Ever-Glory International Group, Inc. - Annual Report: 2009 (Form 10-K)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2009

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

For the transition period from ____________ to ______________

Commission file number: 0-28806

EVER-GLORY INTERNATIONAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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

100 N. Barranca Ave. #810

West Covina, California 91791

(Address of principal executive offices) (Zip Code)

(626) 839-9116

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

Title of each class registered:	Name of each exchange on which registered:
Common Stock	NYSE Amex LLC

Securities registered under Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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. ¨

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.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if smaller reporting company)	Smaller Reporting company x

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

As of June 30, 2009, 13,548,498 shares of common stock were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant, as of June 30, 2009, the last business day of the 2nd fiscal quarter, was approximately $6,842,665 based on the closing price of $ 1.85 for the registrant’s common stock as reported on the NYSE Amex LLC (formerly, the American Stock Exchange and the NYSE Alternext US LLC). Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.

As of March 30, 2010, there were 13,566,874 shares of our common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EVER-GLORY INTERNATIONAL GROUP, INC.

FORM 10-K

For the Year Ended December 31, 2009

TABLE OF CONTENTS

Part I		4

Item 1.	Business	4
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	21

Part II		21

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 8.	Financial Statements and Supplementary Data	48
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	49
Item 9B.	Other Information	51

Part III		52

Item 10.	Directors, Executive Officers, and Corporate Governance	52
Item 11.	Executive Compensation	56
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
Item 13.	Certain Relationships and Related Transactions, and Director Independence	61
Item 14.	Principal Accounting Fees and Services	64

Part IV		64

Item 15	Exhibits, Financial Statement Schedules	64

Signatures		67

Note Regarding Forward-Looking Statements

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

Competition within our industry;

Seasonality of our sales;

Success of our investments in new product development;

Our plans to open new retail stores;

Success of our acquired businesses;

Our relationships with our major customers;

The popularity of our products;

Relationships with suppliers and cost of supplies;

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

Anticipated effective tax rates in future years;

Regulatory requirements affecting our business;

Currency exchange rate fluctuations;

Our future financing needs; and

Our ability to attract additional investment capital on attractive terms.

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

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the factors described in the Section of this report entitled “Risk Factors” and other documents we file from time to time with the Securities and Exchange Commission (‘SEC’), including the Quarterly Reports on Form 10-Q to be filed by us in 2009.

PART I

Item 1. BUSINESS

Corporate History and Background

Ever-Glory International Group, Inc., sometimes referred to in this report as “Ever-Glory”, the “Company,” “we”, or “us”, is a holding company that oversees the operations of its subsidiaries, and provides its subsidiaries with resources and services in financial, legal, administrative and other areas. The Company was incorporated in Florida on October 19, 1994. We changed our name from Andean Development Corporation to “Ever-Glory International Group, Inc.” on November 17, 2005.

Perfect Dream Limited (“Perfect Dream”) was incorporated in the British Virgin Islands on July 1, 2004. Perfect Dream was originally formed as a holding company, and it became our wholly-owned subsidiary as a result of a share exchange transaction completed in November 2005.

In January 2005, Perfect Dream acquired 100% of Goldenway Nanjing Garments Company Limited (“Goldenway”). Goldenway, a People’s Republic of China (“PRC”) wholly foreign-owned enterprise was incorporated on December 31, 1993. Goldenway is principally engaged in the manufacturing and sale of garments. Until December 2004, Goldenway was a joint venture held by Jiangsu Ever-Glory International Group Corporation (“Jiangsu Ever-Glory”). After it was acquired by Perfect Dream, Goldenway changed its status to that of a wholly foreign owned enterprise and increased its registered capital from US$2,512,106 to US$20,000,000. The increased registered capital was required to be contributed in installments within three years of the issuance of Goldenway's updated business license. On July 6, 2009, the Company obtained the approval from the government allowing the company to decrease the registered capital from $20,000,000 to $15,047,788. As of June 30, 2009, the Company had fulfilled its registered capital requirements.

On November 9, 2006, Perfect Dream entered into a purchase agreement with Ever-Glory Enterprises (HK) Limited (“Ever-Glory Hong Kong”) whereby we acquired a 100% interest in Nanjing New-Tailun Garments Co, Ltd. (“New-Tailun”) from Ever-Glory Hong Kong (the “New-Tailun transaction”). Pursuant to the terms of the purchases agreement for this acquisition, we agreed to pay Ever-Glory Hong Kong $2,000,000 in cash and issue 20,833,333 shares of our restricted common stock having a value of $10,000,000. We valued the shares based on the preceding 30-day average of high bid and the low ask price for our common stock on the date of the transfer within 90 days of the closing of the New-Tailun transaction. The total consideration due to Ever-Glory Hong Kong in connection with this transaction has been paid. The New-Tailun transaction closed on December 30, 2006. New-Tailun is a 100% foreign-owned enterprise incorporated in the PRC and is engaged in the manufacturing and sale of garments. New-Tailun has a staff of approximately 560 employees with an annual production capacity of about 1.8 million pieces.

On August 27, 2007, we acquired Nanjing Catch-Luck Garments Co, Ltd. (“Catch-Luck”), which further expanded our production capacity. Catch-Luck is primarily engaged in the manufacturing and sale of garments in China. Founded in 1995, Catch-Luck has approximately 520 employees with an annual production capacity of 1.2 million garments. It currently operates one factory spanning 6,635 square meters in the Nanjing Jiangning Economic and Technological Development Zone.

Shanghai La Go Go Fashion Company Limited (“LA GO GO”), a joint venture of Goldenway and Shanghai La Chapelle Garment and Accessories Company Limited (“La Chapelle”), was incorporated in the PRC on January 24, 2008. Goldenway invested approximately US$826,200 (Renminbi (“RMB”) 6.0 million) in cash, and La Chapelle invested approximately US$553,040 (RMB 4.0 million) in cash, for a 60% and 40% ownership interest, respectively, in the joint venture. The business objective of the joint venture is to develop, promote and market a line of middle to high price range of women’s wear in China. On March 23, 2009, Goldenway transfered all of its ownership interest in LA GO GO to Ever-Glory Apparel

Ever-Glory International Group Apparel Inc.(“Ever-Glory Apparel”), a wholly owned subsidiary of Goldenway, was incorporated in the PRC on January 6, 2009. Goldenway invested approximately US$733,500 (RMB 5.0 million) in cash in Ever-Glory Apparel. As of December 31, 2009, Goldenway has increased its investment to approximately $6,595,000 (RMB45.0 million). Ever-Glory Apparel is principally engaged in the import and export of apparel, fabric and accessories. Ever-Glory Apparel is expected to be handling most import and export from 2010.

Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”), a wholly-owned subsidiary of Perfect-Dream, was incorporated in Samoa on September 15, 2009. Ever-Glory HK is principally engaged in the import and export of apparel, fabric and accessories.

Ever-Glory Apparel and Ever-Glory HK will focus on the import and export business. Goldenway focuses primarily on quality and production control, and coordinating with outsourced contract manufacturers. New-Tailun focuses on the Japanese market, and has strengths in the design, production, sale and marketing of jeans and trousers. Catch-Luck is geared toward the European market, and it designs and makes products that complement the product lines of our other subsidiaries. LA GO GO focuses on establishing and creating a leading brand of ladies’ garments for the mainland Chinese market.

Our corporate structure is illustrated below.

Business Operations

Our wholesale operations include manufacturing and worldwide sale of apparel to well-known casual wear, sportswear and outerwear brands and retailers in major markets. We manufacture our apparel products in our two factories, Catch-Luck and New-Tailun, located in the Nanjing Jiangning Economic and Technological Development Zone and Shang Fang Town respectively in Nanjing, China. We conduct our original design manufacturing (“ODM”) operations through three wholly-owned subsidiaries in China: Goldenway, New-Tailun, and Catch-Luck. Our three facilities in Nanjing have approximately 1,500 employees. In 2009, we achieved total sales of $76,677,547.

Although we have our own manufacturing capacity, we currently outsource most of the manufacturing to our strategic alliances as part of our overall business strategy. Outsourcing allows us to maximize our production capacity and remain flexible while reducing capital expenditures and the costs of keeping skilled workers on production lines during low season. We inspect products manufactured by our long-term contractors to ensure that they meet our high quality control standards. Total production capacity per year is more than 12 million pieces. See Production and Quality Control below.

Our retail operation is conducted by our subsidiary, LA GO GO. The business objective of the joint venture is to establish and create a leading brand of women’s wear and to build a nationwide retail distribution channel in China. LA GO GO had approximately 800 employees as of December 31, 2009. As of December 31 2009, we operated 185 retail stores in China and had total sales of $13,193,444.

Wholesale Segment

Products

We manufacture a broad array of products in various categories for the women’s, men’s and children’s markets. Within those categories, various product classifications including high and middle grade casual-wear, sportswear and outwear, including the following product lines:

Women’s Clothing:		coats, jackets, slacks, skirts, shirts, trousers, and jeans
Men’s Clothing:		vests, jackets, trousers, skiwear, shirts, coats and jeans
Children’s Clothing:		coats, vests, down jackets, trousers, knitwear and jeans

Customers

We manufacture garments for a number of well-known retail chains and famous international brands. We also have our own in-house design capabilities and can provide our customers with a selection of original designs that the customer may have manufactured-to-order. We ordinarily supply our customers’ through purchase orders, and we have no long-term supply contracts with any of them.

In the fiscal year ended December 31, 2009, approximately 25% of our sales revenue came from customers in Germany, 15% of our sales revenue came from customers in United Kingdom, 11% of our sales revenue came from customers in other European countries, 15% from customers in the United States, 15% from customers in Japan, and 19% from customers in China. In 2009, only one customer represented more than ten percent of our total sales (Approximately 29% of our total net sales). Also, in 2009, sales to our five largest customers generated approximately 56% of our total net sales.

Substantially all of the Company’s long-lived assets were attributable to the PRC as of December 31,2009 and 2008.

Suppliers

We purchase the majority of our raw materials (including fabric, fasteners, thread, buttons, labels and related materials) directly from numerous local fabric and accessories suppliers. For our wholesale business, collectively, purchases from our five largest suppliers represented approximately 19.4% and 18.6% of total raw material purchases in 2009 and 2008, respectively. No single supplier provided more than 10% of our total purchases.

We also purchased finished goods from contract manufacturers. For our wholesale business, collectively, purchases from our five largest contract manufacturers represented approximately 42.6% and 40.7% of total finished goods purchases in 2009 and 2008, respectively. Two contract manufacturers provided approximately 17.9% and 10.7% of our total finished goods purchases in 2009. One contract manufacturer provided approximately 21.5% of our total finished goods purchases in 2008.

For our wholesale business, we generally agree to pay our suppliers within 30-90 days after our receipt of goods. We typically place orders for materials from suppliers when we receive orders from our customers. On average, the materials will generally be consumed by production in approximately 20 days.

Sales and Marketing

We have set up our own merchandising department to interface with our customers. We believe we have developed good and stable business relationships with our main customers in the Europe, U.S., Japan and China. Our sales staff typically work directly with our customers and arrange the terms of the contracts with them.

Our management believes that we continue to benefit from our solid reputation for providing high quality goods and professional service in the markets where we have a presence, which provides us further opportunities to work with desirable customers. Our marketing strategy aims to attract customers with the strongest brands within the strongest markets. We market directly to branded retailers and retail chains instead of selling through intermediary buyers and agents. We seek to attract customers mainly from Europe, the U.S., Japan, and China. In addition, we look for customers with strong brand appeal and product lines that require high quality manufacturing and generate sufficient sales volume to support our sizeable production capacity. Referrals from existing customers have been and continue to be a fruitful source of new customers. In addition, we aim to maintain an active presence in trade shows around the world, including those in Europe, the U.S., Japan, and China.

Production and Quality Control

In 2009, we manufactured approximately 30% of the products we sell to wholesale customers in our own manufacturing facilities. We typically outsource a large portion of our products based upon factory capacity and customer demand. The number of outside contract manufacturers to which we outsource is expected to increase in order to meet the anticipated growth in demand from our customers.

As of December, 31, 2009, our total production capacity including outsourcing reached 12 million pieces per year. At present, our production capacity is sufficient to meet customer demand.

We are committed to designing and manufacturing high quality garments. We place a higher standard on quality control because we emphasize the high quality of our products. We have implemented strict quality control and craft discipline systems. Before we manufacture large quantities, we obtain the approval from our customers either through in-person visits to the factories or by shipping samples of our products to our customers for testing, inspection and feedback. This ensures that our products perfectly meet specifications prior to production. In addition, our trained professional quality control personnel periodically inspect the manufacturing process and quality of our apparel products. Our factory is ISO 9001:2000 certified. ISO 9000 is a family of standards for quality management systems maintained by ISO, International Organization for Standardization, and is administered by accreditation and certification bodies. We have been independently audited and certified to be in conformance with ISO 9001 which certifies that formalized business processes are being applied.

Due to our strict quality control and testing process, we have not undergone any significant product or merchandise recalls, and we generally do not receive any significant requests by our customers to return finished goods. Product returns are not a material factor in our business.

We anticipate to continue outsourcing a large portion of our production. Management believes that outsourcing allows us to maximize our production flexibility while reducing significant capital expenditure and the costs associated with managing a large production workforce. We contract for the production of a portion of our products through various outside independent manufacturers. Quality control reviews are done by our employees during and after production before the garments leave the outsourcing factories to ensure that material and component qualities and the products “fits” are in accordance with our specifications. We inspect prototypes of each product prior to cutting by the contractors, and conduct a final inspection of finished products prior to shipment to ensure that they meet our high standards.

Delivery and Transportation

We do not hold any significant inventory of finished goods, as we typically ship finished goods to our customers upon completion.

We deliver most of our products through Jiangsu Ever-Glory, our primary import and export agent. Our products are generally shipped directly to customers. Jiangsu Ever-Glory has access to a variety of ground , sea and air shipping companies and can typically deliver a finished product to the client within the timeframes we require. Merchandise is carried from our production facilities by truck to a port where it is consolidated and loaded on containerized vessels for ocean or air transport to the ultimate destination. Ever-Glory Apparel is expected to be handle most of our import and export beginning in 2010.

Competition

The garment manufacturing industry is highly competitive, particularly in China. Our competitors include garment manufacturers of all sizes, both within China and elsewhere in the world, many of which have greater financial and manufacturing resources than us. We have been in the garment manufacturing business since 1993 and believe that we have earned a reputation for producing high quality products efficiently and at competitive prices, with excellent customer service. We believe we provide one-stop-service and more valuable products for our customers.

Currently, we have several competitors in China including small to large sized companies including some state-owned trading groups and private garment companies. We believe we differentiate ourselves from the competition and will be able to effectively compete with our rivals due to our persistent pursuit of quality control, a diversified casual wear product lineup, and in-house design talent. In addition, we believe we derive advantages from the rapid feedback we receive from our customers in the supply chain and using our advanced Enterprise Resource Planning (“ERP”) system. Our ERP system integrates many of our operational processes into one system including order processing, statistical analysis, purchasing, manufacturing, logistics and financial control systems, providing management with instantaneous feedback on important aspects of our business operations.

Governmental Regulations/Quotas

In 2009, we were not subject to any export quota imposed by countries where our customers are located. Nevertheless, we noticed many European counties tightened their chemical inspection requirements after the removal of quotas. In addition, there can be no assurance that additional trade restrictions will not be imposed on the export of our products in the future. Such actions could result in increases in the cost of our products generally and may adversely affect our results of operations. On a longer term basis, we believe that our customer mix and our ability to adjust the types of apparel we manufacture will mitigate our exposure to such trade restrictions in the future.

We are also required to comply with Chinese laws and regulations that apply to some of the products we produce, in the countries we export to. In order to address these Chinese compliance issues, we have established an advanced fabric testing center to ensure that our products meet certain quality and safety standards in the U.S. and EU. In addition, we work closely with our customers so that they understand our testing and inspection process.

Seasonality

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

Retail Segment

As of December 31, 2009, LA GO GO had 185 retail stores in China to sell its own brand clothing. We believe our advantages in the retail segments are the acute and prompt response to market trends, quick turn-around in design and production, and appropriate pricing. In 2009, we achieved total net sales of approximately US $13.2 million for our retail business.

Supplier

We purchase the majority of our raw materials (including fabric, fasteners, thread, buttons, labels and related materials) directly from numerous local fabric and accessories suppliers. For our retail business, collectively, purchases from our five largest suppliers represented approximately 31.3% of total purchases in 2009. No single supplier provided more than 10% of our total purchases in 2009. We have not experienced difficulty in obtaining raw materials essential to our business.

We also purchase finished goods from contract manufacturers. For our retail business, collectively, our five largest contract manufacturers represented approximately 37.5% of total finished goods purchases in 2009. No single contract manufacturer provided more than 10% of our total finished goods purchases in 2009. We have not experienced difficulty in obtaining finished products from our contract manufacturers.

For our retail business, we generally agree to pay our suppliers within 30-180 days after our receipt of goods. We typically place orders for materials from suppliers when the style has been confirmed by our chief of design. On average, the supplies we hold in stock will generally be consumed in production in approximately 20 days.

Customers

LA GO GO intends to appeal to fashionable urban females between the ages of 21 to 39. Our products are priced at a middle-to-high level in order to appeal to the targeted customers.

Design and Production

We have our own design, production and quality control departments. LA GO GO releases new designs twice a year during October for the spring/summer season and May for the autumn/winter season. Our design team attends many fashion shows each year to track the trend in Europe, Japan and Asia. The designing team produces approximately 1000 designs each year. LA GO GO hosts its own order-placing fair twice each year to determine the new products to be released for the spring/summer and autumn/winter season based on the orders placed by all the regional sales managers at such fair, the chief designer decides the design to be manufactured. The production department will then produce sample for the designer’s approval. Our quality control department checks the quality of the final products by follow-up inspection. The final products will be shipped to the logistics and distribution center for sale.

Sales and Marketing

Our LA GO GO products are sold in flagship stores, and stores-within-a-store. The sales department develops new sales channels. According to the new store opening plan, the ratio of flagship stores and stores-within-a-store are carefully balanced. The store-within-a-store enters into contracts with department stores. The flagship stores are carefully chosen at prominent locations and have lease agreements with each property owner. Under our return and exchange policy, products may be returned or exchanged for any reason within 15 days. During 2009, the return and exchange rate was very low and was not a material factor in our operations.

Store Operation

As of December 31, 2009, we had 185 stores, including 31 flagship stores, with each store generating average revenue of approximately $9,500 per month. The majority of our retail stores are situated as stores-within-a-store in large, mid-tier department stores located in over 20 provinces in China.

Trademark

We regard our trademarks as an important part of our business due to the name recognition of our customers. We currently have pending trademark registration applications at the China Trademark Office (“CTO”) for the mark “LA GO GO” in class 25 and class 18. La Chapelle applied for trademark registration in 2007 and later assigned the application to LA GO GO in 2008 upon the latter’s incorporation. We believe that the CTO will issue its decision on whether to approve the applications for registration sometime in 2011. According to the Trademark Law of the PRC, we are entitled to use the mark before obtaining such approval. As of December 31, 2009, we are not aware of any prior registration or valid claim or challenges to our right to use the mark.

Information Technology

We recognize the importance of high-quality information management system in the retail operation. As a result, we use “Parkson Retail Management Sytem”, a comprehensive and mature retail management application in China, to monitor and manage the merchandise planning, inventory and sales information.

Employees

As of December 31, 2009, we had over 2,100 employees. None of our employees belong to a labor union. We have never experienced a labor strike or work stoppage. We are in full compliance with the Chinese labor laws and regulations and are committed to providing safe and comfortable working conditions and accommodations for our employees.

Labor Costs.

