Ever-Glory International Group, Inc. - Quarter Report: 2008 March (Form 10-Q)

Unassociated Document

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

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

For the transition period from ___________ to ___________.

Commission File Number 0-28806

Ever-Glory International Group Inc.

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

Florida

(State or other jurisdiction of

incorporation or organization)

65-0420146

(I.R.S. employer

identification number)

100 N. Barranca Ave. #810

West Covina, California 91791

(Address of principal executive offices and zip code)

(626) 839-9116

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-Q

INDEX

		Page Number

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements (unaudited)	4

	Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007	4

	Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2008 and 2007	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007	6

	Notes to the Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION		42

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Submission of Matters to a Vote of Security Holders	55

Item 5.	Other Information	55

Item 6.	Exhibits	55

SIGNATURES		56

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

the ability to timely and accurately complete product orders;

the ability to coordinate product design with its customers;

its dependence on a limited number of larger customers;

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

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

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

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

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

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

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

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

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

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

foreign currency exchange rate fluctuations;

earthquakes or other natural disasters;

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

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

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

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

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	March 31,		December 31,
	2008		2007
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	2,144,669	$	641,739
Accounts receivable		11,594,154		13,035,299
Accounts receivable - related parties		-		158,235
Inventories		1,851,672		1,897,023
Other receivables and prepaid expenses		165,127		150,855
Advances on inventory purchase		9,255		-
Advances on inventory purchase - related parties		2,872,189		2,568,040
Deferred financing costs		248,401		191,995
Total Current Assets		18,885,467		18,643,186

LAND USE RIGHT, NET		2,826,643		2,729,183
PROPERTY AND EQUIPMENT, NET		12,503,848		12,140,903
LONG TERM INVESTMENT		1,428,000		-
TOTAL ASSETS	$	35,643,958	$	33,513,272

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	2,177,368	$	1,796,655
Accounts payable - related parties		-		245,589
Other payables- related party		980,392		650,000
Other payables and accrued liabilities		903,537		1,069,682
Value added tax payable		518,312		378,898
Income tax payable and other taxes payable		355,013		146,226
Bank loans		2,856,000		4,798,500
Convertible notes payable,
(net of unamortized discount of $1,625,160)		35,140		25,503
Total Current Liabilities		7,825,762		9,111,053

COMMITMENTS AND CONTINGENCIES		-		-

LONG-TERM LIABILITIES
Loan from related party under common control		4,534,100		4,474,985

TOTAL LIABILITIES		12,359,862		13,586,038

MINORITY INTEREST		556,993		-

STOCKHOLDERS' EQUITY
Preferred stock ($.001 par value, authorized 5,000,000 shares, 10,000 shares designated as "Series A Preferred Stock")		-		-
Series A Convertible Preferred Stock (0 shares issued and outstanding as of March 31, 2008 and December 31, 2007, respectively)		-		-
Common stock ($.001 par value, authorized 50,000,000 shares, 11,547,110 and 11,379,309 shares issued and outstanding as of March 31, 2008 and December 31, 2007, respectively)		11,547		11,379
Common stock to be issued for acquisition (0 shares as of March 31, 2008 and December 31, 2007, respectively)		-		-
Additional paid-in capital		2,656,892		2,154,368
Retained earnings		13,445,041		12,247,748
Statutory reserve		3,437,379		3,437,379
Accumulated other comprehensive income		3,176,244		2,076,360
Total Stockholders' Equity		22,727,103		19,927,234

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	35,643,958	$	33,513,272

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

	2008			2007
				Restated
NET SALES
To related parties	$	425,102		$	46,828
To third parties		19,322,106			16,378,571
Total net sales		19,747,208			16,425,399

COST OF SALES
From related parties		402,748			44,874
From third parties		15,623,424			13,987,839
Total cost of sales		16,026,172			14,032,713

GROSS PROFIT		3,721,036			2,392,686

OPERATING EXPENSES
Selling expenses		277,528			175,898
General and administrative expenses		1,221,487			772,888
Total Operating Expenses		1,499,015			948,786

INCOME FROM OPERATIONS		2,222,021			1,443,900

OTHER INCOME (EXPENSES)
Interest income		31,974			1,814
Interest expenses		(577,828	)		(132,290	)
Other income		-			96
Other expenses		(191,167	)		(84	)
Total Other (Expenses)		(737,021	)		(130,464	)

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		1,485,000			1,313,436

INCOME TAX EXPENSE		(283,838	)		(75,694	)

INCOME BEFORE MINORITY INTEREST		1,201,162			1,237,742

LESS MINORITY INTEREST		3,869			-

NET INCOME		1,197,293			1,237,742

OTHER COMPREHENSIVE INCOME
Foreign currency translation gain		1,099,884			159,133

