,826,065
                      
                      
                      $
                      1,793,898
                      
                      
                      $
                      4,202,513
                      
                      
                      $
                      4,009,254Weighted
      average number of common stock – Basic
                      
                      
                      14,750,294
                      
                      
                      
                      13,558,326
                      
                      
                      
                      14,734,919
                      
                      
                      
                      13,546,116Weighted
      average number of common stock – Diluted
                      
                      
                      14,750,294
                      
                      
                      
                      13,558,326
                      
                      
                      
                      14,734,919
                      
                      
                      
                      13,546,116Earnings
      per share - basic
                      
                      $
                      0.12
                      
                      
                      $
                      0.13
                      
                      
                      $
                      0.29
                      
                      
                      $
                      0.30Earnings
      per share -diluted
                      
                      $
                      0.12
                      
                      
                      $
                      0.13
                      
                      
                      $
                      0.29
                      
                      
                      $
                      0.30





For the
three and nine months ended September 30, 2010 and 2009, the Company
excluded 913,182 warrants outstanding from diluted earnings per share
because the exercise price of $3.20 exceeded the average trading price of $2.57,
$3.06, $1.83 and $2.03, respectively, making these warrants
anti-dilutive.





NOTE
8 STOCKHOLDERS’ EQUITY





On
January 5, 2010, the Company issued 6,634 shares of common stock to the
Company’s three independent directors as compensation for their services in the
third and fourth quarters of 2009. The shares were valued at $2.84 per
share, which was the average market price of the common stock for the
five days before the grant date.





On May 3, 2010, the Company issued
1,153,846 shares of restricted common stock to a related party as part of the
consideration for theacquisition of Catch-Luck.





On June
1, 2010, the Company issued 27,565 shares of restricted common
stock to a third party as part of the consideration for theacquisition
of Catch-Luck and New-Tailun.





On July 19, 2010, the Company issued
2,498 shares of common stock to the Company’s three independent directors
as compensation for their services in the first and second quarters of 2010. The
shares were valued at $2.98 per share, which was the average market
price of the common stock for the five days before the grant date.





NOTE
9 RELATED PARTY TRANSACTIONS




Mr. Kang
is the Company’s Chairman and Chief Executive Officer. Ever-Glory Hong Kong is
the Company’s major shareholder. All transactions associated with the following
companies controlled by Mr. Kang and Ever-Glory Hong Kong are considered to
be related party transactions. All related party outstanding balances are
short-term in nature and are expected to be settled in cash.





Sales and Cost of Sales to
Related Parties




Sales and
cost of sales for the three and nine months ended September 30, 2009, were from
transactions with Nanjing Knitting, Jiangsu Ever-Glory and Shanghai La Chapell.
There were no sales to related parties for the three and nine months ended
September 30, 2010.


12


Purchases of raw materials
and sub contractor agreements with Related Parties




For the
three and nine months ended September 30, 2010 and 2009, the Company purchased
raw materials of $805,227, $1,706,072, $462,065, and $818,214, respectively,
from Nanjing Knitting.




In
addition, the Company sub-contracted certain manufacturing work to related
parties totaling $1,119,336, $2,860,237, $270,172 and $1,173,830 for the three
and nine months ended September 30, 2010 and 2009, respectively. The Company
provided raw materials to the sub-contractors and was charged a fixed fee for
labor provided by the sub-contractors.




Sub-contracts
with related parties included in cost of sales for the three and nine months
ended September 30, 2010 and 2009 are as follows:




Three Months Ended
                      September 30,
                    
                    
                    Nine Months Ended
                      September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Nanjing
      High-Tech
                    
                    $
                    46,376
                    
                    
                    $
                    111,654
                    
                    
                    $
                    94,176
                    
                    
                    $
                    520,598Nanjing
      Ever-Kyowa
                    
                    
                    290,694
                    
                    
                    
                    158,518
                    
                    
                    
                    802,880
                    
                    
                    
                    653,232Jiangsu
      Ever-Glory
                    
                    
                    172,684
                    
                    
                    
                    
                    
                    
                    
                    267,362Ever-Glory
      Vietnam
                    
                    
                    509,821
                    
                    
                    
                    
                    
                    
                    
                    1,231,329Ever-Glory
      Cambodia
                    
                    
                    99,761
                    
                    
                    
                    
                    
                    
                    
                    464,490$
                    1,119,336
                    
                    
                    $
                    270,172
                    
                    
                    $
                    2,860,237
                    
                    
                    $
                    1,173,830




AmountsDueFromRelatedParty




Jiangsu
Ever-Glory International Group Corp., (“Jiangsu Ever-Glory”) is an entity
engaged in importing/exporting, apparel-manufacture, real-estate development,
car sales and other activities. Jiangsu Ever-Glory is controlled by the
Company’s Chief Executive Officer. Because of restrictions on the Company’s
ability to directly import and export products, the Company utilizes Jiangsu
Ever-Glory as its agent, to assist the Company with its import and export
transactions and its international transportation projects. Import transactions
primarily consist of purchases of raw materials and accessories designated by
the Company’s customers for use in garment manufacture. Export transactions
consist of the Company’s sales to foreign markets such as Japan, Europe and the
United States. As the Company’s agent, Jiangsu Ever-Glory’s responsibilities
include managing customs, inspection, transportation, insurance and collections
on behalf of the Company. Jiangsu Ever-Glory also manages transactions
denominated in currencies other than the Chinese RMB at rates of exchange agreed
between the Company and Jiangsu Ever-Glory and based upon rates of exchange
quoted by the People’s Bank of China. In return for these services, Jiangsu
Ever-Glory charges the Company a fee of approximately 3% of export
sales.  For import transactions, the Company may make advance
payments, through Jiangsu Ever-Glory, for the raw material purchases, or Jiangsu
Ever-Glory may make advance payments on the Company’s behalf. For export
transactions, accounts receivable for export sales are remitted by the Company’s
customers through Jiangsu Ever-Glory, who forwards the payments to the Company.
The Company and Jiangsu Ever-Glory have agreed that balances from import and
export transactions may be offset.  Amounts due to (from) Jiangsu
Ever-Glory are typically settled within 60-90 days. Interest of 0.5% is charged
on net amounts due at each month end. Interest (expense)/income for the three
and nine months ended September 30, 2010 and 2009 was ($3,177), $49,171,
$179,560 and $443,051, respectively. Following is a summary of import and export
transactions for the nine months ended September 30, 2010:





Accounts Receivable
                  
                  
                  Accounts Payable
                  
                  
                  NetAs
      of January 1, 2010
                  
                  $
                  15,745,543
                  
                  
                  $
                  2,390,659
                  
                  
                  $
                  13,354,884Sales/Purchases
                  
                  $
                  15,696,889
                  
                  
                  $
                  577,073Payments
      Received/Made
                  
                  $
                  14,941,340
                  
                  
                  
                  -As
      of September 30,  2010
                  
                  $
                  16,501,092
                  
                  
                  $
                  2,967,732
                  
                  
                  $
                  13,533,360





Approximately
25% of the receivable balance at September 30, 2010 was settled by
November 11, 2010.


13


Accounts Payable andOther Payables–RelatedParties





As of
September 30, 2010 and December 31, 2009, accounts payable and other payables due to
related parties were as follows:




2010
                  
                  
                  2009Nanjing
      High-Tech
                  
                  $
                  256,405
                  
                  
                  $
                  153,660Nanjing
      Ever-Kyowa
                  
                  
                  428,771
                  
                  
                  
                  335,546Ever-Glory
      Vietnam
                  
                  
                  83,136
                  
                  
                  
                  -Shanghai
      La Chapelle Garment and Accessories Company Limited
                  
                  
                  -
                  
                  
                  
                  293,400Total
                  
                  $
                  768,312
                  
                  
                  $
                  782,606




The
Company purchases raw materials from and subcontracts some of its production to
related parties.





In February,
July and August 2009, LA GO GO borrowed $293,400 (RMB 2 million) from
La Chapelle for operations. This loan is interest free and due on
demand.





On April
2, 2010, Goldenway sold its 10% equity interest in La Chapelle to two third
parties. Accordingly, at September 30, 2010, the amount owed to La Chapelle of
$299,400 (RMB 2 million) was reclassified to other payables.




Loans from Related
Party




As of
September 30, 2010 and December 31, 2009 the Company owed $1,987,089 and
$2,575,759, respectively to Blue Power Holdings Limited, a company controlled by
the Company’s Chief Executive Officer, Mr. Kang. Interest is charged at 6% per
annum on the amounts due. The loans are due between July 2010 and April 2011.
For the three and nine months ended September 30, 2010 and 2009, the Company
incurred interest expense of $16,514, $61,360, $29,265, and $87,794,
respectively. The accrued interest is included in the carrying amount of the
loan in the accompanying balance sheets. During 2010, the Company repaid
$650,030 to Blue Power Holdings Limited.





NOTE10
CONCENTRATIONS AND RISKS




The
Company extends unsecured credit to its customers in the normal course of
business and generally does not require collateral. As a result, management
performs ongoing credit evaluations, and the Company maintains an allowance for
potential credit losses based upon its loss history and its aging analysis.
Based on management’s assessment of the amount of probable credit losses, if
any, in existing accounts receivable, management has concluded that no allowance
for doubtful accounts is necessary at September 30, 2010 and December 31,
2009. Management reviews the allowance for doubtful accounts each reporting
period based on a detailed analysis of accounts receivable. In the analysis,
management primarily considers the age of the customer’s receivable and also
considers the credit worthiness of the customer, the economic conditions of the
customer’s industry, and general economic conditions and trends, among other
factors. If any of these factors change, the Company may also change its
original estimates, which could impact the level of the Company’s future
allowance for doubtful accounts. If judgments regarding the collectability of
accounts receivable were incorrect, adjustments to the allowance may be
required, which would reduce profitability.




