Fushi Copperweld, Inc. - FORM 10-Q/A

Attached files

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EX-31.2 - Fushi Copperweld, Inc.	v216751_ex31-2.htm
EX-32.1 - Fushi Copperweld, Inc.	v216751_ex32-1.htm
EX-31.1 - Fushi Copperweld, Inc.	v216751_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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

For the transition period from ____ to _____

Commission File Number: 001-33669

FUSHI COPPERWELD, INC.

(Exact name of registrant as specified in its charter)

Nevada	13-3140715
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

TYG Center Tower B, Suite 2601,

Dong San Huan Bei Lu Bing 2,

Beijing, PRC 100027

(Address of principal executive offices) (Zip Code)

(011)-86-10-8447-8280

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer (Do not check if a smaller reporting company) o Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 5, 2010 the registrant had 37,797,239 shares of common stock outstanding.

EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarterly period ended September 30, 2010 is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q (“Amendment No. 1”) which was originally filed on November 8, 2010 with the Securities and Exchange Commission (the “Original 10-Q”). This amendment is filed solely with respect to the following items:

- Part I, Item 1- Financial Statements;

- Part I, Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations, and

- Part I, Item 4- Controls and Procedures.

This Amendment No. 1 is being filed in order to restate:

• Our consolidated balance sheets as of September 30, 2010 and December 31, 2009 by decreasing consolidated total assets by $4,418,724 and increasing consolidated total assets by $2,561,059, respectively; and

• Our consolidated statements of income for the three months ended September 30, 2010 and 2009 by increasing consolidated net income by $51,609 and $156,927, respectively, and restate our consolidated statements of income for the nine months ended September 30, 2010 and 2009 by increasing consolidated net income by $630,722 and decreasing consolidated net income by $2,161,888, respectively.

The restatement relates to our accounting treatment for (1) cross-currency interest swap and (2) the fair value of assets acquired in the acquisitions of Jinchuan Electric Cable Co., Ltd. (“Jinchuan”) and Shanghai Hongtai Industrial Co., Ltd. (“Hongtai”). In previous years, we unintentionally misapplied GAAP in that the cross-currency interest swap should not have qualified as a cash flow hedge and the change in fair value should have been recorded in net income. Thus, we have restated our consolidated statement of income to reflect the change of fair value of financial instrument for the three months and nine months ended September 30, 2010 and 2009, respectively, In addition, as part of our year-end closing process, we identified certain errors in the original purchase price allocation with respect to the fair value of certain property, plant and equipment. We subsequently engaged another independent valuation firm to help us determine the fair value of property, plant and equipment and land use right acquired in the acquisition of Jinchuan and Hongtai. As a result, the purchase consideration exceeded the fair value of net assets acquired, resulting in goodwill of approximately $0.6 million for the acquisition of Jinchuan and goodwill of approximately $1.1 million for the acquisition of Hongtai’s. We restated our consolidated balance sheets as of September 30, 2010 and consolidated statement of income for the three months and nine months ended September 30, 2010 to reflect the above changes.

A summary of the effects of this restatement to our financial statements included within this Amendment No. 1 is presented in Note 25, “Restatement of Financial Statements.”

Except as specifically referenced herein, this Amendment No. 1 does not reflect any event occurring subsequent to November 8, 2010, the filing date of the original 10-Q.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

(RESTATED)

	September 30,		December 31,
	2010		2009
	Unaudited
ASSETS
CURRENT ASSETS:
Cash	$	117,866,998	$	60,597,849
Accounts receivable, trade, net of allowance of bad debt of $522,729 and $1,024,684 as of September 30, 2010 and December 31, 2009, respectively		64,520,827		67,284,600
Inventories		22,702,154		10,875,782
Notes receivables		257,883		122,972
Other receivables and prepaid expenses		505,709		1,137,566
Advances to suppliers		21,228,320		8,582,346
Deposit in derivative hedge		-		1,000,000
Total current assets		227,081,891		149,601,115

PLANT AND EQUIPMENT, net		124,275,549		117,385,566

OTHER ASSETS:
Advances to suppliers, non-current		540,482		1,356,404
Notes receivables, non-current		179,106		699,106
Intangible assets, net of accumulated amortization		13,662,152		11,924,056
Goodwill		1,669,789		-
Deferred loan expense, net		181,514		2,045,349
Deferred tax assets		15,407,083		14,283,528
Total other assets		31,640,126		30,308,443

Total assets	$	382,997,566	$	297,295,124

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Revolver line of credit	$	-	$	4,033,783
Accounts payable, trade		6,202,910		4,002,773
Current portion of long-term debts		650,000		10,000,000
Other payables and accrued liabilities		5,009,902		3,928,374
Taxes payable		3,639,132		2,599,055
Cross currency hedge payable		-		436,702
Obligation under capital lease, current		79,084		71,503
Loan payable to shareholder		15,000,000		-
Total current liabilities		30,581,028		25,072,190

LONG-TERM LIABILITIES:
Long-term debts		5,850,000		25,000,000
Obligation under capital lease, non-current		88,232		153,626
Deferred tax liabilities		669,540		-
Fair value of derivative instrument		-		7,532,527
Total long-term liabilities		6,607,772		32,686,153

Total liabilities		37,188,800		57,758,343

COMMITMENTS AND CONTINGENCIES		4,955,998		-

SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued or outstanding as of September 30, 2010 and December 31, 2009		-		-
Common stock, $0.006 par value, 100,000,000 shares authorized, September 30, 2010: 37,779,839 shares issued and outstanding December 31, 2009: 29,772,780 shares issued and outstanding		226,680		178,638
Additional paid in capital		166,297,828		105,540,676
Statutory reserves		20,793,298		16,282,793
Retained earnings		122,113,829		92,312,280
Accumulated other comprehensive income		31,421,133		25,222,394
Total shareholders' equity		340,852,768		239,536,781

Total liabilities and shareholders' equity	$	382,997,566	$	297,295,124

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)

(RESTATED)

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009

REVENUES	$	66,507,433		$	47,676,346		$	195,062,641		$	131,234,427

COST OF GOODS SOLD		46,842,955			32,506,879			137,986,750			93,672,906

GROSS PROFIT		19,664,478			15,169,467			57,075,891			37,561,521

OPERATING EXPENSES:
Selling expenses		1,457,154			1,078,158			4,074,280			3,366,719
General and administrative expenses		3,117,062			3,510,034			10,923,878			9,747,637
Total operating expenses		4,574,216			4,588,192			14,998,158			13,114,356

INCOME FROM OPERATIONS		15,090,262			10,581,275			42,077,733			24,447,165

OTHER INCOME (EXPENSE):
Interest income		200,295			76,094			590,236			242,715
Interest expense		(120,176	)		(1,201,014	)		(697,367	)		(4,150,085	)
Change in fair value of derivative instrument		-			237,768			882,527			(3,275,588	)
Loss on cross currency hedge		-			(1,199,438	)		(753,666	)		(1,581,812	)
Gain (loss) on debt extinguishment		-			3,842,935			(2,395,778	)		3,842,935
Change in fair value of derivative liability - warrants		-			-			-			(752,114	)
Change in fair value of derivative liability - conversion option		-			(2,058,352	)		-			(7,181,198	)
Other (expense) income, net		(176,001	)		53,421			(194,445	)		(193,060	)
Total other expense, net		(95,882	)		(248,586	)		(2,568,493	)		(13,048,207	)

INCOME BEFORE INCOME TAXES		14,994,380			10,332,689			39,509,240			11,398,958

(PROVISION) BENEFIT FOR INCOME TAXES:
Deferred income tax benefit		158,599			807,537			1,123,555			4,366,785
Current income tax expense		(2,230,608	)		(1,788,366	)		(6,320,742	)		(4,069,081	)
(Provision) benefit for income taxes, net		(2,072,009	)		(980,829	)		(5,197,187	)		297,704

NET INCOME		12,922,371			9,351,860			34,312,053			11,696,662

OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		4,433,165			72,136			6,198,740			112,094

COMPREHENSIVE INCOME	$	17,355,536		$	9,423,996		$	40,510,793		$	11,808,756

EARNINGS PER SHARE:
Basic	$	0.34		$	0.33		$	0.94		$	0.42
Diluted	$	0.34		$	0.32		$	0.93		$	0.41

WEIGHTED AVERAGE SHARES:
Basic		37,694,626			28,084,416			36,553,784			27,827,152
Diluted		38,077,845			29,206,508			37,030,499			28,676,832

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)

(RESTATED)

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	34,312,053		$	11,696,662
Adjustments to reconcile net income provided by operating activities:
Change in fair value of derivative instrument		(882,527	)		3,275,588
Allowance for doubtful accounts adjustment		(513,846	)		-
Bad debt expense		-			862,302
Write-off of non-current advances to suppliers		527,095			-
Write-off of patent		131,250			-
Reserve for inventories		255,027			62,914
Write-off of inventories		-			119,133
Depreciation		8,759,839			7,191,842
Loss on sale of property and equipment		-			117,430
Deferred taxes		(1,123,555	)		(4,366,785	)
Reserve for notes receivables		500,000			-
Amortization of intangible assets		401,539			357,449
Amortization of loan commission		251,097			817,349
Amortization of stock compensation expense		528,207			1,108,254
Loss on cross currency hedge		753,666			1,581,812
Loss (gain) on debt extinguishment		2,395,778			(3,842,935	)
Change in fair value of derivative liability - conversion option		-			7,181,198
Change in fair value of derivative liability - warrants		-			752,114
Change in operating assets and liabilities:
Accounts receivable		7,379,296			(20,177,587	)
Inventories		(10,326,609	)		(3,756,514	)
Notes receivables		(112,473	)		100,700
Other receivables and prepayments		574,714			401,070
Advances to suppliers - current		(11,648,978	)		15,073,210
Accounts payable		(862,992	)		(3,839,555	)
Other payables and accrued liabilities		(1,790,015	)		(3,113,988	)
Taxes payable		604,928			3,984,006
Net cash provided by operating activities		30,113,494			15,585,669

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of subsidiaries		(6,375,000	)		-
Cash acquired from acquisition of subsidiaries		901,463			-
Payments on cross currency hedge payable		(1,190,368	)		(614,580	)
Payment for unwind of cross currency hedge		(5,650,000	)		-
Proceeds from sale of property and equipment		-			424,444
Purchases of property and equipment		(1,926,580	)		(3,292,007	)
Net of payments on prepayment of equipment		-			(1,877,177	)
Net of claimed VAT on purchases of property and equipment		57,551			-
Net cash used in investing activities		(14,182,934	)		(5,359,320	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder loan		15,000,000			4,552,000
Net payments on revolver line of credit		(4,033,783	)		(723,566	)
Payments on short-term bank loans		-			(17,553,600	)
Proceeds from term loans		6,500,000			-
Release of restricted cash		-			1,000,000
Payment on capital lease obligation		(57,814	)		(23,575	)
Payment on high yield notes payable		(35,600,000	)		(5,000,000	)
Proceeds on issuance of common stock		56,361,500			1,920,000
Proceeds from exercise of warrants		1,180,599			-
Proceeds from exercise of stock options		27,225			-
Net cash provided by (used in) financing activities		39,377,727			(15,828,741	)

EFFECT OF EXCHANGE RATE ON CASH		1,960,862			232

CHANGE IN CASH		57,269,149			(5,602,160	)

CASH, beginning of period		60,597,849			65,611,770

CASH, end of period	$	117,866,998		$	60,009,610

Supplemental cash flow disclosures:
Interest paid	$	1,425,833		$	3,650,785
Income tax paid	$	6,161,271		$	3,609,505

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 1 – Organization and line of business

Fushi Copperweld, Inc (“Fushi”), a Nevada corporation, is the holding company of Fushi Holdings, Inc. (“Fushi Holdings”). Fushi Holding, a Delaware corporation, is a holding company of Fushi International (Dalian) Bimetallic Cable Co., Ltd (“Fushi International”), which is organized under the laws of the People’s Republic of China (“PRC”). Fushi International is engaged in the manufacturing and sale of bimetallic wire products. Dalian Fushi Bimetallic Manufacturing Co., Ltd (“Dalian Fushi”), a limited liability company organized under the laws of the PRC, is a variable interest entity through a contractual relationship (Note 2).

On October 29, 2007, Fushi acquired Copperweld Bimetallics, LLC, (“Copperweld”), a limited liability company registered in the state of Delaware, which is the parent company of Copperweld Bimetallics UK, Ltd. (“Copperweld UK”), a private company registered in the United Kingdom. Copperweld is a bimetallic sales and manufacturing operation headquartered in Fayetteville, Tennessee. Copperweld UK is a manufacturing, distribution and customer service facility located in Telford, England.

The Company is in the business of developing, designing, manufacturing, marketing and distributing bimetallic wire products, principally copper-clad aluminum and copper-clad steel. The Company’s products are primarily focused on serving end-user applications in the telecommunication, electrical utility, and transportation markets. The Company’s products are sold in North America, South America, Europe, North Africa, the Middle East, and Asia.

Current Developments

On February 5, 2010, Fushi International acquired Dalian Jinchuan Electric Cable Co., Ltd. (“Jinchuan”), a leading low and medium voltage power cable manufacturer organized under the laws of the PRC.

On May 31, 2010, Fushi International, through its Chief Executive Officer, Li Fu, a designated representative of the Company, acquired Shanghai Hongtai Industrial Co., Ltd. (“Hongtai”), a bimetallic wire manufacturer located in southeast China and organized under the laws of the PRC. On June 18, 2010, the Company established Fushi International (JiangSu) Bimetallic Cable Co., Ltd. (“Fushi JiangSu”) in Yixing city. The company is in the process of relocating the assets and key personnel of Hongtai to Fushi JiangSu in Yixing. By relocating to Yixing, Fushi JiangSu will be able to leverage the center’s extensive transportation network to deliver its CCA and CCAM products to customers within the Shanghai economic zone more quickly and cost effectively. There have been no operations of Hongtai and Fushi JiangSu as of September 30, 2010. Hongtai will be dissolved once Fushi JiangSu starts operations. See Note 19 for details of this acquisition transaction.

Fushi, Fushi Holdings, Fushi International, Dalian Fushi, Jinchuan, Hongtai, Fushi JiangSu, Copperweld and Copperweld UK are hereinafter referred to as the “Company.”

Note 2 – Summary of significant accounting policies

Basis of presentation

Management has included all adjustments, consisting only of normal recurring adjustments, considered necessary to give a fair presentation of operating results for the periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2009 annual report filed on Form 10-K.

Principles of consolidation

The accompanying consolidated financial statements include the financial statements of its wholly owned subsidiaries and its 100% VIE. All significant inter-company transactions and balances have been eliminated in consolidation.

In accordance with the interpretation of Generally Accepted Accounting Principles (GAAP), variable interest entities (VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

Fushi International owns 0% of Dalian Fushi Bimetallic Manufacturing Co., Ltd (Dalian Fushi); however, pursuant to the Entrusted Management Agreement, Voting Proxy Agreement and the Share Pledge Agreement (collectively, “Restructuring Agreements”) reached by Fushi International, Dalian Fushi and its registered shareholders in 2005, Fushi International has full control over Dalian Fushi’s remaining operations and financial affairs as a result. Fushi International is the primary beneficiary of Dalian Fushi, thus Dalian Fushi is a 100% VIE of Fushi International, which means 100% voting rights and 100% Financial Obligation to Fushi International. Thus, Dalian Fushi is considered a VIE and is consolidated within the financial statements.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, the Company estimates the fair value of its derivative instrument. Actual results could differ from those estimates.

Revenue recognition

Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits. The Company does not establish reserve funds for potential customer claims because, historically, it has not experienced significant customer complaints or returns.

Shipping and handling costs

Shipping and handling costs related to costs of goods sold are included in selling costs which totaled $2,211,333 and $1,547,274 for the nine months ended September 30, 2010 and 2009, respectively, and $854,743 and $562,051 for the three months ended September 30, 2010 and 2009, respectively.

Foreign currency translation and other comprehensive income

The reporting and functional currency of the Company is the US dollar (USD). The subsidiaries, in China, use the local currency Renminbi (RMB) to conduct business. The subsidiary in the United Kingdom (UK) conducts business in British Pounds (GBP).

For the subsidiaries whose functional currencies are other than the USD, all assets and liabilities accounts were translated at the exchange rate on the balance sheet date; stockholder’s equity is translated at historical rates and items in the consolidated statements of operations and consolidated cash flow statements are translated at the average rate in each applicable period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders’ equity. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

The balance sheet amounts with the exception of equity at September 30, 2010 were translated at 6.691 RMB and 0.636 GBP to 1.00 USD, respectively. The balance sheet amounts with the exception of equity at December 31, 2009 were translated at 6.826 RMB and 0.619 GBP to $1.00, respectively. The average translation rates applied to income and cash flow statement amounts for nine months ended September 30, 2010 were 6.806 RMB and 0.652 GBP to 1.00 USD, respectively. The average translation rates applied to income and cash flow statement amounts for nine months ended September 30, 2009 were 6.832 RMB and 0.648 GBP to 1.00 USD, respectively.

Cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Cash and concentration of risk

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents, for cash flow statement purposes. Cash includes cash on hand and demand deposits in accounts maintained with state owned banks within the PRC and with banks in the UK and the United States (“US”).

Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash. The Company maintains balances at financial institutions, which from time to time, may exceed deposit insurance limits for the banks located in the US and UK. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. As of September 30, 2010 and December 31, 2009, the Company had deposits in excess of federally insured limits totaling $102,445,571 and $60,231,401, respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

Parts of the Company’s operations are carried out in the PRC and UK. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the two countries, and by the general state of the two countries’ economy. The Company’s operations in the two countries are subject to specific considerations and significant risks not typically associated with companies in the US. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Additional product sales information

The Company has expanded its geographic sales area from the Chinese domestic market to the international market. The following chart shows that sales have spread across international markets during the first three quarters of 2010 and 2009, respectively.

	September 30, 2010		September 30, 2009
	(Un audited)		(Unaudited)
China	$	152,803,500	$	103,028,466
USA		31,494,741		21,692,506
Europe		6,425,984		3,357,305
Other countries		4,338,416		3,156,150
Total sales	$	195,062,641	$	131,234,427

The following chart shows that the sales were spread across international markets during the three months ended September 30, 2010 and 2009, respectively.

	September 30, 2010		September 30, 2009
	(Unaudited)		(Unaudited)
China	$	52,658,717	$	38,817,579
USA		10,622,814		6,758,832
Europe		2,216,621		1,414,149
Other countries		1,009,281		685,786
Total sales	$	66,507,433	$	47,676,346

Major customers and suppliers

Ten major customers accounted for 25% and 27% of sales for the nine months ended September 30, 2010 and 2009, respectively. Ten major customers accounted for 30% and 27% of sales for the three months ended September 30, 2010 and 2009, respectively. Total receivables balance due from the top ten customers at September 30, 2010 and December 31, 2009 amounted to $17,397,508 and $18,484,819, respectively.

Five major suppliers provided approximately 63% and 72% of the Company’s raw materials for the nine months ended September 30, 2010 and 2009, respectively. Five major suppliers provided approximately 54% and 52% of the Company’s raw materials for the three months ended September 30, 2010 and 2009, respectively. At September 30, 2010, our advances to the major five suppliers were $20,542,414, all of which was current. At December 31, 2009, our advances to the major five suppliers were $6,816,228, all of which was current.

Accounts receivables and allowance for doubtful accounts

During the normal course of business, the Company extends unsecured credit to its customers. Management regularly reviews aging of receivables and changes in payment trends by its customers, and records a reserve when they believe collection of amounts due are at risk. Accounts considered uncollectible are written off through a charge to the valuation allowance. As of September 30, 2010 and December 31, 2009, management concluded its allowance for bad debts was sufficient.

Inventories

Inventories are stated at the lower of cost or market using a weighted average method. Inventories consist of raw materials, work in process, finished goods and packing materials. Raw materials consist of prefabricated copper, aluminum and steel used in production. The cost of finished goods includes direct costs of raw materials as well as direct labor used in production. Indirect production costs such as utilities and indirect labor related to production such as assembling, shipping and handling for raw material costs are also included in the cost of inventories.

The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Derivative financial instrument

The Company accounts for derivatives in accordance with ASC Topic 815, Derivative and Hedging, which requires entities to recognize all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. Changes in the fair value are recognized in earnings.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Stock-based compensation

The Company records and reports stock-based compensation by measuring the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which services are received. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Plant and equipment, net

Plant and equipment are stated at cost. When the asset property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

		Estimated Useful Life
Buildings and improvements		20-39.5 years
Machinery and equipment		7-15 years
Office furniture and equipment		3-5 years
Transportation equipment		3-5 years

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. Costs classified to construction in progress include all cost of obtaining the asset and bringing it to the location and condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and are placed into service. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed as incurred. Total interest capitalized for the nine months ended September 30, 2010 and 2009 amounted to $0 and $1,350, respectively. No interest was capitalized for the three months ended September 30, 2010 and 2009.

If a cost does not extend an asset’s useful life, increase its productivity, improve its operating efficiency or add additional production capacity, the cost is regarded as repairs and maintenance and recognized as an expense as incurred; if it does, the cost is regarded as major renewals and betterments and capitalized. For the three and nine months ended September 30, 2010 and 2009, there were no amounts expended for major renewals and betterments that were capitalized.

The repairs and maintenance expense for the nine months ended September 30, 2010 and 2009 amounted to $995,058 and $391,809, respectively, and for the three months ended September 30, 2010 and 2009 amounted to $367,872, and $66,696, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Long-lived assets

The Company evaluates the carrying value of long-lived assets each reporting period. When estimated cash flows generated by those assets are less than the carrying amounts of the asset, the Company recognizes an impairment loss. Based on its review, the Company believes that, as of September 30, 2010 and December 31, 2009, there were no impairments of its long-lived assets.

Intangible assets

Land use rights – Land in the PRC is government owned. As a result, the government grants land use rights. The Company amortizes land use rights on a straight-line basis over the 50-year life.

Patents – Patents are stated at cost, less accumulated amortization. The Company amortizes patents on a straight line basis over their legal life of 7-20 years.

The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets, and goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. Based on its review, the Company believes that, as of September 30, 2010 and December 31, 2009, the impairments of its intangible assets amounted to $131,250 and 0, respectively.

Research and development

Research and development expenses include salaries, consultant fees, supplies and materials, as well as costs related to other overhead such as facilities, utilities and other departmental expenses. The costs the Company incurs with respect to internally developed technology and engineering services are included in research and development expenses as incurred as they do not directly relate to any particular licensee, license agreement or license fees.

Research and development costs are recorded in general and administrative expenses. Research and development costs were $82,848 and $138,155 for the nine months ended September 30, 2010 and 2009, respectively and $70,182 and $30,454 for the three months ended September 30, 2010 and 2009, respectively.

Earnings per share

The Company reports earnings per share and presents both basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method. For the nine and three months ended September 30, 2010 and 2009, the Company properly excluded options and warrants with anti-dilutive effects from the diluted earnings per share calculation.

Income taxes

The provision for income taxes consists of taxes currently due plus deferred taxes. The recognition of deferred income tax liabilities and assets for the estimated future tax effects is attributable to temporary differences and operating loss and tax credit carryforwards. A deferred tax liability or asset attributable to temporary differences is accounted for using the balance sheet liability method in respect of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Deferred tax expense or benefit is the change during the year in deferred tax liabilities and assets. Deferred taxes are determined separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. Deferred tax liability or asset is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. No significant penalties or interest relating to income taxes have been incurred during the nine months ended September 30, 2010 and 2009. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.

Value-added tax

Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). All of the Company’s products that are produced and sold in the PRC are subject to a Chinese VAT at a rate of 17% of the gross sales price. All of the Company’s products that are manufactured and sold in the UK are subject to a UK VAT at a rate of 17.5% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company recorded VAT payable and VAT receivable net of payments in the consolidated financial statements. The VAT tax return is filed offsetting the payables against the receivables.

Segment reporting

The Company uses a “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has determined that it has two reportable segments, PRC and US (See Note 20).

Recently issued accounting pronouncements

In October 2009, the FASB issued an ASU regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140.The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This ASU is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in this Accounting Standards Update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. This ASU is effective for fiscal years beginning on or after November 15, 2009, and interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

In January 2010, FASB issued ASU No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this ASU did not have a material impact on its consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted in February 2010. The adoption of ASU 2010-09 did not have a material impact on our consolidated financial statements.

In July 2010, the FASB issued Accounting Standards Update 2010-20 which amends “Receivables” (Topic 310). ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. While ASU 2010-20 will not have a material impact on our consolidated financial statements, we expect that it will expand our disclosures related to notes receivables.

Reclassification

Certain reclassifications have been made to the 2009 consolidated financial statements to conform to the 2010 consolidated financial statement presentation. These reclassifications had no effect on net income or cash flows as previously reported.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 3 - Accounts receivable

Accounts receivable consisted of the following:

	September 30, 2010			December 31, 2009
	(Unaudited)
Trade accounts receivable	$	65,043,556		$	68,309,284
Allowance for bad debts		(522,729	)		(1,024,684	)
Trade accounts receivable, net	$	64,520,827		$	67,284,600

The following table consists of allowance for doubtful accounts:

Allowance for doubtful accounts at December 31, 2008	$	318,529
Additional reserves		862,302
Effect of foreign currency translation		534
Allowance for doubtful accounts at September 30, 2009 (Unaudited)		1,181,365
Reserve adjustment		(156,477	)
Effect of foreign currency translation		(204	)
Allowance for doubtful accounts at December 31, 2009		1,024,684
Reserve adjustment		(513,846	)
Effect of foreign currency translation		11,891
Allowance for doubtful accounts at September 30, 2010 (Unaudited)	$	522,729

Note 4 - Inventories

Inventories consisted of the following:

	September 30, 2010			December 31, 2009
	(Unaudited)
Raw materials	$	15,083,186		$	5,137,002
Work in process		2,945,515			2,777,890
Finished goods		4,974,869			3,007,279
Totals		23,003,570			10,922,171
Less allowance for obsolete inventory		(301,416	)		(46,389	)
Totals	$	22,702,154		$	10,875,782

The following table consists of allowance for obsolete inventory:

Allowance for obsolete inventory at December 31, 2008	$	160,487
Additional reserves		62,914
Allowance for obsolete inventory at September 30, 2009 (Unaudited)		223,401
Reserves write-off		(177,012	)
Allowance for obsolete inventory at December 31, 2009		46,389
Additional reserves		255,027
Allowance for obsolete inventory at September 30, 2010 (Unaudited)	$	301,416

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 5 - Plant and equipment, net

Plant and equipment consisted of the following:

	September 30, 2010			December 31, 2009
	(Unaudited)
Land	$	100,726		$	100,726
Buildings and improvements		63,165,468			43,665,594
Transportation equipment		4,286,386			4,177,943
Machinery and equipment		85,010,764			74,463,717
Office furniture		1,313,417			1,172,121
Construction in progress		5,390,539			19,449,384
Totals		159,267,300			143,029,485
Less accumulated depreciation		(34,991,751	)		(25,643,919	)
Totals	$	124,275,549		$	117,385,566

Construction in progress a September 30, 2010, consisted of the following:

No.	Project Description	September 30, 2010		Commencement Date	Expected completion date

1	Manufacturing machinery and equipment for CCA/CCS (Multiple)	$	2,595,298	Dec 2007	Dec, 2010
2	Manufacturing machinery and equipment for CCA/CCS (Multiple)		2,616,163	Dec 2009	Mar, 2011
3	Manufacturing machinery and equipment for CCA		132,742	Oct 2009	Dec, 2011
4	Building attachment		46,336	Sep 2010	Dec, 2012
	Total	$	5,390,539

Project No. 1 “Manufacturing Machinery and Equipment for CCA/CCS” is related to CCA and CCS production lines and ancillary equipment located in Dalian, China. The estimated cost to complete Project No. 1 as of September 30, 2010 is approximately $0.3 million.

Project No. 2 “Manufacturing Machinery and Equipment for CCA/CCS” is primarily related to ancillary equipment relocated to Dalian, China in December 2009. The estimated cost to complete Project No. 2 as of September 30, 2010 is approximately $0.2 million.

Construction in progress as of December 31, 2009 consisted of the following:

No.	Project Description	December 31, 2009		Commencement Date	Expected completion date

1	Manufacturing machinery and equipment for CCA/CCS (Multiple)	$	4,276,753	Dec 2007	Mar, 2010
2	Corporation administration office building		13,144,394	May 2003	Dec, 2010
3	Manufacture building (Dalian)		630,389	Jan 2008	Jun, 2010
4	Manufacturing machinery and equipment for CCA/CCS (Multiple)		1,322,848	Dec 2009	Mar, 2011
5	Manufacturing machinery and equipment for CCA		75,000	Oct 2009	Mar, 2010
	Total	$	19,449,384

Project No 2. Corporate Administration Office Building represents Tower B of our corporate office building located at our Dalian facility was completed by March 2010.

Project No 3. Manufacturing Building located at our Dalian facility was completed by March 2010.

The change in plant and equipment is as follows:

	Plant and equipment
Balance as of December 31, 2009	$	143,029,485
Acquired through acquisition of Jinchuan and Hongtai		11,222,868
Acquired through cash payment		806,371
Acquired from advanced payments		1,508,652
Acquired from accounts payable		26,387
Fixed assets transferred from CIP		15,134,299
CIP transferred to fixed assets		(15,134,299	)
VAT claimed on purchase of capital assets		(212,315	)
FX rate effect		2,885,852
Balance as of September 30, 2010 (Unaudited)	$	159,267,300

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Depreciation expense for the nine months ended September 30, 2010 and 2009 amounted to $8,759,839 and $7,191,842, respectively, and the three months ended September 30, 2010 and 2009 amounted to $3,049,809 and $2,579,437, respectively.

Note 6 – Advances to suppliers

Advances to suppliers are monies deposited or advanced to outside vendors for future inventory and equipment purchases. Most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the Company will receive their purchase on a timely basis.

Advances to suppliers consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)
Advances for inventories – current	$	21,228,320	$	8,582,346
Advances for equipment – non current		540,482		1,356,404
Total advances to suppliers	$	21,768,802	$	9,938,750

Note 7 – Intangible assets

Intangible assets consist of land use rights and patents. Intangible assets consisted of the following:

	September 30, 2010			December 31, 2009
	(Unaudited)
Patents	$	1,966,578		$	1,754,270
Land use rights		14,453,075			12,472,131
Total:		16,419,653			14,226,401
Less: accumulated amortization		(2,757,501	)		(2,302,345	)
Intangible assets, net	$	13,662,152		$	11,924,056

Amortization expense for the nine months ended September 30, 2010 and 2009 amounted to $401,539 and $357,449, and for the three months ended September 30, 2010 and 2009 amounted to $145,557 and $119,166, respectively.

Estimated amortization expense for each of the years ended is as follows:

September 30,	Amount
2011	$	567,464
2012		567,464
2013		445,822
2014		423,311
2015		423,311
Thereafter		11,849,952

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 8 – Prepaid taxes, taxes payable, deferred tax liabilities and deferred tax asset

Prepaid taxes and taxes payable consisted of the following:

	September 30, 2010		December 31 , 2009
	(Unaudited)
Income tax	$	2,229,310	$	1,796,019
VAT provision		1,229,523		769,025
Others		180,299		34,011
Total taxes payable	$	3,639,132	$	2,599,055

	September 30, 2010		December 31, 2009
	(Unaudited)
Deferred tax liabilities	$	669,540	$	-

Income tax

The Company and its subsidiaries had the following tax rates for the nine months ended September 30:

		2010			2010			2009			2009
		Statutory			Income			Statutory			Income
		Income			Tax			Income			Tax
Entities		Tax Rate			Exemption			Tax Rate			Exemption
Fushi International	China (a)		25	%		12.5	%		25	%		12.5	%
Dalian Fushi	China (a)		25	%		-			25	%		-
Jinchuan	China (a)		25	%		-			n/a			n/a
Hongtai	China (a)		25	%		-			n/a			n/a
Fushi JiangSu	China (a)		25	%		-			n/a			n/a
Copperweld UK	UK (b)		21	%		-			21	%		-
Fushi, Fushi holding, Copperweld	US (c)		34	%		-			34	%		-
Copperweld US	State		6.5	%		-			6.5	%		-

(a) China income tax

The Company’s subsidiaries incorporated in PRC are subject to PRC income tax of 25%. Fushi International, Dalian Fushi, Jinchuan and Hongtai were incorporated in the PRC. Beginning January 1, 2008, the new Chinese Enterprise Income Tax (“EIT”) law replaced the former income tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate previously applicable to both DEs and FIEs. The two years tax exemption, three years 50% tax reduction tax holiday for production-oriented FIEs, was eliminated. However, the new EIT Law permits companies to continue to enjoy their former preferential tax treatments until such treatments expire in accordance with their current terms.

Thus, Fushi International, a production oriented FIE, continues to enjoy the former 50% income tax exemption for the years ending December 31, 2008, 2009 and 2010. The applicable income tax rate for Fushi International in 2010 is 12.5%.

The estimated tax savings from the tax exemptions for the nine months ended September 30, 2010, amounted to $6,035,787. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.94 to $0.78 and diluted earnings per share from $0.93 to $0.77. The estimated tax savings from the tax exemptions for the nine months ended September 30, 2009, amounted to $3,607,474. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.42 to $0.29 and diluted earnings per share from $0.41 to $0.29.

The estimated tax savings from the tax exemptions for the three months ended September 30, 2010, amounted to $1,892,079. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.34 to $0.29 and diluted earnings per share from $0.34 to $0.29. The estimated tax savings from the tax exemptions for the three months ended September 30, 2009, amounted to $1,136,700. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.33 to $0.29 and diluted earnings per share from $0.32 to $0.28.