The manufacture of garments is a labor-intensive business. Although much of our production process is automated and mechanized, we rely on skilled labor to make our products. During the year ended December 31, 2009, we benefited from the abundance of affordable skilled workers as a result of the economic downturn in China. To increase efficiency and productivity, we cut back total number of employees while the average salary level increased.

Working Conditions and Employee Benefits

We consider our social responsibilities to our workers to be an important objective, and we are committed to providing a safe, clean, comfortable working environment and accommodations. Our employees are also entitled to paid holidays and vacations. In addition, we frequently monitor our third party manufacturers’ working conditions to ensure their compliance with related labor laws and regulations. We are in full compliance with our obligations to provide pension benefits to our workers, as mandated by the PRC government. We strictly comply with Chinese labor laws and regulations, and offer reasonable wages, life insurance and medical insurance to our workers.

Compliance with Environmental Laws

Based on the present nature of our operations, we do not believe that environmental laws and the cost of compliance with those laws have or will have a material impact on our operations.

Description of Property

In 2009, we operated four facilities on certain land in the Nanjing Jiangning Economic and Technological Development Zone and in Shangfang Town, which are located in Nanjing, China. For further details concerning our property, see Item 2 of this report regarding Properties.

Taxation

Our five 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 consolidated entities files its own separate tax return, and we do not file a consolidated tax return. Goldenway was incorporated in the PRC and is subject to PRC income tax laws and regulations. In 2009, Goldenway’s income tax rate was 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 have 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 and through 2010, New-Tailun and Catch-Luck are entitled to a 50% reduction of the income tax rate of 25%. Therefore these two subsidiaries will be taxed at 12.5% for 2008, 2009 and 2010.

LA GO GO was established on January 24, 2008, its income tax rate is 25%.

Ever-Glory Apparel was established on January 6, 2009, its income tax rate is 25%.

All of our income tax expenses are related to our operations in China.

Recent Developments

In connection with the acquisition of Catch-Luck, in the second quarter of 2010 we expect to issue 1,153,846 shares of the Company’s restricted common stock to Ever-Glory Hong Kong as a result of Catch-Luck’s achievement of certain 2009 financial targets, pursuant to the Agreement for the Purchase and Sale of Stock dated June 26, 2006, as amended on August 31, 2006 (the “Amendment”) by and between us, Perfect Dream Ltd., Ever-Glory Hong Kong and Catch-Luck.

In connection with the Capital Contribution Agreement between Goldenway, La Chapelle and Wuxi Xin Bao Lian Investment Company Limited (“Wuxi Xin Bao”) as of January 9, 2008, La Chapelle agreed to meet certain audited net income targets of at least RMB 20 million in 2008 and RMB 30 million in 2009. In the event La Chapelle’s actual audited net income falls below 90% of either of these targets, the overall equity interest of Goldenway and Wuxi Xin Bao shall, in each instance, be increased proportionally in accordance with a formula set forth in the Capital Contribution Agreement. La Chapelle’s net income in 2009 is approximately RMB30 million which is more than 90% of the agreed target of RMB 30 million. As a result, there will be no change of the equity interest of Goldenway or Wuxi Xin Bao.

Our Growth Strategy

Supply chain management:

Expand the global sourcing network

Invest in the overseas low-cost manufacturing base

Focus on value and continue the Average Selling Price uptrend

Emphasis on product design and technology application

Seek strategic acquisitions of international distributors that could enhance global sales and distribution network

Retailing business development:

Multi-brand operator

Firmly build up LA GO GO to become a major Chinese mid-end mass market ladies' wear brand

Seek opportunities for long-term cooperation with reputable international brands

Facilitate the entry of international brands into the PRC market

Retail network expansion

Improve store efficiency and increase same store sales (“SSS”)

Strengthen brand marketing

Launch flagship stores in Tier-1 Cities

Increase penetration and coverage in Tier-2 and Tier-3 Cities

ITEM 1A.RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this Annual Report before making an investment decision with regard to our securities. The statements contained in or incorporated into this Annual Report 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, and you may lose all or part of your investment.

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 declines 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. We currently sell to customers in the U.S., the EU and Japan. Accordingly, economic conditions and consumer spending patterns in these regions could affect our sales, and an economic down turn in one or more of these regions could have an adverse effect on our business. The economic downturn in the latter part of 2008 has resulted in the shortening of production cycles, i.e. from the placement of orders by customers to the production of the finished products. As a result, we had more pressure in our production cycle and our gross margin decreased.

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.

As of December 31, 2009 and 2008, we did not rely on any raw material supplier which exceeds 10% of all of our total raw material purchases. For the wholesale business, during 2009 the Company relied on two manufacturers for 18% and 11% of purchased finished goods while in 2008 the Company relied on one manufacturer for 21% of purchased finished goods . For the retail business, during 2009 the Company did not rely on any single raw material supplier while in 2008 the Company relied on two manufacturers for 29% of purchased finished goods. 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 on 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

Our wholesale business depends 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.

For the year ended December 31, 2009, our five largest customers represented approximately 49% of our total net sales. For the year ended December 31, 2008, our top five largest customers represented approximately 52% of our total net sales. 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 customers could have material adverse effect on our earnings or financial condition. While we believe that we could replace these customers within 12 months, the loss of which will not have material adverse effect on our financial condition in the long term. None of our affiliates are officers, directors, or material shareholders of any of these customers.

Our business relies heavily on our ability to identify changes in fashion trend.

Our success depends in part on our ability to effectively predict and respond to changing fashion tastes by offering appropriate products. Failure to effectively follow the changing fashion trend will lead to higher seasonal inventory levels. Our continuous ability to respond to the changing customer demands constitutes a material risk to the success of our retail success. For our wholesale business, if we could not swiftly respond to the changing fashion trend, the sample we designed for the clients may not be accepted or the products based on our design may be put into inventory and thus have a negative impact on the amount of order the client may place with us.

Our ability to attract customers to the stores heavily depends on their location.

Our flagship stores and the store-within-a-stores are selectively located in what we believe to be prominent locations or popular department stores to generate customer traffic. The availability and/or cost of appropriate locations for the existing or future stores may fluctuate for reasons beyond our control. If we are unable to secure these locations or to renew store leases on acceptable terms, we may not continue to attract the amount of customers, which will have a material adverse effect on our sales and results of operations.

We may not be successful in expanding our LA GO GO retail business by opening profitable new stores.

Our future growth requires our continuous increase of new flagship stores and stores-within-a-store in selected cities, improve our operating capabilities, and retain and hire qualified sales personnel in these stores. There can be no assurance that we will be able to achieve our store expansion goals, nor any assurance that our newly opened stores will achieve revenue or profitability levels comparable to those of our existing stores. If our stores fail to achieve acceptable revenue, we may incur significant costs associated with closing those stores.

We depend on key personnel, and our ability to grow and compete will be harmed if we do not retain the continued services of such personnel.

We depend on the efforts and expertise of our management team. The loss of services of one or more members of this team, each of whom have substantial experience in the garment industry, could have an adverse effect on our business. If we are unable to hire and retain qualified management or if any member of our management leaves, such departure could have an adverse effect on our operations. In particular, we believe we have benefited substantially from the leadership and strategic guidance of our CEO and Chairman of the Board, Mr. Edward Yihua Kang.

Our ability to anticipate and effectively respond to changing fashion trends depends in part on our ability to attract and retain key personnel in our design, merchandising and marketing areas. In addition, if we experience material growth, we will need to attract and retain additional qualified personnel. The market for qualified and talented design and marketing personnel in the apparel industry is intensely competitive, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods. If we are unable to attract or retain qualified personnel as needed, our growth will be hampered and our operating results could be materially adversely affected.

If we fail to protect our trademark and maintain the value of our LA GO GO brand, our retail sales are likely to decline.

We intend to vigorously protect our trademark against infringement, but we may not be successful in doing so. The unauthorized reproduction or other misappropriation of our trademark would diminish the value of our brand, which could reduce demand for our products or the prices at which we can sell our products. The success of our retail operation significantly depends on the value and image of the LAＧＯGO brand. Our brand could be adversely affected if we fail to maintain and promote the LA GO GO brand by successful marketing.

Failure to maintain and/or upgrade our information technology systems may have an adverse effect on our operation.

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 acquire 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 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:

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

unanticipated costs, litigation and other contingent liabilities;

diversion of management’s attention from our core business;

adverse effects on existing business relationships with suppliers and customers;

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

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

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

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 EU, 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 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 a World Trade Organization (“WTO”) agreement, effective January 1, 2005, the United States and other WTO member countries agreed to remove quotas applicable to textiles. 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, arousing strong objection from China.

On June 10, 2005, in response to the surge of Chinese imports into the EU, the EU Commission signed a Memorandum of Understanding (“EU MOU”) with China in which ten categories of textiles and apparel are subject to restraints. Additionally, on November 8, 2005, the U.S. and China entered into a Memorandum of Understanding (“US MOU”) in which 21 categories of textiles and apparel are subject to restraints. Although certain of our apparel products fall within the categories subject to the safeguards in the U.S. and the EU, which could adversely affect our ability to export and sell these products, the imposition of quotas in 2005 did not have a material effect on our net sales, although it did impact our gross margin. There can be no assurance that additional trade restrictions will not be imposed on the exportation of our products in the future. Such actions could result in increases in the cost of our products generally and may adversely affect our results of operations.

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 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, the Euro and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. In the last decade, the RMB has been pegged at RMB 8.2765 to one 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, the 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. If the RMB were to increase in value against the U.S. Dollar and other currencies, for example, consumers in the U.S., Japan 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. In addition, if the RMB were to decline in value against these other currencies, the financial value of your investment in our shares would also decline.

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 a majority 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. The majority 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 has been trading on the NYSE Amex (formerly, the American Stock Exchange and NYSE Alternext US LLC) since July 16, 2008, but 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 ended December 31, 2009 has been US$3.14 and US$0.65 per share respectively.

We cannot predict the extent to which an active public market for our common stock will develop or be sustained. Our common shares are currently traded, but currently with low volume, based on quotations on the NYSE Amex, 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 trading volume. And 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 trading 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.

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

FINRA 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, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA 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 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, sales 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 or Shanghai, 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.

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 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 73% 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 may also have contractual indemnification obligations under our employment agreements with our officers. 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.

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.

Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal control over financial reporting. In our Annual Report on Form 10-K for the year ended December 31, 2009, we concluded that our internal control over financial reporting was not effective as of December 31, 2009 based on our assessment. For more information, please refer to Item 9. Controls and Procedures. Our failure to achieve and maintain effective internal control reporting could result in loss of our investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common 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 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

Wholesale segment

In 2009, we operated three complexes as our operating and production facilities at 509 Chengxin Road, in the Nanjing Jiangning Economic and Technological Development Zone, Shangfang Town, Nanjing, China. The following is a description of these facilities:

(i) Goldenway. Our Goldenway facilities include 112,442 square meters of floor space. Our Goldenway facility hosts administrative, sales and distribution functions in addition to manufacturing. On June 24, 2006 we obtained the right to use the land on which these facilities are constructed for 50 years. There are no material encumbrances on these facilities.

(ii) New-Tailun. Our New-Tailun facilities include 25,000 square meters of floor space. Approximately 560 employees work at this location. Our New-Tailun facility mainly handles manufacturing. We lease the New-Tailun facility and the land from Jiangsu Ever-Glory for US$50,452 per annum under a two year leasing arrangement that expired on December 31,2009. In January 2010, we signed a new two-year lease with Jiangsu Ever-Glory with annual rent of approximately $46,000.

(iii) Catch-Luck. Our Catch-Luck facilities include 6,635 square meters of office and production space. Approximately 520 employees work at those locations. Our Catch-Luck facility mainly handles manufacturing. These facilities are located on the piece of land for which we have the 50-year land use right.

In addition, under certain lease arrangement between Goldenway and Jiangsu Ever-Glory International Group Corporation, (“Jiangsu Ever-Glory”), Goldenway currently holds the right to lease certain land and use certain building and improvements on that land until 2016. In 2009 we leased part of this facility to a non- affiliated third party under a lease with an annual rent of approximately $18,000.

We believe that our current facilities will be sufficient to sustain our wholesale operations for the foreseeable future.

Retail Segment

For our retail operations, we have a one year lease arrangement for our administrative offices and a three-year lease for our warehouse. The current flagship stores are generally leased under agreements with real estate developers or department store or shopping mall operators for terms ranging from 2 to 5 years. The store-within-a-store are counters leased from department stores for which we generally pay approximately 30% of sales revenue as rent. We believe the administrative and warehouse facilities are adequate to sustain our operations for the foreseeable future. We also believe that the locations of the flagship stores and the stores-within-a-store units are carefully selected and suitable for the LA GO GO operation.

Item 3. LEGAL PROCEEDINGS

There is no material pending legal proceeding to which the Company is a party.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHSES OF EQUITY SECURITIES.

Market for Common Equity

Our common stock was quoted on the Over-The-Counter Bulletin Board (the “OTCBB”) initially under the symbol “EGLY” and then it was changed to “EVGY” in 2007. On July 16, 2008 our common stock commenced trading on the NYSE Amex LLC (“NYSE Amex”)(formerly named the American Stock Exchange and the NYSE Alternext US LLC) under the symbol of “EVK”. As of December 31, 2009, there were approximately 65 shareholders of record of our common stock. The number of registered shareholders excludes any estimate by us of the number of beneficial owners of common shares held in street name. The following table sets forth the high and low bid information for the common stock for each quarter within the last two fiscal years, as reported by the OTCBB on a quarterly basis for the periods during which our common stock was quoted on the OTCBB and as reported by the NYSE Amex from the third quarter of 2008 following our listing thereon. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

NYSE AMEX

	Bid Price
PERIOD	HIGH		LOW
FISCAL YEAR 2009
Fourth Quarter ended December 31, 2009	$	3.14	$	2.05
Third Quarter ended September 30, 2009	$	2.15	$	1.61
Second Quarter ended June 30, 2009	$	2.50	$	1.53
First Quarter ended March 31, 2009	$	2.50	$	0.65

FISCAL YEAR 2008:
Fourth Quarter ended December 31, 2008	$	2.49	$	0.89
Third Quarter ended September 30, 2008	$	4.89	$	1.90

OTCBB

	Bid Price
PERIOD	HIGH		LOW
FISCAL YEAR 2008:
Second Quarter ended June 30, 2008	$	4.80	$	3.89
First Quarter ended March 31, 2008	$	3.60	$	2.70

On March 30, 2010, the closing sale price of our common stock on the NYSE Amex was $2.95 per share. The stock prices shown in the table above are retroactively adjusted, as applicable, to reflect our 10-to-1 reverse stock split effective on November 20, 2007.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all of our net income for use in our business, and do not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial condition and future prospects and other factors the Board of Directors may deem relevant.

Item 6. SELECTED FINANCIAL DATA

Not applicable

ITEM 7.

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

The following discussion and analysis of our financial condition and results of operations for the year ended December 31, 2009 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,” “target”, “forecast” and similar expressions to identify forward-looking statements.

Overview

Our Business

We are a leading apparel supply-chain manager and retailer in China, and are listed on the NYSE Amex.

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

Although we have our own manufacturing facilities, we currently outsource most manufacturing to our strategic alliances as part of our overall business strategy. Outsourcing allows us to maximize our production capacity and maintain flexibility while reducing capital expenditures and the costs of keeping skilled workers on production lines during low season. Our management oversees the long-term contractors and inspects products manufactured by them to ensure that they meet our high quality control standards and timely delivery. Our annual production capacity including outsourcing orders is in excess of 12 million pieces.

On January 6, 2009, we established Ever-Glory International Group Apparel Inc. (“Ever-Glory Apparel”) a wholly-owned subsidiary of Goldenway. On March 23, 2009, Goldenway transferred all of its ownership interest in LA GO GO to Ever-Glory Apparel. On September 15, 2009, we established Ever-Glory International Group (HK) Ltd. (“Ever-Glory HK”), a wholly-owned subsidiary of Perfect Dream. Ever-Glory Apparel and Ever-Glory HK are principally engaged in the import and export of apparel, fabric and accessories. In order to reduce related transaction costs, we have been gradually shifting our import and export business to Ever-glory Apparel and Ever-Glory HK. We previously utilized Jiangsu Ever-Glory International Group Corporation (“Jiangsu Ever-Glory”),; an entity controlled by Mr. Edward Yihua Kang, our Chairman of the Board and Chief Executive Officer, to assist with our import and export business.

Wholesale Business

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

Retail Business

We conduct our retail operations through Shanghai LA GO GO Fashion Company Limited (“LA GO GO”), a joint venture of Ever-Glory Apparel and Shanghai La Chapelle Garment and Accessories Company Limited, located in Shanghai, China. The business objective of the joint venture is to establish a leading brand of women’s wear and to build a retail and wholesale distribution channel for the mainland Chinese market.

Business Objectives

Wholesale Business

We believe the strength of our wholesale business is due to our consistent emphasis on innovative and distinct product designs with exceptional styling and quality. We maintain long-term relationships with a portfolio of well-known, middle to higher class global brands, a strong and experienced management team and a proven ability to design, market and distribute our own brand through fast-growing retail channels in a highly populated country.

The primary business objective for our wholesale segment is to expand our portfolio into higher class brands, expand our customer base and improve margins. Opportunities and continued investment initiatives include:

Expand our global sourcing network;

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

Focus on value and continue our average selling price uptrend;

Emphasize product design and new technology utilization; and

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

Retail Business

The business objective for our retail segment is to further establish a leading brand of women’s apparel and to build a nationwide retail distribution channel in China. As of December 31, 2009 we operated 185 stores. During 2009 we opened 100 stores and closed 8 stores. We expect to open an additional 80-100 stores in 2010.

Opportunities and continued investment initiatives include:

Become a multi-brand operator;

Build the LA GO GO brand to become a major Chinese mid-end mass market in women's wear;

Seek opportunities for long-term cooperation with reputable international brands to expand our retail business;

Facilitate the entry of international brands into the PRC retail market;

Expand the LA GO GO retail network;

Improve the LA GO GO retail store efficiency and increase same store sales;

Strengthen the LA GO GO brand promotion; and

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

Seasonality of Business

Collection Policy

Wholesale business

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

Retail business

For store-in-store shops, we generally receive payments from the stores between 60-90 days following the time of register receipt. For our own stores, we receive payments at the point of sale.

Global Economic Uncertainty

Our business is dependent on consumer demand for our products. We believe that the significant uncertainty in the global economy and a slowdown in the United States. and the European economy have increased our clients’ sensitivity to the cost of our products as reflected in our revenues for 2009 when compared to 2008. We have experienced continued pricing pressure this year. If the global economic environment continues to be weak, these worsening economic conditions could have a negative impact on the Company’s sales growth and operating margins.

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

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

Summary of Critical Accounting Policies

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

Revenue Recognition

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

Estimates and Assumptions

In preparing our consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts. Significant estimates in 2009 and 2008 include the assumptions used to value warrants and the estimates of the valuation allowance for deferred tax assets.

Recent Accounting Pronouncements

Embedded Derivatives

(Included in ASC 815 “Derivatives and Hedging”, previously SFAS 133)

In June 2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF No. 07-5”). This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of Statement of Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF No.07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. Upon adoption of EITF No. 07-5, the Company reclassified certain warrants that were previously classified as equity to liability (Note 8).

Business Combinations

(Included in ASC 805 “Business Combinations”, previously SFAS No. 141(R))

This ASC guidance revised SFAS No. 141, “Business Combinations” and addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. Adoption of this standard on January 1, 2009 did not have a material impact on the Company’s condensed consolidated financial statements, as the Company did not enter into a business combination during 2009.

Noncontrolling Interests

(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51)

SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company adopted SFAS 160 on January 1, 2009. As a result, the Company has reclassified financial statement line items within the Company’s Consolidated Balance Sheets and Statements of Income and Comprehensive Income for 2008 to conform to this standard.

