S-1/A

As Filed with the Securities and Exchange Commission on August 28, 2007

Registration No. 333 - 144290

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

PRE-EFFECTIVE AMENDMENT NO. 1 ON

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

________________

FUQI INTERNATIONAL, INC.

(Name of Registrant As Specified in its Charter)

Delaware	3911	20-1579407
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer Identification No.)
Incorporation	Classification Code Number)
or Organization)

5/F., Block 1, Shi Hua Industrial Zone

Cui Zhu Road North

Shenzhen, 518019

People’s Republic of China (“PRC”)

+86 (755) 2580-1888

(Address and Telephone Number of Principal Executive Offices)

________________

Corporation Service Company

2711 Centerville Road

Suite 400

Wilmington, DE 19808

800-222-2122

(Name, Address and Telephone Number of Agent for Service)

________________

Copies to

Thomas J. Poletti, Esq. Anh Q. Tran, Esq. Kirkpatrick & Lockhart Preston Gates Ellis LLP 10100 Santa Monica Blvd., 7th Floor Los Angeles, CA 90067 Telephone (310) 552-5000 Facsimile (310) 552-5001 Marjorie Sybul Adams, Esq. Matthew D. Adler, Esq. DLA Piper US LLP 1251 Avenue of the Americas New York, NY 10020 Telephone: (212) 335-4500 Facsimile: (212) 335-4501

________________

Approximate Date of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. £

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement the same offering. £

CALCULATION OF REGISTRATION FEE

	Proposed
	Maximum			Amount of
Title of Each Class of	Aggregate			Registration
Securities To Be Registered	Offering Price			Fee (2)
Common Stock, $.001 par value per share	$	57,500,000 (1	)	$	1,765.25(3	)

(1)   The registration fee for securities to be offered by the Registrant is based on an estimate of the offering price and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(o). Includes $[______] from shares that the underwriters have the option to purchase to cover over-allotments, if any.

(2)   Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

(3)   Previously paid.

________________

The Registrant amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated August 28, 2007

[______] Shares

Fuqi International, Inc.

Common Stock

This is our initial public offering of shares of our common stock. We are offering [___] shares. We expect that the public offering price of our common stock will be between $[___] and $[___] per share.

Currently no public market exists for shares of our common stock. We have applied for the listing of our common stock on The Nasdaq Global Market under the trading symbol “FUQI”.

________________

Investing in our common stock involves risks.

See “Risk Factors” beginning on page 7 of this prospectus.

________________

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of anyone’s investment in these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to Fuqi International, Inc.	$	$

Fuqi International, Inc. has granted the underwriters a 30-day option to purchase up to an additional [____] shares of common stock to cover over-allotments.

________________

Merriman Curhan Ford & Co.

________________

The date of this Prospectus is ____________________, 2007

You should rely only on information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. In this but the information may have changed since that date. Unless the context otherwise requires, the terms “we,” the “Company,” “us,” or “Fuqi” refers to Fuqi International, Inc. and its predecessors and wholly-owned subsidiaries.

TABLE OF CONTENTS

Page

Prospectus Summary	1
Summary Consolidated Financial Data	6
Risk Factors	7
Speical Note Regarding Forward-Looking Statements	22
Use of Proceeds	23
Dividend Policy	23
Market Information	23
Capitalization	24
Dilution	25
Selected Consolidated Financial Data	26
Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Business	44
Management	56
Certain Relationships and Related Transactions, and Director Independence	65
Beneficial Ownership of Certain Beneficial Owners and Management	67
Description of Securities	69
Shares Eligible for Future Sale	72
Underwriting	74
Legal Matters	78
Experts	78
Additional Information	78
Index to Financial Statements	F-1

________

“Fuqi” and the “Fuqi” logo are our registered trademarks. Other trademarks, trade names and service marks used in this prospectus are the property of their respective owners

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PROSPECTUS SUMMARY

Because this is only a summary, it does not contain all of the information that may be important to you. You should carefully read the more detailed information contained in this prospectus, including our financial statements and related notes. Our business involves significant risks. You should carefully consider the information under the heading “Risk Factors” beginning on page 7. Unless the context otherwise requires, the terms “we,” the “Company,” “us,” or “Fuqi” refers to Fuqi International, Inc. and its predecessors and wholly-owned subsidiaries.

Overview

We are a leading designer of high quality precious metal jewelry in China, developing, promoting, and selling a broad range of products to the rapidly expanding Chinese luxury goods market. According to Global Industry Analysts, Inc., or GIA, China’s jewelry industry grew to $14 billion in 2005 and China is expected to lead global jewelry processing and consumption by 2010.

Our products consist of a range of unique styles and designs made from precious metals such as gold, platinum, and Karat gold (K-gold), as well as diamonds and other precious stones.  Our design database presently contains over 20,000 unique products. We continuously innovate and change our designs based upon consumer trends in China. By continuously creating new designs and rapidly bringing them to market, we believe we are able to differentiate ourselves from our competitors and strengthen our brand identity.

Our nationwide distribution network and significant relationships with retailers allow us to test-market, promote and sell our products in almost every province in China. We believe our vertically integrated direct sales operations, which include product development, sales and marketing, and order fulfillment and delivery, allow us to effectively reach consumers and maximize sales throughout China.

We have historically sold our products directly to distributors, retailers and other wholesalers, who then sell our products to consumers through both retail counters located in department stores and in traditional stand-alone jewelry stores. We sell our products to our customers at price points that reflect the market price of the base material, plus a mark-up reflecting our design fees and processing fees. Typically this markup ranges from 10-12%. Our customers then further mark up our products to the consumers, up to an additional 30%. Our target price points are primarily designed to appeal to China’s growing middle class.

In order to capitalize on the substantial growth in consumer spending on luxury goods in China and capture the margin appreciation from direct sales to consumers, we recently initiated a retail strategy in product categories where we believe we will not compete with our existing sales channels. Our retail strategy will focus on finished gemstone jewelry, which we previously provided only on a custom-order basis and which has historically represented only a nominal percentage of our overall sales.

We intend to open new retail locations by leasing unoccupied space, acquiring existing leases from third parties and/or acquiring the existing jewelry operations of third parties that occupy retail space. During 2007, we intend to open 20 retail counters and 2 retail stores in municipalities and provincial capitals throughout China. In 2008, we plan to open 60 to 80 retail counters and 8 to 10 retail stores. We believe our expansion into the retail market will provide us with:

·   direct access to the consumer market, allowing us to respond more rapidly to changing consumer tastes;

·   an opportunity to grow our revenue base as we roll out our retail strategy;

·   improved net margins from higher markups in the retail market; and

·   increased brand awareness.

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Our company is headquartered in the city of Shenzhen, in southern China, where we have a large-scale production base that includes a modern factory of more than 53,000 square feet, a dedicated senior design, sales and marketing team, and more than 600 company-trained employees. We believe our current facilities provide adequate space for our planned expansion of our production lines, which will include diamond and other finished gemstone jewelry.

Our sales grew at an average rate of 57% per annum, reaching $92.4 million in 2006, from $15.2 million in 2002. To date, the increase in our sales has occurred organically, without the acquisition of other companies. Our income from operations grew from $1.0 million in 2002 to $7.5 million in 2006, while our net income grew from $1.0 million in 2002 to $5.8 million in 2006.

Industry Background and Trends

China’s market for jewelry and other luxury goods is expanding rapidly, due in part to the country’s rapid economic growth. According to the Economist Intelligence Unit (EIU), China’s real gross domestic product, or GDP, grew by 10.1%, 10.4% and 10.7% in 2004, 2005 and 2006, respectively. Economic growth in China has led to greater levels of personal disposable income and increased spending among China’s expanding consumer base. According to the EIU, private consumption has grown at a 9% compound annual growth rate, or CAGR, over the last decade. According to Global Industry Analysts, Inc. (GIA), the precious jewelry market in China has increased by 35% from 2001, reaching $14.9 billion in 2006. The total market size for precious jewelry is expected to exceed $18.2 billion in 2010.

We believe that China’s jewelry market will continue to grow as the Chinese economy expands and develops. Because gold has long been a symbol of wealth and prosperity in China, demand for jewelry, particularly gold jewelry, is firmly embedded in the country’s culture. The jewelry market is currently benefiting from rising consumer spending and rapid urbanization of the Chinese population. We believe jewelry companies like ours, with developed distribution networks, high quality products and attractive designs, are well-positioned to build their brands and capture increasingly large shares of the growing jewelry market.

Our Strengths, Strategies and Challenges

We believe our competitive strengths consist of our:

·   experienced management team;

·   leading market position;

·   well-established distribution channels;

·   proven product design and manufacturing capabilities;

·   extensive design database with over 20,000 product styles; and

·   customer service expertise.

Notwithstanding our competitive strengths, we expect to face certain risks and uncertainties, including:

·   challenges of expanding our business beyond wholesale distribution into the retail market;

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·   our ability to identify market trends and to develop and introduce new products in response to those trends;

·   changes in economic conditions in China that may affect discretionary consumer spending;

·   fluctuations in the price of raw materials;

·   our ability to respond to competitive market conditions;

·   our ability to develop our product brands; and

·   uncertainties with respect to the PRC legal and regulatory environments.

Our goal is to be the leading vertically-integrated designer, manufacturer, and retailer of jewelry in China. We intend to achieve our goal by implementing the following strategies:

·   strengthen our existing wholesale distribution channels;

·   establish and expand our retail market footprint;

·   expand existing and new product offerings; and

·   increase marketing and promotion efforts to enhance brand awareness.

Corporate Information

Our company, Fuqi International, Inc., operates through our wholly-owned subsidiary, Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (“Fuqi BVI”) and its wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., a company established under the laws of China (“Fuqi China”). Fuqi International, Inc. effected a reverse merger transaction in November 2006 that resulted in our current corporate structure and subsequently reincorporated in Delaware on December 8, 2006. For further information concerning our reverse merger transaction, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Corporate History” on page 28 of this prospectus.

Our principal executive offices are located at 5/F., Block 1, Shi Hua Industrial Zone, Cui Zhu Road North, Shenzhen, 518019, People’s Republic of China. Our telephone number is +86 (755) 2580-1888. Our website is located at www.fuqi.com.cn. Information contained on, or that can be accessed through, our website is not part of this prospectus.

Conventions That Apply to This Prospectus

Unless we indicate otherwise, references in this prospectus to:

·   “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;

·   “common stock” are to our shares of common stock, par value $0.001 per share;

·   “RMB” and “Renminbi” are to the legal currency of China; and

·   “$,” “US$” and “U.S. dollars” are to the legal currency of the United States.

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Unless the context indicates otherwise, “we,” “us,” “our company” and “our” refer to Fuqi International, Inc. and its predecessors and wholly-owned subsidiaries.

Unless otherwise indicated, information in this prospectus assumes that the underwriters do not exercise their over-allotment option.

This prospectus contains translations of certain RMB amounts into U.S. dollars. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate, as of June 29, 2007 which was RMB 7.6120 to $1.00. For purposes of preparing our consolidated financial statements, our consolidated balance sheets have been translated from RMB to U.S. dollars at the official rates published by the People’s Bank of China as of June 30, 2007, and as of December 31, 2006 and 2005 and the statements of income have been translated from RMB to U.S. dollars at the weighted average of such rates during the periods in which the transactions were recognized. We make no representation that the Renminbi amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. See “Risk Factors - Risks Related to This Offering and Our Shares - Restrictions on the convertibility of RMB into foreign currency may limit our ability to make dividends or other payments in U.S. dollars or fund possible business activities outside China.” On [_____], 2007, the noon buying rate was RMB [_____] to $1.00.

Recent Developments

On August 23, 2007 we filed an information statement on Schedule 14C with the Securities and Exchange Commission (“SEC”) announcing that our Board of Directors and our stockholders have approved an amendment to our Certificate of Incorporation to effect a reverse stock split of all our issued and outstanding shares of common stock in the range of 1.1:1 to 2.5:1, as determined in the sole discretion of our Board of Directors (the “Reverse Stock Split”). To effect the Reverse Stock Split, we would file the amendment to the Certificate of Incorporation with the Secretary of the State of Delaware, which would not be done sooner than 20 days after the information statement was mailed to our stockholders. Our Board of Directors has the discretion to elect, as it determines to be in the best interest of our company and stockholders, to effect the Reverse Stock Split at any exchange ratio within the range. The Board, in its sole discretion, may also elect not to implement the Reverse Stock Split. Should the Board choose to effect the Reverse Stock Split, the number of issued and outstanding shares of our common stock would be reduced in accordance with the selected exchange ratio for the Reverse Stock Split. There would be a similar reduction in the 4,000,000 shares authorized under the Fuqi International, Inc. 2007 Equity Incentive Plan that we intend to adopt immediately prior to effecting the Reverse Stock Split, if at all. The par value and number of authorized shares of our common stock will remain unchanged. Unless otherwise indicated, if and when we effect the Reverse Stock Split, all outstanding shares and earnings per share information contained in this prospectus would change according to the selected ratio of the Reverse Stock Split.

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The Offering

Common stock we are offering	[_____] shares (1)
Common stock outstanding after the offering	[________] shares (2)
Use of proceeds	We intend to use the net proceeds from this offering for general corporate purposes, including expansion of our retail operations, expansion of our production lines, and general working capital purposes. See “Use of Proceeds” on page 23 for more information on the use of proceeds.
Risk factors	Investing in these securities involves a high degree of risk. As an investor you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 7.
Proposed trading symbol	FUQI

________

(1) Excludes up to [______] shares that may be sold upon exercise of the underwriters’ over-allotment option.

(2) Based on 21,692,503 shares of common stock issued and outstanding as of August 20, 2007. Excludes 3,000,000 shares of common stock reserved for future issuance under our 2006 Equity Incentive Plan.

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following consolidated statements of operations data for each of the five years ended December 31, 2006, and the balance sheet data as of December 31, 2006, 2005, 2004, 2003 and 2002 are derived from our audited consolidated financial statements, which, except for 2003 and 2002, are included elsewhere in this prospectus. The following summary consolidated statement of operations data for the six months ended June 30, 2007 and 2006 and unaudited condensed consolidated balance sheet data as of June 30, 2007 are derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this prospectus. In the opinion of management, our unaudited condensed consolidated financial statements include all adjustments, consisting principally of normal recurring accruals, that management considers necessary for a fair presentation of the financial position and the results of operations for these periods. Historical results are not necessarily indicative of the results of operations for future periods. The following data is qualified in its entirety by and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

Consolidated Statement of Operations Data:

	Six Months Ended June 30,						Years Ended December 31,
	2007			2006			2006			2005			2004			2003		2002
	(unaudited)
	(in thousands, except share and per share amounts)
Net sales	$	54,241		$	48,524		$	92,409		$	72,580		$	56,765		$	29,501	$	15,226
Cost of sales		48,024			44,094			83,619			64,964			50,862			26,019		13,592
Gross profit		6,217			4,430			8,790			7,616			5,903			3,482		1,634
Operating expenses		1,542			784			1,284			1,295			1,555			1,257		589
Income from operations		4,675			3,646			7,506			6,321			4,348			2,225		1,045
Other income (expenses)		(570	)		(388	)		(716	)		(499	)		(141	)		41		49
Income before provision for income taxes		4,105			3,258			6,790			5,822			4,207			2,266		1,094
Provision for income taxes		733			470			995			452			359			193		81
Net income		3,372			2,788			5,795			5,370			3,848			2,073		1,013
Other comprehensive income - foreign currency translation adjustments		314			71			288			143			-			-		-
Comprehensive income	$	3,686		$	2,859		$	6,083		$	5,513		$	3,848		$	2,073	$	1,013
Earnings per share - basic	$	0.16		$	0.15		$	0.30		$	0.28		$	0.20		$	0.11	$	0.05
Earnings per share - diluted	$	0.13		$	0.15		$	0.29		$	0.28		$	0.20		$	0.11	$	0.05
Weighted average number of common shares - basic		20,828,751			18,886,666			19,030,319			18,886,666			18,886,666			18,886,666		18,886,666
Weighted average number of common shares - diluted		26,014,731			18,886,666			19,657,165			18,886,666			18,886,666			18,886,666		18,886,666

Consolidated Balance Sheet Data:

	As of June 30, 2007		As of December 31,
			2006		2005		2004		2003		2002
	(unaudited)
			(in thousands)
Cash	$	8,494	$	13,355	$	71	$	256	$	1,294	$	235
Total assets		44,155		31,125		28,115		11,230		8,579		9,097
Total liabilities		26,768		20,180		20,508		8,535		5,756		8,660
Total stockholders’ equity		17,387		10,945		7,607		2,695		2,823		437

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the material risks described below and all of the information contained in this prospectus before deciding whether to purchase any of our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. None of our securities are currently listed or quoted for trading on any national securities exchange or national quotation system. If and when our securities are traded, the trading price could decline due to any of these risks, and an investor may lose all or part of his investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This filing also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this registration statement.

Risks Related To Our Operations

Jewelry purchases are discretionary, may be particularly affected by adverse trends in the general economy, and an economic decline will make it more difficult to generate revenue.

The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending in China. These factors include economic conditions and perceptions of such conditions by consumers, employment rates, the level of consumers’ disposable income, business conditions, interest rates, consumer debt levels, availability of credit and levels of taxation in regional and local markets in China where we manufacture and sell our products. There can be no assurance that consumer spending on jewelry will not be adversely affected by changes in general economic conditions in China and globally.

While the Chinese economy has experienced rapid growth in recent years, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Also, many observers believe that this rapid growth cannot continue at its current pace and that an economic correction may be imminent. Rapid economic growth can also lead to growth in the money supply and rising inflation. During the past decade, the rate of inflation in China has been as high as approximately 20% and China has experienced deflation as low as minus 2%. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies such as raw materials, it may have an adverse effect on our profitability. In order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. The implementation of such policies may impede economic growth. In October 2004, the People’s Bank of China, the PRC’s central bank, raised interest rates for the first time in nearly a decade and indicated in a statement that the measure was prompted by inflationary concerns in the Chinese economy. In April 2006 and May 2007, the People’s Bank of China raised the interest rate again. Repeated rises in interest rates by the central bank could slow economic activity in China which could, in turn, materially increase our costs and also reduce demand for our products.

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Most of our sales are of products that include gold, platinum, precious metals and other commodities, and fluctuations in the availability and pricing of commodities would adversely impact our ability to obtain and produce products at favorable prices.

The jewelry industry generally is affected by fluctuations in the price and supply of diamonds, gold, platinum and, to a lesser extent, other precious and semi-precious metals and stones. In the past, we have not hedged our requirement for gold, platinum or other raw materials through the use of options, forward contracts or outright commodity purchasing, but we intend to engage in such hedging in the future, depending on our available resources. A significant disruption in our supply of gold, platinum, or other commodities could decrease our production and shipping levels, materially increase our operating costs and materially adversely affect our profit margins. Shortages of gold, platinum, or other commodities, or interruptions in transportation systems, labor strikes, work stoppages, war, acts of terrorism, or other interruptions to or difficulties in the employment of labor or transportation in the markets in which we purchase our raw materials, may adversely affect our ability to maintain production of our products and sustain profitability. Although we generally attempt to pass increased commodity prices to our customers, there may be circumstances in which we are not able to do so. In addition, if we were to experience a significant or prolonged shortage of gold, platinum, or other commodities, we would be unable to meet our production schedules and to ship products to our customers in timely fashion, which would adversely affect our sales, margins and customer relations. Furthermore, the value of our inventory may be affected by commodity prices. We record the value of our inventory at the lower of cost (using the first-in, first-out method) or market. As a result, decreases in the market value of precious metals such as gold and platinum would result in a lower stated value of our inventory, which may require us to take a charge for the decrease in the value of our inventory.

Due to the geographic concentration of our sales in the northeast region of China, our results of operations and financial condition are subject to fluctuations in regional economic conditions.

A significant percentage of our total sales are made in the northeast region of China, particularly in the provinces of Liaoning, Jilin and Heilongjiang, and the city of Beijing. For the six months ended June 30, 2007 and the year ended December 31, 2006, approximately 45.7% and 44.9% of revenues, respectively, was generated from this area. Our concentration of sales in this area heightens our exposure to adverse developments related to competition, as well as economic and demographic changes in this region. Our geographic concentration might result in a material adverse effect on our business, financial condition or results of operations in the future.

Our retail expansion strategy depends on our ability to open and operate a certain number of new counters and stores each year, which could strain our resources and cause the performance of our existing operations to suffer.

We have historically been engaged only in the manufacture and wholesale distribution of jewelry products and have only recently begun retail operations. Our retail expansion strategy will largely depend on our ability to find sites for, open and operate new retail locations successfully. Our ability to open and operate new retail locations successfully depends on several factors, including, among others, our ability to:

·   identify suitable counter and store locations, the availability of which is outside our control;

·   purchase and negotiate acceptable lease terms;

·   prepare counters and stores for opening within budget;

·   source sufficient levels of inventory at acceptable costs to meet the needs of new counters and stores;

·   hire, train and retain personnel;

·   secure required governmental permits and approvals;

·   successfully integrate new counters and stores into our existing operations;

·   contain payroll costs; and

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·   generate sufficient operating cash flows or secure adequate capital on commercially reasonable terms to fund our expansion plans.

Any failure to successfully open and operate new retail counters and stores could have a material adverse effect on our results of operations. In addition, our proposed retail expansion program will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our business less effectively, which, in turn, could cause deterioration in the financial performance of our overall business.

It is not our intention to open new retail counters and stores that materially cannibalize the sales of our existing distributors. However, as with most growing retail operations, there can be no assurance that sales cannibalization will not inadvertently occur or become more significant in the future as we gradually increase our presence in existing markets over time to maximize our competitive position and financial performance in each market.

Competition in the jewelry industry could cause us to lose market share, thereby materially adversely affecting our business, results of operations and financial condition.

The jewelry industry in China is highly fragmented and very competitive. We believe that the market may become even more competitive as the industry grows and/or consolidates. We compete with local jewelry manufacturers and large foreign multinational companies that offer products that are similar to ours. Some of these competitors have larger local or regional customer bases, more locations, more brand equity, and substantially greater financial, marketing and other resources than we have. As a result of this increasing competition, we could lose market share, thereby materially adversely affecting our business, results of operations and financial condition.

We may need to raise additional funds in the future. These funds may not be available on acceptable terms or at all, and, without additional funds, we may not be able to maintain or expand our business.

We expect that the net proceeds from this offering, together with cash generated from operations, will be sufficient to fund our projected operations for at least the next 12 months. We expect to expend significant resources to commence our planned retail distribution of our manufactured jewelry in China. We will require substantial funds in order to finance our planned retail distribution, fund operating expenses, to develop manufacturing, marketing and sales capabilities and to cover public company costs. In addition to the funds required to open retail locations, additional working capital will be needed to operate retail locations due to longer sales and collection cycles and higher inventory levels required to support retail stores. We also expect to require substantial funds to change our product mix to include more platinum products. Without these funds, we may not be able to meet these goals. Also, we expect our general and administrative costs to substantially increase due to higher salaries to be paid to our executive officers further to employment agreements we intend to enter into, which will come into effect on the effective date of this offering. See “Executive Compensation - Compensation Discussion and Analysis.”

We may seek additional funding through public or private financing or through collaborative arrangements with strategic partners.

You should also be aware that in the future:

·   We cannot be certain that additional capital will be available on favorable terms, if at all;

·   Any available additional financing may not be adequate to meet our goals; and

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·   Any equity financing would result in dilution to stockholders.

If we cannot raise additional funds when needed, or on acceptable terms, we may not be able to effectively execute our growth strategy (including entering the retail market), take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. In addition, we may be required to scale back or discontinue our production and development program, or obtain funds through strategic alliances that may require us to relinquish certain rights.

Our ability to maintain or increase our revenue could be harmed if we are unable to strengthen and maintain our brand image.

We believe that primary factors in determining customer buying decisions in China’s jewelry sector include price, confidence in the merchandise sold, and the level and quality of customer service. The ability to differentiate our products from competitors by our brand-based marketing strategies is a key factor in attracting consumers, and if our strategies and efforts to promote our brand, such as television and magazine advertising and beauty contest sponsorships, fail to garner brand recognition, our ability to generate revenue may suffer. If we are unable to differentiate our products, our ability to sell our products wholesale and our planned sale of products retail will be adversely affected. If we fail to anticipate, identify or react appropriately or in a timely manner to customer buying decisions, we could experience reduced consumer acceptance of our products, a diminished brand image, higher markdowns, and costs to recast overstocked jewelry. These factors could result in lower selling prices and sales volumes for our products, which could adversely affect our financial condition and results of operations. This risk is particularly acute because we rely on a limited demographic customer base for a large percentage of our sales.

There is only one source in China for us to obtain the precious metals used in our jewelry products; accordingly, any interruptions of our arrangement with this source would disrupt our ability to fill customer orders and substantially affect our ability to continue our business operations.

Under PRC law, supply of precious metals such as platinum, gold, and silver are highly regulated by certain government agencies. Shanghai Gold Exchange is the only source of supply in China for precious metals used in our jewelry products. We are required to obtain several membership and approval certificates from government agencies in order to do business involving precious metals. We may be required to renew such memberships and to obtain approval certificates periodically. The loss of or inability to renew our membership relationship with the Shanghai Gold Exchange, or its inability to furnish precious metals to us as anticipated in terms of cost, quality, and timeliness, would adversely affect our ability to fill customer orders in accordance with our required delivery, quality, and performance requirements. If this were to occur, we would not have any alternative suppliers in China to obtain our raw materials from, which would result in a decline in revenue and revenue potential and risk the continuation of our business operations.

If we are not able to adapt to changing jewelry trends in China, our inventory may be overstocked and we may be forced to reduce the price of our overstocked jewelry or incur the cost to recast it into new jewelry.

We depend on consumer fashions, preferences for jewelry and the demand for particular products in China. Jewelry design trends in China can change rapidly, as evidenced by the recent increase in the consumption of platinum jewelry in the Chinese market. The ability to predict accurately future changes in taste, respond to changes in consumer preferences, carry the inventory demanded by customers, deliver the appropriate quality, price products correctly and implement effective purchasing procedures, all have an important influence on determining sales performance and achieved gross margin. If we fail to anticipate, identify or react appropriately to changes in styles and trends, we could experience excess inventories, higher than normal markdowns or an inability to sell our products. If such a situation exists, we may need to incur additional costs to recast our products to fit the demand, recovering only the value of raw material and all labor invested in the product would be lost.

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Our failure to manage growth effectively could have an adverse effect on our employee efficiency, product quality, working capital levels, and results of operations.

We intend to conduct a growth strategy into retail distribution of our products that we believe will result in rapid growth, which will place significant demands on our managerial, operational and financial resources. Any significant growth in the market for our current wholesale business and our planned retail distribution would require us to expand our employee base for managerial, operational, financial, and other purposes. During any growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capabilities. We would also need to continue to expand, train and manage our employee base. We currently have approximately 600 full-time employees, and, at that size, a rapid increase in the number of our employees would be difficult to manage. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees. If we are able to expand our retail business, we would need to train or hire additional employees with retail experience.

Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the purchases of raw materials and supplies, development of new products, establishment of new retail stores, and the hiring of additional employees. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure you that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.

We rely on our distribution network for a significant portion of our revenues. Failure to maintain good distributor relations could materially disrupt our distribution business and harm our net revenues.

Our business has become increasingly dependent on the performance of our distributors. During the six months ended June 30, 2007 and the years ended December 31, 2006, 2005 and 2004, 20%, 13%, 10% and 14%, respectively, of our net revenues were generated through our distributors. We currently have 136 distributors. Our largest distributor accounted for approximately 4% and 2% of our gross revenues in 2006 and 2005. We do not maintain long-term contracts with our distributors. Maintaining relationships with existing distributors and replacing any distributor may be difficult or time consuming. Our failure to maintain good relationships with our distributors could materially disrupt our distribution business and harm our net revenues.

We must maintain a relatively large inventory of our raw materials and jewelry products to support customer delivery requirements, and if this inventory is lost due to theft, our results of operations would be negatively impacted.

We purchase large volumes of precious metals approximately five times per month and store significant quantities of raw materials and jewelry products at our warehouse and show room in Shenzhen, China. Although we have an inventory security system in place, in the past we have experienced minor inventory theft at, or in transit to or from, certain of these facilities. We may be subject to future significant inventory losses due to third-party or employee theft from our warehouses or other forms of theft. The implementation of security measures beyond those that we already utilize, which include metal detectors for employees, security cameras, and alarm systems in our warehouse, would increase our operating costs. Also, any such losses of inventory could exceed the limits of, or be subject to an exclusion from, coverage under our insurance policies. Claims filed by us under our insurance policies could lead to increases in the insurance premiums payable by us or the termination of coverage under the relevant policy.

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Substantial defaults by our customers on accounts receivable could have a material adverse affect on our liquidity and results of operations.

A substantial portion of our working capital consists of accounts receivable from customers. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for our products, or to make payments in a timely manner, our liquidity and results of operations could be materially adversely affected. An economic or industry downturn could materially adversely affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collections costs and defaults in excess of management’s expectations. In addition, as we increase our presence in the retail market, we expect the aging of our accounts receivable generated from sales through retail counters to increase as department stores typically defer payments to us of cash receipts collected by them on our behalf. A significant deterioration in our ability to collect on accounts receivable could affect our cash flow and working capital position and could also impact the cost or availability of financing available to us.

We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. Each of our named executive officers, including our Chief Executive Officer, Mr. Yu Kwai Chong, performs key functions in the operation of our business. There can be no assurance that we will be able to retain these officers or that such personnel may not receive and/or accept competing offers of employment. The loss of a significant number of these employees could have a material adverse effect upon our business, financial condition, and results of operations. We do not maintain key-man life insurance for any of our senior management.

We have significant outstanding short-term borrowings, and we may not be able to obtain extensions when they mature.

Our notes payable to banks for short-term borrowings as of June 30, 2007, December 31, 2006 and 2005 were $16.4 million, $14.1 million, $12.4 million, respectively, and bore weighted average interest rates of 6.67%, 6.14%, and 5.32%, respectively. Of these outstanding borrowings, $8.7 million, $11.5 million and $13.0 million were arranged or guaranteed by our controlling stockholder, Mr. Yu Kwai Chong, as of June 30, 2007, December 31, 2006 and 2005, respectively. In addition, we have short-term borrowings from Mr. Chong, the outstanding amount of which was $0 and $422,909 and as of June 30, 2007 and December 31, 2006, respectively.

Generally, these short-term bank loans mature in one year or less and contain no specific renewal terms. However, in China it is customary practice for banks and borrowers to negotiate roll-overs or renewals of short-term borrowings on an on-going basis shortly before they mature. Although we have renewed our short-term borrowings in the past, we cannot assure you that we will be able to renew these loans in the future as they mature. In particular, a substantial portion of our short-term borrowings are arranged or guaranteed by Mr. Yu Kwai Chong, our controlling stockholder, or one of his affiliated companies. Since Mr. Chong ceased to be our sole stockholder in November 2006, he may be less inclined to guarantee our bank borrowings. If we are unable to obtain renewals of these loans or sufficient alternative funding on reasonable terms from banks or other parties, we will have to repay these borrowings with the cash on our balance sheet or cash generated by our future operations, if any. We cannot assure you that our business will generate sufficient cash flow from operations to repay these borrowings.

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Our quarterly results may fluctuate because of many factors and, as a result, investors should not rely on quarterly operating results as indicative of future results.

Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the value of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in quarterly operating results could cause the value of our securities to decline. Investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is possible that in future periods results of operations may be below the expectations of public market analysts and investors. This could cause the market price of our securities to decline. Factors that may affect our quarterly results include:

·   vulnerability of our business to a general economic downturn in China;

·   fluctuation and unpredictability of costs related to the gold, platinum and precious metals and other commodities used to manufacture our products;

·   seasonality of our business;

·   changes in the laws of the PRC that affect our operations;

·   our recent entry into the retail jewelry market;

·   competition from our competitors;

·   our ability to obtain all necessary government certifications and/or licenses to conduct our business; and

·   development of a public trading market for our securities after this offering;

Risks Related To Doing Business In China

All of our assets are located in China and all of our revenues are derived from our operations in China, and changes in the political and economic policies of the PRC government could have a significant impact upon what business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.

Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

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Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.

The PRC’s legal system is a civil law system based on written statutes. Unlike the common law system prevalent in the United States, decided legal cases have little value as precedent in China. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

Our principal operating subsidiary, Fuqi China, is considered a foreign invested enterprise under PRC laws, and as a result is required to comply with PRC laws and regulations, including laws and regulations specifically governing the activities and conduct of foreign invested enterprises. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:

·   levying fines;

·   revoking our business license, other licenses or authorities;

·   requiring that we restructure our ownership or operations; and

·   requiring that we discontinue some or all of our business.

The scope of our business license in China is limited, and we may not expand or continue our business without government approval and renewal, respectively.

Our principal operating subsidiary, Fuqi China, is a wholly foreign-owned enterprise organized under PRC law, commonly known as a WFOE. A WFOE can only conduct business within its approved business scope, which ultimately appears on its business license. Our license permits us to design, manufacture, sell and market jewelry products to department stores throughout the PRC and to engage in the retail distribution of our products. Any amendment to the scope of our business requires further application and government approval. In order for us to expand our business beyond the scope of our license, we will be required to enter into a negotiation with the authorities for the approval to expand the scope of our business. We cannot assure you that Fuqi China will be able to obtain the necessary government approval for any change or expansion of our business scope.

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Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate. Our failure to obtain the prior approval of the China Securities Regulatory Commission, or the CSRC, for this offering and the listing and trading of our common stock could have a material adverse effect on our business, operating results, reputation and trading price of our common stock, and may also create uncertainties for this offering.

The PRC State Administration of Foreign Exchange, or “SAFE,” issued a public notice in November 2005, known as Circular 75, concerning the use of offshore holding companies in mergers and acquisitions in China. The public notice provides that if an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to registration with the relevant foreign exchange authorities. The public notice also suggests that registration with the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents of shares in an offshore holding company that owns an onshore company. The PRC residents must each submit a registration form to the local SAFE branch with respect to their ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations.

On August 8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and SAFE, released a substantially amended version of the Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which took effect September 8, 2006. These new rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the new rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability of the Chinese government to monitor and prohibit foreign control transactions in key industries.

Among other things, the revised M&A Regulations include new provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. Our PRC counsel, Shujin Law Firm, has advised us that because we completed our onshore-to-offshore restructuring before September 8, 2006, the effective date of the new regulation, it is not necessary for us to submit the application to the CSRC for its approval, and the listing and trading of our common stock does not require CSRC approval.

If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for this offering, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Common Stock. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the common stock offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur.

Also, if later the CSRC requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our common stock. Furthermore, published news reports in China recently indicated that the CSRC may have curtailed or suspended overseas listings for Chinese private companies. These news reports have created further uncertainty regarding the approach that the CSRC and other PRC regulators may take with respect to transactions such as this offering.

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It is uncertain how our business operations or future strategy will be affected by the interpretations and implementation of Circular 75 and the Revised M&A Regulations. It is anticipated that application of the new rules will be subject to significant administrative interpretation, and we will need to closely monitor how MOFCOM and other ministries apply the rules to ensure that our domestic and offshore activities continue to comply with PRC law. Given the uncertainties regarding interpretation and application of the new rules, we may need to expend significant time and resources to maintain compliance.

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

As our ultimate holding company is a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with our company, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

We had enjoyed certain preferential tax concessions and the loss of these preferential tax concessions may cause our tax liabilities to increase and our profitability to decline.

Our subsidiary, Fuqi China, is subject to a reduced enterprise income tax rate of 15%, which is granted to all enterprises operating in the Shenzhen Special Economic Zone. In 2004 and 2005, Fuqi China enjoyed a preferential income tax rate of 7.5% due to its status as a new business. That status expired effective January 1, 2006. The expiration of the preferential tax treatment has increased our tax liabilities and reduced our profitability. Additionally, the PRC Enterprise Income Tax Law (the “EIT Law”) was enacted on March 16, 2007. Under the EIT Law, effective January 1, 2008, China will adopt a uniform tax rate of 25.0% for all enterprises (including foreign-invested enterprises) and cancel several tax incentives enjoyed by foreign-invested enterprises. Since the PRC government has not announced implementation measures for the transitional policy with regards to such preferential tax rates, we cannot reasonably estimate the financial impact of the new tax law to us at this time. Any future increase in the enterprise income tax rate applicable to us or other adverse tax treatments, could increase our tax liabilities and reduce our net income.

If we make equity compensation grants to persons who are PRC citizens, they may be required to register with the State Administration of Foreign Exchange of the PRC, or SAFE. We may also face regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our directors and employees and other parties under PRC law.

On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company, also know as “Circular 78.” It is not clear whether Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC listed company, such as our company, after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings if they participated in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming.

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Upon the closing of this offering, we intend to make numerous stock option grants under our equity incentive plan to our officers and directors, some of whom are PRC citizens and may be required to register with SAFE. In addition to our officers and directors that receive option grants at the close of this offering, future participants of our equity incentive plan or any other equity compensation plan we may adopt who are PRC citizens may be required to register with SAFE. If it is determined that any of our equity compensation plans are subject to Circular 78, failure to comply with such provisions may subject us and participants of our equity incentive plan who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees. In that case, our business operations may be adversely affected.

Any recurrence of severe acute respiratory syndrome, or SARS, the Avian Flu, or another widespread public health problem in the PRC could adversely affect our operations.

A renewed outbreak of SARS, the Avian Flu or another widespread public health problem in China, where all of our manufacturing facilities are located and where all of our sales occur, could have a negative effect on our operations. Our business is dependent upon our ability to continue to manufacture our products. Such an outbreak could have an impact on our operations as a result of:

·   quarantines or closures of our manufacturing facilities or the retail outlets, which would severely disrupt our operations,

·   the sickness or death of our key officers and employees, and

·   a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our operations.

Because our business is located in the PRC, we may have difficulty establishing adequate management, legal and financial controls, which we are required to do in order to comply with U.S. securities laws.

PRC companies have historically not adopted a Western style of management and financial reporting concepts and practices, which includes strong corporate governance, internal controls and, computer, financial and other control systems. Most of our middle and top management staff are not educated and trained in the Western system, and we may have difficulty hiring new employees in the PRC with such training. In addition, we may need to rely on a new and developing communication infrastructure to efficiently transfer our information from retail nodes to our headquarters. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls, which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our business.

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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based upon U.S. laws, including the federal securities laws, or other foreign laws against us or our management.

All of our current operations, including the manufacturing and distribution of jewelry, are conducted in China. Moreover, most of our directors and officers are nationals and residents of China. All or substantially all of the assets of these persons are located outside the United States and in the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon these persons. In addition, uncertainty exists as to whether the courts of China would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in China against us or such persons predicated upon the securities laws of the United States or any state thereof.

Risks Related To This Offering and Our Shares

Purchasers in this offering will experience immediate and substantial dilution in net tangible book value.

The assumed public offering price will be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors purchasing shares of our common stock in this offering will incur immediate dilution of $[_____] per share, based on an assumed initial public offering price of $[___] per share, the mid-point of the price range set forth on the cover page of this prospectus. Investors purchasing shares of our common stock in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities.

We will be controlled by one stockholder after this offering, whose interests may differ from those of other stockholders. As a result, we could be prevented from entering into potentially beneficial transactions if they conflict with our major stockholder’s interests.

Mr. Yu Kwai Chong, our Chief Executive Officer and our largest stockholder, will beneficially own or control approximately [___]% of our outstanding shares after giving effect to this offering. Mr. Chong possesses significant influence over us, giving him the ability, among other things, to elect all or a majority of the Board of Directors and to approve significant corporate transactions. Such stock ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. Without the consent of Mr. Chong, we could be prevented from entering into potentially beneficial transactions if they conflict with our major stockholder’s interests. The interests of this stockholder may differ from the interests of our other stockholders.

We may allocate the proceeds of this offering in ways that you or other stockholders may not approve.

We intend to use the net proceeds from this offering for general corporate purposes, including expansion of our retail network, expansion of our production lines, and general working capital purposes. In addition, we may use a portion of the net proceeds of this offering to invest in or acquire new businesses through mergers, stock or asset purchases, joint ventures and/or other strategic relationships, although we have no present commitments or agreements with respect to any such material acquisition or investment. Our management will have broad discretion in the application of the net proceeds from this offering and may apply them in ways not approved by you or other stockholders. Failure by our management to apply these funds effectively could adversely affect our ability to continue to maintain and expand our business.

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An active trading market for our shares may not develop.

Prior to this offering, there has been no public market for our common stock. Although we have applied to have our common stock approved for listing on the Nasdaq Global Market, we may not receive approval for listing, and even if we are to receive such approval, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price for our common stock will be determined through negotiations with the underwriters. This initial public offering price may vary from the market price of our common stock after the offering. You may not be able to sell any shares of common stock that you purchase in the offering at or above the initial public offering price.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and attestation of this assessment by our company’s independent registered public accountants. The SEC extended the compliance dates for non-accelerated filers, as defined by the SEC. Accordingly, we believe that the annual assessment of our internal controls requirement will first apply to our annual report for the 2007 fiscal year and the attestation requirement of management’s assessment by our independent registered public accountants will first apply to our annual report for the 2008 fiscal year. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. In addition, the attestation process by our independent registered public accountants will be new to us and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accountants. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting, or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock. Our public accountants, Stonefield Josephson, Inc., identified that our accounting for certain significant transactions were incorrectly calculated or incorrectly recorded. Our public accountants informed us that these adjustments reflected significant deficiencies in our internal controls over accounting and financial reporting for the year ended December 31, 2006. We are in the process of improving our internal controls in an effort to improve our control processes and procedures with training programs that will commence later in 2007; however, there can be no guarantee that we will be successful in our attempts to correct our significant deficiencies.

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Restrictions on the convertibility of RMB into foreign currency may limit our ability to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

All of our net revenues are currently generated in RMB. Any future restrictions on currency exchanges may limit our ability to use net revenues generated in RMB to make dividends or other payments in U.S. dollars or fund possible business activities outside China. Although the PRC government introduced regulations in 1996 to allow greater convertibility of RMB for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. In addition, remittance of foreign currencies abroad and conversion of RMB for capital account items, including direct investment and loans, is subject to government approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot assure you the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of RMB, especially with respect to foreign exchange transactions.

Because our revenues are generated in RMB and our results are reported in U.S. dollars, devaluation of the RMB could negatively impact our results of operations.

The value of RMB is subject to changes in China’s governmental policies and to international economic and political developments. In January, 1994, the PRC government implemented a unitary managed floating rate system. Under this system, the People’s Bank of China, or PBOC, began publishing a daily base exchange rate with reference primarily to the supply and demand of RMB against the U.S. dollar and other foreign currencies in the market during the previous day. Authorized banks and financial institutions are allowed to quote buy and sell rates for RMB within a specified band around the central bank’s daily exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange rate of the U.S. dollar to RMB from 1:8.27 to 1:8.11 and modified the system by which the exchange rates are determined. This modification has resulted in an approximate 7.3% appreciation of the RMB against the U.S. dollar from July 21, 2005 to May 2, 2007. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further fluctuations of the exchange rate of RMB against the U.S. dollar, including possible devaluations. As all of our net revenues are recorded in RMB, any future devaluation of RMB against the U.S. dollar could negatively impact our results of operations.

Sales of a substantial number of shares of our common stock following this offering may adversely affect the market price of our common stock and the issuance of additional shares will dilute all other stockholdings.

Sales of a substantial number of shares of our common stock in the public market or otherwise following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock. After completion of this offering, our existing stockholders will own approximately [__]% of our common stock assuming there is no exercise of the underwriters’ over-allotment option.

After completion of this offering, there will be approximately [________] shares of our common stock outstanding. Of our outstanding shares, the shares of common stock sold in this offering will be freely tradable in the public market, except for any shares sold to our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).  In addition, our certificate of incorporation permits the issuance of up to approximately [__________] additional shares of common stock after this offering. Thus, we have the ability to issue substantial amounts of common stock in the future, which would dilute the percentage ownership held by the investors who purchase our shares in this offering. See “Shares Eligible for Future Sale” on page 72 of this prospectus for further information regarding circumstances under which additional shares of our common stock may be sold.

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We, each of our directors and senior officers, and each holder of 5% or more of our common stock have agreed, with limited exceptions, that we and they will not, without the prior written consent of the Merriman Curhan Ford & Co. on behalf of the underwriters, during the period ending 180 days after the date of this prospectus, among other things, directly or indirectly, offer to sell, sell or otherwise dispose of any of shares of our common stock or file a registration statement with the SEC relating to the offering of any shares of our common stock.

After the lock-up agreements pertaining to this offering expire 180 days from the date of this prospectus unless waived earlier by Merriman Curhan Ford & Co., up to [________] of the shares outstanding prior to this offering will be eligible for future sale in the public market at prescribed times pursuant to Rule 144 under the Securities Act, or otherwise. Sales of a significant number of these shares of common stock in the public market could reduce the market price of the common stock.

A total of 4,000,000 shares registered under a registration statement on Form S-8 to be filed by us after the consummation of this offering also will be available for sale into the public markets, subject to the vesting of restricted stock and to the exercise of any future issued options, if any.

Furthermore, shares of our common stock are held by Bay Peak LLC, which was a promoter of VT Marketing Services, our predecessor, and may not be sold by this promoter pursuant to Rule 144 under the Securities Act. The position of the staff of the Division of Corporation Finance of the Securities and Exchange Commission is that any such resale transaction under Rule 144 would appear to be designed to distribute or redistribute such shares to the public without coming within the registration requirements of the Securities Act. Therefore, Bay Peak can only resell the shares it holds as of the date hereof through a registration statement filed under the Securities Act. Further to a registration rights agreement with Bay Peak LLC, we agreed to register shares of our common stock held by it upon request commencing on February 26, 2008 if we are then eligible to use Form S-3 and if such shares are not then saleable under Rule 144. Bay Peak LLC’s registration rights are subject to the lock-up agreement it entered into with Merriman Curhan Ford & Co. that expires 180 days from the date of this prospectus, unless waived earlier. There is a risk that such sales pursuant to a registration statement filed under the Securities Act would have a depressive effect on the market price of our securities in any market which may develop for our securities. If Bay Peak LLC did not hold these shares, there would not be the same risk of a depressive effect on the price of the shares you hold.

We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors sole source of gain, if any, will depend on capital appreciation, if any.

We do not plan to declare or pay any further cash dividends on our shares of common stock in the foreseeable future and we currently intend to retain any future earnings for funding growth. Prior to the reverse merger we effected with VT Marketing Services, the predecessor of Fuqi International, Inc. (the “Reverse Merger”) in November 2006, we were wholly-owned by our founder and Chief Executive Officer, Mr. Yu Kwai Chong. During the years ended December 31, 2006, 2005, and 2004, we paid cash dividends of $2.7 million, $5.4 million, and $4.0 million, respectively, to Mr. Chong as our sole stockholder prior to the Reverse Merger. We currently have no intention to declare further dividends in the foreseeable future. Payment of dividends is further restricted under the provisions of our existing loan agreements, which prohibit Fuqi China from paying any dividends or making any other distributions to Fuqi BVI without the consent of the lenders. As a result, you should not rely on an investment in our securities if you require the investment to produce dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for the foreseeable future. Moreover, you may not be able to resell your shares in our company at or above the price you paid for them.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this prospectus, including in the documents incorporated by reference into this prospectus, includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our and our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition and results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this prospectus are based on our management’s current expectations and beliefs concerning future developments. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following:

·   Vulnerability of our business to a general economic downturn in China;

·   Fluctuation and unpredictability of costs related the gold, platinum and precious metals and other commodities used to make our products;

·   Changes in the laws of the PRC that affect our operations;

·   Our recent entry into the retail jewelry market;

·   Competition from our competitors;

·   Any recurrence of severe acute respiratory syndrome (SARS) or Avian Flu;

·   Our ability to obtain all necessary government certifications and/or licenses to conduct our business;

·   Development of a public trading market for our securities after this offering;

·   The cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations; and

·   The other factors referenced in this registration statement, including, without limitation, under the sections entitled “Risk Factors,” “Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Business.”

These risks and uncertainties, along with others, are also described above under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the parties’ assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the shares of common stock offered by us will be approximately $[___] million based on an assumed public offering price of $[____] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, after deducting estimated underwriters’ discounts and commissions and our payment of estimated offering expenses. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $[____].

We intend to use the net proceeds from this offering for general corporate purposes, including approximately $[__] million to expand our retail operations, $[__] million to expand our product lines, and $[__] million for general working capital purposes.

The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount of net proceeds raised in this offering, the amount of cash generated by our operations and other factors described in the section entitled “Risk Factors” beginning on page 7 of this prospectus. As a result, our management will have broad discretion to allocate the net proceeds from this offering. Pending the uses described above, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and we currently intend to retain any future earnings for funding growth. Prior to the Reverse Merger, which was effected in November 2006, we were wholly-owned by our founder and Chief Executive Officer. During the years ended December 31, 2006, 2005, and 2004, we paid cash dividends of $2.7 million, $5.4 million, and $4.0 million, respectively, to our sole stockholder prior to the Reverse Merger. We currently have no intention to declare further dividends in the foreseeable future. Payment of dividends is further restricted under the provisions of our existing loan agreements. As a result, you should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for the foreseeable future.

Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our operating results, future earnings, capital requirements, financial condition and future prospects and other factors our board of directors may deem relevant.

MARKET INFORMATION

Our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. We have applied for the listing of our common stock on The Nasdaq Global Market. As of August 15, 2007, we had approximately 219 common stockholders of record.

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CAPITALIZATION

The following table summarizes our capitalization as of June 30, 2007, on an actual basis and as adjusted basis to reflect our receipt of estimated net proceeds from the sale of [____] shares of common stock (excluding the [____] shares which the underwriters have the option to purchase to cover over-allotments, if any) in this offering at an assumed public offering price of $[___] per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. The number of our shares of common stock shown above to be outstanding after this offering is based on 21,692,503 shares outstanding as of June 30, 2007.

