**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM 10-Q**

| S | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE ACT OF 1934** |
|---|-------------------------------------------------------------------------------------------------------------------------------------|

|  ̈ | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE ACT OF 1934** |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

**Commission      File Number:**

**001-33758**

**Fuqi      International, Inc.**

*(Exact      name of registrant as specified in its charter)*

| **Delaware**                                                                                    |   | **20-1579407**                                        |
|-------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|
| *(State                or other jurisdiction of incorporation**or                organization)* |   | *(I.R.S.                Employer Identification No.)* |

| **5/F.,                Block 1, Shi Hua Industrial Zone,****Cui                Zhu Road North, Shenzhen, 518019,****People’s                Republic of China** |   | **N/A**                     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|
| *(Address                of principal executive offices)*                                                                                                             |   | *(Zip                Code)* |

**86      (755) 2580-1888**

*(Registrant’s      telephone number, including area code)*

| Large                accelerated filer    ̈ | Accelerated                filer   ̈  | Non-accelerated                filer   S(Do                not check if a smaller reporting company) | Smaller                reporting company  ̈ |
|-----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|-------------------------------------------------|

----

**FUQI      INTERNATIONAL, INC.**

**FORM      10-Q QUARTERLY REPORT**

**TABLE      OF CONTENTS**
  

|                          |                                                                                                                                                                                                          | Page   |
|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                          |                                                                                                                                                                                                          |   |
| PART I                :  | FINANCIAL                INFORMATION                                                                                                                                                                          |   |
|                          |                                                                                                                                                                                                          |   |
|                          | ITEM                1 — FINANCIAL STATEMENTS                                                                                                                                                            | 1      |
|                          | Condensed                Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007                (unaudited)                                                                                | 1      |
|                          | Condensed                Consolidated Statements of Income and Comprehensive Income for the                Three                Months and Six Months Ended June 30, 2008 and 2007                (unaudited) | 2      |
|                          | Condensed                Consolidated Statements of Cash Flows for the Six Months Ended June                30, 2008 and 2007 (unaudited)                                                                | 3      |
|                          | Notes                To Condensed Consolidated Financial Statements (unaudited)                                                                                                                               | 4      |
|                          | ITEM                2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                RESULTS OF OPERATION                                                                       | 12     |
|                          | ITEM                3 — QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET                RISK                                                                                                        | 19     |
|                          | ITEM                4 — CONTROLS AND PROCEDURES                                                                                                                                                         | 20     |
|                          |                                                                                                                                                                                                          |   |
| PART II                : | OTHER                INFORMATION                                                                                                                                                                              |   |
|                          |                                                                                                                                                                                                          |   |
|                          | ITEM                1 — LEGAL PROCEEDINGS                                                                                                                                                               | 22     |
|                          | ITEM                1A — RISK FACTORS                                                                                                                                                                   | 22     |
|                          | ITEM                2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF                PROCEEDS                                                                                                      | 22     |
|                          | ITEM                3 — DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                 | 22     |
|                          | ITEM                4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                             | 22     |
|                          | ITEM                5 — OTHER INFORMATION                                                                                                                                                               | 22     |
|                          | ITEM                6 — EXHIBITS                                                                                                                                                                        | 22     |
|                          |                                                                                                                                                                                                          |   |
| SIGNATURES                    | 23                                                                                                                                                                                                            |

----

**PART      I - FINANCIAL INFORMATION**

**ITEM      1 - FINANCIAL STATEMENTS**

       

| **Fuqi                International, Inc.**                                         |
|-------------------------------------------------------------------------------------|
| **Condensed                Consolidated Balance Sheets                (Unaudited)** |

