Lihua Financial Reports Raise Questions

Dec.16.10 | About: Lihua International (LIWA)

Lihua International, Inc. (NASDAQ:LIWA) began trading in the U.S. capital markets on September 4, 2009. LIWA consists of two Chinese subsidiaries, Danyang Lihua Electron Co., Ltd. (Lihua Electron) and Jiangsu Lihua Copper Industry Co., Ltd. (Lihua Copper).

In December 2009, I wrote an article citing the material differences between LIWA’s financial reports filed with the China State Administration for Industry and Commerce (SAIC) and their financial statements filed with the U.S. Securities and Exchange Commission (SEC) for 2008. Select figures from the 2008 SAIC are listed below under the heading of "2008 SAIC." In May 2010, I wrote an article indicating continued material differences in LIWA’s financial reports filed with the China State Administration of Taxation (SAT) and SEC financial statements for 2009. Select figures from the 2009 SAT are listed below under the heading "2009 SAT." The original documentation and translated versions are available online.

Also in May 2010, LIWA published their alleged 2009 SAIC. The Chinese credit reporting agency that I used to obtain the 2008 SAIC and 2009 SAT continues to state that the 2009 SAIC are unavailable despite the 7 months lapse of time. The alleged 2009 SAIC listed figures from both 2008 and 2009. Select figures from the alleged 2009 SAIC are listed below under the headings "2008 on 2009 SAIC" and "2009 on 2009 SAIC." The original documentation is available online here and here.

Listed below is a comparison of the 2008 SAIC/2009 SAT and the alleged 2009 SAIC for both subsidiaries, Lihua Electron and Lihua Copper, and in two currencies, the Chinese Yuan (CNY) and the U.S. Dollar (USD). Although paid-up capital matches, the 2008 SAIC/2009 SAT and the alleged 2009 SAIC have major differences most everywhere else. Most shocking are the differences between the other equity and net profit (loss). Most telling are the differences between the profit tax. With such glaring differences, both the 2008 SAIC/2009 SAT and the alleged 2009 SAIC cannot be right. In order for the SEC financial statements, which reconcile to the alleged 2009 SAIC financial reports, to be correct, LIWA paid the Chinese government $1.8 million and $4.1 million for income taxes during 2008 and 2009, respectively. Yet, LIWA reported $0 in profit tax to the same Chinese government on their 2008 SAIC and 2009 SAT financial reports prior to the alleged filing of the 2009 SAIC financial reports.

In my opinion, this anomaly regarding the profit tax still cannot be reconciled and leads me to conclude that the SEC financial statements continue to be wrong.


   

2008 on

   

2009 on

 

2008 SAIC

2009 SAIC

 

2009 SAT

2009 SAIC

Lihua Electron - CNY

Total Assets

228,063,298

271,394,645

 

233,098,026

438,303,627

Total Liabilities

210,829,072

58,656,975

 

182,651,493

43,979,810

Paid-Up Capital

16,738,686

16,738,686

 

57,660,410

57,712,086

Other Equity

495,540

195,998,985

 

(7,213,877)

336,611,731

Turnover/Revenue

61,029,596

347,327,508

 

103,060,430

747,296,761

Profit Tax

0

12,648,852

 

0

20,625,417

Net Profit (Loss)

(4,907,902)

88,234,529

 

(7,471,056)

143,909,803

Lihua Electron - USD        

Total Assets

33,456,886

39,813,594

 

34,195,480

64,299,142

Total Liabilities

30,928,625

8,604,978

 

26,794,974

6,451,838

Paid-Up Capital

2,455,565

2,455,565

 

8,458,782

8,466,363

Other Equity

72,696

28,753,051

 

(1,058,276)

49,380,941

Turnover/Revenue

8,797,416

50,067,260

 

15,109,690

109,561,178

Profit Tax

0

1,823,332

 

0

3,023,892

Net Profit (Loss)

(707,474)

12,719,007

 

(1,095,332)

21,098,616

Lihua Copper - CNY         

Total Assets

108,666,326

110,434,051

 

371,186,125

240,296,688

Total Liabilities

3,794,296

5,562,021

 

282,162,356

87,270,437

Paid-Up Capital

104,872,030

104,872,030

 

104,872,030

104,939,526

Other Equity

0

0

 

(15,848,261)

48,086,725

Turnover/Revenue

0

0

 

636,861,082

750,264,609

Profit Tax

0

0

 

0

16,483,850

Net Profit (Loss)

0

0

 

(15,848,261)

48,617,108

Lihua Copper - USD        

Total Assets

15,941,350

16,200,675

 

54,453,005

35,251,524

Total Liabilities

556,623

815,948

 

41,393,218

12,802,573

Paid-Up Capital

15,384,727

15,384,727

 

15,384,727

15,394,628

Other Equity

0

0

 

(2,324,940)

7,054,323

Turnover/Revenue

0

0

 

93,370,203

109,996,294

Profit Tax

0

0

 

0

2,416,697

Net Profit (Loss)

0

0

 

(2,323,514)

7,127,754

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Disclosure: I am short LIWA.