You should read this table in conjunction with “Use of Proceeds,” “Summary Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

	June 30, 2007
	Actual		As adjusted
	(in thousands except share and per share data)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2007		--		--
Common stock, $0.001 par value, 100,000,000 shares authorized, 21,692,503 shares outstanding at June 30, 2007, and [______] shares issued and outstanding on an as-adjusted basis at June 30, 2007 (1)		22		[____	]
Additional paid in capital		9,958		[____	]
Accumulated foreign currency translation adjustments		746		746
Retained earnings		6,661		6,661
Total stockholders’ equity	$	17,387	$	[____	]
Total capitalization	$	17,387	$	[____	]

________

(1) The number of our shares of common stock shown above to be outstanding after this offering is based on 21,692,503 shares outstanding as of June 30, 2007. This information excludes 3,000,000 shares of common stock reserved for future issuance under our 2006 Equity Incentive Plan.

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DILUTION

If you invest in our shares of common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share you will pay in this offering and the net tangible book value per share of common stock immediately after this offering.

Investors participating in this offering will incur immediate, substantial dilution. Our net tangible book value as of June 30, 2007 was $17.4 million, or $0.80 per share based on 21,692,503 shares of common stock outstanding. Assuming the sale by us of [______] shares of common stock offered in this offering at an assumed public offering price of $[___] per share, and after deducting the estimated underwriting discount and commissions and estimated offering expenses, our as adjusted net tangible book value as of June 30, 2007 would have been $[__] million, or $[__] per share. This represents an immediate increase in net tangible book value of $[__] per share to our existing stockholders and an immediate dilution of $[___] per share to the new investors purchasing shares of common stock in this offering.

The following table illustrates this per share dilution:

Assumed public offering price per share			$
Net tangible book value per share as of June 30, 2007	$	0.80
Increase per share attributable to new public investors
Pro forma net tangible book value per share after this offering
Dilution per share to new public investors			$

The following table sets forth, on an as adjusted basis as of June 30, 2007, the difference between the number of shares of common stock purchased from Fuqi International, Inc., the total cash consideration paid, and the average price per share paid by our existing stockholders and by new public investors before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, using an assumed public offering price of $[__] per share of common stock:

	Shares Purchased				Total Cash Consideration
	Number		Percent		Amount (in thousands)		Percent		Average Price Per Share
Existing stockholders		21,692,503		%		$		%	$
New investors				%		$		%	$
									$
Total				%		$		%

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The total consideration amount for shares of common stock held by our existing stockholders includes total cash paid for our outstanding shares of common stock as of June 30, 2007 and excludes the value of securities that we have issued for services. If the underwriters’ over-allotment option of [____] shares of common stock is exercised in full, the number of shares held by existing stockholders will be reduced to [___]% of the total number of shares to be outstanding after this offering; and the number of shares held by the new investors will be increased to [_____] shares, or [__]%, of the total number of shares of common stock outstanding after this offering.

The discussion and tables above are based on 21,692,503 shares of common stock issued and outstanding as of June 30, 2007. This information excludes 3,000,000 shares of common stock reserved for future issuance under our 2006 Equity Incentive Plan.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated statements of operations data for each of the five years ended December 31, 2006, and the balance sheet data as of December 31, 2006, 2005, 2004, 2003 and 2002 are derived from our audited consolidated financial statements, which, except for 2003 and 2002, are included elsewhere in this prospectus. The following summary unaudited condensed consolidated statement of operations data for the six months ended June 30, 2007 and 2006 and unaudited condensed consolidated balance sheet data as of June 30, 2007 is derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this prospectus. In the opinion of management, our unaudited condensed consolidated financial statements include all adjustments, consisting principally of normal recurring accruals, that management considers necessary for a fair presentation of the financial position and the results of operations for these periods. Historical results are not necessarily indicative of the results of operations for future periods. The following data is qualified in its entirety by and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

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Consolidated Statement of Operations Data:

	Six Months Ended June 30,						Years Ended December 31,
	2007			2006			2006			2005			2004			2003		2002
	(unaudited)						(in thousands, except share and per share amounts)
Net sales	$	54,241		$	48,524		$	92,409		$	72,580		$	56,765		$	29,501	$	15,226
Cost of sales		48,024			44,094			83,619			64,964			50,862			26,019		13,592
Gross profit		6,217			4,430			8,790			7,616			5,903			3,482		1,634
Operating expenses
Selling and marketing		381			216			490			624			549			251		199
General and administrative		1,161			568			794			671			1,006			1,006		390
Total operating expenses		1,542			784			1,284			1,295			1,555			1,257		589
Income from operations		4,675			3,646			7,506			6,321			4,348			2,225		1,045
Other income (expenses):
Interest expense		(530	)		(400	)		(799	)		(498	)		(100	)		-		-
Interest income		3			-			70			-			-			1		1
Change of fair value on inventory loan payable		(48	)		-			-			-			-			-		-
Loss on disposal of fixed assets		-			-			-			-			(45	)		-		-
Miscellaneous		5			12			13			(1	)		4			40		48
Total other income (expenses)		(570	)		(388	)		(716	)		(499	)		(141	)		41		49
Income before provision for income taxes		4,105			3,258			6,790			5,822			4,207			2,266		1,094
Provision for income taxes		733			470			995			452			359			193		81
Net income		3,372			2,788			5,795			5,370			3,848			2,073		1,013
Other comprehensive income - foreign currency translation adjustments		314			71			288			143			-			-		-
Comprehensive income	$	3,686		$	2,859		$	6,083		$	5,513		$	3,848		$	2,073	$	1,013
Earnings per share - basic	$	0.16		$	0.15		$	0.30		$	0.28		$	0.20		$	0.11	$	0.05
Earnings per share - diluted	$	0.13		$	0.15		$	0.29		$	0.28		$	0.20		$	0.11	$	0.05
Dividend per share - basic	$	-		$	0.14		$	0.14		$	0.29		$	0.21		$	0.09	$	0.05
Dividend per share - diluted	$	-		$	0.14		$	0.14		$	0.29		$	0.21		$	0.09	$	0.05
Weighted average number of common shares - basic		20,828,751			18,886,666			19,030,319			18,886,666			18,886,666			18,886,666		18,886,666
Weighted average number of common shares - diluted		26,014,731			18,886,666			19,657,165			18,886,666			18,886,666			18,886,666		18,886,666

Consolidated Balance Sheet Data:

			As of December 31,
	As of June 30, 2007		2006		2005		2004		2003		2002
	(unaudited)
	(in thousands)
Cash	$	8,494	$	13,355	$	71	$	256	$	1,294	$	235
Total assets		44,155		31,125		28,115		11,230		8,579		9,097
Total liabilities		26,768		20,180		20,508		8,535		5,756		8,660
Total stockholders’ equity		17,387		10,945		7,607		2,695		2,823		437

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements regarding future events, our plans and expectations and financial projections. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this prospectus. See “Risk Factors” beginning on page 7. Unless the context otherwise requires, the terms “we,” the “Company,” “us,” or “Fuqi” refers to Fuqi International, Inc. and our wholly-owned subsidiaries.

Overview

We are a leading designer of high quality precious metal jewelry in China, developing, promoting, and selling a broad range of products in the large and rapidly expanding Chinese luxury goods market. Our products consist of a range of unique styles and designs made from precious metals such as platinum, gold, and Karat gold (K-gold), as well as diamonds and other precious stones.  We continuously innovate and change our designs based upon consumer trends in China. By continuously creating new designs and rapidly bringing them to market, we are able to differentiate ourselves from our competitors and strengthen our brand identity. Our design database presently contains over 20,000 unique products.

We have historically sold our products directly to distributors, retailers and other wholesalers, who then sell our products to consumers through both retail counters located in department stores and in other traditional stand-alone jewelry stores. We sell our products to our customers at a price point which reflects the market price of the base material, plus a mark-up reflecting our design fees and processing fees. Typically this markup ranges from 10-12%. Our customers then further mark-up our product to the consumer up to an additional 30%.

In order to capitalize on the substantial growth in consumer spending within the luxury goods category and to capture the margin appreciation from direct sales to the consumer, we recently initiated a retail strategy in product categories where we believe we will not be in competition with our existing sales channels. Our retail strategy will focus on finished gemstone jewelry, which we previously provided only on a custom order basis and which has historically represented only a nominal percentage of our overall sales. Gemstone products usually have a longer turnover period of at least four to six months but offer higher margins. We intend to analyze sales data at all our retail outlets and determine the best product mix for each outlet in order to achieve the highest sales revenue and gross margins.

We expect to expend significant resources to commence our planned retail distribution of our manufactured jewelry in China. We will require substantial funds in order to finance our planned retail distribution, fund operating expenses, to develop manufacturing, marketing and sales capabilities and to cover public company costs. In addition to the funds required to open retail locations, additional working capital will be needed to operate retail locations due to longer sales and collection cycles and higher inventory levels required to support retail stores. We also expect to require substantial funds to change our product mix to include more platinum products. Without these funds, we may not be able to meet these goals. Also, we expect our general and administrative costs to substantially increase due to higher salaries to be paid to our executive officers further to employment agreements we intend to enter into, which will come into effect on the effective date of this offering.

A substantial portion of our working capital consists of accounts receivable from customers. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for our products, or to make payments in a timely manner, our liquidity and results of operations could be materially adversely affected. An economic or industry downturn could materially adversely affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collections costs and defaults in excess of management’s expectations. In addition, as we increase our presence in the retail market, we expect the aging of our accounts receivable generated from sales through retail counters to increase as department stores typically defer payments to us of cash receipts collected by them on our behalf. A significant deterioration in our ability to collect on accounts receivable could affect our cash flow and working capital position and could also impact the cost or availability of financing available to us.

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In the coastal cities of China, we believe the demand for platinum and gem stone products has been increasing. In order to capitalize on the growth in demand, we intend to develop platinum as one of the primary metals from which our jewelry is manufactured. In 2006, we began to shift our product line to produce more platinum jewelry and we intend to invest in the development of a new production line to produce finished gemstone platinum jewelry. The production cycle of platinum products is five to seven days, while the cycle for gold products is about two days. As such, we anticipate that more working capital will be needed to support this shift of product mix.

Our company is headquartered in the city of Shenzhen, in southern China, where we have a large-scale production base that includes a modern factory of more than 53,000 square feet, a dedicated senior design, sales and marketing team, and more than 600 company trained employees. We believe our current facilities provide adequate space for our planned expansion of our production lines, which will include diamond and other finished gemstone jewelry.

Corporate History

We operate through our wholly-owned subsidiary Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (“Fuqi BVI”) and its wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., (“Fuqi China”) a company established under the laws of the People’s Republic of China.

On November 20, 2006, Fuqi BVI entered into a share exchange agreement with VT Marketing Services, Inc. (“VT”) and Mr. Yu Kwai Chong, who is our current Chief Executive Officer and Chairman of the Board of the Directors, to effect a reverse merger transaction (the “Reverse Merger”). Pursuant to the Reverse Merger, Mr. Chong, as the sole shareholder of Fuqi BVI, agreed to exchange all of his shares of Fuqi BVI for shares of VT and VT agreed to acquire all of the issued and outstanding capital stock of Fuqi BVI. VT was formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc., which became effective on September 17, 2004. The Reverse Merger closed on November 22, 2006 and VT issued an aggregate of 18,886,666 shares of common stock in exchange for all of the issued and outstanding securities of Fuqi BVI. Upon the close of the Reverse Merger, VT became the 100% parent of Fuqi BVI and assumed the operations of Fuqi BVI and its subsidiary as its sole business. On November 8, 2006, VT reincorporated from Arizona to Nevada and on December 8, 2006, after the Reverse Merger, VT reincorporated from the Nevada to Delaware and changed its corporate name from “VT Marketing Services, Inc.” to “Fuqi International, Inc.” The transactions contemplated by the Reverse Merger were intended to be a “tax-free” transaction pursuant to the provisions of Section 351 of the Internal Revenue Code of 1986, as amended.

For financial accounting purposes, the Reverse Merger was treated as a reverse acquisition by Fuqi BVI, under the purchase method of accounting, and was treated as a recapitalization with Fuqi BVI as the accounting acquirer. Accordingly, our historical financial statements have been prepared to give retroactive effect to the reverse acquisition completed on November 22, 2006, and represent the operations of Fuqi BVI and its wholly-owned subsidiary, Fuqi China.

Critical Accounting Policies, Estimates and Assumptions

Management’s discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. The most significant estimates and assumptions include valuation of inventories, provisions for income taxes, allowance for doubtful accounts, and the recoverability of the long-lived assets. Actual results could differ from these estimates. Periodically, we review all significant estimates and assumptions affecting the financial statements and recordthe effect of any necessary adjustments.

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The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements:

Revenue Recognition. Wholesale revenue is recognized upon delivery and acceptance of jewelry products by our customers while the retail revenue is recognized upon receipt and acceptance of jewelry products by our customers, provided in each case that the other conditions of sales are satisfied: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred, upon shipment when title passes, or services have been rendered; (iii) our price to the buyer is fixed or determinable; and (iv) collectibility is reasonably assured.

Currency Reporting.Amounts reported are stated in U.S. Dollars, unless stated otherwise. Our functional currency is the RMB. Foreign currency transactions (outside the PRC) are translated into RMB according to the prevailing exchange rate at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated into RMB at period-end exchange rates. For the purpose of preparing the consolidated financial statements, the consolidated balance sheets of our company have been translated into U.S. dollars at the current rates as of the end of the respective periods and the consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized. The resulting translation gain adjustments are recorded as other comprehensive income in the statements of income and comprehensive income and as a separate component of statements of stockholders’ equity.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Allowance for doubtful accounts is based on the our assessment of the collectibility of specific customer accounts, the aging of accounts receivable, our history of bad debts, and the general condition of the industry. If a major customer’s credit worthiness deteriorates, or our customers’ actual defaults exceed historical experience, our estimates could change and impact our reported results. We have not experienced any significant amount of bad debt in the past.

Inventory. Inventories are stated at the lower of cost (using the first-in, first-out method) or market. We continually evaluate the composition of our inventories assessing slow-moving and ongoing products. Our products contain gold and platinum material which will not become obsolete and accordingly we donot makeany reserve for slow-moving and obsolete inventory.

Taxation

We are incorporated in the State of Delaware, and our wholly owned subsidiary, Fuqi BVI, is a British Virgin Islands company. We are subject to franchise taxes in Delaware but we are not subject to taxation in the British Virgin Islands and not currently subject to U.S. federal income taxes. Fuqi BVI’s wholly-owned subsidiary, Fuqi China, is a PRC company.

Under current tax laws in China, the usual statutory income tax rate applicable to PRC companies is 33%. Fuqi China currently enjoys a reduced enterprise income tax rate of 15%, which is granted to all enterprises operating in the Shenzhen Special Economic Zone. Prior to 2006, we were under the preferential income tax rate of 7.5% in 2005 and 2004, due to our status of being a new business. That status expired effective January 1, 2006. Our effective income tax rates for the six months ended June 30, 2007 and the years ended December 31, 2006 and 2005 were 17.9%, 14.7% and 7.8%, respectively. On March 16, 2007, the National People’s Congress of China enacted a new PRC Enterprise Income Tax Law, under which foreign invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25%. The new law will become effective on January 1, 2008. We anticipate that as a result of the new EIT law, our income tax rates will rise to 25%, which could adversely affect our financial condition and results of operations. See “Risk Factors—Risks Related to Doing Business in China. We had enjoyed certain preferential tax concessions and the loss of these preferential tax concessions may cause our tax liabilities to increase and our profitability to decline.”

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We are also subject to a 5% business tax on our design fees and a 17% value added tax on the processing fee. The 5% business tax is borne by us while the 17% value added tax is a component of the prices that we charge our customers. The sum of the design fee, processing fee, and the market price of raw materials used to manufacture our products is the wholesale price at which we sell our products. We treat the business tax as a sales-related expense and thus report it under selling and marketing in our statements of operations. See “Business—Pricing” for additional information.

We failed to report a cumulative amount of approximately $26 million in cash revenues related to design fees for the period from the inception of Fuqi China in 2001 to June 30, 2007. In April 2006, the Shenzhen local tax department levied a $1.8 million assessment against us for unpaid business taxes, fees, and income taxes related to these unreported cash revenues up to the period from inception to December 31, 2005. The assessment was originally due at the end of April 2006 and subject to 0.05% per day of interest and penalties thereafter. On April 28, 2006, we filed for an extension of the deadline to remit these outstanding taxes payable to December 20, 2006, and the extension request was approved by the tax department in July 2006. On December 28, 2006, Shenzhen City Tax Bureau granted a further extension to us from December 20, 2006 to April 25, 2007.

On April 25, 2007, we appointed a registered tax agent to apply on behalf of our company for a special reduction or exemption for the unpaid tax liabilities for the period from inception to December 31, 2006. On May 14, 2007, we received a notice from the Shenzhen tax department accepting our application for a tax reduction or exemption and were granted an additional period to remit our outstanding tax liabilities until August 9, 2007. The tax department agreed not to assess any interest and penalties during this review process until August 9, 2007. As of June 30, 2007, we had an accrual of approximately $3.8 million in tax liabilities representing business tax and fees of 5.2% and income tax on the unreported design revenues since inception and an accrual of approximately $1.1 million in estimated penalties. On August 10, 2007, we received a notice from the tax department conditionally agreeing to exempt our tax liabilities in the amount of approximately $3 million on unreported design fee income for the period from inception of our operations in 2001 to December 31, 2006, provided that our common stock is successfully listed on a major overseas stock exchange within 180 days from the date of the tax notice. Due to the contingent nature of this notice, we will maintain our accrued liabilities for these taxes and penalties in our consolidated balance sheet until the conditions of the notice are fully met.

Impact of Recent Currency Exchange Rate Increase

We use the U.S. dollar as the reporting currency for our financial statements. Our operations are conducted through our PRC operating subsidiary, Fuqi China, and our functional currency is the RMB. On July 21, 2005, the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar and, as a result, the RMB has appreciated against the U.S. dollar by approximately 7.3% from 1:8.27 on July 21, 2005 to 1:7.71 on May 2, 2007. In converting our RMB income statement amounts into U.S. dollars we used the following RMB/$ exchange rates: 8.3 for 2004, 8.1963 for 2005, 7.959 for 2006 and 7.704 for the six months ended June 30, 2007. Our operating results in 2005 and 2006 have benefited, and our financial results for the balance of 2007 are likely to benefit, as a result of appreciation of the RMB against the U.S. dollar. There is no guarantee that we will benefit from the exchange rate in the future and our operations may suffer if a less favorable exchange rate develops.

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Results of Operations

The following table sets forth our consolidated statements of operations by amount and as a percentage of total net sales for the six months ended June 30, 2007 and 2006 (unaudited) and the years ended December 31, 2006, 2005 and 2004 in U.S. dollars:

	Six Months Ended June 30,												Years Ended December 31,
	2007						2006						2006						2005						2004
	In Dollars			Percent of Revenue			In Dollars			Percent of Revenue			In Dollars			Percent of Revenue			In Dollars			Percent of Revenue			In Dollars			Percent of Revenue
	(unaudited)
	(in thousands, except share amounts and earnings per share)
Net sales	$	54,241			100.0	%	$	48,524			100.0	%	$	92,409			100.0	%	$	72,580			100.0	%	$	56,765			100.0	%
Cost of sales		48,024			88.5			44,094			90.9			83,619			90.5			64,964			89.5			50,862			89.6
Gross profit		6,217			11.5			4,430			9.1			8,790			9.5			7,616			10.5			5,903			10.4
Operating expenses
Selling and marketing		381			0.7			216			0.4			490			0.5			624			0.9			549			1.0
General and administrative		1,161			2.2			568			1.2			794			0.9			671			0.9			1,006			1.7
Total operating expenses		1,542			2.8			784			1.6			1,284			1.4			1,295			1.8			1,555			2.7
Income from operations		4,675			8.7			3,646			7.5			7,506			8.1			6,321			8.7			4,348			7.7
Other income (expenses):
Interest expense		(530	)		(1.0	)		(400	)		(0.8	)		(799	)		(0.8	)		(498	)		(0.7	)		(100	)		(0.2	)
Interest income		3			-			-						70			0.1			-			-			-			-
Change of fair value on inventory loan payable		(48	)		(0.1	)		-						-			-			-			-			-			-
Loss on disposal of fixed assets		-			-			-			-			-			-			-			-			(45	)		(0.1	)
Miscellaneous		5			-			12			-			13			-			(1	)		-			4			-
Total other income (expenses)		(570	)		1.1			(388	)		(0.8	)		(716	)		(0.7	)		(499	)		(0.7	)		(141	)		(0.3	)
Income before provision for income taxes		4,105			7.6			3,258			6.7			6,790			7.4			5,822			8.0			4,207			7.4
Provision for income taxes		733			1.4			470			1.0			995			1.1			452			0.6			359			0.6
Net income		3,372			6.2			2,788			5.7			5,795			6.3			5,370			7.4			3,848			6.8
Other comprehensive income - foreign currency translation adjustments		314			0.6			71			0.2			288			0.3			143			0.2			-			-
Comprehensive income	$	3,686			6.8		$	2,859			5.9		$	6,083			6.6		$	5,513			7.6		$	3,848			6.8
Earnings per share - basic	$	0.16					$	0.15					$	0.30					$	0.28					$	0.20
Earnings per share - diluted	$	0.13					$	0.15					$	0.29					$	0.28					$	0.20
Dividend per share - basic	$	-					$	0.14					$	0.14					$	0.29					$	0.21
Dividend per share - diluted	$	-					$	0.14					$	0.14					$	0.29					$	0.21
Weighted average number of common shares - basic		20,828,751						18,886,666						19,030,319						18,886,666						18,886,666
Weighted average number of common shares - diluted		26,014,731						18,886,666						19,657,165						18,886,666						18,886,666

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Six Months Ended June 30, 2007 and 2006

Net sales, which consist of gross sales net of returns, for the six months ended June 30, 2007 increased to $54.2 million, an increase of $5.7 million, or 11.8%, from net sales of $48.5 million for the six months ended June 30, 2006. The increase in net sales was primarily the result of an increase in our prices, which included the price of precious metals, our processing fees and our design fees.

Net sales for the six months ended June 30, 2007 and 2006 were comprised of the following:

	Six Months Ended June 30,
	2007					2006
	Amount in millions		Percentage			Amount in millions		Percentage
Platinum	$	12.0		22.1	%	$	10.0		20.6	%
Gold		28.2		52.0			22.1		45.6
K-gold and Studded Jewelry		14.0		25.9			16.4		33.8
Total	$	54.2		100.0	%	$	48.5		100.0	%

Cost of sales is mainly comprised of costs of raw materials, primarily gold and platinum, in addition to direct manufacturing costs and factory overhead. Cost of sales for the six months ended June 30, 2007 increased to $48.0 million, an increase of $3.9 million, or 8.8%, from $44.1 million for the same period in 2006. The increase was primarily due to the increase in the cost of raw materials for the six months ended June 30, 2007.

Gross profit for the six months ended June 30, 2007 increased to $6.2 million, an increase of $1.8 million, or 40.9%, from $4.4 million for the same period in 2006. The gross margin for the six months ended June 30, 2007 was 11.5%, compared to 9.1% for the same period in 2006. The increase in the gross margin for the six months ended June 30, 2007 as compared to the same period in 2006 was primarily due our higher sales prices during the three months ended June 30, 2007, as compared to the reduced sales prices in the same period in 2006, which were lowered in an attempt to generate more sales volume.

Selling and marketing expenses are primarily comprised of business taxes, advertising expenses, traveling expenses, production costs of marketing materials, insurance, and delivery expenses. Selling and marketing expenses for the six months ended June 30, 2007 were approximately $381,000, an increase of $165,000, or 76.39%, from $216,000 for the same period in 2006. The increase in selling and marketing expenses was primarily due to our extended advertising campaign during Chinese New Year, an increase in electricity fees, an increase in insurance coverage for product delivery, and an increase in retail related expenses.

General and administrative expenses consist primarily of payroll expenses, benefits and travel expenses for our staff, professional fees including audit, accounting, legal and financial advisory, depreciation expenses, and general office expenses. General and administrative expenses for the six months ended June 30, 2007 were $1.2 million, an increase of $0.6 million, or 100%, from $0.6 million for the same period in 2006. The increase in general and administrative expenses was primarily due to an increase of professional fees incurred as a result of being a publicly reporting company in the United States. In addition, we granted our Chief Financial Officer a one-time discretionary bonus of $89,411 in connection with the exercise of warrants during the second quarter of 2007.

Interest expenses were approximately $530,000 for the six months ended June 30, 2007, an increase of $130,000, or 32.5%, from $400,000 for same period in 2006. The increase in interest expense was primarily a result of our increases in short term bank financing and increases in interest rates for the six months ended June 30, 2007.

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Provision for income tax expense was approximately $733,000 for the six months ended June 30, 2007, an increase of $263,000, or 56%, from approximately $470,000 for the same period in 2006. The increase was primarily due to an increase in the taxable income for the six months ended June 30, 2007.

Net income increased to $3.4 million for the six months ended June 30, 2007 from $2.8 million for the six months ended June 30, 2006, an increase of $0.6 million, or 21.43%.

Other comprehensive income, which consists of gains from foreign exchange translations, was approximately $314,000 for the six months ended June 30, 2007, an increase of $243,000, or 342.3%, from $71,000 for the six months ended June 30, 2006. The increase was a result of continuous appreciation of the RMB exchange rate against the U.S. dollar.

Years Ended December 31, 2006 and 2005

Net sales for the year ended December 31, 2006 increased to $92.4 million, an increase of $19.8 million, or 27.3%, compared to net sales of $72.6 million for the year ended December 31, 2005. The increase in net sales was primarily the result of an increase in our prices, which was the result of an increase in the price of precious metals, and a change in product mix. We sold more platinum jewelry during the year ended December 31, 2006 as compared to 2005.

Net sales for the years ended December 31, 2006 and 2005 were comprised of the following:

	Year Ended December 31,
	2006					2005
	Amount in millions		Percentage			Amount in millions		Percentage
Platinum	$	21.0		22.7	%	$	13.2		18.2	%
Gold		43.6		47.2			34.9		48.1
K-gold and Studded Jewelry		27.8		30.1			24.5		33.7
Total	$	92.4		100.0	%	$	72.6		100.0	%

Cost of sales for the year ended December 31, 2006 increased to $83.6 million, an increase of $18.6 million, or 28.6%, compared to cost of sales of $65.0 million for the year 2005. The increase was primarily due to the increase in net sales for year ended December 31, 2006, with the percentage increase in cost of sales in line with the increase in net sales. The small difference in the percentage change was mainly due to increased labor costs required for processing platinum.

Gross profit for the year ended December 31, 2006 increased to $8.8 million, an increase of $1.2 million, or 15.8%, compared to $7.6 million for the same period in 2005. The increase in gross profit resulted primarily from the increase in net sales, which resulted from an increase in precious metal prices. However, gross profit margin decreased to 9.5% for year ended December 31, 2006, compared to 10.5% for the same period in 2005. The decrease in gross profit margin was mainly attributable to our decision to reduce prices in the third quarter of 2006 in an effort to attract more sales.

Selling and marketing expenses for the year ended December 31, 2006 were $490,000, a decrease of $134,000, or 21.5%, as compared to $624,000 for the year ended December 31, 2005. The decrease in selling and marketing expenses was primarily due to our more targeted and focused marketing efforts in 2006.

General and administrative expenses for the year ended December 31, 2006 were $793,453, an increase of $122,262, or 18.2%, as compared to $671,191 for the same period in 2005. The increase in general and administrative expenses was mainly due to costs and fees incurred in connection with the Reverse Merger between Fuqi BVI and the predecessor of our current Delaware-incorporated holding company.

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Interest expenses were approximately $799,000 for the year ended December 31, 2006, an increase of $301,000, or 60.4%, as compared to $498,000 for year ended December 31, 2005. The increase in interest expense was primarily a result of an increase in interest rates for short term bank financing for the year ended December 31, 2006.

Provision for income tax expense was approximately $995,000 for the year ended December 31, 2006, an increase of $542,000, or 119.6%, as compared to approximately $453,000 for the same period in 2005. The increase was primarily due to the increase in our operating income for the year ended December 31, 2006.

Net income increased to $5.8 million for year ended December 31, 2006 from $5.4 million for the year ended December 31, 2005, an increase of $0.4 million, or 7.4%.

Other comprehensive income was $288,000 during 2006, an increase of $144,000 or 100%, as compared to $144,000 during 2005. The PRC government maintained a relatively fixed exchange rate for the RMB against the U.S. dollar until the end of the third quarter of 2005. The exchange rate continued to appreciate during the year ended December 31, 2006, contributing to the year on year increase in other comprehensive income.

Years Ended December 31, 2005 and 2004

Net sales for the year ended December 31, 2005 increased to $72.6 million, an increase of $15.8 million, or 27.8%, compared to net sales of $56.8 million for the year ended December 31, 2004. The increase in net sales was primarily the result of an increase in the quantity of jewelry that we sold in 2005, which we believe increased primarily because of our marketing activities and favorable credit terms that we made available to our customers.

Net sales for the year ended December 31, 2005 and 2004 were comprised of the following:

	Year Ended December 31,
	2005					2004
	Amount in millions		Percentage			Amount in millions		Percentage
Platinum	$	13.2		18.2	%	$	7.1		12.5	%
Gold		34.9		48.1			25.8		45.4
K-gold and Studded Jewelry		24.5		33.7			23.9		42.1
Total	$	72.6		100.0	%	$	56.8		100.0	%

Cost of sales for the year ended December 31, 2005 increased to $65.0 million, an increase of $14.1 million, or 27.7%, compared to cost of sales of $50.9 million for the year ended December 31, 2004. The increase was primarily due to the increase in net sales for the year ended December 31, 2005, with the percentage increase in cost of sales in line with the increase in net sales.

Gross profit for the year ended December 31, 2005 increased to $7.6 million, an increase of $1.7 million, or 28.8%, compared to $5.9 million for the year ended December 31, 2004. The increase in gross profit resulted primarily from the increase in net sales. Gross profit margin was 10.5% for the year ended December 31, 2005 and 10.4% for the year ended December 31, 2004.

Selling and marketing expenses for the year ended December 31, 2005 were$624,000, an increase of $75,000, or 13.7%, as compared to $549,000 for the year ended December 31, 2004. The increase in selling and marketing expenses was primarily due to an increase in our promotional and advertising activities.

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General and administrative expenses for the year ended December 31, 2005 were$671,000, a decrease of $335,000, or 33.3%, as compared to $1,006,000 for the year ended December 31, 2004. In 2004, we unsuccessfully attempted a Reverse Merger and costs associated with this transaction accounted for higher general and administrative expenses in the year ended December 31, 2004. In addition, we accrued estimated penalties in the amount of $1.1 million on unpaid business taxes related to cash revenues since 2004.

Interest expenses were approximately $498,000 for the year ended December 31, 2005, an increase of $398,000, or 398%, as compared to $100,000 for year ended December 31, 2004. The increase in interest expense was primarily a result of our increased use of bank financings in 2005 to acquire raw materials.

Provision for income tax expense was approximately $452,000 for the year ended December 31, 2005, an increase of $93,000, or 25.9%, as compared to approximately $359,000 for the year ended December 31, 2004. The increase was primarily due to the increase in our operating income for the year ended December 31, 2005.

Other comprehensive income increased to $143,000 during 2005, compared to $0 during 2004. The PRCgovernment maintained a relatively fixed exchange rate against the U.S. dollar until the end of the third quarter of 2005. Therefore there were no adjustments related to foreign currency translations during 2004.

Net income increased to $5.4 million for the year ended December 31, 2005 from $3.8 million for the year ended December 31, 2004, an increase of $1.6 million, or 42%.

Quarterly Comparisons

The following table presents the unaudited consolidated statements of operations data for each of ten fiscal quarters through June 30, 2007, in dollars. In management’s opinion, this unaudited information has been prepared on the same basis as our audited consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited information for the quarters presented. The results of operations for any quarter are not necessarily indicative of results that we might achieve for any subsequent periods. In addition, our operating results have in the past and may in the future fluctuate significantly as a result of many factors, including the seasonality of our business and the unpredictable fluctuation of prices of precious metals. Consequently, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful, and as a result, you should not rely on them as an indication of future performance.

	Amounts in Thousands (Unaudited)
	June 30,			Mar. 31,			Dec. 31,			Sep. 30,			June 30,			Mar. 31,			Dec. 31,			Sep. 30,			June 30,			Mar. 31,
	2007			2007			2006			2006			2006			2006			2005			2005			2005			2005
Net sales	$	26,281		$	27,960		$	24,802		$	19,083		$	24,220		$	24,304		$	20,652		$	16,013		$	14,910		$	21,005
Cost of sales		23,228			24,796			21,868			17,657			23,007			21,087			17,802			14,141			13,892			19,129
Gross profit		3,053			3,164			2,934			1,426			1,213			3,217			2,850			1,872			1,018			1,876
Operating expenses:
Selling and marketing		187			194			162			112			110			106			182			128			109			205
General and administrative		740			421			149			77			299			269			155			231			150			135
Total operating expenses		927			615			311			189			409			375			337			359			259			340
Income from operations		2,126			2,549			2,623			1,237			804			2,842			2,513			1,513			759			1,536
Other income (expenses):
Interest expense		(283	)		(247	)		(222	)		(177	)		(190	)		(210	)		(182	)		(140	)		(98	)		(78	)
Interest income		3			-			70			-			-			-			-			-			-			-
Change of fair value on inventory loan payable		(7	)		(41	)		-			-			-			-			-			-			-			-
Loss on disposal of fixed assets		-			-			-			-			-			-			-			-			-			-
Miscellaneous		6			-			1			-			-			12			-			(1	)		-			-
Total other expenses		(281	)		(288	)		(151	)		(177	)		(190	)		(198	)		(182	)		(141	)		(98	)		(78	)
Income before provision for income taxes		1,845			2,261			2,472			1,060			614			2,644			2,331			1,372			661			1,458
Provision for income taxes		356			378			370			155			100			370			190			103			47			112
Net income		1,489			1,883			2,102			905			514			2,274			2,141			1,269			614			1,346
Other comprehensive income - foreign currency translation adjustments		204			110			122			95			14			57			(100	)		243			-			-
Comprehensive income	$	1,693		$	1,993		$	2,224		$	1,000		$	528		$	2,331		$	2,041		$	1,512		$	614		$	1,346

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Liquidity and Capital Resources

At June 30, 2007, we had retained earnings of $6.7 million and had cash of $8.5 million. We have historically financed our operations with cash flows generated from operations, as well as through the borrowing of long-term or short-term bank loans. In addition, we have borrowed from our controlling stockholder, Mr. Yu Kwai Chong, for short term working capital requirements.

At June 30, 2007, we had outstanding facility lines of credit and short-term notes payables with banks in an aggregate amount of $16.4 million, consisting of $15.1 million in short-term notes payable to banks and $1.3 million in facility lines of credit. Our loans are secured by inventory, real property and/or guaranteed by our affiliates and our controlling stockholder.

We have a general banking facility line of credit with Agricultural Bank of China pursuant to a Maximum Banking Facility Agreement dated August 24, 2006. The terms of the agreement enable us to borrow up to a maximum facility amount of $13.1 million. Maturity dates for each withdrawal typically range from three to six months and are agreed to by the parties at the time of withdrawal. As of June 30, 2007, we had $13.1 million outstanding under the facility, with interest rates ranging from 6.426% to 6.732%. In addition, we have a line of credit and a bank loan from China Construction Bank and DBS Bank. As of June 30, 2007, we had $3.3 million outstanding with interest rates ranging from 6.732% to 7.02% from the DBS Bank line of credit and a bank loan from China Constructions Bank.Amounts borrowed under the banking facility lines of credit are secured by our inventory, real property, and/or guaranteed by our affiliates and our controlling stockholder and have certain restrictions and covenants. We do not guarantee any indebtedness of our affiliates. The amounts outstanding under these lines of credit and bank loans are presented in our financial statements as notes payable and line of credit. For additional information, see Note 5 and Note 6 to our consolidated financial statements contained in this prospectus.

Prior to the Reverse Merger, our then sole stockholder, Mr. Yu Kwai Chong, who is also our President, Chief Executive Officer and Chairman of the Board, made loans to us on a regular basis to meet short term financing needs of our company. Typically, these advances were in amounts ranging from $30,000 to $5.5 million, with no more than $10.0 million outstanding at any time. We did not pay interest on any of these advances. During the same period, Mr. Chong borrowed from our company primarily to fund personal liquidity needs. Our advances to Mr. Chong were typically in amounts ranging from $30,000 to $5.0 million, with no more than $10.0 million outstanding at any time. We did not charge interest on any of these advances. Since the closing of the Reverse Merger, at which time Mr. Chong ceased to be our sole stockholder, we have not engaged in any cash advance transactions with Mr. Chong and will not engage in these transactions in the future. Prior to the Reverse Merger, effective in November 2006, we paid dividends to our then sole stockholder, Mr. Chong. During the years ended December 31, 2006, 2005 and 2004, we paid cash dividends of $2.7 million, $5.4 million, and $4.0 million, respectively, to Mr. Chong. We currently have no intention to declare further dividends in the foreseeable future. Payment of dividends is further restricted under the provisions of our existing loan agreements.

On our consolidated statements of cash flows, we recorded advances by Mr. Chong to us and related repayments to him as financing activities, and advances by us to Mr. Chong and related repayments by him as investing activities. Advances and repayments were not subject to written loan agreements; the advances were partially repaid within three months while the remaining portions were repaid over three months. In accordance with FAS 95, we present the gross amounts of the advances and repayments in our consolidated statements of cash flows.

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The following table sets forth a summary of our cash flows for the periods indicated:

	Six Months Ended June 30,						Years Ended December 31,
	2007			2006			2006			2005			2004
	(unaudited)			(unaudited)
	(in thousands)
Net cash provided by (used for) operating activities	$	(8,981	)	$	(5,115	)	$	4,037		$	3,202		$	2,270
Net cash provided by (used for) investing activities		(397	)		5,791			9,613			(17,928	)		(1,103	)
Net cash provided by (used for) financing activities		4,264			-			(595	)		14,622			(2,205	)
Effect of exchange rate changes on cash		253			208			229			(81	)		--
Net increase (decrease) in cash	$	(4,861	)	$	884		$	13,284		$	(185	)	$	(1,038	)
Cash at beginning of period		13,355			71			71			256			1,294
Cash at end of period	$	8,494		$	955		$	13,355		$	71		$	256

Net cash provided by (used for) operating activities.Net cash used for operating activities was $9.0 million for the six months ended June 30, 2007, compared to net cash used for operations of $5.1 million for the same period in 2006. The $3.9 million increase was primarily due to an increase in inventory in the amount of $14.4 million during the six months ended June 30, 2007 compared to an increase of $5.2 million during the same period in 2006, in addition to an increase of refundable value added taxes in the amount of $2.1 million during the first half of 2007 compared to an increase of $610,000 in the same period in 2006. Net cash provided by operating activities was $4.0 million for the year ended December 31, 2006, compared to net cash provided by operations of $3.2 million for the same period in 2005. Net cash provided increased by $0.8 million primarily because of (i) the utilization of VAT refundable of $0.4 million, (ii) increase in inventory of $0.1 million and (iii) recovery of inventory loan receivable of $0.7 million, in addition to a change in prepaid expenses.

Net cash provided by (used for) investing activities. Net cash used for investing activities amounted to approximately $398,000for the six months ended June 30, 2007, compared to net cash provided by investing activities of $5.8 million for the six months ended June 30, 2006. The change was due to an increase in restricted cash of approximately $390,000, in addition to the absence of loans and related repayments between our controlling stockholder and us, as had occurred during the six months ended June 30, 2006. Net cash provided by investing activities amounted to $9.6 million for the year ended December 31, 2006, compared to net cash used for investing activities of $17.9 million for the year ended December 31, 2005. The change was due to a net repayment of $6.9 million (the amount of repayments over advances) in 2006 by our majority stockholder, Mr. Yu Kwai Chong, compared to a net advance of $14.4 million (the amount of advances over repayments) to this stockholder in 2005.

Net cash provided by (used for) financing activities. Net cash provided by financing activities amounted to $4.3 million for the six months ended June 30, 2007, compared to net cash used for financing activities of $0 million for the six months ended June 30, 2006. The increase of cash provided was primarily a result of the additional borrowings of $1.9 million from the facility line of credit we entered into in February 2007, in addition to net proceeds of $2.8 million from the exercise of warrants that occurred during the second quarter of 2007. Net cash used for financing activities amounted to $595,000 for the year ended December 31, 2006, compared to net cash provided by financing activities of $14.6 million for the year ended December 31, 2005. The change was primarily a result of our use of short-term and long-term bank financing in a total amount of $8.8 million in 2005. In addition, we borrowed a net amount of $415,000 from Mr. Yu Kwai Chong in 2006 compared to $0 in 2005. We also received $4.8 million in capital contributions from Mr. Chong in 2005 compared to $0 in 2006.

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We believe that our current cash and cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital, for the next 12 months. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

We intend to expand our retail operations in order to capitalize on the growing consumer market in China. We intend to open new retail locations by leasing unoccupied space, acquiring existing leases from third parties and/or acquiring the existing jewelry operations of third parties that occupy retail space. While we are still in the process of determining all the steps necessary to implement our retail expansion, it will largely depend on our ability to find sites for, open and operate new retail locations successfully, which depends on, among other things, our ability to: (i) identify suitable counter and store locations; (ii) purchase and negotiate acceptable lease terms; (iii) prepare counters and stores for opening within budget; (iv) source sufficient levels of inventory at acceptable costs to meet the needs of new counters and stores; (v) hire, train and retain personnel, and (vi) secure required governmental permits and approvals.

In April 2007, we entered into a transfer agreement with an unrelated party (the “Transferor”), which has operation agreements with department stores for five jewelry retail counters. Under the terms of the agreement, the Transferor agreed to assign all of the operation rights to us for a fee of $400,000. The fee is payable in three separate installments. The first payment of $120,000 is due upon completion of the transfer of the operation rights by the department stores to us. The second installment of $120,000 is due within 30 days after the remittance of the first installment while the final installment of $160,000 is due within 90 days after the remittance of the first installment. We obtained temporary operation rights from the Transferor to operate these counters from May 1, 2007. The Transferor is in the progress of negotiating the transfer of operation rights to us with these department stores. As of August 13, 2007, we have not yet received formal operation rights transfer agreements but have received verbal confirmations from the department stores. We have also commenced negotiations with an individual to potentially serve as director of our retail operations.

During 2007, we plan to open 20 retail counters and 2 retail stores in municipalities and provincial capitals throughout China. In 2008, we plan to open 60 to 80 retail counters and 8 to 10 retail stores. In addition to the funds required to open new retail locations, additional working capital will be needed to operate the retail locations due to longer sales and collection cycles and higher inventory levels required to support retail stores. We currently anticipate that we will need approximately $40 million in capital to execute our retail plan for the coming two years. We anticipate that a substantial portion of it, approximately $20 million, would be used to acquire new raw materials. A smaller portion of the additional capital, approximately $16 million, would be used for the opening of retail outlets. Approximately $2 million of the additional capital would be used to acquire new components and additional tooling, while the remaining portion of the additional capital would be applied to working capital for labor to manufacture jewelry and for marketing and promotional activities. Additional capital for this objective may be required that is in excess of our current resources, requiring us to raise additional capital through additional equity offerings or secured or unsecured debt financing. The availability of additional capital resources will depend on prevailing market conditions, interest rates, and our existing material financial position and results of operations. The foregoing amounts are only estimates, which may change based on our analysis and evaluations of changing market conditions.

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Contractual obligations

The following table describes our contractual commitments and obligations as of June 30, 2007:

Contractual obligations	Payments due by period (in $) (Unaudited)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Lease of Plant	$	354,540	$	118,180	$	236,360	$	-	$	-
Lease of Staff Dormitory		33,458		33,458		-		-		-
	$	387,998	$	151,638	$	236,360	$	-	$	-

Seasonality

Our business is seasonal in nature. Our sales and net income are traditionally higher in the fourth calendar quarter than the rest of the year. The primary factors that affect the seasonal changes in our business operations are holidays and traditional Chinese festivals. In the fourth quarter, retailers often experience increased sales due to the week-long public holiday for Chinese National Day, as well as Christmas and New Year’s Day. In addition, jewelry retailers commonly stock up from wholesalers in the fourth quarter to prepare for potentially higher sales in the following quarter for Chinese New Year. This quarter is also a peak season for marriages and the birth of newborns in China, which have historically resulted in higher sales. This seasonal trend in our business occurred during 2004 and 2005. However, there was a slight variation during 2006. Because of rising precious metal prices in the fourth quarter of 2006, many customers delayed their orders until the first quarter of 2007, resulting in lower-than-expected sales volume in the fourth quarter of 2006, and higher than expected sales in the first quarter of 2007.

Off-Balance Sheet Transactions

We have no material off-balance sheet transactions.

New Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board issued SFAS No. 155 (“FAS 155”), “Accounting for Certain Hybrid Financial Instruments -- an amendment of FASB Statements No. 133 and 140”. SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the FASB’s interim guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and eliminates the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, however, early adoption is permitted for instruments acquired or issued after the beginning of an entity’s fiscal year in 2006. We adopted FAS 155 in the quarter ended March 31, 2007 and such adoption does not have any material impact on our financial position and results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156 (“FAS 156”), “Accounting for Servicing of Financial Assets—An Amendment of FASB Statement No. 140”. Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and providing for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. The Statement will be effective beginning with the first fiscal year that begins after September 15, 2006. We adopted FAS 155 in the quarter ended March 31, 2007 and such adoption does not have any material impact on our financial position and results of operations or cash flows. 

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In June 2006, the FASB issued Interpretation No. 48 (“FIN48”), “Accounting for Uncertainty in Income Taxes”. This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 provides guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for tax contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We adopted the provisions of FIN48 on January 1, 2007 and have determined the impact of the adoption of FIN 48 is insignificant to our consolidated financial position, results of operations and cash flows.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are evaluating the impact of this new pronouncement to our financial position and results of operations or cash flows.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. We do not expect the adoption of SFAS 158 will have a material impact on our financial position or results of operations, as we do not currently have any defined benefit pension or other post-retirement plans.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”),”Financial Statements - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB 108 provides that once a current year misstatement has been quantified, the guidance in SAB No. 99, “Financial Statements - Materiality”, should be applied to determine whether the misstatement is material and should result in an adjustment to the financial statements. Under certain circumstances, prior year financial statements will not have to be restated and the effects of initially applying SAB 108 on prior years will be recorded as a cumulative effect adjustment to beginning Retained Earnings on January 1, 2006, with disclosure of the items included in the cumulative effect. We do not expect the application of the provisions of SAB 108 to have a material impact, if any, on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. The objective of this statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected by the FASB to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. This statement is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting this statement; however, we do not expect the adoption of this provision to have a material effect on our financial position, results of operations or cash flows.

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Quantitative and Qualitative Disclosure about Market Risk

Foreign Exchange Risk

We use the U.S. dollar as the reporting and functional currency for our financial statements. As we conduct our operations through our PRC subsidiary, the functional currency of our PRC subsidiary is RMB. Substantially all our revenue and related expenses, including cost of revenues and advertising expenses, are denominated and paid in RMB. Transactions in other currencies are recorded in RMB at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are remeasured into RMB at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in our statements of operations as other comprehensive income.

The value of RMB is subject to changes in China’s governmental policies and to international economic and political developments. In January, 1994, the PRC government implemented a unitary managed floating rate system. Under this system, the People’s Bank of China, or PBOC, began publishing a daily base exchange rate with reference primarily to the supply and demand of RMB against the U.S. dollar and other foreign currencies in the market during the previous day. Authorized banks and financial institutions are allowed to quote buy and sell rates for RMB within a specified band around the central bank’s daily exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange rate of the U.S. dollar to RMB from 1:8.27 to 1:8.11 and modified the system by which the exchange rates are determined. This modification has resulted in an approximate 7.3% appreciation of the RMB against the U.S. dollar from July 21, 2005 to May 2, 2007. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further fluctuation of the exchange rate of RMB against the U.S. dollar. As all of our net revenues are recorded in RMB, any future devaluation of RMB against the dollar could negatively impact our results of operations.

Interest Rate Risk

As of June 30, 2007, we had $16.4 million outstanding under short term credit facilities from banks, with interest rates ranging from 6.426% to 6.732%. As all of these borrowings are short term borrowings, we believe our exposure to interest rate risk is not material. We do not use any derivative financial instruments to manage interest rate risks.

Inflation

In recent years, China has not experienced significant inflation, and thus inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 3.9%, 1.8% and 3.4% in 2004, 2005 and 2006, respectively.

Commodity Price Sensitivity

We are exposed to market risk in connection with our inventory balances, which are comprised primarily of gold, platinum and jewelry made from gold and platinum. Our inventories are stated at the lower of cost or market using the first in first out method. If there is a downward change in the market price of gold, we are required to mark-down the value of our inventory and record a loss in our statement of operations. As of June 30, 2007, our inventory position was approximately $20.8 million, which consisted of gold and jewelry made from gold acquired at an average price of $18.34 per gram and platinum and jewelry made from platinum acquired at an average price of $36.24 per gram. On June 29, 2007, the prices of gold and platinum on the Shanghai Gold Exchange were $17.82 per gram and $36.13 per gram, respectively. Since our inception we have not experienced any losses due to changes in the market price of gold or platinum because the prices of gold and platinum have generally risen since our inception. Currently we do not hold any forward contracts or use any other derivative instruments to hedge our exposure to fluctuations in the price of gold. However, we intend to use such hedging strategies in the future.

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Change in Accountants

On November 22, 2006, we dismissed Epstein, Weber & Conover, P.L.C. (“EWC”) as our independent registered public accounting firm following the change in control of our company in connection with the Reverse Merger. EWC conducted the audit of our predecessor company, VT Marketing Services, Inc. (“VT”), prior to the Reverse Merger for the financial statements for the years ended December 31, 2005 and 2004. The decision to change accountants was approved and ratified by our Board of Directors. The report of EWC on the financial statements of our predecessor company for the fiscal years ended December 31, 2005 and 2004 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principle, except for an explanatory paragraph relative to VT’s ability to continue as a going concern.