|                                                                                                                                                                                     |   | June                30, |        | December                31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|-----------------------------|--------|
|                                                                                                                                                                                     |   | 2008                    |        | 2007                        |   |
| **ASSETS**                                                                                                                                                                               |   |                    |        |                        |   |
| **Current                assets:**                                                                                                                                                       |   |                    |        |                        |   |   |   |
| Cash                                                                                                                                                                                     |   | $                       | 76,941,893  |                        | $      | 63,293,653 |   |
| Restricted                cash                                                                                                                                                           |   |                    | -           |                        |   | 410,700 |   |
| Accounts                receivable, net of allowance for doubtful accounts of $525,000 and                $470,000 for 2008 and 2007                                                     |   |                    | 25,663,907  |                        |   | 23,864,141 |   |
| Refundable                value added taxes                                                                                                                                              |   |                    | 2,782,347   |                        |   | 2,094,946 |   |
| Inventories                                                                                                                                                                              |   |                    | 35,126,615  |                        |   | 29,639,236 |   |
| Prepaid                expenses and other current assets                                                                                                                                 |   |                    | 1,581,726   |                        |   | 1,700,432 |   |
| Deferred                taxes                                                                                                                                                            |   |                    | 1,898,900   |                        |   | 79,402 |   |
| Total                current assets                                                                                                                                                      |   |                    | 143,995,388 |                        |   | 121,082,510 |   |
|                                                                                                                                                                                     |   |                    |        |                        |   |   |   |
| **Property,                equipment, and improvements, net**                                                                                                                            |   |                    | 1,946,830   |                        |   | 1,495,861 |   |
| **Deposits**                                                                                                                                                                             |   |                    | 104,052     |                        |   | 97,706 |   |
| **Other                assets**                                                                                                                                                          |   |                    | 38,683      |                        |   | 38,513 |   |
|                                                                                                                                                                                     |   |                    |        |                        |   |   |   |
|                                                                                                                                                                                     |   | $                       | 146,084,953 |                        | $      | 122,714,590 |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                                                                                                  |   |                    |             |                        |   |  |   |
| **Current                liabilities:**                                                                                                                                                  |   |                    |        |                        |   |   |   |
| Notes                payable                                                                                                                                                             |   | $                       | 17,932,382  |                        | $      | 15,743,504 |   |
| Line                of Credit                                                                                                                                                            |   |                    | -           |                        |   | 1,369,000 |   |
| Accounts                payable and accrued liabilities                                                                                                                                  |   |                    | 1,218,139   |                        |   | 662,662 |   |
| Accrued                business tax                                                                                                                                                      |   |                    | 179,726     |                        |   | 498,792 |   |
| Customer                deposits                                                                                                                                                         |   |                    | 8,108,680   |                        |   | 5,278,534 |   |
| Income                tax payable                                                                                                                                                        |   |                    | 2,936,973   |                        |   | 1,902,443 |   |
| Total                current liabilities                                                                                                                                                 |   |                    | 30,375,900  |                        |   | 25,454,935 |   |
|                                                                                                                                                                                     |   |                    |        |                        |   |   |   |
| **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 2008 and                2007,                20,924,843 shares issued and outstanding for 2008 and 2007 |   |                    | 20,925      |                        |   | 20,925 |   |
| Additional                paid in capital                                                                                                                                                |   |                    | 77,746,457  |                        |   | 77,449,355 |   |
| Accumulated                foreign currency translation adjustments                                                                                                                      |   |                    | 9,491,491   |                        |   | 2,985,035 |   |
| Retained                earnings                                                                                                                                                         |   |                    | 28,450,180  |                        |   | 16,804,340 |   |
|                                                                                                                                                                                     |   |                    |        |                        |   |   |   |
| Total                stockholders' equity                                                                                                                                                |   |                    | 115,709,053 |                        |   | 97,259,655 |   |
|                                                                                                                                                                                     |   |                    |        |                        |   |   |   |
|                                                                                                                                                                                     |   | $                       | 146,084,953 |                        | $      | 122,714,590 |   |

** **
** **
** **

**The      accompanying notes are an integral part of these condensed consolidated      financial statements.**

----

| **Fuqi                International, Inc.**                                                                           |
|-----------------------------------------------------------------------------------------------------------------------|
| **Condensed                Consolidated Statements of Income and Comprehensive                Income****(Unaudited)** |

|                                                                                                                   |   | Three                Months Ended |       |  Six                Months Ended |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|---------------------------------------|--------|
|                                                                                                                   |   | June                30,           |       |  June                30,         |   |
|                                                                                                                   |   | 2008                              |       | 2007                                  |   |  2008 |   | 2007 |   |
|                                                                                                                   |   |                              |       |                                  |   |    |   |   |   |
| **Net                sales**                                                                                           |   | $                                 | 66,876,255 |                                  | $      | 26,280,696 |   | $ | 144,442,614 |   | $ | 54,240,965 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |  |   |
| **Cost                of sales**                                                                                       |   |                              | 59,779,353 |                                  |   | 23,227,434 |   |   | 128,534,337 |   |   | 48,023,583 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Gross                profit**                                                                                        |   |                              | 7,096,902  |                                  |   | 3,053,262 |   |   | 15,908,277 |   |   | 6,217,382 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Operating                expenses:**                                                                                 |   |                              |            |                                  |   |  |   |   |  |   |   |  |   |
| Selling                and marketing                                                                                   |   |                              | 461,267    |                                  |   | 186,816 |   |   | 926,128 |   |   | 380,573 |   |
| General                and administrative                                                                              |   |                              | 627,347    |                                  |   | 740,086 |   |   | 2,069,059 |   |   | 1,161,598 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| Total                operating expenses                                                                                |   |                              | 1,088,614  |                                  |   | 926,902 |   |   | 2,995,187 |   |   | 1,542,171 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Income                from operations**                                                                              |   |                              | 6,008,288  |                                  |   | 2,126,360 |   |   | 12,913,090 |   |   | 4,675,211 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Other                income (expenses):**                                                                            |   |                              |            |                                  |   |  |   |   |  |   |   |  |   |
| Interest                expense                                                                                        |   |                              | (322,935   | )                                     |   | (282,609 | ) |   | (686,155 | ) |   | (529,776 | ) |
| Interest                income                                                                                         |   |                              | 4,376      |                                  |   | 3,009 |   |   | 13,335 |   |   | 3,009 |   |
| Loss                on change of fair value of inventory loan payable                                                  |   |                              | -          |                                  |   | (7,214 | ) |   | - |   |   | (48,375 | ) |
| Gain                from derivative instrument                                                                         |   |                              | 720,744    |                                  |   | - |   |   | 1,561,265 |   |   | - |   |
| Miscellaneous                                                                                                          |   |                              | 129,378    |                                  |   | 5,614 |   |   | 256,161 |   |   | 5,614 |   |
|                                                                                                                   |   |                              |            |                                  |   |  |   |   |  |   |   |  |   |
| Total                other income (expenses)                                                                           |   |                              | 531,563    |                                  |   | (281,200 | ) |   | 1,144,606 |   |   | (569,528 | ) |
|                                                                                                                   |   |                              |            |                                  |   |  |   |   |  |   |   |  |   |
| **Income                before provision for income taxes**                                                            |   |                              | 6,539,851  |                                  |   | 1,845,160 |   |   | 14,057,696 |   |   | 4,105,683 |   |
|                                                                                                                   |   |                              |            |                                  |   |  |   |   |  |   |   |  |   |
| **Provision                for income taxes**                                                                          |   |                              | 1,289,084  |                                  |   | 356,176 |   |   | 2,411,856 |   |   | 733,495 |   |
|                                                                                                                   |   |                              |            |                                  |   |  |   |   |  |   |   |  |   |
| **Net                income**                                                                                          |   |                              | 5,250,767  |                                  |   | 1,488,984 |   |   | 11,645,840 |   |   | 3,372,188 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Other                comprehensive income**                -                foreign currency translation adjustments |   |                              | 2,539,723  |                                  |   | 204,300 |   |   | 6,506,456 |   |   | 314,360 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Comprehensive                income**                                                                                |   | $                                 | 7,790,490  |                                  | $      | 1,693,284 |   | $ | 18,152,296 |   | $ | 3,686,548 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Earnings                per share - basic**                                                                          |   | $                                 | 0.25       |                                  | $      | 0.12 |   | $ | 0.56 |   | $ | 0.27 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Earnings                per share - diluted**                                                                        |   | $                                 | 0.25       |                                  | $      | 0.10 |   | $ | 0.56 |   | $ | 0.22 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Weighted                average number of common shares - basic**                                                    |   |                              | 20,924,843 |                                  |   | 12,391,049 |   |   | 20,924,843 |   |   | 12,324,705 |   |
|                                                                                                                   |   |                              |       |                                  |   |   |   |   |   |   |   |   |   |
| **Weighted                average number of common shares- diluted**                                                   |   |                              | 20,924,843 |                                  |   | 15,061,345 |   |   | 20,924,843 |   |   | 15,393,332 |   |

