**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** |
|-------|-------------------------------------------------------------------------------------------------------------------------------------|

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

----

**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 September 30, 2008 and December 31,                2007 (unaudited)                                                                                 | 1      |
|                              | Condensed                Consolidated Statements of Income and Comprehensive Income for the                Three                Months and Nine Months Ended September 30, 2008 and 2007                (unaudited) | 2      |
|                              | Condensed                Consolidated Statements of Cash Flows for the Nine Months                Ended September 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                                                                             | 17     |
|                              | ITEM                3 — QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET                RISK                                                                                                              | 26     |
|                              | ITEM                4 — CONTROLS AND PROCEDURES                                                                                                                                                               | 26     |
|                              |                                                                                                                                                                                                                |   |
| **PART II                :** | **OTHER                INFORMATION**                                                                                                                                                                                |   |
|                              |                                                                                                                                                                                                                |   |
|                              | ITEM                1 — LEGAL PROCEEDINGS                                                                                                                                                                     | 28     |
|                              | ITEM                1A — RISK FACTORS                                                                                                                                                                         | 28     |
|                              | ITEM                2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF                PROCEEDS                                                                                                            | 28     |
|                              | ITEM                3 — DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                       | 29     |
|                              | ITEM                4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                                   | 29     |
|                              | ITEM                5 — OTHER INFORMATION                                                                                                                                                                     | 29     |
|                              | ITEM                6 — EXHIBITS                                                                                                                                                                              | 29     |
|                              |                                                                                                                                                                                                                |   |
| SIGNATURES                        | 30                                                                                                                                                                                                                  |

----

**PART      I - FINANCIAL INFORMATION**

**        **

**ITEM      1 - FINANCIAL STATEMENTS**

 

