The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2009 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," 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 established brands, department stores and specialty stores located throughout Europe, the U.S., Japan and the People's Republic of China (PRC). We have a focus on well-known, middle-to-high grade casual wear, sportswear, and outerwear brands. Our retail business consists of retail-channel sales directly to consumers through full-price retail stores located throughout the PRC.

Although we have our own manufacturing facilities, we currently outsource most of the manufacturing to our 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. Ever-Glory Apparel is principally engaged in the import and export of apparel, fabric and accessories. 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 transaction related 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 transactions.

On March 23, 2009, Goldenway transferred all of its ownership interest in LA GO GO to Ever-Glory Apparel.

Wholesale Business

We conduct our original design manufacturing (ODM) operations through four wholly-owned subsidiaries which are located in the Nanjing Jiangning Economic and Technological Development Zone and Shang Fang Town in the Jiangning District in Nanjing, China: Ever-Glory International Group Apparel Inc. ("Ever-Glory Apparel"), Goldenway Nanjing Garments Company Limited ("Goldenway"), Nanjing New-Talent Garments Company Limited ("New Talent"), 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 ladies' garments and to build a retail and wholesale distribution channel for the mainland Chinese market.

Below is a summary of our store statistics:

                                    3Q2008       FY2008       1Q2009       2Q2009        3Q2009
 Total stores                            55           93          102           130           154
 Total square feet                   59,341       84,776       97,220       121,643       142,632
 Sales per square foot per month   $      7     $     13     $     12     $       7     $       8

Business Objectives

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.

Wholesale Business

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 September 30, 2009 we operated 154 stores. During the first three quarters of 2009 we opened 63 stores and the Company's goal is to open between 80-100 new stores in total in 2009.

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

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.

Seasonality of Business

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

Collection Policy

Wholesale business

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

Retail business

For store-in-store shops, we generally receive payments from the stores between 60-90 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 U.S. and the European economy have increased our clients' sensitivity to the cost of our products as reflected in our revenues for the three and nine months ended September 30, 2009 when compared to the same periods in 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 our wholesale segment in this year.

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 in time how this situation will develop and whether accounts receivable may need to be allowed or for written off in the coming quarter.

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 revenue, net of value added taxes, upon delivery for domestic sales and upon shipment of the products for international 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. Retail sales are recorded at the time of register receipt.

Estimates and Assumptions

In preparing our condensed 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 estimated residual value and useful lives of property and equipment, and the assumptions we made when we used the Black-Scholes option price model to value warrants granted.

Inventory

Inventories, consisting of raw materials, work-in-process and finished goods related to our products are stated at the lower of cost or market utilizing the specific identification method. From July 1, 2009 we purchased raw materials through Goldenway which previously purchased through Jiangsu Ever-Glory and then deliveried those raw materials to the factories for manufacturing. Those raw materials deliveried for manufacturing are included in work-in-process. Because of this change the raw material and work-in-process increased rapidly by the end of this quarter.

Details regarding our use of these policies and the related estimates are described in the accompanying notes to the Condensed Consolidated Financial Statements. There have been no material changes to our critical accounting policies that impacted our financial condition or results of operations.

Recent Accounting Pronouncements

(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. 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). Adoption of EITF No. 07-5 did not have a material impact on the Company's condensed consolidated financial statements.

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 the nine months ended September 30, 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 Condensed Consolidated Balance Sheets and Statements of Income and Comprehensive Income for the prior period 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 107-1 was effective for interim periods ending after September 15, 2009. The adoption of FSP 107-1 did not have a material impact on the Company's Consolidated Financial Statements.

Subsequent Events
(Included in ASC 855 "Subsequent Events", previously SFAS No. 165)

SFAS No.165, "Subsequent Events" establishes accounting and disclosure requirements for subsequent events. SFAS 165 details the period after the balance sheet date during which the Company should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. The Company adopted this statement and has evaluated all subsequent events through November 9, 2009.

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 quarter ended September 30, 2009.

As a result of the Company's implementation of the Codification during the quarter ended September 30, 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 impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

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

The following table summarizes our results of operations for the three months ended September 30, 2009 and 2008. The table and the discussion below should be read in conjunction with the condensed consolidated financial statements and the notes thereto appearing elsewhere in this report.

                                     Three months ended September 30
                                    2009                          2008
                                (in U.S. Dollars, except for percentages)
Sales                     $  24,936,721       100.0 %   $ 31,885,576       100.0 %
Gross Profit                  4,633,705        18.6        4,590,371        14.4
Operating Expenses            2,660,222        10.7        2,247,684         7.0
Income From Operations        1,973,483         7.9        2,342,687         7.3
Other Income (Expenses)          86,342         0.3       (1,426,969 )      (4.5 )
Income Tax Expense              130,479         0.5          273,203         0.9
Net Income                $   1,929,346         7.7 %   $    642,515         2.0 %

Revenue

The following table sets forth a breakdown of our total sales, by region, for
the three months ended September 30, 2009 and 2008.