For the
nine-month period ended September 30, 2010, the Company had one wholesale
customer that represented approximately 25.6% of the Company’s revenues. For the
three-month period ended September 30, 2010, the Company had one wholesale
customer that represented approximately 19.3% of the Company’s revenues. For the
nine-month period ended September 30, 2009, the Company had two wholesale
customers that represented approximately 29.0% and 12.8% of the Company’s
revenues. For the three-month period ended September 30, 2009, the Company had
two wholesale customers that represented approximately 20.9% and 23.6% of the
Company’s revenues.


14




During
the three and nine months ended September 30, 2010 and 2009, no supplier
represented more than 10% of the total raw materials purchased.




For the
wholesale business, during the nine months ended September 30, 2010, the Company
relied on one manufacturer for 16% of purchased finished goods. During the three
months ended September 30, 2010, the Company relied on one manufacturer for 15%
of purchased finished goods. During the nine months ended September 30, 2009,
the Company relied on two manufacturers for 17.9% and 11.4% of purchased
finished goods. During the three months ended September 30, 2009, the Company
relied on two manufacturer for 17.7% and 15.1% of purchased finished
goods.




For the
retail business, during the nine months ended September 30, 2010, the Company
relied on one manufacturer for 10.5% of purchased finished goods. During the
three months ended September 30, 2010, the Company did not rely on any
manufacturer for purchased finished goods. During the nine months ended
September 30, 2009, the Company relied on one manufacturer for 10.0% of
purchased finished goods. During the three months ended September 30, 2009, the
Company did not rely on any manufacturer for purchased finished
goods.




The
Company’s revenues for the three and nine months ended September 30, 2010 and
2009 were earned in the following geographic areas:




Three months ended
                      September 30,
                    
                    
                    Nine months ended
                      September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009The
      People’s Republic of China
                    
                    $
                    9,393,627
                    
                    
                    $
                    3,874,932
                    
                    
                    $
                    24,875,204
                    
                    
                    $
                    10,002,626Germany
                    
                    
                    4,931,175
                    
                    
                    
                    4,654,948
                    
                    
                    
                    16,131,127
                    
                    
                    
                    17,213,122United
      Kingdom
                    
                    
                    3,387,371
                    
                    
                    
                    3,639,529
                    
                    
                    
                    9,582,530
                    
                    
                    
                    10,384,466Europe-Other
                    
                    
                    6,435,129
                    
                    
                    
                    3,679,159
                    
                    
                    
                    13,640,478
                    
                    
                    
                    7,853,174Japan
                    
                    
                    3,531,122
                    
                    
                    
                    3,106,222
                    
                    
                    
                    8,112,740
                    
                    
                    
                    10,347,924United
      States
                    
                    
                    4,257,550
                    
                    
                    
                    5,981,931
                    
                    
                    
                    8,835,939
                    
                    
                    
                    10,768,725Total
                    
                    $
                    31,935,974
                    
                    
                    $
                    24,936,721
                    
                    
                    $
                    81,178,018
                    
                    
                    $
                    66,570,037





NOTE
11 SEGMENTS





The
Company reports financial and operating information in the following two
segments:





(a)  Wholesale
segment





(b)  Retail
segment





The
Company also provides general corporate services to its segments and these costs
are reported as "corporate and others."


15





Wholesale
                                                                    
                                                                    
                                                                    
                                                                    Corporate
      andsegment
                                                                    
                                                                    Retail segment
                                                                    
                                                                    others
                                                                    
                                                                    
                                                                    TotalNine
      months ended September 30, 2010 Segment profit or loss:Net
      revenue from external customers
                                                                    $
                                                                    63,262,764
                                                                    
                                                                    $
                                                                    17,915,254
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    81,178,018Net
      revenue from related parties
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -Income
      from operations
                                                                    $
                                                                    3,463,709
                                                                    
                                                                    $
                                                                    1,053,257
                                                                    
                                                                    $
                                                                    (421,175
                                                                    )
                                                                    
                                                                    $
                                                                    4,095,791Interest
      income
                                                                    $
                                                                    104,089
                                                                    
                                                                    $
                                                                    1,458
                                                                    
                                                                    $
                                                                    2
                                                                    
                                                                    
                                                                    $
                                                                    105,549Interest
      expense
                                                                    $
                                                                    255,420
                                                                    
                                                                    $
                                                                    9,508
                                                                    
                                                                    $
                                                                    61,362
                                                                    
                                                                    
                                                                    $
                                                                    326,290Depreciation
      and amortization
                                                                    $
                                                                    735,536
                                                                    
                                                                    $
                                                                    945,775
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    1,681,311Income
      tax expense
                                                                    $
                                                                    424,347
                                                                    
                                                                    $
                                                                    265,347
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    689,694Segment
      assets:Additions
      to property, plant and equipment
                                                                    $
                                                                    287,594
                                                                    
                                                                    $
                                                                    599,822
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    887,416Total
      assets
                                                                    $
                                                                    93,048,802
                                                                    
                                                                    $
                                                                    12,432,382
                                                                    
                                                                    $
                                                                    60,572,236
                                                                    
                                                                    
                                                                    $
                                                                    166,053,420Nine
      months ended September 30, 2009 Segment profit or loss:Net
      revenue from external customers
                                                                    $
                                                                    59,305,945
                                                                    
                                                                    $
                                                                    7,188,520
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    66,494,465Net
      revenue from related parties
                                                                    $
                                                                    75,572
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    75,572Income
      from operations
                                                                    $
                                                                    5,311,244
                                                                    
                                                                    $
                                                                    (67,264
                                                                    )
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    5,243,980Interest
      income
                                                                    $
                                                                    445,117
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    445,117Interest
      expense
                                                                    $
                                                                    245,105
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    87,795
                                                                    
                                                                    
                                                                    $
                                                                    332,900Depreciation
      and amortization
                                                                    $
                                                                    753,866
                                                                    
                                                                    $
                                                                    758,223
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    1,512,089Income
      tax expense
                                                                    $
                                                                    692,206
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    692,206Segment
      assets:Additions
      to property, plant and equipment
                                                                    $
                                                                    76,469
                                                                    
                                                                    $
                                                                    907,877
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    984,346Total
      assets
                                                                    $
                                                                    58,779,581
                                                                    
                                                                    $
                                                                    5,529,624
                                                                    
                                                                    $
                                                                    47,504,883
                                                                    
                                                                    
                                                                    $
                                                                    111,814,088The
      reconciliations of segment information to the Company’s consolidated
      totals were as follows:September 30, 2010
                                                                    
                                                                    September 30, 2009Revenues:Total
      reportable segments
                                                                    $
                                                                    81,178,018
                                                                    
                                                                    $
                                                                    66,570,037Elimination
      of intersegment revenues
                                                                    
                                                                    -Total
      consolidated
                                                                    $
                                                                    81,178,018
                                                                    
                                                                    $
                                                                    66,570,037Income
      (loss) from operations:Total
      segments
                                                                    $
                                                                    4,095,791
                                                                    
                                                                    $
                                                                    5,243,980Elimination
      of intersegment profits
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    -Total
      consolidated
                                                                    $
                                                                    4,095,791
                                                                    
                                                                    $
                                                                    5,243,980Total
      assets:Total
      segments
                                                                    $
                                                                    166,053,420
                                                                    
                                                                    $
                                                                    111,814,088Elimination
      of intersegment receivables
                                                                    $
                                                                    (90,209,755
                                                                    )
                                                                    $
                                                                    (57,443,102
                                                                    )Total
      consolidated
                                                                    $
                                                                    75,843,665
                                                                    
                                                                    $
                                                                    54,370,986


16





Wholesale
                                                            
                                                            
                                                            
                                                            Corporate
      andsegment
                                                            
                                                            Retail segment
                                                            
                                                            others
                                                            
                                                            
                                                            TotalThree
      months ended September 30, 2010 Segment profit or loss:Net
      revenue from external customers
                                                            $
                                                            25,606,798
                                                            
                                                            $
                                                            6,329,176
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            31,935,974Net
      revenue from related parties
                                                            $
                                                            -
                                                            
                                                            $
                                                            -
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -Income
      from operations
                                                            $
                                                            1,149,439
                                                            
                                                            $
                                                            517,329
                                                            
                                                            $
                                                            (99,797
                                                            )
                                                            
                                                            $
                                                            1,566,971Interest
      income
                                                            $
                                                            11,797
                                                            
                                                            $
                                                            4
                                                            
                                                            $
                                                            1
                                                            
                                                            
                                                            $
                                                            11,802Interest
      expense
                                                            $
                                                            73,650
                                                            
                                                            $
                                                            3,306
                                                            
                                                            $
                                                            16,514
                                                            
                                                            
                                                            $
                                                            93,470Depreciation
      and amortization
                                                            $
                                                            243,911
                                                            
                                                            $
                                                            325,522
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            569,433Income
      tax expense
                                                            $
                                                            156,396
                                                            
                                                            $
                                                            128,518
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            284,914Segment
      assets:Additions
      to property, plant and equipment
                                                            $
                                                            47,666
                                                            
                                                            $
                                                            124,891
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            172,557Total
      assets
                                                            $
                                                            93,048,802
                                                            
                                                            $
                                                            12,432,382
                                                            
                                                            $
                                                            60,572,236
                                                            
                                                            
                                                            $
                                                            166,053,420Three
      months ended September 30, 2009 Segment profit or loss:Net
      revenue from external customers
                                                            $
                                                            22,247,762
                                                            