Interim Disclosures about Fair Value of Financial Instruments

(Included in ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1)

This guidance requires that the fair value disclosures required for all financial instruments within the scope of SFAS 107, “Disclosures about Fair Value of Financial Instruments”, be included in interim financial statements. This guidance also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP SFAS No. 107-1 was effective for interim periods ending after September 15, 2009. The adoption of FSP SFAS No.107-1 did not have a material impact on the Company’s Consolidated Financial Statements.

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-1)

In June 2009, the FASB approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification is effective for interim or annual financial periods ending after September 15, 2009 and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the year of 2009.As a result of the Company’s implementation of the Codification during the year of 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impact of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

Collaborative arrangements

(Included in ASC808, formerly EITF07-1)

In December 2007, the FASB issued new accounting guidance that defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. It also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to those arrangements. This new accounting guidance was effective for the Company on January 1, 2009, and its adoption did not have a significant impact on its consolidated financial statements.

Transfers of Financial Assets

(Included in ASC860, formerly SFAS No. 166)

In June 2009, the FASB issued new guidance on the Accounting for Transfers of Financial Assets that addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor continuing involvement in transferred financial assets. The guidance also removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. This guidance is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for the Company as of January 1, 2010. The Company is currently evaluating the impact on our consolidated financial statements upon adoption.

Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2009 and 2008. The table and the discussion below should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report.

	Year Ended December 31
	2009				2008
	(in U.S. Dollars, except for percentages)
Sales	$	89,870,991	100.0	%	$	97,471,682	100.0	%
Gross Profit		18,305,224	20.4			15,902,166	16.3
Operating Expenses		12,192,514	13.6			8,658,382	8.9
Income From Operations		6,112,710	6.8			7,243,784	7.4
Other Expenses		915,944	1.0			2,597,050	2.7
Income Tax Expense		814,686	0.9			1,091,006	1.1
Net Income	$	4,382,080	4.9	%	$	3,555,728	3.6	%

Revenue

The following table sets forth a breakdown of our total sales, by region, for the years ended December 31, 2009 and 2008.

	2009		% of total sales			2008		% of total sales			Growth in 2009 compared with 2008
Wholesales business
The People’s republic of China	$	4,542,199		5.1	%	$	7,625,288		7.8	%		(40.4	) %
Germany		22,164,414		24.7			26,967,753		27.7			(17.8	)
United Kingdom		13,256,621		14.8			14,863,998		15.2			(10.8	)
Europe-Other		10,042,180		11.2			11,023,829		11.3			(8.9	)
Japan		13,282,230		14.8			16,579,037		17.0			(19.9	)
United states		13,389,903		14.9			16,905,742		17.3			(20.8	)
Total Wholesales business		76,677,547		85.3			93,965,647		96.4			(18.4	)
Retail business		13,193,444		14.7			3,506,035		3.6			276.3
Total	$	89,870,991		100.0	%	$	97,471,682		100.0	%		(7.8	) %

We generate revenues primarily from our wholesale business from international markets. We also generate revenues from our retail business from the Chinese domestic market focusing on our own apparel brand: LA GO GO.

Total sales for the year ended December 31, 2009 were $89.9 million a decrease of 7.8% from the year ended December 31, 2008. Although sales in our retail business increased significantly during 2009, sales in our wholesale business decreased 18.4% due to the global economic slowdown.

Sales generated from our wholesale business contributed 85.3%or $76.7 million of our total sales for the year ended December 31, 2009, compared to 96.4% or $94.0 million for the year ended December 31, 2008. The decreases for each quarter are as follows:

	2009		2008		Decrease in 2009 compared with 2008
First quarter	$	17,975,623	$	19,627,010		(8.4	) %
Second quarter		19,093,790		23,815,840		(19.8	)
Third quarter		22,312,104		30,847,432		(27.7	)
Fourth quarter		17,296,030		19,675,365		(12.1	)
Total	$	76,677,547	$	93,965,647		(18.4	) %

During the second and third quarters of 2009, wholesale business decreased 19.8% and 27.7% compared with the same periods of 2008. This decrease was primarily due to the worsening economic downturn. Ever-Glory suspended the orders of several customers due to the pessimistic financial outlook and concern over timely payment ability of those customers.

During the first quarter of 2009, wholesale business decreased 8.4% compared with the same period of 2008. This decrease was primarily attributable to the fact that most orders processed in this quarter were placed in the third quarter 2008 when the customers had not responded to the economic downturn yet.

During the fourth quarter of 2009, the Company saw the wholesale business decrease approximately 12.1% compared with the same period of 2008. The 12.1% rate of decrease was an improvement compared to 19.8% and 27.7% in the second and third quarters of 2009 reflective of the general economic conditions in the United States and Europe.

Sales generated from our retail business contributed 14.7% or $13.2 million of our total sales for the year ended December 31, 2009, an increase of 276.3% compared to $3.5 million for the year ended December 31, 2008. We had 185 LA GO GO stores at December 31, 2009, compared to 93 LA GO GO stores at December 31, 2008. In 2009 we opened 100 new LA GO GO stores and closed 8 stores.

Costs and Expenses

Cost of Sales and Gross Margin

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

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the years ended December 31, 2009 and 2008.

	For the Year Ended December 31,								Growth(Decrease) in 2009 compared with
	2009				2008				2008
	(in U.S. dollars, except for percentages)
Wholesale Sales	$	76,677,547	100.0	%	$	93,965,647	100.0	%		(18.4	) %
Raw Materials		35,273,298	46.0			44,583,815	47.4			(20.9	)
Labor		2,992,231	3.9			3,079,043	3.3			(2.8	)
Outsourced Production Costs		24,106,715	31.4			30,438,432	32.4			(20.8	)
Other and Overhead		847,133	1.1			1,247,141	1.3			(32.1	)
Total Cost of Sales for Wholesale		63,219,377	82.4			79,348,431	84.4			(20.3	)
Gross Profit for Wholesale		13,458,170	17.6			14,617,216	15.6			(7.9	)
Net Sales for Retail		13,193,444	100.0			3,506,035	100.0			276.3
Production Costs		3,287,373	24.9			753,855	21.5			336.1
Rent		5,059,017	38.3			1,467,230	41.8			244.8
Total Cost of Sales for Retail		8,346,390	63.3			2,221,085	63.4			275.8
Gross Profit for Retail		4,847,054	36.7			1,284,950	36.6			277.2
Total Cost of Sales		71,565,767	79.6			81,569,516	83.7			(12.3	)
Gross Profit	$	18,305,224	20.4	%	$	15,902,166	16.3	%		15.1	%

There are two operational patterns in our apparel making and trading business CMT or “Cutting, Making and Trim”, and FOB or “Freight on Board”. Under the CMT model, our buyers supply us with the main raw materials, and we charge them for production, whereby cash flows are reduced. FOB is a generally adopted business model where the price is composed of both raw material and production charges.

Total raw materials costs decreased 20.9% to $35.3 million in 2009 from $44.6 million in 2008. As a percent of sales, raw materials cost for our wholesale business accounted for 46.0% of our total sales in 2009, a decrease of 1.4% compared to 2008. This decrease was primarily due to our recently implemented centralized purchasing function to increase our purchasing power and increased CMT orders in the second quarter. For CMT orders the material supplied by the buyers is not included in the pricing, and only production charges account for the sales volume. As a result the sales volume appears low while the gross profit is higher.

Total labor costs decreased 2.8% to $3.0 million in 2009 versus $3.1 million in 2008. As a percent of sales, labor costs for our wholesale business accounted for 3.9% of our total sales in 2009, an increase of 60 basis points compared to 2008. This increase was primarily due to decreased outsourcing orders in 2009.

Total outsourced production costs for our wholesale business decreased 20.8% to $24.1 million in 2009 from $30.4 million in 2008. As a percent of sales, outsource production costs were 31.4% of our total sales in 2009, a 1.0% decrease compared to 2008. This decrease in total cost was primarily due to the lower sales volume in 2009.

Overhead and other expenses for our wholesale business accounted for 1.1% of our total sales in 2009, compared to 1.3% of total sales in 2008. This decrease was due to lower sales volume in 2009..

Gross profit in our wholesale business in 2009 was $13.5 million, a decrease of 7.9% compared to 2008. Gross margin was 17.6% for our wholesale business in 2009 an increase of 2.0% compared to 2008. The increase in our gross margin was primarily because we decreased lower margin orders in a continued effort to pursue higher added value operations.

Production costs for our retail business were $3.3 million in 2009 as compared to $0.8 million in 2008. As a percent of sales, retail production costs accounted for 24.9% of our total sales in 2009, compared to 21.5% of total sales in 2008. The increase was due to reduced selling prices in exchange for higher selling volume.

Rent costs for our retail business were $5.1 million in 2009 compared to $1.5 million in 2008. As a percent of sales, rent costs accounted for 38.3% of our total sales in 2009, compared to 41.8% of total sales in 2008. The decrease in rent costs as a percentage of total retail sales was due to an increase in same store sales in 2009.

Gross profit in our retail business in 2009 was $4.8 million and gross margin was 36.7%. Gross profit in our retail business in 2008 was $1.3 million and gross margin was 36.6%.

Total cost of sales in 2009 was $71.6 million, compared to $81.6 million in 2008, a decrease of 12.3%. As a percentage of total sales, cost of sales decreased to 79.6% of total sales in 2009, compared to 83.7% of total sales in 2008. Consequently, gross margin increased to 20.4% in 2009 from 16.3% in 2008.

We purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Some of our customers also furnish us with raw materials so that we can manufacture their products. For our wholesale business, purchases from our five largest suppliers represented approximately 19.4% and 18.6% of raw materials purchases in 2009 and 2008, respectively. No one supplier provided more than 10% of our raw materials purchases in 2009 and 2008. For our retail business, purchases from our five largest suppliers represented approximately 31.3% and 36.3% of raw materials purchases in 2009 and 2008. No supplier provided more than 10% of our total purchases in 2009 and 2008. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers.

We also purchase finished goods from contract manufacturers. For our wholesale business, purchases from our five largest contract manufacturers represented approximately 42.6% and 40.7% of finished goods purchases in 2009 and 2008, respectively. Two contract manufacturers provided approximately 17.9% and 10.7% of our finished goods purchases in 2009. One contract manufacturer provided approximately 21.5% of our finished goods purchases in 2008. For our retail business, our five largest contract manufacturers represented approximately 37.5% and 50.1% of finished goods purchases in 2009 and 2008, respectively. No contract manufacturer provided more than 10% of our finished goods purchases in 2009 and two contract manufacturers provided 19.0% and 10.3% of our finished goods purchases in 2008. We have not experienced difficulty in obtaining finished products from our contract manufacturers and we believe we maintain good relationships with our contract manufacturers.

Selling, General and Administrative (SG&A) Expenses

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

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

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

	For the Year Ended December 31,
	2009				2008				Increase (Decrease)
	(in U.S. Dollars, except for percentages)
Gross Profit	$	18,305,224	20.4	%	$	15,902,166	16.3	%		15.1	%
Operating Expenses:
Selling Expenses		4,659,103	5.2			1,966,926	2.0			136.9
General and Administrative Expenses		7,533,411	8.4			6,691,456	6.9			12.6
Total		12,192,514	13.6			8,658,382	8.9			40.8
Income from Operations	$	6,112,710	6.8	%	$	7,243,784	7.4	%		(15.6	) %

Selling expenses were $4.7 million in 2009 an increase of 136.9% or $2.7 million compared to 2008. The increase was attributable to an increase of approximately $1.2 million in salaries for retail staff, and approximately $1.3 million for decoration and marketing expenses associated with the promotion of LA GO GO.

General and administrative expenses were $7.5 million in 2009, an increase of 12.6% or approximately $0.8 million compared to 2008. The increase was attributable to an increase in payroll for additional management, design and marketing staff as a result of our business expansion.

Income from Operations

Income from operations decreased 15.6% to $6.1 million in 2009 from $7.2 million in 2008 as the result of the increasing operating expenses.

Interest Expense

	2009		2008		Increase		% Increase
Bank Loans	$	327,432	$	327,834	$	-402		(0.1	) %
Related party		115,674		175,100		-59,426		(33.9	)
Convertible notes interest				58,659		-58,659
Convertible notes-non cash expenses				2,296,575		-2,296,575
Total	$	443,106	$	2,858,168	$	-2,415,062		(84.5	) %

Interest expense was $0.4 million in 2009, a decrease of 84.5% compared to 2008. This decrease was mainly due to the conversion of convertible notes into common stock in 2008.

Change in fair value of derivative liability

Quarterly changes in the fair value of derivative liability are as follows:

Quarter ended	3/31/2009		6/30/2009			9/30/2009		12/31/2009		Total 2009
Change in fair value of derivative liability:
Warrants issued August 2, 2007	$	1,066,494	$	(484,702	)	$	143,909	$	420,358	$	1,146,059
Net charges (credits) to income	$	1,066,494	$	(484,702	)	$	143,909	$	420,358	$	1,146,059

Income Tax Expenses

Income tax expense was $0.8 million in 2009, a decrease of 25.3% compared to 2008.

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

Below is a summary of the income tax rate for each of our PRC subsidiaries in 2008 and 2009.

	Goldenway			New-Tailun			Catch-Luck			LA GO GO			Ever-Glory Apparel
2008		25.0	%		12.5	%		12.5	%		25.0	%		*
2009		25.0	%		12.5	%		12.5	%		25.0	%		25.0	%

*Ever-Glory Apparel was established on Jan 6, 2009.

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

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

Ever-Glory International Group Inc. was incorporated in the United States and has incurred net operating losses for income tax purposes through December 31, 2009. The net operating loss carry forwards for United States income taxes may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2029. Management believes that the realization of the benefits from these losses appears uncertain due to our limited operating history and continuing losses for United States income tax purposes. Accordingly, we have provided a 100% valuation allowance on the deferred tax asset benefit to reduce the asset to zero.

Net Income

Net income in 2009 was $4.4 million, an increase of 23.2% compared to 2008.Our diluted earnings per share were $0.29 and $0.26 for the years ended December 31, 2009 and 2008, respectively.

Noncontrolling Interest

On January 9, 2008, Goldenway entered into an Agreement with La Chapelle to form a joint venture to develop, promote and market a new line of women’s wear in China. Goldenway agreed to initially invest RMB 6 Million (approximately $826,200) in cash, and La Chapelle agreed to invest RMB 4 Million (approximately $553,040) in cash, for a 60%- and 40%- interest in the joint venture, respectively. The joint venture is included in the Company’s consolidated financial statements beginning in 2008, and the 40% interest held by La Chapelle is classified as noncontrolling interest. As of December 31, 2009, the carrying value of the noncontrolling interest was $665,546.

Summary of Cash Flows

Net cash provided by operating activities in 2009 was $3,070,658 compared with net cash provided by operating activities of $2,832,441 in 2008. This increase was mainly attributable to increases in accounts receivable and inventories, partially offset by an increase in accounts payable in 2009.

Net cash used in investing activities was $1,485,984 in 2009, compared with $2,324,798 in 2008. On January 9, 2008, Goldenway entered into a Capital Contribution Agreement with La Chapelle, pursuant to which Goldenway invested $1,467,000 in cash (RMB 10 million) in La Chapelle for a 10% ownership interest in La Chapelle offset by an increase in purchase of property and equipment associated with the promotion of LA GO GO resulting in the decrease used in net investing activities in 2009.

Net cash provided by financing activities was $562,320 in 2009, compared with $166,515 in 2008. In 2009 we repaid $16,038,040 of bank loans while receiving loan proceeds of $16,800,360 from the bank. In 2009 and 2008 we repaid $200,000 and $1,990,000 to Blue Power Holding Ltd, an entity controlled by Mr. Edward Yihua Kang, offset in 2008 by $553,040 from La Chapelle’s investment in LA GO GO and $219,635 received upon the exercise of warrants.

Liquidity and Capital Resources

As of December 31, 2009, we had cash and cash equivalents of $3,555,745, other current assets of $40,301,982 and current liabilities of $26,805,882. We presently finance our operations primarily from cash flows from our operations, and we anticipate that this will continue to be our primary source of funds to finance our short-term cash needs.

Bank Loan

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

On July 31, 2008, Goldenway entered into credit agreements with Nanjing Bank which allow the Company to borrow up to $7.3 million (RMB50million) for a 24 month period. Bank loans are secured by our facilities and are used to fund daily operations. As of December 31, 2009, we had borrowed approximately $5.9 million which matures in January, March and May 2010, at an interest rate of 5.35% per annum. In January and March 2010, the Company repaid and then borrowed approximately $2.5 million under this agreement.The maturity of these borrowings can be extended at our option.

On June 30, 2009, HSBC approved a revolving credit facility of $2.5 million to Perfect-Dream. To date nothing has been drawn down on this line of credit.

On July 3, 2009, Ever-Glory Apparel, entered into a one-year revolving line of credit agreement (“Revolving Line of Credit Agreement”) with Nanjing Bank, a PRC Bank, which allows the Company to borrow up to approximately USD 5.9 million (RMB 40 million ) during the period from June 1, 2009 to June 1, 2010. Borrower is required to apply for each loan when it needs to draw from this revolving line of credit. The Revolving Line of Credit is guaranteed by Jiangsu Ever-Glory, and Goldenway pursuant to certain guaranty agreements. We did not pay any fee to Jiangsu Ever-Glory International Group Corporation or Goldenway for such security. As of December 31, 2009 the company borrowed $0.4 million under this agreement.

Loan from Related Party

During 2009 we repaid $200,000 to Blue Power Holdings Limited (“Blue Power”). As of December 31, 2009, the amount owing to Blue Power was $2,575,759. Interest accrued on the loan to Blue Power totaled $115,674 for 2009.

Capital Commitments

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

Uses of Liquidity

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

Sources of Liquidity

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

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 2010. No assurance can be made that additional financing will be available to us if required, and adequate funds may not be available on terms acceptable to us. If funding is insufficient at any time in the future, we will develop or enhance our products or services and expand our business through our own cash flows from operations.

As of December 31, 2009, we had access to a $7.3 million line of credit. Of this line of credit, $1.4 million was unused and available. This credit facility does not include any covenants.

Foreign Currency Translation Risk

Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the United States dollar and the Chinese RMB. Most of our sales are in dollars. During 2003 and 2004 the exchange rate of RMB to the dollar remained constant at 8.26 RMB to the dollar. On July 21, 2005, the Chinese government adjusted the exchange rate from 8.26 to 8.09 RMB to the dollar. From that time, the RMB continued to appreciate against the U.S. dollar. As of December 31, 2009, the market foreign exchange rate had increased to 6.82 RMB to one U.S. dollar. We are continuously negotiating price adjustments with most of our customers based on the daily market foreign exchange rates, which we believe will reduce our exposure to exchange rate fluctuations in the future, and will pass some of the increased cost to our customers.

In addition, the financial statements of Goldenway, New-Tailun, Catch-Luck, Ever-Glory Apparel and LA GO GO (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All exchange differences are recorded within equity. The foreign currency translation (loss) gain for the years ended December 31, 2009 and 2008 was ($35,838) and $1,880,500, 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.

RESTATEMENT OF QUARTERLY FINANCIAL RESULTS

Subsequent to the issuance of our September 30, 2009 consolidated interim financial statements, we determined that we had incorrectly reported derivative warrant liabilities related to the Company’s January 1, 2009 change in accounting principle as a result of the adoption of ASC 815 (previously EITF No. 07-5). We have issued restated unaudited financial statements for the nine months ended September 30, 2009, and we have restated our unaudited financial statements for the first two quarters of 2009 in this Annual Report on Form 10-K. There was no impact to the fourth quarter of 2009 as a result of the restatement of the first three quarters of 2009.