COMPREHENSIVE INCOME	$	2,301,046		$	1,396,875

Net income per share - basic	$	0.10		$	0.24

Net income per share - diluted	$	0.10		$	0.11

Weighted average number of shares outstanding during the period - basic		11,449,682			5,080,609

Weighted average number of shares outstanding during the period - diluted		12,204,363			11,072,008

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

	2008			2007
				Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,197,293		$	1,237,742
Adjusted to reconcile net income to cash provided by operating activities:
Minority interest		3,869			-
Depreciation		222,765			207,412
Amortization		15,667			14,424
Amortization of discount on convertible notes		349,337			-
Amortization of deferred financing costs		73,676			-
Stock issued for interest		2,006			-
Changes in operating assets and liabilities
Accounts receivable		1,941,016			1,579,037
Accounts receivable - related parties		161,317			(510,749	)
Inventories		121,586			238,961
Other receivables and prepaid expenses		(8,636	)		(138,761	)
Advance on inventory purchase		(9,058	)		-
Advance on inventory purchase to related party		(44,291	)		-
Accounts payable		299,523			118,312
Accounts payable - related companies		(68,882	)		(1,089,852	)
Other payables and accrued liabilities		(204,734	)		(553,058	)
Payables to related parties					-
Value added tax payables		121,036			(24,551	)
Income tax and other tax payables		198,408			33,776
Long term deferred expense		(56,406	)		-
Net cash provided by operating activities		4,315,492			1,112,693

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in La Chapelle		(1,397,700	)		-
Purchase of property and equipment		(84,333	)		(1,126,622	)
Proceeds from sale of equipment		377			-
Net cash used in investing activities		(1,481,656	)		(1,126,622	)

CASH FLOWS FROM FINANCING ACTIVITIES
Due to related parties		-			-
Contribution from minority shareholders		553,040			-
Proceeds from bank loan		-			1,292,959
Repayment of bank loan		(2,096,550	)		(1,292,959	)
Proceeds from long term loan		59,116			115,694
Net proceeds from convertible notes		-			-
Net cash (used in) provided by financing activities		(1,484,394	)		115,694

EFFECT OF EXCHANGE RATE ON CASH		153,488			382,142

NET DECREASE IN CASH AND CASH EQUIVALENTS		1,502,930			483,907

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		641,739			897,093

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,144,669		$	1,381,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for:
Interest expense	$	68,859		$	73,595
Income taxes	$	84,576		$	41,827

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

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

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

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Business combinations between entities under common control

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

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

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

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

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

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

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Use of estimates

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

Cash and cash equivalents

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

Accounts receivable

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

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

Inventories

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

Long-lived assets

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

Property and equipment

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

Property and plant	15-20 Years
Leasehold improvements	10 Years
Machinery & Equipment	10 Years
Office equipment and furniture	5 Years
Motor vehicles	5 Years

Intangible assets

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

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

Long-term investments

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

Fair value of financial instruments

SFAS No. 157, Fair Value Measurements, defines fair value, establishes a three-level valuation hierarchy for disclosures of faire value measurement and enhances disclosures requirements for fair value measurements. The Company adopted SFAS No 157 and did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.

The Company analyzes all financial instruments with features of both liabilities and equity under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” During 2007, the Company issued 6% secured convertible debentures in a face amount of $2,000,000 which are due and payable in full in 2 years from their issuance. As fixed prices are set for the conversion prices of such convertible debentures and the attached warrants, the Company is in a position to be sure it had adequate authorized shares for the future conversion of convertible debentures and warrants. Therefore, no embedded derivatives and warrants are required to be recorded at fair value and marked-to-market at each reporting period.

As of March 31, 2008, the outstanding principal of the convertible notes was $1,660,300 and the discount resulted from the beneficial conversion feature and the warrants were $1,625,160. Since there is no quoted or observable market price for the fair value of identical notes, the Company then used the level 3 inputs for its valuation methodology, and used the Black Scholes Model to calculate the fair market value of the beneficial conversion feature and the warrants. In addition, due to the notes are expiring in 2009 and the Company does not anticipate any nonperformance risk and expects the note holders to convert the notes to the Company’s common stock within 2008, the Company determined that the fair value of the notes approximated the carrying value.

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Beneficial conversion feature of convertible notes

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

Discount on notes payable

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

Revenue and cost recognition

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

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

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

Income taxes

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

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

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

China income tax

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

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

The key changes are:

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

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

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

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

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

Other comprehensive income

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

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

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

Earnings per share

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Segments

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

Minority interest

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

Recent accounting pronouncements

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

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

Reclassifications and restatements

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

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

NOTE 3 - ACCOUNTS RECEIVABLE

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

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

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

NOTE 4 - INVENTORIES

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

	March 31, 2008		December 31, 2007
Raw materials	$	412,713	$	304,178
Work-in-progress		323,413		338,599
Finished goods		1,115,546		1,254,246
		1,851,672		1,897,023
Less: provision of obsolescence		-		-
Inventories, net	$	1,851,672	$	1,897,023

NOTE 5 - INVESTMENT

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

NOTE 6 - LAND USE RIGHTS

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

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

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

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

NOTE 7 - PROPERTY AND EQUIPMENT

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

	March 31,		December 31,
	2008		2007
Property and plant	$	11,856,378	$	11,354,623
Equipment and machinery		3,315,110		3,128,928
Office equipment and furniture		216,989		208,327
Motor vehicles		172,268		165,393
Construction in progress		3,666		3,519
		15,564,411		14,860,790
Less: accumulated depreciation		3,060,563		2,719,887
Property and equipment, net	$	12,503,848	$	12,140,903

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

NOTE 8 - OTHER PAYABLES AND ACCRUED LIABILITIES

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

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

NOTE 9 - BANK LOANS

Bank loans represent amounts due to various banks and are due on demand or normally within one year. These loans generally can be renewed with the banks. As of March 31, 2008 and December 31, 2007, Short term bank loans consisted of the following:

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

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

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

NOTE 10 - CONVERTIBLE NOTES PAYABLE

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

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

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

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

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

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

NOTE 11 - INCOME TAX

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

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

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

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

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

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

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

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Value added tax

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

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

NOTE 12 - EARNINGS PER SHARE

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

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

	2008		2007
Net income	$	1,197,293	$	1,237,742
Add: interest expense related to convertible notes		26,842		-
Adjusted net income for calculating EPS-diluted	$	1,224,135	$	1,237,742

Weighted average number of common stock – Basic		11,449,682		5,080,609
Effect of dilutive securities:
Convertible notes		754,681		-
Series A Convertible preferred stock		-		5,991,499
Weighted average number of common stock – Diluted		12,204,363		11,072,008

Earnings per share - basic	$	0.10	$	0.24
Earnings per share -diluted	$	0.10	$	0.11

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

NOTE 13 - STOCKHOLDERS’ EQUITY

Authorized Shares of Common Stock

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

Series A Convertible Preferred stock

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

Stock issued for acquisitions under common control

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

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

Reverse stock split

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

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

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

Conversion of convertible notes to common stock

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

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

Statutory reserve

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

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

NOTE 14 - RELATED PARTY TRANSACTIONS

Mr. Kang Yihua is the Company’s chairman and chief executive officer. The Company purchased materials, sub-contracted certain manufacturing work, and sold products to companies under the control of Mr. Kang Yihua. All related party outstanding balances are short tem in nature and are expected to be settled in cash.

Sales and Cost of Sales to Related Parties

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

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

Purchases from and Sub-contracts with Related Parties

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

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

Accounts receivable – related parties

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

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

Advance on inventory purchase – related party

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

Accounts payable – related parties

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

Other payables – related parties

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

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Long term liability – related party

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

Lease from a related party

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

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Capital commitment

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

Operating lease commitment

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

Contingent shares to be issued

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

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

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

Legal Proceedings

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

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

NOTE 16 - CONCENTRATIONS AND RISKS

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

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

	Customer A			Customer B
During
2008		31	%		18	%
2007		42	%		11	%

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

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 (UNAUDITED)

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

	2008		2007

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

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

NOTE 17 - SUBSEQUENT EVENTS

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

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

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

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion and analysis of our financial condition and results of operations for the quarter and the fiscal year ended December 31, 2007 should be read in conjunction with the Financial Statements and corresponding notes included in this annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

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

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

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

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

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

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

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

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

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

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

Private Placement Financing

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

Recent Events

Strategic Investment in La Chapelle

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

Joint Venture with Shanghai La Chapelle Garment and Accessories Company

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

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

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

Other Events

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

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

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

Sales and Expenses

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

RESULTS OF OPERATIONS

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

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

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

Results of Operations

	Three Months Ended March 31
	2008				2007				Increase/Decrease			% Change
Sales	$	19,747,208	100.00	%	$	16,425,399	100.00	%	$	3,321,809			20.22	%
Gross Profit	$	3,721,036	18.84	%	$	2,392,686	14.57	%	$	1,328,350			55.52	%
Operating Expense	$	1,499,015	7.59	%	$	948,786	5.78	%	$	550,229			57.99	%
Income From Operations	$	2,222,019	11.25	%	$	1,443,900	8.79	%	$	778,119			53.89	%
Other Expenses	$	737,021	3.73	%	$	130,464	0.79	%	$	606,557			464.92	%
Income before income tax expenses	$	1,485,000	7.52	%	$	1,313,436	8.00	%	$	171,564			13.06	%
Income tax expenses	$	283,838	1.44	%	$	75,694	0.46	%	$	208,144			274.98	%
Net Income	$	1,197,293	6.06	%	$	1,237,742	7.54	%	$	(40,449	)		-3.27	%