**The      accompanying notes are an integral part of these condensed consolidated      financial statements.**

----

| **Fuqi                International, Inc.**                                       |
|-----------------------------------------------------------------------------------|
| **Condensed                Consolidated Statements of Cash Flows****(Unaudited)** |
| **Increase                (Decrease) in Cash**                                    |

|                                                                                                                           |   | Six-Months                Ended June 30, |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|
|                                                                                                                           |   | 2008                                     |       | 2007 |   |
| **Cash                flows provided by operating activities:**                                                                |   |                                     |       |   |   |   |   |
| Net                income                                                                                                      |   | $                                        | 11,645,840 |   | $ | 3,372,188 |   |
| **Adjustments                to reconcile net income to net cash provided by (used for) operating                activities:** |   |                                     |       |   |   |   |   |
| Depreciation                and amortization                                                                                   |   |                                     | 220,113    |   |   | 160,147 |   |
| Loss                on change of fair value of inventory loan payable                                                          |   |                                     | -          |   |   | 48,375 |   |
| Bad                debt                                                                                                        |   |                                     | 24,220     |   |   | 98,650 |   |
| Stock                based compensation expense                                                                                |   |                                     | 297,102    |   |   | - |   |
|                                                                                                                           |   |                                     |       |   |   |   |   |
| **Changes                in operating assets and liabilities:**                                                                |   |                                     |            |   |   |  |   |
| Accounts                receivable                                                                                             |   |                                     | (268,315   | ) |   | (1,355,124 | ) |
| Refundable                value added taxes                                                                                    |   |                                     | (538,773   | ) |   | (2,060,952 | ) |
| Inventories                                                                                                                    |   |                                     | (3,481,151 | ) |   | (14,407,983 | ) |
| Inventory                loan payable                                                                                          |   |                                     | -          |   |   | 666,487 |   |
| Prepaid                expenses and other current assets                                                                       |   |                                     | 210,737    |   |   | 606,704 |   |
| Deferred                taxes                                                                                                  |   |                                     | (1,773,008 | ) |   | (22,066 | ) |
| Other                assets                                                                                                    |   |                                     | 2,278      |   |   | 2,076 |   |
| Accounts                payable, accrued expenses, accrued business, and accrued estimated                penalties            |   |                                     | (125,501   | ) |   | 1,282,050 |   |
| Customer                deposits                                                                                               |   |                                     | 2,431,032  |   |   | 1,968,574 |   |
| Income                tax payable                                                                                              |   |                                     | 889,845    |   |   | 660,133 |   |
| Net                cash provided by (used for) operating activities                                                            |   |                                     | 9,534,419  |   |   | (8,980,741 | ) |
|                                                                                                                           |   |                                     |       |   |   |   |   |
| **Cash                flows provided by (used for) investing                activities:**                                      |   |                                     |            |   |   |  |   |
| Purchase                of property, equipment and improvements                                                                |   |                                     | (566,809   | ) |   | (8,189 | ) |
| Decrease                (Increase) in restricted cash                                                                          |   |                                     | 427,411    |   |   | (389,408 | ) |
| Net                cash (used for) investing activities                                                                        |   |                                     | (139,398   | ) |   | (397,597 | ) |
|                                                                                                                           |   |                                     |       |   |   |   |   |
| **Cash                flows provided by (used for) financing                activities:**                                      |   |                                     |       |   |   |   |   |
| (Repayments                to) Proceeds from short-term borrowing                                                              |   |                                     | (284,941   | ) |   | 1,947,040 |   |
| Proceeds                from exercise of warrants, net of financing cost                                                       |   |                                     | -          |   |   | 2,755,479 |   |
| Proceeds                from loans borrowed from stockholder                                                                   |   |                                     | -          |   |   | 203,506 |   |
| (Repayments                to) loans payable to stockholder                                                                    |   |                                     | -          |   |   | (642,295 | ) |
| Net                cash (used for) provided by financing activities                                                            |   |                                     | (284,941   | ) |   | 4,263,730 |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| **Effect                of exchange rate changes on cash**                                                                     |   |                                     | 4,538,160  |   |   | 253,131 |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| **Net                increase (decrease) in cash**                                                                             |   |                                     | 13,648,240 |   |   | (4,861,477 | ) |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| **Cash,**beginning                of the period                                                                                |   |                                     | 63,293,653 |   |   | 13,354,981 |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| **Cash,**end                of the period                                                                                      |   | $                                        | 76,941,893 |   | $ | 8,493,504 |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| **Supplemental                disclosure of cash flow information:**                                                           |   |                                     |       |   |   |   |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| Interest                paid                                                                                                   |   | $                                        | 599,079    |   | $ | 510,756 |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| Income                taxes paid                                                                                               |   | $                                        | 3,293,418  |   | $ | 95,428 |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| **Non-cash                activities:**                                                                                        |   |                                     |       |   |   |   |   |
|                                                                                                                           |   |                                     |            |   |   |  |   |
| Non                monetary exchanges related to certain retail sales                                                          |   | $                                        | 398,057    |   | $ | - |   |

