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I am a 25 yr old self educated investor in Stocks including fundamental analysis and options. I am a US Navy Veteran who runs his own own consulting firm. I also am also a marketing and Real Estate consultant.
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  • A House Of Cards You Should Short Today 0 comments
    Apr 7, 2011 3:10 AM | about stocks: FUQI
     Fuqi International (OTCPK:FUQI) designs, develops, and sells jewelry in China. The company offers a wide array of products such as rings, bracelets, necklaces and earrings made of platinum, gold, and other precious metals. In addition, Fuqi offers jewelry with diamonds and other stones. The company also manufactures gold coins and bars. On every visible metric the stock looks dirt cheap the real question with all the questions of Chinese fraud are the financial statements even remotely real? Let’s take a look at the numbers and a close look at management and recent developments and see if some money can be made from this name.

     

     FUQI Looks Cheap But Is It?

    Current book value is around 12 dollars a share and current share price is 3 dollars giving you an obviously cheap stock based on trading at one quarter of book value.The stock trades at 1.5 times earnings and sports an attractive return on equity of 23%.Growth has been impressive at a 5 year average of over 50%.

     

    A Closer Look at Management:

    Management is a riddle wrapped in an enigma it is surprisingly hard to find details on who they are and qualifications. Why would you trust a reclusive leadership at a company you want to invest in ? It really concerns me that even the CEO has no picture on their website.
    What are they hiding? Could it be they are just telling a great story and nothing more?



    Questions Regarding Financial Statements:

    On March 28, 2011, FUQI International, Inc. (the "Company") received written notice that the NASDAQ Listing Qualifications Panel has determined to delist the Company's securities from The NASDAQ Stock Market; effective with the open of business on Tuesday, March 29, 2011.The reasons for this delisting is the delay of financial statements including their 10k.

     
       

    SHENZHEN, China, March 28, 2011 /PRNewswire-Asia/ -- FUQI International, Inc. (Nasdaq: FUQI) today announces that it has received a letter from its independent registered public accounting firm, Marcum LLP ("Marcum") pursuant to Section 10A(b)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding an internal investigation conducted at the request of the Company's Audit Committee relating to certain cash transfer transactions involving the Company. The completion of the audit of the Company's 2009 financial statement has been delayed due to the internal investigation into the cash transfer transactions.

    Background of the Cash Transfer Transactions

    In connection with the preparation of the Company's restated 2009 quarterly financial statements and the financial statements for the year ended December 31, 2009, the Company's outside auditor, Marcum, discovered certain transactions involving short-term cash transfers from the Company's bank accounts to the bank accounts of three other companies in China. The transfers were made at the request of the Company's primary lender and banking services provider (the "Bank") and were authorized by Yu Kwai Chong, the Company's founder, Chief Executive Officer, and Chairman of the Board ("Mr. Chong"), and approved by its Deputy Finance Director and Cashier.

    Based on the preliminary findings of the Audit Committee investigation, as described below, the cash transfer transactions commenced in September 2009 and ended in November 2010. Based on review of bank statements obtained from the Company, all of the outgoing cash transfers made by the Company were repaid in full by the recipient companies on a short-term basis, with no loss resulting from the transfers. No outgoing cash transfer was outstanding as of any month-end date, except in two instances, and no amount was outstanding as of any quarter-end date. The transfers were made from non-interest bearing accounts and did not earn any interest. For the year ended December 31, 2009 and 2010, the aggregate amount of the cash transfers totaled approximately $86.3 million and $47.5 million, respectively, and the highest amount outstanding on any given date was equal to approximately $24.1 million and $8.5 million, respectively.

    The cash transfers were made by the Company pursuant to an oral agreement with the Bank. Mr. Chong advised the Company that he agreed to a request from a Bank representative to conduct the transfers for the purpose of strengthening the Company's relationship with the Bank. The bank accounts that received the cash transfers were designated by the Bank. The three companies associated with those accounts are registered legal entities in China, but the Company has not been able to confirm the accuracy of their business addresses nor determine the extent and nature of their business operations, if any. The Company has not conducted any commercial business with those entities aside from the short-term cash transfer transactions. Based on the preliminary findings of the Audit Committee investigation, no evidence was obtained to indicate that the companies were a related party to the Company, the Bank representative, Mr. Chong, or any of the Company's other officers or directors.

    The internal investigation is ongoing and the preliminary findings described above are subject to the final results and conclusions of the investigation, which may differ from the preliminary findings.

    Questions arise from this audit and related situations leaving you wondering just how real are this companiy’s financial statements?

     These questions involving questionable business practices are why I believe fraudulent activity is possible.


    Weak Financial Position

    The company has a negative 1.81 Altman Z-Score which indicates a extremely weak financial position. A Negative Altman score is deeply disturbing the usual good score is above a positive 2.

    Conclusion:

     So you have potential fraud, questionable business practice and a story that looks too good to be true.
    Have you ever heard the saying if it sounds too good to be true it probably is?
    In the case of this company the story is likely not real and the numbers are likely bloated and fraudulent.
     The real possibility of fraud or corporate abuse makes Fuqi a compelling short today.

     

     

     

     

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: FUQI
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