Sales

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

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

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

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

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

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

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

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

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

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

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

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

Cost of Sales and Gross Margin

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

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

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

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

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

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

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

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

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

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

Selling, and General and Administrative Expenses

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

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

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

Income from Operations

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

Interest Expenses

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

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

Other expenses

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

Income Tax Expenses

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

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

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

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

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

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

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

Net Income

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

Minority Interest in La Go Go

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

Capital Commitments

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

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

Uses of Liquidity

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

Sources of Liquidity

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

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

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

Foreign Currency Translation Risk

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

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. We consider investments in highly-liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents.

Interest Rates. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. At March 31, 2008, we had approximately $2.1 million in cash and cash equivalents. A hypothetical 5% increase or decrease in either short term or long term interest rates would not have any material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

Foreign Exchange Rates. We pay our suppliers and employees in Chinese Renminbi (RMB), however, we sell to customers in the U.S., Japan and Europe and we generate sales in U.S. dollars and Euros. Accordingly, our business has substantial exposure to changes in exchange rates between and among the Chinese RMB, the U.S. dollar and the Euro. In the last decade, the RMB has been pegged at 8.2765 yuan to one U.S. dollar. On July 21, 2005 it was revalued to 8.11 per U.S. dollar. Following the removal of the peg to the U.S. dollar and pressure from the United States, the People’s Bank of China also announced that the RMB would be pegged to a basket of foreign currencies, rather than being strictly tied to the U.S. dollar, and would be allowed to float trade within a narrow 0.3% daily band against this basket of currencies. The PRC government has stated that the basket is dominated by the U.S. Dollar, Euro, Japanese Yen and South Korean Won, with a smaller proportion made up of the British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar and Singapore Dollar. There can be no assurance that the relationship between the RMB and these currencies will remain stable over time, especially in light of the significant political pressure on the Chinese government to permit the free flotation of the RMB, which could result in greater and more frequent fluctuations in the exchange rate between the RMB, the U.S. dollar and the Euro. At March 31, 2008, the exchange rate between the RMB and dollar was 7.00 RMB to one U.S. dollar. For additional discussion regarding our foreign currency risk, see the section titled “Risk Factors— Fluctuation in the value of Chinese Renminbi (RMB) relative to other currencies may have a material adverse effect on our business and/or an investment in our shares.”

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Remediation of Material Weaknesses in Internal Control over Financial Reporting

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

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

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

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

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

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

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

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

Changes in internal control over financial reporting.

Except for the remedial actions taken as described above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

ITEM 1A.

RISK FACTORS

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

Risks Relating to Our Industry

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

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

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

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

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

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

The worldwide apparel industry is subject to ongoing pricing pressure.

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

require us to reduce wholesale prices on existing products;

result in reduced gross margins across our product lines;

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

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

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

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

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

Risks Relating to Our Business

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

incur significant unplanned expenses and personnel costs;

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

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

incur debt;

assume liabilities; and

spend resources on unconsummated transactions.

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

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

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

unanticipated costs, litigation and other contingent liabilities;

diversion of management’s attention from our core business;

adverse effects on existing business relationships with suppliers and customers;

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

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

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

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

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

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

negatively affect the reliability and cost of transportation;

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

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

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

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

Business interruptions could adversely affect our business.

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

Risks Related to Doing Business in China

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to an Investment in Our Securities

Our common stock has limited liquidity.

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

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

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

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

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

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

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

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

receipt of substantial orders or order cancellations of products;

quality deficiencies in services or products;

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

changes in recommendations of securities analysts;

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

government regulations, including stock option accounting and tax regulations;

energy blackouts;

acts of terrorism and war;

widespread illness;

proprietary rights or product or patent litigation;

strategic transactions, such as acquisitions and divestitures;

rumors or allegations regarding our financial disclosures or practices; or

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

The following exhibits are filed herewith:

Exhibit No.		Description

10.25		Capital Contribution Agreement (La Chapelle). (1)

10.26		Joint Venture Establishment Agreement (La Go Go). (1)

10.27		Form of Independent Director Offer Letter. (2)

10.28		Form of Indemnification Agreement. (3)

31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

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

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

SIGNATURES

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

May 6, 2008	EVER-GLORY INTERNATIONAL GROUP, INC.

	By:	/s/ Guo Yan
		Guo Yan
		Chief Financial Officer
		(Principal Financial and Accounting Officer)