**The      accompanying notes are an integral part of these condensed consolidated      financial statements.**

----

**FUQI      INTERNATIONAL, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

| **(1)** | **Organization,                Nature of Business and Basis of                Presentation:** |
|---------|-----------------------------------------------------------------------------------------------|

**Consolidation      Policy**

**Acquisition**

----

**FUQI        INTERNATIONAL, INC.**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**Basic      and Diluted Earnings Per Share**

|                                            |   | Three                months ended June 30, |       | Six                months ended June 30, |   |
|-------------------------------------------------|--------|--------------------------------------------|------------|------------------------------------------|--------|
| **  **                                |   | 2008                                       |       | 2007                                     |   | 2008 |   | 2007 |   |
| **  **                                |   |                                       |       |                                     |   |   |   |   |   |
| Basic                weighted average shares    |   |                                       | 20,924,843 |                                     |   | 12,391,049 |   |   | 20,924,843 |   |   | 12,324,705 |   |
| Effect                of dilutive securities    |   |                                       | —    |                                     |   | 2,670,296 |   |   | — |   |   | 3,068,627 |   |
| Dilutive                potential common shares |   |                                       | 20,924,843 |                                     |   | 15,061,345 |   |   | 20,924,843 |   |   | 15,393,332 |   |

**Stock-based      Compensation**

**Non-monetary      (Barter) Exchanges**

**Recent      Accounting Pronouncements**

*Disclosures      about Derivative Instruments and Hedging Activities,*

----

**FUQI          INTERNATIONAL, INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

| **(2)** | **Inventories:** |
|---------|------------------|

|                            |   | June                30, |       | December                31, |   |
|---------------------------------|--------|-------------------------|------------|-----------------------------|--------|
|                            |   | 2008                    |       | 2007                        |   |
|                            |   |                    |       |                        |   |
| Raw                Materials    |   | $                       | 20,039,015 |                        | $      | 61,570 |   |
| Work                in progress |   |                    | 7,311,286  |                        |   | 12,588,152 |   |
| Finished                goods   |   |                    | 7,776,314  |                        |   | 16,989,514 |   |
|                            |   | $                       | 35,126,615 |                        | $      | 29,639,236 |   |

| **(3)** | **Property,                Equipment and                Improvements:** |
|---------|-------------------------------------------------------------------------|

|                                                          |   | June                30, |      | December                31, |   |
|---------------------------------------------------------------|--------|-------------------------|-----------|-----------------------------|--------|
|                                                          |   | 2008                    |      | 2007                        |   |
|                                                          |   |                    |      |                        |   |
| Production                equipment                           |   | $                       | 1,281,008 |                        | $      | 1,108,045 |   |
| Computers                                                     |   |                    | 97,163    |                        |   | 52,697 |   |
| Office                equipment and furniture                 |   |                    | 134,184   |                        |   | 114,403 |   |
| Automobiles                                                   |   |                    | 518,140   |                        |   | 486,539 |   |
| Leasehold                improvement                          |   |                    | 901,730   |                        |   | 448,000 |   |
| Building                                                      |   |                    | 620,745   |                        |   | 582,886 |   |
|                                                          |   |                    | 3,552,970 |                        |   | 2,792,570 |   |
| Less                accumulated depreciation and amortization |   |                    | 1,606,140 |                        |   | 1,296,709 |   |
|                                                          |   | $                       | 1,946,830 |                        | $      | 1,495,861 |   |

----

**FUQI          INTERNATIONAL, INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

| **(4)** | **Retail                Operating Agreements:** |
|---------|-------------------------------------------------|

| **(5)** | **Note                Payable:** |
|---------|----------------------------------|

In      June      2008, the Company entered into a Maximum Banking Facility Agreement with the      Shenzhen Development Bank that provides for a maximum borrowing of up to RMB      50,000,000 ($7,289,586 equivalent as on June 30, 2008). This facility has a      term      of one year and expires in June 2009 and is secured by certain real properties      owned by an affiliated company. Interest is charged at the bank’s prime rate      (6.57% at June 30, 2008). Partial of the loan proceeds was used to repay the      facility line of credit with another bank executed in February 2007. As of      June      30, 2008 the outstanding balance was $3,353,211.