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

|                                                                                                                                                                                                                 |   |                         |        |                        |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|-----------------------------|--------|
|                                                                                                                                                                                                                 |   | September                30, |        | December                31, |   |
|                                                                                                                                                                                                                 |   | 2008                         |        | 2007                        |   |
| **ASSETS**                                                                                                                                                                                                           |   |                         |        |                        |   |
| **Current                assets:**                                                                                                                                                                                   |   |                         |        |                        |   |
| Cash                                                                                                                                                                                                            |   | $                            | 56,182,097  |                        | $      | 63,293,653 |   |
| Restricted                cash                                                                                                                                                                                       |   |                         | -           |                        |   | 410,700 |   |
| Accounts                receivable, net of allowance for doubtful accounts of $606,000 for                2008                and $470,000 for 2007                                                                  |   |                         | 50,700,802  |                        |   | 23,864,141 |   |
| Refundable                value added taxes                                                                                                                                                                          |   |                         | 5,255,645   |                        |   | 2,094,946 |   |
| Inventories,                net of reserve of $1,958,552                                                                                                                                                             |   |                         | 50,436,588  |                        |   | 29,639,236 |   |
| Prepaid                expenses and other current assets                                                                                                                                                             |   |                         | 1,191,873   |                        |   | 1,700,432 |   |
| Deferred                taxes                                                                                                                                                                                        |   |                         | 2,369,407   |                        |   | 79,402 |   |
| Total                current assets                                                                                                                                                                                  |   |                         | 166,136,412 |                        |   | 121,082,510 |   |
|                                                                                                                                                                                                                 |   |                         |        |                        |   |   |   |
| **Property,                equipment, and improvements, net**                                                                                                                                                        |   |                         | 3,222,620   |                        |   | 1,495,861 |   |
| **Deposits**                                                                                                                                                                                                         |   |                         | 104,674     |                        |   | 97,706 |   |
| **Acquired                intangibles, less accumulated amortization**                                                                                                                                               |   |                         | 3,229,280   |                        |   | - |   |
| **Goodwill**                                                                                                                                                                                                         |   |                         | 1,678,068   |                        |   | - |   |
| **Other                assets**                                                                                                                                                                                      |   |                         | 143,074     |                        |   | 38,513 |   |
|                                                                                                                                                                                                                 |   |                         |        |                        |   |   |   |
|                                                                                                                                                                                                                 |   | $                            | 174,514,128 |                        | $      | 122,714,590 |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                                                                                                                              |   |                         |             |                        |   |   |   |
| **Current                liabilities:**                                                                                                                                                                              |   |                         |        |                        |   |   |   |
| Notes                payable                                                                                                                                                                                         |   | $                            | 21,999,619  |                        | $      | 15,743,504 |   |
| Line                of Credit                                                                                                                                                                                        |   |                         | -           |                        |   | 1,369,000 |   |
| Accounts                payable and accrued liabilities                                                                                                                                                              |   |                         | 6,277,781   |                        |   | 662,662 |   |
| Other                payable, related party                                                                                                                                                                          |   |                         | 7,009,165   |                        |   | - |   |
| Accrued                business tax                                                                                                                                                                                  |   |                         | 387,538     |                        |   | 498,792 |   |
| Customer                deposits                                                                                                                                                                                     |   |                         | 8,013,480   |                        |   | 5,278,534 |   |
| Income                tax payable                                                                                                                                                                                    |   |                         | 3,730,128   |                        |   | 1,902,443 |   |
| Total                current liabilities                                                                                                                                                                             |   |                         | 47,417,711  |                        |   | 25,454,935 |   |
|                                                                                                                                                                                                                 |   |                         |        |                        |   |   |   |
| **Long                term debt**                                                                                                                                                                                    |   |                         | -           |                        |   | - |   |
|                                                                                                                                                                                                                 |   |                         |        |                        |   |   |   |
| Total                liabilities                                                                                                                                                                                     |   |                         | 47,417,711  |                        |   | 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, shares issued                and                outstanding - 22,005,509 shares for 2008 and 20,924,843 shares for                2007 |   |                         | 22,006      |                        |   | 20,925 |   |
| Additional                paid in capital                                                                                                                                                                            |   |                         | 81,905,297  |                        |   | 77,449,355 |   |
| Accumulated                foreign currency translation adjustments                                                                                                                                                  |   |                         | 10,198,376  |                        |   | 2,985,035 |   |
| Retained                earnings                                                                                                                                                                                     |   |                         | 34,970,738  |                        |   | 16,804,340 |   |
|                                                                                                                                                                                                                 |   |                         |        |                        |   |   |   |
| Total                stockholders' equity                                                                                                                                                                            |   |                         | 127,096,417 |                        |   | 97,259,655 |   |
|                                                                                                                                                                                                                 |   |                         |        |                        |   |   |   |
|                                                                                                                                                                                                                 |   | $                            | 174,514,128 |                        | $      | 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 |       | Nine-Months                Ended |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|----------------------------------|--------|
|                                                                                                                   |   | September                30,      |       | September                30,     |   |
|                                                                                                                   |   | 2008                              |       |  2007                       |   | 2008 |   | 2007 |   |
|                                                                                                                   |   |                              |       |                        |   |   |   |   |   |
| **Net                sales**                                                                                           |   |                              |       |                        |   |   |   |   |   |
| Wholesale                and distribution                                                                              |   | $                                 | 90,523,143 |                             | $      | 35,860,974 |   | $ | 233,011,441 |   | $ | 89,823,682 |   |
| Retail                                                                                                                 |   |                              | 3,154,558  |                             |   | 386,837 |   |   | 5,108,874 |   |   | 665,094 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
|                                                                                                                   |   |                              | 93,677,701 |                             |   | 36,247,811 |   |   | 238,120,315 |   |   | 90,488,776 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Cost                of sales**                                                                                       |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| Wholesale                and distribution                                                                              |   |                              | 80,723,212 |                             |   | 31,467,727 |   |   | 207,616,922 |   |   | 79,288,647 |   |
| Retail                                                                                                                 |   |                              | 1,956,227  |                             |   | 303,487 |   |   | 3,596,854 |   |   | 506,150 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
|                                                                                                                   |   |                              | 82,679,439 |                             |   | 31,771,214 |   |   | 211,213,776 |   |   | 79,794,797 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Gross                profit**                                                                                        |   |                              | 10,998,262 |                             |   | 4,476,597 |   |   | 26,906,539 |   |   | 10,693,979 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Operating                expenses:**                                                                                 |   |                              |            |                             |   |   |   |   |   |   |   |   |   |
| Selling                and marketing                                                                                   |   |                              | 1,559,892  |                             |   | 268,334 |   |   | 2,486,020 |   |   | 648,907 |   |
| General                and administrative                                                                              |   |                              | 1,153,666  |                             |   | 539,153 |   |   | 3,222,725 |   |   | 1,700,751 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| Total                operating expenses                                                                                |   |                              | 2,713,558  |                             |   | 807,487 |   |   | 5,708,745 |   |   | 2,349,658 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Income                from operations**                                                                              |   |                              | 8,284,704  |                             |   | 3,669,110 |   |   | 21,197,794 |   |   | 8,344,321 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Other                income (expenses):**                                                                            |   |                              |       |                             |   |   |   |   |   |
| Interest                expense                                                                                        |   |                              | (400,799   | )                                |   | (384,406 | ) |   | (1,086,954 | ) |   | (914,182 | ) |
| Interest                income                                                                                         |   |                              | 6,715      |                             |   | 2,850 |   |   | 20,050 |   |   | 5,859 |   |
| Change                of fair value of inventory loan payable                                                          |   |                              | -          |                             |   | 2,683 |   |   | - |   |   | (45,692 | ) |
| Gain                from derivative instrument                                                                         |   |                              | 22,954     |                             |   | - |   |   | 1,584,220 |   |   | - |   |
| Miscellaneous                                                                                                          |   |                              | 16,111     |                             |   | 88 |   |   | 272,271 |   |   | 5,702 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| Total                other income (expenses)                                                                           |   |                              | (355,019   | )                                |   | (378,785 | ) |   | 789,587 |   |   | (948,313 | ) |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Income                before provision for income taxes**                                                            |   |                              | 7,929,685  |                             |   | 3,290,325 |   |   | 21,987,381 |   |   | 7,396,008 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Provision                for income taxes**                                                                          |   |                              | 1,409,127  |                             |   | 560,026 |   |   | 3,820,983 |   |   | 1,293,521 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Net                income**                                                                                          |   |                              | 6,520,558  |                             |   | 2,730,299 |   |   | 18,166,398 |   |   | 6,102,487 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Other                comprehensive income**                -                foreign currency translation adjustments |   |                              | 707,332    |                             |   | 228,320 |   |   | 7,213,788 |   |   | 553,239 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Comprehensive                income**                                                                                |   | $                                 | 7,227,890  |                             | $      | 2,958,619 |   | $ | 25,380,186 |   | $ | 6,655,726 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Earnings                per share - basic**                                                                          |   | $                                 | 0.31       |                             | $      | 0.21 |   | $ | 0.86 |   | $ | 0.49 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Earnings                per share - diluted**                                                                        |   | $                                 | 0.31       |                             | $      | 0.21 |   | $ | 0.86 |   | $ | 0.42 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Weighted                average number of common shares - basic**                                                    |   |                              | 21,247,868 |                             |   | 12,835,955 |   |   | 21,033,701 |   |   | 12,497,006 |   |
|                                                                                                                   |   |                              |       |                             |   |   |   |   |   |   |   |   |   |
| **Weighted                average number of common shares- diluted**                                                   |   |                              | 21,247,868 |                             |   | 12,835,955 |   |   | 21,033,701 |   |   | 14,531,517 |   |

**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**                                                |

|                                                                                                                                       |   | Nine-Months                  Ended September 30,      |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|
|                                                                                                                                       |   | 2008                                                                           |   | 2007 |   |
| **Cash                  flows provided by operating activities:**                                                                          |   |                                                                      |   |    |   |
| Net                  income                                                                                                                |   | $                                                                              | 18,166,398 |   | $ | 6,102,487 |   |
| **Adjustments                  to reconcile net income to net cash**                                                                       |   |                                                                           |   |
| **provided                  by (used for) operating activities:**                                                                          |   |                                                                           |   |
| Depreciation                  and amortization                                                                                             |   |                                                                           | 363,644 |   |   | 242,160 |   |
| Provision                  for inventory reserve                                                                                           |   |                                                                           | 1,958,552 |   |   | - |   |
| Bad                  debt                                                                                                                  |   |                                                                           | 100,633 |   |   | 158,129 |   |
| Stock                  based compensation expense                                                                                          |   |                                                                           | 445,653 |   |   | - |   |
| Loss                  on disposal of fixed assets                                                                                          |   |                                                                           | 18,189 |   |   | - |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Changes                  in operating assets and liabilities, net of effects of acquisition                  in                  2008:** |
| Accounts                  receivable                                                                                                       |   |                                                                           | (24,737,675 | ) |   | (4,301,122 | ) |
| Refundable                  value added taxes                                                                                              |   |                                                                           | (2,951,671 | ) |   | (929,785 | ) |
| Inventories                                                                                                                                |   |                                                                           | (10,614,653 | ) |   | (8,795,197 | ) |
| Prepaid                  expenses and other current assets                                                                                 |   |                                                                           | (115,136 | ) |   | (48,536 | ) |
| Deposits                  - short term                                                                                                     |   |                                                                           | - |   |   | 684,617 |   |
| Deferred                  offering costs                                                                                                   |   |                                                                           | - |   |   | (217,674 | ) |
| Deferred                  taxes                                                                                                            |   |                                                                           | (2,239,121 | ) |   | (23,719 | ) |
| Other                  assets                                                                                                              |   |                                                                           | (111,561 | ) |   | 3,061 |   |
| Accounts                  payable, accrued expenses, accrued business tax, and accrued estimated                  penalties                |   |                                                                           | 4,957,894 |   |   | 1,830,231 |   |
| Customer                  deposits                                                                                                         |   |                                                                           | 2,311,975 |   |   | 2,446,706 |   |
| Income                  tax payable                                                                                                        |   |                                                                           | 1,658,344 |   |   | 1,175,777 |   |
| Net                  cash used for operating activities                                                                                    |   |                                                                           | (10,788,535 | ) |   | (1,672,865 | ) |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Cash                  flows provided by (used for) investing                  activities:**                                              |   |                                                                                |   |
| Purchase                  of property, equipment and improvements                                                                          |   |                                                                           | (959,435 | ) |   | (25,347 | ) |
| Business                  acquisition                                                                                                      |   |                                                                           | (3,911,646 | ) |   | - |   |
| Decrease                  (Increase) in restricted cash                                                                                    |   |                                                                           | 431,282 |   |   | (392,054 | ) |
| Net                  cash used for investing activities                                                                                    |   |                                                                           | (4,439,799 | ) |   | (417,401 | ) |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Cash                  flows provided by (used for) financing                  activities:**                                              |   |                                                                                |   |
| Proceeds                  from short-term borrowing                                                                                        |   | $                                                                              | 3,594,019 |   | $ | 1,960,272 |   |
| 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 provided by financing activities                                                                                 |   |                                                                           | 3,594,019 |   |   | 4,276,962 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Effect                  of exchange rate changes on cash**                                                                               |   |                                                                           | 4,522,759 |   |   | 555,609 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Net                  increase (decrease) in cash**                                                                                       |   |                                                                           | (7,111,556 | ) |   | 2,742,305 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Cash,**beginning                  of period                                                                                              |   |                                                                           | 63,293,653 |   |   | 13,354,981 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Cash,**end                  of period                                                                                                    |   | $                                                                              | 56,182,097 |   | $ | 16,097,286 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| **Supplemental                  disclosure of cash flow information:**                                                                     |   |                                                                           |   |
|                                                                                                                                       |   |                                                                           |   |   |   |  |   |
| Interest                  paid                                                                                                             |   | $                                                                              | 604,505 |   | $ | 904,194 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |  |   |
| Income                  taxes paid                                                                                                         |   | $                                                                              | 4,449,155 |   | $ | 141,463 |   |
|                                                                                                                                       |   |                                                                           |   |   |   |  |   |
| **Non-cash                  activities:**                                                                                                  |   |                                                                           |   |   |   |   |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| Issuance                  of common stock for the Temix acquisition                                                                        |   | $                                                                              | 4,021,160 |   | $ | - |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| Non                  monetary exchanges related to certain retail sales                                                                    |   | $                                                                              | 607,186 |   | $ | - |   |
|                                                                                                                                       |   |                                                                           |   |   |   |   |   |
| Transfer                  of acquisition deposit as a payment of the purchase price for business                  acquisition              |   | $                                                                              | 718,804 |   | $ | - |   |