Jinchuan was acquired in February 2010 and Hongtai was acquired in May 2010. The tax rate only applied to their results of operations included in the consolidated financial statements for year 2010.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The provision for China income tax for the nine months ended September 30, 2010 and 2009 was $6,320,742 and $4,069,081, respectively; and for the three months ended September 30, 2010 and 2009 amounted to $2,230,608 and $1,788,366, respectively.

(b) UK income tax

Copperweld UK is organized as a United Kingdom private company and subject to 21% to 28% statutory taxes on its taxable income. Copperweld UK had no material income or loss from operations in the first nine months in year 2010 and 2009, so no provision for income tax was made during these periods.

The Company is also subject to the United States federal income tax at a tax rate of 34%. Fushi, Fushi Holdings and Copperweld were incorporated in the United States and as a consolidated unit have incurred net operating losses for income tax purposes since inception. The net operating loss carry forwards for United States income taxes may be available to reduce future years’ taxable income. These carryforwards will expire in varying amounts in the years 2025 to 2030 if not utilized.

The Company has cumulative undistributed earnings from foreign subsidiaries of approximately $164 million and $127 million as of September 30, 2010 and December 31 2009, respectively, included in the consolidated retained earnings and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for US deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

The current and deferred (provision)/benefit and the effective income tax were as follows for the periods ended September 30, 2010 and 2009:

	Three months ended September 30,						Nine months ended September30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Effective foreign income taxes – current		(2,230,608	)		(1,788,366	)		(6,320,742	)		(4,069,081	)
US federal income tax – deferred		158,599			807,537			1,123,555			4,366,785
Provision for income tax		(2,072,009	)		(980,829	)		(5,197,187	)		297,704

Effective tax rate		13.8	%		9.5	%		13.2	%		-2.6	%

Deferred tax assets

The Company recognizes deferred income tax liabilities and assets for the estimated future tax effects attributable to temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax liabilities or assets attributable to temporary differences are accounted for using the balance sheet liability method in respect to temporary differences between income tax basis and financial reporting basis of assets and liabilities. Deferred tax assets consists primarily of the Company’s US operating loss carryforwards.

	Amount
The deferred tax activity consisted of the following:
Deferred tax assets at December 31, 2008	$	9,292,233
Additions to deferred tax assets		4,991,295
Deferred tax assets at December 31, 2009	$	14,283,528
Additions to deferred tax assets		1,123,555
Deferred tax assets at September 30, 2010 (unaudited)	$	15,407,083

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

A valuation allowance is required against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. Management believes that the realization of the benefits can be used by their US operating subsidiary in future periods because expectations are that Copperweld US will have taxable income in future periods. US companies must generate a total of $45.3 million of taxable net income (including the recovery of time difference) by years 2025 to 2030 (the recovery of time difference is not subject to those years) in order to recover the deferred tax asset balance.

Value added tax

VAT on sales and VAT on purchases in Dalian China amounted to $27,299,557 and $18,678,143 for the nine months ended September 30, 2010, and $17,881,148 and $13,971,442 for the nine months ended September 30, 2009, respectively. For the three months ended September 30, 2010, VAT on sales and VAT on purchases in Dalian China amounted to $9,716,237 and $5,984,700, and for the three months ended September 30, 2009, amounted to $6,693,229 and $4,898,754, respectively.

VAT on sales and VAT on purchases in Copperweld UK amounted to $178,408 and $463,762 for the nine months ended September 30, 2010 and $95,958 and $189,476 for the nine months ended September 30, 2009, respectively. For the three months ended September 30, 2010, VAT on sales and VAT on purchases in Copperweld UK amounted to $56,627 and $149,412, and for the three months ended September 30, 2009, amounted to $45,391 and $77,649, respectively.

Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.

Note 9 – Credit facility

Credit facility consisted of the following:

Name of lender	September 30, 2010		December 31, 2009
	(Unaudited)
Wells Fargo Bank revolving credit line (1)	$	-	$	4,033,783
Total	$	-	$	4,033,783

Name of lender	September 30, 2010		December 31, 2009
	(Unaudited)
Regions bank term loan – current portion (2)	$	650,000	$	-
Regions bank term loan – non current portion (2)		5,850,000		-
Total	$	6,500,000	$	-

Principal payments on the term loan will be made as follows:

September 30,	Amount
2011	$	650,000
2012		650,000
2013		650,000
2014		650,000
2015		650,000
Thereafter		3,250,000

Copperweld US

(1) Copperweld maintained a revolving line of credit with Wells Fargo Bank under a Financing Agreement dated April 5, 2007. On February 2, 2010, the Company paid off its entire obligation on the revolving line of credit to Wells Fargo in the amount totaling $4,024,270 and closed the line. The corresponding annual interest rate during year 2010 was equal to the daily three month LIBOR rate (0.25%) plus six percent before the line was paid off and closed.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

(2) On August 31, 2010, Copperweld entered into a secured credit agreement (the “Regions Bank credit facility”) with Regions Bank (“the Lender”). The Regions Bank credit facility provides for a $2.5 million revolving credit facility and a term facility of up to $6.5 million which shall be repaid in 120 equal monthly payments of principal plus interest each month till August 31, 2020. The borrowings are secured by substantially all the assets of Copperweld and are unconditionally guaranteed by the Company. The funds are available for working capital needs and general corporate purposes of Copperweld in the ordinary course of business. As of September 30, 2010, the company had no balance under the revolving credit facility and had a $6.5 million outstanding balance under the term facility, of which $650,000 is due within twelve months.

The corresponding annual interest rate is the 30 day London Interbank Offered Rate (the “LIBOR Rate”) plus the Applicable Margin of 2.5% to 4.0% per annum. Copperweld paid an initial commitment fee of 1.0% of the total amount of the credit facility, and is also required to pay a monthly unused line fee ranging from 0.25% to 0.50% on available but unused amounts under the revolving credit facility. The Applicable Margin and the applicable unused line fee percentage are determined based on changes in Copperweld’s Fixed Charge Coverage Ratio, as discussed below, and are set on the first day of each calendar quarter, beginning with the receipt of Copperweld’s 2010 yearend audit. As of September 30, 2010, the Applicable Margin is 3.5% and the applicable unused line fee is 0.375%.

The Regions Bank credit facility contains financial covenants where certain covenants must be met on a quarterly or annual basis. Copperweld is required to maintain a Minimum Tangible Net Worth equal to the sum of $18,500,000 and 50% of Copperweld’s cumulative positive net income from and after the closing date on an annual basis beginning with the year ended December 31, 2010. Additionally, on a quarterly basis, Copperweld’s Fixed Charge Coverage Ratio must be equal to or greater than 1.30 calculated on a trailing twelve month basis.

The Regions Bank credit facility contains customary events of default and covenants, including covenants that restrict the ability of Copperweld to incur certain additional indebtedness, create or permit liens on assets, and engage in mergers or consolidations, and certain restrictive financial covenants as noted above. If any event of default shall occur and be continuing, the Lender may elect to declare the loan immediately due and payable and the Lender may elect to charge a default interest rate which is equal to the applicable interest rate in effect at such time plus 2.0% per annum. As of September 30, 2010, Copperweld was in compliance of all covenants.

Copperweld UK

Copperweld UK maintains an invoice discounting credit facility with a limit of approximately $1,180,000 (or ₤750,000). The facility provides cash advances of 85% of approved sales ledger and is secured by trade accounts receivable of Copperweld UK. The facility has a life minimum of 36 month periods and shall be automatically renewed every year thereafter based on an annual review conducted by the financing institute. Copperweld UK is required to maintain a projected turnover each 12 month period and a minimum net worth of ₤750,000 at all times if the credit facility has an outstanding balance. The facility had no balance outstanding as of September 30, 2010 and December 31, 2009.

Total interest expense on the revolving credit lines and term loans for the nine months ended September 30, 2010 and 2009 amounted to $45,182 and $201,512, respectively. Interest for the three months ended September 30, 2010 and 2009 was $21,854 and $64,574, respectively.

Note 10 – Notes payable

Notes payable consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)
Guaranteed senior secured floating rate notes (“HY Notes”)		-		35,000,000

Less current portion		-		10,000,000

Total notes payable, noncurrent	$	-	$	25,000,000

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

On January 24, 2007, the Company and Citadel Equity Fund Ltd ("Citadel") entered a Notes Purchase Agreement. In this transaction, Citadel purchased $40 million principal amount (less 3% Notes discount and 4% commission for proceeds of $37,200,000) of guaranteed senior secured floating rate notes (“HY Notes”) due between July 2009 to January 2012 and a $20 million principal amount (less 4% commission for proceeds of $19,200,000) of the Company’s 3% senior secured convertible notes (“Convertible Notes”) due January 2012, which are convertible into shares of the Company's common stock at an initial conversion price of $7.00 per share.

Convertible Notes of $15 million were converted at the option of the holder into the Company’s 2,142,857 shares of common stock at an initial conversion price of $7 per share on January 8, 2008; the remaining $5 million of the Convertible Notes was repurchased by the Company on August 13, 2009 and thus a $3,842,935 gain on debt extinguishment was recognized during third quarter of 2009.

The HY notes bear interest at LIBOR + 7% and changes to LIBOR + 5.6% permanently upon successful completion of Qualifying IPO within eighteen months from January 24, 2007. The HY Notes are guaranteed on a senior secured basis, by all of the Company’s wholly-owned existing and future domestic subsidiaries.

On February 26, 2010, the Company entered into a Notes Purchase Agreement with the holders (the “Holders”) of the Company’s originally issued HY Notes that are due during the year 2012, whereby the Company would repurchase the HY Notes from each holder for a purchase price in cash equal to $30,600,000 (102% of the outstanding principal amount) plus $165,644 (accrued and unpaid interest on the Notes to the Purchase Date). The aggregate purchase price for all of the HY Notes was $30,765,644 which was paid to note Holders on February 26, 2010.

Thus, on February 26, 2010, the company recognized a $2,395,778 loss on debt extinguishment, which includes the write off of deferred commissions on long term notes that amounted to $1,795,778 and the additional purchase price paid to HY notes Holder other than principal and interest in the amount of $600,000.

Amortization of commission costs for the nine months ended September 30, 2010 and 2009 amounted to $160,000 and $787,492, respectively. Amortization of commission costs for the three months ended September 30, 2010 and 2009 amounted to $0 and $262,497, respectively. Interest on long term notes for the nine months ended September 30, 2010 and 2009 amounted to $318,492 and $2,978,223, respectively. Interest on long term notes, for the three months ended September 30, 2010, and 2009 amounted to $0 and $792,681, respectively. Both amortized commission and interest on long term notes are recorded as interest expense.

Note 11 – Capital lease

In July 2009, the Company entered into a non-cancellable capital lease agreement for lighting equipment installed in one of its plant facilities. The lease has a three year term and contains a bargain purchase option of $1.00 at the end of the term. The lease requires monthly payments of $8,414.

The following is an analysis of the leased property which is combined into Plant and Equipment, net, on the consolidated balance sheet.

	September 30, 2010			December 31, 2009
Plant facility	$	266,598		$	266,598
Less: accumulated depreciation		(28,881	)		(8,887	)
Net leased plant facility	$	237,717		$	257,711

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The following is a schedule of future minimum lease payments under the capital lease together with the present value of the net minimum lease payment as of September 30, 2010.

Year ending September 30,	Minimum lease Payment
2011	$	100,976
2012		84,147
Thereafter		-
Total minimum lease payments		185,123
Less: interest *1		(17,807	)
Present value of net minimum lease payments *2	$	167,316

*1. Amount necessary to reduce minimum lease payments to present value calculated at the rate implicit in the lease at the inception of the lease.

*2. The present value of the minimum lease payments is reflected in the balance sheet as current and non-current obligations under capital lease of $79,084 and $88,232, respectively.

Interest expense related to capital leases amounted to $17,918 and $16,593 for the nine months ended September 30, 2010 and 2009, respectively. Interest expense related to capital leases amounted to $5,284 and $16,593 for the three months ended September 30, 2010 and 2009, respectively.

Note 12 – Derivative instrument

On April 10, 2007, the Company entered into a cross currency swap transaction (the “SWAP”) with Merrill Lynch Capital Services, Inc. (“MLCS”) which converted the USD variable interest rate of initially LIBOR plus 7% per annum and LIBOR plus (5.6% per annum after a qualified IPO) in a notional amount of $ 40 million to an 8.3% per annum fixed interest rate in a notional amount of RMB310,900,000. The SWAP required semi-annual payment in arrears on July 24 and January 24 and would mature on the earlier of (1) cash settlement defined as early termination; or (2) January 24, 2012. Under the terms of the SWAP, the Company received variable interest rate payments in USD and made fixed interest rate payments in RMB which were translated into USD at foreign exchange rates on each settlement dates. In July 2008, the Company placed a deposit of $1,000,000 with MLCS according to the agreement.

On March 31, 2010, the Company terminated the SWAP with a settlement of $ 6,650,000, consisting of $ 1,000,000 deposit paid to MLCS in July 2008 and an additional $ 5,650,000 paid on April 6, 2010.

For the three months ended September 30, 2010 and 2009, the Company recognized a gain of $ 0 and a loss of $ 961,670 on the cross-currency interest swap (including change in fair value of derivative instrument) in the consolidated statements of income and other comprehensive income.

For the nine months ended September 30, 2010 and 2009, the Company recognized a gain of $ 128,861and a loss of $ 4,857,400 on the cross-currency interest swap (including change in fair value of derivative instrument) in the consolidated statements of income and other comprehensive income.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 13 - Earnings per share

The following is information of net income per share:

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income for basic and diluted earnings per share	$	12,922,371	$	9,351,860	$	34,312,053	$	11,696,662

Weighted average shares used in basic computation		37,694,626		28,084,416		36,553,784		27,827,152
Dilutive effect of warrants, options and convertible note		383,219		1,122,092		476,715		849,680
Weighted average shares used in diluted computation		38,077,845		29,206,508		37,030,499		28,676,832

Earnings per share
Basic	$	0.34	$	0.33	$	0.94	$	0.42
Diluted	$	0.34	$	0.32	$	0.93	$	0.41

Shares excluded from the calculation of diluted earnings per share:

Date issued/ granted	Nature	Excise price		Shares excluded for year diluted EPS calculation		Reason for exclusion

11/31/2007	Warrants	$	16.80		100,000	Anti-dilutive
05/21/2007 to 11/13/2007	Options	$	11.75-20.94		495,000	Anti-dilutive
04/10/2008 to 6/25/2008	Options	$	15.04-23.25		126,000	Anti-dilutive

Note 14 - Stockholders' Equity

During the year of 2010, the following activities were recorded:

On February 1, 2010, the Company closed an offering of 7,475,000 shares of its common stock at a public offering price of $8.00 per share, which included public offering of 6,500,000 shares and the sale of 975,000 shares of its common stock as a result of the exercise of the over-allotment option by the Company’s underwriter. The gross proceeds received were $59.8 million. The Company received net proceeds of approximately $56.4 million from the offering, after deducting underwriting discounts.

Warrants

The following is a summary of the outstanding and exercisable warrant balance as of September 30, 2010:

Exercise Price		Number		Average Remaining Life (years)

$	3.11		245,778		1.25
$	16.80		100,000		1.15
$	6.00		100,000		0.29
			445,778		1.01

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The following is a summary of the warrant activity:

	Number of Warrants Outstanding			Weighted -Average Exercise Price		Average Remaining Contractual Life
Balance, at December 31, 2008		432,124		$	6.28	2.92 years
Granted		300,000		$	5.58
Forfeited		-
Exercised		(52,352	)	$	3.11
Balance, at December 31, 2009		679,772		$	6.22	1.24 years
Granted		-
Forfeited		-
Exercised		(233,994	)	$	5.05
Balance, at September 30, 2010 (unaudited)		445,778		$	6.83	1.01 years

The warrants are each convertible into one share of the Company’s common stock.

Note 15 – Stock based compensation

2007 Incentive Plan

On October 24, 2007, the Board of Directors approved the adoption of the Fushi Copperweld, Inc. 2007 Stock Incentive Plan (the “2007 Plan”). The majority of the options awarded under the 2007 Plan vest in two years from the grant date and the majority of the options granted expire in 3 years. Under the 2007 Plan, the Company granted share options and restricted stock to all executives, directors and employees as summarized in below two tables:

Grant Year	Granted Options (Shares)		Forfeited and Expired Option (Shares)		Exercise Price Option ($)
2007		335,000		190,000	$	16.44-$20.94
2008		151,000		25,000	$	15.04-$23.25
2009		688,000		166,725	$	4.95-$7.93
2010		1 64 ,530		32,928	$	8.61-$9.13
Total		1,338,530		414,653

Grant Year	Granted Restricted Stock (Shares)		Forfeited and Expired Restricted Stock (Shares)		Vested Restricted S tock (Shares)		Grant D ate Fair Market Value ($)
2009		50,000		-		-	$	8.08
2010		51,000		-		38,250	$	8.61
Total		101,000		-		38,250

The fair value of each restricted stock award is estimated on the date of grant using the fair market value of the Company’s common stock, which is the closing price on the stock market.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The fair value of each option award is estimated on the date of grant using the Black-Scholes model using the following weighted-average assumptions:

	Nine months ended , 2010	Year ended, 2009	Year ended 2008	Year ended 2007
Risk-free interest rate (1)	0.87%-1.18%	0.78%-2.2%	1.84%-2.82%	3.54%-4.57%
Expected dividend yield (2)	-	-	-	-
Expected option life (3)	2-4 Years	2-5 Years	0.5-2 Years	2 Years
Expected stock price volatility (4)	60%	60%	50%	50%
Weighted average fair value of options granted	$2.95	$2.77	$4.57	$4.08

(1)	Risk-free interest rate – Risk-free interest rate is based on US Treasury zero-coupon issues with maturity terms similar to the expected term on the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

(2)	Expected dividend yield – The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options. The Company has no plans to pay any dividend in the foreseeable future. Therefore, the Company considers the dividend yield to be zero.

