Effective October 11, 2009, Mr. Su Liu, an independent director on the Board of Directors of the Company and a member of the Audit, Nominating and Corporate Governance and Compensation Committees resigned from the Board of Directors. No executive officer of the Company is aware of any disagreement between Mr. Su Liu and the Company on any matter relating to the Company’s operations, policies or practices.
Su Liu's short bio can be found on Lihua's website:
Su Liu, Independent Director. Mr. Liu has served as an independent member of our Board of Directors since April 8, 2009. Mr. Liu is a Lawyer in the PRC and has been a Partner at Beijing Zhongying LLP since 2006. He was a Partner at Beijing Zhongkai LLP from 2002 through 2006. Mr. Liu attended Beijing University.
(I will be very frequently referring back to the "Prospectus", a SEC filing of Lihua on Oct 2nd. The link is here. )
A. Speeded-up Insider Share Unlock Schedule
The prospect shows that except for the CEO and other managers, ALL the external investors are able to sell ALL their shares from Sep 29th, 3 weeks after its IPO. The prospectus also shows that the CEO and other managers' share will be unlocked on November 6th, 2009, 2 months after its IPO. Compare to a typical 6 month lockup period of IPO, this IPO looks quite unusual.
The next screenshot can be found on page 23 of the prospectus.
B. Discrepancies in 2008 Revenue between SEC Filings and Local Media/Government
My research stumbled into a news piece dated March 22, 2009 from "Voice of Danyang", a local radio station in Danyang, where Lihua International is located. Its screenshot is pasted below:
[NOTE: as I expected, the company had the local radio station to remove the news piece, but there is something called baidu in China. Here is the cached link]
- Lihua International made 100 million RMB revenue last year (2008).
- Chairman Zhu claims: "We are going to accelerate our 'speed' 10 times to make 1 billion RMB this year. "
Another link that shows similar content is from a local government site. The content is a speech transcript of Lihua's CEO. Based on the date and content, the radio station news piece is likely based on this transcript.
In case that Lihua would like to have the local government remove the page again, I would like to suggest that PLEASE do not bother, because the baidu cache link is here.
C. Discrepancies in 2008 Purchase Amount from Fushi Copperweld
Lihua do NOT manufacture CCA wires per se. Instead, it "primarily uses CCA wire with a line diameter of 2.05 mm, produced by its bimetallic wire suppliers, to manufacture superfine CCA wire."
- Fushi International (Dalian) Bimetallic Cable Co., Ltd.
- Soviet Cloud Electricity Limited Company
- Jiangsu Heyang Wire and Cable Co., Ltd.
- Changzhou Jieer Letter Composition Metal Material Limited Company
- Suzhou Guoxin Wire and Cable Technology Limited Company
We don't know if the largest customer of Fushi is Lihua, if it is not, the difference between the two numbers are even higher. If we assume that the largest customer of Fushi is indeed Lihua, Lihua's purchase from Fushi is 50% higher than Fushi's number. Lihua and Fushi cannot be both telling the truth.
Is Lihua International cooking its books? I will continue my discussion tomorrow in Part II and point to more evidences that could raise serious suspicions.
Disclosure: Short LIWA, No position in FSIN