**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**

----

**FUQI        INTERNATIONAL, INC.**

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

**Acquisition**

----

**FUQI        INTERNATIONAL, INC.**

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

|                                         |   |   |      | Estimated                Useful Lives |   |
|----------------------------------------------|--------|--------|-----------|---------------------------------------|--------|
| Identifiable                Intangible Asset |   | Value  |      |
| Trade                names                   |   | $      | 2,952,820 |                                  |   | Indefinite |   |
| Non-compete                agreement         |   |   | 123,318   |                                  |   | 3                years |   |
| Strategic                Alliance Agreement  |   |   | 174,538   |                                  |   | 2                years |   |
|                                         |   |   |      |                                  |   |   |   |
| Total                                        |   | $      | 3,250,676 |                                  |   |  |   |
| Accumulated                Amortization      |   |   | (21,396   | )                                     |   |   |   |
|                                         |   |   | 3,229,280 |                                  |   |   |   |

| Inventories                           |   | $      | 9,783,482  |   |
|---------------------------------------|--------|--------|------------|--------|
| Property                and equipment |   |   | 1,006,854  |   |
| Intangible                assets      |   |   | 3,250,676  |   |
| Goodwill                              |   |   | 1,678,068  |   |
|                                  |   |   |       |   |
| Total                assets acquired  |   | $      | 15,719,080 |   |
|                                  |   |   |       |   |
| Cash                                  |   | $      | 11,697,920 |   |
| Stock                                 |   |   | 4,021,160  |   |
|                                  |   |   |       |   |
| Total                purchase price   |   | $      | 15,719,080 |   |

----

**FUQI        INTERNATIONAL, INC.**

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

|                                          |   | Three                  months ended September 30, 2008 |       | Nine                  months ended September 30, 2008 |   | Three                  months ended September 30, 2007 |   | Nine                  months ended September 30 , 2007 |       |
|-----------------------------------------------|--------|--------------------------------------------------------|------------|-------------------------------------------------------|--------|--------------------------------------------------------|--------|--------------------------------------------------------|------------|
|                                          |   |                                                   |       |                                             |   |                                                   |   |                                              |       |
| Net                  sales                    |   | $                                                      | 95,969,892 |                                                  | $      | 250,166,498                                            |   | $                                                      | 38,418,695 |   | $ | 97,757,001 |   |
| Income                  from operations       |   |                                                   | 9,426,448  |                                                  |   | 22,276,988                                             |   |                                                   | 3,628,248  |   |   | 8,191,448 |   |
| Net                  income                   |   |                                                   | 7,377,686  |                                                  |   | 18,951,832                                             |   |                                                   | 2,686,217  |   |   | 5,986,376 |   |
| Earnings                  per share - basic   |   | $                                                      | 0.34       |                                                  | $      | 0.88                                                   |   | $                                                      | 0.20       |   | $ | 0.46 |   |
| Earnings                  per share - diluted |   | $                                                      | 0.34       |                                                  | $      | 0.88                                                   |   | $                                                      | 0.20       |   | $ | 0.40 |   |

**Operating      Leases**

**Basic      and Diluted Earnings Per Share**

|                                            |   | Three                  months endedSeptember 30, |       | Nine                  months endedSeptember 30, |   |
|-------------------------------------------------|--------|--------------------------------------------------|------------|-------------------------------------------------|--------|
| **  **                                |   | 2008                                             |       | 2007                                            |   | 2008 |   | 2007 |   |
| **  **                                |   |                                             |       |                                            |   |   |   |   |   |
| Basic                weighted average shares    |   |                                             | 21,247,868 |                                            |   | 12,835,955 |   |   | 21,033,701 |   |   | 12,497,006 |   |
| Effect                of dilutive securities    |   |                                             | —    |                                            |   |     |   |   | — |   |   | 2,034,511 |   |
| Dilutive                potential common shares |   |                                             | 21,247,868 |                                            |   | 12,835,955 |   |   | 21,033,701 |   |   | 14,531,517 |   |