The adjustments identified in connection with the reclassification of the warrants as derivavtive liabilities result in a decrease in paid in capital of approximately $976,460, an increase in retained earnings of approximately $494,680, and the recognition of a liability of approximately $481,780 as of January 1, 2009. The liability was then adjusted to fair value as of March 31, 2009 and June 30, 2009, resulting in an increase in the liability and other expense of $1,066,494 as of and for the three months ended March 31, 2009, and a decrease in the liability and other expense of $484,702 as of and for the three months ended June 30, 2009.

The following is management’s discussion and analysis of the financial results and the unaudited restated financial statements for the quarters ended March 31, 2009 and June 30, 2009, reflecting the following changes:

	●	Restated financial statements;
	●	Revisions to the Results of Operations sections in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Quarter Ended March 31, 2009 – Results of Operations:

Results of Operations

Results of Operations for the three months ended March 31, 2009 as compared with the three months ended March 31, 2008.

The following table summarizes our results of operations for the three months ended March 31, 2009 and 2008.

	Three months ended March 31
	2009					2008
	(in U.S. Dollars, except for percentages)
Sales	$	20,507,822		100.0	%	$	19,747,208		100.0	%
Gross Profit		4,714,155		23.0			3,721,036		18.8
Operating Expenses		2,796,596		13.6			1,690,182		8.6
Income From Operations		1,917,559		9.4			2,030,854		10.3
Other Expenses		(1,084,224	)	(5.3	)		(545,854	)	(2.8	)
Income Tax Expense		289,071		1.4			283,838		1.4
Net Income	$	555,862		2.7	%	$	1,197,293		6.1	%

Change in fair value of derivative liability

Change in the fair value of derivative liability was $1.1 million for the three months ended March 31, 2009 which reflects a reduction in the market value of certain outstanding warrants.

Net Income

Net income was $0.6 million for the three months ended March 31, 2009 a decrease of 53.6% compared to the three months ended March 31, 2008. Our diluted earnings per share were $0.04 and $0.10 for the three months ended March 31, 2009 and 2008, respectively.

The following is the unaudited, restated statement of income for the three months ended March 31, 2009:

	Unaudited
	For the three months ended
	March 31,2009			adjustment			March 31,2009			March 31,2008
	restated						as filed
NET SALES
Related parties	$	-		$			$	-		$	425,102
Third parties		20,507,822						20,507,822			19,322,106
Total net sales		20,507,822						20,507,822			19,747,208

COST OF SALES
Related parties		-						-			402,748
Third parties		15,793,667						15,793,667			15,623,424
Total cost of sales		15,793,667						15,793,667			16,026,172

GROSS PROFIT		4,714,155						4,714,155			3,721,036

OPERATING EXPENSES
Selling expenses		940,474						940,474			277,528
General and administrative expenses		1,856,122						1,856,122			1,412,654
Total Operating Expenses		2,796,596						2,796,596			1,690,182

INCOME FROM OPERATIONS		1,917,559						1,917,559			2,030,854

OTHER INCOME (EXPENSES)
Interest income		103,547						103,547			31,974
Interest expense		(123,650	)					(123,650	)		(577,828	)
Change of fair value of derivitive liability		(1,066,494	)		(1,066,494	)
Other income		2,373						2,373			-
Total Other Income (Expenses)		(1,084,224	)		(1,066,494	)		(17,730	)		(545,854	)

INCOME BEFORE INCOME TAX EXPENSE		833,335			(1,066,494	)		1,899,829			1,485,000

INCOME TAX EXPENSE		(289,071	)					(289,071	)		(283,838	)

NET INCOME		544,264			(1,066,494	)		1,610,758			1,201,162

ADD(LESS): NET LOSS(INCOME) ATTRIBUTABLE TO THE NONCONTROLING INTEREST		11,598						11,598			(3,869	)

NET INCOME ATTRIBUTABLE TO THE COMPANY	$	555,862		$	(1,066,494	)	$	1,622,356		$	1,197,293

NET INCOME	$	544,264			(1,066,494	)		1,610,758			1,201,162

Foreign currency translation (loss) gain		(44,208	)					(44,208	)		1,099,884
COMPREHENSIVE INCOME		500,056			(1,066,494	)		1,566,550			2,301,046

COMPREHENSIVE INCOME ATTRIBUTABLE TO
THE NONCONTROLING INTEREST		(12,392	)					(12,392	)		23,457

COMPREHENSIVE INCOME ATTRIBUTABLE TO
THE COMPANY	$	512,448		$	(1,066,494	)	$	1,578,942		$	2,277,589

NET INCOME PER SHARE
Attributable to the Company's common stockholders
Basic	$	0.04		$			$	0.12		$	0.10
Diluted	$	0.04		$			$	0.12		$	0.10
Weighted average number of shares outstanding
Basic		13,531,225						13,531,225			11,449,682
Diluted		13,531,225						13,531,225			12,204,363

The following is the unaudited, restated balance sheet as of March 31, 2009:

	March 31,		March 31,
	2009		2009
	restated		as filed

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	3,833,600	$	3,833,600
Accounts receivable		12,970,781		12,970,781
Accounts receivable - related parties		73,900		73,900
Inventories		2,856,073		2,856,073
Other receivables and prepaid expenses		433,038		433,038
Advances on inventory purchases		209,321		209,321
Amounts due from related party		10,754,680		10,754,680
Total Current Assets		31,131,393		31,131,393

LAND USE RIGHT, NET		2,834,195		2,834,195
PROPERTY AND EQUIPMENT, NET		12,799,944		12,799,944
INVESTMENT AT COST		1,465,000		1,465,000
TOTAL ASSETS	$	48,230,532	$	48,230,532

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Bank loans	$	6,592,500	$	6,592,500
Accounts payable		5,290,568		5,290,568
Other payables- related party		903,416		903,416
Other payables and accrued liabilities		1,813,614		1,813,614
Value added and other taxes payable		656,583		656,583
Income tax payable		207,550		207,550
Deferred tax liabilities		176,086		176,086
Total Current Liabilities		15,640,317		15,640,317


LONG-TERM LIABILITIES
Loan from related party		2,689,350		2,689,350
Derivative liability		1,548,274
Total Long-term Liabilities		4,237,624		2,689,350
TOTAL LIABILITIES		19,877,941		18,329,667

COMMITMENTS AND CONTINGENCIES

EQUITY
Stockholders' equity of the Company
Preferred stock ($.001 par value, authorized 5,000,000 shares,
no shares issued and outstanding)		-		-
Common stock ($.001 par value, authorized 50,000,000 shares,
12,394,652 and 12,373,567 shares issued and outstanding
as of March 31,2009 and December 31, 2008, respectively)		12,395		12,395
Additional paid-in capital		3,594,704		4,571,164
Retained earnings		16,858,081		17,429,895
Statutory reserve		3,437,379		3,437,379
Accumulated other comprehensive income		3,912,652		3,912,652
Total Stockholders' Equity of the Company		27,815,211		29,363,485
Noncontrolling interest		537,380		537,380
Total Equity		28,352,591		29,900,865

TOTAL LIABILITIES AND EQUITY	$	48,230,532	$	48,230,532

The following is the unaudited, restated statement of cash flows for the three months ended March 31, 2009:

	March 31,			March 31,
	2009			2009
	restated			as filed
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	544,264		$	1,610,758
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization		484,005			484,005
Change in fair value of derivative liability		1,066,494			-
Deferred income tax		96,194			96,194
Amortization of discount on convertible notes		-			-
Amortization of deferred financing costs		-			-
Stock issued for interest		-			-
Changes in operating assets and liabilities
Accounts receivable		(3,488,612	)		(3,488,612	)
Accounts receivable - related parties		(73,905	)		(73,905	)
Inventories		874,121			874,121
Other receivables and prepaid expenses		(227,276	)		(227,276	)
Advances on inventory purchases		78,547			78,547
Amounts due from related party		795,181			795,181
Accounts payable		1,675,077			1,675,077
Accounts payable - related parties		148,837			148,837
Other payables and accrued liabilities		151,499			151,499
Other payables-related parties		2,327			2,327
Value added and other taxes payable		288,298			288,298
Income tax payable		(50,047	)		(50,047	)
Long term deferred expense
Net cash provided by operating activities		2,365,004			2,365,004

CASH FLOWS FROM INVESTING ACTIVITIES

Other payables-related party		-			-
Investment in La Chapelle		-			-
Purchase of property and equipment		(65,719	)		(65,719	)
Proceeds from sale of equipment		3,778			3,778
Net cash used in investing activities		(61,941	)		(61,941	)

CASH FLOWS FROM FINANCING ACTIVITIES
Contribution from minority shareholders		-			-
Proceeds from bank loans		5,860,400			5,860,400
Repayment of bank loans		(5,801,796	)		(5,801,796	)
Proceeds from long term loan		29,265			29,265
Net cash provided by financing activities		87,869			87,869

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(2,695	)		(2,695	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,388,237			2,388,237

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		1,445,363			1,445,363

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	3,833,600		$	3,833,600

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest expense	$	144,646		$	144,646
Income taxes	$	242,924		$	242,924

Quarter Ended June 30, 2009 – Results of Operations:

Results of Operations

Results of Operations for the three months ended June 30, 2009 as compared with the three months ended June 30, 2008.

The following table summarizes our results of operations for the three months ended June 30, 2009 and 2008.

	Three months ended June 30
	2009				2008
	(in U.S. Dollars, except for percentages)
Sales	$	21,125,494	100.0	%	$	24,068,397		100.0	%
Gross Profit		4,507,561	21.3			4,353,837		18.1
Operating Expenses		3,154,623	14.9			2,190,893		9.1
Income From Operations		1,352,938	6.4			2,162,944		9.0
Other Income(Expenses)		573,559	2.7			(529,451	)	(2.2	)
Income Tax Expense		272,656	1.3			284,809		1.2
Net Income	$	1,653,841	7.8	%	$	1,348,684		5.6	%

Change in fair value of derivative liability

Change in the fair value of derivative liability was ($0.5) million for the three months ended June 30, 2009 which reflects an increase in the estimated fair value of certain outstanding warrants.

Net Income

Net income was $1.7 million for the three months ended June 30, 2009 an increase of 22.6% compared to the three months ended June 30, 2008. Our diluted earnings per share were $0.12 and $0 for the three months ended June 30, 2009 and 2008, respectively.

The following is the unaudited, restated statement of income for the three months ended June 30, 2009:

	Unaudited
	For the three months ended
	June 30, 2009			adjustment		June 30, 2009			June 30, 2008
	restated					as filed

NET SALES
Related parties	$	9,351		$		$	9,351		$	67,461
Third parties		21,116,143					21,116,143			24,000,936
Total net sales		21,125,494					21,125,494			24,068,397

COST OF SALES
Related parties		9,013					9,013			58,636
Third parties		16,608,920					16,608,920			19,655,924
Total cost of sales		16,617,933					16,617,933			19,714,560

GROSS PROFIT		4,507,561					4,507,561			4,353,837

OPERATING EXPENSES
Selling expenses		865,341					865,341			368,564
General and administrative expenses		2,289,282					2,289,282			1,822,329
Total Operating Expenses		3,154,623					3,154,623			2,190,893

INCOME FROM OPERATIONS		1,352,938					1,352,938			2,162,944

OTHER INCOME (EXPENSES)
Interest income		161,481					161,481			48,590
Interest expense		(115,234	)				(115,234	)		(631,126	)
Change of fair value of derivitive liability		484,702			484,702
Other income		42,610					42,610			53,085
Total Other Income (Expenses)		573,559			484,702		88,857			(529,451	)

INCOME BEFORE INCOME TAX EXPENSE		1,926,497			484,702		1,441,795			1,633,493

INCOME TAX EXPENSE		(272,656	)				(272,656	)		(284,809	)

NET INCOME		1,653,841			484,702		1,169,139			1,348,684

ADD(LESS): NET LOSS(INCOME) ATTRIBUTABLE TO THE NONCONTROLING INTEREST		5,861					5,861			620

NET INCOME ATTRIBUTABLE TO THE COMPANY	$	1,659,702		$	484,702	$	1,175,000		$	1,349,304

NET INCOME	$	1,653,841		$	484,702	$	1,169,139		$	1,348,684

Foreign currency translation (loss) gain		(39,103	)				(39,103	)		611,354
COMPREHENSIVE INCOME		1,614,738			484,702		1,130,036			1,960,038

COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO
THE NONCONTROLING INTEREST		3,109					3,109			435

COMPREHENSIVE INCOME ATTRIBUTABLE TO
THE COMPANY	$	1,617,847		$	484,702	$	1,133,145		$	1,960,473

NET INCOME PER SHARE
Attributable to the Company's common stockholders
Basic	$	0.12		$		$	0.09		$	0.12
Diluted	$	0.12		$		$	0.09		$	-
Weighted average number of shares outstanding
Basic		13,548,498					13,548,498			11,710,865
Diluted		13,548,498					13,548,498			12,528,595

Results of Operations for the six months ended June 30, 2009 as compared with the six months ended June 30, 2008.

The following table summarizes our results of operations for the six months ended June 30, 2009 and 2008.

	Six months ended June 30
	2009					2008
	(in U.S. Dollars, except for percentages)
Sales	$	41,633,316		100.0	%	$	43,815,605		100.0	%
Gross Profit		9,221,716		22.1			8,074,873		18.4
Operating Expenses		5,951,219		14.3			3,881,075		8.9
Income From Operations		3,270,497		7.9			4,193,798		9.6
Other Expenses		(510,665	)	(1.2	)		(1,075,305	)	(2.5	)
Income Tax Expense		561,727		1.3			568,647		1.3
Net Income	$	2,198,105		5.3	%	$	2,549,846		5.8	%

Change in fair value of derivative liability

Change in the fair value of derivative liability was $0.6 million for the six months ended June 30, 2009 which reflects a reduction in the estimated fair value of certain outstanding warrants.

Net Income

Net income was $2.2 million for the six months ended June 30, 2009 a decrease of 13.8% compared to the six months ended June 30, 2008. Our diluted earnings per share were $0.16 and $0.10 for the six months ended June 30, 2009 and 2008, respectively.

The following is the unaudited, restated statement of income for the six months ended June 30, 2009:

	Unaudited
	For the six months ended
	June 30, 2009			adjustment			June 30, 2009			June 30, 2008
	restated						as filed

NET SALES
Related parties	$	9,351		$			$	9,351		$	492,563
Third parties		41,623,965						41,623,965			43,323,042
Total net sales		41,633,316						41,633,316			43,815,605

COST OF SALES
Related parties		9,013						9,013			461,384
Third parties		32,402,587						32,402,587			35,279,348
Total cost of sales		32,411,600						32,411,600			35,740,732

GROSS PROFIT		9,221,716						9,221,716			8,074,873

OPERATING EXPENSES
Selling expenses		1,805,815						1,805,815			646,092
General and administrative expenses		4,145,404						4,145,404			3,234,983
Total Operating Expenses		5,951,219						5,951,219			3,881,075

INCOME FROM OPERATIONS		3,270,497						3,270,497			4,193,798

OTHER INCOME (EXPENSES)
Interest income		265,028						265,028			80,564
Interest expense		(238,884	)					(238,884	)		(1,208,954	)
Change of fair value of derivitive liability		(581,792	)		(581,792	)
Other income		44,983						44,983			53,085
Total Other Income (Expenses)		(510,665	)		(581,792	)		71,127			(1,075,305	)

INCOME BEFORE INCOME TAX EXPENSE		2,759,832			(581,792	)		3,341,624			3,118,493

INCOME TAX EXPENSE		(561,727	)					(561,727	)		(568,647	)

NET INCOME		2,198,105			(581,792	)		2,779,897			2,549,846

ADD(LESS): NET LOSS(INCOME) ATTRIBUTABLE TO THE NONCONTROLING INTEREST		17,459						17,459			(3,249	)

NET INCOME ATTRIBUTABLE TO THE COMPANY	$	2,215,564		$	(581,792	)	$	2,797,356		$	2,546,597

NET INCOME	$	2,198,105		$	(581,792	)	$	2,779,897		$	2,549,846

Foreign currency translation (loss) gain		(83,311	)					(83,311	)		1,711,238
COMPREHENSIVE INCOME		2,114,794			(581,792	)		2,696,586			4,261,084

COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO
THE NONCONTROLING INTEREST		15,501						15,501			(23,022	)

COMPREHENSIVE INCOME ATTRIBUTABLE TO
THE COMPANY	$	2,130,295		$	(581,792	)	$	2,712,087		$	4,238,062

NET INCOME PER SHARE
Attributable to the Company's common stockholders
Basic	$	0.16		$			$	0.21		$	0.22
Diluted	$	0.16		$			$	0.21		$	0.10
Weighted average number of shares outstanding
Basic		13,539,909						13,539,909			11,580,273
Diluted		13,539,909						13,539,909			12,291,758

The following is the unaudited, restated balance sheet as of June 30, 2009:

	June 30,		June 30,
	2009		2009
	restated		as filed

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	993,869	$	993,869
Accounts receivable		15,188,450		15,188,450
Inventories		2,910,793		2,910,793
Value added tax receivable		241,325		241,325
Other receivables and prepaid expenses		398,730		398,730
Advances on inventory purchases		321,710		321,710
Amounts due from related party		10,153,169		10,153,169
Total Current Assets		30,208,046		30,208,046

LAND USE RIGHT, NET		2,817,773		2,817,773
PROPERTY AND EQUIPMENT, NET		12,642,068		12,642,068
INVESTMENT AT COST		1,465,000		1,465,000
TOTAL ASSETS	$	47,132,887	$	47,132,887

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Bank loans	$	3,223,000	$	3,223,000
Accounts payable		6,133,696		6,133,696
Accounts payable and other payables- related parties		917,871		917,871
Other payables and accrued liabilities		1,923,451		1,923,451
Value added and other taxes payable		687,699		687,699
Income tax payable		230,847		230,847
Deferred tax liabilities		232,695		232,695
Total Current Liabilities		13,349,259		13,349,259

LONG-TERM LIABILITIES
Loan from related party		2,718,614		2,718,614
Derivative liability		1,063,572
Total Long-term Liabilities		3,782,186		2,718,614
TOTAL LIABILITIES		17,131,445		16,067,873

COMMITMENTS AND CONTINGENCIES

EQUITY
Stockholders' equity of the Company
Preferred stock ($.001 par value, authorized 5,000,000 shares,
no shares issued and outstanding)		-		-
Common stock ($.001 par value, authorized 50,000,000 shares,
13,548,498 and 12,373,567 shares issued and outstanding
as of June 30,2009 and December 31, 2008, respectively)		13,549		13,549
Additional paid-in capital		3,594,704		4,571,164
Retained earnings		18,517,783		18,604,895
Statutory reserve		3,437,379		3,437,379
Accumulated other comprehensive income		3,873,549		3,873,549
Total Stockholders' Equity of the Company		29,436,964		30,500,536
Noncontrolling interest		564,478		564,478
Total Equity		30,001,442		31,065,014
TOTAL LIABILITIES AND EQUITY	$	47,132,887	$	47,132,887

The following is the unaudited, restated statement of cash flows for the six months ended June 30, 2009:

	June 30,			June 30,
	2009			2009
	restated			as filed
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,198,105		$	2,779,897
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization		987,141			987,141
Change in fair value of derivative liability		581,792			-
Accrued interest on loan from related party		58,529			58,529
Deferred income tax		152,868			152,868
Changes in operating assets and liabilities
Accounts receivable		(5,718,775	)		(5,718,775	)
Inventories		819,734			819,734
Value added tax receivable		(241,441	)		(241,441	)
Other receivables and prepaid expenses		(467,251	)		(467,251	)
Advances on inventory purchases		(33,835	)		(33,835	)
Amounts due from related party		1,391,643			1,391,643
Accounts payable		2,519,292			2,519,292
Accounts payable and other payables - related parties		178,745			178,745
Other payables and accrued liabilities		263,858			263,858
Value added and other taxes payable		337,762			337,762
Income tax payable		(44,974	)		(44,974	)
Net cash provided by operating activities		2,983,193			2,983,193

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in La Chapelle		-			-
Purchase of property and equipment		(122,879	)		(122,879	)
Proceeds from sale of equipment		6,810			6,810
Net cash used in investing activities		(116,069	)		(116,069	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans		6,595,650			6,595,650
Repayment of bank loans		(9,908,132	)		(9,908,132	)
Net cash used in financing activities		(3,312,482	)		(3,312,482	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(6,136	)		(6,136	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(451,494	)		(451,494	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,445,363			1,445,363

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	993,869		$	993,869

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest expense	$	180,355		$	180,355
Income taxes	$	436,106		$	436,106

Item 7A QUANTATITIVE AND QUALITATIVE DISCLSOURE ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2009

CONTENTS

Report of Registered Public Accounting Firm			F-1

Consolidated Balance Sheets			F-2

Consolidated Statements of Income and Comprehensive Income			F-3

Consolidated Statements of Equity			F-4

Consolidated Statements of Cash Flows			F-5

Notes to Consolidated Financial Statements			F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Ever-Glory International Group, Inc.

We have audited the accompanying consolidated balance sheets of Ever-Glory International Group, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, equity and cash flows for each of the two years in the period ended December 31, 2009. These financial statements are the responsibility of Ever-Glory International Group, Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ever-Glory International Group, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, during 2009 the provisions of new accounting standards relating to non-controlling interests and contracts in an entity’s own equity were adopted.

/s/GHP Horwath, P.C.

Denver, Colorado

March 31, 2009

F-1

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2008

	2009		2008

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,555,745	$	1,445,363
Accounts receivable		12,751,579		9,485,338
Inventories		12,419,622		3,735,227
Value added tax receivable		730,724		-
Other receivables and prepaid expenses		601,842		945,191
Advances on inventory purchases		443,331		288,256
Amounts due from related party		13,354,884		11,565,574
Total Current Assets		43,857,727		27,464,949

LAND USE RIGHT, NET		2,788,731		2,854,508
PROPERTY AND EQUIPMENT, NET		12,540,856		12,494,452
INVESTMENT, AT COST		1,467,000		1,467,000
TOTAL ASSETS	$	60,654,314	$	44,280,909

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Bank loans	$	7,305,660	$	6,542,820
Current portion of loan from related party		2,575,759		-
Accounts payable		13,241,962		3,620,543
Accounts payable and other payables - related parties		782,606		754,589
Other payables and accrued liabilities		2,287,356		1,683,977
Value added and other taxes payable		186,895		368,807
Income tax payable		3,745		257,946
Deferred tax liabilities		421,899		80,009
Total Current Liabilities		26,805,882		13,308,691


LONG-TERM LIABILITIES
Loan from related party, net of current portion		-		2,660,085
Derivative liability		1,627,839		-
Total Long-term Liabilities		1,627,839		2,660,085
TOTAL LIABILITIES		28,433,721		15,968,776

COMMITMENTS AND CONTINGENCIES

EQUITY
Stockholders' equity of the Company
Preferred stock ($.001 par value, authorized 5,000,000 shares,
no shares issued and outstanding)		-		-
Common stock ($.001 par value, authorized 50,000,000 shares,
13,560,240 and 12,373,567shares issued and outstanding
as of December 31, 2009 and 2008, respectively)		13,560		12,374
Additional paid-in capital		3,615,357		4,549,004
Retained earnings		20,406,245		15,807,539
Statutory reserve		3,585,448		3,437,379
Accumulated other comprehensive income		3,934,437		3,956,860
Total Stockholders' Equity of the Company		31,555,047		27,763,156
Noncontrolling interest		665,546		548,977
Total Equity		32,220,593		28,312,133
TOTAL LIABILITIES AND EQUITY	$	60,654,314	$	44,280,909

F-2

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	2009			2008

NET SALES
Related parties	$	73,207		$	681,167
Third parties		89,797,784			96,790,515
Total net sales		89,870,991			97,471,682

COST OF SALES
Related parties		54,965			621,103
Third parties		71,510,802			80,948,413
Total cost of sales		71,565,767			81,569,516

GROSS PROFIT		18,305,224			15,902,166

OPERATING EXPENSES
Selling expenses		4,659,103			1,966,926
General and administrative expenses		7,533,411			6,691,456
Total operating expenses		12,192,514			8,658,382

INCOME FROM OPERATIONS		6,112,710			7,243,784

OTHER INCOME (EXPENSE)
Interest income		620,731			227,090
Interest expense		(443,106	)		(2,858,168	)
Change in fair value of derivative liability		(1,146,059	)
Other income		52,490			34,028
Total other expense		(915,944	)		(2,597,050	)

INCOME BEFORE INCOME TAX EXPENSE		5,196,766			4,646,734

INCOME TAX EXPENSE		(814,686	)		(1,091,006	)

NET INCOME		4,382,080			3,555,728

ADD(LESS): NET (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		(129,984	)		4,063

NET INCOME ATTRIBUTABLE TO THE COMPANY	$	4,252,096		$	3,559,791

NET INCOME	$	4,382,080		$	3,555,728

Foreign currency translation (loss) gain		(35,838	)		1,880,500

COMPREHENSIVE INCOME		4,346,242			5,436,228

COMPREHENSIVE INCOME ATTRIBUTABLE TO
THE NONCONTROLLING INTEREST		116,569			10,330

COMPREHENSIVE INCOME ATTRIBUTABLE TO
THE COMPANY	$	4,229,673		$	5,425,898

NET INCOME PER SHARE
Attributable to the Company's common stockholders
Basic	$	0.31		$	0.30
Diluted	$	0.29		$	0.26
Weighted average number of shares outstanding
Basic		13,552,837			11,895,048
Diluted		14,703,522			13,489,769

F-3

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

					Additional			Retained Earnings					Accumulated other
	Common Stock				paid-in						Statutory		comprehensive			Noncontrolling
	Shares		Amount		capital			Unrestricted			reserve		income			Interest			Total
Balance at January 1,2008		11,379,309	$	11,379	$	2,154,368		$	12,247,748		$	3,437,379	$	2,076,360		$	-		$	19,927,234

Stock issued for compensation		3,068		3		12,851														12,854
Stock issued for conversion of																				-
convertible notes and interest		922,554		923		2,032,136														2,033,059
Warrants issued for services						130,082														130,082
Stock issued upon exercise of warrants		68,636		69		219,567														219,636
Contribution from minority shareholders																	553,040			553,040
Net income									3,559,791											3,559,791
Foreign currency translation gain														1,880,500			(4,063	)		1,876,437

Balance at December 31, 2008		12,373,567		12,374		4,549,004			15,807,539			3,437,379		3,956,860			548,977			28,312,133

Cumulative effect of change in accounting						(976,460	)		494,679											(481,781	)
principle-January 1,2009-Reclassification of equity
linked financial instruments to derivative liability
Stock issued for compensation		32,827		32		43,967														43,999
Stock issued for merger of Catch-luck		1,153,846		1,154		(1,154	)													-
Net income									4,252,096								129,984			4,382,080
Transfer to reserve									(148,069	)		148,069
Foreign currency translation loss														(22,423	)		(13,415	)		(35,838	)

Balance at December 31, 2009		13,560,240	$	13,560	$	3,615,357		$	20,406,245		$	3,585,448	$	3,934,437		$	665,546		$	32,220,593

F-4

EVER-GLORY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,382,080		$	3,555,728
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization		1,892,654			1,010,379
Deferred income tax		341,658			78,618
Amortization of discount on convertible notes		-			1,973,587
Amortization of deferred financing costs		-			191,995
Change in fair value of derivative liability		1,146,059			-
Stock issued for interest		-			33,059
Stock based compensation		43,999			12,854
Warrants issued for services		-			130,082
Changes in operating assets and liabilities
Accounts receivable		(3,264,117	)		4,385,144
Accounts receivable - related parties		-			166,372
Inventories		(8,678,475	)		(1,675,726	)
Value added tax receivable		(730,226	)
Other receivables and prepaid expenses		(244,188	)		(771,610	)
Advances on inventory purchases		(154,970	)		(283,245	)
Amounts due from related party		(3,395,972	)		(8,664,442	)
Accounts payable		9,614,932			1,668,565
Accounts payable - related parties		2,504,760			(362,806	)
Other payables and accrued liabilities		602,868			535,878
Other payables-related parties		(554,589	)		784,278
Value added and other taxes payable		(181,789	)		(39,201	)
Income tax payable		(254,026	)		102,932
Net cash provided by operating activities		3,070,658			2,832,441

CASH FLOWS FROM INVESTING ACTIVITIES

Other payables-related party		(200,000	)		(400,000	)
Investment in La Chapelle		-			(1,467,000	)
Purchase of property and equipment		(1,314,524	)		(530,764	)
Proceeds from sale of equipment		28,540			72,966
Net cash used in investing activities		(1,485,984	)		(2,324,798	)

CASH FLOWS FROM FINANCING ACTIVITIES
Contribution from non-controlling interest		-			553,040
Proceeds from bank loans		16,800,360			12,137,430
Repayment of bank loans		(16,038,040	)		(10,753,590	)
Repayment of long term loan from related party		(200,000	)		(1,990,000	)
Proceeds from exercise of warrants		-			219,635
Net cash provided by financing activities		562,320			166,515

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(36,612	)		129,466

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,110,382			803,624

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		1,445,363			641,739

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	3,555,745		$	1,445,363

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for:
Interest expense	$	327,432		$	384,339
Income taxes	$	720,419		$	909,444

F-5

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

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

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

Goldenway Nanjing Garments Co. Ltd. (“Goldenway”), a wholly-owned subsidiary of Perfect Dream, was incorporated in the PRC on December 31, 1993.

Nanjing Catch-Luck Garments Co, Ltd. (“Catch-Luck”), a wholly owned subsidiary of Perfect Dream, was incorporated in the PRC on December 21, 1995.

Nanjing New-Tailun Garments Co. Ltd. (“New-Tailun’), a wholly-owned subsidiary of Perfect Dream, was incorporated in the PRC on March 27, 2006.

These three subsidiaries (Goldenway, Catch-Luck and New-Tailun) are principally engaged in the manufacture and sale of garments.

Ever-Glory International Group Apparel Inc.(“Ever-Glory Apparel”), a wholly owned subsidiary of Goldenway, was incorporated in the PRC on January 6, 2009. Goldenway invested approximately $735,000 (RMB 5.0 million) in cash. As of December 31, 2009, Goldenway has increased its investment to approximately $6,595,000 (RMB45.0 million). Ever-Glory Apparel is principally engaged in the import and export of apparel, fabric and accessories.

Shanghai LA GO GO Fashion Company Limited (“LA GO GO”), a joint venture of Goldenway and Shanghai La Chapelle Garment and Accessories Company Limited (“La Chapelle”), was incorporated in the PRC on January 24, 2008. Goldenway invested approximately $826,200 (RMB 6.0 million) in cash, and La Chapelle invested approximately $553,040 (RMB 4.0 million) in cash, for a 60% and 40% ownership interest, respectively, in the joint venture. The joint venture was formed to establish and create a leading brand of ladies’ apparel for the mainland Chinese market. On March 23, 2009, Goldenway transfered all of its ownership interest in LA GO GO to Ever-Glory Apparel. As of December 31, 2009, LA GO GO was operating 185 retail stores selling its LA GO GO Brand clothing.

F-6

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Ever-Glory, Perfect Dream, Ever-Glory HK ,Goldenway, New-Tailun, Catch-Luck, Ever-Glory Apparel and LA GO GO are hereinafter referred to as (the “Company”)

RESTATED 2009 QUARTERLY FINANCIAL INFORMATION

Subsequent to the issuance of the Company’s September 30, 2009 consolidated interim financial statements, the Company determined that it had incorrectly reported derivative warrant liabilities related to the Company’s January 1, 2009 change in accounting principle as a result of the adoption of ASC 815 (previously EITF No. 07-5). The Company has issued restated unaudited financial statements for the nine months ended September 30, 2009, on a Form 10-Q/A and it has restated its unaudited financial statements for the first two quarters of 2009 in this Annual Report on Form 10-K.There was no impact to the fourth quarter of 2009 as a result of the restatement of the first three quarters of 2009.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include Ever-Glory and its subsidiaries, and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations with Entities under Common Control

On November 9, 2006, the Company acquired 100% of New-Tailun from Ever-Glory Enterprises (HK) Limited (Ever-Glory Hong Kong) . The Company paid $2,000,000 in cash and, in September 2007, issued 20,833,333 shares of the Company’s restricted common stock in connection with the transaction.

On June 26, 2006, the Company acquired 100% of Catch-Luck from Ever-Glory Hong Kong. The Company paid Ever-Glory Hong Kong $600,000 in cash and issued 1,307,693 shares of the Company’s restricted common stock in connection with the transaction. On August 31, 2006, the Company amended the terms of the purchase consideration as follows: An additional 1,153,846 shares of the Company’s restricted common stock were to be issued to Ever-Glory Hong Kong if Catch-Luck generated gross revenues of at least $19,000,000 and net income of $1,500,000 for the year ended December 31, 2008. These targets were met in 2008 and the shares were issued on April 28, 2009. An additional 1,153,846 shares of the Company’s restricted common stock will be issued to Ever-Glory Hong Kong if Catch-Luck generates gross revenues of at least $19,000,000 and net income of $1,500,000 for the year ending December 31, 2009. These targets were met in 2009 and the shares are expected to be issued in the second quarter of 2010.

F-7

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Mr. Edward Yihua Kang, is the Company’s Chairman and Chief Executive Officer, and is also a significant shareholder of the Company Mr. Kang was also the controlling shareholder of Ever-Glory Hong Kong at the time of these transactions. Accordingly these transactions were accounted for as mergers of entities under common control, and have been included in the consolidated financial statements as of the beginning of the first post-merger period presented with each account stated at historical cost.

Use of Estimates and Assumptions

In preparing the consolidated financial statements in conformity with GAAP, management makes certain estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent based on the best information available at the time the estimates are made. Actual results could differ from these estimates.

Economic and Political Risks

The majority of the Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits with banks with original maturities within three months.

F-8

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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 management’s assessment of the credit history of its customers and current relationships with them. The Company writes off accounts receivable when amounts are deemed uncollectible.

As of December 31, 2009 and 2008, the Company considers all its accounts receivable to be collectable and no provision for doubtful accounts has been made in the consolidated financial statements.

Inventories

Manufactured 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 products must pass the customers’ quality assurance procedures before delivery. Therefore, products are rarely returned by customers after delivery.

Retail merchandise inventories are stated at the lower of average cost or market.

The Company records an allowance for obsolete raw materials aged more than one year and for obsolete finished goods aged more than eighteen months.

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.

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

Property and plant		15-20 Years
Leasehold improvements		2-10 Years
Machinery and equipment		10 Years
Office equipment and furniture		5 Years
Motor vehicles		5 Years

F-9

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Land Use Rights

All land in the PRC is owned by the government and cannot be sold to any individual or company. However, the government may grant a “land use right” to occupy, develop and use land. The Company records land use rights obtained as intangible assets at cost, which is amortized evenly over the grant period of 50 years.

Long-Lived Assets

Long-lived assets, property, equipment and land use rights held and used by the Company are reviewed for impairment 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. There were no impairments of long-lived assets as of December 31, 2009.

Cost Investment

Cost Investment consists of the Company’s 10% equity investment in La Chapelle, acquired on January 9, 2008 for approximately $1,467,000. If a decline in the fair value of a cost method investment is determined to be other than temporary, an impairment charge is recorded and the fair value becomes the new cost basis of the investment. The fair value of the cost method investment is not required to be determined unless impairment indicators are present. When impairment indicators exist, discounted cash flow analyses are generally used to estimate the fair value. Management determined that there was no impairment of the cost investment as of December 31, 2009.

Financial Instruments

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

Fair Value Accounting

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

F-10

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Level 1

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

Level 2

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

Level 3

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

At December 31, 2009, the Company’s financial assets consist of cash placed with financial institutions management considers to be of a high quality.

Effective January 1, 2008, the Company adopted ASC 825-10 “Financial Instruments”, previously SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115”, which allows an entity to choose to measure certain financial instruments and liabilities at fair value on a contract-by-contract basis. Subsequent fair value measurement for the financial instruments and liabilities an entity chooses to measure will be recognized in earnings.

Revenue and Cost Recognition

The Company recognizes wholesale revenue from product sales, net of value added taxes, upon delivery for local sales and upon shipment of the products for export sales, at which time title passes to the customer provided that there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists, the sales price is fixed and determinable and collectability is deemed probable. The Company recognize wholesale revenue from manufacturing fees charged to buyers for the assembly of garments from materials provided by the buyers upon completion of the manufacturing process and upon delivery to the buyer for local sales and upon shipment of the products for export sales, provided that there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists, the sales price is fixed and determinable and collectability is deemed probable.

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

F-11

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Local transportation and unloading charges, and product inspection charges, are included in selling expenses and totaled $100,010 in 2009 and $114,473 in 2008, respectively.

Income Taxes

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. 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.

The Company adopted ASC740 (formerly 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 consolidated financial statements.

Non-controlling Interest

In December 2007, the FASB issued new accounting and disclosure guidance related to non-controlling interests in subsidiaries (previously referred to as minority interests), which resulted in a change in accounting policy effective January 1, 2009. Among other things, the new guidance requires that a non-controlling interest in a subsidiary be accounted for as a component of equity separate from the parent's equity. The new guidance is being applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively.

Accordingly, after adoption, non-controlling interests, consisting of La Chapelle’s 40% interest in LA GO GO of $665,546 and $548,977 at December 31, 2009 and December 31, 2008, respectively, are classified as equity, a change from its previous classification between liabilities and stockholders' equity. Earnings (loss) attributable to non-controlling interest ($129,984 and ($4,063) for the years 2009 and 2008, respectively) are included in net income, although such earnings continue to be deducted to measure earnings per share. Purchases and sales of non-controlling interest are reported in equity similar to treasury stock transactions.

F-12

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Foreign Currency Translation and Other Comprehensive Income

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

For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at the exchange rate on the balance sheet date; equity is translated at historical rates and items in the statement of income 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 equity. The resulting net translation losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred and amounted to $6,380 and $295,053 for the years ended December 31, 2009 and 2008, respectively. 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 statements of equity amounted to $3,934,437 and $3,956,860 as of December 31, 2009 and 2008, respectively. Assets and liabilities at December 31, 2009 and 2008 were translated at RMB6.82 to $1.00. The average translation rates applied to income statement accounts and statement of cash flows for the years ended December 31, 2009 and 2008 were RMB6.82 and RMB6.94 to $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 sheets.

Earnings Per Share

The Company reports earnings per share in accordance ASC 260, which 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, if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases 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.

F-13

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Included in the calculation of basic EPS are shares of restricted common stock that have been issued by the Company, all of which are fully vested. Shares of restricted common stock whose issuance is contingent upon the attainment of specified earnings targets are considered outstanding and included in the computation of basic EPS as of the date that all necessary conditions have been satisfied, which is the date upon which the specified amount of earnings has been attained. These shares are to be considered outstanding and included in the computation of diluted EPS as of the beginning of the period in which the conditions are satisfied. If the specified amount of earnings has not been attained as of the end of the reporting period, the contingently issuable shares are excluded from the calculation of basic and diluted EPS.

Segments

The Company applies ASC280 which 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. ASC280 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 decisions how to allocate resources and assess performance. The Company reports financial and operating information in two segments:

(1)	Wholesale apparel manufacture and sales

(2)	Retail sales of own-brand clothing

Reclassification

Certain amounts reported in the 2008 financial statements have been reclassified to conform to the 2009 presentation.