While EWC was engaged by us and our predecessor company there were no disagreements with EWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure with respect to our company, which disagreements if not resolved to the satisfaction of EWC would have caused it to make reference to the subject matter of the disagreements in connection with its report on our financial statements for the fiscal years ended December 31, 2005 and 2004.

Following the Reverse Merger, we engaged Stonefield Josephson, Inc., which served as Fuqi China’s independent registered certified public accountants for the fiscal years ended December 31, 2005, 2004 and 2003, as our independent registered public accounting firm.

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BUSINESS

Overview

We are a leading designer of high quality precious metal jewelry in China, developing, promoting, and selling a broad range of products to the rapidly expanding Chinese luxury goods market. According to Global Industry Analysts, Inc., or GIA, China’s jewelry industry grew to $14 billion in 2005 and China is expected to lead global jewelry processing and consumption by 2010.

Our products consist of a range of unique styles and designs made from precious metals such as platinum, gold, and Karat gold (K-gold), as well as diamonds and other precious stones.  Our design database presently contains over 20,000 unique products. We continuously innovate and change our designs based upon consumer trends in China. By continuously creating new designs and rapidly bringing them to market, we believe we are able to differentiate ourselves from our competitors and strengthen our brand identity.

Our nationwide distribution network and significant relationships with retailers allow us to test-market, promote and sell our products in almost every province in China. We believe our vertically integrated direct sales operations, which include product development, sales and marketing, and order fulfillment and delivery, allow us to effectively reach consumers and maximize sales throughout China.

We have historically sold our products directly to distributors, retailers and other wholesalers, who then sell our products to consumers through both retail counters located in department stores and in traditional stand-alone jewelry stores. We sell our products to our customers at price points that reflect the market price of the base material, plus a mark-up reflecting our design fees and processing fees. Typically this markup ranges from 10-12%. Our customers then further mark up our products to the consumers up to an additional 30%. Our target price points are primarily designed to appeal to China’s growing middle class.

In order to capitalize on the substantial growth in consumer spending on luxury goods in China and to capture the margin appreciation from direct sales to the consumer, we recently initiated a retail strategy in product categories where we believe we will not compete with our existing sales channels. Our retail strategy will focus on finished gemstone jewelry, which we previously provided only on a custom-order basis and which has historically represented only a nominal percentage of our overall sales.

We intend to open new retail locations by leasing unoccupied space, acquiring existing leases from third parties and/or acquiring the existing jewelry operations of third parties that occupy retail space. During 2007, we intend to open 20 retail counters and 2 retail stores in municipalities and provincial capitals throughout China. In 2008, we plan to open 60 to 80 retail counters and 8 to 10 retail stores. We believe our expansion into the retail market will provide us with:

·   direct access to the consumer market, allowing us to respond more rapidly to changing consumer tastes;

·   an opportunity to grow our revenue base as we roll out our retail strategy;

·   improved net margins from higher markups in the retail market; and

·   increased brand awareness.

Our company is headquartered in the city of Shenzhen, in southern China, where we have a large-scale production base that includes a modern factory of more than 53,000 square feet, a dedicated senior design, sales and marketing team, and more than 600 company-trained employees. We believe our current facilities provide adequate space for our planned expansion of our production lines, which will include diamond and other finished gemstone jewelry.

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Our sales grew at an average rate of 57% per annum, reaching $92.4 million in 2006, from $15.2 million in 2002, representing a CAGR of 57%. To date, the increase in our sales has occurred organically, without the acquisition of other companies. Our income from operations grew from $1.0 million in 2002 to $7.5 million in 2006, while our net income grew from $1.0 million in 2002 to $5.8 million in 2006.

Industry Background and Trends

China’s growing consumer market

China’s market for jewelry and other luxury goods is expanding rapidly, due in part to the country’s rapid economic growth. According to the EIU, China’s real gross domestic product, or GDP, grew by 10.1%, 10.4% and 10.7% in 2004, 2005 and 2006, respectively. Economic growth in China has led to greater levels of personal disposable income and increased spending among China’s expanding middle-class consumer base. According to EIU, private consumption has grown at a 9% compound annual growth rate, or CAGR, over the last decade.

Notwithstanding China’s rapid economic growth, with a population of 1.3 billion people, China’s economic output and consumption rates are still small on a per capita basis compared to developed countries. In 2006, China’s GDP per capita was $7,530, as compared to GDP per capita of $44,244 in the United States. Per capita disposable income in China has grown at a CAGR of 9.8% over the last decade, rising to $728 in 2006, as compared to $9,522.8 in the United States. We believe that, as China’s economy develops, disposable income and consumer spending levels will continue to catch up to those of developed countries like the United States.

The following table sets forth a summary of certain data regarding China’s economic growth for the years from 2002 to 2006.

	2002		2003		2004		2005		2006		CAGR (2002-2006)
Nominal GDP at PPP (in billions of US$)	$	6,089	$	6,783	$	7,642	$	8,692	$	9,901		13	%
Real GDP per capita (in US$)		4,740		5,250		5,880		6,650		7,530		12	%
Disposable income per capita		546		603		682		690		728		7	%

Source: Economist Intelligence Unit.

The following table sets forth a summary of certain projections regarding China’s economic growth for the periods from 2007 to 2011.

	2007		2008		2009		2010		2011		CAGR (2007-2011)
Total real GDP (in billions of US$)	$	11,178	$	12,538	$	14,006	$	15,536	$	17,069		11	%
Real GDP per capita (in US$)		8,448		12,538		1,0478		11,573		12,635		11	%
Disposable income per capita		798		891		991		1,112		1,248		12	%

Source: Economist Intelligence Unit.

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China’s government has demonstrated on multiple occasions its commitment to continued economic growth. An underlying driver of economic policy in China is the need to achieve strong rates of growth in order to create jobs and reduce economic imbalances, particularly between urban and rural areas. The government has set a target of building a more equal society by 2020, largely by promoting development in rural areas and continuing its program of economic reforms. Income expanded for both urban and rural populations in 2006. According to the EIU, in 2006 disposable income per capita for urban residents averaged $1,475, an increase of 12% from 2005, while those of rural residents reached $449, an increase of 10% from 2005.

China’s growing jewelry market

Fueled by increased personal income, China’s market for precious metal jewelry and other luxury products has been experiencing rapid growth. According to GIA, the precious metal jewelry market in China has increased by 35% from 2001, reaching $18.2 billion in 2006. According to the same source, China is becoming one of the largest consumers of gold jewelry in the world by volume, consuming more than 198 tons of gold jewelry in 2002.

Gold is the largest segment in China’s precious jewelry market, followed by platinum and diamond jewelry. According to GIA, jewelry has become the third largest consumption item in China after automobiles and housing. The total market size for precious jewelry is expected to exceed $15.5 billion in 2010.

The following table sets forth actual and projected annual sales figures for China’s jewelry market:

	2001 (actual)		2006 (estimated)		2010 (estimated)
	(in millions)
Gold Jewelry	$	4,924.2	$	5,970.9	$	6,875.6
Diamond Jewelry		1,887.5		2,898.9		4,072.6
Silver Jewelry		677.8		806.3		934.6
Platinum Jewelry		2,111.8		3,608.2		4,458.0
Other Jewelry		1,314.4		1,573.4		1,855.6
Total	$	10,915.7	$	14,857.7	$	18,196.4

Source: Global Industry Analysts, Inc.

Other factors driving the growth of China’s jewelry market

In addition to the rapid growth of China’s overall economy and consumer base, we believe there are other favorable demographic, political and cultural trends driving the growth of China’s jewelry industry.

Favorable cultural trends. China’s demand for jewelry, particularly gold jewelry, is embedded in its cultural traditions. Gold has long been viewed as both a secure and accessible savings vehicle, and as a symbol of wealth and prosperity in Chinese culture. In addition, gold jewelry plays an important role in marriage ceremonies, child births and other major life events in China. Gold ornaments, often in the shapes of dragons, horses and other cultural icons, have long been a customary gift for newly married-couples and newly-born children in China. As China’s population becomes more urban, more westernized and more affluent, gold, platinum and other precious metal jewelry are becoming increasingly popular and affordable fashion accessories. With its estimated population of 1.3 billion, we believe that China’s current and future cultural trends will continue to provide us with a large addressable market.

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Current fragmentation of the jewelry industry. Despite its large size and rapid expansion, China’s jewelry industry remains highly fragmented. The industry is currently comprised of a large number of regional designers, marketers and producers, with no clear market leaders. Leading international jewelry companies have generally targeted their sales and marketing efforts in China to the small, ultra-rich segment of the country’s population. We believe the current fragmentation in the jewelry industry has created significant growth and consolidation opportunities for companies like ours with developed distribution networks that offer high quality products to China’s growing middle class consumer base.

Favorable governmental policies. As China transitions from a planned economy to a more market-oriented economy, the government has taken numerous steps to privatize state-owned assets and facilitate the development of the country’s private enterprises. Since retailing is considered a strategic industry by the government, it encourages the establishment of retail chains and promotes the development of third-party logistics and distribution centers, all benefiting the jewelry industry. China’s entry into the World Trade Organization has led to lower tariffs, an easing of trade regulations, and the opening of China’s jewelry market to foreign investors. According to GIA, as a result of these factors, China is set to lead global jewelry processing and consumption by 2010.

Rapid Urbanization. According to the National Bureau of Statistics of China, China’s urban population as a percentage of total population increased from 17.9% in 1978 to 29.0% in 1995 and to 43.0% in 2005, and is projected to continue to grow rapidly. Rapid urbanization, in turn, is predicted to result in faster growth of consumer spending in urban areas, which already accounts for a disproportionately large amount of consumer spending. According to the National Bureau of Statistics, 78.3% of retail sales for consumer goods took place in urban areas in 2005. Retail sales in urban areas grew by 13.5% in 2005, compared to growth in rural areas of 10.8% over the same period. We believe that urbanization in China will provide us with increasing opportunities to develop our brand and market our products to an increasingly affluent consumer base.

Development of large cities and retail outlets. Rapid urbanization in China during the past several decades has resulted in the expansion of major cities and infrastructure throughout China. According to the China City Statistics Yearbook (2006), China had over 120 cities each with a population of over four million as of the end of 2005. The growth of China’s cities has lead to the growth of major retail facilities such as department stores and shopping malls. Jewelry retailers in China are typically based in department stores, where they lease a sales counter or a portion of the sales floor from the store owner. Increasingly, jewelry retailers are also establishing retail outlets in shopping malls and other urban retail centers. We believe the continued development of large cities and retail infrastructure in China will provide us with a broader distribution network and favorable locations for our own planned retail outlets.

Competitive Strengths

We believe that the following competitive strengths contribute to our success and differentiate us from our competitors.

Experienced management team

Our senior management team has extensive business and industry experience, having been at our company for an average of 10 years. Mr. Yu Kwai Chong, our principal stockholder and Chief Executive Officer, has almost 20 years of experience in China’s jewelry industry, which includes serving as a General Manager of Gao De, one of China’s first state-owned jewelry companies, from 1993 to 1996. Mr. Ching Wan Wong, our Chief Financial Officer, has over 15 years of industry experience, particularly in financial management of business operations. Mr. Lie Xi Zhuang, our Chief Operating Officer, has over 15 years of experience in manufacturing and operations. Mr. Xi Zhou Zhuo, our Marketing Director, has over 15 years of experience in sales of jewelry. Other members of our senior management team have significant experience with respect to other key aspects of our operations, including product design, manufacturing, and sales and marketing. Our co-founders, Mr. Chong and Mr. Zhuang have worked together for more than 15 years, which includes working together at Shenzhen Gao De Gold and Silver Jewelry Company prior to starting our company.

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Leading market position

We have established a leading market position through our extensive retail relationships and the quality of our products. We believe that we are one of the first jewelry companies in China to successfully establish an integrated multi-channel sales and marketing platform utilizing a highly-trained in-house design team. Our distributors and retailers benefit from our integrated database of more than 20,000 product styles, which allows us to respond rapidly to market trends. Our success in style design, along with our constant focus on quality control, has enabled us to establish a reputation for high quality products. Our operating model, coupled with our modern manufacturing processes, has resulted in economies of scale, a low cost structure, and an ability to respond rapidly to customer demands.

Well-established wholesale distribution channels

We sell our jewelry to a well-established network of approximately 1,000 nationwide distributors, retailers and wholesale agencies, allowing us to penetrate customer markets throughout China. We concentrate our efforts on department stores, wholesalers, national jewelry chains, fine jewelers, and other stores that sell fashionable jewelry. Our relationship with many of our distributors extends from our inception in 2001. We also continue to screen and identify our strongest retail customers in each distribution channel and to focus our design and sales efforts towards the largest and fastest growing retailers and distributors. We work closely with our major customers and strive to adjust our product mix based on customer feedback in order to ensure high levels of customer satisfaction.

Proven product design and manufacturing capabilities

We employ a rigorous and systematic approach to product design and manufacturing. We employ a senior design team with members educated by top art schools or colleges in China, with an average of three to five years of experience. Our design team develops and tracks new ideas from a variety of sources, including direct customer feedback, trade shows, and industry conferences. We generally test the market potential and customer appeal of our new products and services through a wide out-reach program in specific regions prior to full commercial launch. We have a large-scale production base that includes a 53,000 square foot factory, a dedicated design, sales and marketing team, and more than 600 company-trained employees. Our production lines include automated jewelry processing equipment and procedures that we can rapidly modify to accommodate new designs and styles. We have received several accreditations from The International Organization for Standardization (ISO), including ISO 9000, ISO 9001 and ISO 14000, attesting to our quality management requirements, manufacturing safety, controls, procedures and environmental performance.

Extensive design database with over 20,000 product styles

We continuously design, test and produce new styles of jewelry and currently carry more than 20,000 product styles. We assign unique serial numbers to each of our products styles and maintain an information management system to archive and access our product designs. The system features image and data storage, as well as reference and tracking capabilities, allowing users to reference each design along with its technical, stylistic and other characteristics. We utilize the database at various stages of the design, manufacturing and distribution process, and continue to add to this database at the rate of approximately 3,600 designs per annum.

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Customer service expertise

In order to ensure superior service and foster customer trust and loyalty, we provide customized design services, flexible delivery methods, and product feedback opportunities to our customers. Our sales representatives and marketing personnel undergo extensive training, providing them with the skills necessary to answer product and service-related questions, proactively educate potential customers about our products, and promptly resolve customer inquiries.

Our Strategies

Our goal is to be the leading vertically-integrated designer, manufacturer, and retailer of jewelry in China. We intend to achieve our goal by implementing the following strategies:

Aggressively pursue new wholesale distribution channels

We intend to broaden the scope of our distribution arrangements to increase sales penetration in targeted markets. We intend to select additional distributors based on their access to markets and retail outlets that are candidates for our jewelry products. Also, we believe that once we have established broad brand awareness, more distributors from remote areas will seek access to our products through our wholesale channel.

Establish and expand our retail market footprint

We have developed a retail sales plan aimed at gaining market share in the growing consumer market in China. We plan to acquire leases and open new stores in markets that we believe have a sufficient concentration of our target customers. Our retail expansion program is designed to reach new and existing customers through the opening of new retail locations and through the introduction of new jewelry designs. Retail locations will be determined on the basis of various factors, including geographic location, demographic studies and other jewelry stores or counters in the vicinity of a retail location.

Our retail expansion strategy is designed not to conflict with our existing distributors. For example, generally we sell our products to distributors who then sell them to department stores. The department stores display these products in a retail counter typically owned by the department stores. In most cases there are other counters in the department stores that sell non-competing products, such as gemstone jewelry, that are owned by third party companies. These third party counters are our target for the acquisition of leases, which means we will not compete with our distributors or with the development stores. Also, we initially plan to open stores at retail outlets not currently offering our products. In this way we hope to increase market penetration and maintain positive relationships with our distributors.

We intend to open new retail locations by leasing unoccupied space, acquiring existing leases from third parties and/or acquiring the existing jewelry operations of third parties that occupy retail space. During 2007, we intend to open 20 retail counters and 2 retail stores in municipalities and provincial capitals throughout China. In 2008, we plan to open 60 to 80 retail counters and 8 to 10 retail stores.

We believe that China represents an excellent retail sales opportunity for our own expansion into the retail market for various reasons that include:

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·   large pool of potential consumers— China has a large population including a rapidly expanding middle-class consumer base.

·   changing consumer preferences— we believe that Chinese consumers are embracing a more Western view of jewelry as a fashion accessory while also valuing the more traditional view of jewelry as an investment.

·   growing jewelry market— China’s jewelry market has recently experienced significant growth. According to research done by India's Gems and Jewelry Export Promotion Council (GJEPC) in 2006, the Chinese gems and jewelry market is growing at the rate of 8-10% annually.

·   large retail market— China’s retail sales market is one of largest in the world.

·   favorable regulatory changes— as a member of the World Trade Organization (WTO), China has eliminated a number of restrictions on foreign ownership and operations of retail stores. Tariffs on colored gem stones, gold, silver and pearls have been reduced in the past and economic and trade relationships between China and other major economic powers have generally been liberalized.

·   increased profit potential - We believe that entering into the retail market is a viable strategy to increase our sales profitability and market exposure. We believe the traditional retail market, with its significantly higher margins, presents substantial opportunities for companies, such as ours, that have integrated design, sales, marketing, and manufacturing capabilities and a diverse product portfolio.

Expand existing and new product offerings

Since the commencement of our jewelry operations in 2001, we have expanded our line of products from basic gold jewelry to a range of products that include rings, bracelets, necklaces, earrings and pendants made from precious metals such as platinum, gold, palladium and Karat gold (K-gold). We also manufacture jewelry with diamond and other precious stone inlays, in addition to gold coins and gold bars.

Our product series include the following:

·   Gold Series. This series includes K-gold, 24K gold ornaments, gold bars, gold coins, gifts, other gold charms and customized products.

·   Platinum Series (pt). This series includes pt990, pt950 and pt900 products. The quality markings for platinum are based on parts per thousand. For example, the marking pt900 means that 900 parts out of 1000 are pure platinum, or in other words, the item is 90% platinum and 10% other metals.

·   K-Gold Series. This series is primarily derived from Italian-influenced arts and designs.

·   Studded Jewelry Series. This series is made from pt950, pt900, 18K gold, 14K gold and other customer-designated rare metals studded with diamonds, emerald, jade and semi-precious stones.

Many of our designs are originated by our in-house designers. They are educated at art schools or colleges in China and have gained an average of three to five years of experience from other jewelry companies. In generating new design ideas, our designers research and study designs that are popular in China and worldwide. Our designers conduct design and market research through various forms, including trade expositions, industrial magazines and the Internet. They also receive feedback from, and respond to, our customers. We continuously design and produce new styles of jewelry and currently carry more than 20,000 product styles, which are growing at a rate of approximately 3,600 styles per annum. We assign serial numbers to each of our products styles, and we maintain an information management system utilizing a product database.

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Since 2004, we have typically provided over three hundred new designs every month to our wholesale customers.

In the coastal cities of China, we believe the demand for platinum and gemstone products has been increasing. In order to capitalize on the growth of demand, we intend to develop platinum as the primary metal from which our jewelry is manufactured. In 2006, we began to shift our product line to produce more platinum jewelry and we intend to invest in the development of a new production line to produce studded platinum jewelry. The production cycle of platinum products is five to seven days while the cycle for gold products is about two days. As such, more working capital will be needed to support this shift of product mix.

As we expand into retail, we intend to expand new product offerings including diamond, jade, and other gem stone products. These products usually have a longer turnover period of at least four to six months but offer higher margins. We believe that it is critical for us to expand our product lines to include these products to be sold in our own retail outlets and to our wholesale customers. We will analyze sales data at all our retail outlets and determine the best product mix a particular outlet will carry to achieve the highest sales revenue.

Through these retail outlets, we intend to offer our full range of jewelry products to showcase and sell. Furthermore, we plan to design and manufacture a line of fine diamond, jade and gem stone jewelry to be sold primarily in our retail shops.

Enhance marketing and promotion efforts to increase brand awareness

We continue to devote our efforts towards brand development and utilize marketing concepts in an attempt to enhance the marketability of our products. During the past several years, we have carried out a brand development strategy based on product quality and design excellence. We intend to commence a national television advertising campaign and to promote our jewelry products in major magazines throughout China. We have also participated and intend to continue to participate in various exhibitions and similar promotional events to promote our products and brand. For example, in 2004, we were the laurel sponsor for multiple beauty pageants, including the “Miss Intercontinental Final” and the “Miss China Universe.”

Pricing and Credit Terms

The wholesale pricing of our products is based on three primary components: cost of raw materials used, design fee, and processing fee. The cost of the raw materials for a piece of jewelry is based on the spot price of the raw materials used to make the product. The amount charged as a design fee is determined by management based on various factors, including market conditions and the type, complexity, and popularity of the design. Management meets on a monthly basis to set the design fees, which generally range from 5% to 10% of the product prices. The processing fee ranges from 2% to 3% of the product prices. We pay a 5% business tax on our design fee. We also pay a 17% value added tax on the processing fee, which we bill to our customers and remit to the local tax authority on a monthly basis. The sales amounts reported in the statements of income are net of the value added tax. The invoices that we provide to our wholesale customers itemize these raw material costs and design and processing fees that make up the total cost charged to them. The retail mark up from the wholesale price is approximately 30%.

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We offer certain of our customers credit terms for payment. We typically grant credit to a customer if the customer has been in existence for at least five years and has been doing business with us for at least three years. We attempt to minimize credit risk by reviewing a customer’s credit history before extending credit and by continually monitoring the customer’s credit exposure. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Allowance for doubtful accounts is based on the our assessment of the collectibility of specific customer accounts, the aging of accounts receivable, our history of bad debts, and the general condition of the industry. If a major customer’s credit worthiness deteriorates, or our customers’ actual defaults exceed historical experience, our estimates could change and impact our reported results. We have not experienced any significant amount of bad debt in the past.

Manufacturing

We have a large-scale production base that includes a modern factory of more than 53,000 square feet, a dedicated senior design team, and more than 600 company-trained employees. Since 2003, we have held an ISO 9001 accreditation, which is an international standard of quality. The International Organization for Standardization (ISO) (http://www.iso.org/iso/en/iso9000-14000/understand/inbrief.html) defines the ISO 9000 quality management system as one of international references for quality management requirements in business-to-business dealings. An organization being accredited by an independent assessment organization has to fulfill:

·   the customer’s quality requirements,

·   applicable regulatory requirements, while aiming to enhance customer satisfaction, and

·   achieve continual improvement of its performance in pursuit of these objectives.

The ISO 9000 quality management system is well recognized by PRC governmental bodies and businesses. This accreditation can serve as a basis for our customers to determine the minimum standard of quality assurance that we achieve. We believe that this accreditation also indicates to our customers that we are running an effective system to track quality issues and possible rework progress of our products. In January 2007, we also achieved the ISO 14000 accreditation. ISO 14000 is an environmental management system in which the organization being accredited has to (i) minimize harmful effects on the environment caused by its activities, and (ii) achieve continual improvement of its environmental performance.

Our maximum annual output capacity of gold jewelry, other rare and precious metal jewelry, K-gold jewelry and inlaid jewelry is approximately 30.0 tons, 15 tons, 5.0 tons and 60,000 pieces, respectively.

Sales and Marketing

We rely on our sales and marketing division, which is located at our executive offices in Shenzhen, China for the distribution of our products in China. We sell our products primarily to our national and provincial distributors that resell our products to end customers through their own distribution networks, which are typically composed of local distributors and retail outlets. Our distribution network currently includes 30 provincial distributors and 600 direct-sales distributors. These distributors sell our products to local distributors, over 1,000 retail outlets and directly to end users in China.

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Our marketing and distribution strategy is to screen and identify the strongest customers in each distribution channel and to focus on our design and sales efforts towards the largest and fastest growing retailers and distributors. We maintain a broad base of customers and concentrate our efforts on department stores, wholesalers, national jewelry chains, fine jewelers, and stores that sell fashionable jewelry. We also work closely with our major customers and attempt to adjust our product strategies and structure based on customer feedback in order to decrease the likelihood of overstocked, undesired products.

Our products are mainly designed for the middle income class in China, with an emphasis on young women. Approximately 50% of our designs are for 20 to 40 year old women, 5% of our designs are for new-born children, 20% of our designs are for middle-aged men and 25% of our designs are for middle to older-aged women. Our products are sold in China at average retail pricesequivalent to $200 to $300, including tax. At present, approximately 5 to 6% of our products are marketed on a private label basis, but we anticipate that this percentage will decrease as we continue to develop the “Fuqi” brand.

We continue to invest in our brand and our marketing ability in order to increase demand for our products. During the past several years, we have carried out a brand development strategy based on product quality and design excellence. We have participated in various marketing activities and exhibitions to promote our products and brand. For example, in 2004, we were the laurel sponsor for multiple beauty pageants, including the “Miss Intercontinental Final” and the “Miss China Universe.” As a laurel sponsor, we designed and crafted the laurels and/or batons that were presented to a contest winner, in addition to the contest’s second and third place runner-ups. We have also sponsored numerous beauty contests such as:

·   the Final of Miss Global of WTO;

·   the 17th World Miss University Contest;

·   the 1st China Miss University Contest; and

·   China Final of Miss World.

We believe that the laurels and batons created in connection with our sponsorship of beauty contests provided us an opportunity to showcase our design and craftsmanship ability, in addition to strengthening our brand recognition.

We have received various governmental awards with respect to our brand, including recognition by the China Light Product Quality Assurance Center as a “Chinese Famous Brand,” which is reserved for the top ten most recognized brands of the jewelry industry in China. We have also received other recognitions, including, from the Gems & Jewelry Trade Association of China as a “Famous Brand in the China Jewelry Industry”, from Committee of Shenzhen Famous Brand Accreditation as a “Shenzhen Well-known Brand”, from the Shenzhen City Enterprises Evaluation Association as one of the “Shenzhen 300 enterprises with Ultimate Growth” and from Moody United Certification Ltd as “China Quality Promise Credit Management Enterprise (Brand)”. We believe that governmental awards and other forms of recognition raise brand recognition for our products.

The “Fuqi” trademark has been registered in the United States, Italy, Japan, Hong Kong and China.

Supply of Raw Materials

We are a full member of the Shanghai Gold Exchange and a standing council member of the Shenzhen Gold Association of China. The Shanghai Gold Exchange is our primary supply source for precious metals used in our jewelry offerings.

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We maintain our supply of raw materials at our warehouse in Shenzhen, China. We purchase large volumes of precious metals approximately five times per month from the Shanghai Gold Exchange in advance and in anticipation of orders resulting from our marketing programs. When we make purchases on the Shanghai Gold Exchange, the Exchange issues a receipt to us that we can redeem for precious metals at various commercial banks in Shenzhen.

To minimize the risk of storage and devaluation, we only purchase pre-cut gemstones, including ruby and jade, upon customers’ requests. We do not have a designated supplier for these pre-cut stones. When a customer places an order that requires pre-cut stones, we purchase the pre-cut stones as required from local supplies in Shenzhen.

Competition

The jewelry production industry is highly competitive, and our competitors include domestic and foreign jewelry manufacturers, wholesalers, and importers who may operate on a national, regional and local scale. Many of our competitors have substantially greater financial, technical and marketing resources and personnel than us. Our strategy is to provide competitively priced, high-quality products to the high-volume retail jewelry market. We believe competition is largely based on quality, service, pricing, and established customer relationships.

We intend to enter into the retail jewelry industry, which is also highly competitive. Many of our potential competitors in the retail industry have larger customer bases, longer operating histories and significantly greater financial, technical, marketing and other resources. Most of these retailers, including Chow Sang Sang Group, Luk Fook Jewelry, TSL Jewelry and Hang Fung Gold Technology, have numerous branches set up across China and may have secured the most desirable locations for retail stores. It may be difficult for a newcomer to enter into the retail industry, but based on our extensive analysis, market review, and planning, we believe that our established production and wholesale distribution business will facilitate our entrance into the retail market.

Major Customers

During the years ended December 31, 2005 and 2004 approximately 15% and 16% of our sales were generated from one customer, Beijing Hua Shang Rui Lin Trading Co., Ltd., which is a distributor of jewelry in northern China. During the six months ended June 30, 2007, 9% of our sales were generated from one customer, Beijing Caishikou Department Store Co., Ltd. During the year ended December 31, 2006, there was no single customer that generated more than 10% of the total sales.

Government Regulations

We are subject to various laws and regulations in the PRC, affecting all aspects of our business. In April 2001, the Shenzhen Business Bureau granted our wholly-owned subsidiary, Fuqi China, the right to operate for a period of ten years from the date of inception. On May 17, 2006, we converted Fuqi China into a wholly-foreign-owned enterprise, or WFOE, and formally transferred the ownership of Fuqi China from the founder, Mr. Yu Kwai Chong, to Fuqi BVI. Neither this transfer nor the Reverse Merger changed our business plan. The right to operate as a WFOE expires 30 years from the date of establishment but, based on current PRC legislation, this right is renewable by application. A WFOE can only conduct business within its approved business scope, which appears on its business license. Our license permits us to design, manufacture, sell and market jewelry products to department stores throughout the PRC, and allows us to engage in the retail distribution of our products. Any further amendment to the scope of our business will require additional applications and government approval. We cannot assure you that we will be able to obtain the necessary government approval for any change or expansion of our business.

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Under applicable PRC laws, supplies of precious metals such as platinum, gold and silver are highly regulated by certain government agencies, such as the People’s Bank of China. Shanghai Gold Exchange is the only PBOC authorized supplier of precious metal materials and, therefore, the primary source of supply for our raw materials, which substantially consist of precious metals. We are required to obtain several membership and approval certificates from these government agencies in order to continue to conduct our business. We may be required to renew such memberships and to obtain approval certificates periodically. If we are unable to renew these periodic membership or approval certificates, it would materially affect our business operations. We are currently in good standing with these agencies.

We have also been granted independent import and export rights. These rights permit us to import and export jewelry in and out of China. With the relatively lower cost of production in China, we intend to expand into overseas markets after the launch of our China-based retail plan. We do not currently have plans to import jewelry into China.

Our production facilities in Shenzhen are subject to environmental regulation by the Environmental Protection Bureau of Shenzhen. We hold all requisite operating permits from the Environmental Protection Bureau. Our permits confirm that we are in compliance with local regulations governing waste production and disposal and that our production facilities meet the public safety regulations regarding refuse, emissions, lights, noise and radiation. To date, we have never been cited for any environmental violations.

Employees

We have more than 600 full-time employees. Our employees are part of a labor association that represents employees with respect to labor disputes and other employee matters. We have never experienced a work stoppage or a labor dispute that has interfered with our operations. We believe our relationship with our employees is good.

We are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and job injuries insurance, and a housing assistance fund, in accordance with relevant regulations. Total contributions to the funds are approximately $34,000, $30,000 and $24,000 for the years ended December 31, 2006, 2005 and 2004, respectively. We expect that the amount of our contribution to the government’s social insurance funds willincrease in the future as we expand our workforce and operations.

We also provide housing facilities for our employees. At present, approximately 95% of our employees live in company-provided housing facilities.

Facilities

Our principal executive offices are located at 5/F., Block 1, Shi Hua Industrial Zone, Cui Zhu Road North, Shenzhen 518019, China. We own approximately 15,000 square feet of office and showroom space at this location.

Our jewelry production facility is located in Shenzhen, China and, including office spaces, consists of approximately 66,000 square feet of building space. We own approximately 33,000 square feet of this space indirectly through our Chairman, Yu Kwai Chong, and his wife, both of whom hold the property in trust for our benefit. The remaining 33,000 square feet has been leased by us from Shenzhen Jin Tong Hai Enterprises Ltd, since July 2005. We use the space for production facilities, offices and showrooms. Pursuant to the terms of the lease, we lease the space for approximately $118,000 per annum. The lease agreement will terminate in June 2010. We have the right to renew the lease prior to its termination. At the time of renewal, the lease amount will be renegotiated, and based on the current industrial leasing market, we expect that the lease amount will be increased by approximately 35% in the year 2010.

Legal Proceedings

We are not a party to any material legal proceedings.

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MANAGEMENT

Directors and Executive Officers

The following individuals compose our current board of directors and executive officers.

Name	Age	Position
Yu Kwai Chong	47	President, Chief Executive Officer and Chairman of the Board
Ching Wan Wong	40	Chief Financial Officer and Director
Lie Xi Zhuang	39	Chief Operating Officer and Director
Xi Zhou Zhuo	39	Marketing Director
Heung Sang Fong	48	Executive Vice President of Corporate Development
Hon. Lily Lee Chen	72	Director
Victor A. Hollander	75	Director
Eileen B. Brody	45	Director
Jeff Haiyong Liu	44	Director

Yu Kwai Chong

Mr. Yu Kwai Chong is the principal founder of our company and has served as President, Chief Executive Officer and Chairman of the Board of Directors since April 2001. As the principal founder and Chief Executive Officer, Mr. Chong is dedicated to develop our company as the leader of the Chinese jewelry industry; in day-to-day operations, Mr. Chong is responsible for the strategic planning, marketing and overall growth of our company. Mr. Chong has significant experience in the Chinese jewelry industry, having established the first gold jewelry manufacturing and sales company in Shenzhen over 20 years ago. Mr. Chong is also the Permanent Director of the Gems & Jewelry Trade Association of China, Permanent Director of the Gems & Jewelry Trade Association of Guangdong and Associate President of Shenzhen Gold Jewelry Association. Mr. Chong also currently serves as a director at a number of private companies that he owns in China, including Shenzhen Rongxing (Group) Limited, Shenzhen Xinke Investment Co., Ltd.

Ching Wan Wong

Mr. Wong has served as our Chief Financing Officer since January 2004. In addition, Mr. Wong has worked as a tax consultant at the Guandong Yuexin Registered Tax Agent Co., Ltd. from April 2002 to the present. From September 2000 to March 2002, Mr. Wong served as the Finance Director of MindShare China, a communications firm. From 1995 to 2000, before serving MindShare, Mr. Wong served as Finance Director - China operation for Carat Media Representative (Asia) Limited, a multinational media company and Head of Finance - China for a foreign invested media company. Mr. Wong received his Bachelor of Business Administration from the Chinese University of Hong Kong and his Bachelor of Commerce from University of Southern Queensland. He is a Certified Practicing Accountant in Australia, Certified Public Accountant in Hong Kong, and Certified General Accountant in Canada, and is experienced in international financial reporting and management.

Lie Xi Zhuang

Mr. Zhuang is a co-founder and has served as our Chief Operating Officer since April 2001 with responsibility for production management and cost control. From 1997 to 2000, Mr. Zhuang served as the Business Manager of Shenzhen Ping Shen Gold and Silver Jewelry Co., Ltd., and from 1993 to 1997, Mr. Zhuang acted as the Business Manager of Shenzhen Gao De Gold and Silver Jewelry Company. Mr. Zhuang is certified with a Higher Diploma in Management by Hunan Xiang Tan University.

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Mr. Xi Zhou Zhuo

Mr. Zhuo is a co-founder and has served as our Marketing Director since 2001 with responsibility for marketing and customer relations management. From 1997 to 2000, Mr. Zhuo served as the Deputy General Manager of Shenzhen Ping Shen Gold and Silver Jewelry Co., Ltd., and from 1993 to 1997, Mr. Zhuo was the Sales Manager of Shenzhen GaoDe Gold and Silver Jewelry Company. Mr. Zhuo has over 15 years of experience in sales and marketing of jewelry in China.

Heung Sang Fong

Mr. Fong has served as the Executive Vice President of Corporate Development of our company since December 2006 and is responsible for our corporate development program, including investor relations. From January 2004 to November 2006, Mr. Fong served as the managing partner of Iceberg Financial Consultants, a financial advisory firm based in China that advises Chinese clients in capital raising activities in the United States. From December 2001 to December 2003, Mr. Fong was the Chief Executive Officer of Holley Communications, a Chinese company that engaged in CDMA chip and cell phone design. From March 2002 to March 2004, he served as Chief Executive Officer of Pacific Systems Control Technology, Inc. From May 2001 to November 2001, Mr. Fong was the Director of Finance of PacificNet, Inc., a customer relationship management, mobile internet, e-commerce and gaming technology based in China and listed on the Nasdaq Global market. From December 1998 to April 2001, he was the Group Financial Controller of Oregon Scientific, a wholly-owned subsidiary of IDT, a Hong Kong Stock Exchange-listed company. Mr. Fong also practiced as a U.S. CPA and held various positions with accounting firms in the United States and Hong Kong, including Deloitte and Touche, Ernst and Young, and KPMG Peat Marwick. Mr. Fong also currently serves as an independent director and audit committee member of a Hong Kong public company, Universal Technology Inc. Mr. Fong also serves as a director and audit committee chairman, for each of Diguang International Development Co., Ltd. (OTCBB:DGNG) and Stone Mountain Resources, Inc. (OTCBB:SMOU), both U.S. publicly-traded companies. Mr. Fong graduated from the Baptist University with a diploma in History in 1982. He also has an MBA from the University of Nevada at Reno and a Masters in Accounting from the University of Illinois at Urbana Champaign.

Hon. Lily Lee Chen

Hon. Ms. Chen has served as a director since June 2007. She is presently Vice-Chair for the Asian-Pacific-USA Chamber of Commerce. She is a Commissioner for the California Commission on Aging. In 1982, Ms. Chen was elected to the Monterey Park City Council. In 1984, she became mayor of Monterey Park, California. Hon. Ms. Chen’s public service includes positions in: the Advisory Committee on the rights Right and Responsibilities of Women, as appointed by President Ford; the National Advisory Council on Adult Education, as appointed by President Carter; California State World Trade Commission as the appointed Assembly Speaker; Women in the Services (DACOWITS) as an Advisor appointed by Secretary of Defense Perry and the Board of Governor’s of the East-West Center in Hawaii, as appointed by President Clinton and Secretary of State Albright. Hon. Ms. Chen earned her bachelor’s degree in communications and a Master’s in social work from the University of Washington, Seattle. Ms. Chen began her professional career in 1964, working for the Los Angeles County where she directed operations, program and grants management for numerous County programs. Her responsibilities included the management and supervision of a seventy million dollar budget and over four hundred employees.

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Victor A. Hollander

Mr. Hollander, a CPA, has served as a director since June 2007. With nearly 50 years of experience working with privately owned and public SEC reporting companies worldwide, Mr. Hollander has been involved in a substantial number of initial and secondary public offerings. In addition, he regularly assists companies with accounting issues relating to public and private offerings and reverse mergers, corporate reorganizations and acquisitions, and other fund raising and regulatory matters. Mr. Hollander began his public accounting career in 1954 at Joseph S. Herbert & Co., a prominent New York accounting firm. He has specialized in capital raises and merger and acquisition matters since 1962 when he started the firm Berger, Turner & Hollander. At this firm, he was the audit partner of the first Los Angeles ladies dress manufacturer to go public. In 1966, he joined Brout & Company and opened their offices in Los Angeles. During this time, he was the audit partner for many public companies listed on the New York Stock Exchange and the American Stock Exchange. In 1975, he joined an international public accounting firm, Lester Witte, as the firm’s Senior Securities Partner. In 1978 he formed his own practice, Hollander, Gilbert & Company. It was this practice that Mr. Hollander merged, as Managing Director of the West Coast Group, with Weinberg & Company. Mr. Hollander, after attending the University of Illinois, University of California at Los Angeles and after completing military service, graduated from Los Angeles State College with a Bachelor of Arts degree in Accounting. He has served on the Securities, Ethics and Accounting and Auditing Committees of various organizations, including the American Institute of Certified Public Accountants and California State Society of Certified Public Accountants. In addition, Mr. Hollander has served as a director, including as Chair of the audit committee, of several SEC reporting companies. He is currently serving as a director of China Direct (OTC.BB) and Micro Imaging Technology (OTC.BB).

Eileen B. Brody

Ms. Brody has served as a director since June 2007.  Since August, 2005, Ms. Brody has been President of Dawson-Forte Cashmere, an apparel trading company that sources the majority of their cashmere products from China.  From 1997 to 2004, she was the Vice President of Merchandising and Planning for Carter's Retail division of The William Carter Company.  From 1992 to 1997, she held various management positions for Melville Corporation, a multi-billion dollar retailer.  From 1983 to 1990, Ms. Brody worked for KPMG Peat Marwick in various positions including as a Senior Manager.  While at KPMG, she was responsible for audit services for a diverse clientele of large Fortune 500 companies as well as small publicly traded companies and provided due diligence services on a wide variety of acquisitions.  Ms. Brody is a Certified Public Accountant.  She is the recipient of the Fitzie Foundation-Harvard Business School award and the 2006 NCCE CO-OP Hall of Fame Award.  She received her Undergraduate and MBA degrees from Pace University and a second MBA from the Harvard Graduate School of Business. Ms. Brody is also a member of the board of directors of American Oriental Bioengineering Inc., a company listed on the New York Stock Exchange.

Jeff Haiyong Liu

Jeff Haiyong Liu has served as a director of our company since June 2007. Mr. Liu, who is a U.S. citizen born in China, is General Manager of DBS (China) Investment Ltd., which is a wholly owned subsidiary of Singapore DBS Bank Group in China from December 2005 to the present. Prior to joining DBS, Mr. Liu served as a Vice President of SIG Group based in Shanghai from June 2000 to November 2005, where he focused on China Banking and trust and financial services opportunities. From January 1994 to September 1995, Mr. Liu worked in a Hong Kong based investment firm headquartered in Mainland China and was in charge of investment business for real estate and capital markets. In 1992, he served as Director of Securities Dept. of Shaanxi International Trust and Investment Corp. Ltd. and assisted in bringing the company's stock public in a $40 million public offering. Prior to 1992, Mr. Liu was Deputy Manager of International Banking Department of China Construction Bank, Shaanxi. Mr. Liu received an MBA from Indiana University at Bloomington, majoring in finance. He graduated from undergraduate school in 1985 in Xi'an, Shaanxi, majoring in finance.

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Our directors are elected annually and hold office until their successors have been elected or qualified or until the earlier of their death, resignation, retirement, disqualification or removal.

Board Member Independence

Subject to certain exceptions, under the listing standards of the Nasdaq Global Market, within one year of the effectiveness of a registration statement filed with the Securities and Exchange Commission in connection with a public offering of securities, a listed company’s board of directors must consist of a majority of independent directors. As a “controlled” company under such listing standards, we are not required to comply with this requirement. However, we have determined to do so in the interests of good corporate governance and accountability to all of our stockholders. Our board of directors has determined that four of the seven members of our Board of Directors are independent under NASDAQ standards, as follows: Hon. Lily Lee Chen, Victor A. Hollander, Eileen B. Brody and Jeff Haiyong Liu.

Family Relationships

There are no family relationships among the individuals comprising our Board of Directors and executive officers.

Duties of Directors

Under Delaware corporate law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our bylaws. A company has the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among other things:

·   convening shareholders’ meetings and reporting its work to shareholders at such meetings;

·   implementing shareholders’ resolutions;

·   approving our business plans and investment proposals;

·   approving our profit distribution plans and loss recovery plans;

·   approving our debt and finance policies and proposals for the increase or decrease in our registered capital and the issuance of debentures;

·   approving our major acquisition and disposition plans, and plans for merger, division or dissolution;

·   proposing amendments to our certificate of incorporation or bylaws; and

·   exercising any other powers conferred by the shareholders’ meetings or under our bylaws.

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Board Committees

Audit Committee. We established our audit committee in June 2007. The audit committee consists of Eileen B. Brody, Victor A. Hollander, and Jeff Haiyong Liu, each of whom is an independent director. Mr. Hollander, Chairman of the audit committee, and Ms. Brody are “audit committee financial experts” as defined under Item 407(d) of Regulation S-K. The purpose of the audit committee is to represent and assist our board of directors in its general oversight of our accounting and financial reporting processes, audits of the financial statements and internal control and audit functions. Pursuant to our audit committee charter, which was adopted by our Board of Directors in June 2007, the audit committee’s responsibilities include:

·   The appointment, replacement, compensation, and oversight of work of the independent auditor, including resolution of disagreements between management and the independent auditor regarding financial reporting, for the purpose of preparing or issuing an audit report or performing other audit, review or attest services.

·   Reviewing and discussing with management and the independent auditor various topics and events that may have significant financial impact on our company or that are the subject of discussions between management and the independent auditors.

Compensation Committee. We established our compensation committee in June 2007. The compensation committee consists of Eileen B. Brody, Victor A. Hollander and Jeff Hiayong Liu, each of whom is an independent director. Mr. Liu is the Chairman of the compensation committee. Pursuant to our compensation committee charter, which was adopted by our Board of Directors in June 2007, the compensation committee is responsible for the design, review, recommendation and approval of compensation arrangements for our directors, executive officers and key employees, and for the administration of our 2006 Equity Incentive Plan, including the approval of grants under the plan to our employees, consultants and directors. The compensation committee also reviews and determines compensation of our executive officers, including our Chief Executive Officer.

Nominating and Corporate Governance Committee. We established our nominating and corporate governance committee in June 2007. The nominating and corporate governance committee consists of Hon. Lily Lee Chen, Eileen B. Brody and Jeff Haiyong Liu, each of whom is an independent director. Eileen B. Brody is the Chairman of the nominating and corporate governance committee. Pursuant to our nominating and corporate governance committee charter, which was adopted by our Board of Directors in June 2007, the nominating and corporate governance committee assists in the selection of director nominees, approves director nominations to be presented for stockholder approval at our annual general meeting and fills any vacancies on our board of directors, considers any nominations of director candidates validly made by stockholders, and reviews and considers developments in corporate governance practices.

Director Compensation

For the year ended December 31, 2006, none of the members of our Board of Directors received compensation for his or her service as a director. In June 2007, we adopted a director compensation policy. We currently pay our non-employee directors the following compensation:

·   Base Annual Board Service Fee: Each independent director is paid $5,000 per quarter (or $20,000 annually).

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·   In-Person Board Meeting Fee: Each independent director is paid $2,000 for in-person attendance at each in-person board meeting. No fees are paid for telephonic meetings or telephonic attendance at in-person board meetings.

·   Base Annual Committee Service Fee: Each member of the compensation committee receives $2,000 annually and each member of the audit committee receives $2,500 annually for committee service.

·   Expenses: Each director receives expense reimbursement for reasonable travel for in-person board and committee meeting attendance.

Independent directors are eligible to receive, from time to time, grants of options to purchase shares under our 2006 Equity Incentive Plan as determined by the board of directors. At the effective date of this offering, the Board will grant ten-year stock options to each independent director to purchase 30,000 shares of our common stock, at an exercise price equal to 100% of the price of the shares offered hereby, 15,000 shares to vest on the effective date of this offering and the remaining 15,000 shares to vest in equal quarterly installments over one year from the date of the grant.

Corporate Governance

Our Board of Directors has adopted a code of ethics, which is applicable to our senior executive financial officers. In addition, our Board of Directors has adopted a code of conduct, which is applicable to all of our directors, officers and employees. We will make our code of ethics and our code of conduct publicly available on our website.

Remuneration

The directors may determine remuneration to be paid to the directors. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Our Chairman, Chief Executive Officer, and President, Mr. Yu Kwai Chong, determined the compensation for our current executive officers that was earned and paid in fiscal 2006. The compensation consisted solely of each executive officer’s salary. None of our current executive officers received a cash bonus during the fiscal years of 2006, 2005 and 2004. We believe that the current salaries paid to our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer during 2006, 2005, and 2004 is indicative of the fair value of the services provided to us, as measured by the local market in China.

We intend to enter into five-year employment agreements with each of our executive officers, with such agreements to become effective upon the effective date of this offering. Yu Kwai Chong, our Chief Executive Officer, will receive an annual salary of $200,000 and an automobile allowance of approximately $52,000, and will be issued stock options on an annual basis with ten-year terms to acquire shares having a market value of 2% of our annual profit approximately before tax, not exceeding $200,000 in value as set forth in our annual report on Form 10-K for the relevant period as filed with the SEC. The exercise price of such options shall be equal to 110% of the fair market value of our common stock on the date of the grant.

Ching Wan Wong, our Chief Financial Officer, will receive an annual salary of $160,000 and will be issued, on the effective date of this offering, stock options with ten-year terms to acquire 600,000 shares of common stock at a per share exercise price equal to 100% of the public offering price of the shares offered by this prospectus. One-third of the stock options will vest upon the effective date of this offering and the remaining two-thirds will vest in two equal annual installments over the 24-month period after the effective date of this offering.

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Each of Lie Xi Zhang, our Chief Operating Officer, and Xi Zhou Zhuo, our Marketing Director, will receive an annual salary of $120,000 and will be issued ten-year stock options to acquire shares having a market value of 1% of our annual profit before tax, not exceeding $120,000 in value as set forth in our annual report on Form 10-K as filed with the SEC. The exercise price of such options shall be equal to 100% of the fair market value of our common stock on the date of the grant.

Heung Sang Fong, our Vice President of Corporate Development, will receive an annual salary of $120,000 and will be issued, on the effective date of this offering, ten-year stock options to acquire 600,000 shares of common stock at a per share exercise price equal to 100% of the public offering price of the shares offered by this prospectus. One-third of the stock options will vest upon the effective date of this offering and the remaining two-thirds will vest in two equal annual installments over the 24-month period after the effective date of this offering.

The reason for the substantially higher compensation we will begin paying our executive officers on the effective date of this offering is based on the increased amount of responsibilities to be assumed by each of these executives after we become a publicly listed company.

Summary Compensation Table

The following table sets forth information concerning the compensation for the three fiscal years ended December 31, 2006, 2005, and 2004 of the principal executive officer, principal financial officer, in addition to, as applicable, our three most highly compensated officers whose annual compensation exceeded $100,000, and up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as our executive officer at the end of the last fiscal year (collectively, the “Named Executive Officers”).

Name and Position	Year		Salary($)			All Other Compensation ($)			Total ($)
Yu Kwai Chong		2006	$	7,384(1	)	$	31,400(2)(3	)	$	38,784
President, CEO and		2005		5,000			31,400(2)(3	)		36,400
Chairman of the Board		2004		4,000			--(2	)		4,000
Ching Wan Wong		2006		56,410(4	)		--			56,410
Chief Financial Officer		2005		8,000			--			8,000
		2004		37,000			--			37,000
Phillip Cory Roberts		2006		--			--			--
Former President of predecessor company(5)		2005		--			--			--
		2004		--			--			--

________

(1) On the effective date of this offering, Mr. Chong’s annual salary will be increased to $200,000.

