The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2008 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," "target", "forecast" and similar expressions to identify forward-looking statements.

Overview

We are a leading apparel manufacturer and supplier in China, and the first Chinese apparel company listed on the American Stock Exchange. We have a focus on well-known, middle-to-high grade casual wear, sportswear, and outerwear brands. We have global strategic business partners in Europe, the United States ("U.S."), Japan and the People's Republic of China (PRC), including famous brands and retail chain stores. We also manufacture, market and distribute our own branded products in the PRC domestic market.

We manufacture our products in the PRC, including our three factories located in the Nanjing Jiangning Economic and Technological Development Zone and Shang Fang Town in the Jiangning District in Nanjing. We conduct our original design manufacturing (ODM) operations through three wholly-owned subsidiaries:
Goldenway Nanjing Garments Company Limited ("Goldenway"), Nanjing New-Tailun Garments Company Limited ("New Tailun"), and Nanjing Catch-Luck Garments Co., Ltd. ("Catch-Luck").

We incorporated 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") in the PRC on January 24, 2008. The business objective of the joint venture is to establish and create a leading brand of ladies' garments and to build a nationwide retail distribution channel in China.

Although we have our own manufacturing facilities, we currently outsource most of our manufacturing to contract manufacturers as part of our overall business strategy. Outsourcing allows us to maximize our production capacity and maintain production flexibility while reducing capital expenditures and costs associated with keeping skilled workers on production lines during seasonal slowdowns. We inspect products manufactured by our long-term contractors to ensure that they meet our high quality control standards.

For the nine months ended September 30, 2008, approximately 56% of our net sales came from Europe, 17% from the U.S., 17% from Japan, and 10% from the PRC. For the nine months ending September 30, 2007, approximately 59% of our net sales came from Europe, 21% from the U.S, 13% from Japan, and 7% from the PRC. We believe our Company maintains a good relationship with our customers.

We purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. We also purchase finished goods from contract manufacturers. For the nine months ended September 2008 and 2007, purchases from our five largest suppliers accounted for 21% and 24% of total purchases, respectively. For the nine months ended September 30, 2008 and 2007, no single supplier provided more than 10% of our total purchases. We have not experienced difficulty in obtaining raw materials essential to our business, and we believe our Company has maintained a good relationship with our suppliers.

As of September 30, 2008, our three manufacturing facilities in Nanjing had over 1,800 employees, with an annual production capacity of over 12 million pieces. As of September 30, 2008, our new LA GO GO joint venture had approximately 230 employees. We consider our relationship with our employees to be excellent.

We hold a fifty-year land use right on 112,442 square meters of land in the Nanjing Jiangning Economic and Technological Development Zone until April 2056. The land contains an existing facility of 26,629 square meters, which includes the manufacturing facility and office space. By the end of 2006, we completed the construction of our new office building and adjoining factory. We moved our headquarters into our new office building and consolidated part of our operation into our new manufacturing facility in January 2007. The new manufacturing facility occupies an area of 10,000 square meters and is equipped with state-of-the-art equipment.

Our four operating subsidiaries, all of which are incorporated in the PRC, are governed by the PRC income tax laws and are subject to the PRC enterprise income tax. Each of our consolidating entities files its own separate tax return. In addition, in 2007, Goldenway enjoyed a 50% reduction in its income tax as a foreign invested enterprise that exports over 70% of its output, and was entitled a lowered income tax rate of 12%. In 2008, the income tax rate for Goldenway was 25%. New-Tailun and Catch-Luck were entitled to two-year income tax exemptions effective for the 2006 and 2007 tax years, and for the three years thereafter (2008, 2009 and 2010) based on current income tax laws these entities will be entitled to a 50% reduction in enterprise income tax rate of 25%. LA GO GO was incorporated on January 24, 2008, and its income tax rate is 25%. All of our income before income taxes, and the income taxes we pay are related to our operations in the PRC.
Private Placement Financing

On August 2, 2007, we completed a $2 million private placement involving the issuance of our secured convertible notes and warrants pursuant to subscription agreements ("Subscription Agreements") with six accredited investors. This private placement financing closed on August 6, 2007. Under the terms of the financing, we issued and sold two-year secured convertible notes in the principal amount of $2,000,000 to investors, secured by all of the assets of Ever-Glory excluding its subsidiaries. As of September 30, 2008, the note holders had converted the entire principal amount of these notes, plus accrued interest, into an aggregate of 909,091 shares of common stock of the Company.

Recent Events

On July 16, 2008, our shares of common stock began trading on the American Stock Exchange ("AMEX") under the trading symbol "EVK." We are the first Chinese apparel company to have its securities listed on AMEX.

According to the Articles of Association of Goldenway, Goldenway had to fulfill registered capital requirements of $17,487,894 within three years from February 2, 2005. As of February 1, 2008, the Company fulfilled $3,630,000 of its registered capital requirements and had a registered capital commitment of $13,857,894 payable by February 1, 2008. In April 2008, we obtained approval from the government granting an extension to make the required capital contribution by July 25, 2008. As of July 10, 2008, the Company fulfilled $5,630,000 of its registered capital requirements and had a registered capital commitment of $11,857,894 payable by July 25, 2008. In July 2008, the Company obtained the approval from the government granting a further extension to make the required capital contribution until April 25, 2009.

In July 2008, we renewed our credit facility with Nanjing Bank, which provides us with short-term lending of up to $7.3 million for a two year term. The credit facility is used to fund daily operations, and is available until July 31, 2010. As of September 30, 2008, we had an outstanding balance of $5.8 million, on which we pay interest at the rate of 7.22%. The loans with Nanjing Bank are secured by our land use rights and buildings.

Sales and Expenses

We market and sell our products through a combination of international distributors and direct sales to brands and retail chain stores primarily in Europe, the United States and Japan. We also manufacture, market, and distribute our own branded products in our domestic market through our LA GO GO joint venture.

For our new customers, we ordinarily accept orders backed by a letter of credit. For our established customers, we generally accept payment within 30 to 120 days following delivery of finished goods to the customer.

Cost of goods sold includes direct material cost, direct labor cost and manufacturing overheads, including depreciation of production equipment consistent with the revenue earned, and rent paid by our retail business.

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

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

CRITICAL ACCOUNTING POLICIES

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

The preparation of our financial statements in conformity with generally accepted accounting principles (GAAP) in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts. Significant estimates in 2008 and 2007 include the estimated residual value and useful life of property and equipment and the assumptions made when we used the Black-Scholes option price model to value the warrants we have issued.

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

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

Details regarding our use of these policies and the related estimates are described in the accompanying notes to our Consolidated Financial Statements as of and for the three months and nine months ended September 30, 2008. There have been no material changes to our critical accounting policies that impacted our consolidated financial condition or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States (the GAAP hierarchy). This Statement will not have any impact on the Company's consolidated financial statements.

In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60." The scope of this Statement is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly, this Statement does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). This Statement also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement will not have any impact on the Company's consolidated financial statements.

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. Management is currently evaluating the impact of adoption of EITF No. 07-5 on the Company ' s financial statements.

In June 2008, FASB issued EITF Issue No. 08-4, "Transition Guidance for Conforming Changes to Issue No. 98-5 ("EITF No. 08-4")". The objective of EITF No.08-4 is to provide transition guidance for conforming changes made to EITF No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", that result from EITF No. 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments", and SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Issue is effective for financial statements issued for fiscal years ending after December 15, 2008. Early application is permitted. Management is currently evaluating the impact of adoption of EITF No. 08-4 on the accounting for the convertible notes and related warrants transactions.

On October 10, 2008, the FASB issued FASB Staff Position (FSP) No.157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active," which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 became effective on October 10, 2008, and its adoption did not have a material impact on the Company's financial position or results for the quarter ended September 30, 2008.

Results of Operations

The following is a discussion and analysis of our results of operations, comparing the three and nine months ended September 30, 2008 and 2007.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

The following table summarizes our results of operations for the three months ended September 30, 2008 and 2007. The table and the discussion below should be read in conjunction with the unaudited financial statements and the notes thereto appearing elsewhere in this report.

                                     Three Months Ended September 30,
                                                                                                         %
                                     2008                         2007                  Increase      Increase
Sales                       $ 31,885,576     100.0 %     $ 19,477,793     100.0 %     $ 12,407,783         63.7 %
Cost of Sales               $ 27,295,205      85.6 %     $ 16,404,695      84.2 %     $ 10,890,510         66.4 %
Gross Profit                $  4,590,371      14.4 %     $  3,073,098      15.8 %     $  1,517,273         49.4 %
Operating Expense           $  2,190,346       6.9 %     $  1,020,400       5.2 %     $  1,169,946        114.7 %
Income From Operations      $  2,400,025       7.5 %     $  2,052,698      10.5 %     $    347,327         16.9 %
Other Expenses              $ -1,484,307      -4.7 %     $   -658,753      -3.4 %     $   -825,554        125.3 %
Income before income tax
expenses                    $    915,718       2.9 %     $  1,393,945       7.2 %     $   -478,227        -34.3 %
Income tax expenses         $    273,203       0.9 %     $     72,880       0.4 %     $    200,323        274.9 %
Minority interest           $     -4,666       0.0 %                -         -       $     -4,666            -

Net Income                  $    647,181       2.0 %     $  1,321,065       6.8 %     $   -673,884        -51.0 %

Sales

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

                                                  Three Months Ended September 30,
                                                2008                           2007
                                                     % of total                     % of total       Growth in 2008
                                          $           revenues           $           revenues       Compared to 2007
                                             (in U.S. dollars, except for percentages)
ODM Sales

Europe                                 14,923,858           46.8 %    10,813,012           55.5 %              + 38.0 %