Recent Accounting Pronouncements

Embedded Derivatives

(Included in ASC 815 “Derivatives and Hedging”, previously SFAS 133)

F-14

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Business Combinations

(Included in ASC 805 “Business Combinations”, previously SFAS No. 141(R))

Noncontrolling Interests

(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51)

Interim Disclosures about Fair Value of Financial Instruments

(Included in ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1)

F-15

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-1)

In June 2009, the FASB approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification is effective for interim or annual financial periods ending after September 15, 2009 and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the year of 2009.As a result of the Company’s implementation of the Codification during the year of 2009, previous references to new accounting standards and literature are no longer applicable. In the current financial statements, the Company has provided reference to both new and old guidance to assist in understanding the impact of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

Collaborative arrangements

(Included in ASC808, formerly EITF07-1)

Transfers of Financial Assets

(Included in ASC860, formerly SFAS No. 166)

F-16

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 3 - INVENTORIES

Inventories at December 31, 2009 and 2008 consisted of the following:

	2009			2008
Raw materials	$	735,891		$	328,607
Work-in-progress		6,212,767			342,303
Finished goods		5,529,726			3,064,317
		12,478,384			3,735,227
Less: allowance for obsolete inventories		(58,762	)		-
Total inventories	$	12,419,622		$	3,735,227

NOTE 4 - LAND USE RIGHTS

In 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 December 31, 2009 and 2008 consisted of the following:

	2009			2008
Land use rights	$	3,068,813		$	3,068,813
Less: accumulated amortization		(280,082	)		(214,305	)
Land use rights, net	$	2,788,731		$	2,854,508

Amortization expense was $65,777 and $64,634 for the years ended December 31, 2009 and 2008, respectively. Future expected amortization expense for land use rights is approximately $65,000 for each of the next five years.

NOTE 5 - PROPERTY AND EQUIPMENT

The following is a summary of property and equipment at December 31 2009 and 2008:

	2009		2008
Property and plant	$	14,172,467	$	12,065,223
Equipment and machinery		3,600,516		3,588,705
Office equipment and furniture		437,116		410,710
Motor vehicles		297,811		234,971
		18,507,910		16,299,609
Less: accumulated depreciation		5,967,054		3,805,157
Property and equipment, net	$	12,540,856	$	12,494,452

F-17

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Depreciation expense was $1,826,922 and $945,745 for the years ended December 31, 2009 and 2008, respectively.

NOTE 6 - OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities at December 31, 2009 and 2008 consisted of the following:

	2009		2008
Building construction costs payable	$	612,606	$	633,725
Accrued professional fees		182,608		224,985
Accrued wages and welfare		1,205,874		553,690
Other payables		286,268		271,577
Total other payables and accrued liabilities	$	2,287,356	$	1,683,977

NOTE 7 - BANK LOANS

Bank loans represent amounts due to various banks and are generally due on demand or within one year. These loans can be renewed with the banks. Short term bank loans consisted of the following at December 31, 2009 and 2008:

	2009		2008
Bank loan, interest rate at 0.44583% per month,
paid in full, January 2010	$	1,467,000	$
Bank loan, interest rate at 0.44583% per month,
paid in full, March 2010		1,026,900
Bank loan, interest rate at 0.4455% per month,
paid in full, March 2010		440,100
Bank loan, interest rate at 0.405% per month,
paid in full, March 2010		264,060
Bank loan, interest rate at 0.44583% per month,
due May 2010		3,374,100
Bank loan, interest rate at 0.4425% per month,
due December 2010		733,500
Bank loan, interest rate at 0.60225% per month,
paid in full, February 2009				5,809,320
Bank loan, interest rate at 0.48825% per month,
paid in full, April 2009				733,500
Total bank loans	$	7,305,660	$	6,542,820

F-18

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

On July 31, 2008, Goldenway entered into a two-year revolving line of credit agreement with a PRC Bank, which allows the Company to borrow up to approximately $7.3 million (RMB50million). These borrowings are guaranteed by Jiangsu Ever-Glory, an entity controlled by Mr. Kang. These borrowings are also collateralized by the Company’s property and plant. As of December 31, 2009, $5.9 million of bank loans were under this agreement and approximately $1.4 million was unused and available. Other bank loans are not collateralized. In January and March 2010, the Company repaid and then borrowed approximately $2.5 million under this agreement.

On June 30, 2009, HSBC approved a revolving credit facility of $2.5 million to Perfect-Dream. To date nothing has been drawn down on this line of credit.

On July 3, 2009, Ever-Glory Apparel entered into a one-year line of credit agreement for approximately $5.9 million (RMB40 million) with Nanjing Bank. As of December 31, 2009, $440,100 of bank loans were drawn down under this agreement and approximately $5.4 million was unused and available. In March 2010 the $440,100 was repaid and the line of credit agreement expired. On March 11, 2010, Ever-Glory Apparel entered into a new one-year line of credit agreement for approximately $7.3 million (RMB50 million) with Nanjing Bank. The loan is guaranteed by Jiangsu Ever-Glory and Goldenway.

Total interest expense on bank loans was $327,374 and $327,834 for the years ended December 31, 2009 and 2008, respectively.

Note 8 DERIVATIVE WARRANT LIABILITY

(Included in ASC 815 “Derivatives and Hedging”, previously SFAS 133)

In June 2008, the FASB ratified EITF No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock. Paragraph 11(a) of SFAS No. 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. The Company’s adoption of EITF 07-5 effective January 1, 2009, resulted in the identification of certain warrants that were determined to require liability classification because of certain provisions that may result in an adjustment to their exercise price. Accordingly, these warrants were retroactively reclassified as liabilities upon the effective date of EITF No. 07-5 as required by the EITF. The resulting cumulative effect of the change in accounting principle was a decrease in paid in capital of approximately $976,500, an increase in retained earnings of approximately $494,700, and the recognition of a liability of approximately $481,800 as of January 1, 2009. The liability was then adjusted to fair value as of December 31, 2009, resulting in an increase in the liability and an increase in other expense of $1,146,059.

F-19

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

	December 31, 2009			January 1, 2009
Expected term	3.43 years			4.43 years
Volatility		107	%		100	%
Risk-free interest rate		1.125	%		1.5	%
Dividend yield		0	%		0	%

NOTE 9 - INCOME TAX

Pre-tax income (loss) for the year ended December 31 2009 and 2008 was taxable in the following jurisdictions:

	2009		2008
PRC	$	4,684,365	$	7,408,479
Others		512,401		(2,761,745	)
	$	5,196,766	$	4,646,734

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

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

The key changes are:

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 governments for a grace period of either the next 5 years, or until the tax holiday term is completed, whichever is sooner.

F-20

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Below is a summary of the income tax rates for each of our PRC subsidiaries in 2008 and 2009.

	Goldenway			New- Tailun			Catch-Luck			LA GO GO			Ever-Glory Apparel
2008		25.0	%		12.5	%		12.5	%		25.0	%		*
2009		25.0	%		12.5	%		12.5	%		25.0	%		25.0	%

*Ever-Glory Apparel was established on January 6, 2009.

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

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

Ever-Glory was incorporated in the United States and has incurred net operating losses for income tax purposes for 2009 and 2008. As of December 31, 2009, the net operating loss carry forwards for United States income taxes was approximately $1,186,000 which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2029. Management believes that the realization of the benefits from these losses is uncertain due to the Company’ limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. The valuation allowance at December 31, 2009 was approximately $403,000.

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the years ended December 31, 2009 and 2008:

	2009			2008
PRC Statutory Rate		25.0			25.0
Income tax exemption		(9.2	)		(12.8	)
Other		1.6			2.5
Effective income tax rate		17.4	%		14.7	%

F-21

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Income tax expense for the years ended December 31, 2009 and 2008 is as follows:

	2009		2008

Current	$	473,028	$	1,012,388
Deferred		341,658		78,618
Income tax expense	$	814,686	$	1,091,006

The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31, 2009 and 2008 are presented below:

Deferred tax assets:

	2009			2008
U.S. net operating losses	$	403,000		$	254,000
PRC purchase invoices not yet received		1,366,398			407,879
	$	1,769,398		$	661,879
Valuation allowance		(403,000	)		(254,000	)
	$	1,366,398		$	407,879
Deferred Tax liabilities:
PRC sales invoices not yet issued	$	1,788,297		$	487,888
Net deferred tax liabilities	$	421,899		$	80,009

At December 31, 2009 and 2008, deferred tax liabilities arise from temporary differences relating to sales and purchase invoices, which, for PRC tax purposes are recorded upon issuance of invoices, and which are recorded upon delivery or shipment for book purposes.

NOTE 10 - EARNINGS PER SHARE

Basic and diluted earnings per share for 2009 and 2008 were calculated as follows:

	2009		2008
Weighted average number of common shares- Basic		13,552,837		11,895,048
Contingently issuable shares for Catch-Luck acquisition		1,150,685		1,594,721
Weighted average number of common shares- Diluted		14,703,522		13,489,769

Earnings per share - basic	$	0.31	$	0.30
Earnings per share –diluted	$	0.29	$	0.26

F-22

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

In 2009 and 2008, the Company excluded 913,182 warrants outstanding from diluted earnings per share because the exercise price of $3.20 exceeded the average trading price of $2.16 and $3.17 for the years ended December 31, 2009 and 2008, respectively making these warrants anti-dilutive.

NOTE 11 - STOCKHOLDERS’ EQUITY

Stock Issued for Acquisitions under Common Control

In April 2009, the Company issued 1,153,846 shares of restricted common stock to a related company as part of the consideration for the acquisition of Catch-Luck.

Conversion of Convertible Notes to Common Stock

During 2008, convertible notes and accrued interest expense totally $2,033,059 have been converted into 922,554 shares of common stock.

Stock Issued to Independent Directors

During March 2009, the Company issued 21,085 shares of common stock to the Company’s three independent directors as compensation for their services in the third and fourth quarters of 2008. The shares were valued at $1.05 per share, being the average market price of the common stock for the five trading days before December 31,2008.

On July 16, 2009, the Company issued 11,742 shares of common stock to the Company’s three independent directors as compensation for their services in the first and second quarters of 2009. The shares were valued at $1.86 per share, being the average market price of the common stock for the five trading days before June 30,2009.

On September 2, 2008, the Company issued 3,068 shares of common stock to the Company’s three independent directors as compensation for their services in the second quarter of 2008. The shares were valued at $4.19 per share, being the average market price of the common stock for the five days before June 30,2008.

F-23

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Statutory Reserve

Subsidiaries incorporated in China 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 ( “PRC GAAP”). Appropriations to the statutory surplus reserve are to 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 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 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, and any contributions are not to exceed 50% of the respective companies’ registered capital.

As of December 31, 2009, New-Tailun and Catch-Luck had fulfilled the 50% statutory reserve contribution requirement; therefore no further transfers are required for those entities. In 2009 Goldenway appropriated $89,048, Ever-Glory Apparel appropriated $20,000 and LA GO GO appropriated $39,022 to the statutory reserve.

Warrants

Following is a summary of the status of warrants outstanding and exercisable at December 31, 2009 and 2008:

2009					2008
Exercise Price	Number of Shares		Average Remaining Contractual Life		Average Exercise Price		Number of Shares		Average Remaining Contractual Life
$3.20		840,455		3.43	$	3.20		840,455		4.43
$3.20		72,728		1.01	$	3.20		72,728		2.01
Total		913,183						913,183

NOTE 12 - RELATED PARTY TRANSACTIONS

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

F-24

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Sales and Cost of Sales to Related Parties

Sales and cost of sales for the year ended December 31, 2009 were from transactions with Nanjing Knitting, Jiangsu Ever-Glory and Shanghai La Chapelle.

	2009				2008
	Sales		Cost of Sales		Sales		Cost of Sales
Shanghai La Chapelle	$	63,466	$	45,563
Nanjing Knitting	$	9,353	$	9,015	$	681,167	$	621,103
Jiangsu Ever-Glory	$	389	$	387
Total	$	73,208	$	54,965	$	681,167	$	621,103

Purchases from, and Sub-contracts with Related Parties

The Company purchased raw materials from related companies totaling $2,728,896 and $1,828,661 during the years ended December 31, 2009 and 2008, respectively.

	2009		2008
Nanjing Knitting	$	2,686,863	$	1,828,661
Jiangsu Ever-Glory	$	42,033
Total	$	2,728,896	$	1,828,661

In addition, the Company sub-contracted certain manufacturing work to related companies totaling $1,814,846 and $1,327,965 for the years ended December 31, 2009 and 2008, respectively. The Company provided raw materials to the sub-contractors and was charged a fixed fee for labor provided by the sub-contractors.

Sub-contracts with related parties included in cost of sales for the years ended December 31, 2009 and 2008 are as follows:

	2009		2008
Nanjing Knitting	$	591,470	$	706,201
Nanjing Ever-Kyowa,		955,792		621,764
Ever-Glory Vietnam		246,936
Ever-Glory Cambodia		20,648
Total	$	1,814,846	$	1,327,965

F-25

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Accounts Payable – Related Parties

The Company purchases raw materials from and subcontracts some of its production to related parties. Accounts payable to related parties are as follows:

	2009		2008
Nanjing Knitting	$	153,660	$	0
Nanjing Ever-Kyowa		335,546		0
Total	$	489,206	$	0

Amounts Due From Related Party

Jiangsu Ever-Glory International Group Corp., (“Jiangsu Ever-Glory”) is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by the Company’s Chief Executive Officer. Because of restrictions on its ability to directly import and export products, the Company utilizes Jiangsu Ever-Glory as its agent, to assist the Company with its import and export transactions and its international transportation projects. Import transactions primarily consist of purchases of raw materials and accessories designated by the Company’s customers for use in garment manufacture. Export transactions consist of the Company’s sales to foreign markets such as Japan, Europe and the United States. As the Company’s agent, Jiangsu Ever-Glory’s responsibilities include managing customs, inspection, transportation, insurance and collections on behalf of the Company. Jiangsu Ever-Glory also manages transactions denominated in currencies other than the Chinese RMB at rates of exchange agreed between the Company and Jiangsu Ever-Glory and based upon rates of exchange quoted by the People’s Bank of China. In return for these services, Jiangsu Ever-Glory charges the Company a fee of approximately 3% of export sales. For import transactions, the Company may make advance payments, through Jiangsu Ever-Glory, for the raw material purchases, or Jiangsu Ever-Glory may make advance payments on the Company’s behalf. For export transactions, accounts receivable for export sales are remitted by the Company’s customers through Jiangsu Ever-Glory, who forwards the payments to the Company. The Company and Jiangsu Ever-Glory have agreed that balances from import and export transactions may be offset. Amounts due to (from) Jiangsu Ever-Glory are typically settled within 60-90 days. Interest of 0.5% is charged on net amounts due at each month end. Interest income for the years ended December 31, 2009 and 2008 was $614,842 and $217,181 respectively. Following is a summary of import and export transactions for the years ended December 31, 2009 and 2008:

F-26

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

	Accounts Receivable		Accounts Payable		Net
As of January 1,2009	$	17,938,281	$	6,372,707	$	11,565,574
Sales/Purchases	$	68,275,235	$	31,836,171
Payments Received/Made	$	70,467,973	$	35,818,220
As of December 31,2009	$	15,745,543	$	2,390,658	$	13,354,885

Approximately 69% of the receivable balance at December 31, 2009 was settled by March 30, 2010.

Other Payables – Related Parties

As of December 31, 2009 and 2008, other payables due to related parties were as follows:.

	2009		2008
Shanghai La Chapelle Garment and	$	293,400
Accessories Company Limited
Ever-Glory Enterprise HK Limited			$	754,589
	$	293,400	$	754,589

The balance as of December 31, 2008 included $200,000 for the purchase of Catch-Luck and $554,589 was due for legal and professional fees paid by Ever-Glory Enterprise HK Limited on behalf of the Company. In 2009 the Company repaid $754,589 to Ever-Glory Hong Kong.

In February, July and August 2009, LA GO GO borrowed $293,400 (RMB 2 million) from Shanghai La Chapelle for operations. This loan is interest free and due on demand. Management expects to repay this loan in cash from operations in 2010. .

Loan from Related Party

As of December 31, 2009 and 2008 the Company owed $2,575,759 and $2,660,085, respectively to Blue Power Holdings Limited., a company controlled by the Company’s Chief Executive Officer. Interest is charged at 6% per annum on the amounts due. The loans are due between July 2010 and April 2011. For years ended December 31,2009 and 2008, the Company incurred interest expense of $115,674 and $175,100, respectively. The accrued interest is included in the carrying amount of the loan in the accompanying balance sheets. On November 18, 2009, the Company repaid $200,000 to Blue Power Holdings Limited.

F-27

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Capital Commitment

The Articles of Association of Goldenway required that the registered capital of approximately $17.5 million was to be paid by Perfect Dream before December 31, 2009. On July 6, 2009, the Company obtained approval from the government allowing the Company to decrease the registered capital from $17.5 million to $12.5 million. The Company has fulfilled its $12.5 million registered capital requirements.

Operating Lease Commitment

The Company leases factory and office space from Jiangsu Ever-Glory International Group Corp. under an operating lease which expired on December 31, 2009 at an annual rental of RMB350,000. For the years ended December 31, 2009 and 2008, the Company recognized rental expense in the amounts of $51,310 and $50,452, respectively. On January 1, 2010, the Company signed a new operating lease with Jiangsu Ever-Glory International Group Corp which will expire on December 31, 2011. The new lease provides for annual rent of RMB314,000.

The Company leases retail space, warehouse and office facilities under operating leases expiring on various dates through 2014.The majority of the Company’s retail leases are for twelve-month periods and provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a rent liability in the consolidated balance sheets and the corresponding rent expense when management determines that achieving the specified levels during the fiscal year is probable. Future minimum lease payments for leases with initial or remaining noncancelable lease terms in excess of one year are as follows:

Year ending December 31,

2010	$	728,000
2011		474,000
2012		220,000
2013		138,000
2014		116,000
	$	1,676,000

Rent expense for the years ended December 31, 2009 and 2008 was approximately $5,195,600 and $1,500,400 respectively.

F-28

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Legal Proceedings

There is no material pending legal proceeding to which the Company is a party.

NOTE14 - 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 December 31, 2009 and December 31, 2008 amounted to $3,555,745 and $1,445,363, 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.

Only one customer, in our wholesale segment, represented more than ten percent of our total sales in 2009 and 2008, accounting for approximately 29% or $22 million and 29% or $27 million of total sales, respectively, and represented approximately 28% and 2% of accounts receivable as of December 31, 2009 and 2008, respectively.

The Company did not rely on any single raw material supplier during 2009 and 2008.

For the wholesale business, during 2009 the Company relied on two manufacturers for 18% and 11% of purchased finished goods while in 2008 the Company relied on one manufacturer for 21% of purchased finished goods. For the retail business, during 2009 the Company did not rely on any single raw material supplier while in 2008 the Company relied on two manufacturers for 29% of purchased finished goods.