                                                            $
                                                            2,622,738
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            24,870,500Net
      revenue from related parties
                                                            $
                                                            66,221
                                                            
                                                            $
                                                            -
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            66,221Income
      from operations
                                                            $
                                                            1,992,626
                                                            
                                                            $
                                                            (19,143
                                                            )
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            1,973,483Interest
      income
                                                            $
                                                            180,431
                                                            
                                                            $
                                                            (341
                                                            )
                                                            $
                                                            (1
                                                            )
                                                            
                                                            $
                                                            180,089Interest
      expense
                                                            $
                                                            64,750
                                                            
                                                            $
                                                            -
                                                            
                                                            $
                                                            29,266
                                                            
                                                            
                                                            $
                                                            94,016Depreciation
      and amortization
                                                            $
                                                            250,528
                                                            
                                                            $
                                                            274,420
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            524,948Income
      tax expense
                                                            $
                                                            130,479
                                                            
                                                            $
                                                            -
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            130,479Segment
      assets:Additions
      to property, plant and equipment
                                                            $
                                                            13,526
                                                            
                                                            $
                                                            847,941
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            861,467Total
      assets
                                                            $
                                                            58,779,581
                                                            
                                                            $
                                                            5,529,624
                                                            
                                                            $
                                                            47,504,883
                                                            
                                                            
                                                            $
                                                            111,814,088The
      reconciliations of segment information to the Company’s consolidated
      totals were as follows:September 30, 2010
                                                            
                                                            September 30, 2009Revenues:Total
      reportable segments
                                                            $
                                                            31,935,974
                                                            
                                                            $
                                                            24,936,721Elimination
      of intersegment revenues
                                                            
                                                            -Total
      consolidated
                                                            $
                                                            31,935,974
                                                            
                                                            $
                                                            24,936,721Income
      (loss) from operations:Total
      segments
                                                            $
                                                            1,566,971
                                                            
                                                            $
                                                            1,973,483Elimination
      of intersegment profits
                                                            
                                                            -
                                                            
                                                            
                                                            -Total
      consolidated
                                                            $
                                                            1,566,971
                                                            
                                                            $
                                                            1,973,483Total
      assets:Total
      segments
                                                            $
                                                            166,053,420
                                                            
                                                            $
                                                            111,814,088Elimination
      of intersegment receivables
                                                            $
                                                            (90,209,755
                                                            )
                                                            $
                                                            (57,443,102
                                                            )Total
      consolidated
                                                            $
                                                            75,843,665
                                                            
                                                            $
                                                            54,370,986


17





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





The
following discussion and analysis of our financial condition and results of
operations for the three months and nine months ended September 30, 2010 should
be read in conjunction with the Financial Statements and corresponding notes
included in this Quarterly Report on Form 10-Q. Our discussion includes
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations, and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under the Risk Factors and Special Note
Regarding Forward-Looking Statements in this report. We use words such as
“anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and
similar expressions to identify forward-looking statements.





Overview




Our
Business




We are a
leading apparel supply-chain manager and retailer in China. We are listed on the
NYSE Amex under the symbol of “EVK”.




We
classify our businesses into two segments: Wholesale and Retail. Our wholesale
business consists of wholesale-channel sales made principally to owners of
famous brands, department stores and specialty stores located throughout Europe,
the U.S., Japan and the People’s Republic of China (“PRC”). We focus on
well-known, middle-to-high grade casual wear, sportswear, and outerwear brands.
Our retail business consists of retail-channel sales directly to consumers
through full-price retail stores located throughout the PRC.




Although
we have our own manufacturing facilities, we currently outsource most of the
manufacturing to our long-term contractors as part of our overall business
strategy. We believe outsourcing allows us to maximize our production capacity
and maintain flexibility while reducing capital expenditures and the costs of
keeping skilled workers on production lines during low seasons. We oversee our
long-term contractors with our advanced management solutions and inspect
products manufactured by them to ensure that they meet our high quality
control standards and timely delivery.




Wholesale
Business




We
conduct our original design manufacturing (“ODM”) operations through four
wholly-owned subsidiaries which are located in the Nanjing Jiangning Economic
and Technological Development Zone and Shang Fang Town in the Jiangning District
in Nanjing, China: Ever-Glory International Group Apparel Inc. (“Ever-Glory
Apparel”), Goldenway Nanjing Garments Company Limited (“Goldenway”), Nanjing
New-Tailun Garments Company Limited (“New Tailun”), and Nanjing Catch-Luck
Garments Co., Ltd. (“Catch-Luck”).





Retail
Business




We
conduct our retail operations through Shanghai LA GO GO Fashion Company Limited
(“LA GO GO”), a wholly-owned subsidiary of Ever-Glory Apparel.




Business
Objectives





Wholesale
Business





We
believe the enduring strength of our wholesale business is mainly due to our
consistent emphasis on innovative and distinctive product designs that stand for
exceptional styling and quality. We maintain long-term, satisfactory
relationships with a portfolio of well-known, mid-class global
brands.





The
primary business objective for our wholesale segment is to expand our portfolio
into higher-class brands, expand our customer base and improve our profit. We
believe that our growth opportunities and continued investment initiatives
include:




··
            toexpand our global sourcing
  network;


·
            toinvest in
      our overseas low-cost manufacturing base (outside of mainland
      China);


·
            tofocus on
      high value added products and continue our strategy to produce mid to high
      end garment;


·
            toemphasize
      product design and new technology utilization;
  and


·
            toseek
      strategic acquisitions of international distributors that could enhance
      global sales and our distribution
network


18


Retail
Business




The
business objective for our retail segment is to establish a leading brand of
women’s apparel and to build a nationwide retail network in China. As of
September 30, 2010, we have 214 stores (including store-in-stores) which include
61 stores that were opened in 2010 and 32 stores that were closed in 2010. As of
November 11, 2010, the Company had approximately 250 LA GO GO retail stores, We
expect to open additional 30-40 stores before the end of the year.




. We
believe that our growth opportunities and continued investment initiatives
include:





·
            tobuild the
      LA GO GO brand to be recognized as a major player in the mid-end women's
      apparel market in China;


·
            toexpand the
      LA GO GO retail network;


·
            to improve
      the LA GO GO retail stores’ efficiency and increase same-store
      sales


·
            tolaunch LA
      GO GO flagship stores in Tier-1 Cities and increase penetration and
      coverage in Tier-2 and Tier-3
Cities


·
            tobecome a multi-brand operator by seeking opportunities for
      long-term cooperation with reputable international brands and by
      facilitating international brands entry into the Chinese
      market;




Seasonality
of Business




Our
business is affected by seasonal trends, with higher levels of wholesale sales
in our third and fourth quarters and higher retail sales in our first and fourth
quarters. These trends primarily result from the timing of seasonal wholesale
shipments and holiday periods in the retail segment.




Collection
Policy




Wholesale
business




For our
new customers, we generally require orders placed to be backed by letters of
credit. For our long-term and established customers with a good payment track
record, we generally provide payment terms between 30 to 120 days following
delivery of finished goods.




Retail
business




For
store-in-store shops, we generally receive payments from the stores between 60
and 90 days following the date of the register receipt. For our own flagship
stores, we receive payments at the same time as the register
receipt.




Global
Economic Uncertainty




Our
business is dependent on consumer demand for our products. We believe that the
significant uncertainty in the global economy and a slowdown in the U.S. and EU
economies have increased our clients’ sensitivity to the cost of our products.
We have experienced continued pricing pressure this year. If the global economic
environment continues to be weak, these worsening economic conditions could have
a negative impact on our sales growth and operating margins in our wholesale
segment in 2011.




In
addition, economic conditions in the United States and in foreign markets in
which we operate could substantially affect our sales and profitability and our
cash position and collection of accounts receivable.  Global credit
and capital markets have experienced unprecedented volatility and disruption.
Business credit and liquidity have tightened in much of the world. Some of our
suppliers and customers may face credit issues and could experience cash flow
problems and other financial hardships. These factors currently have not had an
impact on the timeliness of receivable collections from our customers. We
cannot predict at this time how this situation will develop and whether accounts
receivable may need to be allowed for or written off in the coming
quarters.





Despite
the various risks and uncertainties associated with the current global economy,
we believe our core strengths will continue to allow us to execute our strategy
for long-term sustainable growth in revenue, net income and operating cash
flow.




Summary
of Critical Accounting Policies




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


19


Revenue
Recognition





We
recognize wholesale revenue from product sales, net of value-added taxes, upon
delivery for local sales and upon shipment of the products for export sales, at
such time title passes to the customer provided however that (i) there are no
uncertainties regarding customer acceptance (ii) persuasive evidence of an
arrangement exists (iii) the sales price is fixed and determinable, and (iv)
collectability is deemed probable. We recognize wholesale revenue from
manufacturing fees charged to buyers for the assembly of garments from materials
provided by the buyers upon completion of the manufacturing process and upon
delivery to the buyer for local sales and upon shipment of the products for
export sales, provided that (i)there are no uncertainties regarding customer
acceptance (ii) persuasive evidence of an arrangement exists (iii) the sales
price is fixed and determinable, and (iv)  collectability is deemed
probable. Retail sales are recorded at the time of register
receipt.




Estimates
and Assumptions




In
preparing our consolidated financial statements, we use estimates and
assumptions that affect the reported amounts and disclosures. Our estimates are
often based on complex judgments, probabilities and assumptions that we believe
to be reasonable, but that are inherently uncertain and unpredictable. We are
also subject to other risks and uncertainties that may cause actual results to
differ from estimated amounts. Significant estimates in 2010 and 2009 include
the assumptions used to value warrants and the estimates of the allowance for
deferred tax assets.