(2) Excludes dividends paid to Mr. Chong, as the sole stockholder of Fuqi’s subsidiary, totaling $2,739,726, $5,421,687, $3,975,904, during the years ended December 31, 2006, 2005, and 2004, respectively.

(3) We acquired a new company car costing approximately $157,000 for the use of Mr. Chong in 2005. The value of the car is being amortized over 5 years.

(4) On the effective date of this offering, Mr. Wong’s annual salary will be increased to $160,000.

(5) Mr. Roberts was the President of VT Marketing Services, Inc., the predecessor of Fuqi International, Inc., prior to a reverse merger with that company in November 2006 that resulted in our current corporate structure (the “Reverse Merger”). Mr. Roberts resigned from all positions with VT Marketing Services, Inc. upon the close of the Reverse Merger on November 22, 2006.

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Grants of Plan-Based Awards in 2006

There were no option grants in 2006.

Outstanding Equity Awards at 2006 Fiscal Year-End

There were no option exercises or options outstanding in 2006.

Option Exercises and Stock Vested in Fiscal 2006

There were no option exercises or stock vested in 2006.

Equity Incentive Plans

We filed an information statement on Schedule 14C with the SEC on August 23, 2007 announcing our intention to adopt a new Fuqi International, Inc. 2007 Equity Incentive Plan (“2007 EIP”), which has been approved by our Board of Directors and stockholders. We currently have a 2006 Equity Incentive Plan (“2006 EIP”), which we intend to cancel and terminate immediately prior to the adoption of the 2007 EIP. There are currently no options or other securities outstanding under the 2006 EIP. We intend to adopt the 2007 EIP in September 2007, but in no event sooner than 20 days after the information statement is mailed to our stockholders. Summaries of the pertinent provisions of both the 2006 EIP and 2007 appear below.

2006 Equity Incentive Plan (pending termination)

In November 2006, our stockholders approved an equity incentive plan (“2006 EIP”) for employees, non-employee directors and other service providers covering 3,000,000 shares of common stock. Prior to this, we had an approved the 2004 Equity Incentive Plan, which was replaced by the 2006 EIP. No options are currently outstanding under either plan. Any options to be granted under the 2006 EIP may be either “incentive stock options,” as defined in Section 422A of the Internal Revenue Code, or “nonqualified stock options,” subject to Section 83 of the Internal Revenue Code, at the discretion of our board of directors and as reflected in the terms of the written option agreement. The option price shall not be less than 100% of the fair market value of the optioned common stock on the date the option is granted. The option price shall not be less than 110% of the fair market value of the optioned common stock for an optionee holding at the time of grant, more than 10% of the total combined voting power of all classes of our stock. Options become exercisable based on the discretion of our board of directors and must be exercised within ten years of the date of grant.

2007 Equity Incentive Plan (pending adoption)

We intend to adopt the Fuqi International, Inc. 2007 Equity Incentive Plan (“2007 EIP”) in September 2007, but in no event sooner than 20 days after the information statement on Schedule 14C, described above,is mailed to our stockholders. Our employees, officers and directors (including employees, officers and directors of our affiliates) will be eligible to participate in the 2007 EIP. Administration of the 2007 EIP will be carried out by our Board of Directors or any committee of the Board of Directors to which the Board of Directors has delegated all or a portion of responsibility for the implementation, interpretation or administration of the equity incentive plan. The administrator of the 2007 EIP will select the participants who are granted stock options or stock awards and, consistent with the terms of the equity incentive plan, will establish the terms of each stock option or stock award. The maximum period in which a stock option may be exercised will be fixed by the administrator, but in no event longer than ten years.

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The 2007 EIP authorizes the issuance of options to purchase shares of common stock under the Option Grant Program and the grant of stock awards under the Stock Issuance Program. Although the administrator determines the exercise prices of options granted under the2007 EIP, the exercise price per share may not be less than 100% of the “fair market value,” as defined in the equity incentive plan, on the date of grant. Options that are granted under the equity incentive plan vest and terminate over various periods at the discretion of the Board of Directors or any committee authorized by the Board of Directors, but subject to the terms of the plan. Under the Stock Issuance Program, shares of our common stock may be issued through direct and immediate issuance without any intervening options grants.

The 2007 EIP will terminate upon the earliest of (i) the expiration of the ten year period measured from the date we adopt the plan, (ii) the date on which all shares available under the plan have been issued as vested shares, or (iii) the termination of all outstanding options in connection with a change in our ownership or control. Nevertheless, options granted under the 2007 EIP may extend beyond the date of termination. Under the2007 EIP, the maximum number of shares of common stock that may be subject to stock options or stock awards is 4,000,000.

Indemnification of Directors and Executive Officers and Limitations of Liability

In December 2006, we changed our state of incorporation from Nevada to Delaware and we are now governed by Delaware law and the certificate of incorporation and bylaws of the new Delaware corporation. Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law. Our bylaws further provide that our Board of Directors has discretion to indemnify our officers and other employees. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under the bylaws or otherwise. We are not, however, required to advance any expenses in connection with any proceeding if a determination is reasonably and promptly made by our Board of Directors by a majority vote of a quorum of disinterested Board members that (i) the party seeking an advance acted in bad faith or deliberately breached his or her duty to us or our stockholders and (ii) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the applicable sections of our bylaws.

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We have been advised that in the opinion of the Securities and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We may enter into indemnification agreements with each of our directors and officers that are, in some cases, broader than the specific indemnification provisions permitted by Delaware law, and that may provide additional procedural protection. As of the Effective Time of the Reverse Merger, we had not entered into any indemnification agreements with our directors or officers, but may choose to do so in the future. Such indemnification agreements may require us, among other things, to:

·   indemnify officers and directors against certain liabilities that may arise because of their status as officers or directors;

·   advance expenses, as incurred, to officers and directors in connection with a legal proceeding, subject to limited exceptions; or

·   obtain directors’ and officers’ insurance.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Fuqi BVI Share Exchange Agreement

On November 20, 2006, Fuqi BVI effected the Reverse Merger by entering into a share exchange agreement with VT Marketing Services, Inc. (“VT”) and Mr. Yu Kwai Chong, who is our current Chief Executive Officer and Chairman of the Board of the Directors. Pursuant to the Reverse Merger, Mr. Chong, as the sole shareholder of Fuqi BVI, agreed to exchange all of his shares of Fuqi BVI for shares of VT and VT agreed to acquire all of the issued and outstanding capital stock of Fuqi BVI. VT was formed as part of the implementation of a Chapter 11 reorganization plan of visitalk.com, Inc., which became effective on September 17, 2004. The Reverse Merger closed on November 22, 2006 and VT issued an aggregate of 18,886,666 shares of common stock in exchange for all of the issued and outstanding securities of Fuqi BVI. Upon the close of the Reverse Merger, VT became the 100% parent of Fuqi BVI and assumed the operations of Fuqi BVI and its subsidiary as its sole business. We issued to Mr. Yu Kwai Chong, who was the sole Fuqi BVI stockholder, 18,886,666 shares of common stock in exchange for all of the issued and outstanding shares of capital stock of Fuqi BVI. The new shares issued to Mr. Chong represented 91.2% of our voting capital stock immediately after the Reverse Merger. Mr. Chong is also the Chairman of Fuqi BVI and our Chief Executive Officer and Chairman of the Board. Prior to the effective date of the Reverse Merger, Bay Peak LLC (“Bay Peak”) beneficially owned substantially all of our capital stock. Bay Peak currently beneficially owns approximately 6.3% of our issued and outstanding shares of common stock immediately prior to this offering.

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Transactions with Bay Peak

On July 21, 2006, VT Marketing Services Inc. (“VT”), the predecessor of Fuqi International, Inc., sold 1,368,761 shares of common stock to Bay Peak, of which 8,761 shares were subsequently cancelled upon the close of the Reverse Merger. The shares issued to Bay Peak represented 75% of the outstanding shares of VT at that time. Cory Roberts, the President of Bay Peak and former President of VT, resigned from VT upon the closing of the Reverse Merger on November 22, 2006.

On May 2, 2007, we entered into a letter agreement with Bay Peak to assist us in the potential exercise of outstanding Series C Plan Warrants and Series E Plan Warrants (the “Warrants”). We issued a notice of redemption on May 10, 2007 pursuant to which the Warrants would be redeemed on June 8, 2007. Pursuant to the letter agreement, Bay Peak provided advisory services with respect to the redemption and potential exercise of the Warrants prior to the redemption. We paid Bay Peak an advisory fee of $10,000, a bonus fee of 6% of the gross proceeds from the exercise of the Warrants (approximately $178,000) and out-of-pocket expenditures of $10,000.

Further to a registration rights agreement with Bay Peak, we agreed to register shares of our common stock held by it upon request commencing February 26, 2008 if we are then eligible to use Form S-3 and if such shares are not then saleable under Rule 144.

Yu Kwai Chong

Mr. Yu Kwai Chong, who is our controlling stockholder, President, Chief Executive Officer and Chairman of the Board, has conducted various related party transactions with our company in the past. These transactions include the following:

·   During the period from the inception of Fuqi China in April 2001 until November 22, 2006, when Mr. Chong ceased to be our sole stockholder, Mr. Chong collected a portion of our revenues directly from our customers as the primary contact with our customers. During the years ended December 31, 2006, 2005 and 2004, our total net sales amounted to $92.4 million, $72.6 million, and $56.8 million, and the amounts collected by Mr. Chong totaled $3.0 million, $6.1 million and $4.5 million, respectively. Beginning December 2006, Mr. Chong stopped collecting cash revenue on behalf of our company and all revenues are now deposited into our bank accounts. The revenues collected by Mr. Chong were included in the total revenue amounts in our audited consolidated financial statements for the years ended December 31, 2006, 2005 and 2004 included in this prospectus.

·   Mr. Chong has frequently borrowed from us since the inception of our operations to fund personal liquidity needs. As of December 31, 2006, we discontinued this practice and Mr. Chong repaid the balance to us in full. On aggregate, we loaned $51.5 million, $90.0 million, and $546,203 to Mr. Chong, and collected $58.4 million, $75.6 million, and $0, during the years ended December 31, 2006, 2005, and 2004, respectively. Outstanding balance due from Mr. Chong to us amounted to $0 and $9.5 million as of December 31, 2006 and 2005, respectively.

·   We have frequently borrowed from Mr. Chong since the inception of our operations to satisfy our short- term working capital needs. On aggregate, we borrowed $23.5 million, $0, and $24.1 from Mr. Chong and repaid $23.1 million, $0, and $30.0 million during the years ended December 31, 2006, 2005, and 2004. Outstanding loans payable to Mr. Chong amounted to $422,909 and $0 as of December 31, 2006 and 2005, respectively.

·   Prior to the Reverse Merger, we declared dividends to Mr. Chong, as our sole stockholder, totaling $2.7 million, $5.4 million and $4.0 million during the years ended December 31, 2006, 2005 and 2004, respectively, which offset the amounts due from Mr. Chong.

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·   Rong Xing (Group) Co., LTD., a company owned and controlled by Mr. Chong, guarantees and provides real property to secure loan facilities that we have taken with several banks. The guarantee is provided at no charge to us.

We did not charge any interest on receivable from nor pay any interest on amount due to related parties.

Heung Sang Fong

Our current Executive Vice President of Corporate Development, Heung Sang Fong, was the managing partner of Iceberg Financial Consultants (“IFC”), a financial advisory firm based in China that advises Chinese clients in capital raising activities in the United States. In April 2006, IFC was engaged to assist in the Reverse Merger between Fuqi BVI, Mr. Yu Kwai Chong, and VT Marketing Services, Inc. The Reverse Merger closed in November 2006. For the year ended December 31, 2006, we paid IFC a total of $0 in compensation for its services.

Ching Wan Wong

Our Chief Financial Officer, Ching Wan Wong was paid a one-time discretionary bonus of $89,941 in connection with the exercise of Series C Plan and Series E Plan warrants in June 2007. We provided a notice of redemption, and upon expiration of the call period on June 8, 2007, warrants had been exercised for a total of 977,119 shares of our common stock for total gross proceeds from conversion of $2,931,357; all other remaining Series C Plan and Series E Plan warrants expired unexercised.

Policy for Approval of Related Party Transactions

We do not currently have a formal related party approval policy for review and approval of transactions required to be disclosed pursuant to Item 404 (a) of Regulation S-K. We expect our audit committee to adopt such a policy during the current fiscal year.

BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or become exercisable within 60 days of the date of this prospectus are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

The following table sets forth certain information with respect to beneficial ownership of our common stock based on 21,692,503 issued and outstanding shares of common stock, by:

·   Each person known to be the beneficial owner of 5% or more of the outstanding common stock of our company;

·   Each executive officer;

·   Each director; and

·   All of the executive officers and directors as a group.

Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Fuqi International, Inc., 5/F., Block 1, Shi Hua Industrial Zone, Cui Zhu Road North, Shenzhen, 518019, People’s Republic of China.

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Name and Address of Beneficial Owner	Title		Beneficially Owned		Percent of Class Beneficially Owned Prior to the Offering			Percent of Class Beneficially Owned After the Offering (1)
Directors and Executive Officers
Yu Kwai Chong		President, Chief Executive Officer and Chairman of the Board		18,886,666		87.1	%		[__]	%
Lie Xi Zhuang		Chief Operating Officer and Director		--		--			--
Ching Wan Wong		Chief Financial Officer and Director		--		--			--
Xi Zhou Zhuo		Marketing Director		--		--			--
Heung Sang Fong		Executive Vice President, Corporate Development		--		--			--
Hon. Lily Lee Chen		Director		--		--			--
Eileen B. Brody		Director		--		--			--
Victor A. Hollander		Director		--		--			--
Jeff Haiyong Liu		Director		--		--			--
Officers and Directors as a group (total of 9 persons)				18,886,666		87.1	%		[__]	%
5% or more Stockholders
Bay Peak LLC (2) 169 Bolsa Ave. Mill Valley, California 94941				1,360,000		6.3	%		[__]	%

_____

(1) Assumes offering of [_______] shares without underwriters’ exercise of its [__________] additional shares to cover over-allotments.

(2) Phillip Cory Roberts has voting and investment control over the shares held by Bay Peak.

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DESCRIPTION OF SECURITIES

In December 2006, we changed our state of incorporation from Nevada to Delaware and we are now governed by Delaware law and the certificate of incorporation and bylaws of the new Delaware corporation. Our authorized capital, as of February 2007, consists of 100,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of preferred stock.

Common Stock

We are authorized to issue 100,000,000 shares of common stock, $.001 par value per share. Each outstanding share of common stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the stockholders.

Holders of our common stock:

(i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors;

(ii) are entitled to share ratably in all our assets available for distribution to holders of common stock upon our liquidation, dissolution or winding up;

(iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions; and

(iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote at all meetings of our stockholders.

The holders of shares of our common stock do not have cumulative voting rights, which means that the holder or holders of more than fifty percent (50%) of outstanding shares voting for the election of directors can elect all of our directors if they so choose and, in such event, the holders of the remaining shares will not be able to elect any of the our directors.

Preferred Stock

We may issue up to 5,000,000 shares of our preferred stock, par value $.001 per share, from time to time in one or more series. No shares of preferred stock have been issued. Our Board of Directors, without further approval of the our stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series of preferred stock. Issuances of shares of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock and prior series of preferred stock then outstanding.

Stock Options

In November 2006, our stockholders approved a new equity incentive plan (“2006 EIP”) for employees, non-employee directors and other service providers covering 3,000,000 shares of our common stock. Prior to this, we had an approved 2004 Equity Incentive Plan, which we terminated in connection with our establishment of the 2006 EIP. No options are currently outstanding under either plan.

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Delaware Anti-Takeover Law and Charter Provisions

We are subject to Section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the stockholder became an interested stockholder, unless:

·   prior to such date, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

·   upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

·   on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual meeting or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines a business combination to include:

·   any merger or consolidation involving the corporation and the interested stockholder;

·   any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

·   subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

·   any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or

·   the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

·   In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of a corporation, or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of a corporation at any time within three years prior to the time of determination of interested stockholder status; and any entity or person affiliated with or controlling or controlled by such entity or person.

Our certificate of incorporation and bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change in control of our company, including changes a stockholder might consider favorable. In particular, our certificate of incorporation and bylaws, as applicable, among other things, will:

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·   provide our Board of Directors with the ability to alter our bylaws without stockholder approval;

·   provide for an advance notice procedure with regard to the nomination of candidates for election as directors and with regard to business to be brought before a meeting of stockholders; and

·   provide that vacancies on our Board of Directors may be filled by a majority of directors in office, although less than a quorum.

Such provisions may have the effect of discouraging a third-party from acquiring our company, even if doing so would be beneficial to its stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.

However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Computershare Trust Company, Inc.

Listing

We have applied to have our shares of common stock listed on the Nasdaq Global Market under the symbol “FUQI”.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices. Upon completion of this offering, we will have outstanding an aggregate of [______] shares of common stock, assuming no exercise of the underwriters’ over-allotment option. Of these shares, the [_____] shares sold in the offering will be freely tradeable without restriction or further registration under the Securities Act, except that any shares purchased by our “affiliates,” as that term is defined in Rule 144 of the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below. All other outstanding shares not sold in this offering will be deemed “restricted securities” as defined under Rule 144. Except as discussed below, restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, additional shares will be available for sale in the public market.

Lock-up Agreements

We have obtained lock-up agreements from all of our officers, directors, and certain principal stockholders and the selling stockholders in this offering, pursuant to which they agreed not to transfer or dispose of, directly of indirectly, any shares of our common stock for a period of 180 days after the date of this prospectus without the prior written consent of Merriman Curhan Ford & Co.

Merriman Curhan Ford & Co., in its sole discretion, may release the shares of common stock subject to the lock-up agreements in whole or in part at anytime with or without notice. We have been advised by Merriman Curhan Ford & Co. that, when determining whether or not to release shares of common stock from the lock-up agreements, Merriman Curhan Ford & Co. will consider, among other factors, the stockholder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time. Merriman Curhan Ford & Co. has advised us that they have no present intention to release any of the shares subject to the lock-up agreements prior to the expiration of the lock-up period.

As a result of these lock-up agreements and rules of the Securities Act, the restricted shares of common stock will be available for sale in the public market, subject to certain volume and other restrictions, and subject to release mentioned above, as follows:

Days after the date of this prospectus	Number of shares eligible for sale	Description
Date of Prospectus		Shares not locked up and eligible for sale under Rule 144
180 days		Lock-up expires; ordinary shares eligible for sale under Rule 144 or 144(k)

Rule 144

In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, who has beneficially owned shares of our common stock for at least one year, including the holding period of any prior owner, except if the prior owner was one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

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·   1% of the number of shares of our common stock then outstanding (which will equal approximately [_________] shares immediately after this offering); or

·   the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about our company.

We believe that approximately [___]% of our issued and outstanding shares after giving effect to this offering are not eligible for resale under Rule 144. We issued 1,360,000 shares of common stock to Bay Peak, LLC prior to the Reverse Merger. Because we issued these shares while we were a shell company with no operations, we believe that the stockholder is considered to be a promoter. It should be noted that these shares may not be sold by this promoter, pursuant to Rule 144 of the Securities Act, regardless of technical compliance with the rule. The position of the staff of the Division of Corporation Finance of the Securities and Exchange Commission is that any such resale transaction under Rule 144 would appear to be designed to distribute or redistribute such shares to the public without coming within the registration requirements of the Securities Act. Therefore, this promoter can only resell its shares through a registration statement filed under the Securities Act. Further to a registration rights agreement with Bay Peak, we agreed to register shares of our common stock held by it upon request commencing February 26, 2008 if we are then eligible to use Form S-3 and if such shares are not then saleable under Rule 144.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold  for at least two years, including the holding period of any prior owner except one of our affiliates, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144; therefore, unless otherwise restricted, 144(k) shares could be sold immediately upon the completion of this offering.

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UNDERWRITING

Merriman Curhan Ford & Co. is acting as the representative of the underwriters. We and the underwriters named below have entered into an underwriting agreement with respect to the common stock being offered by this prospectus. In connection with this offering and subject to certain conditions, each of the underwriters named below has severally agreed to purchase, and we have agreed to sell, the number of shares of common stock set forth opposite the name of each underwriter.

Underwriter	Number of Shares
Merriman Curhan Ford & Co.
Total

The underwriting agreement is subject to a number of terms and conditions and provides that the underwriters must buy all of the common stock if they buy any of it (other than those shares covered by the over-allotment option described below).

The underwriters have advised us that they do not intend to confirm sales of the common stock to any account over which they exercise discretionary authority in an aggregate amount in excess of [__]% of the total securities offered by this prospectus.

We have granted to the underwriters an option, exercisable as provided in the underwriting agreement and expiring 30 days after the effective date of this offering, to purchase up to an additional [________] shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the common stock offered by this prospectus, if any. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional shares of common stock as the number of shares of common stock to be purchased by it in the above table bears to the total number of shares of common stock offered by this prospectus. We will be obligated, pursuant to the option to sell these additional shares of common stock to the underwriters to the extent the option is exercised. If any additional shares of common stock are so purchased, the underwriters will offer the additional shares on the same terms as those on which the [_______] shares are being offered.

The underwriting agreement provides that we will reimburse the representatives for their out-of-pocket expenses in the amount up to $50,000, which may include legal fees incurred in connection with this offering.

The underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $[_______] per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $[_______] per share to other dealers. After the public offering, the public offering price, concession and discount may be changed.

We have applied to have our common stock listed on the Nasdaq Global Market under the symbol “FUQI.”

The underwriting discounts and commissions per share are equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting discounts and commissions are   [__] % of the public offering price. We have agreed to pay the underwriters the following discounts and commissions, assuming either no exercise or full exercise by the underwriters of the underwriters’ over-allotment option:

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		Total Fees
	Fees Per Share	Without Exercise of Over-Allotment Option	With Full Exercise of Over-Allotment Option
Discounts and commissions paid by us	$	$	$

In addition, we estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $[___], of which approximately $[_____] has already been paid.

Each of our officers, directors, and certain principal stockholders have agreed with the underwriters not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of our common stock, for a period of at least 180 days after the date of the final prospectus relating to this public offering, without the prior written consent of Merriman Curhan Ford & Co. on behalf of the underwriters. This consent may be given at any time without public notice. In addition, if we issue an earnings release or material news or a material event relating to us occurs during the last 17 days of 180-day lock-up period, or if prior to the expiration of the 180-day lock-up period we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day lock-up period, the restrictions imposed by underwriters’ lock-up agreements will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as applicable, unless Merriman Curhan Ford & Co. waives, in writing, such extension. The lock-up agreements do not apply to the exercise of options or warrants or the conversion of a security outstanding on the date of this prospectus and which is described in this prospectus, nor do they apply to transfers or dispositions of shares made (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound by the restrictions set forth in the lock-up agreements, (ii) to any trust for the direct or indirect benefit of a signatory to a lock-up agreement or the immediate family of such signatory, provided that the trustee of the trust agrees to be bound by the restrictions set forth in the lock-up agreements, (iii) by will or intestate succession provided the transferee agrees to be bound by the restrictions set forth in the lock-up agreements, or (iv) to the underwriters pursuant to the underwriting agreement, provided that Merriman Curhan Ford & Co. receives prior written notice of any transfer pursuant to (i) through (iii) above. There are no agreements between the underwriters and any of our stockholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day period. In addition, we have agreed with the underwriters not to make certain issuances or sales of our securities for a period of at least [__] days after the date of the final prospectus relating to this public offering, without the prior written consent of Merriman Curhan Ford & Co. on behalf of the underwriters.

The underwriting agreement provides that we will indemnify the underwriters against specified liabilities, including liabilities under the Securities Act. We have been advised that, in the opinion of the Securities and Exchange Commission, indemnification for liabilities under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.

In connection with the offering, Merriman Curhan Ford & Co. on behalf of the underwriters, may purchase and sell shares of our common stock in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-allotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while the offering is in progress.

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The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when Merriman Curhan Ford & Co. repurchases shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.

Any of these activities may have the effect of preventing or retarding a decline in the market price of our common stock. They may also cause the price of our common stock to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on The Nasdaq Global Market or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

A prospectus in electronic format may be made available on Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations.

Prior to the offering, there has been no public market for our common stock. Consequently, the initial public offering price of the common stock offered by this prospectus will be determined by negotiation between us and the underwriters. Among the factors to be considered in determining the initial public offering price of the common stock are:

Ÿ our history and prospects;

Ÿ the industry in which we operate;

Ÿ the present stage of our development, including the status of, and development prospects for, our proposed products and services;

Ÿ our past and present operating results;

Ÿ the market capitalizations and stages of development of other companies that we and the underwriters believe to be comparable to our business;

Ÿ the previous experience of our executive officers; and

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Ÿ the general condition of the securities markets at the time of this offering.

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of our common stock. That price is subject to change as a result of market conditions and other factors, and we cannot assure you that our common stock can be resold at or above the initial public offering price.

From time to time, Merriman Curhan Ford & Co. and its affiliates may in the future provide investment banking, commercial banking and financial advisory services to us, for which they may in the future receive, customary fees. Other than the foregoing, Merriman Curhan Ford & Co. does not have any material relationship with us or any of our officers, directors or controlling persons, except with respect to its contractual relationship with us entered into in connection with this offering.

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LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed upon for us by Kirkpatrick & Lockhart Preston Gates Ellis LLP, Los Angeles, California. DLA Piper US LLP, New York, New York, is acting as counsel for the underwriters. Shujin Law Firm, Shenzhen, PRC, is acting as legal counsel for us with respect to PRC laws.

EXPERTS

Our consolidated financial statements as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005, and 2004 appearing in this Prospectus and Registration Statement have been audited by Stonefield Josephson, Inc, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

We filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the shares of common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange Commission at 100 F Street, N.E. Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

We file periodic reports under the Securities Exchange Act of 1934, including annual, quarterly and special reports, and other information with the Securities and Exchange Commission. These periodic reports, and other information are available for inspection and copying at the regional offices, public reference facilities and website of the Securities and Exchange Commission referred to above.

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FUQI INTERNATIONAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Index to Financial Statements:	Page
Report of Independent Registered Public Accounting Firm	F-2
Financial Statements:
Consolidated Balance Sheets as of
June 30, 2007 (unaudited) and as of December 31, 2006 and 2005	F-3
Consolidated Statements of Income and Comprehensive Income
for the six months ended June 30, 2007 and 2006 (unaudited) and for the years ended
December 31, 2006, 2005, and 2004	F-4
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2006, 2005 and 2004	F-5
Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006
(unaudited) and for the years ended December 31, 2006, 2005 and 2004	F-6
Notes to Consolidated Financial Statements	F-7
Schedule II - Valuation and Qualifying Accounts and Reserves	F-27

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors

Fuqi International, Inc.

Shenzhen, China

We have audited the accompanying consolidated balance sheets of Fuqi International, Inc. and subsidiaries as of December 31, 2006, and 2005 and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedule listed on page F-27. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fuqi International, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.

/s/ Stonefield Josephson, Inc.

Wanchai, Hong Kong

April 12, 2007

F-2

Fuqi International, Inc.

Consolidated Balance Sheets

	June 30,		December 31,
	2007		2006		2005
	(unaudited)
Assets
Current assets:
Cash	$	8,493,504	$	13,354,981	$	71,479
Restricted cash		393,933		-		2,726,146
Accounts receivable, net of allowance for doubtful accounts of $299,000 for June 30, 2007, $195,000 for 2006 and $302,000 for 2005		10,872,015		9,363,397		7,014,712
Refundable value added taxes		1,948,517		-		253,749
Inventories		20,795,528		6,066,213		5,762,053
Inventory loan receivable		-		-		687,936
Due from stockholder		-		-		9,487,562
Prepaid expenses		129,871		89,362		115,525
Deposits		101,859		-		-
Deposits related to borrowings on notes payable/long term debt		-		736,358		340,768
Deferred taxes		52,262		29,198		22,677
Other current assets		-		-		2,145
Total current assets		42,787,489		29,639,509		26,484,752
Property, equipment, and improvements, net		1,234,947		1,354,313		1,545,621
Deposits		93,717		91,398		80,545
Other assets		39,040		40,122		3,807
	$	44,155,193	$	31,125,342	$	28,114,725
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable	$	15,100,781	$	14,086,852	$	12,391,574
Line of credit		1,313,111		-		-
Accounts payable and accrued liabilities		1,272,431		215,092		261,585
Accrued business tax		1,353,490		1,084,078		741,265
Accrued estimated penalties		1,147,594		1,119,201		1,082,962
Accrued value added taxes		-		133,010		-
Customer deposits		3,257,192		1,234,424		2,786,776
Loan payable, related party		-		-		991,326
Inventory loan payable		723,169		-		-
Due to stockholder		-		422,909		-
Income tax payable		2,600,459		1,884,837		1,013,537
Total current liabilities		26,768,227		20,180,403		19,269,025
Long term debt		-		-		1,239,157
Total Liabilities		26,768,227		20,180,403		20,508,182
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding		-		-		-
Common stock, $0.001 par value, 100,000,000 shares authorized for 2007 and 75,000,000 shares authorized for 2006 and 2005, shares issued and outstanding - 21,692,503 shares for 2007, 20,715,384 shares for 2006 and 18,886,666 shares for 2005		21,693		20,715		18,887
Additional paid in capital		9,958,174		7,203,673		7,210,029
Accumulated foreign currency translation adjustments		746,485		432,125		143,706
Retained earnings		6,660,614		3,288,426		233,921
Total stockholders’ equity		17,386,966		10,944,939		7,606,543
		44,155,193	$	31,125,342	$	28,114,725

The accompanying notes form an integral part of these consolidated financial statements

F-3

Fuqi International, Inc. Consolidated Statements of Income and Comprehensive Income
	Six Months Ended June 30,						Year Ended December 31,
	2007			2006			2006			2005			2004
	(unaudited)
Net sales	$	54,240,965		$	48,523,940		$	92,408,539		$	72,580,171		$	56,764,822
Cost of sales		48,023,583			44,093,624			83,618,526			64,963,978			50,862,013
Gross profit		6,217,382			4,430,316			8,790,013			7,616,193			5,902,809
Operating expenses:
Selling and marketing		380,573			215,860			490,191			624,131			549,047
General and administrative		1,161,598			568,197			793,453			671,191			1,006,117
Total operating expenses		1,542,171			784,057			1,283,644			1,295,322			1,555,164
Income from operations		4,675,211			3,646,259			7,506,369			6,320,871			4,347,645
Other income (expenses):
Interest expense		(529,776	)		(400,234	)		(798,868	)		(497,901	)		(100,302	)
Interest income		3,009			-			69,628			-			-
Loss on disposal of fixed assets		-			-			-			-			(44,831	)
Change of fair value on inventory loan payable		(48,375	)		-			-			-			-
Miscellaneous		5,614			12,453			12,564			(664	)		4,249
Total other expenses		(569,528	)		(387,781	)		(716,676	)		(498,565	)		(140,884	)
Income before provision for income taxes		4,105,683			3,258,478			6,789,693			5,822,306			4,206,761
Provision for income taxes		733,495			469,903			995,462			452,538			358,396
Net income		3,372,188			2,788,575			5,794,231			5,369,768			3,848,365
Other comprehensive income –
foreign currency translation adjustments		314,360			70,609			288,419			143,706			-
Comprehensive income	$	3,686,548		$	2,859,184		$	6,082,650		$	5,513,474		$	3,848,365
Earnings per share - basic	$	0.16		$	0.15		$	0.30		$	0.28		$	0.20
Earnings per share - diluted	$	0.13		$	0.15		$	0.29		$	0.28		$	0.20
Weighted average number of common shares - Basic		20,828,751			18,886,666			19,039,319			18,886,666			18,886,666
Weighted average number of common shares - Diluted		26,014,731			18,886,666			19,657,165			18,886,666			18,886,666

The accompanying notes form an integral part of these consolidated financial statements

F-4

Fuqi International, Inc. Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2006, 2005 and 2004
	Common Stock
	Shares		Amount		Additional Paid in Capital			Other Comprehensive Income		Retained Earnings			Total Stockholders’ Equity
Balance, December 31, 2003		18,886,666	$	18,887	$	2,390,752		$	-	$	413,379		$	2,823,018
Dividend paid		-		-		-			-		(3,975,904	)		(3,975,904	)
Net income		-		-		-			-		3,848,365			3,848,365
Balance, December 31, 2004		18,886,666		18,887		2,390,752			-		285,840			2,695,479
Capital contributions		-		-		4,819,277			-		-			4,819,277
Dividend paid		-		-		-			-		(5,421,687	)		(5,421,687	)
Foreign currency translation adjustments		-		-		-			143,706		-			143,706
Net income		-		-		-			-		5,369,768			5,369,768
Balance, December 31, 2005		18,886,666		18,887		7,210,029			143,706		233,921			7,606,543
Reverse acquisition of Fuqi BVI		1,828,718		1,828		(6,356	)		-		-			(4,528	)
Dividend paid		-		-		-			-		(2,739,726	)		(2,739,726	)
Foreign currency translation adjustments		-		-		-			288,419		-			288,419
Net income		-		-		-			-		5,794,231			5,794,231
Balance, December 31, 2006		20,715,384	$	20,715	$	7,203,673		$	432,125	$	3,288,426		$	10,944,939

The accompanying notes form an integral part of these consolidated financial statements

F-5

Fuqi International, Inc.

Consolidated Statement of Cash Flows

Increase (Decrease) in Cash

	Six Months Ended June 30,						Year Ended December 31,
	2007			2006			2006			2005			2004
Cash flows provided by operating activities:	(unaudited)
Net income	$	3,372,188		$	2,788,575		$	5,794,231		$	5,369,768		$	3,848,365
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		160,147			151,758			326,852			239,449			184,740
Loss on disposal of fixed assets		-			-			-			-			44,831
Change of fair value on inventory loan payable		48,375			-			-			-			-
Bad debt		98,650			100,872			(115,592	)		7,320			(318,904	)
Changes in operating assets and liabilities:
Accounts receivable		(1,355,124	)		(3,601,695	)		(1,958,441	)		(2,277,877	)		(2,727,184	)
Refundable value added taxes		(2,060,952	)		(610,090	)		387,787			(192,867	)		325,763
Inventories		(14,407,983	)		(5,209,187	)		(109,243	)		(850,319	)		(159,309	)
Inventory loan receivable		-			-			697,530			(677,335	)		-
Prepaid expenses		(37,803	)		(18,753	)		(27,078	)		(102,994	)		(10,617	)
Deposits - short term		644,507			(186,800	)		(376,932	)		(335,517	)		-
Deferred taxes		(22,066	)		(37,983	)		(5,654	)		(488	)		22,410
Other current assets		-			2,156			2,175			(2,112	)		-
Deposits related to borrowings on notes payable/long term debt		-			-			(8,004	)		(3,497	)		51,987
Deposits		-			18,680			-			-			-
Other assets		2,076			(22,931	)		(35,504	)		(3,748	)		-
Accounts payable, accrued expenses, accrued business tax and accrued estimated penalties		1,282,050			186,652			257,800			132,890			1,001,123
Inventory loan receivable		-			691,363			-			-			-
Inventory loan payable		666,487			-			-			-			-
Customer deposits		1,968,574			258,716			(1,614,529	)		1,491,538			(291,573	)
Income tax payable		660,133			373,463			821,571			408,461			299,159
Net cash provided by (used for) operating activities		(8,980,741	)		(5,115,204	)		4,036,969			3,202,672			2,270,791
Cash flows provided by (used for) investing activities:
Purchase of property, equipment and improvements		(8,189	)		(20,135	)		(31,873	)		(838,959	)		(557,065	)
Disbursements on loans to stockholder		-			(50,827,042	)		(51,529, 693	)		(90,007,069	)		(546,203	)
Proceeds from collections on loans to stockholder		-			56,638,097			58,409,847			75,644,023			-
Decrease (Increase) in restricted cash		(389,408	)		-			2,764,166			(2,726,146	)		-
Net cash provided by (used for)  investing activities		(397,597	)		5,790,920			9,612,447			(17,928,151	)		(1,103,268	)
Cash flows provided by (used for) financing activities:
Proceeds from short-term borrowing		1,947,040			-			-			7,572,297			4,439,759
Proceeds from exercise of warrants, net of financing cost		2,755,479			-			-			-			-
Proceeds from long-term debt		-			-			-			1,239,157			-
Proceeds from loans borrowed from affiliate		-			-			-			-			2,767,538
Repayments to loans payable to affiliate		-			-			-			-			(3,976,071	)
Loan from (repayment to) a related party		-			-			(1,005,151	)		991,326			-
Proceeds from capital contribution		-			-			-			4,819,277			-
Reverse acquisition of Fuqi BVI		-			-			(4,528	)		-			-
Proceeds from loans borrowed from stockholder		203,506			-			23,545,485			-			24,140,472
Repayments to loans payable to stockholder		(642,295	)		-			(23,130,562	)		-			(29,577,058	)
Net cash provided by (used for) financing activities		4,263,730			-			(594,756	)		14,622,057			(2,205,360	)
Effect of exchange rate changes on cash		253,131			208,092			228,842			(80,775	)		-
Net increase (decrease) in cash		(4,861,477	)		883,808			13,283,502			(184,197	)		(1,037,837	)
Cash, beginning of period		13,354,981			71,479			71,479			255,676			1,293,513
Cash, end of period	$	8,493,504		$	955,287		$	13,354,981		$	71,479		$	255,676
Supplemental disclosure of cash flow information:
Interest paid	$	510,756		$	376,006		$	786,941		$	476,399		$	100,302
Income taxes paid	$	95,428		$	126,457		$	71,479		$	34,103		$	34,103
Non-cash activities:
Decrease in due from stockholder for dividend declared and paid	$	-		$	2,739,726		$	2,739,726		$	5,421,687		$	3,975,904

The accompanying notes form an integral part of these consolidated financial statements

F-6

Notes to Consolidated Financial Statements

(1)Summary of Significant Accounting Policies:

Organization, Nature of Business and Basis of Presentation

Fuqi International, Inc. (‘Fuqi” or “the Company”), formerly VT Marketing Services, Inc. (“VTM”), was originally incorporated in the State of Arizona on September 3, 2004 as a wholly-owned subsidiary of Visitalk Capital Corporation (“VCC”), and was formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”). Visitalk.com filed for Chapter 11 Bankruptcy in November 2000. The Visitalk Plan became effective on September 17, 2004 (the “Effective Date”). On September 22, 2004, Visitalk.com merged into VCC, which was authorized as the reorganized debtor under the Visitalk Plan.

The Company’s original business was to use Visitalk.com’s technology to facilitate peer-to-peer marketing activities. The Visitalk Plan authorized the Company to acquire certain technology rights from VCC on the Effective Date. To acquire these rights, VTM issued to VCC 324,044 shares of the Company’s common stock and common stock purchase warrants allowing holders to purchase additional shares of common stock (the “Plan Warrants”). The Visitalk Plan further authorized VCC to distribute 54,837 of the 324,044 shares of common stock to 240 creditors of Visitalk.com and all of the Plan Warrants to 645 claimants of Visitalk.com, in accordance with the Visitalk Plan. After the distribution of the shares of the Company’s common stock and Plan Warrants, but prior to the Bay Peak Sale, discussed below, VCC owned approximately 82.1% of VTM’s issued and outstanding common stock.

On July 21, 2006, VTM sold 1,368,761 shares of common stock (post Reverse Split described below) to Bay Peak, LLC. As part of this transaction (the “Bay Peak Sale”), the Company abandoned its peer-to-peer marketing business, which was transferred to VCC, and began to seek companies in Asia with potential, in particular companies based in China, to acquire. The shares issued in the Bay Peak Sale represented 74.49% of the Company’s outstanding shares. On July 28, 2006, Visitalk.com was granted its Final Decree by the Bankruptcy Court. On November 6, 2006, VTM conducted a reverse stock split of its shares common stock and issued one share for each 15.43 shares of common stock then outstanding (the “Reverse Split”). No stockholder was reversed below 100 shares in the Reverse Split and the then outstanding Plan Warrants remained outstanding. On November 8, 2006, VTM changed its state of incorporation from Arizona to Nevada.

On November 20, 2006, VTM entered into a share exchange agreement with Mr. Yu Kwai Chong, who was the sole stockholder of Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (“Fuqi BVI”) pursuant to which VTM agreed to acquire all of the issued and outstanding capital stock of Fuqi BVI (the “Exchange Transaction”). The Exchange Transaction closed on November 22, 2006 and, per the terms of the share exchange agreement (the “Share Exchange Agreement”), VTM issued an aggregate of 18,886,666 shares of its common stock in exchange for all of the issued and outstanding securities of Fuqi BVI. Pursuant to the Share Exchange Agreement, Bay Peak agreed to cancel 8,761 shares of common stock.

Immediately after the closing of the Exchange Transaction and Reverse Split, VTM had 20,715,384 outstanding shares of common stock, and outstanding options and outstanding warrants to purchase 16,846,982 shares of common stock (see Note 11). Immediately after the Exchange Transaction and Reverse Split, the former Fuqi BVI stockholder held approximately 91.2% of VTM’s issued and outstanding common stock.

On December 8, 2006, VTM changed its corporate name from “VT Marketing Services, Inc.” to “Fuqi International, Inc.” and reincorporated from the State of Nevada to the State of Delaware.

F-7

VTM shares of common stock were not listed or quoted for trading on any national securities exchange or national quotation system. The transactions contemplated by the Share Exchange Agreement, as amended, were intended to be a “tax-free” transaction pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986, as amended. All share information presented in the accompanying consolidated financial statements reflects the Reverse Split.

Fuqi BVI was incorporated under the laws of the British Virgin Islands on January 2, 2004. Shenzhen Fuqi Jewelry Company Limited (“Shenzhen Fuqi”) was formed in the People’s Republic of China (the “PRC”) on April 2, 2001 as a limited liability corporation. Shenzhen Fuqi is the operating entity and has substantially all the assets and operations. Under the provision of Shenzhen Fuqi’s Articles of Association, the Shenzhen Business Bureau granted to Shenzhen Fuqi the right to operate for a period of 10 years. The principal activities of Shenzhen Fuqi are designing, manufacturing, selling, and marketing of jewelry products throughout the PRC.

Prior to May 17, 2006, Fuqi BVI had minimal assets and no operations. On May 17, 2006, Shenzhen Fuqi became a wholly-owned foreign enterprise (“WFOE”) of Fuqi BVI and this arrangement was approved by the relevant ministries of the PRC government. Under the provision of Shenzhen Fuqi’s new Articles of Association as a WFOE, the Shenzhen Business Bureau granted to Shenzhen Fuqi the right to operate for a period of 35 years from the first date of incorporation in 2001 (an additional 25 years to operate). In connection with the conversion of Shenzhen Fuqi into a WFOE, Shenzhen Fuqi became the wholly owned subsidiary of Fuqi BVI and the stockholders of Shenzhen Fuqi became the stockholders of Fuqi BVI. For financial reporting purposes, the transaction is classified as a recapitalization of Shenzhen Fuqi and the historical financial statements of Shenzhen Fuqi are reported as Fuqi BVI’s historical financial statements. 

Upon the completion of the transactions on May 17, 2006 and November 22, 2006, the Company owned 100% of Fuqi BVI which owned 100% of Shenzhen Fuqi, the operating entity of the Company. The accompanying consolidated financial statements were retroactively adjusted to reflect the effects of the two recapitalizations effectuated during 2006.

The Company currently operates in two divisions: (i) production and (ii) sales and marketing. The production division is responsible for all manufacturing of jewelry products, while the sales and marketing division is responsible for all of the selling and marketing functions of the products, including customer relationships and customer service. The Company has been selling its products to wholesalers and distributors since the inception of its operations. In April 2007, the Company began to sell its products through retail counters in department stores. The Company grants credit to the majority of its wholesale and distribution customers, which are located throughout the PRC, and the Company does not generally require collateral.

The accompanying consolidated balance sheet as of June 30, 2007, the consolidated statements of income for the six months ended June 30, 2007 and June 30, 2006, and the consolidated statements of cash flows for the six months ended June 30, 2007 and June 30, 2006 are unaudited and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In our opinion, these consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Fuqi as of June 30, 2007 and the results of operations for the six months ended June 30, 2007 and 2006 and the cash flows for the six month periods ended June 30, 2007 and 2006. The results of operations for the six months ended June 30, 2007 are not necessarily indicative of the results which may be expected for the entire fiscal year. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

F-8

Consolidation Policy:

The consolidated financial statements include the consolidated financial statements of Fuqi International and its wholly owned subsidiaries, Fuqi BVI and Shenzhen Fuqi. All significant intercompany accounts and transactions have been eliminated in preparation of the consolidated financial statements.

Cost of Sales:

Cost of sales includes raw material, direct labor and overhead costs. Overhead costs consist of depreciation for improvements related to the Company’s factory and machinery and equipment, indirect labor, utilities, factory rent and warehouse costs and occupancy costs at department stores. The Company does not incur any significant amount of inbound freight charges, purchasing and receiving costs since the Company’s raw material, including primarily gold and platinum, are handled by the Company’s operation manager. All the costs related to the Company’s distribution network are included in the cost of sales.

Operating Costs:

Selling and marketing expenses include salaries and employee benefits, advertising, travel and entertainment, insurance, amortization of cost for operation rights acquired, and business taxes.

General and administrative expenses include management and office salaries and employee benefits, deprecation for office facility and office equipment, travel and entertainment, insurance, legal and accounting, consulting fees, workers’ compensation insurance, and other office expenses.

Revenue Recognition

Wholesale revenue is recognized upon delivery and acceptance of jewelry products by the customers while retail revenue is recognized upon receipts and acceptance of jewelry products by the customers, provided that the other conditions of sales, as established by the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104, are satisfied:

· persuasive evidence of an arrangement exists;

· delivery has occurred, upon shipment when title passes, or services have been rendered;

· the seller’s price to the buyer is fixed or determinable; and

· collectibility is reasonably assured.

Value Added Taxes represent amounts collected on behalf of specific regulatory agencies that require remittance by a specified date. These amounts are collected at the time of sales and are detailed on invoices provided to customers. In compliance with the Emerging Issues Task Force consensus on issue number 06-03 (EITF 06-03), the Company accounts for value added taxes on a net basis.

Currency Reporting

Amounts reported in the accompanying consolidated financial statements and disclosures are stated in U.S. Dollars, unless stated otherwise. The functional currency of the Company is the Renminbi (“RMB”). Foreign currency transactions (outside PRC) during six months ended June 30, 2007 and 2006 and the years ended December 31, 2006, 2005 and 2004 are translated into RMB according to the prevailing exchange rate at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated into RMB at the respective period-end exchange rates.

F-9

The Company’s functional currency is RMB. For the purpose of preparing the consolidated financial statements, the consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of June 30, 2007 and as of December 31, 2006 and 2005 and the consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized.

The resulting translation gain adjustments are recorded as other comprehensive income in the consolidated statements of income and comprehensive income and as a separate component of consolidated statements of stockholders’ equity.

Basic and Diluted Earnings Per Share

In accordance with SFAS No. 128, “Earnings Per Share,” the basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed similarly to basic earnings (loss) per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of December 31, 2006, the Company had common stock equivalents of 16,846,982 shares upon the exercise of the plan warrants. The Company delivered a notice of redemption to the warrant holders in May 2007, and all of the warrants were either exercised or redeemed and cancelled in June 2007. The computation of dilutive potential common shares for the periods indicated is as follows:

	Six Months Ended June 30,				Year Ended December 31,
	2007		2006		2006		2005		2004
	(unaudited)
Basic weighted average shares		20,828,751		18,886,666		19,030,319		18,886,666		18,886,666
Effect of dilutive securities - warrants		5,185,980		-		626,846		-		-
Dilutive potential common shares		26,014,731		18,886,666		19,657,165		18,886,666		18,886,666

Inventory Loan Payable

During the six months ended June 30, 2007, the Company borrowed from a non-related entity, at a cost of approximately $663,974, platinum raw materials for production use. Per the terms of the agreement, the Company is obligated to return the same quantity of platinum in August 2007. The loan payable was stated at fair value of $723,169 as of June 30, 2007 which was determined based on the quoted market price listed by the Shanghai Gold Exchange. The net increase of fair value in the amount of $48,375 was reported as change of fair value on inventory loan payable in the accompanying consolidated statements of income and comprehensive income for the six months ended June 30, 2007.

F-10

Share-Based Payment

In accordance with SFAS No. 123R, “Share-based Payment: An amendment of FASB Statement No. 123” (“SFAS 123R”), effective January 1, 2006, the Company is required to recognize compensation expense related to stock options granted to employees based on: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with SFAS No 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The Company has not issued any options during six months ended June 30, 2007 or the years ended December 31, 2006, 2005 and 2004 and has no outstanding options as of June 30, 2007 or December 31, 2006.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash

For purposes of the consolidated statements of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. The Company had no cash equivalents at June 30, 2007, December 31, 2006 and 2005.

Restricted Cash

The Company committed to loan a total of $2,726,146 to three related parties in 2005. Per the agreements with the bank, the Company was required to maintain $2,726,146 in the bank to cover these loans when drawn by these entities. As of December 31, 2005, the cash had not yet been drawn by these entities and the balance of the restricted amount was classified as restricted cash in the balance sheets. The agreements with the bank expired during 2006.

The Company committed to loan a total of $2,820,513 to two related parties in 2006. Per the agreements with the bank through which the loan was to be made, the Company was required to maintain $2,820,513 in the bank to cover these loans when drawn by these entities. The agreements with the bank expired during 2006, and accordingly the cash balance was no longer restricted as of December 31, 2006.

As of June 30, 2007, the Company was required to maintain a fixed deposit of $393,933 as a condition to borrow under a bank loan agreement. The amount was classified as restricted cash as of June 30, 2007.

Comprehensive Income

Statement on Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. For the six months ended June 30, 2007 and 2006, and the years ended December 31, 2006, 2005, and 2004, other comprehensive income includes foreign currency translation adjustments.

