Ever-Glory International Group, Inc. (“Ever-Glory”(the “Company”) was incorporated in Florida on October 19, 1994. All of its businesses are operated through, together with its subsidiaries, is an apparel manufacturer, supplier and retailer in China, with a wholesale segment and a retail segment. The Company’s wholesale business consists of recognized brands for department and specialty stores located in Europe, Japan and the People’s RepublicUnited States. The Company’s newly established retail business consists of China (“PRC”).

In the opinion of Goldenway and Shanghai La Chapelle Garment and Accessories Company Limited (“La Chapelle”), was incorporated inmanagement, 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 business objective of the joint venture is to establish and create a leading brand of ladies’ garments for the mainland Chinese market. As of September 30, 2008, LA GO GO opened 55 retail stores in China to sell its own brand clothing.

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 $733,500 (RMB 5.0 million) in cash. Ever-Glory Apparel is principally engaged in the import and assumptions that affect the reported amountexport of apparel, fabric and disclosure. For example, the Company estimates accessories.

Management believeshas estimated that the estimates utilizedcarrying 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.

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

For the subsidiaries withwhose functional currencies are the functional currency of RMB, all assets and liabilities accounts were translated at the exchange rate on the balance sheet date; stockholder'sstockholders’ equity are translated at the historical rates and items in the statement of operations items are translated at the average rate for the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statementstatements of stockholders’ equity. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.incurred and amounted to ($184) and $190,218 for the three month periods ended March 31, 2009 and 2008, respectively. Items in the cash flow statement are translated at the average exchange rate for the period.

In June 2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF No. 07-5”). This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of Statement of Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF No.07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. This standard triggers liability accounting on all options and warrants exercisable at strike prices denominated in any currency other than the functional currency of the operating entity in China (Renminbi). The Company is currently evaluating the impact of adoptionAdoption of EITF No. 07-5 on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”), which addresses the accounting and reporting framework for noncontrolling interests by a parent company. SFAS 160 also addresses disclosure requirements to distinguish between interests of the parent and interests of the noncontrolling owners of a subsidiary. SFAS 160 became effective in the first quarter of 2009, which resulted in reporting noncontrolling interest as a component of equity in the condensed consolidated balance sheet and below income tax expense in the condensed consolidated statements of operations. In addition, the provisions of SFAS 160 require that minority interest be renamed noncontrolling interests and that a company present a consolidated net income measure that includes the amount attributable to such noncontrolling interests for all periods presented. The Company adopted SFAS 160 on January 1, 2009. As a result, the Company has reclassified financial statement line items within the Company’s condensed consolidated balance sheet and statement of operations and comprehensive income for the quarter ended September 30, 2008.prior period to conform with this standard.

Bank loans represent amounts due to various banks and are due on demand or normally within one year. These loans generally can be renewed with the banks. As of September 30, 2008March 31, 2009 and December 31, 2007, Short2008, short term bank loans consisted of the following:

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 (RMB 50 million). These borrowings are guaranteed by Jiangsu Ever-Glory, an entity controlled by Mr. Kang, the Company’s Chief Executive Officer. These borrowings are also collateralized by the Company’s property and plant. As of March 31, 2009, bank loans are with Nanjing Bank,include approximately $5.9 million borrowed under this agreement and are all$1.4 million was unused and available. The $732,500 was repaid in April 2009. Also in April 2009 the Company borrowed an additional $732,500 under this agreement.

The bank loan for $732,500 that is due in December 2009 is collateralized by land use rights and buildingspersonal property of Mr. Kang, the Company.Company’s Chief Executive Officer. This loan was repaid in April 2009.

Total interest expense on the bank loans was $76,481 and $49,761 for the three months ended September 30, 2008 and 2007, respectively, and $220,827 and $177,822 for the nine months ended September 30, 2008 and 2007, respectively.

The Company’s operating subsidiaries are governed by the note holders had converted $1,950,000 of principal plus accrued interest of $2,155 into 887,348 shares of common stockIncome Tax Law of the Company. Due to PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (“the conversion, the Company recorded $1,152,227 of unamortized discount as interest expense for the period ended September 30, 2008.Income Tax Laws”).

In 2009 and has incurred net operating losses for income tax purposes for 2008 and 2007. As of September 30, 2008, the net operating loss carry forwards for U.S. income taxes was $526,131 which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2028. Management believes that the realization of the benefits from these losses appears uncertain due to 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 benefit to reduce the asset to zero. The valuation allowance at September 30, 2008 was approximately $179,000. Management will review this valuation allowance periodically and make adjustments as warranted.

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

In 2009 and 2010.

Provision for incomeIncome tax expense was $289,071 and $283,838 for the ninethree months ended SeptemberMarch 31, 20082009 and 2007 amounted to $841,850 and $155,203,2008, respectively.

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the ninethree months ended September 30, 2008March 31, 2009 and 2007:2008: