STILL NOT COPPERSETIC AT LIHUA INTERNATIONAL

On August 26, 2009, China Sky One Medical, Inc. (CSKI) issued a press release admitting material differences between their 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). It was contemplated that “in future filings there will be no material differences in the information contained in the financial statements filed with the SAIC and the SEC.”

Lihua International, Inc. (LIWA), another Chinese company who went public through a reverse-merger, also had material differences between their SAIC financial reports and SEC financial statements for 2008. For 2009, LIWA continued to have material differences in their financial reports filed with the China State Administration of Taxation (SAT) and SEC financial statements. A comparison of the two filings follows this article.

Highlights of the 2009 differences include $68 million in liabilites per SAT instead of $9 million per SEC, $20 million in equity per SAT instead of $82 million per SEC, $108 million in revenue per SAT instead of $162 million per SEC, and $3 million in net loss per SAT instead of $17 million in net profit per SEC.

In order for the SEC financial statements to be correct, LIWA paid the Chinese government $4 million for income taxes in 2009, yet reported $0 in profit tax to the same Chinese government on their SAT financial reports. Investors, the audit committee, the auditor, the media, and the SEC should all demand to know how this anomaly can continue to exist.

Disclosure: Author is short LIWA and CSKI.