Core Viewpoint - Hong Jiu Fruit, once hailed as the "first fruit stock," is now facing a significant crisis after being suspended for a year due to serious allegations against its core management team, including loan fraud and tax invoice issues [2][3][16]. Company Summary - Six core executives, including Chairman Deng Hong Jiu and his wife Jiang Zong Ying, are under investigation by Chongqing police for loan fraud and issuing false VAT invoices [2]. - The company's main office has been restricted by police since January 6, 2025, hindering normal operations [2]. - The company has not released any financial reports since the suspension, leading to a 95% drop in stock price and a market capitalization decline from 600 billion HKD to 28 billion HKD [3][10]. - Employees have reported salary delays and forced resignations, with the so-called "employee stock ownership plan" being revealed as a trust arrangement that restricts trading for ten years [4][3]. Financial Issues - In Q4 2023, the company made a 34.2 billion CNY prepayment to new suppliers, which accounted for nearly 80% of the annual prepayment balance, raising concerns due to the suppliers' lack of transaction history [6]. - In January 2024, an additional 15.2 billion CNY was paid to these suppliers, but only 4.5 billion CNY was received in return, leading to questions about the flow of funds [7]. - The auditing firm KPMG requested complete accounting records, but the management failed to provide satisfactory explanations, resulting in KPMG resigning as the auditor [8]. - From 2020 to 2022, the company reported a cumulative operating cash flow of -3.6 billion CNY, relying heavily on equity pledges to maintain liquidity [12]. - As of mid-2023, accounts receivable reached 8.673 billion CNY, making up 90% of current assets, with a significant increase in bad debt risk [12]. Industry Context - The crisis at Hong Jiu Fruit reflects broader structural issues within the fruit retail industry, including a heavy asset-light model and cash flow challenges [16][20]. - Other major players in the industry, such as Baiguoyuan and Xianfeng Fruit, are also facing significant challenges, indicating a collective struggle within the sector [17][18][19]. - The industry is characterized by high operational costs and difficulties in recovering large accounts receivable, leading to a tightening cash flow situation [15][20]. - The current situation suggests that the fruit retail industry may be entering a "cleansing period" after years of rapid growth [21].