----

**FUQI        INTERNATIONAL, INC.**

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

**Stock-based      Compensation**

**Segment      Reporting**

**Non-monetary      (Barter) Exchanges**

**Recent      Accounting Pronouncements **

*Disclosures      about Derivative Instruments and Hedging Activities,*

**Reclassifications**

* *

----

**FUQI        INTERNATIONAL, INC.**

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

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

|                                 |   | September                30, |       | December                31, |   |
|--------------------------------------|--------|------------------------------|------------|-----------------------------|--------|
|                                 |   | 2008                         |       | 2007                        |   |
|                                 |   |                         |       |                        |   |
| Raw                materials         |   | $                            | 20,273,207 |                        | $      | 61,570 |   |
| Work                in progress      |   |                         | 3,093,291  |                        |   | 12,588,152 |   |
| Finished                goods        |   |                         | 12,652,934 |                        |   | 13,732,098 |   |
| Merchandise                - retails |   |                         | 14,417,156 |                        |   | 3,257,416 |   |
|                                 |   |                         |       |                        |   |   |   |
|                                 |   | $                            | 50,436,588 |                        | $      | 29,639,236 |   |

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

|                                                          |   | September                30, |      | December                31, |   |
|---------------------------------------------------------------|--------|------------------------------|-----------|-----------------------------|--------|
|                                                          |   | 2008                         |      | 2007                        |   |
|                                                          |   |                         |      |                        |   |
| Production                equipment                           |   | $                            | 1,389,058 |                        | $      | 1,108,045 |   |
| Computers                                                     |   |                         | 122,487   |                        |   | 52,697 |   |
| Office                equipment and furniture                 |   |                         | 428,701   |                        |   | 114,403 |   |
| Automobiles                                                   |   |                         | 521,241   |                        |   | 486,539 |   |
| Leasehold                improvement                          |   |                         | 1,758,529 |                        |   | 448,000 |   |
| Building                                                      |   |                         | 624,459   |                        |   | 582,886 |   |
|                                                          |   |                         | 4,844,475 |                        |   | 2,792,570 |   |
| Less                accumulated depreciation and amortization |   |                         | 1,621,855 |                        |   | 1,296,709 |   |
|                                                          |   | $                            | 3,222,620 |                        | $      | 1,495,861 |   |

----

**FUQI        INTERNATIONAL, INC.**

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

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

| **Brand** |     | **Counters** |   | **Shops** |   | **Total** |
|-----------|----------|--------------|--------|-----------|--------|-----------|
| FUQI      | Beijing  | 3            |   | 0         |   | 3         |
|      | Shenyang | 6            |   | 0         |   | 6         |
|      |     | 9            |   | 0         |   | 9         |
|      |     |         |   |      |   |      |
| TEMIX     | Beijing  | 27           |   | 0         |   | 27        |
|      | Shanghai | 17           |   | 7         |   | 24        |
|      |     | 44           |   | 7         |   | 51        |
|      |     |         |   |      |   |      |
|      |     | 53           |   | 7         |   | 60        |

----

**FUQI        INTERNATIONAL, INC.**

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

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

|                                                                                                                                                                                                                                                                                                                                                                                               |   | September                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 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |                              |        |                             |   |  |   |
| 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, matured in October 2008. The                loan was repaid.                                                                               |   |                              | -      |                             |   | 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 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |                              |        |                             |   |  |   |

----

**FUQI        INTERNATIONAL, INC.**

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

|                                                                                                                                                                                                                                                                                                                                                                                         |   | September                30, 2008 |       | December                31, 2007 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |       |                             |   |   |   |
| 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, matured in July 2008. The loan                was repaid.                                                                             |   |                              | -          |                             |   | 2,738,002 |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| 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.                                                                                                |   |                              | 1,466,641  |                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| 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.   |   |                              | 2,273,294  |                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| 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 January                2009. |   |                              | 1,979,966  |                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| 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.   |   |                              | 2,933,282  |                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| 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.   |   |                              | 1,026,649  |                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| 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.                                                                                                |   |                              | 1,466,641  |                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| A                note payable with interest at a rate of 7.227%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matures in January                2009.                                                                                              |   |                              | 1,466,641  |                             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |       |                             |   |   |   |
| A                note payable with interest at a rate of 7.227%, secured by the Company’s                inventories, guaranteed by affiliated companies and personally guaranteed                by the Company’s controlling stockholder, matures in January                2009.                                                                                              |   |                              | 2,053,298  |                             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| A                note payable with interest at a rate of 6.57%, secured by certain                real                properties owned by an affiliate, matures in December                2008.                                                                                                                                                                                             |   |                              | 3,373,275  |                             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |            |                             |   |  |   |
| A                note payable with interest at a rate of 6.57%, secured by certain                real                properties owned by an affiliate, matures in December                2008.                                                                                                                                                                                             |   |                              | 3,959,932  |                             |   |     |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   |                              |       |                             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                         |   | $                                 | 21,999,619 |                             | $      | 15,743,504 |   |

----

**FUQI        INTERNATIONAL, INC.**

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

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

| **(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.   |
|--------|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

**FUQI        INTERNATIONAL, INC.**

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

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

2008      as a      whole.

|  | **(10)** | **Stockholders’                  Equity:** |
|--|----------|--------------------------------------------------|

|  | **(11)** | **Employment                    Agreements of Executive                    Officers:** |
|--|----------|----------------------------------------------------------------------------------------|

----

|  | **(12)** | **Segment                Information:** |
|--|----------|-----------------------------------------|

|                                                           |   | Three                  months ended September 30, |       | Nine                  months ended September 30, |   |
|----------------------------------------------------------------|--------|---------------------------------------------------|------------|--------------------------------------------------|--------|
|                                                           |   | 2008                                              |       | 2007                                             |   | 2008 |   | 2007 |   |
| **Net                  Sales**                                 |   |                                         |       |                                             |   |    |   |   |   |
| Wholesale                  and distribution                    |   | $                                                 | 90,523,143 |                                             | $      | 35,860,974 |   | $ | 233,011,441 |   | $ | 89,823,682 |   |
| Retail                                                         |   |                                              | 3,154,558  |                                             |   | 386,837 |   |   | 5,108,874 |   |   | 665,094 |   |
|                                                           |   |                                              |       |                                             |   |   |   |   |   |   |   |   |   |
|                                                           |   | $                                                 | 93,677,701 |                                             | $      | 36,247,811 |   | $ | 238,120,315 |   | $ | 90,488,776 |   |
|                                                           |   |                                              |       |                                             |   |   |   |   |   |   |   |   |   |
| **Income                  before provision for income taxes:** |   |                                              |       |                                             |   |   |   |   |   |   |   |   |   |
| Wholesale                  and distribution                    |   | $                                                 | 8,666,885  |                                             | $      | 3,799,163 |   | $ | 22,813,611 |   | $ | 9,102,510 |   |
| Retail                                                         |   |                                              | 292,523    |                                             |   | 41,128 |   |   | 578,467 |   |   | 98,703 |   |
|                                                           |   |                                              | 8,959,408  |                                             |   | 3,840,291 |   |   | 23,392,078 |   |   | 9,201,213 |   |
|                                                           |   |                                              |       |                                             |   |   |   |   |   |   |   |   |   |
| Unallocated                  corporate expenses                |   |                                              | (674,704   | )                                                |   | (171,181 | ) |   | (2,194,284 | ) |   | (856,892 | ) |
| Other                  income (expense), net                   |   |                                              | (355,019   | )                                                |   | (378,785 | ) |   | 789,587 |   |   | (948,313 | ) |
|                                                           |   |                                              |            |                                             |   |  |   |   |  |   |   |  |   |
|                                                           |   | $                                                 | 7,929,685  |                                             | $      | 3,290,325 |   | $ | 21,987,381 |   | $ | 7,396,008 |   |

|                                      |   | September                30, |        | December                31, |   |
|-------------------------------------------|--------|------------------------------|-------------|-----------------------------|--------|
|                                      |   | 2008                         |        | 2007                        |   |
| **Assets**                                |   |                         |        |
| Wholesale                and distribution |   | $                            | 149,282,241 |                        | $      | 117,134,853 |   |
| Retail                                    |   |                         | 24,785,205  |                        |   | 3,339,195 |   |
| Corporate                                 |   |                         | 446,682     |                        |   | 2,240,542 |   |
|                                      |   |                         |             |                        |   |  |   |
| **Totals**                                |   | $                            | 174,514,128 |                        | $      | 122,714,590 |   |

----

**FUQI        INTERNATIONAL, INC.**

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

| **(13)  ** | **Subsequent                Events**: |
|----------------------|---------------------------------------|

 

| City,                Provinces  | No.                of counters |
|---------------------------------|--------------------------------|
| Haerbin,                Jilin,  | 2                              |
| Xinxiang,                Henan  | 3                              |
| Shun                yang, Henan | 1                              |
| Shan                dong        | 1                              |
|                          |                         |
|                            | 7                              |