(3)

Expected option life – Because the Company has no historical share option exercise experience to estimate future exercise patterns, the expected life was determined using the simplified method as these awards meet the definition of “plain-vanilla” options under the rules prescribed by accounting standards. An increase in expected life will increase compensation expense.

(4)

Expected stock price volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. As a forward-looking measure, the Company uses implied volatility of Company’s 225 days call options with strike price of $5.00 on March 7, 2009 (source: Morningstar.com), adjusted by the 2-year historical volatility of the Company’s stock as well as 2-year historical volatilities of the Company’s comparable public companies, to calculate the expected stock price volatility. An increase in the expected volatility will increase compensation expense.

Stock compensation expense is recognized based on awards expected to vest. The forfeitures are estimated at the time of grant and revised in subsequent periods pursuant to actual forfeitures, if it differs from those estimates.

The Company recognized $528,207 and $1,108,254 share-based compensation expense in general and administrative expenses for the nine months ended September 30, 2010 and 2009, respectively. For the three months ended September 30, 2010 and 2009, the Company recognized share-based compensation expense of $154,558 and $179,527, respectively.

As of September 30, 2010 and 2009, the total compensation cost related to stock options not yet recognized was $1,112,364 and $539,296 and will be recognized over the weighted average life of 3.3 years and 0.27 years, respectively. At September 30, 2010 and 2009 the total compensation cost related to restricted stock not yet recognized was $513,778 and $0 and will be recognized over the weighted average life of 1.5 years and 0 years, respectively.

As of September 30, 2010, the 686,000 executive options, 240,000 director options and 293,377 employee options outstanding had fair values of approximately $2,719,012, $912,761 and $843,521, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The following is a summary of all stock option activity including the 2007 incentive plan:

	Number of Options Outstanding			Weighted -Average Exercise Price		Aggregate Intrinsic Value
Balance, December 31, 2008		1,067,333		$	14.90		-
Granted		488,000		$	5.48		-
Forfeited		(40,050	)	$	4.95		-
Expired		-		$			-
Exercised		(10,250	)	$	4.95		-
Balance, September 30, 2009 (unaudited)		1,505,033		$	12.15		-
Granted		200,000		$	7.93		-
Forfeited		(9,000	)	$	4.95		-
Expired		(95,000	)	$	17.19		-
Exercised		(2,750	)	$	4.95		-
Balance, December 31, 2009		1,598,283		$	11.38	$	2,383,162
Granted		164,530		$	8.64		-
Forfeited		(139,678	)	$	7.46		-
Expired		(362,258	)	$	12.70		-
Exercised		(41,500	)	$	4.95		-
Balance, September 30, 2010 (unaudited)		1,219,377		$	11.30	$	1,159,627

Following is a summary of the status of options outstanding at September 30, 2010:

	Outstanding Option				Exercisable Options
	Exercise Price	Number		Average Remaining Contractual Life	Average Exercise Price		Number		Weighted Average Exercise Price
$	12.30		75,000	0.64 years	$	12.30		75,000	$	12.30
$	11.75		150,000	1.76 years	$	11.75		150,000	$	11.75
$	13.70		125,000	0.99 years	$	13.70		125,000	$	13.70
$	16.44		33,750	0.57 years	$	16.44		33,750	$	16.44
$	17.94		33,750	1.07 years	$	17.94		33,750	$	17.94
$	19.44		33,750	1.57 years	$	19.44		33,750	$	19.44
$	20.94		33,750	2.07 years	$	20.94		33,750	$	20.94
$	16.36		10,000	1.12 years	$	16.36		10,000	$	16.36
$	23.25		59,000	1.25 years	$	23.25		59,000	$	23.25
$	15.04		17,000	1.53 years	$	15.04		17,000	$	15.04
$	20.04		50,000	2.64 years	$	20.04		50,000	$	20.04
$	4.95		266,775	2.25 years	$	4.95		266,775	$	4.95
$	7.93		200,000	9.13 years	$	7.93		-	$	7.93
$	8.61		123,602	6.24 years	$	8.61		46,445	$	8.61
$	9.13		8,000	8.82 years	$	9.13		-	$	9.13
	Total		1,219,377					934,220

Note 16 - Statutory reserves

Under PRC rules and regulations, Fushi International, Jinchuan, and Dalian Fushi (the “PRC Entities”) are required to appropriate 10% of their net income, as determined in accordance with PRC accounting rules and regulations, to a statutory surplus reserve until the reserve balance reaches 50% of their registered capital. The appropriation to this statutory surplus reserve must be made before distribution of dividends to the Company can be made. The statutory reserve is non-distributable, other than during liquidation, and can be used to fund previous years losses, if any, and may be converted into share capital by issuing new shares to existing shareholders in proportion to their share holding or by increasing the par value of the shares currently held by them, provided that the remaining balance of the statutory reserve after such issue is not less than 25% of the registered capital.

For the three months ended September 30, 2010 and 2009, the PRC Entities made appropriations to the reserve fund of $ 1,281,891 and $ 991,190, respectively.

For the nine months ended September 30, 2010 and 2009, the PRC Entities made appropriations to the reserve fund of $ 4,510,505 and $ 2,663,714, respectively.

As of September 30, 2010 and December 31, 2009, the accumulated balance of the statutory surplus reserve was $ 20,793,298 and $ 16,282,793, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 17 – Employee pension

The Company’s employee pension for China employees generally includes two parts: the first to be paid by the Company is 20% of the employee’s actual salary in the prior year. The other part, paid by the employee, is 8% of the actual salary. The Company made $135,637 and $100,919 in contributions of employment benefits for China employees in the nine months ended September 30, 2010 and 2009, respectively. For the three months ended September 30, 2010 and 2009, the Company made contributions of employee benefits for China employees of $53,882 and $23,316, respectively.

US employees are provided a 401(k) plan. US employees are eligible for the defined contribution plan after three-months of full-time employment. Employee deferrals and company matching are 100% vested immediately upon eligibility. As of June 1, 2009, the Company no longer matches employee contributions for US employees. The Company made $0 and $47,933 in contributions of employment benefits for US employees in the nine months ended September 30, 2010 and 2009, respectively. For the three months ended September 30, 2010 and 2009, the Company made contributions of employment benefits for US employees of $0 and $204, respectively.

Copperweld UK operates a defined contribution pension scheme for employees. All UK employees are eligible to join the pension on satisfactory completion of their trial period, which is typically three months. UK employees can contribute as much as they like subject to current UK laws, but the company will match only the first 2.5% of gross pay in the current year. The assets of the scheme are held separately from those of the company. The annual contributions payable are charged to expense. The Company made $6,858 and $8,187 in contributions of employment benefits for UK employees in the nine months ended September 30, 2010 and 2009. For the three months ended September 30, 2010 and 2009, the Company made contributions of employment benefits for UK employees of $2,333 and $2,787, respectively.

Note 18 - Commitments and contingencies

Fushi JiangSu was established on June 18, 2010 with a registered capital of $49,980,000. Fushi JiangSu had received $15,000,000 investment as of September 30, 2010, and is in the process of obtaining the capital verification. Of the remaining registered capital, $10,000,000 and $24,980,000 is required to be invested by June 17, 2011 and June 17, 2012, respectively.

Please refer to Note 19 – Business combinations for contingent consideration related to the acquisition of Jinchuan.

Note 19 – Business combination

Acquisition of Jinchuan

On January 21, 2010, Fushi International entered into an agreement with the shareholders of Dalian Jinchuan Electric Cable Co., Ltd. (“Jinchuan”) (the “selling shareholders of Jinchuan”) to acquire 100% equity interest of Jinchuan in exchange for a consideration of $ 5.075 million in cash and $ 5.075 million contingent upon Jinchuan achieving certain performance targets for the year ended December 31, 2010.

On February 5, 2010, $ 5,075,000 cash was paid to the selling shareholders of Jinchuan. The contingent consideration of $ 5,075,000 was subsequently paid on January 31, 2011 as Jinchuan met the performance targets.

The acquisition was consummated on February 5, 2010, which is the date Fushi International obtained a 100% controlling financial interest in Jinchuan and all conditions of the acquisition, including obtaining government approvals and the transfer of the business registration, were met or obtained.

Jinchuan is incorporated in the PRC and is engaged in the production and sales of power cables. The acquisition allows the Company to expand downstream processing capabilities through vertical integration.

This acquisition transaction was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations, and resulted in Jinchuan becoming a consolidated subsidiary of the Company.

Following is a summary of the acquisition date fair value of the total consideration transferred, the fair values of the amounts recognized for each major class of assets acquired and liabilities assumed in Jinchuan at the acquisition date.

		As of February 5, 2010
			USD
Consideration
Cash			5,075,000
Contingent consideration	(i)		4,819,107
			9,894,107

Fair values of identifiable assets acquired and liabilities assumed
Cash			859,243
Other current assets			3,879,155
Property and equipment			6,132,168
Land use right			1,693,759
Current liabilities			(2,977,257)
Non-current deferred income tax liabilities			(260,853)
Total identifiable assets acquired and liabilities assumed			9,326,215
Goodwill			567,892
			9,894,107

(i)

On February 5, 2010, the Company estimated the possibility that Jinchuan would meet the performance target was 100% and the expected payment date was one year after the acquisition date. Thus the fair value of the contingent consideration arrangement was determined at $ 4,819,107 by using an annual discount rate of 5.31%.

The goodwill resulting from this transaction is assigned to the PRC segment. None of the goodwill is expected to be deductible for income tax purpose.

Acquisition related costs were minimal and are included within general and administrative expenses. The fair value and gross contractual amounts of receivables were $ 2,518,223 on the acquisition date.

The results of operations of the acquired company are included in the consolidated statement of income since February 5, 2010 (the acquisition date) to the end of the quarter. Jinchuan’s revenue amounted to $22,025,727 and net income amounted to $3,034,133 which was included in the consolidated statements of income and other comprehensive income for the nine months ended September 30, 2010. Jinchuan’s revenue amounted to $8,631,211 and net income amounted to $1,348,311 which was included in the consolidated statements of income and other comprehensive income for the three months ended September 30, 2010.

Acquisition of Hongtai

On May 27, 2010, Fushi International entered into an agreement with the shareholder of Shanghai Hongtai Industrial Co., Ltd. (“Hongtai”) (the “selling shareholder of Hongtai”) to acquire 100% equity interest of Hongtai in exchange for $ 1.3 million payable in cash and 263,158 of the Company’s ordinary shares.

The Company paid the selling shareholder of Hongtai $ 1.3 million in cash on June 1, 2010, and issued 263,158 of its ordinary shares on July 8, 2010.

The acquisition was consummated on May 31, 2010, which is the date Fushi International obtained a 100% controlling financial interest in Hongtai and all conditions of the acquisition, including obtaining government approvals and the transfer of the business registration, were met or obtained.

Hongtai is incorporated in the PRC and is a manufacturer of bimetallic wire products in Southeast China, principally CCA and copper-clad aluminum magnesium ("CCAM"), which are used in telecommunication, utility and industrial applications. The acquisition of Hongtai enhances the Company's production capacity and secondary processing capabilities for CCA and CCAM products.

This acquisition transaction was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations, and resulted in Hongtai becoming a consolidated subsidiary of the Company.

	As of May 31, 2010
		USD
Consideration
Cash		1,300,000
263,158 ordinary shares of the Company		2,600,000
		3,900,000

Fair values of identifiable assets acquired and liabilities assumed
Cash		42,199
Other current assets		807,122
Property and equipment		5,090,700
Intangible assets		292,942
Current liabilities		(3,026,173)
Non-current deferred income tax liabilities		(408,687)
Total identifiable assets acquired and liabilities assumed		2,798,103
Goodwill		1,101,897
		3,900,000

The goodwill resulting from this transaction is primarily attributed to the synergies and economics of scale anticipated to be achieved from combining the operations of the Company and Hongtai. The goodwill is assigned to the PRC segment. None of the goodwill is expected to be deductible for income tax purpose.

Acquisition related costs were minimal and included in the general and administrative expenses. The gross contractual amounts of receivables were immaterial on the acquisition date.

The results of operations of the acquired company are included in the consolidated statement of income since May 31, 2010 (the acquisition date) to the end of the quarter. Since acquisition of Hongtai, the Company has been working on relocating the assets and key personnel of Hongtai to Yixing to establish Fushi JiangSu. Thus, Hongtai has yet to begin operations since acquisition date. The Company reflected a net loss amounting to $338,663 and $428,463 that was included in the consolidated statements of income and other comprehensive income for the three and nine months ended September 30, 2010.

Supplemental Pro forma

The following unaudited pro forma consolidated condensed income statements for the three months and nine months ended September 30, 2010 and 2009, were prepared under generally accepted accounting principles as if the acquisition of Jinchuan and Hongtai had occurred on January 1, 2009. The pro forma information may not be indicative of the results that actually would have occurred if the acquisition had been in effect from and on the dates indicated.

Pro forma	For the three months ended September 30,			For the three months ended September 30,			For the nine months ended September 30,			For the nine months ended September 30,
	2010			2009			2010			2009
Sales	$	66,507,433		$	57,775,081		$	200,427,323		$	157,287,111
Cost of goods sold		46,842,955			40,241,170			141,777,460			113,382,155
Gross profit		19,664,478			17,533,911			58,649,863			43,904,956
Operating expenses		4,574,216			4,835,746			15,256,645			13,879,172
Income from operations		15,090,263			12,698,165			43,393,218			30,025,784
Other expense, net		(95,882	)		(228,491	)		(2,591,176	)		(13,020,429	)
Income before income tax		14,994,381			12,469,675			40,802,042			17,005,355
Income tax expense		2,072,009			1,510,052			5,521,902			1,096,951
Net income	$	12,922,372		$	10,959,623		$	35,280,140		$	15,908,405

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

Note 20 - Segment Information

Pursuant to the “Disclosures about Segments of an Enterprise and Related Information” from GAAP, which establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision makers have been identified as the Chief Executive Officer and Chief Financial Officer. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

The Company has two reportable segments: PRC, and US. We analyze our worldwide operations based on two geographic reportable segments: 1) “PRC” which consists of our facilities Located in the People’s Republic of China (PRC) and 2) "US” which consists of our Fayetteville, Tennessee, (US), and Telford, England, (UK) facilities.

The PRC segment, through Dalian, Jinchuan, Hongtai and JiangSu manufacturing facility, is engaged in developing, designing, manufacturing, marketing and distributing copper-clad bi-metallic engineered conductor products, principally copper-clad aluminum (CCA) and primarily services the Asia-Pacific region, and specifically the PRC market.

The US segment, consisting of two manufacturing facilities, one in Fayetteville, Tennessee, USA and a second in Telford, England, are engaged in developing, designing, manufacturing, marketing and distributing copper-clad bimetallic engineered conductor products, principally CCA and copper-clad steel (CCS) and primarily services the North and South American, European, Middle Eastern and North African markets. Due to the size of the UK operations, the Company combined it with the US operation as one segment.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

The below table illustrates the composition of the UK operations:

	For the nine months ended September 30, 2010		For the nine months ended September 30, 2009
Revenue	$	3,329,059	$	2,253,213
Net income		30,915		210,290

	For the three months ended September 30, 2010			For the three months ended September 30, 2009
Revenue	$	1,043,741		$	855,283
Net (loss) income		(29,118	)		24,058

		September 30, 2010				December 31, 2009
Assets		$	3,223,186			$	2,673,254

The Company evaluates segment performance and allocates resources based on segment gross profit and segment operating income. Segment operating income represents income from continuing operations before interest income, interest expense, other income (expense), other financial costs and income tax.

Corporate operating expenses are primarily stock-based compensation, professional fees and outside service expenses.

Analysis of reportable segments (management information):

For the nine months ended September 30, 2010
	PRC		US		Corporate			Eliminations			Total
Revenues	$	158,093,089	$	40,519,519	$	-		$	(3,549,967	)	$	195,062,641
Gross profit		51,588,236		5,487,655		-			-			57,075,891
Selling, general and administrative expenses		8,146,059		3,618,800		3,233,299			-			14,998,158
Operating income (loss)		43,442,177		1,868,855		(3,233,299	)		-			42,077,733
Capital expenditures		1,682,179		244,401		-			-			1,926,580
Depreciation expense (included in cost of goods sold and operating expense)	$	7,303,479	$	1,456,360	$	-		$	-		$	8,759,839

For the three months ended September 30, 2010
	PRC		US		Corporate			Eliminations			Total
Revenues	$	54,995,104	$	13,093,644	$	-		$	(1,581,315	)	$	66,507,433
Gross profit		18,031,526		1,632,952		-			-			19,664,478
Selling, general and administrative expenses		2,530,340		962,070		1,081,806			-			4,574,216
Operating income (loss)		15,501,186		670,882		(1,081,806	)		-			15,090,262
Capital expenditures		88,030		102,156		-			-			190,186
Depreciation expense (included in cost of goods sold and operating expense)	$	2,567,081	$	482,728	$	-		$	-		$	3,049,809

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

For the nine months ended September 30, 2009
	PRC		US			Corporate			Eliminations			Total
Revenues	$	105,226,285	$	26,506,874		$	-		$	(498,732	)	$	131,234,427
Gross profit		34,361,859		3,199,662			-			-			37,561,521
Selling, general and administrative expenses		6,161,221		4,251,538			2,701,597			-			13,114,356
Operating income (loss)		28,200,638		(1,051,876	)		(2,701,597	)		-			24,447,165
Capital expenditures		5,770,109		261,267			-			-			6,031,376
Depreciation expense (included in cost of goods sold and operating expense)	$	5,853,457	$	1,338,385		$	-		$	-		$	7,191,842

For the three months ended September 30, 2009
	PRC		US		Corporate			Eliminations			Total
Revenues	$	39,408,804	$	8,857,027	$			$	(589,485	)	$	47,646,346
Gross profit		13,472,985		1,696,482								15,169,467
Selling, general and administrative expenses		2,667,761		1,319,654		600,777						4,588,192
Operating income (loss)		10,805,224		376,828		(600,777	)					10,581,275
Capital expenditures		416,220		5,622								421,842
Depreciation expense (included in cost of goods sold and operating expense)	$	2,073,116	$	506,321	$			$			$	2,579,437

	PRC		US		Corporate		Total
As of September 30, 2010
Property, plant and equipment, net	$	113,396,305	$	10,879,244	$	-	$	124,275,549

Total assets	$	328,454,953	$	33,240,947	$	21,301,666	$	382,997,566

As of December 31, 2009
Property, plant and equipment, net	$	105,190,257	$	12,195,309	$	-	$	117,385,566

Total assets	$	254,054,799	$	25,902,180	$	17,338,145	$	297,295,124

Note 21 – Supplemental information for cash flow statement

The Company acquired Jinchuan on February 5, 2010 with first payment amounting to $5,075,000 paid on the same date and a contingent liability that amounted to $5,075,000 to former Jinchuan shareholders and its present value for fair-value is amounting to $4,955,998.

The Company acquired Hongtai on May 31, 2010 with payment amounting to $1,300,000 paid on June 1, 2010 and issued an additional $2.6 million in restricted stock.

See Note 19 – Business combination for detail.

Note 22 – Related party

In September 2010, the Company’s Co-CEO and majority shareholder, Mr. Li Fu, advanced to the Company $15,000,000 so that Fushi JiangSu could timely make its registered capital payments as discussed in Note 18 – Commitments and contingencies. The loan is non-interest bearing and is due on demand. Mr. Fu also advanced the Company $8,000,000 in October 2010 for additional registered capital payments for Fushi Jiangsu. In October 2010, the Company had fully repaid all shareholder liabilities owed to Mr. Li Fu.

Note 23 – Subsequent events

The Company has performed an evaluation of subsequent events through the date which the consolidated financial statements were available to be issued.

On November 3, 2010, the Company’s Board of Directors received a proposal from its Chairman and Chief Executive Officer, Mr. Li Fu ("Mr. Fu") and Abax Global Capital (Hong Kong) Limited on behalf of funds managed by it and its affiliates ("Abax") for Mr. Fu and Abax to acquire all of the outstanding shares of Common Stock of Fushi not currently owned by Mr. Fu and his affiliates in a going private transaction for $11.50 per share in cash, subject to certain conditions. Mr. Fu and his affiliates own approximately 29.2% of Fushi's Common Stock. According to the proposal letter, Mr. Fu and Abax will form an acquisition vehicle for the purpose of completing the acquisition and plan to finance the acquisition with a combination of debt and equity capital. The proposal letter states that the equity portion of the financing would be provided by Mr. Fu, Abax and related sources. The proposal letter also states that Mr. Fu and Abax are currently in discussion to engage a financial advisor to the acquisition vehicle that will be formed by Mr. Fu and Abax. The Company’s Board of Directors has formed a special committee of independent directors to evaluate and consider this proposal. No decisions have been made by the Special Committee with respect to the Company’s response to the proposal.

A shareholder class action complaint has been filed against Fushi and certain officers and directors thereof in connection with the November 3, 2010 proposal made by Mr. Li Fu and Abax for Mr. Fu and Abax to acquire all of the outstanding shares of Common Stock of Fushi not currently owned by Mr. Fu and his affiliates in a going private transaction for $11.50 per share in cash, subject to certain conditions (the “Fu Proposal”). In the complaint, the plaintiffs challenge the Fu Proposal and allege, among other things, that the consideration to be paid in such proposal is grossly inadequate. The complaint seeks, among other relief, to enjoin defendants from consummating the Fu Proposal and to direct defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of our shareholders. The complaint was filed in Nevada. We have reviewed the allegations contained in the complaint and believe they are without merit. We intend to defend the litigation vigorously. As such, based on the information known to us to date, we do not believe that it is probable that a material judgment against us will result. In accordance with ASC Topic 450, no liability has been accrued.

Note 24 Condensed Parent Company Financial Statements

FUSHI COPPERWELD, INC.

CONDENSED PARENT COMPANY BALANCE SHEETS

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

(RESTATED)

	September 30,		December 31,
	2010		2009
	Unaudited
ASSETS
CURRENT ASSETS:
Cash	$	5,762,820	$	98,839
Other receivables and prepaid expenses		131,763		-
Deposit in derivative hedge		-		1,000,000
Total current assets		5,894,583		1,098,839

OTHER ASSETS:
Investments in subsidiaries		354,690,147		290,640,043
Deferred loan expense, net		-		1,955,778
Deferred tax assets		15,407,083		14,283,528
Total other assets		370,097,230		306,879,349

Total assets	$	375,991,813	$	307,978,188

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable, current	$	-	$	10,000,000
Other payables and accrued liabilities		1,025,660		2,609,037
Cross currency hedge payable		-		436,702
Loan payable to shareholder		15,000,000		-
Total current liabilities		16,025,660		13,045,739

LONG-TERM LIABILITIES:
Intercompany payables		19,113,385		22,863,141
Notes payable, non-current		-		25,000,000
Fair value of derivative instrument		-		7,532,527
Total long-term liabilities		19,113,385		55,395,668

Total liabilities		35,139,045		68,441,407

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock,$0.001 par value, 5,000,000 shares authorized, none issued or outstanding as of September 30, 2010 and December 31, 2009		-		-
Common stock,$0.006 par value, 100,000,000 shares authorized, September 30, 2010: 37,779,839 shares issued and outstanding December 31, 2009: 29,772,780 shares issued and outstanding		226,680		178,638
Additional paid in capital		166,297,828		105,540,676
Statutory reserves		20,793,298		16,282,793
Retained earnings		122,113,829		92,312,280
Accumulated other comprehensive income		31,421,133		25,222,394
Total shareholders' equity		340,852,768		239,536,781

Total liabilities and shareholders' equity	$	375,991,813	$	307,978,188

FUSHI COPPERWELD, INC.

CONDENSED PARENT COMPANY STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)

(RESTATED)

	Three months ended September 30,					Nine months ended September 30,
	2010		2009			2010			2009

OPERATING EXPENSES

General and administrative expenses	$	1,081,804	$	600,777		$	3,233,300		$	2,701,597
Total operating expenses		1,081,804		600,777			3,233,300			2,701,597

OTHER INCOME (EXPENSE)

Interest income (expense), net		-		(1,055,023	)		(444,420	)		(3,859,033	)
Loss on cross currency hedge		-		(1,199,438	)		(753,666	)		(1,581,812	)
Gain (loss) on debt extinguishment		-		3,842,935			(2,395,778	)		3,842,935
Change in derivative liability - warrants		-		-			-			(752,114	)
Change in derivative liability - conversion option		-		(2,058,352	)		-			(7,181,198	)
Change in fair value of derivative instrument		-		237,768			882,527			(3,275,588	)
Other income, net		-		-			306,040			-
Total other expense, net		-		(232,110	)		(2,405,297	)		(12,806,810	)

EQUITY INCOME EARNINGS OF SUBSIDIARIES		13,845,576		9,377,210			38,827,095			22,838,284

INCOME BEFORE INCOME TAXES		12,763,772		8,544,323			33,188,498			7,329,877

BENEFIT FOR INCOME TAXES		158,599		807,537			1,123,555			4,366,785

NET INCOME		12,922,371		9,351,860			34,312,053			11,696,662

OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment		4,433,165		72,136			6,198,740			112,093

COMPREHENSIVE INCOME	$	17,355,536	$	9,423,996		$	40,510,793		$	11,808,755

FUSHI COPPERWELD, INC.

CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)

(RESTATED)

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	34,312,053		$	11,696,662
Adjustments to reconcile net income
used in operating activities:
Change in fair value of derivative instrument		(882,527	)		3,275,588
Equity in earnings of subsidiaries		(38,827,095	)		(22,838,284	)
Deferred taxes		(1,123,555	)		(4,366,785	)
Amortization of loan commission		160,000			787,492
Amortization of stock compensation expense		528,207			1,108,254
Loss on cross currency hedge		753,666			1,581,812
Loss on derivative instrument settlement		-			-
Loss (gain) on debt extinguishment		2,395,778			(3,842,935	)
Change in derivative liability - warrants		-			752,114
Change in derivative liability - conversion option		-			7,181,198
Change in operating assets and liabilities:
Other receivables and prepayments		(24,100	)
Other payables and accrued liabilities		(1,583,377	)		(2,866,051	)
Net cash used in operating activities		(4,290,950	)		(7,530,935	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries		(19,024,270	)		(3,130,132	)
Payment for unwind of cross currency hedge		(5,650,000	)		-
Payments on cross currency hedge payable		(1,190,368	)		(614,580	)
Net cash used in investing activities		(25,864,638	)		(3,744,712	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholder loan		15,000,000			-
Intercompany		(1,149,755	)		13,330,755
Release of restricted cash		-			1,000,000
Payment of high yield notes payable		(35,600,000	)		(5,000,000	)
Proceeds on issuance of common stock and warrants		56,361,500			1,920,000
Proceeds from exercise of warrants		1,180,599			-
Proceeds from exercise of stock options		27,225			-
Net cash provided by financing activities		35,819,569			11,250,755

CHANGE IN CASH		5,663,981			(24,892	)

CASH, beginning of period		98,839			30,414

CASH, end of period	$	5,762,820		$	5,522

SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	$	1,343,849		$	3,375,092

1.	Basis of presentation

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted. The Company’s financial information has been derived from the consolidated financial statements and should be read in conjunction with the consolidated financial statements included in this Form 10-Q. The Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.

2.	Restricted net assets

Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.).

The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the subsidiaries of Fushi Copperweld, Inc. exceed 25% of the consolidated net assets of Fushi Copperweld, Inc. The ability of our Chinese operating affiliates to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of the Chinese operating subsidiaries. Because a significant portion of our operations and revenues are conducted and generated in China, a significant portion of our revenues being earned and currency received are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, we may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into US Dollars.

3.	Notes payable consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)
Guaranteed senior secured floating rate notes (“HY Notes”)		-		35,000,000
Less current portion		-		10,000,000
Total notes payable, noncurrent	$	-	$	25,000,000

Please refer to Note 10 of the Notes to the Consolidated Financial Statements for a more detailed description of the notes payable.

4.	Derivative instrument

The Company's operations are exposed to a variety of global market risks, including the effect of changing interest rates. This exposure is managed, in part, with the use of financial derivatives. The Company uses financial derivatives only to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative purposes. On April 10, 2007, effective January 24, 2007, the Company entered a cross currency swap transaction (the Swap) with Merrill Lynch Capital Services, Inc. (“MLCS”) on the $40 million HY notes which converts the LIBOR + 7% per annum USD variable interest rate to an 8.3% per annum RMB fixed interest rate.

Effective March 31, 2010 (the termination date), the SWAP, with an outstanding USD notional amount of $30,000,000 and an outstanding CNY notional amount of 233,175,000 was unwound with a premium payment price of $6,650,000 to MLCS.

On March 31, 2010, the $1,000,000 deposit with MLCS to secure the agreement was released to MLCS as partial payment of the $6,650,000 payment price and the remaining $5,650,000 payment was made to Merrill Lynch on April 6, 2010.

Please refer to Note 12 of the Notes to the Consolidated Financial Statements for the derivative instrument.

5.	Related party transaction

In September 2010, the Company’s Co-CEO and majority shareholder, Mr. Li Fu, advanced the Company $15,000,000 related to required timely registered capital payments for Fushi JiangSu as discussed in Note 18 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements. The loan is non-interest bearing and is due on demand. Mr. Fu also advanced the Company $8,000,000 in October 2010 for additional registered capital payments for Fushi JiangSu. In October 2010, the Company had fully repaid this shareholder liability in the amount of $23,000,000.

During October 2010, the Company’s wholly owned subsidiary, Fushi International, on behalf of the Parent Company repaid the loan due to the shareholder in the amount of $23,000,000. As a result of such repayment, Fushi International distributed $23,000,000 to the Parent Company through this transaction.

6.	Reclassification

Certain reclassifications have been made to the 2009 parent financial statements to conform to the 2010 parent financial statement presentation. These reclassifications had no effect on net income or cash flows as previously reported.

7.	Subsequent event

The Company has performed an evaluation of subsequent events through the date which the consolidated financial statements were available to be issued.

Note 25 –Restatement of Financial Statements

The restatement relates to our accounting treatment for (1) cross-currency interest swap and (2) the fair value of assets acquired in the acquisitions of Jinchuan Electric Cable Co., Ltd. (“Jinchuan”) and Shanghai Hongtai Industrial Co., Ltd. (“Hongtai”). In previous years, we unintentionally misapplied GAAP in that the cross-currency interest swap should not have qualified as a cash flow hedge and the change in fair value should have been recorded in net income. Thus, we have restated our consolidated statement of income to reflect the change of fair value of financial instrument for the three months and nine months ended September 30, 2010 and 2009, respectively. In addition, as part of our year-end closing process, we identified certain errors in the original purchase price allocation with respect to the fair value of certain property, plant and equipment. We subsequently engaged another independent valuation firm to help us determine the fair value of property, plant and equipment and land use right acquired in the acquisitions of Jinchuan and Hongtai. As a result, the purchase consideration exceeded the fair value of net assets acquired, resulting in goodwill of approximately $0.6 million for the acquisition of Jinchuan and goodwill of approximately $1.1 million for the acquisition of Hongtai. We restated our consolidated balance sheets as of September 30, 2010 and consolidated statement of income for the three months and nine months ended September 30, 2010 to reflect the above changes.

Balance Sheet sheet items	September 30		September 30			December 31			December 31
	2010		2010			2009			2009
	Restated		Original			Restated			Original

Plant and Equipment, net	$	124,275,549	$	129,748,890	$	-		$	-
Intangible assets, net		13,662,152		14,277,324		-			-

Goodwill		1,669,789		-		-			-

Deferred tax assets		-		-			14,283,528			11,722,469
Tax payable		3,639,132		4,267,648			-			-

Deferred Tax Liabilities		669,540		-			-			-

Commitment and Contingencies		4,955,998		5,075,000			-			-

Retained earnings		122,113,829		126,454,576			92,312,280			97,283,748

Accumulated other comprehensive income		-		-			25,222,394			17,689,867

Total shareholders' equity		340,852,768		345,193,514			239,536,781			236,975,722

Total Assets	$	382,997,566	$	387,416,290		$	297,295,124		$	294,734,065

Income Statement items	FOR THE THREE MONTHS ENDED SEPTEMBER 30,
	2010			2010				2009				2009
	Restated			Original				Restated				Original

General and administrative expenses	$	3,117,062		$	3,242,826		$	-			$	-
Interest expense		(120,176	)		(46,021	)		-				-
Change in fair value of derivative instrument- gain/(loss)		-			-				237,768				-
Deferred income tax expense (benefit)		-			-				(807,537	)			(888,378	)
Net Income		12,922,371			12,870,762				9,351,860				9,194,933
Other Comprehensive Income		-			-				72,136				309,904
Comprehensive Income	$	17,355,536		$	17,303,927			$	9,423,996			$	9,504,837

Earnings per share:
Basic	$	0.34		$	0.34			$	0.33			$	0.33
Diluted	$	0.34		$	0.34			$	0.32			$	0.31

Income Statement items	FOR THE NINE MONTHS ENDED SEPTEMBER 30,
	2010			2010				2009				2009
	Restated			Original				Restated				Original

General and administrative expenses	$	10,923,878		$	11,161,896		$	-			$	-
Acquisition gain		-			5,070,389			-				-
Loss on extinguishment of derivative instrument		-			(6,650,000	)		-				-
Interest expense		(697,367	)		(560,476	)		-				-
Change in fair value of derivative instrument- gain/(loss)		882,527			-				(3,275,588	)			-

Deferred income tax expense (benefit)		(1,123,555	)		(3,684,614	)			(4,366,785	)			(3,253,085	)
Current income tax expense		6,320,742			6,949,258				-				-
Net Income		34,312,053			33,681,331				11,696,662				13,858,550
Other Comprehensive Income (loss)		6,198,740			13,731,267				112,094				(3,163,495	)
Comprehensive Income		40,510,793			47,412,598				11,808,756				10,695,055

Earnings per share:
Basic	$	0.94		$	0.92			$	0.42			$	0.50
Diluted	$	0.93		$	0.91			$	0.41			$	0.48

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q.