|                                                                                                                                                                                                                                                                                                                                                                                               |   | June                30, 2008 |   | December                31, 2007 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|----------------------------------|--------|
| A                note payable with interest at a rate of 6.732%, secured by the Company’s                inventories, certain real estate properties owned by affiliated companies,                guaranteed by affiliated companies and personally guaranteed by the                Company’s controlling stockholder, matured in January 2008. The loan was                repaid.  |   | $                            | -      |                             | $      | 1,848,150 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |                         |        |                             |   |  |   |
| A                note payable with interest at a rate of 6.732%, guaranteed by affiliated                companies, matured in January 2008. The loan was repaid.                                                                                                                                                                                                                                  |   |                         | -      |                             |   | 2,053,501 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |                         |        |                             |   |  |   |
| A                note payable with interest at a rate of 7.227%, secured by the Company’s                inventories, certain real estate properties owned by affiliated companies,                guaranteed by affiliated companies and personally guaranteed by the                Company’s controlling stockholder, matured in February 2008. The loan was                repaid. |   |                         | -      |                             |   | 1,026,750 |   |

----

**FUQI          INTERNATIONAL, INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
| A                note payable with interest at a rate of 7.227%, secured by the Company’s                inventories, certain real estate properties owned by affiliated companies,                guaranteed by affiliated companies and personally guaranteed by the                Company’s controlling stockholder, matured in February 2008. The loan was                repaid. |   |   | -         |   |   | 889,850   |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 6.030%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matured in January 2008. The                loan was repaid.                                                                               |   |   | -         |   |   | 1,369,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 6.030%, secured by the Company’s                inventories, certain real estate properties owned by affiliated companies,                guaranteed by affiliated companies and personally guaranteed by the                Company’s controlling stockholder, matured in February 2008. The loan was                repaid. |   |   | -         |   |   | 2,121,951 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 8.019%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matures in October                2008.                                                                                                    |   |   | 1,457,917 |   |   | 1,369,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 8.019%, secured by the Company’s                inventories, certain real estate properties owned by affiliated companies,                guaranteed by affiliated companies and personally guaranteed by the                Company’s controlling stockholder, matured in May 2008. The loan was                repaid.      |   |   | -         |   |   | 958,300   |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 8.019%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matured in June 2008. The loan                was repaid                                                                                   |   |   | -         |   |   | 1,369,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 7.29%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matures in July                2008.                                                                                                        |   |   | 2,915,834 |   |   | 2,738,002 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |           |   |   |           |   |
| A                note payable with interest at a rate of 7.47%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matures in August                2008.                                                                                                      |   |   | 1,457,917 |   |   | -         |   |

----

**FUQI          INTERNATIONAL, INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

| A                note payable with interest at a rate of 7.47%, secured by the Company’s                inventories, certain real estates properties owned by affiliated                companies, guaranteed by affiliated companies and personally guaranteed                by                the Company’s controlling stockholder, matures in August                2008.    |   |   | 2,041,084  |   |   | -          |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                          |   |   |            |   |   |            |   |
| A                note payable with interest at a rate of 7.47%, secured by the Company’s                inventories, certain real estates properties owned by affiliated                companies, guaranteed by affiliated companies and personally guaranteed                by                the Company’s controlling stockholder, matures in August                2008.    |   |   | 1,968,188  |   |   | -          |   |
|                                                                                                                                                                                                                                                                                                                                                                                          |   |   |            |   |   |            |   |
| A                note payable with interest at a rate of 7.47%, secured by the Company’s                inventories, certain real estates properties owned by affiliated                companies, guaranteed by affiliated companies and personally guaranteed                by                the Company’s controlling stockholder, matures in September                2008. |   |   | 2,259,772  |   |   | -          |   |
|                                                                                                                                                                                                                                                                                                                                                                                          |   |   |            |   |   |            |   |
| A                note payable with interest at a rate of 8.217%, secured by the Company’s                inventories, certain real estates properties owned by affiliated                companies, guaranteed by affiliated companies and personally guaranteed                by                the Company’s controlling stockholder, matures in March                2009.    |   |   | 1,020,542  |   |   | -          |   |
|                                                                                                                                                                                                                                                                                                                                                                                          |   |   |            |   |   |            |   |
| A                note payable with interest at a rate of 8.217%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matures in March                2009.                                                                                                 |   |   | 1,457,917  |   |   | -          |   |
|                                                                                                                                                                                                                                                                                                                                                                                          |   |   |            |   |   |            |   |
| A                note payable with interest at a rate of 6.57%, secured by certain                real                properties owned by an affiliate, and matures in December                2008.                                                                                                                                                                                          |   |   | 3,353,211  |   |   | -          |   |
|                                                                                                                                                                                                                                                                                                                                                                                          |   |   |       |   |   |       |   |
|                                                                                                                                                                                                                                                                                                                                                                                          |   | $      | 17,932,382 |   | $      | 15,743,504 |   |

| **(6)** | **Gold                Future Contracts:** |
|---------|-------------------------------------------|

----

**FUQI      INTERNATIONAL, INC.**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (UNAUDITED)**

| **(7)** | **Fair                Value Measurement:** |
|---------|--------------------------------------------|

*Fair      Value Measurements*

|   | Level 1: | Quoted                prices are available in active markets for identical assets or liabilities                as of the reporting                date.   |
|--------|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level                2: | Pricing                inputs are other than quoted prices in active markets included in                Level 1,                which are either directly or indirectly observable as of the reporting                date.   |
|--------|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level                3: | Pricing                inputs include significant inputs that are generally less observable                from                objective sources.  These inputs may be used with internally                developed methodologies that result in management’s best estimate of fair                value.   |
|--------|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                            |   | **Fair Value Measurements Using** |            |
|-------------------------------------------------|--------|--------------------------------------------------|-----------------|
|                                            |   | **Level 1**                                 |            | **Level 2** |   | **Level 3** |   |
|                                            |   |                                             |            |   |   |   |   |
| Assets                                   |   |                                             |          |   |   |    |   |   |   |   |
|                                            |   |                                             |            |   |   |  |   |   |   |   |
| Derivative                financial instruments |   | $                                                | —         |   | $ | 3,631,132 |   | $ | — |   |
| Liabilities:                             |   | $                                                | —  |   | $ | —                  |   | $ | — |   |

| **(8)** | **Related                Party Transactions:** |
|---------|------------------------------------------------|

----

**FUQI      INTERNATIONAL, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      (UNAUDITED)**

| **(9)** | **Income                Taxes:** |
|---------|----------------------------------|

quarters      of 2008 or for 2008 as a whole.

| **(10)** | **Subsequent                events:** |
|----------|---------------------------------------|

 

----

**ITEM      2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF OPERATIONS**

**FORWARD-LOOKING      STATEMENTS**

**OVERVIEW**

**RECENT      EVENTS**

**Acquisition      of Temix**

----

On      August      7, 2008, concurrently with the close of the Asset Purchase Agreement, we closed      the transactions contemplated by the Intellectual Property Transfer Agreement      (“IP Transfer Agreement”), which we entered into on April 18, 2008 with Mr.      Huang. Pursuant to the IP Transfer Agreement, we will issue Mr. Huang      approximately $8.0 million (RMB55,000,000) in shares of our common stock in      exchange for all of the intellectual property rights related to the business      of      the Temix Companies. The number of shares received by Mr. Huang, which is a      total of 1,080,666 shares, was based on the average closing price of our common      stock on the Nasdaq Global Market during the 45 trading days prior to the      execution date of the IP Transfer Agreement. One-half of the shares was issued      to Mr. Huang at closing and the other one-half is being placed into an escrow      account for the two-year period following the closing and will only be      transferred to Mr. Huang if the business of the Temix Companies meets certain      performance targets as set forth in the IP Transfer Agreement.

**Completion      of Finished Gemstones Production Line**

**Jewelry      Counter in Beijing**

----

**RESULTS      OF OPERATIONS**

|                                                                                                                   |   | Three                Months Ended June 30,                                                                                                |   |  Six                Months Ended June 30,       |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|
|                                                                                                                   |   | 2008                                                                                                                                                          |   |  2007                                                               |   |  2008 |   |  2007   |   |
|                                                                                                                   |   | In                Dollars                                                                                                                                               |   |  Percent                of Revenues                                           |   |  In                Dollars |   |  Percent                of Revenues |   |  In                Dollars |   |  Percent                of Revenues |   |  In                Dollars |   |  Percent                of Revenues |   |
|                                                                                                                   |   | ***(unaudited)***                                                                                 |   |
|                                                                                                                   |   | ***(in                thousands, except share amounts and earnings per                share)***             |   |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                          |   |    |   |    |   |    |   |    |   |    |   |    |   |
| **Net                sales**                                                                                           |   | $                                                                                                                                                                       | 66,876 |                                                                               |   | 100.00 | % | $ | 26,281 |   |   | 100.00 | % | $ | 144,443 |   |   | 100.00 | % | $ | 54,241 |   |   | 100.0 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cost                of sales**                                                                                       |   |                                                                                                                                                                    | 59,779 |                                                                               |   | 89.39 | % |   | 23,228 |   |   | 88.38 | % |   | 128,535 |   |   | 88.99 | % |   | 48,024 |   |   | 88.5 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Gross                profit**                                                                                        |   |                                                                                                                                                                    | 7,097  |                                                                               |   | 10.61 | % |   | 3,053 |   |   | 11.62 | % |   | 15,908 |   |   | 11.01 | % |   | 6,217 |   |   | 11.5 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                expenses:**                                                                                 |   |                                                                                                                                                                    |        |                                                                               |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Selling                and marketing                                                                                   |   |                                                                                                                                                                    | 461    |                                                                               |   | 0.69 | % |   | 187 |   |   | 0.71 | % |   | 926 |   |   | 0.64 | % |   | 381 |   |   | 0.7 | % |
| General                and administrative                                                                              |   |                                                                                                                                                                    | 628    |                                                                               |   | 0.94 | % |   | 740 |   |   | 2.82 | % |   | 2,069 |   |   | 1.43 | % |   | 1,161 |   |   | 2.1 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                operating expenses                                                                                |   |                                                                                                                                                                    | 1,089  |                                                                               |   | 1.63 | % |   | 927 |   |   | 3.53 | % |   | 2,995 |   |   | 2.07 | % |   | 1,542 |   |   | 2.8 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                from operations**                                                                              |   |                                                                                                                                                                    | 6,008  |                                                                               |   | 8.98 | % |   | 2,126 |   |   | 8.09 | % |   | 12,913 |   |   | 8.94 | % |   | 4,675 |   |   | 8.7 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                   |   |                                                                                                                                                                    |        |                                                                               |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| **Other                income (expense), net**                                                                         |   |                                                                                                                                                                    | 532    |                                                                               |   | 0.79 | % |   | (281 | ) |   | (1.07 | )% |   | 1,145 |   |   | 0.79 | % |   | (570 | ) |   | (1.0 | )% |
|                                                                                                                   |   |                                                                                                                                                                    |        |                                                                               |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| **Income                before provision for income taxes**                                                            |   |                                                                                                                                                                    | 6,540  |                                                                               |   | 9.77 | % |   | 1,845 |   |   | 7.02 | % |   | 14,058 |   |   | 9.73 | % |   | 4,105 |   |   | 7.7 | % |
|                                                                                                                   |   |                                                                                                                                                                    |        |                                                                               |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| **Provision                for income taxes**                                                                          |   |                                                                                                                                                                    | 1,289  |                                                                               |   | 1.92 | % |   | 356 |   |   | 1.35 | % |   | 2,412 |   |   | 1.67 | % |   | 733 |   |   | 1.5 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| **Net                income**                                                                                          |   |                                                                                                                                                                    | 5,251  |                                                                               |   | 7.85 | % |   | 1,489 |   |   | 5.67 | % |   | 11,646 |   |   | 8.06 | % |   | 3,372 |   |   | 6.2 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                comprehensive income**                -                foreign currency translation adjustments |   |                                                                                                                                                                    | 2,539  |                                                                               |   | 3.80 | % |   | 204 |   |   | 0.77 | % |   | 6,506 |   |   | 4.51 | % |   | 314 |   |   | 0.6 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive                income**                                                                                |   | $                                                                                                                                                                       | 7,790  |                                                                               |   | 11.65 | % | $ | 1,693 |   |   | 6.44 | % | $ | 18,152 |   |   | 12.57 | % | $ | 3,686 |   |   | 6.8 | % |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                per share - basic**                                                                          |   | $                                                                                                                                                                       | 0.25   |                                                                               |   |   |   | $ | 0.12 |   |   |   |   | $ | 0.56 |   |   |   |   | $ | 0.27 |   |   |  |   |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                per share - diluted**                                                                        |   | $                                                                                                                                                                       | 0.25   |                                                                               |   |   |   | $ | 0.10 |   |   |   |   | $ | 0.56 |   |   |   |   | $ | 0.22 |   |   |  |   |
|                                                                                                                   |   |                                                                                                                                                                    |   |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**Three      Months Ended June 30, 2008 and 2007**

***Net      sales***

Net      sales, which consist of gross sales net of returns, for the three months ended      June 30, 2008 increased by 154.4% to $66.9 million from $26.3 million compared      with the same period in 2007. The increase in net sales was primarily      attributable to an increase in the sales volume of our products and an increase      in our sales prices. The sales price of our jewelry products is based on the      market price of the precious metals used in our products (e.g., gold and      platinum) in the periods when the products are sold, plus our processing and      design fees. During the three months ended June 30, 2008, the average price      of      the precious metals used in our products increased by 13.2%, as compared with      the same period in 2007. In addition, there was an increase of 105.2% in sales      volume for the three months ended June 30, 2008 as a result of an increase      in      sales of jewelry products to existing and new customers.      The      growth in our sales volume during 2008 was primarily attributable to receiving      larger sale orders from customers, which we were able to meet with our increased      working capital that resulted from our initial public offering in October      2007.

|                                          |   | **Three                Months Ended June 30,** |   |
|-----------------------------------------------|--------|------------------------------------------------|--------|
|                                          |   | **2008**                                       |   | **2007** |   |
|                                          |   | **Amount                in Millions**          |   | **Percentage** |   | **Amount                in Millions** |   | **Percentage** |   |
| **Platinum**                                  |   | $                                              | 7.4    |   |   | 11.1 | % | $ | 6.5 |   |   | 24.7 | % |
| **Gold**                                      |   |                                           | 56.3   |   |   | 84.1 | % |   | 13.5 |   |   | 51.3 | % |
| **K-gold                and Studded Jewelry** |   |                                           | 3.2    |   |   | 4.8 | % |   | 6.3 |   |   | 24.0 | % |
| **Total**                                     |   | $                                              | 66.9   |   |   | 100 | % | $ | 26.3 |   |   | 100 | % |

***Cost      of sales***

***Gross      profit***

***Selling      and marketing expenses***

***General      and administrative expenses***

----

***Other      income (expense), net***

***Provision      for income tax***

***Net      income***

.      Our net      margin increased to 7.85% for the three months ended June 30, 2008 from 5.67%      for the same period in 2007.

**Six      Months Ended June 30, 2008 and 2007**

***Net      sales***

|                                          |   | **Six                Months Ended June                30,** |   |
|-----------------------------------------------|--------|-------------------------------------------------------------|--------|
|                                          |   | **2008**                                                    |   |  **2007** |   |
|                                          |   | **Amount                in Millions**                       |   | **Percentage** |   |  **Amount                in Millions** |   | **Percentage** |   |
| **Platinum**                                  |   | $                                                           | 13.2   |   |   | 9.1 | % | $ | 12.0 |   |   | 22.1 | % |
| **Gold**                                      |   |                                                        | 126.4  |   |   | 87.6 | % |   | 28.2 |   |   | 52.1 | % |
| **K-gold                and Studded Jewelry** |   |                                                        | 4.8    |   |   | 3.3 | % |   | 14.0 |   |   | 25.8 | % |
| **Total**                                     |   | $                                                           | 144.4  |   |   | 100 | % | $ | 54.2 |   |   | 100 | % |

***Cost      of sales***

----

***Gross      profit***

***Selling      and marketing expenses***

***General      and administrative expenses***

***Other      income (expense), net***

***Provision      for income tax***

***Net      income***

**LIQUIDITY      AND CAPITAL RESOURCES**

----

**Operating      activities -**

**Investing      activities -**

**Financing      activities**

**Contractual      Debt Obligations.**

**Future      Capital Expenditures**

----

**Off-Balance      Sheet Arrangements**

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES**

*Fair      Value Measurements*

| Level 1: | Quoted                prices are available in active markets for identical assets or liabilities                as of the reporting                date.   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Level 2: | Pricing                inputs are other than quoted prices in active markets included in                Level 1,                which are either directly or indirectly observable as of the reporting                date.   |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Level 3: | Pricing                inputs include significant inputs that are generally less observable                from                objective sources.  These inputs may be used with internally                developed methodologies that result in management’s best estimate of fair                value.   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**** **** **

----

***Commodity      Price Sensitivity***

In      attempt to protect us against volatility of the price of precious metals, we      have entered into gold related derivative financial instruments with our major      supplier, the Shanghai Gold Exchange to reduce the impact of fluctuations in      gold prices. Our primary objective of entering into derivative instruments      is to      reduce the impact on our operating results of the volatility of gold prices.      We      do not hold or issue derivative financial instruments for trading purposes.      For      the three months and six months ended June 30, 2008, a total of 1.1 and 3.0      tons      of gold were purchased under the gold future contract arrangements which      represented approximately 94.1% and 59.4% of our total purchases during the      periods, respectively. A substantial majority of these purchases were settled      during the periods and a total gain of approximately $721,000 and $1,561,000      was      recognized as non-operating income in the consolidated statement of income      for      the three and six months ended June 30, 2008, respectively.

**ITEM      4 — CONTROLS AND PROCEDURES**
**       **

**Disclosure      Controls and Procedures**

|  | 1. | We                  did not maintain effective controls over the financial closing                  process to                  ensure the accurate and timely preparation of local financial statements                  and financial data which is necessary for preparation of consolidated                  financial statements due to an insufficient complement of local                  financial                  and accounting staffs who are knowledgeable of local accounting                  rules to                  support the size of our company’s current organizational structure;                  and |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | We                  did not maintain effective internal audit function due to the lack                  of                  qualified internal auditors who are familiar with internal audit,                  and we                  did not implement adequate and proper supervisory review to ensure                  that                  the significant internal control deficiencies can be detected or                  prevented. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Remediation      Measures of Significant Deficiencies**

|  | 1. | We                  increased the level of interaction among our management, audit                  committee,                  independent auditors and other external advisors; |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | We                  are in the processing of recruiting a Financial Controller to enhance                  financial reporting function of China operation; |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3. | We                  evaluated the sufficiency of local financial and accounting staff,                  and,                  based on that evaluation, we hired and continue to hire additional                  accounting staff; |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 4. | We                  plan to re-evaluate the sufficiency of local financial and accounting                  staff upon the completion of our intended acquisition in retail                  business                  in 2008; |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 5. | We                  are in the process of enhancing training programs on accounting                  principles                  and procedures for our existing staffs; |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 6. | We                  have established monthly and quarterly data collection timetable                  and                  procedures, including assigning data collection responsibilities                  to                  designated personnel; |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 7. | We                  are in the process of negotiating with a professional advisory                  firm on                  outsourcing part of our internal audit function; |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 8. | We                  recruited an internal audit staff accountant in April 2008 to assist                  us                  improve our internal audit procedures and assigned an internal                  personnel                  to responsible for coordinating and monitoring the progress of                  our                  internal audit procedures; and |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 9. | We                  are in the process of recruiting a qualified and experienced internal                  auditor to implement the internal audit function, and we plan to                  provide                  additional training to this internal auditor on appropriate controls                  and                  procedures necessary to document and evaluate our internal control                  procedures. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Changes      in Internal Controls over Financial Reporting**

----

**PART II      — OTHER INFORMATION**
** **
** **

**ITEM      1 — LEGAL PROCEEDINGS**
**       **

**ITEM      1A - RISK FACTORS**

**ITEM      2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS**
**       **

**ITEM      3 — DEFAULTS UPON SENIOR SECURITIES**** **** **

None.

**ITEM      4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
**       **

**ITEM      5 — OTHER INFORMATION**** **** **

  

**ITEM      6 — EXHIBITS**
**       **

| 31.1   | Certification                of Chief Executive Officer pursuant to Section 302(a) of the                Sarbanes-Oxley Act of 2002. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                 |
| 31.2   | Certification                of Chief Financial Officer pursuant to Section 302(a) of the                Sarbanes-Oxley Act of 2002. |
|   |                                                                                                                                 |
| 32.1   | Certification                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002.*   |

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**SIGNATURES**

|                                   | **FUQI                  INTERNATIONAL, INC.**                     |
|----------------------------------------|-----------------------------------------------------------------------------|
|                              |                                                                   |   |
| Date:                  August 12, 2008 | By:                                                               | /s/                  Yu Kwai Chong |
|                                   |                                                                        | Yu                  Kwai Chong |
|                                   |                                                                        | Chief                  Executive Officer  |
|                              |                                                                   |                      |
| Date:                  August 12, 2008 | By:                                                               | /s/                  Ching Wan Wong |
|                                   |                                                                        | Ching                  Wan Wong |
|                                   |                                                                        | Chief                  Financial Officer |

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