----

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

**FORWARD-LOOKING      STATEMENTS**

**OVERVIEW**

**RECENT      EVENTS**

**Acquisition      of Temix**

** **

----

**Expansion      of Retail Presence**

----

**RESULTS      OF OPERATIONS**

|                                                                                                                         |   | Three                  Months Ended                                                                 |   | Nine                  Months Ended     |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------|
|                                                                                                                         |   | September                  30,                                                                      |   | September                  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 |
|                                                                                                                         |   | *(in                  thousands, except percentages, share and per share                  amounts)* |
| **Net                  sales**                                                                                               |   |                                                                                                |
| Wholesale                  and distribution                                                                                  |   | $                                                                                                   | 90,523 |                                   |   | 96.6% |   | $ | 35,861 |   |   | 98.9% |  | $ | 233,011 |   |   | 97.9% |   | $ | 89,824 |   |   | 99.3% |
| Retail                                                                                                                       |   |                                                                                                | 3,155  |                                   |   | 3.4% |   |   | 387 |   |   | 1.1% |  |   | 5,109 |   |   | 2.1% |   |   | 665 |   |   | 0.7% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                         |   |                                                                                                | 93,678 |                                   |   | 100.0% |   |   | 36,248 |   |   | 100.0% |  |   | 238,120 |   |   | 100.0% |   |   | 90,489 |   |   | 100.0% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cost                  of sales**                                                                                           |   |                                                                                                     |   |                                   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |
| Wholesale                  and distribution                                                                                  |   |                                                                                                | 80,723 |                                   |   | 86.2% |   |   | 31,468 |   |   | 86.8% |   |   | 207,617 |   |   | 87.2% |   |   | 79,289 |   |   | 87.6% |
| Retail                                                                                                                       |   |                                                                                                | 1,956  |                                   |   | 2.1% |   |   | 303 |   |   | 0.8% |  |   | 3,597 |   |   | 1.5% |   |   | 506 |   |   | 0.6% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                         |   |                                                                                                | 82,679 |                                   |   | 88.3% |   |   | 31,771 |   |   | 87.6% |   |   | 211,214 |   |   | 88.7% |   |   | 79,795 |   |   | 88.2% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Gross                  profit**                                                                                            |   |                                                                                                | 10,999 |                                   |   | 11.7% |   |   | 4,477 |   |   | 12.4% |  |   | 26,906 |   |   | 11.3% |   |   | 10,694 |   |   | 11.8% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                  expenses:**                                                                                     |   |                                                                                                     |   |                                   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |
| Selling                  and marketing                                                                                       |   |                                                                                                | 1,560  |                                   |   | 1.7% |   |   | 268 |   |   | 0.7% |   |   | 2,486 |   |   | 1.0% |   |   | 649 |   |   | 0.7% |
| General                  and administrative                                                                                  |   |                                                                                                | 1,154  |                                   |   | 1.2% |   |   | 539 |   |   | 1.5% |   |   | 3,223 |   |   | 1.4% |   |   | 1,701 |   |   | 1.9% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Total                  operating expenses                                                                              |   |                                                                                                | 2,714  |                                   |   | 2.9% |   |   | 807 |   |   | 2.2% |   |   | 5,709 |   |   | 2.4% |   |   | 2,350 |   |   | 2.6% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                  from operations**                                                                                  |   |                                                                                                | 8,285  |                                   |   | 8.8% |   |   | 3,670 |   |   | 10.2% |   |   | 21,197 |   |   | 8.9% |   |   | 8,344 |   |   | 9.2% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |  |
| **Other                  income (expense), net**                                                                             |   |                                                                                                | (355   | )                                      |   | -0.3% |   |   | (380 | ) |   | -1.1% |   |   | 790 |   |   | 0.3% |   |   | (948 | ) |   | -1.0% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |  |
| **Income                  before provision for income taxes**                                                                |   |                                                                                                | 7,930  |                                   |   | 8.5% |   |   | 3,290 |   |   | 9.1% |   |   | 21,987 |   |   | 9.2% |   |   | 7,396 |   |   | 8.2% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |  |
| **Provision                  for income taxes**                                                                              |   |                                                                                                | 1,409  |                                   |   | 1.5% |   |   | 560 |   |   | 1.6% |   |   | 3,821 |   |   | 1.6% |   |   | 1,294 |   |   | 1.5% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |  |
| **Net                  income**                                                                                              |   |                                                                                                | 6,521  |                                   |   | 7.0% |   |   | 2,730 |   |   | 7.5% |   |   | 18,166 |   |   | 7.6% |  |   | 6,102 |   |   | 6.7% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  comprehensive income**                  -                  foreign currency translation adjustments |   |                                                                                                | 707    |                                   |   | 0.7% |   |   | 229 |   |   | 0.7% |   |   | 7,214 |   |   | 3.1% |   |   | 554 |   |   | 0.7% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive                  income**                                                                                    |   | $                                                                                                   | 7,228  |                                   |   | 7.7% |   | $ | 2,959 |   |   | 8.2% |   | $ | 25,380 |   |   | 10.7% |   | $ | 6,656 |   |   | 7.4% |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                  per share - basic**                                                                              |   | $                                                                                                   | 0.31   |                                   |   |   |   | $ | 0.21 |   |   |   |   | $ | 0.86 |   |   |   |   | $ | 0.49 |   |   |   |
|                                                                                                                         |   |                                                                                                |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                  per share - diluted**                                                                            |   | $                                                                                                   | 0.31   |                                   |   |   |   | $ | 0.21 |   |   |   |   | $ | 0.85 |   |   |   |   | $ | 0.42 |   |   |   |

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

***Net      sales***

|                                        |   | Three                  Months Ended September 30, |   |
|---------------------------------------------|--------|---------------------------------------------------|--------|
|                                        |   | 2008                                              |   | 2007 |   |
|                                        |   | Amount                  in Millions               |   | Percentage |   | Amount                  in Millions |   | Percentage |   |
| Platinum                                    |   | $                                                 | 11.3   |   |   | 12.5 | % | $ | 8.7 |   |   | 24.2 | % |
| Gold                                        |   |                                              | 76.9   |   |   | 85.0 | % |   | 21.8 |   |   | 60.7 | % |
| K-gold                  and Studded Jewelry |   |                                              | 2.3    |   |   | 2.5 | % |   | 5.4 |   |   | 15.1 | % |
| Total                                       |   | $                                                 | 90.5   |   |   | 100 | % | $ | 35.9 |   |   | 100 | % |