                                           Three months                            Three months                          Growth(Decrease)
                                         ended September       % of total         ended September      % of total        in 2009 compared
                                             30,2009           sales                  30,2008          sales                with 2008
Wholesale business
The People's Republic of China          $        1,250,316               5.0 %   $       2,940,563              9.2 %                (57.5 )%
Europe                                          11,973,636              48.0 %          14,924,436             46.8 %                (19.8 )
Japan                                            3,106,221              12.5 %           6,925,551             21.7 %                (55.1 )
United States                                    5,981,931              24.0 %           6,056,882             19.0 %                 (1.2 )
Sub total                                       22,312,104              89.5 %          30,847,432             96.7 %                (27.7 )
Retail business                                  2,624,617              10.5 %           1,038,144              3.3 %                152.8
Total                                   $       24,936,721             100.0 %   $      31,885,576            100.0 %                (21.8 )%

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 three months ended September 30, 2009 were $24.9 million a decrease of 21.8% from the three months ended September 30, 2008. Although sales in our retail business increased significantly during the third quarter of 2009, sales in our wholesale business decreased 27.7% due to the global economic slowdown.

Sales generated from our wholesale business contributed 89.5%% or $22.3 million of our total sales for the three months ended September 30, 2009, compared to $30.8 million in the three months ended September 30, 2008.

Sales generated from our retail business contributed 10.5% or $2.6 million of our total sales for the three months ended September 30, 2009, an increase of 152.8% compared to $1.0 million in the three months ended September 30, 2008 due to we had 154 LA GO GO stores by the end of this quarter while 55 LA GO GO stores in the same time of 2008 . In the third quarter of 2009 we opened 25 new LA GO GO stores and closed one store.

Costs and Expenses

Cost of goods sold includes direct material cost, direct labor cost, and manufacturing overhead, which includes depreciation of production equipment, consistent with the revenue earned, as well as rent for store space used by our retail business.

The following table sets forth the components of our cost of sales and gross profit both in amounts and as a percentage of total sales for the three months ended September 30, 2009 and 2008.

                                      Three Months Ended September 30,                     Growth(Decrease)
                                   2009                              2008                   2009 compared
                                 (in U.S. dollars, except for percentages)                    with 2008
Wholesale sales        $  22,312,104           100.0 %   $ 30,847,432           100.0 %                (27.7 )%
       Raw Materials      10,907,279            48.9       13,735,548            44.5                  (20.6 )
               Labor         808,145             3.6          849,187             2.8                   (4.8 )
          Outsourced
    Production Costs       6,846,590            30.7       11,846,954            38.4                  (42.2 )
  Other and Overhead         165,919             0.7          195,881             0.6                  (15.3 )
Total Cost of Sales
for Wholesale             18,727,934            83.9       26,627,570            86.3                  (29.7 )
Gross Profit for
Wholesale                  3,584,170            16.1        4,219,862            13.7                  (15.1 )
Net Sales for Retail       2,624,617           100.0        1,038,144           100.0                  152.8
    Production Costs         686,195            26.1          212,659            20.5                  222.7
                Rent         888,887            33.9          454,976            43.8                   95.4
Total Cost of Sales
for Retail                 1,575,082            60.0          667,635            64.3                  135.9
Gross Profit for
Retail                     1,049,535            40.0          370,509            35.7                  183.3
Total Cost of Sales       20,303,016            81.4       27,295,205            85.6                  (25.6 )
Gross Profit           $   4,633,705            18.6 %   $  4,590,371            14.4 %                  0.9 %

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 flow 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 20.6% to $10.9 million in the quarter ended September 30, 2009 versus $13.7 million in the quarter ended September 30, 2008. As a percent of sales, raw materials cost for our wholesale business accounted for 48.9% of our total wholesale sales in the three months ended September 30, 2009, an increase of 4.4% compared to the three months ended September 30, 2008. This increase was primarily due to an increase in our FOB orders during the quarter.

Total labor costs decreased 4.8% to $808,145 during the three months ended September 30, 2009 versus $849,187 million during the three months ended September 30, 2008. As a percent of sales, labor costs for our wholesale business accounted for 3.6% of our total wholesale sales during the three months ended September 30, 2009, an increase of 0.8% compared to the three months ended September 30, 2008. This increase was primarily due to decreased outsourcing orders during the quarter.

Total outsourced production costs decreased 42.2% to $6.8 million during the three months ended September 30, 2009 versus $11.8 million during the three months ended September 30, 2008. This decrease was primarily due to decreased sales during the quarter. As a percent of sales, outsourced production costs for our wholesale business accounted for 30.7% of our total sales during the three months ended September 30, 2009, a decrease of 7.7% compared to the three months ended September 30, 2008.

Total other costs and overhead decreased 15.3% to $0.17 million during the three months ended September 30, 2009 versus $0.20 million during the three months ended September 30, 2008. As a percent of sales, overhead and other expenses for our wholesale business accounted for 0.7% of our total sales during the three months ended September 30, 2009, a slight increase compared to the three months ended September 30, 2008.

Production costs for our retail business were $0.67 million or 26.1% of our total retail sales during the three months ended September 30, 2009 versus $0.21 million or 20.5% during the three months ended September 30, 2008. The increase was due to the reduced selling prices and increasing the sales volume. Rent costs for our retail business were $0.89 million or 33.9% of our total retail sales during the three months ended June 30, 2009 versus $0.45 million or 43.8% during the three months ended September 30, 2008.The decrease in rent costs as a percentage of total retail sales was due to an increase of same store sales . . .