Certain statements in this Report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” in our Annual Report on Form 10-K and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

The "Company", "we," "us," "our," and the "Registrant" refer to (i) Fushi Copperweld, Inc., (ii) Fushi Holdings, Inc., (iii) Fushi International (Dalian) Bimetallic Cable Co., Ltd. (formerly Dalian Diversified Product Inspections Bimetallic Cable, Co., Ltd.) (“Fushi International (Dalian)”), (iv) Fushi International (Jiangsu) Bimetallic Cable Co., (“Fushi International (Jiangsu)”), (v) Dalian Jinchuan Power Cable Co., Ltd. (“Jinchuan”); (vi) Shanghai Hongtai Industrial Co., Ltd.( “Hongtai”) (vii) Dalian Fushi Bimetallic Wire Manufacturing, Co., Ltd. (“Dalian Fushi”), (viii) Copperweld Holdings, LLC, (ix) Copperweld Bimetallic, LLC (“Copperweld”) and (x) Copperweld Bimetallics UK, LLC. Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iii) “RMB” are to Yuan Renminbi of China; (iv) “Securities Act” are to the Securities Act of 1933, as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Overview

We believe we are one of the world’s largest producers, based on manufacturing capacity, and a leading innovator of bimetallic copper-clad wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS) products. Our products are primarily used in the telecommunications, electrical utility, and transportation industries, and are sold as conductor components and finished products in the wire and cable market. Our products significantly reduce the amount of copper required to manufacture a conductor, and since copper is expensive; we significantly reduce conductor costs through the addition of an aluminum or steel core. CCA and CCS conductors are generally used as substitutes for solid copper conductors where either cost savings or specific electrical and/or physical attributes are either required or desired. In the first nine months of 2010, our products were sold to over 400 customers in over 30 countries. We market our products under the trademarked names of “Copperweld®” and “Fushi™,” and sell either directly to cable manufacturers or through distributors or sales agents to end-users.

Although we are engaged in one line of business, as a result of the differing markets served by each of our manufacturing facilities and significant differences in the operating results among each of our facilities, we analyze our worldwide operations based on two geographic reportable segments: 1) “PRC” which consists of our facilities located in the People’s Republic of China (PRC) and 2) “US” which consists of our Fayetteville, Tennessee, US, and Telford, England, (UK) facilities.

We believe we have a strong market position in all markets in which we compete due to the quality of our products, superior customer service, geographic and customer diversity and our ability to deliver superior products while operating as a low cost provider. As a result, we believe we are now one of the leading producers of copper-clad bimetallic wire products in the world and are one of the market leaders in North America, Europe, Northern Africa, the Middle East and the People’s Republic of China. We continue to expand within current and developing markets and create shareholder value by:

Investing in organic and inorganic growth in both infrastructure-based and fast-growing markets;

Focusing on new, higher-margin products, applications and markets through investment in new machinery and research and development;

Improving business processes throughout the Company by focusing on key performance indicators and operational excellence;

Strategically hiring and developing talent, to improve the effectiveness of our performance management processes; and

Protecting and enhancing the Fushi Copperweld brand.

To accomplish these goals, we are focused on continuously improving operational efficiency in areas we view to be vital: quality, pricing, delivery, cost, customer service and innovation. We also take an opportunistic approach to achieving our goals, and thus, we seek acquisitions of businesses which facilitate overall growth and cash flows for the Company.

We manufacture, market and distribute bimetallic conductors (two-metal conductors). These bimetallic conductors are primarily CCA and CCS. Both CCA and CCS are either aluminum or steel cores, surrounded by an outer layer of pure copper, resulting in a composite bimetallic conductor. The copper sheath, through our processing methods, is metallurgically “bonded” to the core metal. The amount of copper-metal used in cladding the core-metal varies widely, and is based on customers’ needs. However, bimetallic conductors, compared to solid copper conductors, can reduce the amount of copper used by as much as 90% by volume, or 73% by weight which is a considerable cost savings for our customers - wire and cable manufactures - and end-users of their products. For many applications, bimetallic conductors offer significant advantages over copper wire. Manufacturers in the wire and cable industry have increasingly pursued and considered alternative technologies such as bimetallics due to performance and economic considerations. Relative to traditional copper conductors, bimetallic conductors offer greater value to a variety of customers. Because of the benefits of bimetallic conductors, we believe there are substantial opportunities to capture increased market share in applications that have historically been dominated by solid copper wire.

We believe our engineered bimetallic conductor products offer end-users greater value-performance than “solid” copper conductors. Our bimetallic conductors combine the efficiency of copper with the lightweight qualities of aluminum (CCA), or the ruggedness and strength of steel (CCS). Bimetallic conductors offer favorable cost characteristics, weight savings (CCA), increased flexibility and end-product ease-of-handling (CCA), increased tensile strength (CCS), improved corrosion characteristics and decreased theft risk. Conductivity can be customized, by changing the percentage of copper or diameter of the wire, to fit many applications. The physical and electrical attributes of our bimetallic products provide our customers cost savings beyond their intrinsic pricing advantages.

We believe our proprietary manufacturing technology allows us to produce superior products compared to other manufacturers and creates a significant barrier to entry. Manufacturing copper-clad products involves bonding copper tape to an aluminum or steel core rod, drawing the clad product to a finished diameter and heat treating (annealing) as necessary depending on customer specifications. Our proprietary cladding process differentiates us in terms of manufacturing capabilities, offering superior product quality. Our developmental capabilities support the ongoing evolution of our current products. We are continuously working toward new technologies and products that we expect will improve the performance and capabilities of our bimetallic products thereby allowing us to enter new markets.

While the pricing volatility of our raw materials, especially copper, is a primary cause of cost variations in our products, changes in raw material costs generally do not materially affect our dollar earnings on a per pound basis. Although an increase in the price of raw materials may serve to reduce our gross margins as a percentage of net sales, likewise, a decline in raw material prices may increase our gross margin as a percentage of net sales. We generally pass the cost of price changes in our raw materials to our customers rather than the percentage changes. We establish prices for our products based on market factors and our cost to produce our products. Typically, we set a base price for our products to our customers with an understanding that as prices of raw materials change, primarily for copper but also for aluminum and steel, we will pass the change through to our customers. Therefore, when prices of raw material increase, our prices to our customers increase and the amount of our total net sales increases while the dollar amount of our gross margin remains relatively stable. As a result, the impact on earnings per share from volatile raw material prices is minimal, although there are timing delays of varying lengths depending upon volatility of metals prices, the type of product, competitive conditions and particular customer arrangements.

Factors driving and affecting operating results include raw material prices, product and price competition, economic conditions in various geographic regions, foreign currency exchange rates, interest rates, changes in technology, fluctuations in customer demand, variations in the mix of products, production capacity and utilization, working capital sufficiency, availability of credit and general market liquidity, patent and intellectual property issues, litigation results and legal and regulatory developments, and our ability to accurately forecast sales demand and calibrate manufacturing to such demand, manage volatile raw material costs, develop, manufacture and successfully market new and enhanced products and product lines, control operating costs, and attract, motivate and retain key personnel to manage our operational, financial and management information systems.

Highlights for the three months ended September 30, 2010 include:

Gross profit increased 29.6% to $19.7 million, or 29.6% of revenue, from $15.2 million in the third quarter of 2009;

Operating margin increased 50 basis points to 22.7% from 22.2% compared to the third quarter of 2009;

Further strengthened presence in Southeastern China through investment in Fushi International (Jiangsu); and

Metric tons shipped at US facility increased 32.2% compared to the third quarter of 2009.

Current Business Environment and Outlook for the Remainder of 2010:

We continue to see strengthening of demand for our products throughout the globe despite a slower than expected economic recovery in certain regions and a decrease in telecommunication infrastructure projects, specifically the 3G build-out, in China. We continue to persistently and systematically pursue potential organic and inorganic growth opportunities throughout the globe. Although delays in large-scale infrastructure projects could impact certain markets in the short-term, we think the following macro-level trends will positively impact our business and offer us opportunities to enhance profitability and capture new business in the context of improving global economic conditions:

Government stimulus packages focused on infrastructure: high-speed railways, transmission and distribution and power grid build out;

Worldwide underlying long-term growth trends in the electric utility and infrastructure markets;

Population growth and urbanization in developing countries with growing middle classes which influence demand for wire and cable; and

Continuing demand for cost effective, energy saving alternatives.

In order to capture the growth opportunities, we will focus on driving profitability by continuing to streamline our organizational structure and business procedures, increasing operational efficiency and optimizing operating processes, while managing production costs and operating expenses.

In addition, we are seeking to continue to develop the high potential utility and transportation markets, to enhance productivity and to expand our sales of higher margin products. We view the market for CCA and CCS wires and cables within the utilities market to be worldwide. We continue to educate the PRC market on the benefits of CCS for the utilities market. With our recent announcement that 8,200 metric tons of CCS production is now online at our PRC facility, we have begun to target this market more aggressively.

We continue to establish our presence in Southeastern China through continued investment in Fushi International (Jiangsu). Although not currently fully operational, we believe our new temporary facility, strategically located in Yixing, Jiangsu, will provide additional opportunities for our CCA and CCS products with respect to the over 100 telecom and power wire and cable manufacturers in the region and will also allow us to better service Southeast Asia.

Meanwhile, we are also working to strengthen sales management and customer relations. We will seek to consolidate our relationships with our best customers, stop or suspend selling to customers that pose significant credit risk, and develop new customers cautiously. In addition, as part of our ongoing efforts to reduce total operating costs, we continuously improve our ability to efficiently utilize existing and new manufacturing capacity to manage expansion and growth. We believe that effectively utilized manufacturing assets and economy of scale generated, will help offset high raw material prices and dilute overhead over time, thus improving profitability.

We actively seek to identify and promptly respond to key economic and industry trends in order to capitalize on expanding niche markets for our products and possibly entering into new markets both down and up stream, in order to achieve better returns. We have the resources, technology, working capital and capacity to meet growing market demands. Over the long-term, we believe that we are well positioned to benefit from the growth opportunities in China and throughout the world.

Results of Operations

The following table sets forth, for the periods indicated, statement of operations data in millions of dollars:

(in millions, except percentages)	Three Months Ended							Nine Months Ended
	September 30,		September 30,					September 30,		September 30,
	2010 (Unaudited)		2009 (Unaudited)		% Change			2010 (Unaudited)		2009 (Unaudited)			% Change
Revenues	$	66.5	$	47.7		39.4	%	$	195.1	$	131.2			48.7	%
Gross Profit		19.7		15.2		29.6	%		57.1		37.6			51.9	%
Selling, general and administrative expenses		4.6		4.6		0.0	%		15.0		13.1			14.5	%
Operating Income		15.1		10.6		42.5	%		42.1		24.4			72.5	%
Income Before Taxes		15.0		10.3		45.6	%		39.5		11.4			246.5	%
Net Income Tax Provision		2.1		1.0		110	%		5.2		(0.3	)		-1833.3	%
Net Income	$	12.9	$	9.4		37.2	%	$	34.3	$	11.7			193.2	%

Comparison of the Three Months Ended September 30, 2010 and September 30, 2009:

Net Sales by Segment

The following tables set forth revenues in millions and metric tons (MT) of copper-clad products sold by each of our reporting segments on a combined basis:

	Net Sales
(in millions, except percentage)	Three Months Ended September 30,
	2010					2009
	Amount (Unaudited)		% of Net Sales			Amount (Unaudited)		% of Net Sales			Dollar Change		% Change
PRC	$	53.4		80.3	%	$	38.9		81.6	%	$	14.5		37.3	%
US		13.1		19.7	%		8.8		18.4	%		4.3		48.9	%
Total net sales	$	66.5		100.0	%	$	47.7		100.0	%	$	18.8		39.4	%

	Metric Tons Sold
	Three Months Ended September 30,
	2010					2009
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change		% Change
PRC *		7,388		75.7	%		8,017		81.6	%		-629		-7.8	%
US		2,372		24.3	%		1,812		18.4	%		560		30.9	%
Total sales volume*		9,760		100.0	%		9,829		100.0	%		- 69		-0.7	%

* Does not include volume contributed by the Jinchuan acquisition which is measured by meters.

Net sales were $66.5 million in the third quarter of 2010, compared to $47.7 million in the same period of last year. Organic growth excluding the impact of the acquisitions of Jinchuan and Hongtai during the quarter was 21.2%. The $18.8 million increase in revenues was primarily driven by continued improvement in global demand, higher average selling prices which was partially due to increased copper prices, and incremental contributions from recent acquisitions.

The PRC segment experienced an increase of 37.3% in net sales for the third quarter ended September 30, 2010 compared to the similar period of 2009. The increase in PRC net sales is due to a 24.9% increase in average selling prices as a result of higher acquisition costs of raw materials and the inclusion of Jinchuan, which contributed $8.6 million in net sales, partially offset by a 7.8% drop in volume primarily as a result of the slowdown in capital spending related to China’s 3G build out.

The US segment experienced an increase of 48.9% in net sales for the third quarter of 2010 compared to the third quarter of 2009. The increase is primarily due to a (i) 30.9% volume increase, (ii) 13.8% increase in average selling price resulting from a higher acquisition cost of raw materials and (iii) the increase in the utilization rate from 25.4% to 31.4%. We continued to see strengthening of global demand in markets serviced from operations within our US segment throughout the third quarter of 2010 and believe the demand from global investment will continue.

Net Sales by Industry

The following table presents the breakdown of combined net sales in millions by industry:

	Net Sales
	Three Months Ended September 30,
(in millions, except percentages)	2010					2009
	Amount (Unaudited)		% of Net Sales			Amount (Unaudited)		% of Net Sales			Dollar Change		% Change
Telecommunication	$	23.9		35.9	%	$	24.5		51.4	%	$	-0.6		-2.4	%
Utility		39.6		59.5	%		20.3		42.6	%		19.3		95.1	%
Transportation		1.1		1.7	%		0.5		1.0	%		0.6		120.0	%
Other		1. 9		2.9	%		2.4		5.0	%		- 0 . 5		-20.8	%
Total net sales	$	66.5		100.0	%	$	47.7		100.0	%	$	18.8		39.4	%

The following table presents the breakdown of metric tons (MT) of copper-clad products shipped to customers by industry:

	Three Months Ended September 30,
	2010					2009
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change		% Change
Telecommunication		4,169		42.7	%		4,999		50.8	%		-830		-16.6	%
Utility *		4,941		50.6	%		3,988		40.6	%		953		23.9	%
Transportation		135		1.4	%		67		0.7	%		68		101.5	%
Other		515		5.3	%		775		7.9	%		- 260		-33.5	%
Total sales volume *		9,760		100.0	%		9,829		100.0	%		-6 9		-0.7	%

* Does not include volume contributed by the Jinchuan acquisition which is measured by meters.

During the quarter ended September 30, 2010, our copper-clad wire sales to the telecommunication markets decreased by 830 metric tons, or 16.6%, compared to the same period in 2009 due to a slowing in the 3G build out in China and was partially offset by increased demand within the domestic US, as well as demand from other geographical areas.

Utility sales of copper-clad products in volume increased by 953 metric tons, or 23.9%, in the third quarter 2010 compared to the similar period in 2009. The increase in volume was broad-based across numerous geographical regions and applications worldwide. The 95.1% increase in net sales in dollar amount to the utility markets was primarily attributable to higher average selling prices, higher volumes of copper-clad products sold, and the inclusion of the Jinchuan acquisition which contributed $8.6 million in sales. The acquisition of Jinchuan allows us to process our products further downstream and provides a strategic expansion into the utility market sub-segment.