***Cost      of sales***

***Gross      profit***

----

***Selling      and marketing expenses***

***General      and administrative expenses***

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

***Provision      for income tax***

***Net      income***

----

**Nine      Months Ended September 30, 2008 and 2007**

***Net      sales***

|                                      |   | Nine                Months Ended September 30, |   |
|-------------------------------------------|--------|------------------------------------------------|--------|
|                                      |   | 2008                                 |   | 2007   |   |
|                                      |   | Amount                in Millions              |   | Percentage |   | Amount                in Millions |   | Percentage |   |
| Platinum                                  |   | $                                              | 24.5   |   |   | 10.5 | % | $ | 20.7 |   |   | 23.1 | % |
| Gold                                      |   |                                           | 201.4  |   |   | 86.4 | % |   | 49.8 |   |   | 55.5 | % |
| K-gold                and Studded Jewelry |   |                                           | 7.1    |   |   | 3.1 | % |   | 19.3 |   |   | 21.4 | % |
| Total                                     |   | $                                              | 233.0  |   |   | 100 | % | $ | 89.8 |   |   | 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 -**      Net cash      used for operating activities increased to $10.8 million for the nine months      ended September 30, 2008, compared to net cash used for operating activities      of      $1.7 million for the same period in 2007 mainly due to higher balances of our      accounts receivable, refundable value added tax and inventory.

net realizable value.      As of      September 30, 2008, an inventory reserve of approximately $2.0 million,      representing less than 4% of our total inventory, was recorded due to recent      drop in the market price of platinum. 

----

**Investing      activities -**

**Financing      activities**

**Contractual      Debt Obligations.**

**Future      Capital Expenditures**

In      addition to the funds required to open new retail locations, additional working      capital will be needed to operate the retail locations due to longer sales      and      collection cycles and higher inventory levels required to support retail stores.      We anticipate that the costs for such expansion include costs to acquire new      raw      materials, open retail outlets, acquire new components and additional tooling,      and secure labor to manufacture jewelry and for marketing and promotional      activities. Additional capital for this objective may be required that is in      excess of our current resources, requiring us to raise additional capital      through additional equity offerings or secured or unsecured debt financing.      The      availability of additional capital resources will depend on prevailing market      conditions, interest rates, and our existing material financial position and      results of operations.

**Off-Balance      Sheet Arrangements**

----

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES**

| 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.   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Purchase      Price Allocations - **

**Inventory      - **

----

**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 nine months ended September 30, 2008, a total of 2.1 and      5.1 tons of gold were purchased under the gold future contract arrangements      which represented approximately 70.2% and 63.9% 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 $22,954 and      $1,584,220 was recognized as non-operating income in the consolidated statement      of income for the three and nine months ended September 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                recruited a Financial Controller in August 2008 to enhance the financial                reporting abilities of our China                operations; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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                are in the process of enhancing training programs on accounting principles                and procedures for our existing staff                members; |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | We                have established monthly and quarterly data collection timetables                and                procedures, including assigning data collection responsibilities                to                designated personnel; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | We                engaged with a professional advisory firm on outsourcing part of                our                internal audit function; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | We                recruited an internal audit staff accountant in April 2008 to assist                us                improve our internal audit procedures and assigned a member of our                internal personnel to be responsible for coordinating and monitoring                the                progress of our internal audit procedures;                and |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | 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**

*Item      4 - Controls and Procedures*

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**PART II      — OTHER INFORMATION**

**ITEM      1 — LEGAL PROCEEDINGS   **

**ITEM      1A - RISK FACTORS**

**Our      acquisition of Temix in August 2008 may not result in the benefits and revenue      growth we expect.**

|  | · | integration                  and management of the operations; |
|--|--------|----------------------------------------------------------------|

|  | · | retention                  of key personnel; |
|--|--------|----------------------------------------------|

|  | · | integration                  of information systems, internal procedures, accounts receivable                  and                  management, financial and operational controls; |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | retention                  of customer base of acquired businesses; |
|--|--------|---------------------------------------------------------------------|

|  | · | diversion                  of management’s attention from other ongoing business concerns; and                  exposure to unanticipated liabilities of acquired                  companies. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Adverse      capital and credit market conditions may significantly affect our ability to      meet liquidity needs, access to capital and cost of      capital.**

----

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

**ITEM      3 — DEFAULTS UPON SENIOR SECURITIES     **

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

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

**ITEM      6 — EXHIBITS   **

**(a)      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.*   |

----

**SIGNATURES**

|                                   | FUQI                INTERNATIONAL, INC.     |
|----------------------------------------|-------------------------------------------------------|
|                              |                                             |   |
| Date:                November 14, 2008 | By:                                         | /s/                Yu Kwai Chong |
|                                   |                                                  | Yu                Kwai Chong |
|                                   |                                                  | Chief                Executive Officer  |
|                              |                                             |                    |
| Date:                November 14, 2008 | By:                                         | /s/                Ching Wan Wong |
|                                   |                                                  | Ching                Wan Wong |
|                                   |                                                  | Chief                Financial Officer |

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