F-11

Fair Value Disclosures of Financial Instruments

The Company has estimated the fair value amounts of its financial instruments using the available market information and valuation methodologies considered to be appropriate and has determined that the book value of the Company’s accounts receivable, refundable value added taxes, inventories, due from/to stockholder, notes payable, accounts payable and accrued expenses, accrued business tax, accrued penalties, customer deposits, and income tax payable at June 30, 2007, December 31, 2006 and 2005 approximate fair value.

Accounts Receivable

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $299,000, $195,000 and $302,000 at June 30, 2007 and at December 31, 2006 and 2005, respectively.

Concentration of Credit Risk

The Company’s product revenues are concentrated in production and sales of fine jewelry products, which are highly competitive with frequent changes in styles and fashion. Significant customer preference changes in the industry or customer requirements, or the emergence of competitive products with better marketing strategies and more well-known brand names, could adversely affect the Company’s operating results.

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable from jewelry retailers located throughout China. The credit risk in the Company’s accounts receivable is mitigated by the fact that the Company performs ongoing credit evaluations of its customers’ financial condition and that accounts receivable are primarily derived from large credit-worthy companies throughout the PRC. In addition, the Company has a diversified customer base. Historically, the Company has not experienced significant losses related to trade receivables. Generally, no collateral is required.

Major Customer

During the six months ended June 30, 2007, 9% of the Company’s sales were generated from one customer. Accounts receivable from this customer totaled $11,483 as of June 30, 2007. During the year ended December 31, 2006, 9% of the Company sales were generated from one customer. Accounts receivable from this customer totaled $2,234,959, which represented 22% of the total accounts receivable as of December 31, 2006. During the years ended December 31, 2005 and 2004, 15% and 16%, respectively, of the Company sales were generated from one customer. Accounts receivable from this customer totaled $949,453, which represented 14% of the total accounts receivable as of December 31, 2005.

Major Supplier

Under PRC law, supply of precious metals such as platinum, gold, and silver are highly regulated under certain government agencies. The Shanghai Gold Exchange is the Company’s primary source of supply for its raw materials, which consist of precious metals. The Company is required to obtain several memberships and approval certificates from these government agencies in order to continue to do business involving precious metals. The Company may be required to renew such memberships and to obtain approval certificates periodically. If the Company is unable to renew these periodic membership or approval certificates, it could materially affect the Company’s business operations. The Company was in good standing with these agencies as of June 30, 2007 and as December 31, 2006 and 2005.

F-12

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or fair market value method and include raw materials, work in process, and finished goods.

Inventory Loan Receivable

The Company entered into an agreement to loan certain gold raw material to a non-related party in December 2005. The raw material was returned in May 2006. The outstanding balance of inventory loan receivable was carried at the fair value as of December 31, 2005.

Property, Equipment and Improvements

Property, equipment and improvements are valued at cost. Depreciation and amortization are computed on the straight-line method based on the estimated useful life of respective assets.

The estimated service lives of property, equipment, and improvements are as follows:

Production	5 years
Office, furniture and fixture	5 years
Computer hardware	5 years
Computer software	5 years
Leasehold improvements	2 - 4 years
Building	20 years

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 relates to assets that can be amortized and for which the life can be determinable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related assets or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value of asset less disposal costs. The Company determined that there was no impairment of long-lived assets as of June 30, 2007 or as of December 31, 2006 and 2005.

Advertising

The Company expenses advertising costs when incurred. The Company incurred approximately $33,000, $132,000 and $60,000 of advertising expense for years ended December 31, 2006, 2005, and 2004, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates in the PRC expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years.

F-13

Segment Reporting

Based on the Company’s integration and management strategies, the Company operated in a single business segment. All of the Company’s sales are generated in the PRC and substantially all of the Company’s assets are located in the PRC.

New Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments -- an amendment of FASB Statements No. 133 and 140”. SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the FASB’s interim guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and eliminates the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, however, early adoption is permitted for instruments acquired or issued after the beginning of an entity’s fiscal year in 2006. The Company is evaluating the impact of this new pronouncement to its financial position and results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156 (“FAS 156”), “Accounting for Servicing of Financial Assets—An Amendment of FASB Statement No. 140”. Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and providing for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. The Statement will be effective beginning the first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of FAS 156 to have a material impact on the Company’s financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48 (“FIN48”), “Accounting for Uncertainty in Income Taxes”. This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 provides guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for tax contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The Company adopted FIN48 on January 1, 2007 and has determined that the impact of the adoption of FIN 48 is insignificant to the Company’s consolidated financial position, results of operations and cash flows.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is evaluating the impact of this new pronouncement to the Company’s financial position and results of operations or cash flows.

F-14

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. The Company does not expect the adoption of SFAS 158 to have a material impact on the Company’s financial position or results of operations, as the Company does not currently have any defined benefit pension or other post-retirement plans.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”),“Financial Statements - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB 108 provides that once a current year misstatement has been quantified, the guidance in SAB No. 99, “Financial Statements - Materiality”, should be applied to determine whether the misstatement is material and should result in an adjustment to the financial statements. Under certain circumstances, prior year financial statements will not have to be restated and the effects of initially applying SAB 108 on prior years will be recorded as a cumulative effect adjustment to beginning Retained Earnings on January 1, 2006, with disclosure of the items included in the cumulative effect. The Company does not expect the application of the provisions of SAB 108 to have a material impact, if any, on the consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. The objective of this statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected by the FASB to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting this statement; however, the Company does not expect the adoption of this provision to have a material effect on its financial position, results of operations or cash flows.

Reclassifications

Certain reclassifications have been made to the 2005 and 2004 consolidated financial statements to conform to the 2006 presentation.

(2)Inventories:

A summary of inventory is as follows:

	June 30,		December 31,
	2007		2006		2005
	(unaudited)
Raw materials	$	17,409,764	$	743	$	4,097,704
Work in process		1,748,181		3,917,795		996,396
Finished goods - Wholesale operation		636,740		2,147,675		667,953
Finished goods - Retail operation		1,002,843		—		—
	$	20,795,528	$	6,066,213	$	5,762,053

F-15

(3)Property, Equipment and Improvements:

A summary of property, equipment and improvements is as follows:

	June 30,		December 31,
	2007		2006		2005
	(unaudited)
Production equipment	$	979,305	$	950,479	$	894,479
Computers		15,777		14,976		12,246
Office equipment and furniture		107,010		101,289		94,044
Automobiles		261,306		254,841		246,589
Leasehold improvements		392,678		382,963		314,801
Building		559,090		545,257		527,602
		2,315,166		2,249,805		2,089,761
Less accumulated depreciation and amortization		1,080,219		895,492		544,140
	$	1,234,947	$	1,354,313	$	1,545,621

Depreciation and amortization expense for property, equipment, and improvements amounted to approximately $327,000, $239,000 and $185,000, for the years ended December 31, 2006, 2005, and 2004, respectively.

(4)Operation Rights Transfer Agreement:

In April 2007, the Company entered into a transfer agreement with an unrelated party (the “Transferor”), which has operation agreements with department stores for five jewelry retail counters. Under the terms of the agreement, the Transferor agreed to assign all of the operation rights to the Company for a fee of $400,000. The fee is payable in three separate installments. The first payment of $120,000 is due upon completion of the transfer of the operation rights by the department stores to the Company. The second installment of $120,000 is due within 30 days after the remittance of the first installment while the final installment of $160,000 is due within 90 days after the remittance of the first installment.

The Company obtained temporary operation rights from the Transferor to operate these counters from May 1, 2007. The Transferor is in the progress of negotiating the transfer of operation rights to the Company with these department stores. As of August 13, 2007, the Company has not yet received formal operation rights transfer agreements but has received verbal confirmations from the department stores.

(5)Line of Credit:

In February 2007, the Company entered into a facility line of credit with a bank. Under the terms of the agreement, the Company can borrow a maximum amount of $1,969,667 and each of the borrowings cannot be less than $131,311 and have a maturity of more than 90 days. This facility line of credit expires in February 2012 and is secured by an affiliated company and certain real properties owned by an affiliated company. Interest is charged at 1.2 times the bank’s prime rate (6.804% to 7.02% at June 30, 2007). The facility line of credit agreement has certain conditions for the Company to fulfill prior to the withdrawals and to continue to borrow from the bank, including execution of the fixed deposit agreement and maintaining approximately $657,000 (RMB 5,000,000) in fixed deposit with this bank. The bank has allowed the Company to draw on the line of credit without fulfilling these conditions. The facility line of credit agreement also has certain restrictions and covenants with which the Company must comply during the terms of the agreement. The outstanding balance as of June 30, 2007 was $1,311,111.

F-16

(6) Notes Payable:

As of June 30, 2007 and December 31, 2006, outstanding notes payable to the bank consisted of loan agreements that are covered by a Maximum Banking Facility Agreement dated August 24, 2006 with the Agricultural Bank of China Under the agreement, the maximum facility amount, which was $13,131,114 at June 30, 2007 and $12,806,229 at December 31, 2006 (RMB100,000,000), is secured by the Company’s inventories. The agreement has certain restrictions and covenants. The Company has been in compliance with these restrictions and covenants since the execution of the agreement. As of June 30, 2007 and December 31, 2006, the Company had outstanding loan balances with this bank totaling $13,131,114 and $12,806,229, respectively.

	June 30,		December 31,
	2007 (unaudited)		2006		2005
Four notes payable with interest at a rate of 5.22%, secured by the Company’s inventories and certain real estate properties owned by an affiliated company, matured in March 2006 and April 2006. The loan was repaid upon maturity.		-		-		3,717,473
Three notes payable with interest at a rate of 5.22%, guaranteed by the Company’s inventories and personally guaranteed by the Company’s controlling stockholder, matured in January 2006. The loan was repaid.		-		-		2,478,314
A note payable with interest at a rate of 5.22%, guaranteed by the Company’s inventories and certain real estate properties owned by an affiliated company and personally guaranteed by the Company’s controlling stockholder, matured in May 2006. The loan was repaid.		-		-		1,239,157
Two notes with interest at a rate of 5.22%, guaranteed by the Company’s inventories and certain real estate properties owned by an affiliated company and personally guaranteed by the Company’s controlling stockholder, matured in February 2006. The loan was repaid.		-		-		2,478,315
Two notes payable with interest at a rate of 5.84%, guaranteed by the Company’s inventories and certain real estate properties owned by an affiliated company and personally guaranteed by the Company’s controlling stockholder, matured in June 2006. The loan was repaid.		-		-		2,478,315

F-17

June 30,	December 31,
2007 (unaudited)	2006	2005

A note payable with interest at a rate of 5.76%, secured by the Company’s inventories and certain real estate properties owned by an affiliated company, matured in January 2007. The loan was repaid and was not renewed.	-	1,280,623	-
Two notes payable with interest at a rate of 5.85%, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matured in February 2007. The loan was repaid.	-	2,561,246	-
Four notes payable with interest at a rate of 5.832%, secured by the Company’s inventories and certain real estate properties owned by an affiliated company and guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matured in January 2007. The loan was repaid.	-	3,841,869	-
A note payable with interest at a rate of 6.138%, guaranteed by affiliated companies and secured by certain real estate properties owned by an affiliated company, matured in March 2007. The loan was repaid.	-	1,280,623	-
A note payable with interest at a rate of 6.732%, guaranteed by affiliated companies and secured by the Company’s inventories and certain real estate properties owned by an affiliated company and personally guaranteed by the Company’s controlling stockholder, matured in July 2007. The loan was repaid.	-	960,467	-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories and certain real estate properties owned by the affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matured in September 2007. The loan was repaid.	-	960,467	-
A note payable with interest at a rate of 6.426%, secured by the Company’s inventories and certain real estate properties owned by the affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matured in September 2007. The loan was repaid.	-	1,024,498	-
A note payable with interest at a rate of 6.426%, secured by the Company’s inventories and certain real estate properties owned by the affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matured in October 2007. The loan was repaid.	-	896,436	-

F-18

June 30,	December 31,
2007 (unaudited)	2006	2005

A note payable with interest at a rate of 6.732%, secured by the Company’s inventories, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matured in December 2007. The loan was repaid.	-	1,280,623	-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories and certain real estate properties owned by affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in July 2007.	984,835	-	-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories and certain real estate properties owned by affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in September 2007.	984,835		-
A note payable with interest at a rate of 6.426%, secured by the Company’s inventories and certain real estate properties owned by affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in September 2007.	1,050,489	_	-
A note payable with interest at a rate of 6.426%, secured by the Company’s inventories and certain real estate properties owned by affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in October 2007.	919,178	-	-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in December 2007.	1,313,111	-	-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories and certain real estate properties owned by affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in January 2008.	1,772,700	-	-
A note payable with interest at a rate of 6.4728%, secured by the Company’s inventories and certain real estate properties owned by affiliated companies, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in July 2007.	853,522	-	-

F-19

June 30,	December 31,
2007 (unaudited)	2006	2005

A note payable with interest at a rate of 6.4728%, secured by the Company’s inventories, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in July 2007.		1,313,111		-		-
A note payable with interest at a rate of 6.4728%, secured by the Company’s inventories, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in July 2007.		1,313,111		-		-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in October 2007.		1,313,111		-		-
A note payable with interest at a rate of 6.732%, guaranteed by affiliated companies, matures in January 2008.		1,969,667		-		-
A note payable with interest at a rate of 6.732%, secured by the Company’s inventories, guaranteed by affiliated companies and personally guaranteed by the Company’s controlling stockholder, matures in November 2007.		1,313,111		-		-
	$	15,100,781	$	14,086,852	$	12,391,574

(7)Loan Payable, Related Party:

In December 2005, the Company received an unsecured non-interest bearing loan from a related party in the amount of $991,326. There was no formal written agreement entered into between the Company and this related party. This loan was short-term in nature and was repaid in 2006.

(8)Long Term Debt:

In December 2004, the Company entered into a loan agreement with a bank with a loan amount of $1,204,819 (RMB10,000,000). The draw took place in January 2005 and therefore the loan had an outstanding balance of $0 as of December 31, 2004. Outstanding balance of this loan amounted to $1,280,623 as of December 31, 2006 which was included in the Notes Payable. The loan bears interest at a rate of 5.76% per annum. The outstanding balance is secured by certain cash deposits, which were classified as Deposits related to borrowings on notes payable/long term debt in the accompanying consolidated balance sheets as of December 31, 2006 and 2005, certain real estate properties owned by an affiliate and is personally guaranteed by the controlling stockholder of the Company. This loan was classified as long term debt in the Balance Sheet as of December 31, 2005 and note payable as of December 31, 2006 and this loan was repaid in January 2007.

F-20

(9)Related-Party Transactions:

The Company earned certain cash revenues from its customers that were subsequently collected by its controlling stockholder. Total cash revenues amounted to $0, $2,671,594, $5,896,354, $6,100,298, and $4,505,023 and the amounts collected by its controlling stockholder totaled $0, $2,671,594, $3,018,144, $6,100,298 and $4,505,023, respectively, for the six months ended June 30, 2007 and 2006, and for the years ended December 31, 2006, 2005 and 2004. Beginning December 2006, this stockholder is no longer collecting cash revenue on behalf of the Company and all the cash revenues are deposited through the Company’s bank accounts.

The Company’s controlling stockholder borrowed from the Company on a non-interest bearing and frequent basis since the inception of its operations. As of December 31, 2006, the Company discontinued such practice and the balance was repaid to the Company in full. The Company loaned $0 and $50,827,042 to the controlling stockholder, and collected $0 and $56,638,097, during the six months ended June 30, 2007 and 2006, respectively. On aggregate, the Company loaned $51,529,693, $90,007,069, and $546,203 to the controlling stockholder, and collected $58,409,847, $75,644,023, and $0, during the years ended December 31, 2006, 2005, and 2004, respectively. Outstanding balance due from the controlling stockholder amounted to $0, $0 and $9,487,562 as of June 30, 2007, and December 31, 2006 and 2005, respectively.

The Company borrowed from its controlling stockholder at a non-interest bearing basis to satisfy the Company’s short term capital needs since the inception of its operations. The Company borrowed $203,506 and $0 from the controlling stockholder, and repaid $642,295and $0 during the six months ended June 30, 2007 and 2006, respectively. On aggregate, the Company borrowed $23,545,485, $0, and $24,140,472 from the controlling stockholder and repaid $23,130,562, $0, and $29,577,058 during the years ended December 31, 2006, 2005, and 2004. Outstanding loan payable to the controlling stockholder amounted to $0, $422,909 and $0 as of June 30, 2007, December 31, 2006 and 2005, respectively.

The Company borrowed $0, $0, $0, $0, and $2,767,538 from an affiliate and repaid $0, $0, $0, $0, and $3,976,071 to this affiliate during the six months ended June 30, 2007 and 2006, and the years ended December 31, 2006, 2005 and 2004, respectively.

The Company declared and paid dividends to its controlling stockholder, prior to the closing of the Share Exchange Agreement and Reverse Split, totaling $0 and $2,739,726 during the six months ended June 30, 2007 and 2006, respectively, and $2,739,726, $5,421,687 and $3,975,904 during the years ended December 31, 2006, 2005 and 2004, respectively, which offset the amounts due from this stockholder.

(10) Equity Incentive Plan:

In November 2006, the Company’s stockholders approved an equity incentive plan (“2006 EIP”) for employees, non-employee directors and other service providers covering 3,000,000 shares of common stock. Prior to this, the Company had an approved 2004 Equity Incentive Plan, which was replaced by the 2006 EIP. No options are currently outstanding under either plan. Any options to be granted under the 2006 EIP may be either “incentive stock options,” as defined in Section 422A of the Internal Revenue Code, or “nonqualified stock options,” subject to Section 83 of the Internal Revenue Code, at the discretion of the Company’s board of directors and as reflected in the terms of the written option agreement. In the case of incentive stock options, the option price shall not be less than 100% of the fair market value of the optioned common stock on the date the option is granted. In the case of incentive stock options, the option price shall not be less than 110% of the fair market value of the optioned common stock for an optionee holding at the time of grant, more than 10% of the total combined voting power of all classes of its stock. Options become exercisable based on the discretion of its board of directors and must be exercised within ten years of the date of grant.

F-21

(11)Stock Purchase Warrants:

Plan Warrants

In accordance with the Visitalk Plan, the Company issued six series of common stock purchase warrants allowing holders to purchase additional shares of common stock (“Plan Warrants”). Each Plan Warrant provides for the purchase of one share of common stock and is callable by the Company for a price of $.0001 per warrant at any time. The Plan Warrants are governed by a Warrant Agreement. Currently, the Company is acting as the Warrant Agent but has the right to appoint an alternative Warrant Agent in accordance with the Visitalk Plan. The board of directors can extend the expiration date of the Plan Warrants or reduce the exercise price of any warrant on a temporary or permanent basis. The Company has actually issued 6,785,014 Plan Warrants in each series to 240 claimants under the Visitalk Plan. In connection with the execution of the Share Exchange Agreement on November 20, 2006 referred to in Note (1), four series of the Plan Warrants (series A, B, D and F) were called and expired. In substance, three of Visitalk Plan’s warrants were exchanged for each of the Company’s warrants. As of December 31, 2006, a total of 16,846,982 series C and series E warrants remained outstanding.

In May 2007, the Company delivered a notice of redemption to the warrant holders pursuant to the terms of the Warrant Agreement and the Visitalk Plan. Upon expiration of the call period on June 8, 2007, series C warrants had been exercised for 977,119 shares of the Company’s common stock, for total gross proceeds from conversion of $2,931,360. The remaining unexercised warrants were redeemed at $0.0001 per share by the Company. No warrants remained outstanding after the closing of the call.

The Company issued a total of 977,119 shares of common stock to existing warrant holders upon the exercise of warrants under the registration exemption offered under Section 1145(a)(1) of the United States Bankruptcy Code, as amended.

A summary of the Plan Warrants is as follows:

	A & B Warrants			C & D Warrants			E & F Warrants
Warrants outstanding, December 31, 2005		16,846,982			16,846,982			16,846,982
Granted		-			-			-
Exercised		-			-			-
Expired or Forfeited		16,846,982			8,423,491			8,423,491
Warrants outstanding, December 31, 2006		-			8,423,491			8,423,491
Granted (unaudited)		-			-			-
Exercised (unaudited)		-			(977,119	)		-
Expired or Forfeited or redeemed (unaudited)		-			(7,446,372	)		(8,423,491	)
Warrants outstanding, June 30, 2007 (unaudited)		-			-			-
Exercise Price		N/A	$		3		$	4
Expiration Date		N/A			August 31, 2007			August 31, 2007

F-22

(12)        Income Taxes:

The Company adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has determined the impact of the adoption of FIN 48 is insignificant to the Company’s consolidated financial position, results of operations and cash flows.

The Company’s income tax provision amounted to $995,462, $452,538, and $358,396, respectively, for the years ended December 31, 2006, 2005, and 2004 (an effective rate of 14.7% for 2006, 7.8% for 2005 and 8.5% for 2004). A reconciliation of the provision for income taxes, with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes, is as follows:

	Year Ended December 31,
	2006			2005			2004
Computed tax at federal statutory rate of 34%	$	2,308,496		$	1,979,589		$	1,430,299
Tax penalties		-			-			85,821
Tax rate difference between US and PRC on foreign earnings		(1,290,042	)		(1,106,241	)		(799,285	)
Effect of tax holidays for new business		-			(436,613	)		(358,439	)
Effect of statutory rate change		(22,992	)		-			-
Additional tax liabilities based on tax notice		-			15,803			-
	$	995,462		$	452,538		$	358,396

	Year Ended December 31,
	2006			2005		2004
Current	$	1,001,782		$	451,427	$	335,986
Deferred		(6,320	)		1,111		22,410
	$	995,462		$	452,538	$	358,396

	Year Ended December 31,
	2006		2005		2004
Federal	$	-	$	-	$	-
Foreign		995,462		452,538		358,396
	$	995,462	$	452,538	$	358,396

The regular federal income tax in Shenzhen, China, is 15%. As a new business, the Company was exempted from paying any income taxes for the first two years of its operations (2 years from the inception of the business, years ended December 31, 2001 and 2002), and enjoyed a discounted income tax rate of 7.5% of pretax income during the third, fourth and fifth years of its operations (the three years ended December 31, 2003, 2004 and 2005). Beginning January 1, 2006, the Company became subject to the regular rate of 15% on its pretax income.

The Company did not report certain cash revenues related to fees charged to its customers for product design. Such fee revenues are subject to business tax and service charges in China at an aggregate rate of 5.2%. The Company has not reported such revenues since the inception of its operations in 2001. The Company has recorded in its consolidated financial statements the tax liabilities representing business tax and fees of 5.2% and income tax on the unreported design revenues since the inception of its business in 2001. During the years ended December 31, 2006, 2005, and 2004, the Company recorded $312,002, $302,409, and $234,261, respectively, for business tax and fees and $900,118, $393,806, and $337,877, respectively, for income tax related to these revenues. In addition, per advice of a registered tax agent in China in 2004, the Company accrued 100% of the unpaid tax amounts as the maximum penalties which could be assessed by the local tax department through the periods ended December 31, 2004.

F-23

In April 2006, the Shenzhen local tax department made an assessment of the total tax liabilities related to the cash revenues. Per the tax assessment notice dated April 24, 2006, the Company is obligated to pay a total of $1,754,802 (RMB14,161,249) including business tax, fees and income taxes related to these cash revenues through December 31, 2005. If the Company did not pay off these tax liabilities by April 30, 2006, the Company would be subject to 0.05% per day of interest and penalties of the unpaid tax and fee liability amount from the due date (April 30, 2006).

On April 28, 2006, the Company filed an extension to remit these outstanding tax liabilities to December 20, 2006 and was approved by the tax department in July 2006.

On December 28, 2006, the Shenzhen local tax department granted a further extension to the Company to remit the tax liabilities from December 20, 2006 to April 25, 2007. The Company would not be subject to any penalties and interest if all the outstanding taxes are remitted to the Tax Department prior to the revised due date on April 25, 2007.

On April 25, 2007, the Company appointed its registered tax agent to apply on behalf of the Company for a special reduction or exemption for the unpaid tax liabilities for the period from inception to December 31, 2006. On May 14, 2007, the Company received a notice from the Shenzhen local tax department to accept the Company’s application for a tax reduction or exemption and was granted an additional period to remit its outstanding tax liabilities until August 9, 2007. The tax department agreed not to assess any interest and penalties during this review process until August 9, 2007. Accordingly, the Company did not accrue any interest and penalties related to these outstanding tax liabilities in the accompanying condensed consolidated financial statements.

On August 10, 2007, the Company received a notice from the tax department conditionally agreeing to exempt the Company’s tax liabilities in the amount of approximately $3 million on unreported design fee income for the period from the inception of the Company’s operations in 2001 to December 31, 2006, provided that the Company’s common stock is successfully listed on a major overseas stock exchange within 180 days from the date of the tax notice.

The Company has accrued $1,754,802 as business and income tax payable and $1,082,962 as accrued estimated penalties as of December 31, 2005, the full amount of the tax obligations per the tax assessments plus the estimated tax penalties previously accrued by the management at December 31, 2004. The related business tax and fees of 5.2% and income tax on the design revenues for 2006 were accrued and are expected to be remitted by the extended due date set forth by the tax department.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

F-24

	Year Ended December 31,
	2006		2005
Deferred tax assets:
Allowance for doubtful accounts	$	29,198	$	22,677
Total deferred tax assets		29,198		22,677
Total deferred tax liabilities		-		-
Net deferred tax assets before valuation allowance:
Valuation allowance		-		-
	$	29,198	$	22,677

Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain.

(13)        Commitments:

The Company leases certain facilities under various long-term noncancellable and month-to-month leases. These leases are accounted for as operating leases. Rent expense amounted to $158,399, $98,715, and $71,323 for the years ended 2006, 2005 and 2004, respectively.

A summary of the future minimum annual rental commitments under the operating leases is as follows:

Year ending December 31,
2007	$	164,201
2008		123,414
2009		115,256
2010		57,628
2011		-
	$	460,499

(14)        Proforma Information (Unaudited):

The Company plans to increase the annual compensation of its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer if and when its common stock becomes listed on The Nasdaq Global Market, which it anticipates will occur in late 2007, as more responsibilities will be taken by these executives after becoming a U.S. listed company. Proforma operating results for the six months ended June 30, 2007 and 2006 and the years ended December 31, 2006, 2005, and 2004, as if historical compensation was recorded at the levels expected in the future, are as follows:

F-25

	Six Months Ended June 30,				Year Ended December 31,
	2007		2006		2006		2005		2004
Net income - as reported	$	3,372,188	$	2,788,575	$	5,794,231	$	5,369,768	$	3,848,365
Net income - proforma	$	3,191,357	$	2,576,322	$	5,315,125	$	5,059,893	$	3,459,680
Earnings per share - Basic as reported	$	0.16	$	0.15	$	0.30	$	0.28	$	0.20
Earnings per share - Basic proforma	$	0.15	$	0.14	$	0.28	$	0.27	$	0.18
Earnings per share - Diluted as reported	$	0.13	$	0.15	$	0.29	$	0.28	$	0.20
Earnings per share - Diluted proforma	$	0.12	$	0.14	$	0.27	$	0.27	$	0.18

(15)         Subsequent Events:

The Company filed a Form 10 with the Securities Exchange Commission (“SEC”) on December 29, 2006 and filed Amendment No. 1 to the Form 10 on February 12, 2007 to respond to the comments from SEC. The Company became a public reporting company effective February 26, 2007.

On February 23, 2007, the Company filed an amendment to its certificate of incorporation to increase its authorized shares. Upon the amendment, the total number of shares of stock which the Company has the authority to issue is one hundred and five million (105,000,000) shares. The Company is authorized to issue two classes of shares of stock, designated, “Common Stock” and “Preferred Stock.” The Company is authorized to issue one hundred million (100,000,000) shares of Common Stock, each share to have a par value of $.001 per share, and Five Million (5,000,000) shares of Preferred Stock, each share to have a par value of $.001 per share.

F-26

SCHEDULE II

Fuqi International, Inc.

Valuation and Qualifying Accounts and Reserves

Years Ended December 31, 2006, 2005 and 2004

	Balance at the Beginning of the Year		Charge to Cost and Expenses		Deductions			Balance at the End of the Year
Allowance for Doubtful Accounts:
Year ended December 31, 2004	$	347,000	$	-	$	(60,000	)	$	287,000
Year ended December 31, 2005		287,000		15,000		-			302,000
Year ended December 31, 2006		302,000		-		(107,000	)		195,000

F-27

         [_________] Shares

Fuqi International, Inc.

Common Stock

Merriman Curhan Ford & Co.

, 2007

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other expenses of issuance and distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, if any, payable by the Registrant relating to the sale of common stock being registered. All amounts are estimates except the SEC registration fee.

Securities and Exchange Commission registration fee*	$	1,765
NASD Filing Fee*
NASDAQ Listing Fee
Transfer Agent Fees
Blue Sky Fees and Expenses
Accounting fees and expenses
Legal fees and expenses
Miscellaneous
Total	$

____________

* All amounts are estimates other than the Commission’s registration fee and NASD filing fee.

Item 14. Indemnification of directors and officers

In December 2006, we changed our state of incorporation from Nevada to Delaware and we are now governed by Delaware law and the certificate of incorporation and bylaws of the new Delaware corporation. Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law. Our bylaws further provide that our Board of Directors has discretion to indemnify our officers and other employees. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under the bylaws or otherwise. We are not, however, required to advance any expenses in connection with any proceeding if a determination is reasonably and promptly made by our Board of Directors by a majority vote of a quorum of disinterested Board members that (i) the party seeking an advance acted in bad faith or deliberately breached his or her duty to us or our stockholders and (ii) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the applicable sections of our bylaws.

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We have been advised that in the opinion of the Securities and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We may enter into indemnification agreements with each of our directors and officers that are, in some cases, broader than the specific indemnification provisions permitted by Delaware law, and that may provide additional procedural protection. As of the Effective Time of the Reverse Merger, we had not entered into any indemnification agreements with our directors or officers, but may choose to do so in the future. Such indemnification agreements may require us, among other things, to:

·   indemnify officers and directors against certain liabilities that may arise because of their status as officers or directors;

·   advance expenses, as incurred, to officers and directors in connection with a legal proceeding, subject to limited exceptions; or

·   obtain directors’ and officers’ insurance.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

Item 15. Recent sales of unregistered securities

On September 17, 2004, and in accordance with the Visitalk.com’s implementation of the Chapter 11 reorganization plan (as previously defined, the “Visitalk Plan”), the Company issued to VCC 324,044 shares of common stock and common stock purchase warrants allowing holders to purchase additional shares of its common stock (the “Plan Warrants”) to acquire certain technology rights from VCC. The Visitalk Plan further authorized VCC to distribute 54,837 of the 324,044 shares of common stock to 240 creditors of Visitalk.com and all of the Plan Warrants to 645 claimants of Visitalk.com, in accordance with the Visitalk Plan. Section 1145 of the Bankruptcy Code exempts the original issuance of securities under a plan of reorganization (as well as subsequent distributions by the distribution agent) from registration under the Securities Act and state securities laws. Under Section 1145, the issuance of securities pursuant to a plan of reorganization is exempt from registration if three principal requirements are satisfied:

(1)   the securities must be issued under a plan of reorganization by a debtor, its successor or an affiliate participating in a joint plan with the debtor;

(2)   the recipients of the securities must hold a claim against the debtor or such affiliate, an interest in the debtor or such affiliate, or a claim for an administrative expense against the debtor or such affiliate; and

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(3)   the securities must be issued entirely in exchange for the recipient’s claim against or interest in the debtor or such affiliate or “principally” in such exchange and “partly” for cash or property.

The Company believes that the offer and sale of the common stock and the Plan Warrants, in accordance with the Visitalk Plan, satisfy the requirements of Section 1145(a) of the Bankruptcy Code and, therefore, are exempt from registration under the Securities Act and state securities laws.

On July 21, 2006, pursuant to Stock Purchase Agreements, the Company issued a total of 1,460,011 shares of common stock (post Reverse Split) to two investors for an aggregate amount of $67,500. On July 21, 2006, it issued 36,617 shares of common stock to VCC in connection with the Stock Purchase Agreements. The securities were offered and issued to investors under the Stock Purchase Agreements in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The investors qualified as an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended). On July 21, 2006, the Company also issued 1,317 shares of common stock to 134 unaffiliated stockholders under an anti-dilution arrangement in the Visitalk Plan. The Company believes that the offer and sale of the common stock, in accordance with the Visitalk Plan, satisfy the requirements of Section 1145(a) of the Bankruptcy Code and, therefore, are exempt from registration under the Securities Act and state securities laws.

On November 22, 2006, pursuant to an Exchange Agreement, the Company acquired all of the outstanding capital stock of Fuqi BVI in a stock for stock exchange. The Company issued a total of 18,886,666 shares of common stock to Mr. Yu Kwai Chong, who is the sole shareholder of Fuqi BVI, in exchange for all of the issued and outstanding capital of Fuqi BVI. The securities were offered and issued to Mr. Chong in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Mr. Chong qualified as an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended).

In June 2007, pursuant to the exercise of warrants called for redemption, the Company issued a total of 977,119 shares of common stock to existing warrant holders under the exemption offered under Section 1145(a)(1) of the United States Bankruptcy Code, as amended.

Item 16. Exhibits

1.1	Form of Underwriting Agreement
2.1	Share Exchange Agreement dated November 20, 2006 by and between Fuqi International, Inc., a Delaware corporation (f/k/a VT Marketing Services, Inc.) (the “Registrant”) and Fuqi International Holdings Ltd., a British Virgin Islands company (incorporated by reference from Exhibit 2.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
3.1	Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
3.1(a)	Amendment of the Certificate of Incorporation of the Registrant dated February 21, 2007 to increase authorized shares.
3.2	Bylaws of the Registrant (incorporated by reference from Exhibit 3.2 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
4.1*	Specimen Common Stock Certificate.
5.1**	Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP

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10.1	Plan Warrant Agreement (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
10.2	2006 Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
10.3	Real Property Lease dated May 8, 2005 (incorporated by reference from Exhibit 10.3 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
16.1	Letter from Epstein, Weber & Conover, PLC dated February 14, 2007 (incorporated by reference from Exhibit 16.1 to Registrant’s Form 10/A filed with the Securities and Exchange Commission on February 14, 2007).
21.1	List of Subsidiaries of the Registrant (incorporated by reference from Exhibit 21.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
23.1	Consent of Stonefield Josephson, Inc.
23.2**	Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP (contained in Exhibit 5.1).
24.1*	Power of Attorney (included on signature page).
99.1	Proposed 2007 Equity Incentive Plan
99.2	Proposed Form of Notice of Grant of Stock Option for the 2007 Equity Incentive Plan
99.3	Proposed Form of Stock Option Agreement (including Addendum) for the 2007 Equity Incentive Plan
99.4	Proposed Form of Stock Issuance Agreement (including Addendum) for the 2007 Equity Incentive Plan
99.5	Proposed Form of Stock Purchase Agreement (including Addendum) for the 2007 Equity Incentive Plan

__________

* Previously filed.

** To be filed by amendment.

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereby, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-4

The undersigned Registrant hereby undertakes that:

(i) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.

(ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Shenzhen, People’s Republic of China, on the 27th day of August, 2007.

FUQI INTERNATIONAL, INC.
By:	/s/ Yu Kwai Chong
Name	Yu Kwai Chong
Title:	Chief Executive Officer and President

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

SIGNATURE	TITLE	DATE
/s/ Yu Kwai Chong	Chief Executive Officer and President (Principal Executive Officer)	August 27, 2007
Yu Kwai Chong
/s/ Ching Wan Wong	Chief Financial Officer and Director (Principal Financial Officer and Accounting Officer)	August 27, 2007
Ching Wan Wong
*	Chief Operating Officer and Director	August 27, 2007
Lie Xi Zhuang
*	Director	August 27, 2007
Hon. Lily Lee Chen
*	Director	August 27, 2007
Eileen B. Brody
*	Director	August 27, 2007
Victor A. Hollander
*	Director	August 27, 2007
Jeff Haiyong Liu

_____

*           /s/ Ching Wan Wong

Ching Wan Wong, as

Attorney in Fact

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EXHIBIT INDEX

1.1	Form of Underwriting Agreement
2.1	Share Exchange Agreement dated November 20, 2006 by and between Fuqi International, Inc., a Delaware corporation (f/k/a VT Marketing Services, Inc.) (the “Registrant”) and Fuqi International Holdings Ltd., a British Virgin Islands company (incorporated by reference from Exhibit 2.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
3.1	Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
3.1(a)	Amendment of the Certificate of Incorporation of the Registrant dated February 21, 2007 to increase authorized shares.
3.2	Bylaws of the Registrant (incorporated by reference from Exhibit 3.2 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
4.1*	Specimen Common Stock Certificate.
5.1**	Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP
10.1	Plan Warrant Agreement (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
10.2	2006 Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
10.3	Real Property Lease dated May 8, 2005 (incorporated by reference from Exhibit 10.3 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
16.1	Letter from Epstein, Weber & Conover, PLC dated February 14, 2007 (incorporated by reference from Exhibit 16.1 to Registrant’s Form 10/A filed with the Securities and Exchange Commission on February 14, 2007).
21.1	List of Subsidiaries of the Registrant (incorporated by reference from Exhibit 21.1 to the Registrant’s Form 10 filed with the Securities and Exchange Commission on December 29, 2006).
23.1	Consent of Stonefield Josephson, Inc.
23.2**	Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP (contained in Exhibit 5.1).
24.1*	Power of Attorney (included on signature page).
99.1	Proposed 2007 Equity Incentive Plan
99.2	Proposed Form of Notice of Grant of Stock Option for the 2007 Equity Incentive Plan
99.3	Proposed Form of Stock Option Agreement (including Addendum) for the 2007 Equity Incentive Plan
99.4	Proposed Form of Stock Issuance Agreement (including Addendum) for the 2007 Equity Incentive Plan
99.5	Proposed Form of Stock Purchase Agreement (including Addendum) for the 2007 Equity Incentive Plan

__________

* Previously filed.

** To be filed by amendment.

EX-1.1

FUQI INTERNATIONAL, INC.

[_______] Shares of Common Stock

(Par Value $0.001 Per Share)

UNDERWRITING AGREEMENT

___________ ___, 2007

Merriman Curhan Ford & Co.

c/o Merriman Curhan Ford & Co.

600 California Street, 9th Floor

San Francisco, CA 94108

Dear Sirs:

Fuqi International, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several underwriters named in Schedule A hereto (the “Underwriters”), pursuant to this underwriting agreement (the “Agreement”), an aggregate of [___________] ([________]) shares of common stock of the Company, par value $0.001 per share (the “Common Stock”). In addition, the Company has granted to the Underwriters the option referred to in Section 2(d) hereof to purchase an aggregate of not more than an additional [___________] ([________]) shares of Common Stock, if requested by the Underwriters in accordance with Section 2(d) hereof. It is understood that the Underwriters propose to offer the “Shares” (as hereinafter defined) to be purchased hereunder to the public upon the terms and conditions set forth in the “Registration Statement” (as defined below) after the “Effective Date” (as defined below) of the Registration Statement. As used in this Agreement, (a) the term “Firm Shares” shall mean the Common Stock to be issued and sold to the Underwriters at the “First Closing Date” (as defined in Section 2(b) below); (b) the term “Option Shares” shall mean any of the additional up to [___________] ([________]) shares of Common Stock purchased pursuant to the option referred to in Section 2(d) hereof; and (c) the term “Shares” shall mean the Firm Shares and the Option Shares collectively.

As the representative of the Underwriters, Merriman Curhan Ford & Co. has informed the Company that Merriman Curhan Ford & Co. is authorized to enter into this Agreement on behalf of the several Underwriters, and that the several Underwriters are willing, on the basis of the representations, warranties and agreements of the Company herein contained, and upon the terms but subject to the conditions herein set forth, acting severally and not jointly, to purchase the number of Firm Shares set forth opposite their respective names in Schedule A hereto, plus their pro rata portion of the Option Shares if Merriman Curhan Ford & Co. elects to exercise the over-allotment option in whole or in part for the account of the several Underwriters.

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As the representative of the Underwriters, Merriman Curhan Ford & Co. has also informed the Company that (i) the Underwriters have or will orally provide the pricing information set forth in Schedule B to prospective purchasers prior to confirming sales of the Shares, and (ii) each Underwriter has represented and agreed that, without the prior written consent of the Company and Merriman Curhan Ford & Co., it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus, and any such free writing prospectus, the use of which has been consented to by the Company and Merriman Curhan Ford & Co., is listed in Schedule B hereto.

The Company hereby confirms its agreement with respect to the purchase of the Shares by the Underwriters as follows:

1.Representations and Warranties of the Company. The Company hereby represents and warrants to, and agrees with, the Underwriters that, as of the Effective Date, the First Closing Date and each Option Closing Date (as defined below):

(a)A registration statement on Form S-1 (File No. 333-144290) relating to the offering of the Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the “Act”), and the rules and regulations of the United States Securities and Exchange Commission (the “Commission”) promulgated pursuant to the Act (the “Rules and Regulations”), and said registration statement has been filed with the Commission under the Act. Amendments to said registration statement have been similarly prepared and filed with the Commission covering the registration of the Shares under the Act including the related preliminary prospectus or preliminary prospectuses (each being hereinafter referred to as a “Preliminary Prospectus” as further defined below), each of which has been furnished to the Underwriters. Each Preliminary Prospectus was endorsed with the legend required by Item 501(b) of Regulation S-K. As used in this Agreement and unless the context indicates otherwise, the term “Registration Statement” refers to and means said registration statement, all exhibits, financial statements and schedules included therein and the Prospectus (as defined below) included therein, as finally amended and revised on or prior to the Effective Date (as defined below) and, in the event of any post-effective amendment thereto or if any Rule 462(b) Registration Statement becomes effective prior to the Closing Date (as hereinafter defined), shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be, and shall also include any Rule 430A Information (as defined below) to be included in the Prospectus included therein at the Effective Date, as provided by Rule 430A. The term “Effective Date” shall mean each date and time that the Registration Statement, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or becomes effective. The term “Preliminary Prospectus” refers to and means a preliminary prospectus filed with the Commission and included in said Registration Statement before the Effective Date and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information; the term “Pricing Prospectus” shall mean the Preliminary Prospectus included in the Registration Statement immediately prior to the Applicable Time; the term “Applicable Time” shall mean [__:___] New York time on the date of this Agreement; the term “Issuer Free Writing Prospectus” shall mean any “issuer free writing prospectus” as defined in Rule 433 under the Act; the term “Rule 430A Information” shall mean information with respect to the Shares and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A; and, the term “Prospectus” refers to and means the prospectus relating to the Shares that is first filed pursuant to Rule 424(b) or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Shares included in the Registration Statement at the Effective Date. If the Registration Statement is amended or such Prospectus is supplemented after the Effective Date and prior to the Option Closing Date, then the terms “Registration Statement” and “Prospectus” shall include such documents as so amended or supplemented. Each Preliminary Prospectus and the Prospectus delivered to the Underwriters for use in connection with the offer and sale of the Shares was identical to the electronic version filed with the Commission via EDGAR, except to the extent permitted by Regulation S-T.

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(b)(i) The Pricing Prospectus as supplemented by any Issuer Free Writing Prospectus, other documents and pricing information listed in Schedule B hereto, taken together (collectively, the “Pricing Disclosure Package”) as of the Applicable Time did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) each Issuer Free Writing Prospectus listed in Schedule B hereto does not conflict with the information contained in the Registration Statement, the Pricing Prospectus or the Prospectus, and each such Issuer Free Writing Prospectus, as supplemented by and taken together with the Pricing Disclosure Package as of the Applicable Time, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations and warranties shall not apply to statements or omissions made in the Pricing Prospectus or in an Issuer Free Writing Prospectus in reliance upon and conformity with written information furnished to the Company through Merriman Curhan Ford & Co. by or on behalf of any Underwriter expressly for inclusion therein. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment to the Registration Statement or the Rule 462(b) Registration Statement, as the case may be, at the time it became effective and at all subsequent times through the First Closing Date and the Option Closing Date, complied and will comply in all material respects with the Act and the applicable Rules and Regulations and did not at the time it became effective contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Each Preliminary Prospectus, as of its date, and the Prospectus, as amended or supplemented, as of its date and at all subsequent times through the First Closing Date and the Option Closing Date, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding paragraphs do not apply to statements in or omissions from the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment to the Registration Statement or the Rule 462(b) Registration Statement, as the case may be, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information furnished to the Company in writing through Merriman Curhan Ford & Co. by or on behalf of any of the Underwriters expressly for inclusion therein.

(c)Neither the Commission nor any state regulatory authority has issued an order preventing or suspending the use of any Preliminary Prospectus nor has the Commission or any such authority instituted or, to the Knowledge of the Company (as defined below), threatened to institute any proceedings with respect to such an order. When representations or warranties in this Agreement are qualified to the “Knowledge of the Company” or “Company’s Knowledge,” they are given by the Company to the extent of and qualified in all respects by the facts actually known to any of the executive officers or directors of the Company, with an obligation of reasonable inquiry on the part of such executive officers and directors, prior to the date such representations or warranties are made.

3

(d)The Company has delivered to the Underwriters one complete conformed copy of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and Preliminary Prospectus, any Issuer Free Writing Prospectus and the Prospectus, as amended or supplemented, in such quantities and at such places as the Underwriters have reasonably requested.

(e)The Company has not distributed and will not distribute, prior to the later of the Option Closing Date and the completion of the Underwriters’ distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than a Preliminary Prospectus, the Prospectus, the Registration Statement or, following receipt of written consent of Merriman Curhan Ford & Co., which shall not be unreasonably withheld or delayed, any Issuer Free Writing Prospectus.

(f)This Agreement has been duly authorized, executed and delivered by, and assuming due authorization, execution and delivery by the other parties hereto, is a valid and binding agreement of, the Company, enforceable against the Company in accordance with its terms, except as rights to indemnification and contribution hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. All corporate action and approvals (including by the stockholders of the Company) necessary for the Company to consummate the transactions contemplated in this Agreement have been obtained and are in effect.

(g)The Company has been duly incorporated and is now, and at the First Closing Date (as defined below) and each Option Closing Date (as defined below) will be, validly existing as a corporation and in good standing under the laws of the State of Delaware, and has the corporate power and authority (i) to own or lease, as the case may be, its properties, whether tangible or intangible, and conduct its business as presently conducted and as described in the Pricing Prospectus (the “Business”) and (ii) to execute, deliver and perform this Agreement and consummate the transactions contemplated hereby and thereby. The Company has no subsidiaries other than those subsidiaries set forth on Exhibit 21.1 of the Registration Statement (each, a “Subsidiary” and collectively, the “Subsidiaries”). Each of the Subsidiaries has been duly incorporated and is now, and at the Closing Dates (as defined below) will be, validly existing as a corporation in good standing under the laws of its respective jurisdiction as set forth on such Exhibit. Each of the Subsidiaries has the corporate power and authority to own or lease, as the case may be, its properties, whether tangible or intangible, and to conduct its business as presently conducted and described in the Pricing Prospectus. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character or location of its properties, in each case taken as a whole, makes such qualification necessary, except where the failure to so qualify or be in good standing would not reasonably be expected to have a material adverse effect upon the condition (financial or otherwise), results of operations, prospects, income, shareholders’ equity, net worth, business, assets or properties of the Company and the Subsidiaries, taken as a whole (a “Material Adverse Effect”). The Company owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity and ownership and/or voting interests of each of the Subsidiaries, free and clear of any security interests, liens, encumbrances, claims and charges other than as disclosed in the Registration Statement and the Pricing Prospectus, and all of such shares or other interests have been duly authorized and validly issued and are fully paid and non-assessable. There are no options or warrants for the purchase of, or other rights to purchase or acquire, or outstanding securities convertible into or exchangeable for, any capital stock or other securities or interests of the Subsidiaries. Other than the Subsidiaries, the Company has no equity interests in any entity. Each of the Company and its Subsidiaries holds such permits, licenses, certifications, registrations, approvals, consents, orders, franchises and other authorizations (collectively, “Permits”) from state, federal, foreign or other regulatory authorities necessary for the conduct of its Business and is in compliance with all laws and regulations and all orders and decrees applicable to it or to such Business, except where the failure to hold such Permits or comply with such laws, regulations, orders or decrees would not reasonably be expected to result in a Material Adverse Effect, and there are no proceedings pending or, to the Knowledge of the Company, threatened, seeking to cancel, terminate or limit such Permits.

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(h)The consolidated financial statements of the Company and the financial statements of its Subsidiaries, including the schedules and related notes, filed with the Commission as part of the Registration Statement and included in the Pricing Prospectus are correct in all material respects and fairly present the financial position of the Company and its Subsidiaries, or that of the applicable Subsidiary, as the case may be, as of and at the respective dates thereof and the results of operations and cash flows of the Company or that of the applicable Subsidiary, as the case may be, for the respective periods indicated therein and comply as to form in all material respects with the applicable accounting requirements included in Regulations S-K and S-X, as well as any other applicable Rules and Regulations. Such financial statements have been prepared in accordance with generally accepted accounting principles of the United States (“GAAP”) applied on a consistent basis throughout the periods involved, except as otherwise stated in the Registration Statement and the Pricing Prospectus; provided, however, that financial statements that are unaudited are subject to year-end adjustments and do not contain footnotes required under GAAP. The selected consolidated financial data set forth in the Registration Statement and the Pricing Prospectus fairly present the information shown therein at the respective dates thereof and for the respective periods covered thereby and have been presented on a basis consistent with that of the audited and unaudited financial statements included in the Registration Statement and the Pricing Prospectus. Except as included in the Registration Statement and the Pricing Prospectus, no other financial statement or supporting schedules are required to be included in the Registration Statement.

(i)The accounting firm of Stonefield Josephson, Inc., which has audited the financial statements filed and to be filed with the Commission as part of the Registration Statement and Pricing Prospectus, are registered independent public accountants with the Public Company Accounting Oversight Board as required by the Act and the Rules and Regulations, and the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the rules and regulations thereunder. Except as described in the Pricing Prospectus and as pre-approved in accordance with the requirements set forth in Section 10A of the 1934 Act, Stonefield Josephson, Inc. has not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the 1934 Act).