Capacity and Metric Tons Sold

The following table summarizes installed cladding capacities and output for the three month period ended September 30, 2010:

	Three Months Ended September 30, 2010
	PRC				US
	Capacity (MT)		Sold (MT)		Capacity (MT)		Sold (MT)
CCA		10,000		7,227		3,062		760
CCS		2,050		31		4,274		1,569
Total		12,050		7,258		7,336		2,329

We successfully installed 8,200 MT of CCS cladding capacity at our Dalian facility within the PRC segment during the second quarter of 2010. This additional capacity is targeted for the telecommunications, electric utilities and transportation industries in Asia where we believe there is significant demand for CCS. We are currently working with our customers to increase demand for CCS at our Dalian facility to further accelerate our growth and believe we will begin to realize increased revenue from CCS products within our PRC segment in fiscal year 2011.

Net Sales by Product Mix

The following table summarizes the breakdown of metric tons (MT) of copper-clad products shipped to customers by product mix:

	Metric Tons Sold
	Three Months Ended September 30,
	2010					2009
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change		% Change
CCA		7,987		81.8	%		8,155		83.0	%		-168		-2.1	%
CCS		1,600		16.4	%		1,272		12.9	%		328		25.8	%
Others *		1 73		1.8	%		402		4.1	%		- 229		-57.0	%
Total net sales *		9, 760		100.0	%		9,829		100.0	%		-6 9		-0.7	%

* Does not include volume contributed by the Jinchuan acquisition which is measured by meters.

CCA sales volume from our PRC segment decreased by 5.3%, or 403 metric tons in the third quarter of 2010 compared to the same period in 2009 due to the slowdown of China’s 3G build out and was partially offset by stronger sales for utility related products. CCA sales volume from our Fayetteville facility increased by 44.8%, or 235 metric tons in the third quarter of 2010 compared to the same period in 2009 due to strengthening global demand.

CCS sales volume from our US facility increased by 25.7%, or 301 metric tons in the third quarter of 2010 compared to the same period in 2009, primarily due to increased demand within the domestic US and other geographical areas.

Gross Profit and Gross Margin

	Three Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Gross Profit	$	19.7		$	15.2		$	4.5		29.6	%
Gross Margin		29.6	%		31.8	%				-2.2	%

Gross profit was $19.7 million in the quarter ended September 30, 2010 compared to $15.2 million in the same period of 2009, representing an increase of 29.6%. Gross margin as a percentage of net sales decreased to approximately 29.6% from 31.8% for the year ago period. The decrease in gross margin can be primarily attributed to lower gross margins contributed from acquisitions completed subsequent to the third quarter of 2009 and higher raw material prices partially offset by improvements in product mix and pricing and benefits of cost savings initiatives.

Selling Expenses

	Three Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Selling Expenses	$	1.5		$	1.1		$	0.4		36.4	%
as a percentage of net sales		2.3	%		2.3	%				0	%

Selling expenses were $1.5 million in the quarter ended September 30, 2010 compared to $1.1 million in the similar period in 2009, representing an increase of 36.4%. This increase is primarily due to increased global sales efforts and acquisitions completed subsequent to the third quarter of 2009, partially offset by cost savings initiatives.

General and Administrative Expenses

	Three Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar			%
General and Administrative Expenses	$	3.1		$	3.5		$	(0.4	)		-11.2	%
as a percentage of net sales		4.7	%		7.4	%					-2.7	%

General and administrative (G&A) expenses were $3.1 million in the quarter ended September 30, 2010 compared to $3.5 million in the same period in 2009, representing a decrease of 11.2%, or $0.4 million. This decrease is primarily due to enhanced efficiencies and benefits of cost savings initiatives, partially offset by acquisitions completed subsequent to the third quarter of 2009. As a percentage of net sales, G&A expenses decreased from 7.4% in the third quarter of 2009 to 4.7% in the same period of 2010 primarily due to increased revenues and benefits of operational leverage.

Operating Income

The following table sets forth operating income by segment, in millions of dollars:

	Three Months Ended September 30,
(in millions, except percentage)	2010						2009
	Amount (Unaudited)			% of Operating income			Amount (Unaudited)			% of Operating income			Dollar Change				% Change
PRC	$	15.5			102.7	%	$	10.8			101.9	%		$	4.7			43.5	%
US		0.7			4.6	%		0.4			3.8	%			0.3			75.0	%
Corporate		(1.1	)		-7.3	%		(0.6	)		-5.7	%			(0.5	)		83.3	%
Total operating income	$	15.1			100.0	%	$	10.6			100.0	%		$	4.5			42.5	%

Total operating income was $15.1 million in the quarter ended September 30, 2010 compared to $10.6 million in the same period of 2009, representing an increase of $4.5 million or 42.5%. This increase is primarily due to an increase in net sales and an increase in operating profit contributed by our PRC segment of $14.5 million and $4.7 million, respectively. The operating income within our US segment was $0.7 million compared with that of $0.4 million in the same period of last year primarily due to benefits of operational leverage resulting from increased volumes and cost savings initiatives implemented during the course of 2009.

Other Income (Expense)

Interest income (expenses)

	Three Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Interest Income	$	0.2		$	0.1		$	0.1		100.0	%
Interest (Expense)		(0.1	)		(1.2	)		1.1		-91.7	%
Net Interest Income / (Expense)	$	0.1		$	(1.1	)	$	1.2		-109.1	%
as a percentage of net sales		0.1	%		-2.3	%				2.4	%

Net interest income was $0.1 million in the quarter ended September 30, 2010 compared to interest expenses of $1.1 million in the same period of 2009. The change is primarily the result of the repayment of the retirement of the HY notes (see Consolidated Financial Statements Footnotes 10- Notes Payable).

Tax

	Three Months Ended September 30, 2010 (Unaudited)
(in millions)	PRC		US		Parent Company			Consolidated
Profit (Loss) before income tax	$	15.5	$	0.6	$	(1.1	)	$	15.0
Income tax expense (credit)		2.2		-		(0.1	)		2.1
Profit (loss) after income tax	$	13.3	$	0.6	$	(1.0	)	$	12.9

Profit before tax for the PRC segment was $15.5 million in the three months ended September 30, 2010 with profits from the US segment before tax of $0.6 million. Loss at the parent company level was $1.1 million. On a consolidated basis, profit before tax was $15.0 million in the three months ended September 30, 2010 and we recognized a net tax expense of $2.1 million. The effective tax rate on a consolidation basis for the quarter was 13.8%.

Net Income

	Three Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Income Before Taxes	$	15.0		$	10.3		$	4.7		45.6	%
Provision for Income Taxes		2.1			1.0			1.2		110	%
Net Income After Taxes	$	12.9		$	9.4		$	3.5		37.2	%
as a percentage of net sales		19.4	%		19.6	%				-0.2	%

Income before tax was $15.0 million in the quarter ended September 30, 2010 compared to $10.3 million in the same period of 2009, representing an increase of $4.7 million, or 45.6%. Net income after taxes increased to $12.9 million in the third quarter of 2010 from $9.4 million in the third quarter of 2009, representing an increase of $3.5 million, or 37.2%. As a percentage of net sales, net income decreased slightly to 19.4% in the third quarter of 2010, compared to 19.6% in the same period of 2009.

Earnings per Share

	Three Months Ended September 30,
	2010		2009
	Unaudited		Unaudited
Net Income for Basic Earnings Per Share	$	12,922,371	$	9,351,860
Basic Weighted Average Number of Shares		37,694,626		28,084,416
Net Income per Share – Basic	$	0.34	$	0.33
Net Income for Diluted Earnings Per Share	$	12,922,371	$	9,351,860
Diluted Weighted Average Number of Shares		38,077,845		29,206,508
Net Income per Share – Diluted	$	0.34	$	0.32

Basic and diluted earnings per share (EPS) for the quarter ended September 30, 2010, were $0.34 and $0.34, respectively, compared to $0.33 and $0.32, respectively, for the comparable period in 2009.

Comparison of the Nine Months Ended September 30, 2010 and September 30, 2009:

Net Sales by Segment

The following tables set forth net sales in millions and metric tons (MT) of copper-clad products sold by each of our reporting segments on a combined basis:

	Net Sales
	Nine Months Ended September 30,
	2010					2009
(In millions, except percentage)	Amount (Unaudited)		% of Net Sales			Amount (Unaudited)		% of Net Sales			Dollar Change			% Change
PRC	$	154.6		79.2	%	$	104.7		79.8	%		$	49.9		47.7	%
US		40.5		20.8	%		26.5		20.2	%			14.0		52.8	%
Total net sales	$	195.1		100.0	%	$	131.2		100.0	%		$	63.9		48.7	%

	Nine Months Ended September 30,
	20 10					2009
	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change		% Change
PRC *		21,510		74.6	%		22,964		79.6	%		-1,454		-6.3	%
US		7,324		25.4	%		5,868		20.4	%		1,456		24.8	%
Total sales volume *		28,834		100.0	%		28,832		100.0	%		2		0.0	%

* Does not include volume contributed by the Jinchuan acquisition which is measured by meters.

Net sales increased 48.7% over the same period one year earlier due to higher average selling prices which was partially due to increased copper prices, and incremental contributions from recent acquisitions.

The PRC segment experienced an increase of 47.7% in net sales for the nine months ended September 30, 2010 relative to the comparable 2009 period. The increase in PRC net sales for the nine months ended September 30, 2010, is primarily due to a 39.9% increase in the average selling price of our products as a result of higher metal prices relative to the comparable 2009 period. We generally pass the cost of price changes in raw materials to customers and set the base price for our products. The increase of PRC segment sales was also due to the inclusion of Jinchuan, which contributed $22.0 million of net sales in the first nine month of 2010.

The US segment experienced a significant recovery in net sales, resulting in an increase of 52.8% for the nine months ended September 30, 2010 relative to the comparable 2009 period. The increase in US segment net sales for the nine months ended September 30, 2010 compared to the prior year period is primarily the result of a 24.8% increase in metric tons shipped and a 27.4% increase in the average selling price. In line with the trend we began to see during the first and second quarters of 2010, the increase was the result of improving market conditions primarily in the Americas and Europe.

Net Sales by Industry

The following table presents the breakdown of combined net sales in millions by industry:

	Net Sales
	Nine Months Ended September 30,
	2010					2009
(In millions, except percentage)	Amount (Unaudited)		% of Net Sales			Amount (Unaudited)		% of Net Sales			Dollar Change			% Change
Telecommunication	$	76.7		39.3	%	$	62.2		47.4	%		$	14.5		23.3	%
Utility		107.4		55.1	%		61.3		46.7	%			46.1		75.2	%
Transportation		2.8		1.4	%		1.3		1.0	%			1.5		115.4	%
Other		8.2		4 . 2	%		6.4		4.9	%			1. 8		28.1	%
Total net sales	$	195.1		100.0	%	$	131.2		100.0	%		$	63 . 9		48.7	%

The following table presents the breakdown of metric tons shipped to customers by industry:

	Net Sales
	Nine Months Ended September 30,
	2010					2009
	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change			% Change
Telecommunication		13,404		46.5	%		13,761		47.7	%		(357	)		-2.6	%
Utility*		13,162		45.6	%		12,903		44.7	%		259			2.0	%
Transportation		356		1.2	%		192		0.7	%		164			85.4	%
Other		1,912		6.7	%		1,976		6.9	%		(64	)		-3.2	%
Total sales volume *		28,834		100.0	%		28,832		100.0	%		2			0.0	%

* Does not include volume contributed by the Jinchuan acquisition which is measured by meters.

During the nine months ended September 30, 2010, our copper-clad sales, in terms of volume, to the telecommunication markets decreased by 357 metric tons, or 2.6%, compared to the same period in 2009 primarily due to a slowdown in 3G build out in the PRC and partially offset by strengthened demand from markets served by operations within our US segment.

Utility sales of copper-clad products, in terms of volume, increased by 259 metric tons, or 2.0%, in the third quarter 2010 compared to the similar period in 2009. The 75.2% increase in net sales in dollar amount to the utility markets was primarily attributable to higher average selling prices, higher volumes and the inclusion of the Jinchuan acquisition which contributed $22.0 million in sales.

Transportation sales of copper-clad products, in terms of volume, increased by 164 metric tons, or 85.4%, due to continued strengthening of global demand.

Capacity and Metric Tons Sold

The following table summarizes installed cladding capacities and output for the nine months ended September 30, 2010:

	Nine Months Ended September 30, 2010
	PRC				US
(MT)	Capacity		Sold		Capacity		Sold
CCA		30,000		21,067		9,186		2,421
CCS		6,150		63		12,821		4,794
Total		36,150		21,130		22,007		7,215

Net Sales by Product Mix

	Metric Tons Sold
	Nine Months Ended September 30,
	2010					2009
(MT)	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change		% Change
CCA		23,488		81.5	%		23,787		82.5	%		-299		-1.3	%
CCS		4,857		16.8	%		4,337		15.0	%		520		12.0	%
Others *		489		1.7	%		708		2.5	%		-219		-30.9	%
Total sales volume *		28,834		100.0	%		28,832		100.0	%		2		0.0	%

* Does not include volume contributed by the Jinchuan acquisition which is measured by meters.

The sales of CCA in volume from our PRC segment decreased by 5.5%, or 1,220 metric tons in the first nine months ended September 30, 2010 compared to the same period in 2009 due primarily to a slowdown of China’s 3G build out. However the sales of CCA and CCS in volume from our US segment increased by 61.6%, or 921 metric tons, and 18.1%, or 736 metric tons, in the first nine months ended September 30, 2010 compared to the same period in 2009, respectively. This increase is primarily due to strengthening of global demand.

Gross Profit and Gross Margin

	Nine Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Gross Profit	$	57.1		$	37.6		$	19.5		51.9	%
Gross margin		29.3	%		28.6	%				0.7	%

Gross profit increased $19.5 million or 51.9% for the nine months ended September 30, 2010 compared to the comparable period in 2009. As a percentage of net sales, gross margin increased from 28.6% in the first nine months of 2009 to 29.3% in the same period of 2010, primarily due to a better product mix, higher gross margins at our US facility, and improved pricing discipline within the wire and cable industry.

Selling Expenses

	Nine Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Selling Expenses	$	4.1		$	3.4		$	0.7		20.6	%
as a percentage of net sales		2.1	%		2.6	%				-0.5	%

Selling expenses increased $0.7 million or 20.6% for the nine months ended September 30, 2010 compared to the comparable period in 2009. As a percentage of net sales, selling expenses decreased from 2.6% in the first nine months of 2009 to 2.1% in the same period of 2010, primarily due to higher net sales.

General and Administrative Expenses

	Nine Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
General and Administrative Costs	$	10.9		$	9.8		$	1.1		11.2	%
as a percentage of net sales		5.6	%		7.4	%				-1.8	%

General and administrative expenses increased $1.1 million or 11.2% for the nine months ended September 30, 2010 compared to the same period in 2009 primarily resulting from acquisitions completed subsequent to the third quarter of 2009. As a percentage of net sales, general and administrative expenses decreased from 7.4% the nine months ended September 30, 2009 to 5.6% in the same period of 2010, primarily due to higher net sales and partially offset by cost savings initiatives.

Operating Income

The following table sets forth operating income by segment, in millions of dollars:

	Nine Months Ended September 30,
	2010						2009
(in millions, except percentage)	Amount (Unaudited)			% of operating income			Amount (Unaudited)			% of operating income			Dollar Change			% Change
PRC	$	43.5			103.3	%	$	28.2			115.1	%		$	15.3		54.3	%
US		1.8			4.3	%		(1.0	)		-4.1	%			2.8		-280.0	%
Corporate		(3.2	)		-7. 6	%		(2.7	)		-11.0	%			- 0.5		-18.5	%
Total operating income	$	42.1			100.0	%	$	24.5			100.0	%		$	17.6		71.8	%

Operating income in the nine months ended September 30, 2010 increased approximately $17.6 million, or 71.8%, compared to the same period in 2009, which was primarily due to higher gross profit, acquisitions completed subsequent to September 30, 2009, and cost savings initiatives.

The operating income in the PRC segment increased approximately $15.3 million, or 54.3%, in the nine months ended September 30, 2010, when compared to the same period in 2009, primarily due to a higher sales growth and acquisitions completed subsequent to the third quarter of 2009.

The operating income in the US segment increased approximately $2.8 million in the nine months ended September 30, 2010, when compared to the same period in 2009, primarily due to higher gross profit, operational leverage as a result of higher volumes, and benefits from cost savings initiatives.

Other Income (Expense)

Interest Income (Expense)

	Nine Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Interest Income	$	0.6		$	0.2		$	0.4		200.0	%
Interest Expense		(0.7	)		(4.2	)		3.5		-83.3	%
Net Interest Expense	$	(0.1	)	$	(4.0	)	$	3.9		-97.5	%
as a percentage of net sales		0.0	%		-3.0	%				3.0	%

Net interest expense was $0.1 million in the nine months ended September 30, 2010 compared to a net interest expense of $4.0 million in the same period of 2009. The change is primarily the result of the repurchase and retirement of the HY notes in the first quarter of 2010.