U.S.                                    6,056,882           19.0 %     4,033,070           20.7 %              + 50.2 %

Japan                                   6,925,551           21.7 %     2,962,062           15.2 %             + 133.8 %

China                                   2,897,857            9.1 %     1,669,649            8.6 %              + 73.6 %

Other                                      43,284            0.1 %             -              -                     -

Domestic Retail Sales

Retail                                  1,038,144            3.3 %             -              -                     -

Total revenues                         31,885,576          100.0 %    19,477,793          100.0 %              + 63.7 %

We generate revenues primarily from our ODM business mainly for the international markets. In 2008, we entered into our domestic retail market, with a focus on designing, manufacturing and selling our own branded garments. Total sales for the three months ended September 30, 2008 were $31,885,576, an increase of 63.7% compared to the same period during 2007. This increase was primarily attributable to an operating growth in ODM sales to customers in Europe, U.S., Japan and the PRC, and revenue contributions from our newly launched retail business "LA GO GO" in 2008.

Sales to customers in Europe accounted for 46.8% of our net revenue for the three months ended September 30, 2008. Sales to our European customers increased 38.0% in the third quarter of 2008, as compared to the third quarter of 2007. The increase for the three months ended September 30, 2008 was primarily attributable to higher demand and increased order volume from several of our large European customers.

Sales to customers in the U.S. accounted for 19.0% of our net revenue for the three months ended September 30, 2008. Sales to our U.S. customers increased 50.2% in the third quarter of 2008, as compared to the third quarter of 2007. This increase was due to our acquisition of new customers in the U.S.

Sales to customers in Japan accounted for 21.7% of our net revenue for the three months ended September 30, 2008. Sales to our Japanese customers increased 133.8% for the third quarter of 2008, compared to the third quarter of 2007. This increase was attributable to our success in establishing a long-term relationship with premium brands in the Japanese market, and strong demand in the third quarter of 2008 in anticipation of the holiday season.

Sales to customers in the PRC accounted for 9.1% of our net revenue for the three months ended September 30, 2008. Sales to our PRC customers increased 73.6% in the third quarter of 2008, compared to the third quarter of 2007. The increase was attributable to a greater number of orders placed by our existing customers in Hong Kong,

Sales generated by our LA GO GO retail division accounted for 3.3% of our net revenue for the three months ended September 30, 2008. As of September 30, 2008, we have opened and established 55 LA GO GO retail stores, generating average sales of $8,500 per month per store.

The table below breaks down our total revenues generated from related-party and unrelated-party during the periods indicated:

                                      Three Months Ended September 30,
                                                                                     Increase
Net Sales                             2008                        2007               (Decrease)     % Change
To related parties          $     17,582         0.1 %  $    486,318         2.5 %  $   (468,736 )      -96.4 %
To third parties            $ 31,867,994        99.9 %  $ 18,991,475        97.5 %  $ 12,876,519         67.8 %
Total                       $ 31,885,576       100.0 %  $ 19,477,793       100.0 %  $ 12,407,783         63.7 %

Net sales to related parties accounted for 0.1% of our total sales for the three months ended September 30, 2008, a decrease from 2.5% for the same period of 2007. We expect sales to related parties will continue to constitute a relatively minor portion of our total sales.

Cost of Sales and Gross Profit

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

                                      Three Months Ended September 30,
                                                                                                       %
                                      2008                        2007                 Change        Change
Total Net Sales             $ 31,885,576       100.0 %  $ 19,477,793       100.0 %  $ 12,407,783         63.7 %
Raw materials                 13,735,548        43.1 %     9,211,986        47.3 %     4,523,562         49.1 %
Labor                            849,187         2.7 %       626,082         3.2 %       223,105         35.6 %
Outsource Production
Costs                         11,237,388        35.2 %     5,826,534        29.9 %     5,410,854         92.9 %
Overhead and Other               805,447         2.5 %       740,093         3.8 %        65,354          8.8 %
Retail-purchase finished
garments from other
factories                        667,635         2.1 %             0         0.0         667,635            -
Total Cost of Sales         $ 27,295,205        85.6 %  $ 16,404,695        84.2 %  $ 10,890,510         66.4 %
Gross Profit                $  4,590,371        14.4 %  $  3,073,098        15.8 %  $  1,517,273         49.4 %

Raw material costs for the three months ended September 30, 2008 increased 49.1% compared to the same period in 2007 while revenues increased 63.7% compared to the same period in 2007. These costs, as a percentage of total net sales, decreased from 47.3% to 43.1%. In the third quarter of 2008, we centralized our purchasing function to increase our negotiation power, and management believes this enabled us to control and reduce our raw material costs.

Labor costs accounted for 2.7% of our total net sales for the three months ended September 30, 2008, which decreased from 3.2% for the same period in 2007. This decrease was mainly due to an internal headcount reduction. In 2008, after performing a comprehensive review of our processes and organization, management decided to increase outsourcing to independent contractors to improve . . .