Results
of Operations for the three months ended September 30, 2010 and
2009








Three months ended September 302010
                  
                  
                  2009(in
      U.S. Dollars, except for percentages)Sales
                  
                  $
                  31,935,974
                  
                  
                  
                  100.0
                  %
                  
                  $
                  24,936,721
                  
                  
                  
                  100.0
                  %Gross
      Profit
                  
                  $
                  6,352,142
                  
                  
                  
                  19.9
                  %
                  
                  $
                  4,633,705
                  
                  
                  
                  18.6
                  %Operating
      Expense
                  
                  $
                  4,785,171
                  
                  
                  
                  15.0
                  %
                  
                  $
                  2,660,222
                  
                  
                  
                  10.7
                  %Income
      From Operations
                  
                  $
                  1,566,971
                  
                  
                  
                  4.9
                  %
                  
                  $
                  1,973,483
                  
                  
                  
                  7.9
                  %Other
      Income (Expenses)
                  
                  $
                  544,008
                  
                  
                  
                  1.7
                  %
                  
                  $
                  (56,658
                  )
                  
                  
                  (0.2
                  )
      %Income
      tax expenses
                  
                  $
                  284,914
                  
                  
                  
                  0.9
                  %
                  
                  $
                  130,479
                  
                  
                  
                  0.5
                  %Net
      Income
                  
                  $
                  1,826,065
                  
                  
                  
                  5.7
                  %
                  
                  $
                  1,786,346
                  
                  
                  
                  7.2
                  %





Revenue




The
following table sets forth a breakdown of our total sales, by region, for the
three months ended September 30, 2010 and 2009.





Three
      months ended
                          September
                          30, 2010
                        
                        
                        % of total
                          sales
                        
                        
                        Three
                          monthsended
                          September
                          30, 2009
                        
                        
                        % of total
                          sales
                        
                        
                        Growth
                          (Decrease) in
                          2010
                          compared
                          with 2009Wholesale
      businessThe
      People’s Republic of
      China
                        
                        $
                        3,064,451
                        
                        
                        
                        9.6
                        %
                        
                        $
                        1,252,194
                        
                        
                        
                        5.0
                        %
                        
                        
                        144.73
                        %Germany
                        
                        
                        4,931,175
                        
                        
                        
                        15.4
                        
                        
                        
                        4,654,948
                        
                        
                        
                        18.7
                        
                        
                        
                        5.9United
      Kingdom
                        
                        
                        3,387,371
                        
                        
                        
                        10.6
                        
                        
                        
                        3,639,529
                        
                        
                        
                        14.6
                        
                        
                        
                        (6.9
                        )Europe-Other
                        
                        
                        6,435,129
                        
                        
                        
                        20.2
                        
                        
                        
                        3,679,159
                        
                        
                        
                        14.8
                        
                        
                        
                        74.9Japan
                        
                        
                        3,531,122
                        
                        
                        
                        11.1
                        
                        
                        
                        3,106,222
                        
                        
                        
                        12.5
                        
                        
                        
                        13.7United
      States
                        
                        
                        4,257,550
                        
                        
                        
                        13.3
                        
                        
                        
                        5,981,931
                        
                        
                        
                        24.0
                        
                        
                        
                        (28.8
                        )Total wholesale
      business
                        
                        
                        25,606,798
                        
                        
                        
                        80.2
                        
                        
                        
                        22,313,983
                        
                        
                        
                        89.5
                        
                        
                        
                        14.8Retail
      business
                        
                        
                        6,329,176
                        
                        
                        
                        19.8
                        
                        
                        
                        2,622,738
                        
                        
                        
                        10.5
                        
                        
                        
                        141.3Total
                        
                        $
                        31,935,974
                        
                        
                        
                        100.0
                        %
                        
                        $
                        24,936,721
                        
                        
                        
                        100.0
                        %
                        
                        
                        28.1
                        %


20


Revenues
from our wholesale business mainly come from international markets. We also
generate revenues from our retail business from Chinese domestic markets
focusing on our own brand, LA GO GO.





Sales for
the three months ended September 30, 2010 were $31,935,974, an increase of 28.1%
from the three months ended September 30, 2009. The increase in our sales was
primarily attributable to increased sales orders in our wholesales business to
customers in the PRC, Europe and Japan and the increased sales in our
retail business.





Sales
generated from our wholesale business contributed 80.2% or $25.6 million of our
total sales for the three months ended September 30, 2010, an increase of 14.8%
compared to $22.3 million in the three months ended September 30, 2009. This
increase was primarily due to the increased orders from customers in the PRC,
Europe and Japan.





Sales
generated from our retail business contributed 19.8% or $6.3 million of our
total sales for the three months ended September 30, 2010, compared to 10.5% or
$2.6 million in the three months ended September 30, 2009. This increase was
primarily due to the increase of same store sales and new stores opened. In the
third quarter of 2010 we opened 21 new LA GO GO stores. As of
September 30, 2010, we have 214 LA GO GO retail stores (including
store-in-stores) in total.





Costs
and Expenses




Cost
of Sales and Gross Margin




Cost of
goods sold includes the direct raw material cost, direct labor cost, and
manufacturing overhead including depreciation of production equipment and rent,
consistent with the revenue earned. Cost of goods sold excludes warehousing
costs, which historically have not been significant.




The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the three months ended
September 30, 2010 and 2009.





Three months ended September 30,2010
                        
                        
                        2009
                        
                        
                        Growth(Decrease) in 2010(in
      U.S. dollars, except for percentages)
                        
                        
                        compared with 2009Net
      Sales for wholesale
                        
                        $
                        25,606,798
                        
                        
                        
                        100.0
                        %
                        
                        $
                        22,313,983
                        
                        
                        
                        100.0
                        %
                        
                        
                        14.8
                        %Raw
      Materials
                        
                        
                        12,541,213
                        
                        
                        
                        49.0
                        
                        
                        
                        10,907,279
                        
                        
                        
                        48.9
                        
                        
                        
                        15.0Labor
                        
                        
                        931,186
                        
                        
                        
                        3.6
                        
                        
                        
                        808,146
                        
                        
                        
                        3.6
                        
                        
                        
                        15.2Outsourced
      Production Costs
                        
                        
                        8,006,409
                        
                        
                        
                        31.3
                        
                        
                        
                        6,846,590
                        
                        
                        
                        30.7
                        
                        
                        
                        16.9Other
      and Overhead
                        
                        
                        107,689
                        
                        
                        
                        0.4
                        
                        
                        
                        165,919
                        
                        
                        
                        0.7
                        
                        
                        
                        (35.1
                        )Total
      Cost of Sales for Wholesale
                        
                        
                        21,586,497
                        
                        
                        
                        84.3
                        
                        
                        
                        18,727,934
                        
                        
                        
                        83.9
                        
                        
                        
                        15.3Gross
      Profit for Wholesale
                        
                        
                        4,020,301
                        
                        
                        
                        15.7
                        
                        
                        
                        3,586,049
                        
                        
                        
                        16.1
                        
                        
                        
                        12.1Net
      Sales for Retail
                        
                        
                        6,329,176
                        
                        
                        
                        100.0
                        
                        
                        
                        2,622,738
                        
                        
                        
                        100.0
                        
                        
                        
                        141.3Production
      Costs
                        
                        
                        2,235,296
                        
                        
                        
                        35.3
                        
                        
                        
                        686,195
                        
                        
                        
                        26.1
                        
                        
                        
                        225.8Rent
                        
                        
                        1,762,039
                        
                        
                        
                        27.8
                        
                        
                        
                        888,887
                        
                        
                        
                        33.9
                        
                        
                        
                        98.2Total
      Cost of Sales for Retail
                        
                        
                        3,997,335
                        
                        
                        
                        63.2
                        
                        
                        
                        1,575,082
                        
                        
                        
                        60.0
                        
                        
                        
                        153.8Gross
      Profit for Retail
                        
                        
                        2,331,841
                        
                        
                        
                        36.8
                        
                        
                        
                        1,047,656
                        
                        
                        
                        40.0
                        
                        
                        
                        122.6Total
      Cost of Sales
                        
                        
                        25,583,832
                        
                        
                        
                        80.1
                        
                        
                        
                        20,303,016
                        
                        
                        
                        81.4
                        
                        
                        
                        26.0Gross
      Profit
                        
                        $
                        6,352,142
                        
                        
                        
                        19.9
                        %
                        
                        $
                        4,633,705
                        
                        
                        
                        18.6
                        %
                        
                        
                        37.1
                        %


21


Raw
material costs for our wholesale business were 49.0% of our total sales in
the three months ended September 30, 2010, compared to 48.9% in the three months
ended September 30, 2009. The
increase was mainly due to increased raw materials prices.




Labor
costs for our wholesale business were 3.6% of our total sales in the three
months ended September 30, 2010 and 2009.




Outsourced
manufacturing costs for our wholesale business were 31.3% of our total
sales in the three months ended September 30, 2010, compared to 30.7% in the
three months ended September 30, 2009. The increase was mainly due to increased
outsourcing cost because of the limited product capacity.





Overhead
and other expenses for our wholesale business accounted for 0.4% of our total
sales for the three months ended September 30, 2010, compared to 0.7% of total
sales for the nine months ended September 30, 2009. This decrease was due to our
better control over these expenses





Gross
profit in our wholesale business for the three months ended September 30, 2010
was $4.0 million, an increase of 12.1% compared to the three months ended
September 30, 2009. Gross margin was 15.7% for our wholesale business for the
three months ended September 30, 2010, a decrease of 0.4% compared to 16.1% for
the three months ended September 30, 2009. This decrease was primarily due to an
increase in raw material prices and outsourced production costs.





Production
costs for our retail business were $2.2 million or 35.3% of our total retail
sales during the three months ended September 30, 2010 versus $0.7 million or
26.1% during the three months ended September 30, 2009. As a percentage of total
retail sales the increase in the production costs was due to reducing
tag pricesfor increased sales volume. Rent costs for our retail business
were $1.8 million or 27.8% of our total retail sales during the three months
ended September 30, 2010 versus $0.9 million or 33.9% during the three months
ended September 30, 2009.The increase in rent costs resulted from an increase in
the number of our stores. The decrease in rent costs as a percentage of total
retail sales was due to an increase in same store sales during the third quarter
of 2010.





Gross
profit in our retail business for the three months ended September 30, 2010 was
$2.3 million and gross margin was 36.8%. Gross profit in our retail business for
the three months ended September 30, 2009 was $1.0 million and gross margin was
40.0%. The decrease was
primarily due to the fact that we reduced our sales prices in order to increase
our sales volume.





Total
cost of sales for the three months ended September 30, 2010 was $25.6 million.
As a percentage of total sales, our cost of sales decreased to 80.1% of total
sales for the three months ended September 30, 2010, compared to 81.4% of total
sales for the three months ended September 30, 2009. Consequently, gross margins
increased to 19.9% for the three months ended September 30, 2010 from 18.6% for
the three months ended September 30, 2009. The increase was primarily due to our
retail business’s significant development.





Selling,
General and Administrative Expenses




Our
selling expenses consist primarily of local transportation, unloading charges,
product inspection charges, salaries for retail staff and decoration and
marketing expenses associated with our retail business.





Our
general and administrative expenses include administrative salaries, office
expense, certain depreciation and amortization charges, repairs and maintenance,
legal and professional fees, warehousing costs and other expenses that are not
directly attributable to our revenues.





Costs of
our distribution network that are excluded from cost of sales consist of local
transportation and unloading charges, and product inspection charges.
Accordingly our gross profit amounts may not be comparable to those of other
companies who include these amounts in cost of sales.


22





For the three months ended September
      302010
                                                              
                                                              
                                                              2009$
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              Increase(in
      U.S. Dollars, except for percentages)
                                                              
                                                              
                                                              (Decrease)Gross
      Profit
                                                              
                                                              $
                                                              6,352,142
                                                              
                                                              
                                                              
                                                              19.9
                                                              %
                                                              
                                                              $
                                                              4,633,705
                                                              
                                                              
                                                              
                                                              18.6
                                                              %
                                                              
                                                              
                                                              37.1
                                                              %Operating
      Expenses:Selling
      Expenses
                                                              
                                                              
                                                              2,283,606
                                                              
                                                              
                                                              
                                                              7.2
                                                              %
                                                              
                                                              
                                                              1,097,840
                                                              
                                                              
                                                              
                                                              4.4
                                                              %
                                                              
                                                              
                                                              108.0
                                                              %General
      and Administrative Expenses
                                                              
                                                              
                                                              2,501,565
                                                              
                                                              
                                                              
                                                              7.8
                                                              %
                                                              
                                                              
                                                              1,562,382
                                                              
                                                              
                                                              
                                                              6.3
                                                              %
                                                              
                                                              
                                                              60.1
                                                              %Total
      Operating
      Expenses
                                                              
                                                              
                                                              4,785,171
                                                              
                                                              
                                                              
                                                              15.0
                                                              %
                                                              
                                                              
                                                              2,660,222
                                                              
                                                              
                                                              
                                                              10.7
                                                              %
                                                              
                                                              
                                                              79.9
                                                              %Income
      from Operations
                                                              
                                                              
                                                              1,566,971
                                                              
                                                              
                                                              
                                                              4.9
                                                              %
                                                              
                                                              
                                                              1,973,483
                                                              
                                                              
                                                              
                                                              7.9
                                                              %
                                                              
                                                              
                                                              (20.6
                                                              )%





Selling
expenses were $2.3 million in the three months ended September 30, 2010, an
increase of 108.0% or $1.2 million compared to the three months ended September
30, 2009. The increase was attributable to an increase in salaries and the
number of retail staff as a result of increased stores, as well as the increased
decoration and marketing expenses associated with the promotion of LA GO
GO.





General
and administrative expenses were $2.5 million in the three months ended
September 30, 2010, an increase of 60.1% compared to the three months ended
September 30, 2009. As a percentage of total sales, general and administrative
expenses increased to 7.8% of total sales for the three months ended September
30, 2010, compared to 6.3% of total sales for the three months ended September
30, 2009. The increase was attributable to the
increased payroll for additional management, design and marketing staff as a
result of our business expansion.




Income
from Operations




Income
from operations decreased 20.6% to $1.6 million for the three months ended
September 30, 2010 from $2.0 million in three months ended September 30,
2009.  The
decrease was mainly due to the increased selling, general and administrative
expenses.




Interest
Expense




Interest
expense was $93,470 for the three months ended September 30, 2010, a slight
decrease compared to the same period in 2009.





Change
in fair value of derivative liability





Change in
fair value of derivative liability was $621,600 and $(143,000) for the three
months ended September 30, 2010 and 2009, respectively, and was calculated based
on the Black-Scholes pricing model.





Income
Tax Expenses




Income
tax expense for the three months ended September 30, 2010 was $284,914, an
increase of 118.4% compared to the same period of 2009. The increase was
primarily due to the increased profit of Goldenway, LA GO GO and Ever-Glory
Apparel .





Our PRC
subsidiaries are governed by the Income Tax Law of the PRC concerning Foreign
Investment Enterprises and Foreign Enterprises and various local income tax
laws. Each of our consolidating entities files its own separate tax
return.





Below is
a summary of the income tax rate for each of our PRC subsidiaries in 2010 and
2009:





Goldenway
                  
                  
                  New-Tailun
                  
                  
                  Catch-Luck
                  
                  
                  LA GO GO
                  
                  
                  Ever-Glory Apparel2010
                  
                  
                  25.0
                  %
                  
                  
                  12.5
                  %
                  
                  
                  12.5
                  %
                  
                  
                  25.0
                  %
                  
                  
                  25.0
                  %2009
                  
                  
                  25.0
                  %
                  
                  
                  12.5
                  %
                  
                  
                  12.5
                  %
                  
                  
                  25.0
                  %
                  
                  
                  25.0
                  %





Perfect
Dream Limited was incorporated in the British Virgin Islands on July 1, 2004,
and has no income tax.




Ever-Glory
HK was incorporated in Samoa on September 15, 2009, and has no income
tax.




Ever-Glory
International Group Inc. was incorporated in the United States and has incurred
net operating losses for income tax purposes through September 30, 2010. 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 2030. Management believes that the realization of the benefits
from these losses is uncertain due to our limited operating history and
continuing losses for United States income tax purposes. Accordingly, we
provided a 100% valuation allowance on the deferred tax asset to reduce the
asset to zero.


23


Net
Income




Net
income for the three months ended September 30, 2010 was $1,826,065, an increase
of 2.2% compared to the same period in 2009. Our diluted earnings per share were
$0.12 and $0.13 for the three months ended September 30, 2010 and 2009,
respectively.





Results
of Operations for the nine months ended September 30, 2010 and 2009





The
following table summarizes our results of operations for the nine months ended
September 30, 2010 and 2009. The table and the discussion below should be read
in conjunction with the condensed consolidated financial statements and the
notes thereto appearing elsewhere in this report.





Nine Months ended September
    30,2010
                                    
                                    
                                    2009(in
      U.S. Dollars, except for percentages)Sales
                                    
                                    $
                                    81,178,018
                                    
                                    
                                    
                                    100.0
                                    %
                                    
                                    $
                                    66,570,037
                                    
                                    
                                    
                                    100.0
                                    %Gross
      Profit
                                    
                                    $
                                    16,289,147
                                    
                                    
                                    
                                    20.1
                                    %
                                    
                                    $
                                    13,855,421
                                    
                                    
                                    
                                    20.8
                                    %Operating
      Expense
                                    
                                    $
                                    12,193,356
                                    
                                    
                                    
                                    15.0
                                    %
                                    
                                    $
                                    8,611,441
                                    
                                    
                                    
                                    12.9
                                    %Income
      From Operations
                                    
                                    $
                                    4,095,791
                                    
                                    
                                    
                                    5.0
                                    %
                                    
                                    $
                                    5,243,980
                                    
                                    
                                    
                                    7.9
                                    %Other
      Income (Expenses)
                                    
                                    $
                                    855,117
                                    
                                    
                                    
                                    1.1
                                    %
                                    
                                    $
                                    (567,531
                                    )
                                    
                                    
                                    (0.9
                                    )
      %Income
      tax expenses
                                    
                                    $
                                    689,694
                                    
                                    
                                    
                                    0.8
                                    %
                                    
                                    $
                                    692,206
                                    
                                    
                                    
                                    1.0
                                    %Net
      Income
                                    
                                    $
                                    4,261,214
                                    
                                    
                                    
                                    5.2
                                    %
                                    
                                    $
                                    3,984,243
                                    
                                    
                                    
                                    6.0
                                    %





Revenue





The
following table sets forth a breakdown of our total sales, by region, for the
nine months ended September 30, 2010 and 2009.





