Your doubt arises on 2012 revenue figure is solely base on "2011 & 2012 CCA wire and copper wire inventory remains flat, zero increase in machine (80) and a LIWA response to SEC back in Sept 2011" are the reasons why LIWA is a fraud case? What is your logic behind it.
Their quarterly inventory number has an average of $4MM variation quarter to quarter and the YOY inventory between 12/31/11 to 3/31/13 has a $6MM differential , and the production cycle of those thicker wire is less than a month, the $132MM annual revenue in question requires about an average of $7 millions dollars worth of copper rod as raw material each month, I just cannot see your logic behind your "FLAT INVENTORY".
In 2012 LIWA reported revenue from copper rod of $85MM or 10,000 ton at a cost of $8,000/ton and they have 50,000 ton annual capacity since October 2011, so where are most of the copper rod production went to? More than likely as raw material for the production of thicker semi-processed, CCA & ultra fine wire and LIWA did not book them as revenue from copper rod but as revenue from the wire division and Beach got the answer from LIWA stating just that.
I agree that you can raise doubt base on written information that you have possessed, but did you talk to LIWA for answer first? If you did, why don't you reveal the answer that you have obtained from LIWA to the public? If you did not contact LIWA for explanation and form your negative opinion just based on a set of sentences without any further research, verification or confirmation, is it how auditing is done in your practice?
CCA and copper wire inventory was $2,925,769 and $2,947,584 as of December 31, 2011 and 2012. If they shipped more than they could produce, one explanation would be they shipped inventory (what they produced prior to 2012) rather than what they produced during 2012. Since inventory was essentially flat, this explanation is not viable.
As far as the copper rod production, other viable explanations are that they sold more copper rod externally or that they did not produce that much copper rod.
If LIWA has an explanation for the discrepancies, they are free to share it at anytime.
Chapski is totally wrong. LIWA used all its copper rod production internally to manufacture copper wire until it actually expanded copper rod production at the end of 2011.
From the last 10K:
" Starting in the third quarter of 2010, after we completed the wire drawing capacity expansion and reached 20,000 – 25,000 tons of annual drawing capacity for wires with diameters ranging from 0.03mm – 1.60mm, we started using our copper rod output exclusively for internal copper wire drawing. With the October 2011 copper rod capacity expansion to 50,000 tons per annum, in the fourth quarter of 2011, we began selling excess copper rod to the open market. "
You made a point that there is doubt about the inventory level are similar, it could also be as easily explained as a co-incidental result. There is definitely a capacity difference stated in the 10K of 2011 vs explanation by LIWA to the SEC in Sep 2011 which might take clarification. But just by jumping to conclusion from doubt to conclusion that fraud existed without asking LIWA management for explanation is more than a leap of faith rather than anything else.
Your article made a lot of assumption:
Sept 2011 response to SEC is the evidence one should rely upon despite LIWA made further clarification on their 10K disclosure on the 2011 report. Roy was the one that response to SEC and the 10K was signed off by Daphne for one thing.
Judging the inventory level by comparing just 2 days number (12/31/10, 12/31/11) and making conclusion that inventory are flat? Wow.
LIWA sold 10,000 tons of copper rod in 2012 with full capacity of 50,000 ton per annum and you listed one of the many possibility that LIWA might not produce that much? You are just guessing, inter-company transaction by transferring copper rod to wire division could be just a good explanation than what you proposed. Why would LIWA produce less when there is market demand out there in China.
The only evidence that you have provided is some questionable area that probably be easily explain by LIWA if you ask them. Discrepancies could happen because of so many reasons, you use the ending inventory of one day out of the whole fiscal year and concluded that the average inventory is flat, a discrepancy of statement made by Roy which is an explanation on the 10K of 2010, Daphne made a re-statement in the 10K of 2011 with more detail classification that 33,000 ton capacity is up to the .16MM spec without counting the wire with higher diameter knowing what Roy have responded to the SEC.
What you did is projecting outcome base on some general statement made by LIWA and nothing more.
Short sellers were so scare after they read his article yesterday. I have some EVIDENCE to form my speculative opinion - long/short ratio yesterday is 33:1 which means there were hardly any shorting done all day yesterday.