Tax

	Nine Months Ended September 30, 2010 (Unaudited)
(in millions)	PRC		US		Parent Company			Consolidated
Profit (loss) before income tax	$	40.3	$	1.6	$	(2.4	)	$	39.5
Income tax expense (credit)		6.3		-		(1.1	)		5.2
Profit after income tax	$	34.0	$	1.6	$	(1.3	)	$	34.3

Profit before tax for the PRC segment was $40.3 million for the nine months ended September 30, 2010, with profit from the US before tax of $1.6 million. Loss at the Fushi Copperweld parent company level was $2.4 million primarily due to interest expense and loss on extinguishment of HY notes, loss on the unwinding of derivative instruments as well as professional fees and outside service expenses. On a consolidated basis, profit after tax was $39.5 million and we recognized a net tax expense of $5.2 million.

The amount of taxable income that the US companies must generate in order to recover the $15,407,083 of deferred tax asset balance at September 30, 2010, is approximately $45.3 million in the next 20 years. As of September 30, 2010, the accumulated pretax loss was $51.1 million, of which $49.3 million is incurred by the parent company, Fushi Copperweld, and only $1.8 million incurred by our operations at our Fayetteville facility. The parent company does not generate revenues and its expenses have historically primarily included interest expenses on the HY Notes, stock-based compensation, changes in fair value of derivative liabilities related to Convertible Notes conversion options, hedge and warrants, as well as professional fees and outside service expenses.

Net Income

	Nine Months Ended September 30,						Change
(in millions, except percentage)	2010 (Unaudited)			2009 (Unaudited)			Dollar		%
Income Before Taxes	$	39.5		$	11.4		$	28.1		246.5	%
Provision for Income Taxes		5.2			(0.3	)		5.5		-1833.3	%
Net Income After Taxes	$	34.3		$	11.7		$	22.6		193.2	%
as a percentage of net sales		17.6	%		8.9	%				8.7	%

Net income was $34.3 million in the nine months ended September 30, 2010 compared to $11.7 million in the same period in 2009, representing an increase of $22.6 million, or 193.2%. As a percentage of net sales, net income increased from 8.9% in the first nine months of 2009 to 17.6% in the same period of 2010. The increase can be attributed to higher net sales, higher margins, acquisition gains, and fewer expenses tied to changes in derivative liabilities.

Earnings Per Share

	Nine Months Ended September 30,
	2010		2009
	Unaudited		Unaudited
Net Income for Basic Earnings Per Share	$	34,312,053	$	11,696,662
Basic Weighted Average Number of Shares		36,553,784		27,827,152
Net Income per Share - Basic	$	0.94	$	0.42
Net Income for Diluted Earnings Per Share	$	34,312,053	$	11,696,662
Diluted Weighted Average Number of Shares		37,030,499		28,676,832
Net Income per Share - Diluted	$	0.93	$	0.41

Basic and diluted earnings per share (EPS) for the nine months ended September 30, 2010, were $0. 94 and $0.93, compared to $0.42 and $0.41 for the same period last year.

Selected Balance Sheet Data at September 30, 2010 (unaudited) and the year ended December 31, 2009:

	Selected Balance Sheet Data
	September 30, 2010		December 31, 2009		Change
(in millions, except percentage)	Unaudited				Dollar			%
Cash	$	117.9	$	60.6	$	57.3			94.6	%
Accounts Receivable, net	$	64.5	$	67.3	$	(2.8	)		-4.2	%
PP&E (a)	$	124.3	$	117.4	$	6.9			5.9	%
Total Assets	$	383.0	$	297.3	$	85.7			28.8	%
Short Term Debt	$	-	$	14.0	$	(14.0	)		-100.0	%
Long Term Debt	$	6.6	$	32.7	$	(26.1	)		-79.8	%
Shareholders' Equity	$	340.9	$	239.5	$	101.4			42.3	%

For breakdown of plant and equipment, please refer to footnote Note–5 for details.

Our financial condition continues to improve as measured by an increase of 42.3% in shareholders’ equity during the nine months of 2010 compared to December 31, 2009. Cash increased 94.6% during the period primarily due to the net proceeds from our public offering consummated in February 2010, and the strong sales, which were partially offset by repayment of $35.0 million of our HY notes. Accounts receivable decreased 4.2% as a result of collection of long-time outstanding receivables. We entered into a new term-loan facility resulting in a long-term liability of $6.6 million as at September 30, 2010.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations and capital expenditures principally through private placements of debt and equity, bank loans, and cash provided by operations. Significant factors affecting our cash liquidity include (1) cash provided by operating activities, (2) cash used for capital expenditures, and (3) our available credit facilities and other borrowing arrangements. At September 30, 2010, the majority of our liquid assets were held in RMB denominations deposited in banks within the PRC. The PRC has strict rules for converting RMB to other currencies and for movement of funds from the PRC to other countries. Consequently, we used funds from our public offering in the first quarter 2010 to recapitalize our non-PRC operations and have secured new working capital lines for non-PRC operations as our sales increase and our working capital needs grow.

Under PRC Company Law and relevant rules and regulations, our PRC subsidiaries may pay dividends only out of their retained earnings/net profit, if any, calculated according to PRC accounting principles determined in accordance with PRC accounting standards, and only after accumulated losses from preceding years have been fully covered and the following appropriations have been made:

a) appropriations to the statutory surplus reserve equivalent to 10% of its net profits less any accumulated losses, as determined under PRC GAAP; no further appropriations to the statutory surplus reserve are required once this reserve reaches an amount equal to 50% of its respective registered capital;

b) appropriations to a discretionary surplus reserve as approved by the shareholders in shareholders' meeting.

As is customary in the industry, we provide payment terms to most of our customers that exceed terms that we receive from our suppliers. Therefore, the Company’s liquidity needs have generally consisted of working capital necessary to finance receivables and raw material inventory. Capital expenditures have historically been necessary to expand the production capacity of the Company’s manufacturing operations.

We recognize revenue according to the shipment date to ensure that revenues are recorded in the proper period. Every sales transaction has a formal written customer order that identifies the price and quantities of the product and payment terms.

In summary, our cash flows were:

	Nine Months Ended September 30,
(in millions)	2010 (Unaudited)			2009 (Unaudited)
Net cash provided by operating activities	$	30.1		$	15.6
Net cash used in investing activities	$	(14.2	)	$	(5.4	)
Net cash provided by (used in) financing activities	$	39.4		$	(15.8	)
Effect of exchange rate on cash	$	2.0		$	(0.0	)
Cash and cash equivalents at beginning of period	$	60.6		$	65.6
Cash and cash equivalents at end of period	$	117.9		$	60.0

For the nine months ended September 30, 2010, net cash provided by operating activities was $30.1 million, an increase of $14.5 million compared to the same period in 2009, reflecting a significant improvement in operating cash flow year over year. The favorable changes is primarily attribute to an increase in net income of $22.6 million and a $4.5 million decrease in accounts receivables, partially offset by a $16.1 million increase in current advance to suppliers.

For the nine months ended September 30, 2010, net cash used in investing activities was $14.2 million, and was primarily attributable to a $5.1 million first payment of the acquisition costs associated with Jinchuan, a $1.3 million cash portion payment of the acquisition costs associated with Shanghai Hongtai, and the $5.7 million payment for unwinding of a cross currency hedge.

For the nine months ended September 30, 2010, net cash provided by financing activities was of $39.4 million, which was primarily attributable to the net proceeds of $56.4 million from an issuance of our common stock during the first quarter of 2010 and a term facility provided by Regions Bank amounting to $6.5 million, it was also attributable to a $15 million advance from Mr. Li Fu, as discussed in Note 22 Related Party partially offset by a $35.6 million payment to retire our HY notes.

At September 30, 2010, our cash balance was $117.9 million compared to $60.0 million at September 30, 2009 and $60.6 million at December 31, 2009.

Days sales outstanding (DSO) has decreased from 117 days at December 31, 2009, to 91 days at September 30, 2010, while days payable outstanding (DPO) decreased to 10 days as of September 30, 2010, from 20 days at December 31, 2009.

The decrease in DSO is primarily attributable to our increased efforts for accounts receivables collection, in addition to existing procedures established to facilitate collection. Meanwhile, we continued our policy on extending credit terms to certain credible customers that have long-standing business relationships with us in order to capture additional market share. We believe that our ability to extend credit terms puts pressure on our smaller competitors whose limited capital resources have become further strained due to the global economic crisis and who are unable to make such adjustments for customers. We write off receivables specifically based on the facts we obtain about the customers’ ability to pay.

Standard Customer and Supplier Payment Terms (days) as below:

	Year ended December 31, 2009	Nine months ended September 30, 2010
Customer Payment Term	Payment in advance up to 120 days	Payment in advance up to 120 days
Supplier Payment Term	Payment in advance up to 30 days	Payment in advance up to 30 days

Aging Analysis of accounts receivable:

	September 30, 2010			December 31, 2009
	(Unaudited)
1-30 days	$	24,698,033		$	19,055,520
31-60 days		20,353,886			17,199,485
61-90 days		19,260,155			15,029,899
91-180 days		726,699			12,776,229
180-365 days		257			4,027,988
Over 365 days		4,526			220,163
Bad debts allowance		(522,729	)		(1,024,684	)
Total	$	64,520,827		$	67,284,600

Inventory turnover days increased from 25 days at December 31, 2009 to 33 days at September 30, 2010. Advance to supplier’s turnover days has increased from 24 days at December 31, 2009, to 29 days at September 30, 2010. The Company’s principal raw materials consist of aluminum, steel rods and copper strips. Changes in the price of copper, which has an established history of volatility, directly affects the prices of the Company’s products and influence the demand for products. The Company’s decision to make advanced purchases of raw materials is mainly based upon (1) the current and projected future market price of raw materials, (2) the demand and supply situation in the raw materials market, and (3) the forecasted demand of products. The increased investment in both inventory and advance to suppliers during third quarter of 2010 was primarily due to the projected increased demand of our products.

COMMITMENTS AND CONTINGENCIES

Please refer to Footnote Note 19 – Business combinations for contingent consideration related to the acquisition of Jinchuan.

Please refer to below Contractual Obligations table item Registered capital of Fushi International (Jiangsu) *2 for commitment to invest to Fushi International (JiangSu).

Contractual Obligations

Set out below are our contractual obligations at September 30, 2010:

Contractual obligations	Total		Payment due by less than 1 year		2 – 3 years		4-5 years		More than 5 Y ears
Contingent second installment payment for Jinchuan acquisition *1	$	4,955,998	$	4,955,998	$	-	$	-	$	-
Long-term debt		6,500,000		650,000		1,300,000		1,300,000		3,250,000
Registered capital of Fushi International (Jiangsu) *2		34,980,000		10,000,000		24,980,000
Capital-lease obligation		167,316		79,084		88,232		-		-
Total	$	46,603,314	$	15,685,082	$	26,368,232	$	1,300,000	$	3,250,000

* 1 On January 21, 2010, the Company’s PRC subsidiary, Fushi International (Dalian) Bimetallic Cable Co., Ltd. entered into an agreement to purchase 100% of the equity interest of Dalian Jinchuan Electric Cable Co., Ltd. (“Jinchuan”), a Chinese manufacturer of electric wire and electric cables, from Jinchuan’s shareholders. The total purchase price for the acquisition will be $10.15 million in cash. The purchase price shall be paid in two equal installments of $5,075,000. The initial installment was paid upon the closing of the acquisition, February 5, 2010. If certain net income targets are achieved by Jinchuan for the fiscal year ended 2010, as confirmed by an audit to be performed by the Company’s auditors, the balance of the purchase price shall be paid to the Jinchuan shareholders. If Jinchuan fails to achieve the net income targets for 2010, the balance of the purchase price payable shall be reduced proportionally at the rate of 2.91 times the P/E ratio of the audited net income for 2010. On February 5, 2010, the Company estimated the possibility that Jinchuan would meet the performance target was 100% and the expected payment date was one year after the acquisition done. Thus the fair value of the contingent consideration arrangement was determined at $4,955,998 by using an annual discount rate of 5.3%

* 2 Fushi JiangSu was established on June 18, 2010 with a registered capital of $49,980,000. Fushi JiangSu has received $15,000,000 investment as of September 30, 2010, and is in the process of obtaining capital verification. Of the remaining registered capital, $10,000,000 and $24,980,000 is required to be invested by June 17, 2011 and June 17, 2012, respectively.

Legal Proceedings

During the quarter ended September 30,2010, we were not aware of any material, existing or pending legal proceedings against us, nor are we involved in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our company. Please refer to Part II, Item 1 of the Quarterly Report on Form 10-Q for information on legal proceedings after the end of the quarter.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet transactions.

Critical Accounting Policies

Please refer to footnote Note 2 – Summary of Significant Accounting Policies.

Recent Accounting Pronouncements

Please refer to footnote, recently issued accounting pronouncements under Note 2 – Summary of Significant Accounting Policies.

Subsequent Events

On November 3, 2010, the Company announced that its Board of Directors received a proposal letter from its Chairman and Chief Executive Officer, Mr. Li Fu ("Mr. Fu") and Abax Global Capital (Hong Kong) Limited on behalf of funds managed by it and its affiliates ("Abax") for Mr. Fu and Abax to acquire all of the outstanding shares of common stock of Fushi not currently owned by Mr. Fu and his affiliates in a going private transaction for $11.50 per share in cash, subject to certain conditions. Mr. Fu and his affiliates own approximately 29.2% of Fushi's common stock. According to the proposal letter, Mr. Fu and Abax will form an acquisition vehicle for the purpose of completing the acquisition and plan to finance the acquisition with a combination of debt and equity capital. The proposal letter states that the equity portion of the financing would be provided by Mr. Fu, Abax and related sources. The proposal letter also states that Mr. Fu and Abax are currently in discussion to engage a financial advisor to the acquisition vehicle that will be formed by Mr. Fu and Abax.

The Company’s Board of Directors has formed a special committee of independent directors consisting of John F. “Jack” Perkowski, Barry Raeburn and Feng Bai (the "Special Committee") to consider this proposal. The Special Committee intends to retain independent advisors, including an independent financial advisor, to assist it in its work. No decisions have been made by the Special Committee with respect to Fushi's response to the proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.

Item 4. Controls and Procedures

Restatement of Previously Issued Financial Statements

On March 24, 2011, the Audit Committee of the Board of Directors of the Company concluded, that the Company's previously issued financial statements for the years ended December 31, 2009, 2008 and 2007, and its unaudited interim financial statements for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010 should no longer be relied upon and should be restated, due to two errors in the application of U.S. Generally Accepted Accounting Principles ("US GAAP") regarding (1) the accounting for cross-currency interest swap derivative and (2) the acquisitions of Dalian Jinchuan Electric Cable Co., Ltd. (“Jinchuan”) and Shanghai Hongtai Industrial Co., Ltd. (“Hongtai”).

In connection with these restatements, our management has identified certain control deficiencies that represent material weaknesses, based on the criteria described in Internal Control — Integrated Framework issued by the COSO. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. We have identified the following material weaknesses during our assessment of our internal control over financial reporting as of September 30, 2010:

·	Insufficient competent accounting personnel in applying U.S. GAAP in our financial reporting process

As of September 30, 2010, we do not have sufficient competent accounting personnel to ensure our consolidated financial statements are prepared in accordance with U.S. GAAP in a timely manner. As a result, the change in fair values of cross-currency interest swap derivative was removed from other income or loss and recorded as other comprehensive income or loss in our consolidated financial statements for the nine months ended September 30, 2010.

·	Insufficient competent accounting personnel in determination of the measurement of derivative financial instruments and assets acquired and liabilities assumed in business combinations

As of September 30, 2010, we do not have sufficient competent accounting personnel to determine fair values of derivative financial instruments and assets acquired and liabilities assumed in business combinations, in accordance with the U.S. GAAP. As a result, adjustments to the fair values of assets acquired through business combinations were recorded in our consolidated financial statements for the quarter ended September 30, 2010.

We acquired Jinchuan and Hongtai in February and May 2010, respectively. Management excluded from its assessment of the effectiveness of our internal control over financial reporting as of September 30, 2010, the internal control over financial reporting of Jinchuan and Hongtai associated with total assets of USD22,257,576 and total revenues of USD22,025,727 included in our consolidated financial statements as of and for the quarter ended September 30, 2010.

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that

information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods

specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our management, including our

principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure .

At the time our Quarterly Report on Form 10-Q for the period ended September 30, 2010 was filed, on November 8, 2010, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2010. In connection with the filing of this Amendment No. 1, the Company’s Chief Executive Officer and Chief Financial Officer re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by that report. Subsequent to that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, re-assessed the conclusion expressed in such evaluation and the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that re-assessment, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements because of the identification of material weaknesses in our internal control over financial reporting described further below.

b)	Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 5. Exhibits

Exhibit No.		Document Description

31.1		Certification of the Principal Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Accounting and Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Principal Executive Officer and of the Principal Accounting and Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FUSHI COPPERWELD, INC.

Date: April 4, 2011	By:	/s/ Craig H. Studwell
		Name: Craig H. Studwell
		Title: Chief Financial Officer (Principal Accounting and Financial Officer)

Exhibit Index

Exhibit No.		Document Description

31.1		Certification of the Principal Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Accounting and Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Principal Executive Officer and of the Principal Accounting and Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

Attached files

Fushi Copperweld, Inc. Reports

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