Nine
                                                
                                                
                                                
                                                
                                                
                                                Nine
                                                
                                                
                                                
                                                
                                                
                                                Growth(Decrease) inmonths ended
                                                
                                                
                                                % of total
                                                
                                                
                                                months ended
                                                
                                                
                                                % of total
                                                
                                                
                                                2010
      compared withSeptember 30, 2010
                                                
                                                
                                                Sales
                                                
                                                
                                                September 30, 2009
                                                
                                                
                                                sales
                                                
                                                
                                                2009Wholesale
      businessThe
      People’s Republic of China
                                                
                                                $
                                                6,959,950
                                                
                                                
                                                
                                                8.6
                                                %
                                                
                                                $
                                                2,814,106
                                                
                                                
                                                
                                                4.2
                                                %
                                                
                                                
                                                147.3
                                                %Germany
                                                
                                                
                                                16,131,127
                                                
                                                
                                                
                                                19.9
                                                
                                                
                                                
                                                17,213,122
                                                
                                                
                                                
                                                25.9
                                                
                                                
                                                
                                                (6.3
                                                )United
      Kingdom
                                                
                                                
                                                9,582,530
                                                
                                                
                                                
                                                11.8
                                                
                                                
                                                
                                                10,384,466
                                                
                                                
                                                
                                                15.6
                                                
                                                
                                                
                                                (7.7
                                                )Europe-Other
                                                
                                                
                                                13,640,478
                                                
                                                
                                                
                                                16.8
                                                
                                                
                                                
                                                7,853,174
                                                
                                                
                                                
                                                11.8
                                                
                                                
                                                
                                                73.7Japan
                                                
                                                
                                                8,112,740
                                                
                                                
                                                
                                                10.0
                                                
                                                
                                                
                                                10,347,924
                                                
                                                
                                                
                                                15.5
                                                
                                                
                                                
                                                (21.6
                                                )United
      States
                                                
                                                
                                                8,835,939
                                                
                                                
                                                
                                                10.9
                                                
                                                
                                                
                                                10,768,725
                                                
                                                
                                                
                                                16.2
                                                
                                                
                                                
                                                (17.9
                                                )Total
      wholesale business
                                                
                                                
                                                63,262,764
                                                
                                                
                                                
                                                77.9
                                                
                                                
                                                
                                                59,381,517
                                                
                                                
                                                
                                                89.2
                                                
                                                
                                                
                                                6.5Retail
      business
                                                
                                                
                                                17,915,254
                                                
                                                
                                                
                                                22.1
                                                
                                                
                                                
                                                7,188,520
                                                
                                                
                                                
                                                10.8
                                                
                                                
                                                
                                                149.2Total
                                                
                                                $
                                                81,178,018
                                                
                                                
                                                
                                                100.0
                                                %
                                                
                                                $
                                                66,570,037
                                                
                                                
                                                
                                                100.0
                                                %
                                                
                                                
                                                21.9
                                                %





Revenues
from our wholesale business are mainly from international markets. We also
generate revenues from our retail business from Chinese domestic markets
focusing on our own brand, LA GO GO.





Sales for
the nine months ended September 30, 2010 were $81,178,018, an increase of 21.9%
from the nine months ended September 30, 2009. The increase in our sales was
primarily attributable to increased sales orders in our wholesale business to
customers in China and the increased sales in our retail business.




Sales
generated from our wholesale business contributed $63.3 million or 77.9% of our
total sales for the nine months ended September 30, 2010, an increase of 6.5%
compared to the same period of 2009. Although sales orders from our customers in
China and Europe (excluding UK and Germany) increased during 2010, sales orders
in other areas decreased due to increased raw material and labor costs which
resulted in some lower margin orders which we discontinued.


24


Sales
generated from our retail business contributed 22.1% or $17.9 million of our
total sales for the nine months ended September 30, 2010, compared to 10.8% or
$7.2 million in the nine months ended September 30, 2009.  The
increase was primarily due to an increase in same store sales as well
as sales from newly opened stores.





Costs
and Expenses




Cost of Sales and Gross
Margin




Cost of
goods sold includes the direct raw material cost, direct labor cost, and
manufacturing overhead including depreciation of production equipment and rent,
consistent with the revenue earned. Cost of goods sold excludes warehousing
costs, which historically have not been significant.




The
following table sets forth the components of our cost of sales and gross profit
both in amounts and as a percentage of total sales for the nine months ended
September 30, 2010 and 2009.





Nine
      months Ended September 30,
                          
                          
                          Growth(Decrease)2010
                          
                          
                          2009
                          
                          
                          in
      2010 compared(in U.S. dollars, except for
      percentages)
                          
                          
                          with
      2009Wholesale
      Sales
                          
                          $
                          63,262,764
                          
                          
                          
                          100.0
                          %
                          
                          $
                          59,381,517
                          
                          
                          
                          100.0
                          %
                          
                          
                          6.5
                          %Raw
      Materials
                          
                          
                          30,487,467
                          
                          
                          
                          48.2
                          
                          
                          
                          26,962,460
                          
                          
                          
                          45.4
                          
                          
                          
                          13.1Labor
                          
                          
                          2,531,039
                          
                          
                          
                          4.0
                          
                          
                          
                          2,265,873
                          
                          
                          
                          3.8
                          
                          
                          
                          11.7Outsourced
      Production Costs
                          
                          
                          19,632,537
                          
                          
                          
                          31.0
                          
                          
                          
                          18,523,838
                          
                          
                          
                          31.2
                          
                          
                          
                          6.0Other
      and Overhead
                          
                          
                          442,928
                          
                          
                          
                          0.7
                          
                          
                          
                          569,559
                          
                          
                          
                          1.0
                          
                          
                          
                          (22.2
                          )Total
      Cost of Sales for Wholesale
                          
                          
                          53,093,971
                          
                          
                          
                          83.9
                          
                          
                          
                          48,321,731
                          
                          
                          
                          81.4
                          
                          
                          
                          9.9Gross
      Profit for Wholesale
                          
                          
                          10,168,793
                          
                          
                          
                          16.1
                          
                          
                          
                          11,059,786
                          
                          
                          
                          18.6
                          
                          
                          
                          (8.1
                          )Net
      Sales for Retail
                          
                          
                          17,915,254
                          
                          
                          
                          100.0
                          
                          
                          
                          7,188,520
                          
                          
                          
                          100.0
                          
                          
                          
                          149.2Production
      Costs
                          
                          
                          5,957,485
                          
                          
                          
                          33.3
                          
                          
                          
                          1,800,716
                          
                          
                          
                          25.0
                          
                          
                          
                          230.8Rent
                          
                          
                          5,837,415
                          
                          
                          
                          32.6
                          
                          
                          
                          2,592,169
                          
                          
                          
                          36.1
                          
                          
                          
                          125.2Total
      Cost of Sales for Retail
                          
                          
                          11,794,900
                          
                          
                          
                          65.8
                          
                          
                          
                          4,392,885
                          
                          
                          
                          61.1
                          
                          
                          
                          168.5Gross
      Profit for Retail
                          
                          
                          6,120,354
                          
                          
                          
                          34.2
                          
                          
                          
                          2,795,635
                          
                          
                          
                          38.9
                          
                          
                          
                          118.9Total
      Cost of Sales
                          
                          
                          64,888,871
                          
                          
                          
                          79.9
                          
                          
                          
                          52,714,616
                          
                          
                          
                          79.2
                          
                          
                          
                          23.1Gross
      Profit
                          
                          $
                          16,289,147
                          
                          
                          
                          20.1
                          %
                          
                          $
                          13,855,421
                          
                          
                          
                          20.8
                          %
                          
                          
                          17.6
                          %





Raw material costs for our wholesale
business were 48.2% of our total sales in the nine months ended September
30, 2010, compared to 45.4% in the nine months ended September 30,
2009.The increase was mainly due to
increased raw materials prices.





Labor
costs for our wholesale business were 4.0% of our total sales in the nine
months ended September 30, 2010, and increased 11.7% compared to the nine months
ended September 30, 2009. The increase was mainly due to increased salaries for
our workers.





Outsourced
manufacturing costs for our wholesale business were 31.0% of our total
sales in the nine months ended September 30, 2010, and decreased by 0.2%
compared to the nine months ended September 30, 2009. This decrease was
primarily attributable to outsourced orders of approximately $5.5 million to our
related factories in Vietnam and Cambodia, for lower manufacturing
costs.





Overhead
and other expenses for our wholesale business accounted for 0.7% of our total
sales for the nine months ended September 30, 2010, compared to 1.0% of total
sales for the nine months ended September 30, 2009. This decrease was due to our
better control over these expenses.


25


Gross
profit in our wholesale business for the nine months ended September 30, 2010
was $10.2 million, a decrease of 8.1% compared to the nine months ended
September 30, 2009. Gross margin was 16.1% for our wholesale business for the
nine months ended September 30, 2010, a decrease of 2.5% compared to 18.6% for
the nine months ended September 30, 2009. The decrease was mainly due to the
increased raw material prices and labor costs.





Production
costs for our retail business were $6.0 million or 33.3% of our total retail
sales during the nine months ended September 30, 2010 versus $1.8 million or
25.0% during the nine months ended September 30, 2009. As a percentage of total
retail sales the increase was due to reducing tag prices to increase sales
volume. Rent costs for our retail business were $5.8 million or 32.6% of our
total retail sales during the nine months ended September 30, 2010 versus $2.6
million or 36.1% during the nine months ended September 30, 2009.The increase in
rent costs resulted from an increase in the number of our stores. The decrease
in rent costs as a percentage of total retail sales was due to an increase in
same store sales during 2010.





Gross
profit in our retail business for the nine months ended September 30, 2010 was
$6.1 million and gross margin was 34.2%. Gross profit in our retail business for
the nine months ended September 30, 2009 was $2.8 million and gross margin was
38.9%. The decrease was primarily due to the fact that we adjusted the tag
prices down in order to increase our sales volume.