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(j)Subsequent to the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus and the Company’s latest financial statements filed with the Commission as a part thereof, and except as described in the Registration Statement and the Pricing Prospectus, (i) neither the Company nor any Subsidiary has incurred any material liability or obligation, direct or contingent, or entered into any material transactions whether or not incurred in the ordinary course of business; (ii) neither the Company nor any Subsidiary has sustained any material loss or interference with its business from fire, storm, explosion, flood or other casualty (whether or not such loss is insured against), or from any labor dispute or court or governmental action, order or decree; (iii) there have not been, and through and including the First Closing Date, there will not be, any changes in the capital stock or any material increases in the long-term debt or other securities of the Company; (iv) the Company has not paid or declared any dividend or other distribution on its Common Stock or its other securities or redeemed or repurchased any of its Common Stock or other securities, and (v) no change, event, development or circumstance has occurred which would reasonably be expected to result in a Material Adverse Effect.

(k)No Permits of or filing with any government or governmental instrumentality, agency, body or court, except as have been obtained or made under the Act, the “blue sky” or securities laws of any state or the rules of the National Association of Securities Dealers, Inc. (“NASD”) (including approval of underwriting compensation) or in connection with the listing of the Common Stock on the NASDAQ Global Market, are required (i) for the valid authorization, issuance, sale and delivery of the Firm Shares and the Option Shares to the Underwriters pursuant to this Agreement, and (ii) the consummation by the Company of the transactions contemplated by this Agreement.

(l)Except as disclosed in the Registration Statement and Pricing Prospectus, there is neither pending nor, to the Knowledge of the Company, threatened in writing, against the Company or any Subsidiary any claim, action, suit, or proceeding at law or in equity, arbitration, investigation or inquiry to which the Company or any of its respective officers, directors or 5% or greater securityholders is a party and involving the Company’s or any Subsidiary’s properties or businesses, before or by any court, arbitration tribunal or governmental instrumentality, agency, or body.

(m)There is no contract or other document which is required by the Act or by the Rules and Regulations to be described in the Registration Statement or the Pricing Prospectus or to be filed as an exhibit to the Registration Statement which has not been so described or filed as required and each contract or document which has been described in the Registration Statement and Pricing Prospectus has been described accurately, in all material respects, and presents fairly, in all material respects, the information required to be described and each such contract or document which is filed as an exhibit to the Registration Statement is and shall be in full force and effect at the Closing Date or shall have been terminated in accordance with its terms or as set forth in the Registration Statement and Pricing Prospectus, and no party to any such contract has given notice to the Company or any Subsidiary of the cancellation of or, to the Knowledge of the Company, has threatened to cancel, any such contract, and except as described in the Registration Statement and Pricing Prospectus, neither the Company nor any Subsidiary is in material default thereunder. Except as described in the Registration Statement and the Pricing Prospectus, there is no voting or other stockholder agreement between the Company and any of its stockholders or, to the Knowledge of the Company, between or by and among any stockholders of the Company. There are and, as of the Closing Date, there will be, no loans to the Company from any officers, directors, securityholders or consultants, or any affiliates thereof, except as described in the Registration Statement and Pricing Prospectus.

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(n)The Company and the Subsidiaries have good and marketable title to, or a valid leasehold interest in, all real property described in the Registration Statement or the Pricing Prospectus as being occupied by the Company or any Subsidiary. Each of the Company and the Subsidiaries has good title to all of its personal property (tangible and intangible) and assets reflected as owned in the financial statements referred to in Section 1(i) above, including any licenses, trademarks and copyrights, described in the Registration Statement and Pricing Prospectus as owned by it, free and clear of all security interests, liens, charges, mortgages, encumbrances and restrictions other than as disclosed in the Registration Statement and the Pricing Prospectus and other than such security interests, liens, charges, mortgages, encumbrances and restrictions that do not materially affect the value of such property or materially interfere with the use made or proposed to be made of such property by the Company or its Subsidiaries. The material leases, subleases and licenses under which the Company or a Subsidiary is entitled to lease, hold or use any real or personal property, are valid and enforceable by the Company and the Subsidiaries, all rentals, royalties or other payments accruing thereunder which became due prior to the date of this Agreement have been duly paid and none of the Company, any Subsidiary, or, to the Knowledge of the Company, any other party, is in default in respect of any of the terms or provisions of any such material leases, subleases and licenses and no claim of any sort has been asserted by anyone against the Company or any Subsidiary under any such leases, subleases or licenses affecting or questioning the rights of the Company or any Subsidiary to the continued use or enjoyment of the rights and property covered thereby. Neither the Company nor any Subsidiary has received notice of any violation of any applicable law, ordinance, regulation, order or requirement relating to its owned or leased properties, except for any such violation that would not reasonably be expected to result in a Material Adverse Effect. Each of the Company and each Subsidiary owns or leases all such properties as are necessary to its operations as now conducted and as proposed to be conducted as set forth in the Registration Statement and Prospectus.

(o)Except as disclosed in the Registration Statement and the Pricing Prospectus, each of the Company and its Subsidiaries has filed with the appropriate federal, state and local governmental agencies, and all appropriate foreign countries and political subdivisions thereof, all tax returns, including franchise tax returns, which are required to be filed by it or has duly obtained extensions of time for the filing thereof and has paid all taxes required to be paid by it as shown on such returns and all other material assessments against it, to the extent that the same have become due and are not being contested in good faith; and the provisions for income taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement and the Pricing Prospectus are sufficient for all accrued and unpaid foreign and domestic taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in the Registration Statement and the Pricing Prospectus, none of the Company nor any Subsidiary has executed or filed with any taxing authority, foreign or domestic, any agreement extending the period for assessment or collection of any income taxes and, to the Knowledge of the Company, is not a party to any pending action or proceeding by any foreign or domestic governmental agency for assessment or collection of taxes; and no claims for assessment or collection of taxes have been asserted in writing against the Company. To the Company’s Knowledge, there is no material tax deficiency that has been or might be asserted or threatened against the Company or its Subsidiaries. All local and national governmental tax exemptions in the People’s Republic of China (the “PRC”) and all other local and national PRC tax relief, concession and preferential treatment claimed or obtained by the Company or its Subsidiaries and described in the Registration Statement or the Pricing Prospectus are valid, binding and enforceable.

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(p)Each of the Company and its Subsidiaries are insured by recognized, financially sound and reputable institutions with policies in such amounts, with such deductibles and covering such risks as reasonably adequate and customary, in the Company’s judgment, for their businesses including, but not limited to, policies covering real and personal property owned or leased by the Company and its Subsidiaries against theft, damage, destruction, acts of vandalism, general liability and directors and officers liability. The Company believes that it or any Subsidiary will be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted without incurring a material additional cost to the Company. Neither of the Company nor any Subsidiary has been denied any insurance coverage which it has sought or for which it has applied. To the Knowledge of the Company, there are no facts or circumstances which would require it or a Subsidiary to notify its insurers of any material claim of which notice has not been made or will not be made in a timely manner. To the Knowledge of the Company, there are no facts or circumstances under any of its or any Subsidiary’s existing insurance policies which would relieve any insurer of its obligation to satisfy in full any existing valid claim of the Company or a Subsidiary under any such policies.

(q)Except as disclosed in the Registration Statement and the Pricing Prospectus, each of the Company and its Subsidiaries owns or otherwise possesses adequate, and to the Knowledge of the Company, enforceable, and unrestricted rights to use all patents, patent applications, patent rights, licenses, inventions, collaborative research agreements, trade secrets, know-how, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, works of authorship, formulae, customer lists, designs, technical data and other proprietary rights and intellectual property (including other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) which are necessary to or used in the conduct of its businesses as now conducted or as proposed to be conducted as described in the Registration Statement and Pricing Prospectus (collectively, the “Intellectual Property”). Except as described in the Registration Statement and Pricing Prospectus, (i) the Company or one of its Subsidiaries is the beneficial and record owner of all right, title and interest in, to and under the Intellectual Property, free and clear of all liens, security interests, charges, encumbrances or other adverse claims and has the right to use the Intellectual Property without payment to a third party; (ii) there is no pending or, to the Knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the Company’s or any Subsidiary’s rights in or to, or the validity or scope of, any Intellectual Property, nor, to the Knowledge of the Company, do there exist any facts which would form a reasonable basis for any such claim; (iii) to the Knowledge of the Company, neither the Company nor any Subsidiary has infringed, is infringing upon, or is otherwise in conflict with the intellectual property rights of others; (iv) none of the Company nor any Subsidiary has received any notice that it has or may have infringed, is infringing upon, or is in conflict with the intellectual property rights of others; (v) there is no pending or, to the Knowledge of the Company, threatened action, suit, proceeding or claim by others alleging that the Company or any Subsidiary infringes, is in conflict with, or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others, nor, to the Knowledge of the Company, do there exist any facts which would form a reasonable basis for any such claim; (vi) to the Knowledge of the Company, no others have infringed upon the Intellectual Property of the Company or any Subsidiary; (vii) neither the Company nor any Subsidiary is obligated or under any liability whatsoever to make any payment by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, intellectual property rights not owned or controlled by the Company or such Subsidiary or in connection with the conduct of the Business; (viii) the expiration of any patents, patent rights, trade secrets, trademarks, service marks, trade names or copyrights would not result in a Material Adverse Effect that is not otherwise disclosed in the Pricing Prospectus; (ix) none of the patents owned or licensed by either the Company or any Subsidiary is unenforceable or invalid, and the Company and its Subsidiaries are unaware of any facts which would form a reasonable basis for any claim that the patent applications owned or licensed by the Company would be unenforceable or invalid if issued as patents; (x) the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all material proprietary technical information developed by and belonging to the Company which has not been patented; (xi) neither the Company nor its Subsidiaries is obligated to pay a royalty, grant a license or provide other consideration to any third person in connection with the Intellectual Property; and (xii) neither the Company nor its Subsidiaries has granted or assigned to any other person or entity any right to manufacture, have manufactured, assemble or sell the current products and services of the Company or those products and services described in the Registration Statement and the Pricing Prospectus.

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(r)Except as described in the Registration Statement and Pricing Prospectus, neither the Company nor any officer, director or any other affiliate of the Company (as such term is defined in Rule 405 promulgated under the Rules and Regulations) has incurred any liability for or entered into any agreement providing for a finder’s fee or similar fee in connection with the transactions contemplated by this Agreement.

(s)Neither the Company nor any of its officers, directors, or to the Knowledge of the Company, other affiliates (as such term is defined in Rule 405 promulgated under the Rules and Regulations) has taken, and each officer or director has agreed that he will not take, and the Company has used reasonable efforts to cause each of its affiliates not to have taken or take, directly or indirectly, any action designed to constitute or which has constituted or which might cause or result in the stabilization or manipulation of the price of any security of the Company or other violation under Regulation M promulgated under the 1934 Act or otherwise, to facilitate the sale or resale of the Shares.

(t)Except as disclosed in the Registration Statement and Pricing Prospectus under the caption “Certain Relationships and Related Transactions,” no person related to the Company as described in Item 404(a) of Regulation S-Kpromulgated under the Act has or has had during the past three (3) fiscal years of the Company, either directly or indirectly, (i) a material interest in any person or entity which (A) furnishes or sells products which are furnished or sold or are proposed to be furnished or sold by the Company or any Subsidiary, or (B) purchases from or sells or furnishes to the Company or any Subsidiary any goods or services, or (ii) a beneficial interest in any contract or agreement to which the Company or any Subsidiary is a party or by which it may be bound or affected. There are no existing agreements, arrangements, or transactions, between or among the Company or any Subsidiary and any officer, director of the Company or any Subsidiary which are required to be described in the Registration Statement and the Pricing Prospectus under the caption “Certain Relationships and Related Transactions” and which are not so described.

(u)The minute books of the Company have been provided to the Underwriters through DLA Piper US LLP, counsel for the Underwriters (“Underwriters’ Counsel”) and contain accurate summaries of all meetings and actions of the directors, all committees of the Board of Directors and stockholders of the Company since January 1, 2002, and reflect all transactions referred to in such minutes accurately in all material respects. The minute books of each Subsidiary have been provided to the Underwriters through Underwriters’ Counsel and contain accurate summaries of all meetings and actions of the directors, all committees of the board of directors and stockholders of such Subsidiary since January 1, 2002, and reflect all transactions referred to in such minutes accurately in all material respects.

(v)The Company had at the date or dates indicated in the Registration Statement and Pricing Prospectus a duly authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Pricing Prospectus. Based on the assumptions stated in the Registration Statement and the Pricing Prospectus, the Company will have on the Closing Date the as-adjusted stock capitalization set forth therein. Except as set forth in the Registration Statement or the Pricing Prospectus, on the Effective Date and on the Closing Date, there will be no options to purchase, warrants or other rights to subscribe for, or any securities or obligations convertible into, or any contracts or commitments or preemptive rights or rights of first refusal to issue or sell shares of the Company’s or any Subsidiary’s capital stock or any such warrants, convertible securities or obligations. Except as set forth in the Registration Statement or the Pricing Prospectus, no holder of any of the Company’s securities has any rights, “demand,” “piggyback” or otherwise, to have such securities registered under the Act, and all holders with any such rights have agreed not to exercise such rights with respect to the Registration Statement. The Company has the right under the terms of its agreements with the holders of its securities to exclude from the Registration Statement (by amendment or otherwise) any securities held by such holders.

(w)The Shares and the other securities of the Company conform in all material respects to all descriptions and statements in relation thereto in the Registration Statement and Pricing Prospectus; the outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the outstanding options and warrants to purchase Common Stock have been duly authorized and validly issued and constitute the valid and binding obligations of the Company, and none of such outstanding shares of Common Stock or outstanding warrants or options to purchase Common Stock were issued in violation of the pre-emptive rights, rights of first refusal or similar rights to subscribe for or purchase securities of the Company of any stockholder of the Company. The offers and sales of the outstanding Common Stock and outstanding options and warrants to purchase Common Stock were at all relevant times either registered under the Act and the applicable state securities or “blue sky” laws or exempt from such registration requirements. None of the offers and sales of the outstanding Common Stock or outstanding options or warrants to purchase Common Stock are required to be integrated (within the meaning of the Act) with the offered sale of the Shares.

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(x)The issuance and sale of the Shares to be purchased by the Underwriters from the Company have been duly authorized and, upon delivery against payment therefor as contemplated by this Agreement, will be validly issued, fully paid and non-assessable.

(y)Each officer and director of the Company and each owner of record of capital stock or options or warrants to acquire capital stock of the Company has agreed to sign an agreement substantially in the form attached hereto as Exhibit A (the “Lock-up Agreements”). The Company has provided to Underwriters’ Counsel true, accurate and complete copies of all of the Lock-up Agreements presently in effect or effected hereby.

(z)Neither the Company, nor any Subsidiary or any agent of the Company or any Subsidiary, acting on behalf of the Company, has at any time (i) made any contributions to any candidate for political office in violation of law, or failed to disclose fully any such contributions in violation of law, (ii) made any payment to any state, federal or foreign governmental officer or official, or any other person charged with similar public or quasi-public duties, other than payments required or allowed by applicable law or (iii) made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation and under circumstances requiring the disclosure of such payment, receipt or retention of funds in the Registration Statement and Pricing Prospectus. The Company’s and the Subsidiaries’ internal accounting controls and procedures are sufficient to cause the Company and the Subsidiaries to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.

(aa)The Company is not an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended. After giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement and Pricing Prospectus, the Company will not be an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.

(bb)The confidentiality agreements between the Company or the Subsidiaries and their officers, employees and consultants are binding and enforceable obligations upon the other parties thereto in accordance with their terms, except to the extent enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors’ rights generally and to the extent that the remedy of specific performance and injunction or other forms of equitable relief may be subject to equitable defenses and the discretion of the court before which any proceeding therefor may be brought.

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(cc)Except as set forth in the Registration Statement and Pricing Prospectus, none of the Company or any Subsidiary has employee benefit plans (including, without limitation, profit sharing and welfare benefit plans) or deferred compensation arrangements that are subject to the provisions of the United States Employee Retirement Income Security Act of 1974 (“ERISA”), it being understood that neither the Registration Statement nor the Pricing Prospectus disclose that such employee benefit plans are subject to ERISA. The Company has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of ERISA and the regulations and published interpretations thereunder with respect to each “plan” (as defined in Section 3(3) of ERISA and such regulations and published interpretations) in which employees of the Company or any Subsidiary are eligible to participate and each such plan subject to ERISA is in compliance in all material respects with the presently applicable provisions of ERISA and such regulations and published interpretations. None of the Company or any Subsidiary has incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA.

(dd)The Company has filed a registration statement on Form 10 with respect to its Common Stock under Section 12(b) of the 1934 Act and such registration statement has become effective under applicable rules of the Commission. The Company has filed listing applications with respect to its Common Stock with The NASDAQ Stock Market (“NASDAQ”), such listing applications have been accepted by, and the Shares have been approved for listing on, the NASDAQ Global Market, subject to official notices of issuance. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the 1934 Act, nor has the Company received any notification that the Commission or NASDAQ is contemplating terminating such registration or listing.

(ee)None of the Company nor any Subsidiary is involved in any labor disputes with any of its employees and, to the Knowledge of the Company, no employee has threatened the commencement of any labor disputes with the Company or any Subsidiary, which, in either case, would reasonably be expected to result in a Material Adverse Effect, nor has the Company or any Subsidiary received any notice of any bankruptcy, labor disturbance or other event affecting any of its principal suppliers or customers, which would reasonably be expected to result in a Material Adverse Effect. Each of the Company and each Subsidiary is in compliance in all material respects with all federal, state, local, and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours that are applicable to them. Neither the Company nor any Subsidiary has received notice of any pending investigations involving the Company or any Subsidiary, by the U.S. Department of Labor, any PRC labour bureau, or any other governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. There is no unfair labor practice charge or complaint against the Company or any Subsidiary pending before the National Labor Relations Board or any PRC labour bureau, or, to the Knowledge of the Company, any strike, picketing, boycott, labor dispute, slowdown or stoppage pending or threatened against or involving the Company or any Subsidiary. No collective bargaining representation question exists respecting the employees of the Company or any Subsidiary, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any Subsidiary. Neither the Company nor any Subsidiary has received notice that any grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or any Subsidiary.

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(ff)The Company has provided to Underwriters’ Counsel, complete and accurate copies of all agreements, certificates, correspondence and other items, documents and information requested by such counsel, including in such counsel’s due diligence request memorandum of May 22, 2007.

(gg)The Company's board of directors has validly appointed an audit committee whose composition satisfies the requirements of the 1934 Act and the rules and regulations of the Commission adopted thereunder, and Rules 4200 and 4350 of the rules of NASDAQ. The Company's audit committee has adopted a charter that satisfies the 1934 Act and the rules and regulations of the Commission adopted thereunder, and Rules 4200 and 4350 of NASDAQ.

(hh)The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.The Company has taken all necessary actions to ensure that, upon and at all times after effectiveness of the Registration Statement, it has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 and 15d-15 under the 1934 Act) that: (A) are designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the 1934 Act will be prepared; and (B) are effective to perform the functions for which they are established.The Company is not aware of (x) any significant deficiency or material weakness in the design or operation of internal controls over financial reporting; or (y) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.Since the date of the Company’s most recent audited fiscal year, there has been no change in the Company’s internal controls that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

(ii)The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the Commission thereunder that are applicable, or will be applicable as of the date of payment for and delivery of the Firm Shares and Option Shares pursuant hereto, to the Company.

(jj)Except as set forth in the Registration Statement and Pricing Prospectus (exclusive of any supplement thereto), the Company and each of the Subsidiaries (A) are in compliance in all material respects with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants applicable to its Business (“Environmental Laws”), (B) have received and is in compliance with all Permits required under applicable Environmental Laws to conduct its Business, and (C) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants.

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(kk)Each of the Company and its Subsidiaries complies in all respects with PRC advertising laws and regulations, except where the failure to comply with such laws and regulations would not individually or in the aggregate have a Material Adverse Effect.

(ll)To the Knowledge of the Company, after reasonable investigation under the circumstances, there are no affiliations or associations between any member of the NASD and any Company officer, director or holder of five percent (5%) or more of the Company’s securities, except as set forth in the Registration Statement and the Pricing Prospectus.

(mm)The choice of laws of the State of New York as the governing law of this Agreement is a valid choice of law under the laws of the British Virgin Islands (the “BVI”) and the PRC and will be honored by courts in the BVI and the PRC. The Company has the power to submit, and pursuant to Section 15 of this Agreement, has legally, validly, effectively and irrevocably submitted, to the personal jurisdiction of the State courts of the State of New York, County of New York and the United States District Court for the Southern District of New York.

(nn)Neither the Company, nor any Subsidiary nor any of their respective properties, assets or revenues has any right of immunity under BVI or PRC law, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any BVI, PRC, New York or U.S. federal court, from service of process, attachment upon or prior to judgment, or attachment in aid of execution of judgment, or from execution of a judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of a judgment, in any such court, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement; and, to the extent that the Company, or any Subsidiary or any of their respective properties, assets or revenues may have or may hereafter become entitled to any such right of immunity in any such court in which proceedings may at any time be commenced, each of the Company and the Subsidiaries waives or will waive such right to the extent permitted by law and has consented to such relief and enforcement as provided in Section 15 of this Agreement;

(oo)Except as set forth in the Registration Statement and the Pricing Disclosure Package, the Company’s indirect wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., a company established under the laws of the PRC (“Fuqi China”) is not currently prohibited, directly or indirectly, from paying any dividends to its sole shareholder, Fuqi International Holdings Co., Ltd., a BVI company, (“Fuqi BVI”), nor is it so prohibited, from making any other distribution on Fuqi China’s share capital, from repaying to Fuqi BVI or the Company any loans or advances to Fuqi China or from transferring any of Fuqi China’s property or assets to the Company or to any other Subsidiary of the Company. Except as set forth in the Registration Statement and the Pricing Disclosure Package, any dividends and other distributions declared with respect to after-tax retained earnings on the equity interests of Fuqi China may lawfully be paid to Fuqi BVI in Renminbi that may be converted into U.S. dollars and freely transferred out of the PRC, and all such dividends and other distributions are not and will not be subject to withholding or other taxes in the PRC are otherwise free and clear of any other tax, withholding or deduction in the PRC, and without the necessity of obtaining any governmental authorization in the PRC except for the routine PRC foreign exchange procedures and tax withholding procedures.

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(pp)It is not necessary that this Agreement, the Registration Statement, the Prospectus or any other document be filed or recorded with any court or other authority in the BVI or the PRC.

(qq)There are no material off-balance sheet arrangements (as defined in Item 303 of Regulation S-K) that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources or components or revenue or expenses.

(rr)Any certificate signed by an officer of the Company in his capacity as such and delivered to the Underwriters or Underwriters’ Counsel pursuant to this Agreement shall be deemed a representation and warranty by the Company to the Underwriters as to the matters set forth in such certificate.

(ss)The issue and sale of the Shares and the compliance by the Company with this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under (i) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the property or assets of the Company or any of its Subsidiaries is subject; (ii) the provisions of the Certificate of Incorporation or By-laws of the Company or the comparable organizational documents of any Subsidiary; or (iii) any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties, except, in the case of clauses (i) and (iii) above, for such conflicts, breaches or violations as would not, individually or in the aggregate, be reasonably expected to result in a Material Adverse Effect.

(tt)Neither the Company nor any of its Subsidiaries is (i) in violation of its charter or by-laws or (ii) in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound.

(uu)The Company and the Subsidiaries have materially complied with, are not in material violation of, and have not received any written notices of violation with respect to, any statutes, rules, or regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, reimbursement, storage, import, export or disposal of any product manufactured or distributed by the Company or the Subsidiaries (“Applicable Laws”), or any license, certificate, approval, clearance, authorization, permit, supplement or amendment required by any Applicable Laws (“Authorizations”). The Company and the Subsidiaries possess all material Authorizations and such material Authorizations are in full force and effect. The Company and the Subsidiaries are, and their products are, in compliance in all material respects with all Authorizations and Applicable Laws, including, but not limited to, all laws, statutes, rules, regulations, or orders administered, issued or enforced by any PRC or other governmental authority having authority over the Company, the Subsidiaries or any of their products (“Governmental Authority”). The Company and the Subsidiaries have not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other similar action from any Governmental Authority alleging that any product operation or activity is in material violation of any Applicable Laws or Authorizations and, to the Knowledge of the Company, no such Governmental Authority is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding. Each regulatory submission for the Company’s or the Subsidiaries’ products has been filed, cleared, approved and maintained in compliance in all material respects with all Applicable Laws and Authorizations, including without limitation applicable PRC statutes, rules, regulations or orders. To the Knowledge of the Company, there are no facts which are reasonably likely to cause (A) the withdrawal, or recall of any products sold or intended to be sold by the Company or the Subsidiaries, or (B) a suspension or revocation of any of the Company’s or Subsidiaries Authorizations. The Company or the Subsidiaries have not received notice (whether complete or pending) of any proceeding seeking recall, suspension or seizure of any products sold or intended to be sold by the Company or the Subsidiaries.

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(vv)The Company (A) is in compliance, in all material respects, with any and all applicable PRC and other foreign, federal, state and local laws, rules, regulations, treaties, statutes and codes promulgated by any and all governmental authorities relating to the protection of human health and safety in the workplace (“Occupational Laws”); (B) has received all material permits, licenses or other approvals required of it under applicable Occupational Laws to conduct its business as currently conducted; and (C) is in compliance, in all material respects, with all terms and conditions of such permit, license or approval. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s Knowledge, threatened against the Company relating to Occupational Laws, and to the Company’s Knowledge there are no facts, circumstances or developments relating to its operations or cost accounting practices that could reasonably be expected to form the basis for or give rise to such actions, suits, investigations or proceedings.

(ww)Each of the Company and each of the Company’s directors that signed the Registration Statement is aware of and has been advised as to, the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly promulgated by the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Tax Administration, the State Administration of Industry and Commerce, the China Securities Regulatory Commission (the “CSRC”) and the State Administration of Foreign Exchange of the PRC on August 8, 2006 (the “M&A Rules”), in particular the relevant provisions thereof which purport to require offshore special purpose vehicles, or SPVs, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of the CSRC prior to the listing and trading of their securities on an overseas stock exchange; the Company has received legal advice specifically with respect to the M&A Rules from its PRC counsel and the Company understands such legal advice; and the Company has fully communicated such legal advice from its PRC counsel to each of its directors that signed the Registration Statement and each director has confirmed that he or she understands such legal advice.

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(xx)The Company has taken all reasonable steps to comply with, and to ensure compliance by each of its stockholders, option holders, directors, officers, and employees that is, or is directly or indirectly owned or controlled by, a PRC resident or citizen, with any applicable rules and regulations of the relevant PRC government agencies (including, without limitation, the Ministry of Commerce, National Development and Reform Commission and the State Administration of Foreign Exchange) relating to overseas investment by PRC residents and citizens or overseas listing by offshore special purpose vehicles controlled directly or indirectly by PRC companies and individuals, such as the Company (the “PRC Overseas Investment and Listing Regulations”), including, without limitation, requesting that each stockholder, option holder, director, officer and employee that is, or is directly or indirectly owned or controlled by, a PRC resident or citizen, complete any registration and other procedures required under applicable PRC Overseas Investment and Listing Regulations;

(yy)The statements set forth in the Prospectus under the caption “Risk Factors--Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate. Our failure to obtain the prior approval of the China Securities Regulatory Commission, or the CSRC, for this offering and the listing and trading of our common stock could have a material adverse effect on our business, operating results, reputation and trading price of our common stock, and may also create uncertainties for this offering” represent fair and accurate summaries of the matters described therein, and (i) no material information has been omitted from such summaries which would make the same misleading in any material respect, and (ii) nothing has come to the attention of the Company that would lead it to believe that the CSRC is taking any action to require the Company to seek its approval for the consummation of the transactions contemplated under this Agreement or that would otherwise have a Material Adverse Effect.

(zz)Except as set forth in the Registration Statement and the Pricing Prospectus, the Company has not granted rights to develop, manufacture, produce, assemble, distribute, license, market or sell its products to any other person and is not bound by any agreement that affects the Company’s exclusive right to develop, manufacture, produce, assemble, distribute, license, market or sell its products.

(aaa)Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Registration Statement and the Pricing Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

In addition, the certificates signed by an officer of the Company and delivered to the Underwriters or counsel for the Underwriters pursuant to Section 7(i) hereof shall be deemed to be representations and warranties by the Company, as to matters covered thereby, to each Underwriter.

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2.Purchase, Delivery and Sale of the Shares.

(a)Upon the basis of the representations and warranties of Merriman Curhan Ford & Co. herein contained, and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters the respective number of Firm Shares set forth opposite the name of such Underwriter in Schedule A hereto. On the basis of the representations, warranties and agreements of the Company herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase from the Company the respective number of Firm Shares set forth opposite their names on Schedule A, subject to adjustment in accordance with Section 8 hereof. The purchase price per Share to be paid by the several Underwriters to the Company shall be U.S.$[____] per share.

Payment for the Firm Shares to be sold by the Company shall be made at the First Closing Date (and, in the case of the Option Shares, if applicable, at the Option Closing Date) by wire transfer of immediately available funds to the order of the Company.

(b)Delivery by the Company of the Firm Shares to be purchased by the Underwriters and payment therefor by the Underwriters shall be made by the Company and the Underwriters at 9:00 a.m. New York time, at the offices of DLA Piper US LLP, 1251 Avenue of the Americas, New York, New York 10020 (the “DLA Piper Office”), or at such other place as may be agreed upon among the Underwriters and the Company, on the third (3rd) full business day following the date of this Agreement, or, if this Agreement is executed and delivered after 1:30 P.M., New York time, on the fourth (4th) full business day following the date of this Agreement, or at such other time and date not later than seven (7) full business days following the first day that Shares are traded as the Underwriters and the Company may determine (or at such time and date to which payment and delivery shall have been postponed pursuant to this Section 2), such time and date of payment and delivery being herein called the “First Closing Date”; provided, however, that if the Company has not made available to the Underwriters copies of the Prospectus within the time provided in this Agreement, the Underwriters may, in their sole discretion, postpone the First Closing Date until no later than two (2) full business days following delivery of copies of the Prospectus to the Underwriters.

(c)The Company shall deliver, or cause to be delivered, a credit representing the Firm Shares to an account or accounts at The Depository Trust Company (“DTC”) for the accounts of the Underwriters at the First Closing Date, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Company shall also deliver, or cause to be delivered, a credit representing the Option Shares to an account or accounts at DTC for the accounts of the Underwriters, at the First Closing Date or the Option Closing Date, as the case may be, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. Not later than 12:00 noon, New York time, on the second business day following the date the Shares are released by the Underwriters for sale to the public, the Company shall deliver or cause to be delivered copies of the Prospectus in such quantities and at such places as the Underwriters shall request.

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(d)Subject to the terms and conditions of this Agreement, and on the basis of the representations, warranties and agreements contained herein, for the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Shares as described in the Registration Statement and Pricing Prospectus, the Underwriters are hereby granted an option to purchase all or any part of the Option Shares from the Company for up to ________ Option Shares. The purchase price to be paid per share for the Option Shares will be the same price as the price per Firm Share set forth in Section 2(a) hereof. The option granted hereby may be exercised by notice from the Underwriters to the Company as to all or any part of the Option Shares at any time within thirty (30) days after the Effective Date. The Underwriters will not be under any obligation to purchase any Option Shares.

(e)The option granted pursuant to Section 2(d) hereof may be exercised by Merriman Curhan Ford & Co. by giving notice to the Company, which must be confirmed by a letter or facsimile setting forth the number of Option Shares to be purchased by the Underwriters, the date and time for delivery of and payment for the Option Shares to be purchased and stating that the Option Shares referred to therein are to be used for the sole purpose of covering over-allotments in connection with the distribution and sale of the Firm Shares by the Underwriters. If such notice is given prior to the First Closing Date, the date set forth therein for such delivery and payment will be the First Closing Date. If such notice is given on or after the First Closing Date, the date set forth therein for such delivery and payment will not be earlier than two (2) full business days thereafter. In either event, the date so set forth will not be more than fifteen (15) full business days after the date of such notice. The date and time set forth in such notice is herein called the “Option Closing Date.” Upon exercise of such option, through the Underwriters’ delivery of the aforementioned notice, the Company will become obligated to convey to the Underwriters, and, subject to the terms and conditions set forth in this Section 2(e), the Underwriters will become obligated to purchase, the number of Option Shares specified in such notice. If any Option Shares are to be purchased, (i) each Underwriter agrees, severally and not jointly, to purchase the number of Option Shares (subject to such adjustments to eliminate fractional shares as the Underwriters may determine) that bears the same proportion to the total number of Option Shares to be purchased as the number of Firm Shares set forth on Schedule A opposite the name of such Underwriter bears to the total number of Firm Shares, subject to any adjustment in accordance with Section 8 hereof and (ii) the Company agrees to sell up to ______ Option Shares. The Underwriters may cancel the option at any time prior to its expiration by giving written notice of such cancellation to the Company.

(f)Payment for any Option Shares purchased will be made to the Company by wire transfer in immediately-available funds to the order of the Company, against delivery of the Option Shares purchased by the Underwriters at the DLA Piper Office (or at such other location as the Underwriters and the Company may agree).

(g)Unless the Shares are to be delivered by a “fast” transfer, the Company will make the certificates for the Shares to be purchased by the Underwriters hereunder available to the Underwriters for inspection, checking and packaging at the office of the Company’s transfer agent or correspondent in San Francisco, CA, not less than one (1) full business day prior to the First Closing Date and the Option Closing Date, as the case may be (both of which are collectively referred to herein as the “Closing Dates”). The certificates representing the Shares shall be in such names and denominations as the Underwriters may request at least two (2) full business days prior to the respective Closing Dates. In the event that the Underwriters determine to utilize DTC, the parties will use their best efforts to make the offering of the Shares “DTC eligible” and to comply with the procedures thereof.

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3.Public Offering by the Underwriters. The Underwriters agree to cause the Shares to be offered to the public initially at the price and under the terms set forth in the Registration Statement and Prospectus as soon, on or after the effective date of this Agreement, as the Underwriters deem advisable, but no more than five (5) full business days after such effective date. The Company is advised by the Underwriters that the Shares are to be offered to the public initially at U.S.$[___] a share (the “Public Offering Price”).

4.Agreements of the Company. The Company covenants and agrees with the Underwriters that:

(a)If the Registration Statement has not been declared effective prior to the time of execution of this Agreement, the Company will use its best efforts to cause the Registration Statement to become effective as promptly as possible, or, if the procedure in Rule 430A of the Act is followed, to prepare and timely file with the Commission under Rule 424(b) under the Act a Prospectus in a form approved by the Underwriters containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Act, and will not at any time, whether before or after the Effective Date, file any amendment or supplement to the Registration Statement, (i) which shall not have been previously submitted to, and approved by, the Underwriters or Underwriters’ Counsel within a reasonable time prior to the filing thereof, (ii) to which the Underwriters or Underwriters’ Counsel shall have reasonably objected as not being in compliance with the Act or the Rules and Regulations or (iii) which is not in compliance with the Act or the Rules and Regulations. If the Company elects to rely on Rule 462(b) under the Act, the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) under the Act prior to the time confirmations are sent or given, as specified by Rule 462(b)(2) under the Act, and shall pay the applicable fees in accordance with Rule 111 under the Act. The Company further agrees to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act.

(b)The Company will, promptly after it shall have received notice, notify the Underwriters (i) of the receipt of any comments on, or requests for amendment of, the Registration Statement, for supplement of the Prospectus, or for additional or supplemental information, by or from the Commission, and (ii) of the time and date when the Registration Statement or any post-effective amendment thereto has become effective or any supplement to the Prospectus has been filed.

(c)The Company will advise the Underwriters promptly of any request of the Commission for an amendment or supplement to the Registration Statement or the Prospectus, or for any additional information, or of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or of any judgment, order, injunction or decree preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the institution of any proceedings for any of such purposes, of which it has Knowledge, and will use its best efforts to prevent the issuance of any stop order, and, if issued, to obtain as promptly as possible the lifting thereof.

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(d)If at any time when a Prospectus relating to the Shares is required, in the opinion of Underwriters’ Counsel, to be delivered under the Act by the Underwriters (the “Prospectus Delivery Period”), any event shall have occurred as a result of which, in the reasonable opinion of counsel for the Company or Underwriters’ Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made when the Prospectus is delivered, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Underwriters promptly and, at the request of Merriman Curhan Ford & Co., prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, which will correct such statement or omission, or effect such compliance, each such amendment or supplement to be reasonably satisfactory to Underwriters’ Counsel, and the Company will furnish to the Underwriters copies of such amendment or supplement as soon as available and in such quantities as the Underwriters may reasonably request, provided that, if any Underwriter is required to deliver a Prospectus in connection with sales of Shares at any time more than nine (9) months after the date hereof, all costs and expenses in connection with the furnishing of copies of such amended or supplemented Prospectus will be at the expense of such Underwriter.

(e)Within the Prospectus Delivery Period, or pursuant to the undertakings of the Company in the Registration Statement, the Company, at its own expense, will comply in all material respects with all requirements imposed upon it by the Act, the Rules and Regulations, the 1934 Act and the rules and regulations of the Commission promulgated under the 1934 Act, each as now or hereafter amended or supplemented, and by any order of the Commission so far as necessary to permit the continuance of sales of, or dealings in, the Shares.

(f)The Company will furnish to the Underwriters, without charge, a signed copy of the Registration Statement and of any amendment or supplement thereto which has been filed prior to the date of this Agreement, together with each exhibit filed therewith, and three (3) conformed copies of such Registration Statement and as many amendments thereto (unsigned and exclusive of exhibits) as the Underwriters may reasonably request. The signed copies of the Registration Statement so furnished to the Underwriters will include signed copies of any and all consents and reports of the independent public auditors as to the financial statements included in the Registration Statement and Pricing Prospectus, and signed copies of any and all consents and certificates of any other person whose profession gives authority to statements made by them and who are named in the Registration Statement or Pricing Prospectus as having prepared, certified or reviewed any parts thereof.

(g)The Company will deliver to the Underwriters, without charge, (i) prior to the Effective Date, copies of each Preliminary Prospectus filed with the Commission bearing in red ink the statement required by Item 501 of Regulation S-K of the Rules and Regulations; (ii) on and from time to time after the Effective Date, copies of the Prospectus; and (iii) as soon as they are available, and from time to time thereafter, copies of each amended or supplemented Prospectus, and the number of copies to be delivered in each such case will be such as the Underwriters may reasonably request. The Company has consented and hereby consents to the use of each Preliminary Prospectus for the purposes permitted by the Act and the Rules and Regulations. The Company authorizes the Underwriters to use the Prospectus in connection with the sale of the Shares during the Prospectus Delivery Period. Notwithstanding the foregoing, the Underwriters shall not use any Preliminary Prospectus or the Prospectus if the Company has given the Underwriters written notice of the occurrence, or imminently potential occurrence, of any development that could cause such Preliminary Prospectus or Prospectus, as the case may be, to include an untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances, not misleading.

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(h)The Company shall promptly from time to time take such action as the Underwriters may reasonably request to qualify or register the Shares for offering and sale under (or obtain exemptions from the application of) the securities laws of such jurisdictions as the Underwriters may request and comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares; provided that, notwithstanding the foregoing, the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph or where it would be subject to taxation as a foreign corporation, or (ii) consent to general service of process in any such jurisdiction. The Company will advise Merriman Curhan Ford & Co. promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Shares for offering, sale or trading in any jurisdiction or any initiation of threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its reasonable best efforts to obtain the withdrawal thereof at the earliest possible date.

(i)During the period commencing on the date hereof and ending 180 days after the date of the Prospectus (the “Lock-Up Period”), the Company shall not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, without the prior written consent of Merriman Curhan Ford & Co. (such consent not to be unreasonably withheld).

The foregoing paragraph shall not apply to the issuance of securities pursuant to the Company’s stock option plans in the form and amount approved for issuance as described in the Registration Statement and the Prospectus or the exercise of options or warrants or the conversion of a security outstanding on the date of the Prospectus and which is described in the Registration Statement; provided, however, that the Company agrees that such issuances shall be made subject to the terms of the form of Lock-Up Agreement attached hereto as Exhibit A. The Company also agrees that during such period, the Company will not file any registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto, under the Act for any such transaction or which registers, or offers for sale, Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (except for a registration statement on Form S-8 relating to employee benefit plans), without the prior written consent of Merriman Curhan Ford & Co. (such consent not to be unreasonably withheld). The Company agrees that if (a) during the last 17 days of the Lock-Up Period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or (b) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Lock-Up Period, the restrictions set forth herein shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as applicable, unless Merriman Curhan Ford & Co. waives, in writing, such extension.

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(j)As soon as practicable, but in any event not later than forty five (45) days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement is deemed to occur pursuant to Rule 158(c), the Company will make generally available to its security holders (within the meaning of Section 11(a) of the Act) an earnings statement of the Company meeting the requirements of Rule 158(a) under the Act covering a period of at least twelve (12) months beginning after the Effective Date, and advise the Underwriters that such statement has been so made available.

(k)The Company will apply the net proceeds (“Proceeds”) it realizes from the sale of the Shares in the manner set forth under the caption “Use of Proceeds” in the Pricing Prospectus.

(l)During the course of the distribution of the Shares, the Company will not and the Company will cause its officers and directors not to take, directly or indirectly, any action designed to or which might, in the future, cause or result in stabilization or manipulation of the price of the Shares.

(m)The Company will use its reasonable best efforts, at its cost and expense, to take all necessary and appropriate action to list the Shares on the NASDAQ Global Market and maintain such listing for as long as the Shares are so qualified.

(n)The Company will file with the NASD, the NASDAQ Global Market, the Commission and any other governmental or regulatory agency, authority or instrumentality in the BVI, the United States and the PRC, as may be required, such reports, documents, agreements and other information which the Company may from time to time be required to file.

(o)The Company will file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act.

(p)The Company will, upon request of any Underwriter, furnish, or cause to be furnished, to such Underwriter an electronic version of the Company’s trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the “License”); provided, however, that the License shall be used solely for the purpose described above, shall be granted without any fee and shall not be assigned or transferred.

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(q)On the Closing Dates, all transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares will have been fully paid by the Company and all laws imposing such taxes, if any, will have been fully complied with.

(r)Subsequent to the dates as of which information is given in the Registration Statement and Pricing Prospectus and prior to the Closing Dates, except as disclosed in or contemplated by the Registration Statement and Pricing Prospectus, (i) the Company will not have incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business; (ii) there shall not have been any change in the capital stock, funded debt (other than regular repayments of principal and interest on existing indebtedness) or other securities of the Company (except as contemplated in the Registration Statement), or any Material Adverse Effect; and (iii) the Company shall not have paid or declared any dividend or other distribution on its Common Stock or its other securities or redeemed or repurchased any of its Common Stock or other securities.

(s)The Company agrees that it has not made and, without the prior written consent of Merriman Curhan Ford & Co., it will not make any offer relating to the Shares that would constitute a “free writing prospectus” as defined in Rule 433 under the Act.

(t)The Company has complied with and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending.

(u)The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus any event occurred or occurs as a result of which such Issuer Free Writing Prospectus would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to Merriman Curhan Ford & Co., will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus that will correct such statement or omission.

(v)Prior to the latest of the First Closing Date and the Option Closing Date, the Company will not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral communications in the ordinary course of business and consistent with past practices of the Company and of which Merriman Curhan Ford & Co. are notified in advance), without the prior written consent of Merriman Curhan Ford & Co., unless in the judgment of the Company and its counsel, and after notification of Merriman Curhan Ford & Co., such press release or communication is required by law.

Merriman Curhan Ford & Co., on behalf of the several Underwriters, may, in its sole discretion, waive in writing the performance by the Company of any one or more of the foregoing covenants or extend the time for their performance. Notwithstanding the foregoing, Merriman Curhan Ford & Co., for the benefit of each of the other Underwriters, agrees not to consent to any action proposed to be taken by the Company or any other holder of the Company’s securities that would otherwise be prohibited by, or to waive compliance by the Company or any such other security holder with the provisions of, any Lock-Up Agreement delivered in accordance with Section 4(i) hereof without giving each of the other Underwriters at least 17 days prior notice (or such shorter notice as each of the other Underwriters may deem acceptable to permit compliance with applicable provisions of NASD Conduct Rule 2711(f) restricting publication and distribution of research and public appearance by research analysts before and after the expiration, waiver or termination of a lock-up agreement).

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5.Indemnity and Contribution by the Company and the Underwriters.

(a)The Company shall indemnify, defend and hold harmless each Underwriter and any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the 1934 Act, from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which the Underwriters or any such controlling person may incur insofar as such loss, expense, liability, damage or claim arises out of or, is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or the Prospectus (the term Prospectus for the purpose of this Section 5 being deemed to include any Preliminary Prospectus, Pricing Prospectus, Issuer Free Writing Prospectus, the Prospectus and any Prospectus supplements, in each case as amended or supplemented by the Company), (ii) any application or other document, or any amendment or supplement thereto, executed by the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction (domestic or foreign) in order to qualify the Shares under the securities or “blue sky” laws thereof or filed with the Commission or any securities association or securities exchange (each an “Application”), or (iii) any omission or alleged omission to state a material fact required to be stated in any such Registration Statement, Prospectus or Application or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading; except, in the case of each of clauses (i), (ii) or (iii), to the extent that any such loss, expense, liability, damage or claim arises out of or is based upon (x) any such untrue statement or omission of a material fact contained in and in conformity with information furnished in writing by or on behalf of the Underwriters to the Company expressly for use in such Registration Statement, Prospectus or Application, or (y) sales to any person asserting any such loss, expense, liability, damage or claim incurred from purchasing the Shares, if a copy of the Pricing Disclosure Package or the Prospectus (in each case, as then amended or supplemented if the Company shall have timely furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Pricing Disclosure Package or the Prospectus (in each case, as so amended or supplemented), as applicable, would have cured the defect giving rise to such loss, expense, liability, damage or claim, unless such failure is the result of noncompliance by the Company.

(b)Each of the Underwriters shall, severally and not jointly, indemnify, defend and hold harmless the Company and its directors, officers, employees and agents, each person who controls the Company, as the case may be, within the meaning of Section 15 of the Act or Section 20 of the 1934 Act from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which, jointly or severally, the Company, or any such person may incur but only insofar as such loss, expense, liability, damage or claim arises out of or is based upon (i) any untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or the Prospectus in reliance upon and in conformity with information furnished in writing by or on behalf of such Underwriter to the Company expressly for inclusion in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or the Prospectus, as specified in the last sentence of this Section 5(b), or (ii) any omission to state a material fact regarding such Underwriter required to be stated in such Registration Statement or the Prospectus or necessary to make such statement not misleading. The obligation of each of the Underwriters to indemnify the Company (including any director, officer, employee, agent or control person thereof) shall only relate to any untrue statement or omission which applies to the Underwriter. The Company and the Underwriters acknowledge that the information set forth (x) on the cover page of the Prospectus concerning the Underwriters, relating to the delivery of the Shares, and (y) under the caption “Underwriting” in the Prospectus, with respect to passive market and stabilization activities by the Underwriters, constitute the only information furnished by or on behalf of the Underwriters to the Company for purposes of this Section 5.

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(c)Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of any claims or the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify in writing each party against whom indemnification is to be sought of the claim or the commencement thereof (but the failure so to notify an indemnifying party shall not (i) relieve the indemnifying party from any liability which it may have under this Section 5, to the extent that it did not otherwise learn of such action and such failure does not materially prejudice the indemnifying party as a result thereof, and (ii) in any event shall not relieve it from any liability that such indemnifying party may have otherwise than on account of the indemnity agreement hereunder). The indemnifying party shall be entitled to appoint counsel of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. The indemnifying party may participate in the defense of such action at its own expense, and to the extent it may elect, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, the indemnifying party may assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, that counsel to the indemnifying party shall not (except with the written consent of the indemnified party) also be counsel to the indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed reasonably satisfactory counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, (iii) the indemnifying party does not diligently defend the action after assumption of the defense, or (iv) such indemnified party or parties shall have reasonably concluded based on the advice of the advice of counsel that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events the fees and expenses of one counsel selected by all of the indemnified parties to represent them all shall be borne by the indemnifying parties. In the case of any separate counsel for the Company and its officers, directors and control persons, such counsel shall be designated in writing by the Company. In the case of any separate counsel for the Underwriters and their respective officers, directors and control persons, such counsel shall be designated in writing by Merriman Curhan Ford & Co. No indemnifying party shall, without the prior written consent of the indemnified parties, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could have been sought under this Section 5 (whether or not the indemnified parties are actual or potential parties thereto), unless (x) such settlement, compromise or consent (I) includes an unconditional release of the indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (II) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of the indemnified party, and (y) the indemnifying party reaffirms its indemnification obligations pursuant to this Agreement.

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(d)If the indemnification provided for in this Section 5 is unavailable to an indemnified party under subsections (a), (b) or (c) of this Section 5 in respect of any losses, expenses, liabilities, damages or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, expenses, liabilities, damages or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares and (ii) in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other with respect to the statements or omissions which resulted in such losses, expenses, liabilities, damages or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total proceeds (net of underwriting discounts and commissions but before deducting expenses) received by the Company from the Shares sold under this Agreement, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Shares under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other shall be determined by reference to, among other things, (i) whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company or by the Underwriters, (ii) the intent of the parties, and (iii) their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action.

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(e)The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to Section 5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 5(d)(i) and, if applicable, Section 5(d)(ii), above. Notwithstanding the provisions of this Section 5, (i) none of the Underwriters shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by the Underwriters and, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations in Section 5(d) shall be several in proportion to their respective underwriting obligations and not joint.

The indemnity and contribution contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement and (ii) any investigation made by or on behalf of the Underwriters or the Company or the Subsidiaries and such party’s officers or directors or any person controlling such parties.

6.Survival of Agreements, etc. All statements contained in any certificate delivered by or on behalf of the parties in connection with this Agreement shall be deemed to be representations and warranties hereunder. Notwithstanding any investigations made by or on behalf of the parties to this Agreement, all representations, warranties, indemnities and agreements made by the parties to this Agreement or pursuant hereto shall remain in full force and effect and will survive delivery of and payment for the Shares. The provisions of Sections 5, 11 and 15 shall survive the termination or cancellation of this Agreement.