NOTE15- SEGMENTS

The Company set up a new retail segment and realigned its management and segment reporting structure effective January 1, 2008. The new retail segment and operating activity arose in 2008 and did not change the composition of the wholesale segment or previously reported amounts. The segment data presented reflects this new segment structure. The Company reports financial and operating information in the following two segments for 2009 and 2008:

(a) Wholesale segment

(b) Retail segment

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

F-29

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

	Wholesale segment		Retail segment			Corporate and others			Total
December 31, 2009
Segment profit or loss:
Net revenue from external customers	$	76,604,340	$	13,193,444		$	-		$	89,797,784
Net revenue from related parties	$	73,207							$	73,207
Income from operations	$	5,732,278	$	421,078		$	(40,646	)	$	6,112,710
Interest income	$	620,347	$	384		$	-		$	620,731
Interest expense	$	324,025	$	3,349		$	115,732		$	443,106
Depreciation and amortization	$	1,002,604	$	890,050					$	1,892,654
Income tax expense	$	709,808	$	104,878					$	814,686
Segment assets:
Additions to property, plant and equipment	$	77,604	$	1,236,920					$	1,314,524
Total assets	$	67,208,697	$	8,595,962		$	48,162,586		$	123,967,245

December 31, 2008
Segment profit or loss:
Net revenue from external customers	$	93,284,480	$	3,506,035		$	-		$	96,790,515
Net revenue from related parties	$	681,167							$	681,167
Income from operations	$	7,488,366	$	(14,705	)	$	(229,877	)	$	7,243,784
Interest income	$	222,368	$	4,608		$	114		$	227,090
Interest expense	$	327,834				$	2,530,334		$	2,858,168
Depreciation and amortization	$	783,621	$	4,077					$	787,698
Income tax expense	$	1,091,006							$	1,091,006
Segment assets:
Additions to property, plant and equipment	$	462,691	$	68,073					$	530,764
Total assets	$	41,340,062	$	4,240,453		$	40,199,256		$	85,779,771

The reconciliations of segment information to the Company’s consolidated totals were as follows:

	December 31, 2009			December 31, 2008
Revenues:
Total reportable segments	$	89,870,991		$	97,471,682
Elimination of intersegment revenues		-			-
Total consolidated	$	89,870,991		$	97,471,682
Income (loss) from operations:
Total segments	$	6,112,710		$	7,243,784
Elimination of intersegment profits		-			-
Total consolidated	$	6,112,710		$	7,243,784
Total assets:
Total segments	$	123,967,245		$	85,779,771
Elimination of intersegment receivables		(63,312,931	)		(41,498,862	)
Total consolidated	$	60,654,314		$	44,280,909

F-30

EVER-GLORY INTERNATIONAL GROUP, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

Revenue is attributable to countries and locations based on the location of the customer. For the years ended December 31, 2009 and 2008 revenues were generated in the following jurisdictions:

	2009		2008
The People’s Republic of China	$	17,735,643	$	11,131,323
Germany		22,164,414		26,967,753
United Kingdom		13,256,621		14,863,998
Europe-Other		10,042,180		11,023,829
Japan		13,282,230		16,579,037
United States		13,389,903		16,905,742
Total	$	89,870,991	$	97,471,682

Substantially all of the company’s long-lived assets were attributable to the PRC as of December 31, 2009 and 2008.

F-31

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As of December 31, 2009, the end of the fiscal year covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not operating effectively as of December 31, 2009. Our disclosure controls and procedures were not effective because of the “material weaknesses” described below under “Management’s annual report on internal control over financial reporting,” which are in the process of being remediated as described below under “Management Plan to Remediate Material Weaknesses.”

Management’s Annual Report on Internal Control over Financial Reporting

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management including our Chief Executive Officer and our Chief Financial Officer has assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in Internal Control—Integrated Framework.

As a result of such assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2009,.

A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. As a result of its review, management concluded that we had material weaknesses in our internal control over financial reporting process consisting of the following:

Lack of internal expertise and resources to analyze and properly apply generally accepted accounting principles to complex and non-routine transactions related to the appropriate classifications and treatments of derivatives.

Deficiency in the monitoring and supervision of financial reports preparation and review process.

Management believes the material weaknesses identified above were due to the complex and non-routine nature of the Company’s derivatives and the Company’s lack of an Audit Committee Chairman during a part of this period.

Management Plan to Remediate Material Weaknesses

We have taken the following measures and plan to continuously take measures to remediate the above material weaknesses as soon as practical:

Management is pursuing the implementation of the following corrective measures to address the material weaknesses described above.

We engaged an outside consultant to assist in the application of USGAAP to complex transactions, including the accounting for derivatives;

We will procure periodic training to key officers and staff to enhance our understanding of USGAAP and internal control over financial reporting;

We expect to appoint a new independent director as the Audit Committee Chairman in the second quarter of 2010;

We will have a dedicated internal control department headed by a full-time internal control manager who directly reports to the Audit Committee. The internal control department will focus on our ongoing remediation initiatives and compliance efforts.

These measures are intended both to address the identified material weaknesses and to enhance our overall internal control environment.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, except as desclosed above.

ITEM 9B OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors and Management

The Board of Directors oversees our management and our business affairs in order to ensure that our stockholder’s interests are best served. Our Board does not involve itself in our day-to-day operations. It establishes with management the objectives and strategies to be implemented and monitors management’s general performance and conduct.

The following table includes the names, positions held, and ages of our current executive officers and directors as of December 31, 2009:

Name	Age	Position	Held Position Since

Edward Yihua Kang	46	Chief Executive Officer, President, and Director	2005

Jiajun Sun	36	Chief Operating Officer and Director	2005

Yan Guo	32	Chief Financial Officer and Secretary	2005

Changyu Qi (1)(2)	64	Director	2008

Zhixue Zhang (1)(2)	42	Director	2008

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Each director will hold office until the next annual meeting of shareholders and until his or her successor has been elected and qualified. Mr. Bennet P. Tchaikovsky was a member of our Board of Directors, and served as chairman of our Audit Committee and a member of the Compensation Committee until November 25, 2009. We have identified qualified independent director candidate to fill the vacancy created by Mr.Tchaikovsky's resignation.

Edward Yihua Kang has served as our President and Chief Executive Officer and as the Chairman of our Board of Directors, since 2005. From December 1993 to January 2008, Mr. Kang served as the President and Chairman of the Board of Directors of Goldenway. Mr. Kang has extensive worldwide managerial and operational experience focusing upon business development and strategic planning. Mr. Kang formerly was the Senior lecturer of the Management College, Nanjing Aeronautics and Astronautics University, and the Vice General Manager of the Import and Export Department of Nanjing Shenda Company. Mr. Kang earned a MS degree from Peking University, a Bachelor’s degree in Management from Beijing Aeronautics and Astronautics University and a Bachelor’s degree in Engineering from Nanjing Aeronautics and Astronautics University. Mr. Kang’s extensive experience in the garment industry, his acute vision and outstanding leadership capability, as well as his commitment to the Company since its inception make him well-qualified in the Board’s opinion to serve as our Chairman of the Board.

Jiajun Sun has served as our Chief Operating Officer and a member of our Board of Directors since 2005. Mr. Sun also has served as a member of the Board of Directors of Goldenway since 2000 and as a member of the Board of Directors of New-Tailun since 2006. From July 1996 to November 2002, Mr. Sun was the General Manager of International Trade Department at Goldenway. Mr. Sun has more than 8 years experience in import and export in the textile industry. Mr. Sun earned his bachelor’s degree from the Wuhan Textile Industry Institute. Mr. Sun has accumulated substantial institutional knowledge of our business and operations. His managing experiences and analytical skills make him well positioned for his role as one of our Directors.

Changyu Qi is a member of the Board of Directors, and serves as a member of the Audit Committee and Compensation Committees. Mr. Qi has over 30 years of experience in international trade, and since February 2005, has served as inspector and deputy secretary of the Party Leadership Group of the Jiangsu Provincial Government’s Department of Foreign Trade and Economic Cooperation. In addition, since 2007, Mr. Qi has also served as a director on the Board of Directors of Jiangsu Skyrun International Group, which is a state-owned enterprises focusing on import and export. He is currently the President of both the Jiangsu Chamber of Commerce for Import & Export Firms and the Jiangsu International Freight Forwarders Association. Mr. Qi received a B.S. in Foreign Trade and Economy from Beijing Foreign Trade University. Mr. Qi’s extensive experience and deep understanding of the issues facing import and export companies and foreign trade bring a valuable perspective to our Board of Directors. Mr. Qi brings a wealth of knowledge to our Board of Directors and has proven to possess keen insight to our business.

Zhixue Zhang was appointed to the Board of Directors in March 2008, and serves on the Audit Committee and as chairman of the Compensation Committee. Mr. Zhang is a professor of Organizational Management at Peking University, and has held this position since August 2008. Mr. Zhang has over fifteen years of experience in the fields of organizational psychology, management and organizational culture as it relates to conducting business within China and with Chinese businesses. From August 2001 to July 2008, he was the Associate professor at Peking University. From August 2006 to June 2007, he was a Freeman Fellow at the University of Illinois at Urbana-Champaign. From September 2001 to March 2002, he was a visiting scholar at the Kellogg School of Management at Northwestern University. Mr. Zhang holds a Ph.D. from the University of Hong Kong, and a M.Sc. from Beijing Normal University, and a B.Sc. from Henan University. Mr. Zhang’s life-long background of management education, as well as his business aptitude and strong analytical skills, qualify him for his position as one of our Directors.

Yan Guo has served as our Chief Financial Officer since 2005, and was appointed as Corporate Secretary on May 26, 2008. From August 1, 2007 to March 26, 2008 Ms. Guo was a member of the Board of Director. From July 1999 to 2004, Ms. Guo was the Section Chief of the Financial and Accounting Department of Goldenway. Ms. Guo earned her bachelor’s degree in Accounting from the Nanjing Audit Institute.

Director Qualifications

We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our businesses. We also seek directors who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and collaborative fashion. We also seek directors who have the ability and commitment to devote significant time and energy to service on the Board and its committees. We believe that all of our directors meet the foregoing qualifications.

Our directors have backgrounds in a variety of different areas including industry, operation, marketing, strategic business management, and finance. We believe that the backgrounds and skills of our directors bring a diverse range of perspectives to the Board.

Board Practices

Our business and affairs are managed under the direction of our Board of Directors. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. It is our expectation that the Board of Directors will meet regularly on a quarterly basis and additionally as required.

Board Leadership Structure

The Board of Directors believes that Mr. Kang’s service as both Chairman of the Board and Chief Executive Officer is in the best interest of the Company and its shareholders. Mr. Kang possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its business and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to the Company’s shareholders, employees and customers. We have two independent directors. We do not have a lead independent director.

Board’s Role in Risk Oversight

Our Board of Directors has overall responsibility for risk oversight. To effectively achieve the goal of efficient risk management, the Board has delegated responsibility for the oversight of specific risks to Board committees as follows:

The Audit Committee oversees the Company’s risk policies and processes relating to the financial statements and financial reporting processes, as well as key credit risks, liquidity risks, market risks and compliance, and the guidelines, policies and processes for monitoring and mitigating those risks.

The Compensation Committee oversees risks related to the company’s director compensation.

Our Board of Directors is responsible to approve all related party transactions according to our Code of Ethics.

Family relationship

There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer.

Involvement in Certain Legal Proceedings

No director, person nominated to become a director, executive officer, promoter or control person of the Company has, during the last ten years: (i) been convicted in or is currently subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any Federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law; (iii) has any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto; (iv) been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (a) Any Federal or State securities or commodities law or regulation; or (b) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; nor (v) been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. (covering stock, commodities or derivatives exchanges, or other SROs).

Board Committees

In March 2008, the Board created the Audit Committee and the Compensation Committee and has adopted charters for these committees. The Board has determined that in its judgment, Mr. Qi and Mr. Zhang are independent directors within the meaning of Section 803 of NYSE Amex Company Guide. Accordingly, both the members of the Audit Committee are independent within the meaning of Section 803 of NYSE Amex Company Guide.

Audit Committee

The Board of Directors adopted and approved a charter for the Audit Committee on March 13, 2008, and the charter was amended on May 26, 2008 and further amended on June 20, 2008. Currently, two directors comprise the Audit Committee: Mr. Qi and Mr. Zhang. The members of the Audit Committee are currently “independent directors” as that term is defined in Section 803 of NYSE Amex Company Guide. .

Our Audit Committee is responsible, in accordance with the Audit Committee charter, recommending our independent auditors, and overseeing our audit activities and certain financial matters to protect against improper and unsound practices and to furnish adequate protection to all assets and records.

Our Audit Committee pre-approves all audit and non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated pre-approval authority to its Chairman when expedition of services is necessary. The independent auditors and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval, and the fees for the services performed to date.

Compensation Committee

The Compensation Committee currently consists of Mr. Qi and Mr. Zhang. Mr. Zhang serves as Chairman of the Compensation Committee. The members of the Compensation Committee are currently “independent directors” as that term is defined in Section 803 of NYSE Amex Company Guide.

In accordance with the Compensation Committee’s Charter, the Compensation Committee is responsible for overseeing and, and as appropriate, making recommendations to the Board regarding the annual salaries and other compensation of the Company’s executive officers and general employees and other polices, providing assistance and recommendations with respect to the compensation policies and practices of the Company.

Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act, as amended, requires our directors and certain of our officers, as well as persons who own more than 10% of a registered class of our equity securities (“Reporting Persons”), to file reports with the SEC. To our knowledge, based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2009, and all Section 16(a) filing requirements applicable to officers, directors and greater than ten percent shareholders were complied with.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to our officers, directors and employees, including our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers. Our code of business conduct and ethics is available on our website at www.everglorygroup.com. A copy of our code of business conduct will be provided to any person without charge, upon written request sent to us at our offices located at 100 N. Barranca Ave. #810 West Covina, California 91791, Attention “Shareholder Relations.”

The Board of Directors and management are currently reviewing our code of business conduct in connection with an overall review of our corporate governance and other policies in light of Section 406 of the Sarbanes-Oxley Act. We will timely disclose any amendments to or waivers of certain provisions of our code of business conduct and ethics as required by the Exchange Act and the rules and regulations of the SEC.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This compensation discussion and analysis describes the material elements of the compensation awarded to our current executive officers. This compensation discussion focuses on the information contained in the following tables and related footnotes and narrative for the last completed fiscal year. In 2009, our Board of Directors and the Compensation Committee, since its chartering, has overseen and administered our executive compensation program.

Our current executive compensation program presently includes a base salary. Our compensation program does not include (i) discretionary annual cash performance-based incentives, (ii) termination/severance and change of control payments, or (iii) perquisites and benefits.

Our Compensation Philosophy and Objectives

Our philosophy regarding compensation of our executive officers includes the following principles:

our compensation program should align the interests of our management team with those of our shareholders;

our compensation program should reward the achievement of our strategic initiatives and short- and long-term operating and financial goals;

compensation should appropriately reflect differences in position and responsibility; compensation should be reasonable and bear some relationship with the compensation standards in the market in which our management team operates; and

the compensation program should be understandable and transparent.

In order to implement such compensation principles, we have developed the following objectives for our executive compensation program:

overall compensation levels must be sufficiently competitive to attract and retain talented leaders and motivate those leaders to achieve superior results;

a portion of total compensation should be contingent on, and variable with, achievement of objective corporate performance goals, and that portion should increase as an executive’s position and responsibility increases;

total compensation should be higher for individuals with greater responsibility and greater ability to influence our achievement of operating goals and strategic initiatives;

the number of elements of our compensation program should be kept to a minimum, and those elements should be readily understandable by and easily communicated to executives, shareholders, and others; and

executive compensation should be set at responsible levels to promote a sense of fairness and equity among all employees and appropriate stewardship of corporate resources among shareholders.

Determination of Compensation Awards

Our Board of Directors is provided with the primary authority to determine the compensation awards available to our executive officers. To aid the Board of Directors in making its determination for the last fiscal year, our current senior management provided recommendations to the Compensation Committee regarding the compensation of all executive officers.

Compensation Benchmarking and Peer Group

Our Board of Directors did not rely on any consultants or utilize any peer company comparisons or benchmarking in 2009 in setting executive compensation. However, our management has considered competitive market practices by reviewing publicly available information relating to compensation of executive officers at other comparable companies in the apparel industry in China in making its recommendations to our Board of Directors regarding our executives’ compensation for fiscal year 2009. As our company evolves, we expect to take steps, including the utilization of peer company comparisons and/or hiring of compensation consultants, to ensure that the Board has a comprehensive picture of the compensation paid to our executives and with a goal toward total direct compensation for our executives that are on a par with the median total direct compensation paid to executives in peer companies if annually established target levels of performance at the company and business segment level are achieved.

Elements of Compensation

Presently, we compensate our executives with only a base salary. We do not pay any compensation to our executive officers in the form of discretionary annual cash performance-based incentives, long-term incentive plan awards or perquisites and other compensation, although our Board of Directors may recommend and institute such forms of compensation in the future.

Base Salaries

Base salary is used to recognize the experience, skills, knowledge and responsibilities required of our employees, including our named executive officers. All of our named executive officers, including our Chief Executive Officer, are subject to employment agreements, and accordingly each of their compensation has been determined as set forth in their respective agreement. When establishing base salaries for 2009, subject to the provisions of each person's employment agreement, our Board and management considered a number of factors, including the seniority of the individual, the functional role of the position, the level of the individual's responsibility, the ability to replace the individual, the base salary of the individual at their prior employment and the number of well qualified candidates to assume the individual's role.

Discretionary Annual Cash Performance-Based Incentives

In 2009, we did not pay any compensation in the form of discretionary annual cash performance-based incentives or other forms of bonuses to our Chief Executive Officer and each other named executive officer. Our Compensation Committee may, however, recommend such bonuses in the future.

Long-Term Incentive Plan Awards

We currently do not have an equity incentive plan, and no separate stock awards or stock option grants were made to any of the named executive officers during the fiscal year ended December 31, 2009. No stock options were held by the named executive officers as of December 31, 2009.

Perquisites and Other Compensation

We do not have any retirement or pension plans in place for any of our named executives. Our named executive officers are eligible for group medical benefits that are generally available to and on the same terms as our other employees.

Management’s Role in the Compensation-Setting Process

Our management plays a role in our compensation-setting process. We believe this input from management to the Compensation Committee is needed in order for the committee to evaluate the performance of our officers, recommend business performance targets and objectives, and recommend compensation levels. Our management may from time to time, make recommendations to our Board of Directors regarding executive compensation. During this process, management may be asked to provide the board with their evaluation of the executive officers’ performances, the background information regarding our strategic financial and operational objectives, and compensation recommendations as to the executive officers.

Summary Compensation Table for Fiscal Year 2009, 2008 and 2007

The following table sets forth information for the fiscal year ended December 31, 2009, 2008 and 2007 concerning the compensation paid and awarded to all individuals serving as (a) our Chief Executive Officer and Chief Financial Officer (b) the three most highly compensated Executive Officers (other than our Chief Executive Officer and Chief Financial Officer) of ours and our subsidiaries at the end of our fiscal year ended December 31, 2009, 2008 and 2007 whose total compensation exceeded $100,000 for these periods, and (c) two additional individuals for whom disclosure would have been provided pursuant to (b) except that they were not serving as executive officers at the end of our fiscal year ended December 31, 2009. These individuals may be collectively referred to in this report as our “Named Executive Officers.”

Name and Principal Position	Fiscal Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non- Equity Incentive Plan Compen- sation ($)		Non- qualified Deferred Compen- sation Earnings ($)		All Other Compen- sation ($)		Total ($)
Kang Yihua
Chairman of the
Board, Chief	2009		16,394		43988		—		—		—		—		—		60,382
Executive Officer	2008		25,824		—		—		—		—		—		—		25,824
and President	2007		19,830		—		—		—		—		—		—		19,830

Guo Yan
Chief Financial	2009		3167		14,663		—		—		—		—		—		17,830
Officer and	2008		3161		11,527		—		—		—		—		—		14,688
Director	2007		2,805		—		—		—		—		—		—		2,805

(1)

All compensation is paid in Chinese RMB. For reporting purposes, the amounts in the table above have been converted to U.S. Dollars at the conversion rate of 7.60 RMB, 6.94 RMB and 6.82 RMB to one for year 2007, 2008 and 2009 respectively. The officers listed in this table received no other form of compensation in the years shown, other than the salary set forth in this table.

Other Compensation

Other than as described above, there were no post-employment compensation, pension or nonqualified deferred compensation benefits earned by the executive officers during the year ended December 31, 2009. We do not have any retirement, pension, or profit-sharing programs for the benefit of our directors, officers or other employees. The Board of Directors may recommend adoption of one or more such programs in the future.

Employment Contracts and Termination of Employment and Change-In-Control Arrangements

The Company entered into an employment agreement with Edward Yihua Kang on November 1, 2005 pursuant to which Mr. Kang was appointed as the Chief Executive Officer and President of the Company. In determining the compensation to be paid to Mr. Kang, the Board of Directors and the Compensation Committee reviewed the overall performance of the Company and the relative contribution of Mr. Kang in order to arrive at an appropriate compensation level.

The Company entered into an employment agreement with Jiajun Sun on November 1, 2005 pursuant to which Mr. Sun was appointed as the Chief Operating Officer of the Company. In determining the compensation to be paid to Mr. Sun, the Board of Directors and the Compensation Committee reviewed the overall performance of the Company and the relative contribution of Mr. Sun in order to arrive at an appropriate compensation level.

The Company entered into an employment agreement with Ms. Yan Guo on November 1, 2005 pursuant to which Mr. Guo was appointed as the Chief Finance Officer of the Company. In determining the compensation to be paid to Ms. Guo, the Board of Directors and the Compensation Committee reviewed the overall performance of the Company and the relative contribution of Ms. Guo in order to arrive at an appropriate compensation level.

There are no compensatory plans or arrangements, including payments to be received from us, with respect to any director or executive officer of us which would in any way result in payments to any such person because of his resignation, retirement, or other termination of employment with us, any change in control of the Company, or a change in the person’s responsibilities following a change in control of the Company.

Director Compensation for Fiscal 2009

The following table reflects all compensation awarded to, earned by or paid to the Company’s directors for the fiscal year ended December 31, 2009. Directors who are also officers do not receive any additional compensation for their services as directors.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)		Options Awards ($)		Non- Equity Incentive Plan Compensat ion ($)		Non-Qualif ied Deferred Compensat ion Earnings ($)		All Other Compensat ion ($)		Total ($)
Kang Yihua		60,382		—		—		—		—		—		60,382
Sun Jia Jun		56,757		—		—		—		—		—		56,757
Guo Yan		17,830		—		—		—		—		—		17,830
Bennet P. Tchaikovsky		—		30,647		—		—		—		—		30,647
Changyu Qi		—		5,000		—		—		—		—		5,000
Zhixue Zhang		—		5,000		—		—		—		—		5,000

(1)

All compensation was paid in RMB. The amounts in the foregoing table have been converted into U.S. Dollar at the conversion rate of 6.82 RMB to the dollar.

(2)

Mr. Kang received salary during 2009 of $ and total compensation of $ in consideration of his services as our Chief Executive Officer.

(3)

Mr. Sun received salary during 2009 of $ and total compensation of $ in consideration of his services as our Chief Operating Officer.

(4)

Mr. Tchaikovsky resigned from the Board on November 25, 2009. He received stock compensation according the following annual compensation arrangement for the period of services he provided.

(4)

On March 14, 2008, the Board approved the following annual compensation for its independent (non-employee) directors, which shall apply for 2009:

Service Description	Amount (in U.S. dollars)

Base Compensation	$	3,000
Audit Committee Member	$	1,000
Compensation Committee Member	$	1,000
Audit Committee Chairman	$	3,000
Audit Committee Financial Expert	$	26,000

Each director may be appointed to perform multiple functions or serve on multiple committees, and accordingly, may be eligible to receive more than one category of compensation described above. Annual compensation will be paid in the form of a number of shares of the Company’s restricted common stock having an aggregate value equal to the annual compensation, as determined by the average per share closing prices of the Company’s common stock as quoted on the OTCBB or NYSE Amex, as applicable, for the five trading days leading up to and including the last trading date of the quarter following which the shares are to be issued (i.e. when the shares are issued within 30 days following the end of the second quarter, and the fourth quarter when the shares are issued within 30 days following the end of the fourth quarter) of the year for which compensation is being paid. Compensation, in the form of shares, shall be issued and paid semi-annually, within 30 days following the end of the second quarter (beginning with the second quarter of 2008), and within 30 days after the end of the fourth quarter, of each calendar year. In addition, the Annual Compensation will be pro rated daily (based on a 360 day year) for any portion of the year during which a director serves. Independent directors are also eligible for reimbursement of all travel and other reasonable expenses relating to the directors’ attendance of board meetings. In addition, the Company has agreed to reimburse independent directors for reasonable expenses incurred in connection with the performance of duties as a director of the Company.

Outstanding Equity Awards at Fiscal Year-End

None of our executive officers were granted or otherwise received any option, stock or equity incentive plan awards during 2009 and there were no outstanding unexercised options previously awarded to our officers and directors, at the fiscal year end, December 31, 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information regarding the beneficial ownership of our common stock as of March 30, 2010, for each of the following persons:

each of our directors and each of the named executive officers in the “Management” section of this Annual Report;

all directors and named executive officers as a group; and

each person who is known by us to own beneficially five percent or more of our common stock.

Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated in the table, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the shareholder’s name. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Ever-Glory International Group, Inc. 100 N. Barranca Ave. #810, West Covina, California 91791. The percentage of class beneficially owned set forth below is based on 13,566,874 shares of our common stock outstanding on March 30, 2010,

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership of Common Stock (1)		Percent of Class

Executive Officers and Directors
Yi Hua Kang		4,802,315		35.40	%
Jia Jun Sun		174,800		1.29	%
Yan Guo		-		-

Changyu Qi		4,971		0.04	%
Zhixue Zhang		4,932		0.04	%
All Executive Officers and Directors as a Group (six persons)
5% Holders
Ever-Glory Enterprises (H.K.) Ltd. (2)		4,469,252		32.94	%
Xiao Dong Yan (2)		379,240		2.80	%

(1)	The percentage of shares beneficially owned is based on 13,566,874 shares of common stock outstanding as of March 29, 2010. Except as otherwise noted, shares are owned beneficially and of record, and such record shareholder has sole voting, investment and dispositive power of the shares.

(2)	Xiao Dong Yan is the director of Ever-Glory Enterprises (H.K.) Ltd. and, as such, may be deemed to be the beneficial owner of the 4,469,252 shares held by Ever-Glory Enterprises (H.K.) Ltd.

Equity Compensation Plan Information

We have not adopted any equity compensation plan as of December 31, 2009.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Related Party Transactions

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

Sales and Cost of Sales to Related Parties

Sales and cost of sales for the year ended December 31, 2009 were from transactions with Nanjing Knitting, Jiangsu Ever-Glory and Shanghai La Chapelle.

	2009				2008
	Sales		Cost of Sales		Sales		Cost of Sales
Shanghai La Chapelle	$	63,466	$	45,563
Nanjing Knitting	$	9,353	$	9,015	$	681,167	$	621,103
Jiangsu Ever-Glory	$	389	$	387
Total	$	73,208	$	54,965	$	681,167	$	621,103

Purchases from, and Sub-contracts with Related Parties

The Company purchased raw materials from related companies totaling $2,728,896 and $1,828,661 during the years ended December 31, 2009 and 2008, respectively.

	2009		2008
Nanjing Knitting	$	2,686,863	$	1,828,661
Jiangsu Ever-Glory	$	42,033
Total	$	2,728,896	$	1,828,661

Sub-contracts with related parties included in cost of sales for the years ended December 31, 2009 and 2008 are as follows:

	2009		2008
Nanjing Knitting	$	591,470	$	706,201
Nanjing Ever-Kyowa,		955,792		621,764
Ever-Glory Vietnam		246,936
Ever-Glory Cambodia		20,648
Total	$	1,814,846	$	1,327,965

Accounts Payable – Related Parties

The Company purchases raw materials from and subcontracts some of its production to related parties. Accounts payable to related parties are as follows:

	2009		2008
Nanjing Knitting	$	153,660	$	0
Nanjing Ever-Kyowa		335,546		0
Total	$	489,206	$	0

Amounts Due From Related Party

	Accounts Receivable		Accounts Payable		Net
As of January 1,2009	$	17,938,281	$	6,372,707	$	11,565,574
Sales/Purchases	$	68,275,235	$	31,836,171
Payments Received/Made	$	70,467,973	$	35,818,220
As of December 31,2009	$	15,745,543	$	2,390,658	$	13,354,885

Approximately 69% of the receivable balance at December 31, 2009 was settled by March 30, 2010.

Other Payables – Related Parties

As of December 31, 2009 and 2008, other payables due to related parties were as follows:.

	2009		2008
Shanghai La Chapelle Garment and Accessories Company Limited	$	293,400
Ever-Glory Enterprise HK Limited			$	754,589
	$	293,400	$	754,589

Loan from Related Party

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

On December 22, 2009, the Audit Committee, with the approval of the Board of Directors, engaged GHP Horwath P.C. as the Company’s independent auditor.

Fees for audit services include fees associated with the annual audit and the review of documents filed with the SEC including quarterly reports on Form 10-Q and the Annual Report on Form 10-K. Audit-related fees principally included accounting consultation and information system control reviews. Tax fees included tax compliance, tax advice and tax planning work.

	2009		2008
Audit fees	$	216,000	$	248,000
Audit- related fees		-		-
Tax fees				-
All other fees				-

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENTS SCHEDULE

(1) Financial Statements

The following consolidated financial statements of Ever-Glory International Group, Inc. are included in Part II, Item 8 of this Report:

Report of GHP Horwath P.C Independent Auditors

Consolidated Balance Sheets at December 31, 2009 and 2008

Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2009 and 2008

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

Schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is given in the consolidated financial statements or the notes thereto.

(3) Exhibits

EXHIBIT INDEX

Number		Description

2.1		Agreement and Plan of Reorganization as amended, dated as of July 29, 2005, by and among Andean, Perfect Dream and Perfect Dream Shareholders (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed August 24, 2005).

2.2		Agreement for the Purchase and Sale of Stock of Nanjing Catch-Luck Garments Co. Ltd. dated (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed June 29, 2006).

2.3		Amendment No. 1 To Agreement for the Purchase and Sale of Stock of Nanjing Catch-Luck Garments Co. Ltd. dated (incorporated by reference to Exhibit 2.2 of our Current Report on Form 8-K, filed September 1, 2006).

2.4		Agreement for the Purchase and Sale of Stock of Nanjing New-Tailun Garments Co., Ltd. dated November 9, 2006 (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed November 13, 2006).

3.1		Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006).

3.2		Articles of Amendment as filed with the Department of State of Florida, effective November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed November 29, 2007).

3.3		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2(b) of our Annual Report on Form 10-KSB40, filed April 14, 1998).

4.1		Sections 3.10, 7.10, and 7.11of the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2(b) of our Annual Report on Form 10-KSB40, filed April 14, 1998).

4.2		Articles of Association of Perfect Dream (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K, filed August 24, 2005).

4.3		Articles of Association of Goldenway (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K, filed August 24, 2005).

10.1		Subscription Agreement (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed August 8, 2007).

10.2		Form of Convertible Note (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed August 8, 2007).

10.3		Form of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K, filed August 8, 2007).

10.4		Security Agreement (incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K, filed August 8, 2007).

10.5		Stock Pledge Agreement (incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K, filed August 8, 2007).

10.6		Lockup Agreement (incorporated by reference to Exhibit 10.6 of our Current Report on Form 8-K, filed August 8, 2007).

10.7		Letter of Intent to Acquire Branded Retail Division (incorporated by reference to Exhibit 10.7 of our Current Report on Form 8-K, filed August 8, 2007).

10.8		Non-Compete Agreement (incorporated by reference to Exhibit 10.8 of our Current Report on Form 8-K, filed August 8, 2007).

10.9		Guaranty (incorporated by reference to Exhibit 10.9 of our Current Report on Form 8-K, filed August 8, 2007).

10.10		Equity Interest Transfer Agreement between Perfect Dream and Ever-Glory Enterprises (H.K.) Ltd. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed August 24, 2005).

10.11		Equity Interest Transfer Agreement between Perfect Dream and Jiangsu Ever-Glory International Group Corporation (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed August 24, 2005).

10.12		Loan Agreement between Goldenway Nanjing Garments Co. Ltd. and Nanjing City Commercial Bank dated August 15, 2006 (incorporated by reference to Exhibit 10.3 of our Amendment No. 1 to its Annual Report on 10-KSB/A, filed May 9, 2007).

10.21		Capital Contribution Agreement, dated January 9, 2008 (incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K, filed January 15, 2008).

10.22		Joint Venture Establishment Agreement, dated January 9, 2008 (incorporated by reference to Exhibit 99.2 of our Current Report on Form 8-K, filed January 15, 2008).

10.23		Land Development Agreement between Jiangsu Ever-Glory International Group Corp. and Nanjing Goldenway Garment Co., Ltd. (incorporated by reference to Exhibit 10.23 of our Annual Report on Form 10-K, filed March 31, 2009).

10.24		Lease Agreement between Jiangsu Ever-Glory International Group Co. and Nanjing New-Tailun Garment Co., Ltd. (incorporated by reference to Exhibit 10.24 of our Annual Report on Form 10-K, filed March 31, 2009)

10.25		Loan Agreement between Goldenway Nanjing Garments Company Limited and China Merchant Bank, Nanjing Branch. (incorporated by reference to Exhibit 10.25 of our Annual Report on Form 10-K, filed March 31, 2009)

10.26		Irrevocable Guaranty Agreement between China Merchant Bank, Nanjing Branch and Edward Yihua Kang. (incorporated by reference to Exhibit 10.26 of our Annual Report on Form 10-K, filed March 31, 2009)

10.27		Mortgage Agreement between China Merchant Bank, Nanjing Branch and Edward Yihua Kang. (incorporated by reference to Exhibit 10.27 of our Annual Report on Form 10-K, filed March 31, 2009)

10.28		Mortgage Agreement between China Merchant Bank, Nanjing Branch and Huake Kang. (incorporated by reference to Exhibit 10.28 of our Annual Report on Form 10-K, filed March 31, 2009)

16.2		Letter from Moore Stephens Wurth Frazer and Torbet, LLP dated January 8, 2009 addressed to the Securities and Exchange Commission. (Incorporated by reference to Exhibit 16.1 of our Amendment No. 1 to our Current Report on Form 8-K, filed January 8, 2009).

21.1		Subsidiaries of Registrant.

23.1		Consent of Moore Stephens Wurth Frazer and Torbet, LLP (incorporated by reference to Exhibit 23.1 of our Annual Report on Form 10-K, filed March 31, 2009).

31.1		Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302.

31.2		Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302.

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 31st day of March, 2010.

	Ever-Glory International Group, Inc.,

Date: March 31, 2010	By	/s/ Edward Yihua Kang
		Edward Yihua Kang,

		Chief Executive Officer, President and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ Jia Jun Sun	Chief Operating Officer	March 31, 2010
Jia Jun Sun	and Director

/s/ Yan Guo	Chief Financial Officer
Yan Guo	(Principal Financial and Accounting Officer)	March 31, 2010

/s/ Changyu Qi	Director	March 31, 2010
Changyu Qi

/s/ Zhixue Zhang	Director	March 31,2010
Zhixue Zhang

INDEX TO EXHIBITS

Exhibit Number		Description

Number		Description

2.1		Agreement and Plan of Reorganization as amended, dated as of July 29, 2005, by and among Andean, Perfect Dream and Perfect Dream Shareholders (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed August 24, 2005).

2.2		Agreement for the Purchase and Sale of Stock of Nanjing Catch-Luck Garments Co. Ltd. dated (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed June 29, 2006).

2.3		Amendment No. 1 To Agreement for the Purchase and Sale of Stock of Nanjing Catch-Luck Garments Co. Ltd. dated (incorporated by reference to Exhibit 2.2 of our Current Report on Form 8-K, filed September 1, 2006).

2.4		Agreement for the Purchase and Sale of Stock of Nanjing New-Tailun Garments Co., Ltd. dated November 9, 2006 (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K, filed November 13, 2006).

3.1		Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-KSB, filed March 29, 2006).

3.2		Articles of Amendment as filed with the Department of State of Florida, effective November 20, 2007 (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed November 29, 2007).

3.3		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2(b) of our Annual Report on Form 10-KSB40, filed April 14, 1998).

4.1		Sections 3.10, 7.10, and 7.11of the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2(b) of our Annual Report on Form 10-KSB40, filed April 14, 1998).

4.2		Articles of Association of Perfect Dream (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K, filed August 24, 2005).

4.3		Articles of Association of Goldenway (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K, filed August 24, 2005).

10.1		Subscription Agreement (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed August 8, 2007).

10.2		Form of Convertible Note (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed August 8, 2007).

10.3		Form of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K, filed August 8, 2007).

10.4		Security Agreement (incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K, filed August 8, 2007).

10.5		Stock Pledge Agreement (incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K, filed August 8, 2007).

10.6		Lockup Agreement (incorporated by reference to Exhibit 10.6 of our Current Report on Form 8-K, filed August 8, 2007).

10.7		Letter of Intent to Acquire Branded Retail Division (incorporated by reference to Exhibit 10.7 of our Current Report on Form 8-K, filed August 8, 2007).

10.8		Non-Compete Agreement (incorporated by reference to Exhibit 10.8 of our Current Report on Form 8-K, filed August 8, 2007).

10.9		Guaranty (incorporated by reference to Exhibit 10.9 of our Current Report on Form 8-K, filed August 8, 2007).

10.10		Equity Interest Transfer Agreement between Perfect Dream and Ever-Glory Enterprises (H.K.) Ltd. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed August 24, 2005).

10.11		Equity Interest Transfer Agreement between Perfect Dream and Jiangsu Ever-Glory International Group Corporation (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed August 24, 2005).

10.12		Loan Agreement between Goldenway Nanjing Garments Co. Ltd. and Nanjing City Commercial Bank dated August 15, 2006 (incorporated by reference to Exhibit 10.3 of our Amendment No. 1 to its Annual Report on 10-KSB/A, filed May 9, 2007).

10.21		Capital Contribution Agreement, dated January 9, 2008 (incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K, filed January 15, 2008).

10.22		Joint Venture Establishment Agreement, dated January 9, 2008 (incorporated by reference to Exhibit 99.2 of our Current Report on Form 8-K, filed January 15, 2008).

10.23		Land Development Agreement between Jiangsu Ever-Glory International Group Corp. and Nanjing Goldenway Garment Co., Ltd. (incorporated by reference to Exhibit 10.23 of our Annual Report on Form 10-K, filed March 31, 2009).

10.24		Lease Agreement between Jiangsu Ever-Glory International Group Co. and Nanjing New-Tailun Garment Co., Ltd. (incorporated by reference to Exhibit 10.24 of our Annual Report on Form 10-K, filed March 31, 2009)

10.25		Loan Agreement between Goldenway Nanjing Garments Company Limited and China Merchant Bank, Nanjing Branch. (incorporated by reference to Exhibit 10.25 of our Annual Report on Form 10-K, filed March 31, 2009)

10.26		Irrevocable Guaranty Agreement between China Merchant Bank, Nanjing Branch and Edward Yihua Kang. (incorporated by reference to Exhibit 10.26 of our Annual Report on Form 10-K, filed March 31, 2009)

10.27		Mortgage Agreement between China Merchant Bank, Nanjing Branch and Edward Yihua Kang. (incorporated by reference to Exhibit 10.27 of our Annual Report on Form 10-K, filed March 31, 2009)

10.28		Mortgage Agreement between China Merchant Bank, Nanjing Branch and Huake Kang. (incorporated by reference to Exhibit 10.28 of our Annual Report on Form 10-K, filed March 31, 2009)

16.2		Letter from Moore Stephens Wurth Frazer and Torbet, LLP dated January 8, 2009 addressed to the Securities and Exchange Commission. (Incorporated by reference to Exhibit 16.1 of our Amendment No. 1 to our Current Report on Form 8-K, filed January 8, 2009).

21.1		Subsidiaries of Registrant.

23.1		Consent of Moore Stephens Wurth Frazer and Torbet, LLP (incorporated by reference to Exhibit 23.1 of our Annual Report on Form 10-K, filed March 31, 2009).

31.1		Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302.

31.2		Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302.

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.