Total
cost of sales for the nine months ended September 30, 2010 was $64.9 million, an
increase of 23.1% compared to the nine months ended September 30, 2009. As a
percentage of total sales, our cost of sales increased to 79.9% of total sales
for the nine months ended September 30, 2010, compared to 79.2% of total sales
for the nine months ended September 30, 2009. Consequently, gross margins
decreased to 20.1% for the nine months ended September 30, 2010 from 20.8% for
the nine months ended September 30, 2009.





We
purchase the majority of our raw materials directly from numerous local fabric
and accessories suppliers. For our wholesale business, purchases from our five
largest suppliers represented approximately 20.5 % and 18.3% of raw material
purchases for the nine months ended September 30, 2010 and 2009, respectively.
No one supplier provided more than 10.0% of our raw material purchases for the
nine months ended September 30, 2010 and 2009. For our retail business,
purchases from our five largest suppliers represented approximately 26.8 % and
31.8% of raw material purchases for the nine months ended September 30, 2010 and
2009. No one supplier provided more than 10% of our total purchases for the nine
months ended September 30, 2010 and 2009.We have not experienced difficulty in
obtaining raw materials essential to our business, and we believe we maintain
good relationships with our suppliers.





Wealso purchase finished
goods from contract manufacturers. For our wholesale business, purchases from
our five largest contract manufacturers represented approximately 38.3% and
41.6% of finished goods purchases for the nine months ended September 30, 2010
and 2009, respectively. One contract manufacturer provided approximately 16.1%
of our finished goods purchases for the nine months ended September 30, 2010.Two
contract manufacturers provided approximately 17.9% and 11.4% of our finished
goods purchases for the nine months ended September 30, 2009. For our retail
business, our five largest contract manufacturers represented approximately
31.1% and 37.8% of finished goods purchases for the nine months ended September
30, 2010 and 2009, respectively. One contract manufacturer provided
10.5% and 10.0% of our finished goods purchases for the nine months ended
September 30, 2010 and 2009, respectively. We have not experienced difficulty in
obtaining finished products from our contract manufacturers and we believe
we maintain good relationships with our contract manufacturers.





Selling,
General and Administrative Expenses




Our
selling expenses consist primarily of local transportation, unloading charges,
product inspection charges, salaries for retail staff and decoration and
marketing expenses associated with our retail business.





Our
general and administrative expenses include administrative salaries, office
expense, certain depreciation and amortization charges, repairs and maintenance,
legal and professional fees, warehousing costs and other expenses that are not
directly attributable to our revenues.





Costs of
our distribution network that are excluded from cost of sales consist of local
transportation and unloading charges, and product inspection charges.
Accordingly our gross profit amounts may not be comparable to those of other
companies who include these amounts in costs of sales.


26





For the nine months ended September
      30,2010
                          
                          
                          2009$
                          
                          
                          
                          
                          
                          $
                          
                          
                          
                          
                          
                          Increase(in
      U.S. Dollars, except for percentages)
                          
                          
                          (Decrease)Gross
      Profit
                          
                          $
                          16,289,147
                          
                          
                          
                          20.1
                          %
                          
                          $
                          13,855,421
                          
                          
                          
                          20.8
                          %
                          
                          
                          17.6
                          %Operating
      Expenses:Selling
      Expenses
                          
                          
                          6,032,491
                          
                          
                          
                          7.4
                          %
                          
                          
                          2,903,655
                          
                          
                          
                          4.4
                          %
                          
                          
                          107.8
                          %General
      and Administrative Expenses
                          
                          
                          6,160,865
                          
                          
                          
                          7.6
                          %
                          
                          
                          5,707,786
                          
                          
                          
                          8.6
                          %
                          
                          
                          7.9
                          %Total
      Operating
      Expenses
                          
                          
                          12,193,356
                          
                          
                          
                          15.0
                          %
                          
                          
                          8,611,441
                          
                          
                          
                          12.9
                          %
                          
                          
                          41.6
                          %Income
      from Operations
                          
                          
                          4,095,791
                          
                          
                          
                          5.0
                          %
                          
                          
                          5,243,980
                          
                          
                          
                          7.9
                          %
                          
                          
                          (21.9
                          %)





Selling
expenses were $6.0 million in the nine months ended September 30, 2010, an
increase of 107.8% or $3.1 million compared to the nine months ended September
30, 2009. The increase was attributable to an increase in salaries and the
number of retail staff as a
result of increased retail stores, as well as increased decoration and
marketing expenses associated with the promotion of LA GO GO.





General
and administrative expenses were $6.2 million in the nine months ended September
30, 2010, an increase of 7.9% compared to the nine months ended September 30,
2009. As a percentage of total
sales,general and administrativeexpenses decreased to 7.6% of total
sales for the nine months ended September 30, 2010, compared to 8.6% of
total sales for the nine months ended September 30, 2009. The decrease was due
to better control over these expenses.




Income
from Operations




Income from operations decreased 21.9%
to $4.1 million for the nine months ended September 30, 2010 from $5.2 million
in nine months ended September 30, 2009.The decrease was
mainly attributable to the
increased selling expenses associated with the promotional of
LAGOGO.




Interest
Expense




Interest
expense was $326,290 for the nine months ended September 30, 2010, a slight
decrease compared to the same period in 2009.




Change
in fair value of derivative liability





Change in
fair value of derivative liability was $692,800 and ($725,000) for the nine
months ended September 30, 2010 and 2009, respectively, and was calculated based
on the Black-Scholes pricing model.





Gain
on sale of investment





In April,
2010, Goldenway sold its 10% equity interest in La Chapelle to two third parties
for RMB12.36 million ($1.8 million) and recorded a gain on the sale of RMB2.36
million ($346,188).





Income
Tax Expenses




Income
tax expense for the nine months ended September 30, 2010 was $689,694, a slight
decrease compared to the same period in 2009.





Net
Income




Net
income for the nine months ended September 30, 2010 was $4,261,214, an increase
of 7.0% compared to the same period in 2009. Our diluted earnings per share were
$0.29 and $0.30 for the nine months ended September 30, 2010 and 2009,
respectively.





Noncontrolling
Interest




On
January 9, 2008, Goldenway entered into an Agreement with La Chapelle to form a
joint venture to develop, promote and market a new line of women’s wear in
China. Goldenway agreed to initially invest RMB 6 Million (approximately
$826,200) in cash, and La Chapelle agreed to invest RMB 4 Million (approximately
$553,040) in cash, for a 60% and 40% interest in the joint venture,
respectively. The joint venture is included in the Company’s consolidated
financial statements from 2008, and the 40% interest held by La Chapelle is
classified as a noncontrolling interest. On April 23, 2010, Ever-Glory
Apparel acquired the noncontrolling interest in LA GO GO from La Chapelle for
approximately RMB6 million ($0.9 million).


27


Summary
of Cash Flows





The
following table summarizes our cash flows for the nine
months periods indicated:





For
      the nine months ended
                          September
      30,2010
                        
                        
                        2009Net
      cash (used in) provided by operating activities
                        
                        $
                        (4,728,934
                        )
                        
                        $
                        4,196,364Net
      cash used in investing activities
                        
                        $
                        (858,307
                        )
                        
                        $
                        (955,809
                        )Net
      cash provided by (used in) financing activities
                        
                        $
                        4,942,614
                        
                        
                        $
                        (1,143,402
                        )





Net cash
used in operating activities for the nine months ended September 30, 2010 was
$4,728,934 compared with net cash provided by operating activities of $4,196,364
during the nine months ended September 30, 2009. This decrease was mainly
attributable to increases in retail inventories, advances on inventory
purchases, value added tax receivable and decrease in accounts payable as we
shortened the payment period to the suppliers.





Net cash
used in investing activities was $858,307 for the nine months ended September
30, 2010, compared with $955,809 during the nine months ended September 30,
2009. The decrease was mainly due to decreased equipment purchases.





Net cash
provided by financing activities was $4,942,614 for the nine months ended
September 30, 2010, compared with net cash used in financing activities of
$1,143,402 during the nine months ended September 30, 2009. During
2010 we repaid $12,822,795 of bank loan and received bank loans proceeds of
$18,415,439. During
2010 we also repaid $650,030 of loans from a related party.




Liquidity
and Capital Resources




As of
September 30, 2010, we had cash and cash equivalents of $2,983,299, other
current assets of $58,057,896 and current liabilities of $38,491,367. We
presently finance our operations primarily from cash flows from operations and
we anticipate that this will continue to be our primary source of funds to
finance our short-term cash needs.




Bank
Loan





In 2006,
we acquired a fifty-year land use right for 112,442 square meters (approximately
1,209,876 square feet) of land in the Nanjing Jiangning Economic and
Technological Development Zone, which houses our existing facility of 26,629
square meters (approximately 286,528 square feet), including our manufacturing
facility and office space. In 2006, we completed the construction of our new
facilities and moved our headquarters into the new office building and
consolidated part of our operations into our new manufacturing facility in
January 2007. The new manufacturing facility occupies an area of 10,000 square
meters (approximately 107,600 square feet) and is equipped with state-of-the-art
equipment. The land
and building are being used as collateral for bank loans.





On July
6, 2010, Goldenway entered into a new two-year revolving line of credit
agreement with Nanjing Bank, which allows the Company to borrow up to
approximately $7.5 million (RMB50 million). As of September 30, 2010, we
borrowed approximately $7.5 million (RMB50 million) under this agreement. Bank
loans are guaranteed by Jiangsu Ever-Glory and secured by our
facilities.