7.Conditions of Underwriters’ Obligations. The respective obligations of the Underwriters to purchase and pay for the Firm Shares as provided herein on the First Closing Date and, with respect to the Option Shares, the Option Closing Date, shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 1 hereof as of the date hereof and as of the First Closing Date as though then made and, with respect to the Option Shares, as of the Option Closing Date as though then made, to the timely performance by the Company of its covenants and obligations hereunder, and to each of the following additional conditions:

(a)The Registration Statement shall have become effective prior to the execution of this Agreement, or at such later date as shall be consented to in writing by the Underwriters; no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the Knowledge of the Company or any Underwriter, threatened by the Commission; any request of the Commission for additional information (to be included in the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, the Prospectus or otherwise) shall have been complied with to the satisfaction of Underwriters’ Counsel; the NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements; and no amendment to the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, or the Prospectus to which the Underwriters or Underwriters’ Counsel shall have reasonably objected, after having received reasonable notice of a proposal to file the same, shall have been filed.

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(b)All corporate proceedings and other legal matters in connection with this Agreement, the form of Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, and the Prospectus and the registration, authorization, issue, sale and delivery of the Shares, shall have been reasonably satisfactory to Underwriters’ Counsel, and such counsel shall have been furnished with such papers and information as they may reasonably have requested to enable them to pass upon the matters referred to in this Section 7.

(c)Subsequent to the execution and delivery of this Agreement and prior to the First Closing Date, and on the Option Closing Date, as the case may be, there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company, taken as a whole, from that set forth in the Pricing Disclosure Package that, in the sole judgment of Merriman Curhan Ford & Co., is material and adverse and that makes it, in the sole judgment of Merriman Curhan Ford & Co., impracticable or inadvisable to market the Shares on the terms and in the manner contemplated in the Pricing Disclosure Package.

(d)At the First Closing Date and on the Option Closing Date, as the case may be, the Underwriters shall have received from Kirkpatrick & Lockhart Preston Gates Ellis LLP, counsel for the Company (“Company Counsel”), a signed opinion dated as of such Closing Date, reasonably satisfactory to Underwriters’ Counsel, in the form and substance of Exhibit B annexed hereto, including a signed negative assurance statement dated as of such Closing Date, reasonably satisfactory to Underwriters’ Counsel, in the form and substance reflected in Exhibit B.

(e)At the First Closing Date and on the Option Closing Date, as the case may be, the Underwriters shall have received from Shujin Law Firm, PRC counsel for the Company (“PRC Counsel”), a signed opinion dated as of such Closing Date, in a form and substance reasonably satisfactory to Underwriters’ Counsel.

(f)At the First Closing Date and on the Option Closing Date, as the case may be, the Underwriters shall have received from Harney, Westwood & Riegels, BVI counsel for the Company (“BVI Counsel”), a signed opinion dated as of such Closing Date, in a form and substance reasonably satisfactory to Underwriters’ Counsel.

(g)At the First Closing Date, and on the Option Closing Date, as the case may be, the Underwriters shall have received from Underwriters’ Counsel a signed opinion dated as of such Closing Date in a form and substance reasonably satisfactory to the Underwriters.

(h)The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from Stonefield Josephson, Inc., independent public accountants, containing statements and information of the type ordinarily included in accountants’ “comfort letters” with respect to the financial statements and certain financial information contained in the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, and the Prospectus; provided, however, that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than two business days before the Closing Date.

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(i)The Underwriters shall have received on the First Closing Date and on the Option Closing Date, as the case may be, a certificate of the Company dated the First Closing Date or the Option Closing Date, as the case may be, signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and Merriman Curhan Ford & Co. shall be satisfied that:

(i)The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the First Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the First Closing Date or the Option Closing Date, as the case may be;

(ii)When the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement, the Pricing Prospectus and the Prospectus, and any amendments or supplements thereto, contained all material information required to be included therein by the Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Act and the applicable Rules and Regulations thereunder, the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, and the Prospectus, and any amendments or supplements thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made (except with respect to the Registration Statement), not misleading; and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; and

(iii)Subsequent to the respective dates as of which information is given in the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, and the Prospectus, there has not been or occurred, as the case may be: (A) any Material Adverse Effect; (B) any transaction that is material to the Company and its Subsidiaries considered as a whole, except transactions entered into in the ordinary course of business; (C) any obligation, direct or contingent, that is material to the Company and its Subsidiaries considered as a whole, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business; (D) any change in the capital stock or outstanding indebtedness of the Company or any of its Subsidiaries that is material to the Company and its Subsidiaries considered as a whole; (E) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its Subsidiaries; or (F) any loss or damage (whether or not insured) to the property of the Company or any of its Subsidiaries which has been sustained or will have been sustained which has a Material Adverse Effect.

(j)The Company shall have obtained and delivered to the Underwriters an agreement, substantially in the form of Exhibit A attached hereto, from each officer and director of the Company and each owner of record of capital stock or options or warrants to acquire capital stock of the Company. All of the certificates representing the Shares shall have been tendered for delivery in accordance with the terms and provisions of this Agreement.

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(k)The Shares shall be listed on the NASDAQ Global Market, subject only to official notice of issuance.

(l)The Company shall have complied with the provisions of this Agreement with respect to the furnishing of Prospectuses.

(m)On or before each of the First Closing Date and the Option Closing Date, as the case may be, the Underwriters and Underwriters’ Counsel shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained.

(n)At least two business days prior to the date hereof, the Company shall have furnished for review by the Underwriters copies of certificates and documents as the Underwriters may reasonably request.

If any condition specified in this Section 7 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Underwriters by written notice to the Company at any time on or prior to the First Closing Date and, with respect to the Option Shares, at any time prior to the Option Closing Date, which termination shall be without liability on the part of any party to any other party, except for the expenses described in Section 11 of this Agreement.

8.Default of One or More of the Underwriters. Subject to Sections 7 and 10 hereof, if, on the First Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated, severally, in the proportions that the number of Firm Shares set forth opposite their respective names on Schedule A bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the First Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs exceeds 10% of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Company and the other Underwriters for the purchase of such Shares are not made within 48 hours after such default, this Agreement shall terminate without liability of any non-defaulting Underwriter or the Company, except that the provisions of Sections 5, 11 and 15 shall at all times be effective and shall survive such termination. In any such case either the Underwriters or the Company shall have the right to postpone the First Closing Date or the Option Closing Date, as the case may be, but in no event for longer than seven (7) days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected.

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As used in this Agreement, the term “Underwriter” shall be deemed to include any person substituted for a defaulting Underwriter under this Section 8. Any action taken under this Section 8 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

9.Effective Date. This Agreement will become effective upon the later of when (i) the Underwriters and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement.

10.Termination.

The Underwriters shall have the right by written notice to the Company (which may be delivered electronically through email or facsimile) to terminate this Agreement at any time prior to the First Closing Date or, with respect to the obligations of the Underwriters to purchase the Option Shares, at any time prior to the Option Closing Date, as the case may be, if (i) the Company shall have failed or refused to fully perform or comply with any of the provisions of this Agreement on its part to be performed and complied with by it prior to the applicable Closing Date; (ii) any of the conditions of Underwriters’ obligations as set forth in Section 7 herein shall not have been satisfied on or prior tothe First Closing Date or the Option Closing Date, as the case may be; (iii) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the NASDAQ Global Market will have been suspended; (iv) minimum or maximum prices will have been established on such exchanges by the Commission or the NASD; (v) a general banking moratorium will have been declared either by federal or New York state authorities; (vi) any other restrictions on transactions in securities materially affecting the free market for securities or the payment for such securities or adversely affecting the distribution of the Firm Shares or the Option Shares, as the case may be, will be established by any of such exchanges, by the Commission, by any other federal or state agency, by action of the Congress or by Executive Order; (vii) the Company will have sustained a material loss, whether or not insured, by reason of fire, flood, accident or other calamity of such character as in the sole judgment of Merriman Curhan Ford & Co. may interfere materially with the conduct of the Business and operations of the Company or make it impracticable to proceed with the offering, sale and delivery of the Firm Shares or the Option Shares, as the case may be, on the terms contemplated by any Preliminary Prospectus, any Pricing Prospectus, or the Prospectus; (viii) any action has been taken by the government of the United States or any department or agency thereof which, in the sole judgment of Merriman Curhan Ford & Co., has had a material adverse effect upon the general market for securities and has made it impracticable to proceed with the offering, sale and delivery of the Firm Shares or the Option Shares, as the case may be, on the terms set forth in any Preliminary Prospectus, any Pricing Prospectus, or the Prospectus; (ix) there shall have occurred the outbreak of any new war or any other event or calamity, including without limitation as a result of terrorist activities, which, in the sole judgment of Merriman Curhan Ford & Co., materially disrupts the financial markets of the United States and makes it impracticable to proceed with the offering, sale and delivery of the Firm Shares or the Option Shares, as the case may be, on the terms set forth in the Prospectus; (x) the general market for securities or political, legal or financial conditions should deteriorate so materially from that in effect on the date of this Agreement that, in the sole judgment of Merriman Curhan Ford & Co., it becomes impracticable for the Underwriters to commence or proceed with the public offering of the Shares and with the payment for or acceptance thereof; (xi) trading of any securities of the Company shall have been suspended, halted or delisted on any exchange or by the Commission; or (xii) in the sole judgment of Merriman Curhan Ford & Co., any change that would result in a Material Adverse Effect shall have occurred since the date as of which information is given in the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, or the Prospectus. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Sections 5, 11 and 15 hereof shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof.

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11.Expenses.

(a)Whether or not the offering of the Shares is consummated, the Company agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including without limiting the generality of the foregoing: (i) the preparation, printing, filing with the Commission, and copying of the Registration Statement, each Preliminary Prospectus, the Prospectus, this Agreement and other underwriting documents, if any, and any drafts, amendments or supplements thereto, including the cost of all copies thereof supplied to the Underwriters in such quantities as reasonably requested by the Underwriters and the costs of mailing Prospectuses to offerees and purchasers of the Shares; (ii) the printing, engraving, issuance and delivery of certificates representing the Shares, including any transfer or other taxes payable thereon; (iii) the reasonable fees, expenses and other costs related to the registration or qualification of the Shares under state securities or “blue sky” laws, in accordance with the provisions of Section 11(c) below; (iv) the reasonable fees, costs and disbursements of Underwriters’ Counsel in connection with the review and analysis of certain “blue sky” matters related to the offering; (v) all reasonable fees and expenses of Company Counsel, PRC Counsel, British Virgin Islands Counsel and accountants; (vi) the fees and expenses of Underwriters’ Counsel, inclusive of all NASD filing fees, in connection with obtaining clearance of the offering with the NASD; (vii) all costs and expenses of any listing of the Shares on the NASDAQ Global Market or any other stock exchange or over-the-counter market, or in Standard and Poor’s Corporation Records or any other securities manuals; (viii) the cost of “tombstone” advertisements to be placed in one or more daily or weekly periodicals as the Underwriter may request; (ix) travel expenses of the Company in connection with the “road show” presentations; (x) all other costs and expenses incident to the performance of the Company’s obligations hereunder which are not otherwise specifically provided for in this Section 11(a). The Company shall be the primary obligor with respect to all costs, fees and expenses to be paid by the Company. The obligations of the Company under this Section 11(a) shall survive any termination or cancellation of this Agreement.

(b)In addition to the responsibility of the Company for payment of the foregoing expenses, the Company shall pay to the Underwriters an expense allowance equal to fifty thousand dollars ($50,000) for actual, accountable out-of-pocket expenses, which may include legal fees. The expense allowance has been deposited in escrow with the Company’s legal counsel. Merriman Curhan Ford & Co. hereby acknowledges prior receipt from escrow of [________________ ($_______)], which amount shall be applied to the expense allowance due. If the sale of the Firm Shares provided for herein is not consummated because the Underwriters elect to terminate this Agreement in accordance with clauses (i) or (ii) of Section 10 hereof, then the Company shall reimburse the Underwriters in full for their actual accountable out-of-pocket expenses incurred in connection with the proposed purchase and sale of the Firm Shares (including, without limitation, the fees and disbursements of Underwriters’ Counsel) inclusive of any amount previously reimbursed out of escrow. In the event the offering is terminated, each Underwriter will not be entitled to retain or receive more than an amount equal to its actual accountable out-of-pocket expenses and shall reimburse the Company for the remainder, if any. The Underwriters hereby acknowledge and agree that their expenses in connection with the “road show” presentations shall be paid from the expense allowance; provided, however, that any Company specific road show costs and expenses of Company management and/or staff shall not be paid from the expense allowance.

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(c)Subject to Section 4(h) hereof, the Underwriters shall determine in which states or jurisdictions the Shares shall be registered or qualified for sale.

12.Notices. Any notice hereunder shall be in writing, unless otherwise expressly provided herein, and if to the respective persons indicated, will be sufficient if mailed by certified mail, return receipt requested, postage prepaid, delivered by national overnight courier service or hand delivered, addressed as respectively indicated or to such other address as will be indicated by a written notice similarly given, to the following persons:

(a)If to the Underwriters - addressed to Merriman Curhan Ford & Co., 600 California Street, 9th Floor, San Francisco, CA 94108, Attn: Christopher L. Aguilar, Esq., General Counsel & Corporate Secretary; with a copy to DLA Piper US LLP, 1251 Avenue of the Americas, 27th Floor, New York, NY 10020-1104, Attn: Marjorie S. Adams, Esq.; provided, however, that such copy to DLA Piper US LLP shall not constitute notice delivered to the Underwriters.

(b)If to the Company - addressed to Fuqi International, Inc., Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, Attn: Mr. Yu Kwai Chang, with a copy to Kirkpatrick & Lockhart Preston Gates Ellis LLP, 10100 Santa Monica Blvd., 7th Floor, Los Angeles, CA 90067, Attn: Thomas J. Poletti, Esq.; provided, however, that such copy to Kirkpatrick & Lockhart Preston Gates Ellis LLP shall not constitute notice delivered to the Company.

13.Successors. This Agreement will inure to the benefit of and be binding upon the Underwriters, the Company, and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended, or will be construed, to give any person, corporation or other entity other than the controlling persons, directors, officers, employees and agents referred to in Section 5 hereof (to the extent provided for in Section 5), and their respective successors and assigns, any legal or equitable right, remedy, or claim under or in respect to this Agreement or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other persons. Notwithstanding anything contained herein to the contrary, no purchaser of any of the Shares from the Underwriters will be deemed a successor or assign solely because of such purchase.

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14.Finders and Holders of First Refusal Rights.

(a)The Company hereby represents and warrants to the Underwriters that it has not paid any compensation for services as a finder in connection with any prior financing of the Company during the twelve-month period immediately preceding the date hereof and that no person is entitled, directly or indirectly, to compensation for services as a finder in connection with the proposed transactions. The Company further represents and warrants, that no person holds a right of first refusal or similar right in connection with the proposed offering which has not been waived. In addition, the Company hereby agrees to indemnify and hold harmless the Underwriters, their officers, directors, agents and each person, if any, who controls such Underwriters within the meaning of Section 15 of the Act, from and against any loss, liability, claim, damage or expense whatsoever arising out of a claim by an alleged finder or alleged holder of a right of first refusal or similar right in connection with the proposed offering by the Company, insofar as such loss, liability, claim, damage or expense arises out of any action or alleged action of the Company, as the case may be.

(b)Each of the Underwriters hereby represents and warrants to the Company that no person is entitled, directly or indirectly, to compensation for services as a finder in connection with the proposed transactions contemplated by this Agreement; and the Underwriters hereby agree to indemnify and hold harmless, severally and not jointly, the Company and each of its officers, directors and agents, from and against any loss, liability, claim, damage or expense whatsoever arising out of a claim by an alleged finder in connection with the proposed offering, insofar as such loss, liability, claim, damage or expense arises out of any action or alleged action of the Underwriters.

15.Applicable Law. This Agreement shall be a deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of said State applicable to contracts made and to be performed entirely within such State. Each of the Company and the Underwriters (i) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in the State courts of the State of New York, County of New York, or in the United States District Court for the Southern District of New York, (ii) waives any objection which the Company or the Underwriters, as the case may be, may have now or hereafter to the venue of any such suit, action or proceeding, and (iii) irrevocably consents to the jurisdiction of the State courts of the State of New York, County of New York, or in the United States District Court for the Southern District of New York in any such suit, action or proceeding. Each of the Company and the Underwriters further agrees to accept and acknowledge service of any and all process which may be served in any suit, action or proceeding in the State courts of the State of New York, County of New York, or in the United States District Court for the Southern District of New York, and agrees that service of process upon the Company or the Underwriters, as the case may be, mailed by certified mail to such party’s address as set forth in Section 12 hereof shall be deemed in every respect effective service of process upon such party in any such suit, action or proceeding. In the event of litigation between the parties arising hereunder, the prevailing party shall be entitled to costs and reasonable attorney’s fees.

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16.No Fiduciary Duty. The Company hereby acknowledges that (a) the Underwriters are acting as principals and not as agents or fiduciaries of the Company and (b) the Company’s engagement of the Underwriters in connection with the offering of Shares contemplated by the Prospectus is as independent contractors and not in any other capacity. Furthermore, the Company agrees that it is solely responsible for making its own judgments in connection with the offering of Shares contemplated by the Prospectus (irrespective of whether the Underwriters have advised or is currently advising the Company on related or other matters).

17.Headings. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms or provisions hereof.

18.Counterparts. This Agreement may be executed in any number of counterparts which, taken together, shall constitute one and the same instrument.

19.Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Underwriters and the Company with respect to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between them.

20.Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders and the singular shall include the plural, and vice versa.

[SIGNATURE PAGE FOLLOWS]

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If the foregoing correctly sets forth our understanding, please indicate the Underwriters’ acceptance thereof, as of the day and year first above written, in the spaces provided below for that purpose, whereupon this letter with the Underwriters’ acceptance shall constitute a binding agreement among us.

Very truly yours, FUQI INTERNATIONAL, INC.
By:
	Name:
	Title:

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Confirmed and accepted on the

day and year first above written.

THE UNDERWRITERS: MERRIMAN CURHAN FORD & CO. Acting severally on behalf of itself and as representative of the several Underwriters By: MERRIMAN CURHAN FORD & CO.
By:
	Name:
	Title:

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EXHIBIT A

(Lock-Up Letter Agreement)

EXHIBIT B

(Form of Opinion of Company Counsel)

SCHEDULE A

Underwriters

Name of Underwriter	Number of Firm Shares Purchased
Merriman Curhan Ford & Co.	[_______]
	[_______]
	[_______]
Total	[_______]

SCHEDULE B

(List of Issuer Free Writing Prospectuses and Other Supplemental Materials)

EX-3.1

EXHIBIT 3.1(a)

CERTIFICATE OF AMENDMENT

OF THE

CERTIFICATE OF INCORPORATION

OF

FUQI INTERNATIONAL, INC.

Fuqi International, Inc. a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), pursuant to the provisions of the General Corporation Law of the State of Delaware (the “DGCL”), DOES HEREBY CERTIFY as follows:

FIRST: The Certificate of Incorporation of the Corporation is hereby amended by deleting the Article V of the Certificate of Incorporation in its present form and substituting therefore a new Article V in the following form:

ARTICLE V

Section 1. Number of Authorized Shares. The total number of shares of stock which the Corporation shall have the authority to issue shall be One Hundred and Five Million (105,000,000) shares. The Corporation shall be authorized to issue two classes of shares of stock, designated, “Common Stock” and “Preferred Stock.” The Corporation shall be authorized to issue One Hundred Million (100,000,000) shares of Common Stock, each share to have a par value of $.001 per share, and Five Million (5,000,000) shares of Preferred Stock, each share to have a par value of $.001 per share.

Section 2. Common Stock. The Board of Directors of the Corporation may authorize the issuance of shares of Common Stock from time to time. The Corporation may reissue shares of Common Stock that are redeemed, purchased, or otherwise acquired by the Corporation unless otherwise provided by law.

Section 3. Preferred Stock. The Board of Directors of the Corporation may by resolution authorize the issuance of shares of Preferred Stock from time to time in one or more series. The Corporation may reissue shares of Preferred Stock that are redeemed, purchased, or otherwise acquired by the Corporation unless otherwise provided by law. The Board of Directors is hereby authorized to fix or alter the designations, powers and preferences, and relative, participating, optional or other rights, if any, and qualifications, limitations or restrictions thereof, including, without limitation, dividend rights (and whether dividends are cumulative), conversion rights, if any, voting rights (including the number of votes, if any, per share, as well as the number of members, if any, of the Board of Directors or the percentage of members, if any, of the Board of Directors each class or series of Preferred Stock may be entitled to elect), rights and terms of redemption (including sinking fund provisions, if any), redemption price and liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, and to increase or decrease the number of shares of any such series subsequent to the issuance of shares of such series, but not below the number of shares of such series then outstanding.

Section 4. Dividends and Distributions. Subject to the preferences applicable to Preferred Stock outstanding at any time, the holders of shares of Common Stock shall be entitled to receive such dividends, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefore.

Section 5. Voting Rights. Each share of Common Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation.

SECOND: The amendment to the Certificate of Incorporation of the Corporation set forth in this Certificate of Amendment has been duly authorized and adopted by the Corporation’s Board of Directors and stockholders in accordance with the provisions of Sections 242 of the DGCL.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its duly authorized officer this 21st day of February, 2007

By: _/s/YuKwai Chong____________________

YuKwai Chong

        Chief Executive Officer & President

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Board of Directors

Fuqi International, Inc.

We consent to use of our report of Independent Registered Public Accounting Firm dated April 12, 2007 covering the consolidated financial statements of Fuqi international, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for the each of the three years in the period ended December 31, 2006 included in this Amendment No. 1 to Form S-1 which is contained in the Registration Statement and Prospectus expected to be filed on or about August 27, 2007.

We also consent to the reference to us as experts in matters of accounting and auditing in this registration statement and Prospectus.

/s/ STONEFIELD JOSEPHSON, INC.

Wanchai, Hong Kong

August 27, 2007

EX-99.1

Exhibit 99.1

FUQI INTERNATIONAL, INC.

2007 EQUITY INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 2007 Equity Incentive Plan is intended to promote the interests of Fuqi International, Inc., a Delaware corporation, by providing eligible persons in the Corporation’s employ or service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to continue in such employ or service.

Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix.

II. STRUCTURE OF THE PLAN

A.The Plan shall be divided into two (2) separate equity programs:

(i)the Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, and

(ii)the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary).

B.The provisions of Articles One and Four shall apply to both equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan.

III. ADMINISTRATION OF THE PLAN

A.The Plan shall be administered by the Board. However, any or all administrative functions otherwise exercisable by the Board may be delegated to the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee.

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B.The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any option grant or stock issuance thereunder.

IV. ELIGIBILITY

A.The persons eligible to participate in the Plan are as follows:

(i)Employees,

(ii)non-employee members of the Board or the non-employee members of the board of directors of any Parent or Subsidiary, and

(iii)consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).

B.The Plan Administrator shall have full authority to determine, (i) with respect to the grants made under the Option Grant Program, which eligible persons are to receive such grants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding, and (ii) with respect to stock issuances made under the Stock Issuance Program, which eligible persons are to receive such issuances, the time or times when those issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid by the Participant for such shares.

C.The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.

V. STOCK SUBJECT TO THE PLAN

A.The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed Four Million (4,000,000) shares.

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B.Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently repurchased by the Corporation, at a price per share not greater than the option exercise or direct issue price paid per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan.

C.Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, proportionate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, including the number of shares by which the maximum number of shares may be increased annually, and the per individual limitations on the number of shares of Common Stock that may be issued and (ii) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. In no event shall any such adjustments be made in connection with the conversion of one or more outstanding shares of the Corporation’s preferred stock into shares of Common Stock.

ARTICLE TWO

OPTION GRANT PROGRAM

I. OPTION TERMS

Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.

A.Exercise Price.

1.The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions:

(i)The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

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(ii)Until such time as the Corporation becomes subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, if the person to whom the option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date.

2.The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Four and the documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12 of the 1934 Act at the time the option is exercised, then the exercise price may also be paid as follows:

(i)in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or

(ii)to the extent the option is exercised for vested Option Shares and unless prohibited by Section 402 of the Sarbanes Oxley Act of 2002, through payment in accordance with a brokerage transaction as permitted under the provisions of Regulation T applicable to cashless exercises promulgated by the Federal Reserve Board out of the sale proceeds available on the settlement date of sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and the Optionee shall concurrently provide irrevocable instructions to the Corporation to deliver the certificates for the purchased shares directly to a brokerage firm in order to complete the sale.

Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.

B.Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option grant. However, no option shall have a term in excess of ten (10) years measured from the option grant date.

C.Effect of Termination of Service.

1.The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:

(i)Should the Optionee cease to remain in Service for any reason other than death, Disability or Misconduct, then the Optionee shall have a period of thirty (30) days following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee.

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(ii)Should Optionee’s Service terminate by reason of Disability, then the Optionee shall have a period of six (6) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee.

(iii)If the Optionee dies while holding an outstanding option, then the personal representative of his or her estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance or the Optionee’s designated beneficiary or beneficiaries of that option shall have a six (6)-month period following the date of the Optionee’s death to exercise such option.

(iv)Under no circumstances, however, shall any such option be exercisable after the specified expiration of the option term.

(v)During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Service, terminate and cease to be outstanding with respect to any and all option shares for which the option is not otherwise at the time exercisable or in which the Optionee is not otherwise at that time vested.

(vi)Should Optionee’s Service be terminated for Misconduct or should Optionee otherwise engage in Misconduct while holding one or more outstanding options under the Plan, then all those options shall terminate immediately and cease to remain outstanding.

2.The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:

(i)extend the period of time for which the option is to remain exercisable following Optionee’s cessation of Service or death from the limited period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or

(ii)permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service.

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D.Stockholder Rights. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become the recordholder of the purchased shares.

E.Exercisability and Unvested Shares. Options shall be exercisable at such time or times and subject to such waiting periods, exercise dates, restrictions on exercise and other terms and conditions as shall be determined by the Plan Administrator at or after the time of grant. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. A Participant shall vest separately in each Option granted hereunder in accordance with a schedule determined by the Plan Administrator, in its sole discretion. The Plan Administrator may provide, in its discretion, that any option shall be exercisable only in installments, and the Plan Administrator may waive such installment exercise provisions at any time in whole or in part based on such factors as the Plan Administrator may determine in its sole discretion. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of Optionee’s cessation of Service. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. Until such time as the Corporation becomes subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, the Plan Administrator may not impose a vesting schedule upon any option grant or the shares of Common Stock subject to the right of repurchase which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur not later than one (1) year after the option grant date. However, such limitation shall not be applicable to any option grants made to individuals who are officers of the Corporation, non-employee Board members or independent consultants.

F.Individual Limit. In any calendar year, no Participant may receive options that relate to more than Two Million (2,000,000) shares. The foregoing limitation will be adjusted proportionately in connection with any change in the Corporation’s capitalization as described in Section V.C. of Article I. If an option is cancelled in the same calendar year in which it was granted (other than in connection with a Change of Control) the cancelled option will be counted against the limit set forth in this subsection F. For this purpose, if the exercise price of an option is reduced, the transaction will be treated as a cancellation of the option and the grant of a new option. This subsection F applies only with respect to option grants that are made at the end of the transition period prescribed by the regulations under Code Section 162(m).

G.Limited Transferability of Options. An Incentive Stock Option shall be exercisable only by the Optionee during his or her lifetime and shall not be assignable or transferable other than by will or by the laws of inheritance following the Optionee’s death. If permitted by applicable law and if the Agreement so provides, a Non-Statutory Option may be transferred by an Optionee to the Optionee’s family members as a gift, whether directly or indirectly, or by means of a trust or partnership or otherwise, or pursuant to a qualified domestic relations order as defined in the Code or Title 1 of the Employee Retirement Income Security Act of 1974, as amended, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, then as otherwise permitted pursuant to General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended, or any successor thereto. For purposes of this Plan, unless otherwise determined by the Plan Administrator, "family member" shall have the meaning given to such term in Rule 701 promulgated under the Securities Act, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, then it shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended, or any successor thereto. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the Non-Statutory Option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under the Plan, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.

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II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Four shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options shall not be subject to the terms of this Section II.

A.Eligibility. Incentive Options may only be granted to Employees.

B.Exercise Price. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date; provided, however, that if the person to whom the option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date.

C.Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.

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D.10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the option term shall not exceed five (5) years measured from the option grant date.

III. CHANGE IN CONTROL

A.In the event of a pending or threatened Change of Control, the Plan Administrator may, in its sole and absolute discretion, and to the extent the acceleration of options is not subject to other limitations imposed by the Plan Administrator at the time of the option grant or otherwise in accordance with the terms of the Plan, take any one or more of the following actions:

(i)provide that some or all of the options outstanding under the Plan at the time of a Change in Control shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all of the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully-vested shares of Common Stock; or

(ii)provide that some or all of the outstanding options previously granted under the Plan, whether or not then exercisable, shall terminate as of a date before or at the time of the Change of Control without any payment to the holder of the option, provided the Plan Administrator gives prior written notice to the Participants of such termination and gives such Participants the right to exercise their outstanding options before such date to the extent then exercisable; or

(iii)provide that some or all of the options will be assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction in effect; or

(iv)provide that at or immediately following the consummation of the Change in Control, some or all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of the Change in Control transaction; or

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(v)provide that some or all outstanding options are to be replaced with a cash incentive program of the Corporation or any successor corporation which preserves the spread existing on the unvested option shares at the time of the Change in Control and provides for subsequent payout of that spread in accordance with the same vesting schedule applicable to those unvested option shares; or

(vi)provide that before or at the time of the Change of Control some or all outstanding options previously granted under the Plan shall terminate, whether or not then exercisable, in consideration of payment to the holder of the option, with respect to each share of Common Stock for which the option is then exercisable, of the excess, if any, of the Fair Market Value on such date of the Common Stock subject to the exercisable portion of the option over the exercise price of such option; or

(vii)provide that upon the occurrence of a Change in Control, some or all outstanding options previously granted under the Plan shall be subject to the terms of any applicable agreement of merger or reorganization relating to such Change in Control.

B.In the event of a pending or threatened Change of Control, the Plan Administrator may, in its sole and absolute discretion, and to the extent the treatment of outstanding repurchase rights are not subject to other limitations imposed by the Plan Administrator at the time the repurchase right is issued or otherwise in accordance with the terms of the Plan, take any one or more of the following actions:

(i)provide that some or all outstanding repurchase rights shall terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control; or

(ii)provide that some or all of the shares of Common Stock subject to outstanding repurchase rights shall be exchanged or otherwise converted into the right to receive cash or other adequate consideration (including, without limitation, such consideration as received by other stockholders of the Company in connection with the Change in Control); or

(iii)provide that some or all repurchase rights are assigned to the successor corporation (or parent thereof) or otherwise continue in full force and effect pursuant to the terms of the Change in Control transaction; or

(iv)provide that some or all unvested shares will be repurchased before or on the Control Change Date pursuant to the Corporation’s right of repurchase; or

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(v)provide that upon the occurrence of a Change in Control, some or all of the shares of Common Stock subject to outstanding repurchase rights shall be subject to the terms of any applicable agreement of merger or reorganization relating to such Change in Control.

C.If applicable, each option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control, had the option been exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan following the consummation of such Change in Control and (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption of the outstanding options under this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control.

D.The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to structure one or more options so that those options shall automatically accelerate and vest in full (and any repurchase rights of the Corporation with respect to the unvested shares subject to those options shall immediately terminate) upon the occurrence of a Change in Control, whether or not those options are to be assumed in the Change in Control or otherwise continued in effect.

E.The Plan Administrator shall also have full power and authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to structure such option so that the shares subject to that option will automatically vest on an accelerated basis should the Optionee’s Service terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control in which the option is assumed or otherwise continued in effect and the repurchase rights applicable to those shares do not otherwise terminate. Any option so accelerated shall remain exercisable for the fully-vested option shares until the expiration or sooner termination of the option term. In addition, the Plan Administrator may provide that one or more of the Corporation’s outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate on an accelerated basis, and the shares subject to those terminated rights shall accordingly vest at that time.

F.The portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.

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G.The grant of options under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Plan and to grant in substitution therefor new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new option grant date.

ARTICLE THREE

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below.

A.Purchase Price.

1.The purchase price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the issue date. However, the purchase price per share of Common Stock issued to a 10% Stockholder shall not be less than one hundred percent (100%) of such Fair Market Value.

2.Subject to the provisions of Section I of Article Four, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:

(i)cash or check made payable to the Corporation, or

(ii)past services rendered to the Corporation (or any Parent or Subsidiary).

B.Vesting Provisions.

1.Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives. Until such time as the Corporation becomes subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, the Plan Administrator may not impose a vesting schedule upon any stock issuance effected under the Stock Issuance Program which is more restrictive than twenty percent (20%) per year vesting, with initial vesting to occur not later than one (1) year after the issuance date. Such limitation shall not apply to any Common Stock issuances made to the officers of the Corporation, non-employee Board members or independent consultants.

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2.Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

3.The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

4.Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of the shares at the time of Participant’s cessation of service and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares by the applicable clause (i) or (ii) amount.

5.The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to those shares. Such waiver shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment or non-attainment of the applicable performance objectives.

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II. CHANGE IN CONTROL

A.In the event of a pending or threatened Change of Control, the Plan Administrator may, in its sole and absolute discretion, and to the extent the treatment of repurchase rights is not subject to other limitations imposed by the Plan Administrator at the time of issuance of the repurchase right or otherwise in accordance with the terms of the Plan, take any one or more of the following actions:

(i)provide that upon the occurrence of a Change in Control, some or all outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full; or

(ii)provide that upon the occurrence of a Change in Control, some or all of the shares of Common Stock subject to outstanding repurchase rights under the Stock Issuance Program shall be exchanged or otherwise converted into the right to receive cash or other adequate consideration (including, without limitation, such consideration as received by other stockholders of the Company in connection with the Change in Control; or

(iii)provide that those repurchase rights are assigned to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction; or

(iv)provide that some or all shares subject to the Corporation’s right of repurchase will be repurchased before or at the time of the Change of Control; or

(v)provide that upon the occurrence of a Change in Control, some or all of the shares of Common Stock subject to outstanding repurchase rights under the Stock Issuance Program shall be subject to the terms of any applicable agreement of merger or reorganization relating to such Change in Control.

B.The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation’s repurchase rights with respect to those shares remain outstanding, to provide that those rights shall automatically terminate on an accelerated basis, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant’s Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control in which those repurchase rights are assigned to the successor corporation (or parent thereof) or otherwise continued in full force and effect.

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III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.

ARTICLE FOUR

MISCELLANEOUS

I. FINANCING

To the extent permitted by applicable law, the Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Option Grant Program or the purchase price for shares issued under the Stock Issuance Program by delivering a full-recourse promissory note payable in one or more installments which bears interest at a market rate and is secured by the purchased shares. However, any promissory note delivered by a consultant must be secured by collateral in addition to the purchased shares of Common Stock. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any applicable income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase.

II. EFFECTIVE DATE AND TERM OF PLAN

A.The Plan shall become effective when adopted by the Board, but no option granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’s stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board’s adoption of the Plan, then all options previously granted under the Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. Subject to such limitation, the Plan Administrator may grant options and issue shares under the Plan at any time after the effective date of the Plan and before the date fixed herein for termination of the Plan.

B.The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year period measured from the date the Plan is adopted by the Board, (ii) the date on which all shares available for issuance under the Plan shall have been issued as vested shares or (iii) the termination of all outstanding options in connection with a Change in Control. All options and unvested stock issuances outstanding at the time of a clause (i) termination event shall continue to have full force and effect in accordance with the provisions of the documents evidencing those options or issuances.

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III. AMENDMENT OF THE PLAN

A.The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws and regulations.

B.Options may be granted under the Option Grant Program and shares may be issued under the Stock Issuance Program which are in each instance in excess of the number of shares of Common Stock then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess grants or issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.

IV. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.

V. WITHHOLDING

The Corporation’s obligation to deliver shares of Common Stock upon the exercise of any options granted under the Plan or upon the issuance or vesting of any shares issued under the Plan shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.

VI. REGULATORY APPROVALS

The implementation of the Plan, the granting of any options under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or (ii) under the Stock Issuance Program shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the shares of Common Stock issued pursuant to it.

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VII. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.

VIII. FINANCIAL REPORTS

If required by applicable law, the Corporation shall deliver a balance sheet and an income statement at least annually to each individual holding an outstanding option under the Plan, unless such individual is a key Employee whose duties in connection with the Corporation (or any Parent or Subsidiary) assure such individual access to equivalent information.

IX. COMPLIANCE WITH SECTION 409A OF THE CODE

The Corporation intends that any option granted under the Plan not be considered to provide for the deferral of compensation under Code Section 409A and that any other stock issuance that does provide for such deferral of compensation shall comply with the requirements of Section 409A of the Code and, accordingly, this Plan shall be so administered and construed. Further, the Corporation may modify the Plan and any option grant or stock issuance to the extent necessary to fulfill this intent. Consistent with the intent of this Section IX, in the event that any provision that is necessary for the Plan to comply with Section 409A is determined by the Plan Administrator, in its sole discretion, to have been omitted, such omitted provision shall be deemed included herein and is hereby incorporated as part of the Plan.

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APPENDIX

The following definitions shall be in effect under the Plan:

A.Board shall mean the Corporation’s Board of Directors.

B.Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

(i)a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, or

(ii)a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation, or

(iii)the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

In no event shall any public offering of the Corporation’s securities be deemed to constitute a Change in Control.

C.Code shall mean the Internal Revenue Code of 1986, as amended.

D.Committee shall mean a committee of two (2) or more Board members appointed by the Board to exercise one or more administrative functions under the Plan. To the extent that the Plan Administrator determines it is necessary to qualify stock options and/or stock issuances under Section 162(m) of the Code, the Plan will be administered in accordance with the requirements of Section 162(m) of the Code, and, to the extent that the Plan Administrator determines it is desirable to qualify transactions as exempt under Rule 16b-3 of the 1934 Act, transactions will be structured to satisfy the requirements of Rule 16b-3 under the 1934 Act.

E.Common Stock shall mean the Corporation’s common stock.

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F.Corporation shall mean Fuqi International, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fuqi International, Inc. which shall by appropriate action adopt the Plan.

G.Disability shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances.

H.Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

I.Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise.

J.Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i)If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii)If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii)If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

K.Incentive Option shall mean an option which satisfies the requirements of Code Section 422.

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L.Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of:

(i)such individual’s involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or

(ii)such individual’s voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected without the individual’s consent.

M.Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct.

N.1934 Act shall mean the Securities Exchange Act of 1934, as amended.

O.Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.

P.Option Grant Program shall mean the option grant program in effect under the Plan.

Q.Optionee shall mean any person to whom an option is granted under the Plan.

R.Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

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S.Participant shall mean any person who is issued shares of Common Stock under the Stock Issuance Program.

T.Plan shall mean the Corporation’s 2007 Equity Incentive Plan, as set forth in this document.

U.Plan Administrator shall mean either the Board or the Committee acting in its capacity as administrator of the Plan.

V.Service shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant.

W.Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange.

X.Stock Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program.

Y.Stock Issuance Program shall mean the stock issuance program in effect under the Plan.

Z.Subsidiary shall mean any entity in which, directly or indirectly through one or more intermediaries, the Corporation has at least a 50% ownership interest or, where permissible under Code Section 409A, at least a 20% ownership interest.

AA.10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).

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EX-99.2

Exhibit 99.2

FUQI INTERNATIONAL, INC.

NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the “Option”) to purchase shares of the Common Stock of Fuqi International, Inc. (the “Corporation”):

Optionee: ________________________________________________________________________

Grant Date: _______________________________________________________________________

Vesting Commencement Date: _________________________________________________________

Exercise Price: $_________________________ per share

Number of Option Shares: _________________ shares of Common Stock

Expiration Date: ____________________________________________________________________

Type of Option:	Incentive Stock Option
	Non-Statutory Stock Option

Date Exercisable:

Vesting Schedule: The Option Shares shall initially be unvested and subject to repurchase by the Corporation at the lower of (i) the exercise price paid per share or (ii) Fair Market Value per share at the time of Optionee’s cessation of Service. Optionee shall acquire a vested interest in, and the Corporation’s repurchase right shall accordingly lapse with respect to, (i) ______________ percent (___%) of the Option Shares upon Optionee’s completion of one (__) year of Service measured from the Vesting Commencement Date and (ii) the balance of the Option Shares in a series of _______ (___) successive equal monthly installments upon Optionee’s completion of each additional month of Service over the ________ (___)-month period measured from the first anniversary of the Vesting Commencement Date. In no event shall any additional Option Shares vest after Optionee’s cessation of Service.

Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the Fuqi International, Inc. 2007 Equity Incentive Plan (the “Plan”). Optionee hereby acknowledges receipt of a copy of the Plan in the form attached hereto as Exhibit A. Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit B.

[Optionee understands that any Option Shares purchased under the Option will be subject to the terms set forth in the Stock Purchase Agreement attached hereto as Exhibit C.]

REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.

At Will Employment. Nothing in this Notice or in the attached Stock Option Agreement or Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

Definitions. All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached Stock Option Agreement.

DATED: ________________, _______
	FUQI INTERNATIONAL, INC.
	By:
		Title:
		, OPTIONEE

Attachments:

Exhibit A - 2007 Equity Incentive Plan

Exhibit B - Stock Option Agreement

[Exhibit C - Stock Purchase Agreement]

EX-99.3

Exhibit 99.3

FUQI INTERNATIONAL, INC.

STOCK OPTION AGREEMENT

RECITALS

A.The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of the Board or the board of directors of any Parent or Subsidiary and consultants and other independent advisors in the service of the Corporation (or any Parent or Subsidiary).

B.Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s grant of an option to Optionee.

C.All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1.Grant of Option. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price.

2.Option Term. This option shall have a term of [__] years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.

3.Limited Transferability.

(a)This option shall be neither transferable nor assignable by Optionee other than by will or the laws of inheritance following Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee. However, Optionee may designate one or more persons as the beneficiary or beneficiaries of this option, and this option shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding this option. Such beneficiary or beneficiaries shall take the transferred option subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period during which this option may, pursuant to Paragraph 5, be exercised following Optionee’s death.

(b)If this option is designated a Non-Statutory Option in the Grant Notice, then this option may be assigned in whole or in part during Optionee’s lifetime to the Optionee’s family members as a gift, whether directly or indirectly, or by means of a trust or partnership or otherwise, or pursuant to a qualified domestic relations order as defined in the Code or Title 1 of the Employee Retirement Income Security Act of 1974, as amended, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, then as otherwise permitted pursuant to General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended, or any successor thereto. For purposes of this Agreement, unless otherwise determined by the Plan Administrator, "family member" shall have the meaning given to such term in Rule 701 promulgated under the Securities Act, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, then it shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended, or any successor thereto. The assigned portion shall be exercisable only by the person or persons who acquire a proprietary interest in the option pursuant to such assignment. The terms applicable to the assigned portion shall be the same as those in effect for this option immediately prior to such assignment.

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4.Dates of Exercise. This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate, and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6.

5.Cessation of Service. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(a)Should Optionee cease to remain in Service for any reason (other than death, Disability or Misconduct) while this option is outstanding, then Optionee (or any person or persons to whom this option is transferred pursuant to a permitted transfer under Paragraph 3) shall have a period of thirty (30) days (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date.

(b)Should Optionee die while this option is outstanding, then the personal representative of Optionee’s estate or the person or persons to whom the option is transferred pursuant to Optionee’s will or the laws of inheritance following Optionee’s death or to whom the option is transferred during Optionee’s lifetime pursuant to a permitted transfer under Paragraph 3 shall have the right to exercise this option. However, if Optionee dies while holding this option and has an effective beneficiary designation in effect for this option at the time of his or her death, then the designated beneficiary or beneficiaries shall have the exclusive right to exercise this option following Optionee’s death. Any such right to exercise this option shall lapse, and this option shall cease to be outstanding, upon the earlier of (i) the expiration of the six (6)-month period measured from the date of Optionee’s death or (ii) the Expiration Date.

(c)Should Optionee cease Service by reason of Disability while this option is outstanding, then Optionee (or any person or persons to whom this option is transferred pursuant to a permitted transfer under Paragraph 3) shall have a period of six (6) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date.

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Note: Exercise of this option on a date later than three (3) months following cessation of Service due to Disability will result in loss of favorable Incentive Option treatment, unless such Disability constitutes Permanent Disability. In the event that Incentive Option treatment is not available, this option will be taxed as a Non-Statutory Option upon exercise.

(d)During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of Option Shares in which Optionee is, at the time of Optionee’s cessation of Service, vested pursuant to the Vesting Schedule specified in the Grant Notice or the special vesting acceleration provisions of Paragraph 6. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any vested Option Shares for which the option has not been exercised. To the extent Optionee is not vested in one or more Option Shares at the time of Optionee’s cessation of Service, this option shall immediately terminate and cease to be outstanding with respect to those shares.

(e)Should Optionee’s Service be terminated for Misconduct or should Optionee otherwise engage in Misconduct while this option is outstanding, then this option shall terminate immediately and cease to remain outstanding.

6.Change of Control Assumption.

(a)If this option is assumed in connection with a Change in Control or otherwise continued in effect, then this option shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same. To the extent that the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption of this option, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control.

(b)This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

7.Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

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8.Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become the record holder of the purchased shares.

9.Manner of Exercising Option.

(a)In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:

(i)Execute and deliver to the Corporation a [Purchase Agreement/Exercise Notice] for the Option Shares for which the option is exercised.

(ii)Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

(A)cash or check made payable to the Corporation; or

(B)a promissory note payable to the Corporation, but only to the extent authorized by the Plan Administrator in accordance with Paragraph 14.

Should the Common Stock be registered under Section 12 of the 1934 Act at the time the option is exercised, then the Exercise Price may also be paid as follows:

(C)in shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

(D)to the extent the option is exercised for vested Option Shares and unless prohibited by Section 402 of the Sarbanes Oxley Act of 2002, through payment in accordance with a brokerage transaction as permitted under the provisions of Regulation T applicable to cashless exercises promulgated by the Federal Reserve Board out of the sale proceeds available on the settlement date of sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and the Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions to the Corporation to deliver the certificates for the purchased shares directly to a brokerage firm in order to complete the sale.

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(iii)Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option.

(iv)Execute and deliver to the Corporation such written representations as may be requested by the Corporation in order for it to comply with the applicable requirements of applicable securities laws.

(v)Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all applicable income and employment tax withholding requirements applicable to the option exercise.

(b)As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.

10.Compliance with Laws and Regulations.

(a)The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance.

(b)The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals.

11.Successors and Assigns. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee’s assigns and the legal representatives, heirs and legatees of Optionee’s estate.

12.Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

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13.Financing. The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a full-recourse promissory note bearing interest at a market rate and secured by those Option Shares. The payment schedule in effect for any such promissory note shall be established by the Plan Administrator in its sole discretion.

Note: If the Optionee is a consultant, then the promissory note delivered in payment of the Exercise Price must be secured by collateral other than the purchased Option Shares.

14.Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.

15.Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without resort to that State’s conflict-of-laws rules.

16.Stockholder Approval. If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may be issued under the Plan as last approved by the stockholders, then this option shall be void with respect to such excess shares, unless stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan.

17.Additional Terms Applicable to an Incentive Option. In the event this option is designated an Incentive Option in the Grant Notice, the following terms and conditions shall also apply to the grant:

(a)This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is exercised for one or more Option Shares: (i) more than thirty (30) days after the date Optionee ceases to be an Employee for any reason other than death or Permanent Disability or (ii) more than six (6) months after the date Optionee ceases to be an Employee by reason of Permanent Disability.

(b)This option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option would otherwise first become exercisable in such calendar year would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock and any other securities for which one or more other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent the exercisability of this option is deferred by reason of the foregoing limitation, the deferred portion shall become exercisable in the first calendar year or years thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 17(b) would not be contravened, but such deferral shall in all events end immediately prior to the effective date of a Change in Control in which this option is not to be assumed or otherwise continued in effect, whereupon the option shall become immediately exercisable as a Non-Statutory Option for the deferred portion of the Option Shares.

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(c)Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become exercisable for the first time in the same calendar year as this option, then the foregoing limitations on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.

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APPENDIX

The following definitions shall be in effect under the Agreement:

A.Agreement shall mean this Stock Option Agreement.

B.Board shall mean the Corporation’s Board of Directors.

C.Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

(i)a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, or

(ii)a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation, or

(iii)the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

In no event shall any public offering of the Corporation’s securities be deemed to constitute a Change in Control.

D.Code shall mean the Internal Revenue Code of 1986, as amended.

E.Common Stock shall mean the Corporation’s common stock.

F.Corporation shall mean Fuqi International, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fuqi International, Inc. which shall by appropriate action assume this option.

G.Disability shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. Disability shall be deemed to constitute Permanent Disability in the event that such Disability is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more.

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H.Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

I.Exercise Date shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement.

J.Exercise Price shall mean the exercise price payable per Option Share as specified in the Grant Notice.

K.Expiration Date shall mean the date on which the option expires as specified in the Grant Notice.

L.Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i)If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the Nasdaq National Market and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii)If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii)If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

M.Grant Date shall mean the date of grant of the option as specified in the Grant Notice.

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N.Grant Notice shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.

O.Incentive Option shall mean an option which satisfies the requirements of Code Section 422.

P.Misconductshall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss Optionee or any other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan or this Agreement, to constitute grounds for termination for Misconduct.

Q.1934 Act shall mean the Securities Exchange Act of 1934, as amended.

R.Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.

S.Option Shares shall mean the number of shares of Common Stock subject to the option.

T.Optioneeshall mean the person to whom the option is granted as specified in the Grant Notice.

U.Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

V.Plan shall mean the Corporation’s 2007 Equity Incentive Plan.

W.Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

X.Purchase Agreement shall mean the stock purchase agreement in substantially the form of Exhibit C to the Grant Notice.

Y.Service shall mean the Optionee’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant.

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Z.Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange.