On March
11, 2010, Ever-Glory Apparel entered into a new one-year line of credit
agreement for approximately $7.5 million (RMB50 million) with Nanjing Bank. The
loan is guaranteed by Jiangsu Ever-Glory and Goldenway. As of September 30,
2010, $3.7 million of bank loans were outstanding under this agreement and
approximately $3.8 million was unused and available.


28


As of
September 30, 2010, Ever-Glory Apparel borrowed $0.9 million (RMB6 million) from
the Industry and Commercial bank of China. The loan is due in December 2010,
bears interest at 5.31% and is guaranteed by Jiangsu Ever-Glory.





As of
September 30, 2010, Ever-Glory Apparel borrowed $246,000 from Bank of
Communications which was guaranteed by Jiangsu Ever-Glory, Mr. Kang and
collecteralized by the approximately $330,000 accounts receivable from wholesale
customers. The maturity date for this loan is December, 2010. If the Company
receives a certain payments from customers before December 2010 the Company is
to repay this loan at the same time the payments are received.





On
December 7, 2009, Ever-Glory Apparel borrowed approximately $0.7 million (RMB5
million) from Bank of Jiangsu. The loan is due in December 2010, bears interest
at 5.31% and is guaranteed by Jiangsu Ever-Glory.





All bank
loans are used to fund our daily operations.





Loans
from related party




As of
September 30, 2010, the amount owing to Blue Power Holding Ltd, an entity
controlled by Mr. Edward Yihua Kang, was $1,987,089. Interest accrued on
the loan to Blue power totaled $16,514 and $61,360 for the three and nine months
ended September 30, 2010.




Capital
Commitments




We have a
continuing program for the purpose of improving our manufacturing facilities and
extending our LA GO GO stores. We anticipate that cash flows from operations and
borrowings from banks will be used to pay for these capital
commitments.




Uses
of Liquidity




Our cash
requirements through the end of 2010 will be primarily to fund daily operations
and the growth of our business.




Sources
of Liquidity




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




We
believe our cash flows from operations together with our cash and cash
equivalents currently on hand will be sufficient to meet our needs for working
capital, capital expenditure and other commitments through the end of 2010. No
assurance can be made that additional financing will be available to us if
required, and adequate funds may not be available on terms acceptable to us. If
funding is insufficient at any time in the future, we will develop or enhance
our products or services and expand our business through our own cash flows from
operations.




As of
September 30, 2010, we had access to $15 million in lines of credit, of which
$3.8 million was unused and is currently available. These credit facilities do
not include any covenants.




Foreign
Currency Translation Risk




Our
operations are, for the most part, located in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between the United States dollar and the
Chinese RMB. Most of our sales are in dollars. During 2003 and 2004 the exchange
rate of RMB to the dollar remained constant at 8.26 RMB to the dollar. On July
21, 2005, the Chinese government adjusted the exchange rate from 8.26 to 8.09
RMB to the dollar. From that time, the RMB continued to appreciate against the
U.S. dollar. As of September 30, 2010, the market foreign exchange rate had
increased to 6.68 RMB to one U.S. dollar. We are continuously negotiating price
adjustments with most of our customers based on the daily market foreign
exchange rates, which we believe will reduce our exposure to exchange rate
fluctuations in the future, and will pass some of the increased cost to our
customers.





In
addition, the financial statements of Goldenway, New-Tailun, Catch-Luck,
Ever-Glory Apparel and LA GO GO (whose functional currency is the RMB) are
translated into US dollars using the closing rate method. The balance sheet
items are translated into US dollars using the exchange rates at the respective
balance sheet dates. The capital and various reserves are translated at
historical exchange rates prevailing at the time of the transactions while
income and expense items are translated at the average exchange rate for the
period. All exchange differences are recorded within equity. The foreign
currency translation  gain (loss) for the three and nine months ended
September 30, 2010 and 2009 was $575,350, $46,364, $747,798, $(36,947)
respectively.


29


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, bank loans and
long-term obligations. We consider investments in highly-liquid instruments
purchased with a remaining maturity of 90 days or less at the date of
purchase to be cash equivalents.





Interest Rates: Our
exposure to market risk for changes in interest rates relates primarily to our
short-term investments and short-term obligations; thus, fluctuations in
interest rates would not have a material impact on the fair value of these
securities. On September 30, 2010, we had $2,983,299 in cash and cash
equivalents. A hypothetical 5% increase or decrease in either short term or long
term interest rates would not have any material impact on our earnings or loss,
or the fair market value or cash flows of these instruments.





Foreign Exchange
Rates: We pay our suppliers and employees in Chinese RMB, however, most of
our wholesales customers are locatedin the U.S., Japan and Europe
and we generate sales from them in U.S. Dollars, Euros and British Pounds.
Accordingly, our business has substantial exposure to changes in exchange rates
between and among the Chinese RMB, the U.S. Dollar, the Euro and the British
Pound. In the last decade, the RMB has been pegged at 8.2765 RMB to one U.S.
Dollar. On July 21, 2005 it was revalued to 8.11 per U.S. Dollar. Following the
removal of the peg to the U.S. Dollar and pressure from the United States, the
People’s Bank of China also announced that the RMB would be pegged to a basket
of foreign currencies, rather than being strictly tied to the U.S. Dollar, and
would be allowed to float trade within a narrow 0.3% daily band against this
basket of currencies. The PRC government has stated that the basket is dominated
by the U.S. Dollar, Euro, Japanese Yen and South Korean Won, with a smaller
proportion made up of the British Pound, Thai Baht, Russian Ruble, Australian
Dollar, Canadian Dollar and Singapore Dollar. There can be no assurance that the
relationship between the RMB and these currencies will remain stable over time,
especially in light of the significant political pressure on the Chinese
government to permit the free flotation of the RMB, which could result in
greater and more frequent fluctuations in the exchange rate between the RMB, the
U.S. Dollar and the Euro. On September 30, 2010, the exchange rate between the
RMB and U.S. Dollar was 6.68 RMB to one U.S. Dollar. For additional
discussion regarding our foreign currency risk, see the section titled Risk
Factors in the Annual Report on Form 10-K for fiscal year ended on December 31,
2009. Fluctuation in the value of Chinese RMB relative to other currencies may
have a material adverse effect on our business and/or an investment in our
shares.





ITEM 4. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended ( the “Exchange Act”)  is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.





As of
September 30, 2010, the end of the fiscal quarter covered by this report, we
carried out an evaluation, under the supervision and with the participation of our management, including
our chief executive officer and our chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our chief executive officer and chief
financial officer concluded that as a result of material weaknessesin internal
control over financial reporting discussed in item 9A(T) of our annual report on
Form 10-K for the year ended December 31, 2009 (“2009 Form 10-K”), our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) were not effective at the reasonable assurance level to
ensure that information required to be disclosed in our reports under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure.


30


Remediation
Measures for Material Weaknesses





As stated
in our 2009 Form 10-K, our management concluded that, based on the assessment of
our principal executive officer and principal financial officer, our internal
controls over financial reporting were not effective as of December 31,
2009.





We are in
the process of taking remedial measures to address the material weaknesses
identified in our 2009 Form 10-K.  In April 2010 we appointed a new
independent director who serves as the Audit Committee Chairman, and who
together with the other members of the Audit Committee, oversees the preparation
of the financial statements included in Item 1 of this quarterly report on Form
10-Q. During the first quarter of 2010, we also reorganized our accounting
department and we now have a dedicated internal control department headed by a
full-time internal control manager. Management believes the measures described
above improved our internal control over financial reporting (as defined in Rule
13a-15(f) of the Securities Exchange Act of 1934) with respect to the
preparation of the financial statements for the quarter ended September 30,
2010. We will continue to develop and implement our remediation plan to address
the material weaknesses identified in the 2009 Form 10-K.





Changes
in Internal Control over Financial Reporting





Except 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 September 30, 2010 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.





PART II.  OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS




We know
of no pending legal proceedings to which we are a party which are material or
potentially material, either individually or in the aggregate. We are from time
to time, during the normal course of our business operations, subject to various
litigation claims and legal disputes. We do not believe that the ultimate
disposition of any of these matters will have a material adverse effect on our
financial position, results of operations or liquidity.





ITEM 1A. RISK FACTORS




There has
been no material change in the information provided in Item 1A of Form 10-K
Annual Report for the year ended December 31, 2009 filed with the SEC on March
31, 2010.





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





In July,
2010, the Company issued 2,498 shares of common stock to the Company’s three
independent directors as compensation for their services in the first and second
quarters of 2010. The shares were valued at $2.98 per share, which
was the average market price of the common stock for the five days before
the grant date.





The above
transactions were not registered under the Securities Act of 1933, as amended
(the “Securities Act”), in reliance upon the exemptions from the registration
requirements of the Securities Act set forth in Section 4(2) thereof and/or Rule
506 of Regulation D promulgated thereunder as transactions by the Company not
involving any public offering.





ITEM 3.
            DEFAULTS
      UPON SENIOR SECURITIES





None.




ITEM 4.
            (Removed
      and Reserved).





ITEM 5.
            OTHER
      INFORMATION





None.


31





ITEM 6.
            EXHIBITS





The
following exhibits are filed herewith:




Exhibit No.
                
                Description31.1
                
                Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                
                Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                
                Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2
                
                Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.





SIGNATURES





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




November
      12, 2010
                    EVER-GLORY
      INTERNATIONAL GROUP, INC.By:
                    /s/ Edward Yihua KangEdward
      Yihua KangChief
      Executive Officer(Principal
      Executive Officer)By:
                    /s/
      Jiansong WangJiansong
      WangChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


32