AA.Subsidiary shall mean any entity in which, directly or indirectly through one or more intermediaries, the Corporation has at least a 50% ownership interest or, where permissible under Code Section 409A, at least a 20% ownership interest.

BB.Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service.

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ADDENDUM

TO

STOCK OPTION AGREEMENT

The following provisions are hereby incorporated into, and are hereby made a part of, that certain Stock Option Agreement (the “Option Agreement”) by and between Fuqi International, Inc. (the “Corporation”) and ________________________ (“Optionee”) evidencing the stock option (the “Option”) granted on this date to Optionee under the terms of the Corporation’s 2007 Equity Incentive Plan, and such provisions shall be effective immediately. All capitalized terms in this Addendum, to the extent not otherwise defined herein, shall have the meanings assigned to them in the Option Agreement.

INVOLUNTARY TERMINATION FOLLOWING

A CHANGE IN CONTROL

A.If the Option is to be assumed by the successor corporation (or the parent thereof) in connection with a Change in Control or is otherwise to be continued in full force and effect pursuant to the terms of the Change in Control transaction, then none of the Option Shares shall vest on an accelerated basis upon the occurrence of that Change in Control, and Optionee shall accordingly continue, over his or her period of Service following the Change in Control, to vest in the Option Shares in one or more installments in accordance with the provisions of the Option Agreement. However, upon an Involuntary Termination of Optionee’s Service within _________ (__) months following such Change in Control, all the Option Shares at the time subject to the Option shall automatically vest in full on an accelerated basis so that the Option shall immediately become exercisable for all the Option Shares as fully-vested shares and may be exercised for any or all of those Option Shares as vested shares. The Option shall remain so exercisable until the earlier of (i) the Expiration Date or (ii) the expiration of the one (1)-year period measured from the date of the Involuntary Termination.

B.For purposes of this Addendum, an Involuntary Termination shall mean the termination of Optionee’s Service by reason of:

(a)Optionee’s involuntary dismissal or discharge by the Corporation for reasons other than for Misconduct, or

(b)Optionee’s voluntary resignation following (A) a change in Optionee’s position with the Corporation (or Parent or Subsidiary employing Optionee) which materially reduces Optionee’s duties and responsibilities or the level of management to which he or she reports, (B) a reduction in Optionee’s level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based incentive programs) by more than fifteen percent (15%) or (C) a relocation of Optionee’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without Optionee’s consent.

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C.The provisions of Paragraph 1 of this Addendum shall govern the period for which the Option is to remain exercisable following the Involuntary Termination of Optionee’s Service within _____ (__) months after the Change in Control and shall supersede any provisions to the contrary in Paragraph 5 of the Option Agreement.

IN WITNESS WHEREOF, Fuqi International, Inc. has caused this Addendum to be executed by its duly authorized officer as of the Effective Date specified below.

	FUQI INTERNATIONAL, INC.
	By:
		Title:
EFFECTIVE DATE: ________________, _______

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EX-99.4

Exhibit 99.4

FUQI INTERNATIONAL, INC.

STOCK ISSUANCE AGREEMENT

AGREEMENT made as of this ____ day of ______________________, _____ by and between Fuqi International, Inc., a Delaware corporation, and _____________________, Participant in the Corporation’s 2007 Equity Incentive Plan.

All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the attached Appendix.

A.            PURCHASE OF SHARES

1.Purchase. Participant hereby purchases ___________________ shares of Common Stock (the “Purchased Shares”) pursuant to the provisions of the Stock Issuance Program at the purchase price of $_____________ per share (the “Purchase Price”).

2.Payment. Concurrently with the delivery of this Agreement to the Corporation, Participant shall pay the Purchase Price for the Purchased Shares in cash or cash equivalent and shall deliver a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit I) with respect to the Purchased Shares.

3.Stockholder Rights. Until such time as the Corporation exercises the Repurchase Right, Participant (or any successor in interest) shall have all stockholder rights (including voting, dividend and liquidation rights equal to those of other holders of the Company’s Common Stock) with respect to the Purchased Shares, subject, however, to the transfer restrictions of Articles B and C.

B.            SECURITIES LAW COMPLIANCE

1.Restricted Securities. To the extent the Purchased Shares are not issued pursuant to an effective registration statement, The Purchased Shares have not been registered under the 1933 Act and are being issued to Participant in reliance upon the exemption from such registration provided by SEC Rule 701 for stock issuances under compensatory benefit plans such as the Plan. Participant hereby confirms that Participant has been informed that the Purchased Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Participant hereby acknowledges that Participant is acquiring the Purchased Shares for investment purposes only and not with a view to resale and is prepared to hold the Purchased Shares for an indefinite period and that Participant is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Purchased Shares from the registration requirements of the 1933 Act.

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2.Disposition of Purchased Shares. Participant shall make no disposition of the Purchased Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements:

(i)Participant shall have provided the Corporation with a written summary of the terms and conditions of the proposed disposition.

(ii)Participant shall have complied with all requirements of this Agreement applicable to the disposition of the Purchased Shares.

(iii)Participant shall have provided the Corporation with written assurances, in form and substance satisfactory to the Corporation, that (a) the proposed disposition does not require registration of the Purchased Shares under the 1933 Act or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act or any exemption from registration available under the 1933 Act (including Rule 144) has been taken.

The Corporation shall not be required (i) to transfer on its books any Purchased Shares which have been sold or transferred in violation of the provisions of this Agreement or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Purchased Shares have been transferred in contravention of this Agreement.

3.Restrictive Legends. The stock certificates for the Purchased Shares shall be endorsed with one or more of the following restrictive legends:

“The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares may not be sold or offered for sale in the absence of (a) an effective registration statement for the shares under such Act, (b) a “no action” letter of the Securities and Exchange Commission with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act is not required with respect to such sale or offer.”

“The shares represented by this certificate are subject to certain repurchase rights granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

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C.           TRANSFER RESTRICTIONS

1.Restriction on Transfer. Except for any Permitted Transfer, Participant shall not transfer, assign, encumber or otherwise dispose of any of the Purchased Shares which are subject to the Repurchase Right.

2.Transferee Obligations. Each person (other than the Corporation) to whom the Purchased Shares are transferred by means of a Permitted Transfer must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Corporation that such person is bound by the provisions of this Agreement and that the transferred shares are subject to the Repurchase Right, to the same extent such shares would be so subject if retained by Participant.

D.           REPURCHASE RIGHT

1.Grant. The Corporation is hereby granted the right (the “Repurchase Right”), exercisable at any time during the ninety (90)-day period following the date Participant ceases for any reason to remain in Service, to repurchase at the Repurchase Price any or all of the Purchased Shares in which Participant is not, at the time of his or her cessation of Service, vested in accordance with the provisions of the Vesting Schedule set forth in Paragraph D.3 or the special vesting acceleration provisions of Paragraph D.5 (such shares to be hereinafter referred to as the “Unvested Shares”).

2.Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to each Owner of the Unvested Shares prior to the expiration of the ninety (90)-day exercise period. The notice shall indicate the number of Unvested Shares to be repurchased, the Repurchase Price to be paid per share and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of such notice. The certificates representing the Unvested Shares to be repurchased shall be delivered to the Corporation on the closing date specified for the repurchase. Concurrently with the receipt of such stock certificates, the Corporation shall pay to Owner, in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount equal to the Repurchase Price for the Unvested Shares which are to be repurchased from Owner.

3.Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate and cease to be exercisable with respect to any and all Purchased Shares in which Participant vests in accordance with the following Vesting Schedule:

4.Recapitalization. Any new, substituted or additional securities or other property (including cash paid other than as a regular cash dividend) which is by reason of any Recapitalization distributed with respect to the Purchased Shares shall be immediately subject to the Repurchase Right and any escrow requirements hereunder, but only to the extent the Purchased Shares are at the time covered by such right or escrow requirements. Appropriate adjustments to reflect such distribution shall be made to the number and/or class of Purchased Shares subject to this Agreement and to the Repurchase Price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such Recapitalization upon the Corporation’s capital structure; provided, however, that the aggregate Repurchase Price shall remain the same.

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5.Change in Control.

(a)To the extent the Repurchase Right remains in effect following a Change in Control, such right shall apply to any new securities or other property (including any cash payments) received in exchange for the Purchased Shares in consummation of the Change in Control, but only to the extent the Purchased Shares are at the time covered by such right. Appropriate adjustments shall be made to the Repurchase Price per share payable upon exercise of the Repurchase Right to reflect the effect (if any) of the Change in Control upon the Corporation’s capital structure; provided, however, that the aggregate Repurchase Price shall remain the same. The new securities or other property (including any cash payments) issued or distributed with respect to the Purchased Shares in consummation of the Change in Control shall be immediately deposited in escrow with the Corporation (or the successor entity) and shall not be released from escrow until Participant vests in such securities or other property in accordance with the same Vesting Schedule in effect for the Purchased Shares.

E.            SPECIAL TAX ELECTION

1.Section 83(b) Election. Under Code Section 83, the excess of the Fair Market Value of the Purchased Shares on the date any forfeiture restrictions applicable to such shares lapse over the Purchase Price paid for those shares will be reportable as ordinary income on the lapse date. For this purpose, the term “forfeiture restrictions” includes the right of the Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right. Participant may elect under Code Section 83(b) to be taxed at the time the Purchased Shares are acquired, rather than when and as such Purchased Shares cease to be subject to such forfeiture restrictions. Such election must be filed with the Internal Revenue Service within thirty (30) days after the date of this Agreement. Even if the Fair Market Value of the Purchased Shares on the date of this Agreement equals the Purchase Price paid (and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future.

THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.

2.FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE CORPORATION’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.

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F.            GENERAL PROVISIONS

1.Assignment. The Corporation may assign the Repurchase Right and/or the First Refusal Right to any person or entity selected by the Board, including (without limitation) one or more stockholders of the Corporation.

2.At Will Employment. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

3.Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the address indicated below such party’s signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this paragraph to all other parties to this Agreement.

4.No Waiver. The failure of the Corporation in any instance to exercise the Repurchase Right or the First Refusal Right shall not constitute a waiver of any other repurchase rights and/or rights of first refusal that may subsequently arise under the provisions of this Agreement or any other agreement between the Corporation and Participant. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

5.Cancellation of Shares. If the Corporation shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Purchased Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Corporation shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement.

G.            MISCELLANEOUS PROVISIONS

1.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without resort to that State’s conflict-of-laws rules.

2.Participant Undertaking. Participant hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Participant or the Purchased Shares pursuant to the provisions of this Agreement.

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3.Agreement is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.

4.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

5.Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and upon Participant, Participant’s assigns and the legal representatives, heirs and legatees of Participant’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.

FUQI INTERNATIONAL, INC.
By:
	Title:
	Address:
	, PARTICIPANT
	Address:

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SPOUSAL ACKNOWLEDGMENT

The undersigned spouse of Participant has read and hereby approves the foregoing Stock Issuance Agreement. In consideration of the Corporation’s granting Participant the right to acquire the Purchased Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms of such Agreement, including (without limitation) the right of the Corporation (or its assigns) to purchase any Purchased Shares in which Participant is not vested at the time of his or her cessation of Service.

PARTICIPANT’S SPOUSE

Address:

EXHIBIT I

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED ________________ hereby sell(s), assign(s) and transfer(s) unto Fuqi International, Inc. (the “Corporation”), ______________ (_____) shares of the Common Stock of the Corporation standing in his or her name on the books of the Corporation represented by Certificate No. _______________ herewith and do(es) hereby irrevocably constitute and appoint _________________ Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises.

Dated: ___________

Signature ___________________

Instruction: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate. The purpose of this assignment is to enable the Corporation to exercise the Repurchase Right without requiring additional signatures on the part of Participant.

EXHIBIT II

SECTION 83(b) TAX ELECTION

SECTION 83(b) TAX ELECTION

This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:

Address:

Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is ______________ shares of the common stock of Fuqi International, Inc.

(3) The property was issued on __________________, _____.

(4) The taxable year in which the election is being made is the calendar year _____.

(5) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the lower of the purchase price paid per share, or the fair market value per share if for any reason taxpayer’s service with the issuer terminates. [The issuer’s repurchase right or the fair market value will lapse in a series of annual and monthly installments over a [four (4)-year] period ending on ________________, 20___.]

(6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $_____ per share.

(7) The amount paid for such property is $ _______ per share.

(8) A copy of this statement was furnished to Fuqi International, Inc. for whom taxpayer rendered the services underlying the transfer of property.

(9) This statement is executed on _______________, _____.

Spouse (if any) Taxpayer

This election must be filed with the Internal Revenue Service Center with which taxpayer files his or her Federal income tax returns and must be made within thirty (30) days after the execution date of the Stock Issuance Agreement. This filing should be made by registered or certified mail, return receipt requested. Participant must retain two (2) copies of the completed form for filing with his or her Federal and state tax returns for the current tax year and an additional copy for his or her records.

EXHIBIT III

2007 EQUITY INCENTIVE PLAN

APPENDIX

The following definitions shall be in effect under the Agreement:

A.Agreement shall mean this Stock Issuance Agreement.

B.Board shall mean the Corporation’s Board of Directors.

C.Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

(i)a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, or

(ii)a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation, or

(iii)the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

In no event shall any public offering of the Corporation’s securities be deemed to constitute a Change in Control.

D.Code shall mean the Internal Revenue Code of 1986, as amended.

E.Common Stock shall mean the Corporation’s common stock.

F.Corporation shall mean Fuqi International, Inc., a California corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fuqi International, Inc. which shall by appropriate action adopt the Plan.

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G.Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i)If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii)If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii)If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

H.1933 Act shall mean the Securities Act of 1933, as amended.

I.Owner shall mean Participant and all subsequent holders of the Purchased Shares who derive their chain of ownership through a Permitted Transfer from Participant.

J.Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

K.Participant shall mean the person to whom shares are issued under the Stock Issuance Program.

L.Permitted Transfer shall mean (i) a transfer of title to the Purchased Shares effected pursuant to Participant’s will or the laws of inheritance following Participant’s death, (ii) a transfer to the Corporation in pledge as security for any purchase-money indebtedness incurred by Participant in connection with the acquisition of the Purchased Shares, or (iii) a transfer by a Participant to the Participant’s family members as a gift, whether directly or indirectly, or by means of a trust or partnership or otherwise, or pursuant to a qualified domestic relations order as defined in the Code or Title 1 of the Employee Retirement Income Security Act of 1974, as amended, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, then as otherwise permitted pursuant to General Instructions A.1(a)(5) to Form S-8 under the 1933 Act. For purposes of this definition, "family member" shall have the meaning given to such term in Rule 701 promulgated under the Securities Act, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, then it shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the 1933 Act.

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M.Plan shall mean the Corporation’s 2007 Equity Incentive Plan attached hereto as Exhibit III.

N.Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

O.Purchase Price shall have the meaning assigned to such term in Paragraph A.1.

P.Purchased Shares shall have the meaning assigned to such term in Paragraph A.1.

Q.Recapitalization shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Corporation’s outstanding Common Stock as a class without the Corporation’s receipt of consideration.

R.Reorganization shall mean any of the following transactions:

(i)a merger or consolidation in which the Corporation is not the surviving entity,

(ii)a sale, transfer or other disposition of all or substantially all of the Corporation’s assets,

(iii)a reverse merger in which the Corporation is the surviving entity but in which the Corporation’s outstanding voting securities are transferred in whole or in part to a person or persons different from the persons holding those securities immediately prior to the merger, or

(iv)any transaction effected primarily to change the state in which the Corporation is incorporated or to create a holding company structure.

S.Repurchase Price shall mean shall mean the Fair Market Value per share of Common Stock on the date of Participant’s cessation of Service.

T.Repurchase Right shall mean the right granted to the Corporation in accordance with Article D.

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U.SEC shall mean the Securities and Exchange Commission.

V.Service shall mean the Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or an independent consultant.

W.Stock Issuance Program shall mean the Stock Issuance Program under the Plan.

X.Subsidiary shall mean any entity in which, directly or indirectly through one or more intermediaries, the Corporation has at least a 50% ownership interest or, where permissible under Code Section 409A, at least a 20% ownership interest.

Y.Vesting Schedule shall mean the vesting schedule specified in Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares in a series of installments over the Participant’s period of Service.

Z.Unvested Shares shall have the meaning assigned to such term in Paragraph D.1.

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ADDENDUM

TO

STOCK ISSUANCE AGREEMENT

The following provisions are hereby incorporated into, and are hereby made a part of, that certain Stock Issuance Agreement (the “Issuance Agreement”) by and between Fuqi International, Inc. (the “Corporation”) and _________________ (“Participant”) evidencing the shares of Common Stock purchased on this date by Participant under the Corporation’s 2007 Equity Incentive Plan, and such provisions shall be effective immediately. All capitalized terms in this Addendum, to the extent not otherwise defined herein, shall have the meanings assigned to such terms in the Issuance Agreement.

INVOLUNTARY TERMINATION FOLLOWING

A CHANGE IN CONTROL

TO THE EXTENT THE REPURCHASE RIGHT IS ASSIGNED TO THE SUCCESSOR CORPORATION (OR PARENT THEREOF) IN CONNECTION WITH A CHANGE IN CONTROL OR IS OTHERWISE TO CONTINUE IN FULL FORCE AND EFFECT PURSUANT TO THE TERMS OF THE CHANGE IN CONTROL TRANSACTION, NO ACCELERATED VESTING OF THE PURCHASED SHARES SHALL OCCUR UPON THAT CHANGE IN CONTROL, AND THE REPURCHASE RIGHT SHALL CONTINUE TO REMAIN IN FULL FORCE AND EFFECT IN ACCORDANCE WITH THE PROVISIONS OF THE ISSUANCE AGREEMENT. PARTICIPANT SHALL, OVER HIS OR HER PERIOD OF SERVICE FOLLOWING SUCH CHANGE IN CONTROL, CONTINUE TO VEST IN THE PURCHASED SHARES IN ONE OR MORE INSTALLMENTS IN ACCORDANCE WITH THE PROVISIONS OF THE ISSUANCE AGREEMENT. HOWEVER, UPON AN INVOLUNTARY TERMINATION OF PARTICIPANT’S SERVICE WITHIN _________ (__) MONTHS FOLLOWING SUCH CHANGE IN CONTROL, THE REPURCHASE RIGHT SHALL TERMINATE AUTOMATICALLY, AND ALL THE PURCHASED SHARES SHALL IMMEDIATELY VEST IN FULL AT THAT TIME. ANY UNVESTED ESCROW ACCOUNT MAINTAINED ON PARTICIPANT’S BEHALF PURSUANT TO PARAGRAPH D.5 OF THE ISSUANCE AGREEMENT SHALL ALSO VEST AT THE TIME OF SUCH INVOLUNTARY TERMINATION AND SHALL BE PAID TO PARTICIPANT PROMPTLY THEREAFTER.

FOR PURPOSES OF THIS ADDENDUM, THE FOLLOWING DEFINITIONS SHALL BE IN EFFECT:

An Involuntary Termination shall mean the termination of Participant’s Service by reason of:

Participant’s involuntary dismissal or discharge by the Corporation for reasons other than for Misconduct, or

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Participant’s voluntary resignation following (1) a change in his or her position with the Corporation (or Parent or Subsidiary employing Participant) which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (2) a reduction in Participant’s level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based incentive programs) by more than fifteen percent (15%) or (3) a relocation of Participant’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without Participant’s consent.

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Misconduct shall include the termination of Participant’s Service by reason of Participant’s commission of any act of fraud, embezzlement or dishonesty, any unauthorized use or disclosure by Participant of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Participant adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss Participant or any other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan and this Addendum, to constitute grounds for termination for Misconduct.

IN WITNESS WHEREOF, Fuqi International, Inc. has caused this Addendum to be executed by its duly-authorized officer as of the Effective Date specified below.

FUQI INTERNATIONAL, INC.

By:

Title:

EFFECTIVE DATE: _______________________, ________

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EX-99.5

Exhibit 99.5

FUQI INTERNATIONAL, INC.

STOCK PURCHASE AGREEMENT

AGREEMENT made this _____ day of ___________________, _____ by and between Fuqi International, Inc., a Delaware corporation, and _____________________, Optionee under the Corporation’s 2007 Equity Incentive Plan.

All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the attached Appendix.

A. EXERCISEOF OPTION

1.Exercise. Optionee hereby purchases _______ shares of Common Stock (the “Purchased Shares”) pursuant to that certain option (the “Option”) granted Optionee on ____________________, _____ (the “Grant Date”) to purchase up to _______________ shares of Common Stock (the “Option Shares”) under the Plan at the exercise price of $___________ per share (the “Exercise Price”).

2.Payment. Concurrently with the delivery of this Agreement to the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in accordance with the provisions of the Option Agreement and shall deliver whatever additional documents may be required by the Option Agreement as a condition for exercise, together with a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit I) with respect to the Purchased Shares.

3.Stockholder Rights. Until such time as the Corporation exercises the Repurchase Right, Optionee (or any successor in interest) shall have all the rights of a stockholder (including voting, dividend and liquidation rights equal to those of other holders of the Company’s Common Stock) with respect to the Purchased Shares, subject, however, to the transfer restrictions of Articles B and C.

B. SECURITIES LAW COMPLIANCE

1.Restricted Securities. To the extent the Purchased Shares are not issued pursuant to an effective registration statement, the Purchased Shares have not been registered under the 1933 Act and are being issued to Optionee in reliance upon the exemption from such registration provided by SEC Rule 701 for stock issuances under compensatory benefit plans such as the Plan. Optionee hereby confirms that Optionee has been informed that the Purchased Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Optionee hereby acknowledges that Optionee is acquiring the Purchased Shares for investment purposes only and not with a view to resale and is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Purchased Shares from the registration requirements of the 1933 Act.

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2.Restrictions on Disposition of Purchased Shares. Optionee shall make no disposition of the Purchased Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements:

(i)Optionee shall have provided the Corporation with a written summary of the terms and conditions of the proposed disposition.

(ii)Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Purchased Shares.

(iii)Optionee shall have provided the Corporation with written assurances, in form and substance satisfactory to the Corporation, that (a) the proposed disposition does not require registration of the Purchased Shares under the 1933 Act or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act or any exemption from registration available under the 1933 Act (including Rule 144) has been taken.

The Corporation shall not be required (i) to transfer on its books any Purchased Shares which have been sold or transferred in violation of the provisions of this Agreement or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Purchased Shares have been transferred in contravention of this Agreement.

3.Restrictive Legends. The stock certificates for the Purchased Shares shall be endorsed with one or more of the following restrictive legend(s):

“The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares may not be sold or offered for sale in the absence of (a) an effective registration statement for the shares under such Act, (b) a ‘no action’ letter of the Securities and Exchange Commission with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act is not required with respect to such sale or offer.”

“The shares represented by this certificate are subject to certain repurchase rights granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

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C. TRANSFER RESTRICTIONS

1.Restriction on Transfer. Except for any Permitted Transfer, Optionee shall not transfer, assign, encumber or otherwise dispose of any of the Purchased Shares which are subject to the Repurchase Right.

2.Transferee Obligations. Each person (other than the Corporation) to whom the Purchased Shares are transferred by means of a Permitted Transfer must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Corporation that such person is bound by the provisions of this Agreement and that the transferred shares are subject to the Repurchase Right to the same extent such shares would be so subject if retained by Optionee.

D. REPURCHASE RIGHT

1.Grant. The Corporation is hereby granted the right (the “Repurchase Right”), exercisable at any time during the ninety (90)-day period following the date Optionee ceases for any reason to remain in Service or (if later) during the ninety (90)-day period following the execution date of this Agreement, to repurchase at the Repurchase Price any or all of the Purchased Shares in which Optionee is not, at the time of his or her cessation of Service, vested in accordance with the Vesting Schedule applicable to those shares or any special vesting acceleration provisions of Paragraph D.6 of this Agreement (such shares to be hereinafter referred to as the “Unvested Shares”).

2.Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to each Owner of the Unvested Shares prior to the expiration of the ninety (90)-day exercise period. The notice shall indicate the number of Unvested Shares to be repurchased, the Repurchase Price to be paid per share and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of such notice. The certificates representing the Unvested Shares to be repurchased shall be delivered to the Corporation on the closing date specified for the repurchase. Concurrently with the receipt of such stock certificates, the Corporation shall pay to Owner, in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount equal to the Repurchase Price for the Unvested Shares which are to be repurchased from Owner.

3.Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate and cease to be exercisable with respect to any and all Purchased Shares in which Optionee vests in accordance with the Vesting Schedule.

4.Aggregate Vesting Limitation. If the Option is exercised in more than one increment so that Optionee is a party to one or more other Stock Purchase Agreements (the “Prior Purchase Agreements”) which are executed prior to the date of this Agreement, then the total number of Purchased Shares as to which Optionee shall be deemed to have a fully-vested interest under this Agreement and all Prior Purchase Agreements shall not exceed in the aggregate the number of Purchased Shares in which Optionee would otherwise at the time be vested, in accordance with the Vesting Schedule, had all the Purchased Shares (including those acquired under the Prior Purchase Agreements) been acquired exclusively under this Agreement.

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5.Recapitalization. Any new, substituted or additional securities or other property (including cash paid other than as a regular cash dividend) which is by reason of any Recapitalization distributed with respect to the Purchased Shares shall be immediately subject to the Repurchase Right and any escrow requirements hereunder, but only to the extent the Purchased Shares are at the time covered by such right or escrow requirements. Appropriate adjustments to reflect such distribution shall be made to the number and/or class of Purchased Shares subject to this Agreement and to the Repurchase Price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such Recapitalization upon the Corporation’s capital structure; provided, however, that the aggregate Repurchase Price shall remain the same.

6.Change in Control. To the extent the Repurchase Right remains in effect following a Change in Control, such right shall apply to any new securities or other property (including any cash payments) received in exchange for the Purchased Shares in consummation of the Change in Control, but only to the extent the Purchased Shares are at the time covered by such right. Appropriate adjustments shall be made to the Repurchase Price per share payable upon exercise of the Repurchase Right to reflect the effect (if any) of the Change in Control upon the Corporation’s capital structure; provided, however, that the aggregate Repurchase Price shall remain the same. The new securities or other property (including any cash payments) issued or distributed with respect to the Purchased Shares in consummation of the Change in Control shall be immediately deposited in escrow with the Corporation (or the successor entity) and shall not be released from escrow until Optionee vests in such securities or other property in accordance with the same Vesting Schedule in effect for the Purchased Shares.

E. SPECIAL TAX ELECTION

The acquisition of the Purchased Shares may result in adverse tax consequences which may be avoided or mitigated by filing an election under Code Section 83(b). Such election must be filed within thirty (30) days after the date of this Agreement. A description of the tax consequences applicable to the acquisition of the Purchased Shares and the form for making the Code Section 83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE’S SOLE RESPONSIBILITY, AND NOT THE CORPORATION’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.

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F. GENERAL PROVISIONS

1.Assignment. The Corporation may assign the Repurchase Right to any person or entity selected by the Board, including (without limitation) one or more stockholders of the Corporation.

2.At Will Employment. Nothing in this Agreement or in the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

3.Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the address indicated in the Grant Notice or at such other address as such party may designate by ten (10) days advance written notice under this paragraph to all other parties to this Agreement.

4.No Waiver. The failure of the Corporation in any instance to exercise the Repurchase Right or the First Refusal Right shall not constitute a waiver of any other repurchase rights and/or rights of first refusal that may subsequently arise under the provisions of this Agreement or any other agreement between the Corporation and Optionee. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

5.Cancellation of Shares. If the Corporation shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Purchased Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Corporation shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement.

G. MISCELLANEOUS PROVISIONS

1.Optionee Undertaking. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Optionee or the Purchased Shares pursuant to the provisions of this Agreement.

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2.Agreement is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.

3.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without resort to that State’s conflict-of-laws rules.

4.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

5.Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and upon Optionee, Optionee’s permitted assigns and the legal representatives, heirs and legatees of Optionee’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.

FUQI INTERNATIONAL, INC.
By:
	Title:
	____________, OPTIONEE

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SPOUSAL ACKNOWLEDGMENT

The undersigned spouse of Optionee has read and hereby approves the foregoing Stock Purchase Agreement. In consideration of the Corporation’s granting Optionee the right to acquire the Purchased Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms of such Agreement, including (without limitation) the right of the Corporation (or its assigns) to purchase any Purchased Shares in which Optionee is not vested at time of his or her cessation of Service.

	OPTIONEE’S SPOUSE
Address:

EXHIBIT I

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED ___________________ hereby sell(s), assign(s) and transfer(s) unto Fuqi International, Inc. (the “Corporation”), _______________ (_________) shares of the Common Stock of the Corporation standing in his or her name on the books of the Corporation represented by Certificate No. ________________ herewith and do(es) hereby irrevocably constitute and appoint _____________________ Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises.

Dated: ____________________
	Signature

Instruction: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate. The purpose of this assignment is to enable the Corporation to exercise the Repurchase Right without requiring additional signatures on the part of Optionee.

EXHIBIT II

FEDERAL INCOME TAX CONSEQUENCES AND

SECTION 83(b) TAX ELECTION

I.Federal Income Tax Consequences and Section 83(b) Election For Exercise of Non-Statutory Option. If the Purchased Shares are acquired pursuant to the exercise of a Non-Statutory Option, as specified in the Grant Notice, then under Code Section 83, the excess of the Fair Market Value of the Purchased Shares on the date any forfeiture restrictions applicable to such shares lapse over the Exercise Price paid for those shares will be reportable as ordinary income on the lapse date. For this purpose, the term “forfeiture restrictions” includes the right of the Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right. However, Optionee may elect under Code Section 83(b) to be taxed at the time the Purchased Shares are acquired, rather than when and as such Purchased Shares cease to be subject to such forfeiture restrictions. Such election must be filed with the Internal Revenue Service within thirty (30) days after the date of the Agreement. Even if the Fair Market Value of the Purchased Shares on the date of the Agreement equals the Exercise Price paid (and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.

II.Federal Income Tax Consequences and Conditional Section 83(b) Election For Exercise of Incentive Option. If the Purchased Shares are acquired pursuant to the exercise of an Incentive Option, as specified in the Grant Notice, then the following tax principles shall be applicable to the Purchased Shares:

(i)For regular tax purposes, no taxable income will be recognized at the time the Option is exercised.

(ii)The excess of (a) the Fair Market Value of the Purchased Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Purchased Shares lapse over (b) the Exercise Price paid for the Purchased Shares will be includible in Optionee’s taxable income for alternative minimum tax purposes.

(iii)If Optionee makes a disqualifying disposition of the Purchased Shares, then Optionee will recognize ordinary income in the year of such disposition equal in amount to the excess of (a) the Fair Market Value of the Purchased Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Purchased Shares lapse over (b) the Exercise Price paid for the Purchased Shares. Any additional gain recognized upon the disqualifying disposition will be either short-term or long-term capital gain depending upon the period for which the Purchased Shares are held prior to the disposition.

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(iv)For purposes of the foregoing, the term “forfeiture restrictions” will include the right of the Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right. The term “disqualifying disposition” means any sale or other disposition¹ of the Purchased Shares within two (2) years after the Grant Date or within one (1) year after the exercise date of the Option.

(v)In the absence of final Treasury Regulations relating to Incentive Options, it is not certain whether Optionee may, in connection with the exercise of the Option for any Purchased Shares at the time subject to forfeiture restrictions, file a protective election under Code Section 83(b) which would limit Optionee’s ordinary income upon a disqualifying disposition to the excess of the Fair Market Value of the Purchased Shares on the date the Option is exercised over the Exercise Price paid for the Purchased Shares. Accordingly, such election if properly filed will only be allowed to the extent the final Treasury Regulations permit such a protective election.

(vi)The Code Section 83(b) election will be effective in limiting the Optionee’s alternative minimum taxable income to the excess of the Fair Market Value of the Purchased Shares at the time the Option is exercised over the Exercise Price paid for those shares.

Page 2 of the attached form for making the election should be filed with any election made in connection with the exercise of an Incentive Option.

¹ Generally, a disposition of shares purchased under an Incentive Option includes any transfer of legal title, including a transfer by sale, exchange or gift, but does not include a transfer to the Optionee’s spouse, a transfer into joint ownership with right of survivorship if Optionee remains one of the joint owners, a pledge, a transfer by bequest or inheritance or certain tax-free exchanges permitted under the Code.

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SECTION 83(b) ELECTION

This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:

Address:

Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is _____________ shares of the common stock of Fuqi International, Inc.

(3) The property was issued on ______________, _____.

(4) The taxable year in which the election is being made is the calendar year _____.

(5) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the fair market value per share, if for any reason taxpayer’s service with the issuer terminates. [The issuer’s repurchase right will lapse in a series of annual and monthly installments over a four (4)-year period ending on ___________, 20__.]

(6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $__________per share.

(7) The amount paid for such property is $___________ per share.

(8) A copy of this statement was furnished to Fuqi International, Inc. for whom taxpayer rendered the services underlying the transfer of property.

(9) This statement is executed on _________________, ______.

Spouse (if any) Taxpayer

This election must be filed with the Internal Revenue Service Center with which taxpayer files his or her Federal income tax returns and must be made within thirty (30) days after the execution date of the Stock Purchase Agreement. This filing should be made by registered or certified mail, return receipt requested. Optionee must retain two (2) copies of the completed form for filing with his or her Federal and state tax returns for the current tax year and an additional copy for his or her records.

The property described in the above Section 83(b) election is comprised of shares of common stock acquired pursuant to the exercise of an incentive stock option under Section 422 of the Internal Revenue Code (the “Code”). Accordingly, it is the intent of the Taxpayer to utilize this election to achieve the following tax results:

1.One purpose of this election is to have the alternative minimum taxable income attributable to the purchased shares measured by the amount by which the fair market value of such shares at the time of their transfer to the Taxpayer exceeds the purchase price paid for the shares. In the absence of this election, such alternative minimum taxable income would be measured by the spread between the fair market value of the purchased shares and the purchase price which exists on the various lapse dates in effect for the forfeiture restrictions applicable to such shares.

2.Section 421(a)(1) of the Code expressly excludes from income any excess of the fair market value of the purchased shares over the amount paid for such shares. Accordingly, this election is also intended to be effective in the event there is a “disqualifying disposition” of the shares, within the meaning of Section 421(b) of the Code, which would otherwise render the provisions of Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer hereby elects to have the amount of disqualifying disposition income measured by the excess of the fair market value of the purchased shares on the date of transfer to the Taxpayer over the amount paid for such shares. Since Section 421(a) presently applies to the shares which are the subject of this Section 83(b) election, no taxable income is actually recognized for regular tax purposes at this time, and no income taxes are payable, by the Taxpayer as a result of this election. The foregoing election is to be effective to the full extent permitted under the Code.

THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.

APPENDIX

The following definitions shall be in effect under the Agreement:

A.Agreement shall mean this Stock Purchase Agreement.

B.Board shall mean the Corporation’s Board of Directors.

C.Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

(i)a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, or

(ii)a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation, or

(iii)the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

In no event shall any public offering of the Corporation’s securities be deemed to constitute a Change in Control.

D.Code shall mean the Internal Revenue Code of 1986, as amended.

E.Common Stock shall mean the Corporation’s common stock.

F.Corporation shall mean Fuqi International, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fuqi International, Inc. which shall by appropriate action adopt the Plan.

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G.Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i)If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii)If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii)If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

H.Grant Date shall have the meaning assigned to such term in Paragraph A.1.

I.Grant Notice shall mean the Notice of Grant of Stock Option pursuant to which Optionee has been informed of the basic terms of the Option.

J.Incentive Option shall mean an option which satisfies the requirements of Code Section 422.

K.1933 Act shall mean the Securities Act of 1933, as amended.

L.1934 Act shall mean the Securities Exchange Act of 1934, as amended.

M.Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.

N.Option shall have the meaning assigned to such term in Paragraph A.1.

O.Option Agreement shall mean all agreements and other documents evidencing the Option.

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P.Optionee shall mean the person to whom the Option is granted under the Plan.

Q.Owner shall mean Optionee and all subsequent holders of the Purchased Shares who derive their chain of ownership through a Permitted Transfer from Optionee.

R.Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

S.Permitted Transfer shall mean (i) a transfer of title to the Purchased Shares effected pursuant to Participant’s will or the laws of inheritance following Participant’s death (ii) a transfer to the Corporation in pledge as security for any purchase-money indebtedness incurred by Participant in connection with the acquisition of the Purchased Shares or (iii) a transfer by a Participant to the Participant’s family members as a gift, whether directly or indirectly, or by means of a trust or partnership or otherwise, or pursuant to a qualified domestic relations order as defined in the Code or Title 1 of the Employee Retirement Income Security Act of 1974, as amended, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, then as otherwise permitted pursuant to General Instructions A.1(a)(5) to Form S-8 under the 1933 Act. For purposes of this definition, "family member" shall have the meaning given to such term in Rule 701 promulgated under the Securities Act, provided, that, if the Corporation is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, then it shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the 1933 Act.

T.Plan shall mean the Corporation’s 2007 Equity Incentive Plan.

U.Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

V.Prior Purchase Agreement shall have the meaning assigned to such term in Paragraph D.4.

W.Purchased Shares shall have the meaning assigned to such term in Paragraph A.1.

X.Recapitalization shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Corporation’s outstanding Common Stock as a class without the Corporation’s receipt of consideration.

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Y.Reorganization shall mean any of the following transactions:

(i)a merger or consolidation in which the Corporation is not the surviving entity,

(ii)a sale, transfer or other disposition of all or substantially all of the Corporation’s assets,

(iii)a reverse merger in which the Corporation is the surviving entity but in which the Corporation’s outstanding voting securities are transferred in whole or in part to a person or persons different from the persons holding those securities immediately prior to the merger, or

(iv)any transaction effected primarily to change the state in which the Corporation is incorporated or to create a holding company structure.

Z.Repurchase Price shall mean the lower of (i) the Exercise Price or (ii) the Fair Market Value per share of Common Stock on the date of Optionee’s cessation of Service.

AA.Repurchase Right shall mean the right granted to the Corporation in accordance with Article D.

BB.SEC shall mean the Securities and Exchange Commission.

CC.Service shall mean the Optionee’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or an independent consultant.

DD.Target Shares shall have the meaning assigned to such term in Paragraph E.2.

EE.Subsidiaryshall mean any entity in which, directly or indirectly through one or more intermediaries, the Corporation has at least a 50% ownership interest or, where permissible under Code Section 409A, at least a 20% ownership interest.

FF.Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service.

GG.Unvested Shares shall have the meaning assigned to such term in Paragraph D.1.

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ADDENDUM

TO

STOCK PURCHASE AGREEMENT

The following provisions are hereby incorporated into, and are hereby made a part of, that certain Stock Purchase Agreement (the “Purchase Agreement”) by and between Fuqi International, Inc. (the “Corporation”) and _____________________________ (“Optionee”) evidencing the shares of Common Stock purchased on this date by Optionee under the Corporation’s 2007 Equity Incentive Plan, and such provisions shall be effective immediately. All capitalized terms in this Addendum, to the extent not otherwise defined herein, shall have the meanings assigned to such terms in the Purchase Agreement.

INVOLUNTARY TERMINATION FOLLOWING

A CHANGE IN CONTROL

To the extent the Repurchase Right is assigned to the successor corporation (or parent thereof) in connection with a Change in Control or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, no accelerated vesting of the Purchased Shares shall occur upon that Change in Control, and the Repurchase Right shall continue to remain in full force and effect in accordance with the provisions of the Purchase Agreement. Optionee shall, over his or her period of Service following such Change in Control, continue to vest in the Purchased Shares in one or more installments in accordance with the provisions of the Purchase Agreement. However, upon an Involuntary Termination of Optionee’s Service within __________ (___) months following such Change in Control, the Repurchase Right shall terminate automatically, and all the Purchased Shares shall immediately vest in full at that time. Any unvested escrow account maintained on Optionee’s behalf pursuant to Paragraph D.6 of the Purchase Agreement shall also vest at the time of such Involuntary Termination and shall be paid to Optionee promptly thereafter.

For purposes of this Addendum, the following definitions shall be in effect:

An Involuntary Termination shall mean the termination of Optionee’s Service by reason of:

Optionee’s involuntary dismissal or discharge by the Corporation for reasons other than for Misconduct, or

Optionee’s voluntary resignation following (A) a change in his or her position with the Corporation (or Parent or Subsidiary employing Optionee) which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in Optionee’s level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based incentive programs) by more than fifteen percent (15%) or (C) a relocation of Optionee’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without Optionee’s consent.

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Misconduct shall mean the termination of Optionee’s Service by reason of Optionee’s commission of any act of fraud, embezzlement or dishonesty, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss Optionee or any other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan and this Addendum, to constitute grounds for termination for Misconduct.

IN WITNESS WHEREOF, Fuqi International, Inc. has caused this Addendum to be executed by its duly authorized officer as of the Effective Date specified below.

FUQI INTERNATIONAL, INC.
By:
	Title:

EFFECTIVE DATE: _____________, ______

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CORRESP

[LETTERHEAD OF KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP]

August 27, 2007

Via Edgar and Federal Express

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington D.C. 20549

Attn:	H. Christopher Owings Assistant Director
Re:	Fuqi International, Inc.
	Registration Statement on Form S-1
	Filed July 2, 2007
	File No. 333-144290
	Amendment No. 2 to Registration Statement on Form 10, Filed July 2, 2007
	Form 10-K for Fiscal Year Ended December 31, 2006, Filed April 17, 2007
	Form 10-Q for the Quarter Ended March 31, 2007, Filed May 21, 2007
	File No. 52383

Dear Mr. Owings:

On behalf of Fuqi International, Inc., a Delaware corporation (the “Company”), we hereby transmit for filing pursuant to Rule 101(a) of Regulation S-T, Amendment No. 3 (“Amendment No. 3 to Form 10”) to the Company’s Registration Statement on Form 10 that was originally filed with the Securities and Exchange Commission (the “Commission”) on December 29, 2006 and as amended by Amendment No. 1 on Form 10/A filed on February 14, 2007 and Amendment No. 2 on Form 10/A filed July 2, 2007 (“Amendment No. 2 to Form 10”) and Amendment No. 1 (“Amendment No. 1 to Form S-1”) to the Company’s Registration Statement on Form S-1that was originally filed with the Commission on July 2, 2007 (“Form S-1”). We are also forwarding to you via Federal Express courtesy copies of this letter, Amendment No. 3 to Form 10, in a clean format, and Amendment No. 1 to Form S-1, in a clean and marked version to show changes from the Form S-1.

The staff of the Securities and Exchange Commission (the “Staff”) issued a comment letter, dated July 31, 2007, in respect of Amendment No.2 to Form 10 and the Form S-1. The following consists of the Company’s responses to the Staff’s comment letter in identical numerical sequence. For the convenience of the Staff, each comment is repeated verbatim with the Company’s response immediately following.

Form S-1

1. Comment: We note that you have removed references to the fact that your common stock may be considered a "penny stock" subject to the regulations set forth in Exchange Act Rules 15g-2 through 15g-9. We presume that this is because you believe that your common stock falls outside of the definition of "penny stock," as defined under Exchange Act Rule 3a51-1. Please provide us with your analysis as to why you believe your common stock does not constitute "penny stock," or revise your registration statement to include disclosures to that effect.

Response: We respectfully note your comment and supplementally inform you that the Company believes that its common stock will fall outside the definition of “penny stock” as defined under Exchange Act Rule 3a51-1. A security is not considered to be “penny stock” if it, among other things:

H. Christopher Owings

August 27, 2007

Page 2

· trades at a price of $5.00 or more, OR

· trades on a recognized national exchange that meets the requirements listed under Exchange Act Rules 3a51-1(a) and 3a51-1(e), OR

· has an issuer with net tangible assets in excess of $2,000,000 andthat has been in continuous operation for at least three years.

The Company believes that its common stock will not fall under the definition of “penny stock because, first, the Company expects that its common stock will trade at a price of more than $5.00. Second, the Company intends to have its common stock listed on, and has already applied to have its common stock listed on, the Nasdaq Global Market, a recognized national exchange. Lastly, the Company has had net tangible assets of more than $2,000,000 and has been in continuous operation for at least three years. Therefore, the Company believes that its common stock would not be considered a “penny stock” under the definition in Rule 3a51-1. If at any time the Company believes that its securities may be subject to the “penny stock” rules, the Company will add the appropriate risk factor.

Liquidity and Capital Resources, page 37

2. Comment: We note your revisions to this section in response to our comments. However, please discuss in further detail your retail expansion. For example, please indicate what needs to be done to acquire or prepare sites and whether you have identified any sites in particular, to have staff available, whether you are in negotiations with regard to site locations or additional supply of materials necessary to support your retail efforts, etc.

Response: We respectfully note your comment and have revised the Liquidity and Capital Resources section to discuss in further detail our retail expansion and to disclose that we are still in the process of determining all of the steps necessary to implement our retail expansion plan.

Item 15. Recent sales of unregistered securities, page II-2

3. Comment: We note that you have revised this discussion to reflect your recent redemption of certain outstanding warrants. Please revise this discussion to refer to the proper date of redemption as we presume that you mean to refer to June 2007, as opposed to June 2008.

Response: We respectfully note your comment and have revised the disclosure accordingly.

Exhibits

4. Comment: Please file all exhibits as promptly as possible. We will review the exhibits prior to granting effectiveness of the registration statement, and may have additional comments based on our examination of them.

Response: We respectfully note your comment and have filed exhibits to the registration statement, including the Underwriting Agreement as Exhibit 1.1. We have also appended to the end of this letter a draft of the legal opinion that will be Exhibit 5.1.

H. Christopher Owings

August 27, 2007

Page 3

Amendment No. 2 to Form 10

5. Comment: We note that your Form 10 incorporates by reference information from your Registration Statement on Form S-1. Please ensure that you update your Form 10 to incorporate by reference the most recent version of the Registration Statement on Form S-1, as revised to comply with the changes we suggest above.

Response: We respectfully note your comment and have revised the Form 10 to incorporate the most recent version of the Registration Statement on Form S-1, as revised to comply with the changes suggested.

Form 10-K for Fiscal Year Ended December 31 2006

Controls and Procedures, page 32

Changes In Internal Control Over Financial Reporting, page 33

6. In future filings, please revise the last sentence in the second paragraph to state that there were material changes in internal controls over financial reporting during the last quarter that have materially affected or are reasonably likely to affect the company's internal control over financial reporting, as opposed to stating that "except as noted below" there were no changes in internal controls.

Response: We respectfully note your comment and will act accordingly in future filings.

Significant Deficiencies In Disclosure Controls And Procedures Or Internal Controls, page 33

7. Comment: We note that you have disclosed significant deficiencies in disclosure controls and procedures and that the company is in the process of improving its internal controls in an effort to improve its control processes and procedures. Please discuss in further detail in future filings the training programs you refer to and other steps towards correction of these deficiencies. Where changes to your internal controls are ongoing, you should indicate when you expect to finish formalizing such policies.

Response: We respectfully note your comment and will act accordingly in future filings.

Form 10-Q for Fiscal Quarter Ended March 31, 2007

8.Please revise to comply with the above comments, as applicable.

Response: We respectfully note your comment and will comply with the above comments, as applicable.

Please do not hesitate to contact the undersigned or Anh Q. Tran, Esq. at (310) 552-5000 with any questions.

Sincerely,

/s/ Thomas J. Poletti

Thomas J. Poletti

cc:YuKwai Chong, Fuqi International, Inc.

DRAFT OPINION

September [__], 2007

Fuqi International, Inc.

5/F., Block 1, Shi Hua Industrial Zone

Cui Zhu Road North

Shenzhen, 518019

People’s Republic of China

Attention: Yu Kwai Chong

Re: Registration Statement on Form S-1 (SEC File No. 333-144290) Registration for Sale of up to [______] Shares of Common Stock

Ladies and Gentlemen:

We have acted as counsel for Fuqi International, Inc., a Delaware corporation (the “Company”), in connection with a registration statement on Form S-1 (File No. 333-144290) (the “Registration Statement”) filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the public offering of up to [______] shares (the “Public Offering Shares”) of the Company’s common stock, $0.001 par value (the “Common Stock”) As used in this opinion letter the term “Effective Time” means the date and the time as of which the Registration Statement, or the most recent post-effective amendment thereto, if any, is declared effective by the Commission. The Public Offering Shares consist of the following:

(i) [______] shares of Common Stock to be sold by the Company in the public offering under the Registration Statement; and

(ii) up to [______] shares of Common Stock issuable by the Company upon exercise of an option of the representative of the underwriters named in the Registration Statement.

You have requested our opinion as to the matters set forth below in connection with the Registration Statement. For purposes of this opinion, we have examined the Registration Statement, the Company’s Certificate of Incorporation and Bylaws, each as amended to date, and the corporate action of the Company that provides for the issuance of the Public Offering Shares and we have made such other investigation as we have deemed appropriate. We have examined and relied upon certificates of public officials and, as to certain matters of fact that are material to our opinion, we have also relied on a Fact Certificate from an officer of the Company.

DRAFT OPINION

Fuqi International, Inc.

Page 2

We have made assumptions that are customary in opinions of this kind, including the assumptions of the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof, and the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. We have not verified any of those assumptions.

Our opinion set forth below is limited to the Delaware General Corporation Law (the DGCL). We are not licensed to practice law in the State of Delaware and, accordingly, our opinions as to the DGCL are based solely on a review of the official statutes of the State of Delaware and the applicable provisions of the Delaware Constitution and the reported judicial decisions interpreting such statutes and provisions. We are not opining on, and we assume no responsibility for, the applicability to or effect on any of the matters covered herein of any other laws, the laws of any other jurisdiction or the local laws of any jurisdiction.

Based upon and subject to the foregoing, it is our opinion that the Public Offering Shares have been duly authorized and when issued and paid for as described in the Registration Statement, will be ,validly issued, fully paid and non-assessable and

We are furnishing this opinion letter to you solely in connection with the Registration Statement. You may not rely on this opinion letter in any other connection, and it may not be furnished or relied upon by any other person for any purpose, without our specific prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving our consent we do not thereby admit that we are experts with respect to any part of the Registration Statement, the prospectus or any prospectus supplement within the meaning of the term “expert,” as used in Section 11 of the Securities Act or the rules and regulations promulgated thereunder by the Commission, nor do we admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations thereunder.

Yours truly,

DRAFT OPINION

KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP