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

Attached files

file	filename
EX-31.1 - Fushi Copperweld, Inc.	v216749_ex31-1.htm
EX-32.1 - Fushi Copperweld, Inc.	v216749_ex32-1.htm
EX-31.2 - Fushi Copperweld, Inc.	v216749_ex31-2.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 March 31, 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 o

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 o No o

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 o

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

As of May 5, 2010 the registrant had 37,254,877 shares of common stock outstanding.

EXPLANATORY NOTE

This quarterly report on Form 10-Q for the quarterly period ended March 31, 2010 is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q (“Amendment No. 1”) which was originally filed on May 7, 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 March 31, 2010 and December 31, 2009 by decreasing consolidated total assets by $3,264,729 and increasing consolidated total assets by $2,561,059, respectively; and

Our consolidated statements of income for the three months ended March 31, 2010 and 2009 by increasing consolidated net income by $1,701,779 and decreasing consolidated net income by $1,823,005, respectively.

The restatement relates to our accounting treatment for: (1) cross-currency interest swap and (2) the fair value of assets acquired in the acquisition of Jinchuan Electric Cable Co., Ltd. (“Jinchuan”). In previous years, we unintentionally misinterpreted 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 in fair value of financial instrument for the three months ended March 31, 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. As a result, the purchase consideration exceeded the fair value of net assets acquired, resulting in goodwill of approximately $0.6 million. We restated our consolidated balance sheets as of March 31, 2010 and consolidated statement of income for the three months ended March 31, 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 24, “Restatement of Financial Statements.”

Except as specifically referenced herein, this Amendment No. 1 does not reflect any event occurring subsequent to May 7, 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 MARCH 31, 2010 AND DECEMBER 31, 2009 (RESTATED)

	March 31,		December 31,
	2010		2009
	Unaudited
ASSETS
CURRENT ASSETS:
Cash	$	78,536,226	$	60,597,849
Accounts receivable, trade, net of allowance of bad debt of $1,024,684 as of March 31, 2010 and December 31, 2009		56,966,163		67,284,600
Inventories		17,589,604		10,875,782
Notes receivables		196,222		122,972
Other receivables and prepaid expenses		1,285,661		1,137,566
Advances to suppliers		20,438,121		8,582,346
Deposit in derivative hedge		-		1,000,000
Total current assets		175,011,997		149,601,115

PLANT AND EQUIPMENT, net		121,844,394		117,385,566

OTHER ASSETS:
Advances to suppliers, non-current		970,356		1,356,404
Notes receivables, non-current		679,106		699,106
Intangible asset, net of accumulated amortization		13,495,302		11,924,056
Goodwill		567,892		-
Deferred loan expense, net		-		2,045,349
Deferred tax assets		15,168,955		14,283,528
Total other assets		30,881,611		30,308,443
Total assets	$	327,738,002	$	297,295,124
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable, trade	$	6,224,215	$	4,002,773
Notes payable, current		-		10,000,000
Revolver line of credit		-		4,033,783
Other payables and accrued liabilities		3,328,446		3,928,374
Derivative instrument settlement payable, net		5,650,000		-
Taxes payable		2,209,696		2,599,055
Cross currency hedge payable		-		436,702
Obligation under capital lease, current		74,030		71,503
Total current liabilities		17,486,387		25,072,190
LONG-TERM LIABILITIES:
Notes payable, non-current		-		25,000,000
Obligation under capital lease, non-current		132,517		153,626
Deferred tax liabilities		260,853		-
Fair value of derivative instrument		-		7,532,527
Total long-term liabilities		393,370		32,686,153

Total liabilities		17,879,757		57,758,343

COMMITMENTS AND CONTINGENCIES		4,819,107

SHAREHOLDERS ’ EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued or outstanding as of March 31, 2010 and December 31, 2009		-		-
Common stock, $0.006 par value, 100,000,000 shares authorized, March 31, 2010: 37,248,672 shares issued and outstanding; December 31, 2009: 29,772,780 shares issued and outstanding		223,493		178,638
Additional paid in capital		162,050,378		105,540,676
Statutory reserves		17,566,294		16,282,793
Retained earnings		100,101,318		92,312,280
Accumulated other comprehensive income		25,097,655		25,222,394
Total shareholders’ equity		305,039,138		239,536,781
Total liabilities and shareholders’ equity	$	327,738,002	$	297,295,124

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)
(RESTATED)

	2010			2009
REVENUES	$	59,549,842		$	35,256,536

COST OF GOODS SOLD		41,728,576			26,317,161

GROSS PROFIT		17,821,266			8,939,375

OPERATING EXPENSES
Selling expenses		1,251,962			1,202,147
General and administrative expenses		3,722,550			3,0 70,242
Total operating expenses		4,974,512			4,272,389

INCOME FROM OPERATIONS		12,846,754			4,666,986

OTHER INCOME (EXPENSE)

Interest income		192,790			83,617
Interest expense		(508,482	)		(1,470,868	)
Change in fair value of derivative instrument		882,527			(2,762,129	)
Loss on cross currency hedge		(753,666	)		(166,410	)
Loss on debt extinguishment		(2,395,778	)		-
Change in fair value of derivative liability - warrants		-			(63,238	)
Change in fair value of derivative liability - conversion option		-			(539,037	)
Other expense, net		(141,072	)		(106,349	)
Total (loss) other expense, net		(2,723,681	)		(5,024,414	)

INCOME (LOSS) BEFORE INCOME TAXES		10,123,073			(357,428	)

Deferred income tax benefit		(885,427	)		(2,565,651	)
Current income tax expenses		1,935,961			930,311
Total income tax expenses (benefit), net		1,050,534			(1,635,340	)

NET INCOME		9,072,539			1,277,912

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment		(124,739	)		(393,908	)
COMPREHENSIVE INCOME	$	8,947,800		$	884,004

EARNINGS PER SHARE:
Basic	$	0.26		$	0.05
Diluted	$	0.26		$	0.05

WEIGHTED AVERAGE SHARES:
Basic		34,673,692			27,563,478
Diluted		35,309,847			27,695,464

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

(RESTATED)

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,072,539		$	1,277,912
Adjustments to reconcile net income provided by (used in) operating activities:
Change in fair value of derivatives instrument		(882,527	)		2,762,129
Recovery of bad debt		-			(33,391	)
Reserve for inventories		61,000			-
Write-off of non-current advances to suppliers		525,445			-
Depreciation		2,727,425			2,097,208
Deferred taxes		(885,427	)		(2,565,651	)
Amortization of intangible assets		122,487			119,076
Amortization of loan commission		249,571			272,450
Amortization of stock compensation expense		193,057			590,868
Loss on cross currency hedge		753,666			166,410
Loss on debt extinguishment		2,395,778			-
Change in fair value of derivative liability - conversion option		-			539,037
Change in fair value of derivative liability - warrants		-			63,238
Change in operating assets and liabilities
Accounts receivable		12,546,261			5,377,902
Inventories		(5,335,454	)		(12,585,925	)
Other receivables and prepayments		(162,514	)		(168,913	)
Notes receivables		(53,235	)		73,884
Advances to suppliers – current		(11,388,801	)		5,880,363
Accounts payable		126,673			(1,814,721	)
Other payables and accrued liabilities		(1,670,908	)		(2,094,857	)
Taxes payable		(506,088	)		(975,566	)
Net cash provided by (used in) operating activities		7,888,948			(1,018,548	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Jinchuan		(5,075,000	)		-
Cash acquired from acquisition of Jinchuan		859,264			-
Payments on cross currency hedge payable		(1,190,368	)		(114,580	)
Purchases of property and equipment		(1,262,493	)		(715,104	)
Net of payments on prepayment of equipment		-			(4,715,293	)
Net cash used in investing activities		(6,668,597	)		(5,544,977	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolver line of credit		(9,513	)		(586,809	)
Payoff of revolver line of credit		(4,024,270	)		-
Payments on short-term bank loans		-			(17,553,600	)
Payment on capital lease obligation		(18,582	)		-
Payment of high yield notes payable		(35,600,000	)		-
Proceeds on issuance of common stock and warrants		56,361,500			1,920,000
Net cash provided by (used in) financing activities		16,709,135			(16,220,409	)

EFFECT OF EXCHANGE RATE ON CASH		8,891			(110,978	)

CHANGE IN CASH		17,938,377			(22,894,912	)

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

CASH, end of period	$	78,536,226		$	42,716,858

Supplemental cash flow disclosures:
Interest paid	$	1,395,799		$	1,950,860
Income tax paid	$	1,802,931		$	1,002,178

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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.

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.

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

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, Europe, North Africa, the Middle East, and the PRC.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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

MARCH 31, 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 $658,296 and $553,645 for the three months ended March 31, 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 UK conducts business in British Pounds.

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 the 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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

The balance sheet amounts with the exception of equity at March 31, 2010 were translated at 6.826 RMB and £0.659 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 to $1.00, respectively. The average translation rates applied to income and cash flow statement amounts for three months ended March 31, 2010 were 6.827 RMB and £0.642 to $1.00, respectively. The average translation rates applied to income and cash flow statement amounts for three months ended March 31, 2009 were 6.836 RMB and £0.697 to $1.00, 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 March 31, 2010 and December 31, 2009, the Company had deposits in excess of federally insured limits totaling $78,048,245 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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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.

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 the PRC market remains the largest single market for the Company while approximately 23% and 28% of sales were spread across international markets during the first quarter of 2010 and 2009, respectively.

	March 31, 2010		March 31, 2009
	(Unaudited)		(Unaudited)
China	$	45,693,565	$	25,541,567
USA		10,024,017		7,306,836
Europe		2,189,236		1,478,246
Other countries		1,643,024		929,887
Total sales	$	59,549,842	$	35,256,536

Major customers and suppliers

Ten major customers accounted for 28% and 24% of sales for the three months ended March 31, 2010 and 2009, respectively. Total receivables balance due from the top ten customers at March 31, 2010 and December 31, 2009 amounted to $17,250,479 and $18,484,819, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Five major suppliers provided approximately 72.6% and 83.5% of the Company’s raw materials for the three months ended March 31, 2010 and 2009, respectively.

At March 31, 2010, our advances to the major five suppliers were $19,365,135, 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 March 31, 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

MARCH 31, 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

MARCH 31, 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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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 three months ended March 31, 2010 and March 31, 2009 amounted to $0 and $1,350, respectively.

If a cost does not extend an assets 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 months ended March 31, 2010 and 2009, there were no amounts expended for major renewals and betterments that were capitalized.

Repairs and maintenance expense for the three months ended March 31, 2010 and 2009 amounted to $286,664, and $131,010, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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 March 31, 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 7-15 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 March 31, 2010 and December 31, 2009, there was no impairment of intangible assets.

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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Research and development costs are recorded in general and administrative expenses. Research and development costs were $5,314 and $76,552 for the three months ended March 31, 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 three months ended March 31, 2010 and 2009, the Company properly excluded options, warrants and convertible notes 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

MARCH 31, 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. 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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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, China and US (See Note 20).

Recently issued accounting pronouncements

In May 2009, the FASB an accounting standard which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. The standard is effective for interim and annual periods ending after June 15, 2009, and accordingly, the Company adopted this Standard during the second quarter of 2009. The standard requires that public entities evaluate subsequent events through the date that the financial statements are issued.

In June 2009, the FASB issued an accounting standard amending the accounting and disclosure requirements for transfers of financial assets. This accounting standard requires greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and changes the requirements for derecognizing financial assets. In addition, it eliminates the concept of a qualifying special-purpose entity (“QSPE”). This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

In June 2009, the FASB also issued an accounting standard amending the accounting and disclosure requirements for the consolidation of VIEs. The elimination of the concept of a QSPE, as discussed above, removes the exception from applying the consolidation guidance within this accounting standard. Further, this accounting standard requires a company to perform a qualitative analysis when determining whether or not it must consolidate a VIE. It also requires a company to continuously reassess whether it must consolidate a VIE. Additionally, it requires enhanced disclosures about a company’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the company’s financial statements. Finally, a company will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued an accounting standard which establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification is effective for the Company with all public filings as of the effective date referenced to the Codification as the sole source of authoritative literature.

In August 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring liabilities at fair value. This ASU provides additional guidance clarifying the measurement of liabilities at fair value in circumstances in which a quoted price in an active market for the identical liability is not available; under those circumstances, a reporting entity is required to measure fair value using one or more of valuation techniques, as defined. This ASU is effective for the first reporting period, including interim periods, beginning after the issuance of this ASU. 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

MARCH 31, 2010

(Unaudited)

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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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.

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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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.

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.

Note–3 - Accounts receivable

Accounts receivable consisted of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Trade accounts receivable	$	57,990,847		$	68,309,284
Allowance for bad debts		(1,024,684	)		(1,024,684	)
Trade accounts receivable, net	$	56,966,163		$	67,284,600

The following table consists of allowance for doubtful accounts:

Allowance for doubtful accounts at December 31, 2008	$	318,529
Recovery of bad debt		(33,391	)
Accounts receivable write off		-
Effect of foreign currency translation		5,200
Allowance for doubtful accounts at March 31, 2009 (Unaudited)		290,338
Additional reserves		739,216
Accounts receivable write off		-
Effect of foreign currency translation		(4,870	)
Allowance for doubtful accounts at December 31, 2009		1,024,684
Additional reserves		-
Accounts receivable write off		-
Effect of foreign currency translation		-
Allowance for doubtful accounts at March 31, 2010 (Unaudited)	$	1,024,684

Note–4 - Inventories

Inventories consisted of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Raw materials	$	9,361,606		$	5,137,002
Work in process		3,042,451			2,777,890
Finished goods		5,292,936			3,007,279
Totals		17,696,993			10,922,171
Less allowance for obsolete inventory		(107,389	)		(46,389	)
Totals	$	17,589,604		$	10,875,782

The following table consists of allowance for obsolete inventory:

Allowance for obsolete inventory at December 31, 2008	$	160,487
Additional reserves		-
Recovery of reserve		(46,776	)
Effect of foreign currency translation		-
Allowance for obsolete inventory at March 31, 2009 (Unaudited)		113,711
Additional reserves		-
Reserves write off		(67,322	)
Effect of foreign currency translation		-
Allowance for obsolete inventory at December 31, 2009		46,389
Additional reserves		61,000
Recovery of reserve		-
Effect of foreign currency translation		-
Allowance for obsolete inventory at March 31, 2010 (Unaudited)	$	107,389

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Note–5 - Plant and equipment

Plant and equipment consisted of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Land	$	100,726		$	100,726
Buildings and improvements		61,379,011			43,665,594
Transportation equipment		4,177,943			4,177,943
Machinery and equipment		77,210,048			74,463,717
Office furniture		1,230,539			1,172,121
Construction in progress		6,101,868			19,449,384
Totals		150,200,135			143,029,485
Less accumulated depreciation		(28,355,741	)		(25,643,919	)
Totals	$	121,844,394		$	117,385,566

Construction in progress at March 31, 2010, consisted of the following:

No.	Project Description	March 31, 2010		Commencement Date	Expected completion date

1	Manufacturing machinery and equipment for CCA/CCS (Multiple)	$	3,245,052	Dec 2007	Jun, 2010
2	Manufacturing machinery and equipment for CCA/CCS (Multiple)		2,766,237	Dec 2009	Mar, 2011
3	Manufacturing machinery and equipment for CCA		90,579	Oct 2009	Sep, 2010
	Total	$	6,101,868

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 March 31, 2010 is approximately $0.4 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 March 31, 2010 is approximately $0.3 million.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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		6,132,168
Acquired through cash payment		408,436
Acquired from advanced payments		854,057
Acquired from accounts payable		974
Fixed assets transferred from CIP		13,771,961
CIP transferred to fixed assets		(13,771,961	)
VAT claimed on purchase of capital assets		(124,811	)
FX rate effect		(100,174	)
Balance as of March 31, 2010 (Unaudited)	$	150,200,135

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Depreciation expense for the years ended March 31, 2010 and 2009 amounted to $2,727,425 and $2,097,208, 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:

	March 31, 2010		December 31, 2009
	(Unaudited)
Advances for inventories – current	$	20,438,121	$	8,582,346
Advances for equipment – non current		970,356		1,356,404
Total advances to suppliers	$	21,408,477	$	9,938,750

Note 7 – Intangible assets

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

	March 31, 2010			December 31, 2009
	(Unaudited)
Patents	$	1,754,270		$	1,754,270
Land use rights		14,343,380			12,472,131
Total:		16,097,650			14,226,401
Less: accumulated amortization		(2,602,348	)		(2,302,345	)
Intangible assets, net	$	13,495,302		$	11,924,056

Amortization expense for the years ended March 31, 2010 and 2009 amounted to $122,487 and $119,076, respectively.

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

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

March 31 ,	Amount
2011	$	516,276
2012		515,996
2013		466,586
2014		372,295
2014		372,295
Thereafter		11,251,854

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

Prepaid taxes and taxes payable consisted of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Income tax	$	2,020,166	$	1,796,019
VAT provision		53,720		769,025
Others		135,810		34,011
Total taxes payable	$	2,209,696	$	2,599,055

	March 31, 2010		December 31, 2009
	(Unaudited)
Deferred tax liabilities	$	260,853	$	-

Income tax

The Company and its subsidiaries had the following tax rates for the three months ended March 31:

		2010			2010			2009			2009
Entities		Statutory			Income			Statutory			Income
		Income			Tax			Income			Tax
		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
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

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.

The Company’s wholly owned subsidiary, Fushi International, is a foreign limited liability company and is located in the old town of an inshore open city. Under the former Income Tax Laws of PRC, the Company qualified to use 24% income tax rate and has a 50% income tax reduction for the years ending December 31, 2008, 2009 and 2010. Under the new EIT law effected in 2008, the company uses a 25% income tax rate and continues to enjoy the former 50% income tax reduction for the years ending December 31, 2008, 2009 and 2010. The applicable corporate income tax rate in 2010 is 12.5%.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Dalian Fushi and Jinchuan were incorporated in the PRC and are subject to PRC income tax of 25%.

The provision for China income tax for the three months ended March 31, 2010 and 2009 was $1,935,961 and $930,311, respectively.

The estimated tax savings from the tax exemptions for the three months ended March 31, 2010, amounted to $1,767,608. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.26 to $0.21 and diluted earnings per share from $0.26 to $0.21.

The estimated tax savings from the tax exemptions for the three months ended March 31, 2009, amounted to $1,007,837. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.05 to $0.01 and diluted earnings per share from $0.05 to $0.01.

The Company has cumulative undistributed earnings from foreign subsidiaries of approximately $135 million and $127 million as of March 31, 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.

(b) UK income tax

Copperweld UK is organized as a United Kingdom private company and subject to 20% to 28% statutory taxes on its taxable income. Copperweld UK had no material income or loss from operations in the first three 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 Bimetallics, LLC were incorporated in the United States and consolidated 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 provision (benefit) for income taxes consisted of the following:

	March 31, 2010			March 31, 2009
	(Unaudited)			(Unaudited)
Provision for China income taxes	$	1,935,961		$	930,311
Deferred income taxes		(885,427	)		(2,565,651	)
Provision (Benefit) for income taxes	$	1,050,534		$	(1,635,340	)
Effective income tax rate		10.4	%		457.5	%

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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 liability or asset attributable to temporary differences is 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.

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		885,427
Deferred tax assets at March 31, 2010 (unaudited)	$	15,168,955

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 $44.6 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 China entities amounted to $8,094,570 and $6,154,094 for the three months ended March 31, 2010, and $4,477,366 and $7,115,089 for the three months ended March 31, 2009, respectively.

VAT on sales and VAT on purchases in Copperweld UK amounted to $62,612 and $95,809 for the three months ended March 31, 2010, and $28,182 and $57,538 for the three months ended March 31, 2009, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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 - Revolving credit lines

Revolving credit lines consisted of the following:

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

Revolving line of credit – Copperweld US

Copperweld maintained a revolving line of credit with Wells Fargo Bank (the “Lender”) under a Financing Agreement dated April 5, 2007, as amended (the “Financing Agreement”). 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 annual interest rate was equal to the daily three month LIBOR rate (0.25%) plus six percent under Forbearance Agreement before the line was paid off and closed.

Revolving line of credit – Copperweld UK

Copperweld UK maintains an invoice discounting credit facility with a limit of approximately $1,073,000 (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 March 31, 2010 and December 31, 2009.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Total interest expense on the revolving credit line for the three months ended March 31, 2010 and 2009 amounted to $23,328 and $90,775, respectively.

Note 10 – Notes payable

Notes payable consisted of the following:

	March 31, 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

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 $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.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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 three months ended March 31, 2010 and 2009 amounted to $160,000 and $ 262,497, respectively. Interest on long term notes, for the three months ended March 31, 2010, and 2009 amounted to $318,492, and $1,112,190, 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.

	March 31, 2010			December 31, 2009
Plant facility	$	266,598		$	266,598
Less: accumulated depreciation		(15,552	)		(8,887	)
Net leased plant facility	$	251,046		$	257,711

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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 March 31, 2010.

Year ending March 31,	Minimum lease Payment
2011	$	92,561
2012		100,976
Thereafter		42,073
Total minimum lease payments		235,610
Less: interest *1		(29,063	)
Present value of net minimum lease payments *2	$	206,547

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

*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 $74,030 and $132,517, respectively.

Interest expense related to capital leases amounted to $6,662 and $0 for the three months ended March 31, 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 March 31, 2010 and 2009, the Company recognized a gain of $128,861 and a loss of $2,928,539 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

MARCH 31, 2010

(Unaudited)

Note 13 - Earnings per share

The following is information of net income per share:

	March 31, 2010		March 31, 2009
	(Unaudited)		(Unaudited)
Net income for basic and diluted earnings per share	$	9,072,539	$	1,277,912

Weighted average shares used in basic computation		34,673,692		27,563,478
Dilutive effect of warrants, options and convertible note		636,155		131,986
Weighted average shares used in diluted computation		35,309,847		27,695,464

Earnings per share
Basic	$	0.26	$	0.05
Diluted	$	0.26	$	0.05

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

553,333

Anti-dilutive

04/10/2008 to 6/25/2008

Options

15.04-23.25

144,000

Anti-dilutive

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Note 14 - Stockholders' Equity

During 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 March 31, 2010:

Exercise Price		Number		Average Remaining Life (years)

$	3.11		279,772		1.75
$	16.80		100,000		1.65
$	5.25		100,000		0.29
$	5.50		100,000		0.29
$	6.00		100,000		0.79
			679,772		1.17

The following is a summary of the warrant activity:

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

	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		-
Balance, at March 31, 2009 (unaudited)		732,124		$	5.99	2.05 years
Granted		-
Forfeited		-
Exercised		(52,352	)	$	3.11
Balance, at December 31, 2009		679,772		$	6.22	1.24 years
Granted		-
Forfeited		-
Exercised		-
Balance, at March 31, 2010 (unaudited)		679,772		$	6.22	1.17 years

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		7,000	$ 15.04-$23.25
2009		688,000		149,300	$ 4.95-$7.93
2010		156,530		14,000	$ 8.61
Total		1,330,530		360,300

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

Grant Year	Granted Restricted Stock (Shares)		Forfeited and expired Restricted Stock (Shares)		Vested Restricted stock (Shares)		Grant date Fair market value ($)
2009		50,000		-		-	$	8.08
2010		51,000		-		12,750	$	8.61
Total		101,000		-		12,750

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.

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:

	Year ended, 2010			Year ended, 2009			Year ended 2008			Year ended 2007
Risk-free interest rate (1)	0.87		%	0.78%-2.2		%	1.84%-2.82		%	3.54%-4.57		%
Expected dividend yield (2)	-			-			-			-
Expected option life (3)	2 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	$	2.88		$	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 Staff Accounting Bulletin No. 107. An increase in expected life will increase compensation expense.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

(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 $193,057 and $590,868 of share-based compensation expense in general and administrative expenses for the three months ended March 31, 2010 and 2009, respectively.

As of March 31, 2010 and 2009, the total compensation cost related to stock options not yet recognized was $1,225,734 and $756,062 and will be recognized over the weighted average life of 0.9 years and 0.4 years, respectively. At March 31, 2010 and 2009 the total compensation cost related to restricted stock not yet recognized was $733,333 and $0 and will be recognized over the weighted average life of 3 years and 0 years, respectively.

As of March 31, 2010, the 782,333 executive options, 240,000 director options and 341,480 employee options outstanding had fair values of approximately $3,042,692, $912,761 and $942,686, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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		$	14.9		-
Granted		388,000		$	4.95		-
Forfeited		(36,000	)	$	4.95		-
Exercised		-			-		-
Balance, March 31, 2009 (unaudited)		1,419,333		$	12.41		-
Granted		300,000		$	6.19		-
Forfeited		(13,050	)	$	4.95		-
Expired		(95,000	)	$	17.19		-
Exercised		(13,000	)	$	4.95		-
Balance, December 31, 2009		1,598,283		$	11.38	$	2,383,162
Granted		156,530		$	8.61		-
Forfeited		(114,250	)	$	7.65		-
Expired		(275,000	)	$	12.30		-
Exercised		(1,750	)	$	4.95		-
Balance, March 31, 2010 (unaudited)		1,363,813		$	11.19	$	3,061,170

Following is a summary of the status of options outstanding at March 31, 2010:

Outstanding Option					Exercisable Options
Exercise Price		Number		Average Remaining Contractual Life	Average Exercise Price		Number		Weighted Average Exercise Price
$	12.30		133,333	2.14 years	$	12.30		133,333	$	12.30
$	11.75		150,000	2.26 years	$	11.75		150,000	$	11.75
$	13.70		125,000	1.49 years	$	13.70		125,000	$	13.70
$	16.44 to 20.94		135,000	1.87 years	$	18.69		135,000	$	18.69
$	16.36		10,000	1.62 years	$	16.36		10,000	$	16.36
$	23.25		77,000	1.75 years	$	23.25		77,000	$	23.25
$	15.04		17,000	2.03 years	$	15.04		17,000	$	15.04
$	20.04		50,000	3.14 years	$	20.04		45,309	$	20.04
$	4.95		323,950	2.75 years	$	4.95		323,950	$	4.95
$	7.93		200,000	9.62 years	$	7.93		-	$	7.93
$	8.61		142,530	6.75 years	$	8.61		19,566	$	8.61
Total			1,363,813					1,036,158

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 March 31, 2010and 2009, the PRC Entities made appropriations to the reserve fund of $ 1,283,501 and $ 682,228 respectively.

As of March 31, 2010 and December 31, 2009, the accumulated balance of the statutory surplus reserve was $ 17,566,294 and $ 16,282,793, respectively.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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 $39,387 and $31,991 in contributions of employment benefits for China employees in the three months ended March 31, 2010 and 2009, 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. The Company made $0 and $30,540 in contributions of employment benefits for US employees for the three months ended March 31, 2010 and 2009, respectively. As of June 1, 2009, the Company no longer matches employee contributions for US employees.

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

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 $2,185 and $2,778 in contributions of employment benefits for UK employees in three months ended March 31, 2010 and 2009, respectively.

Note 18 - Commitments and contingencies

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 $4,265,977 and net income amounted to $461,751 which was included in the consolidated statements of income and other comprehensive income for the quarter ended March 31, 2010.

Supplemental Pro Forma

The following unaudited pro forma consolidated condensed income statements for the three months ended March 31, 2010 and 2009, were prepared under generally accepted accounting principles as if the acquisition of Jinchuan 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.

	For the three months ended March 31, 2010			For the three months ended March 31, 2009
	(Unaudited)			(Unaudited)
Sales	$	61,560,191		$	39,427,807
Cost of Goods Sold		43,326,407			29,679,300
Gross Profit		18,233,784			9,748,507
Operating Expenses		5,022,587			4,416,733
Income from Operations		13,211,198			5,331,774
Other Expense, net		(2,731,646	)		(5,024,414	)
Income before Income Tax		10,479,552			307,360
Income tax expenses (benefit)		1,141,164			(1,469,143	)
Net Income	$	9,338,388		$	1,776,503

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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.

For the years ended March 31, 2010 and 2009, the Company has two reportable segments: China and US. We analyze our worldwide operations based on two geographic reportable segments: 1) “P.R.C.” which consists of our facility Located in Dalian, Liaoning, the People’s Republic of China (PRC) and 2) ”US” which consists of our Fayetteville, Tennessee, (USA), and Telford, England, (UK) facilities. The China segment, through the Dalian and Jinchuan manufacturing facility, is engaged in developing, designing, manufacturing, marketing and distributing copper-cladded 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-cladded 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.

The below table illustrates the composition of the UK operations:

	For the three months ended March 31, 2010		For the three months ended March 31, 2009
Revenue	$	1,150,303	$	696,720
Net income (loss)		32,442		(29,256	)

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

		March 31, 2010				December 31, 2009
Assets		$	2,877,783			$	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 three months ended March 31, 2010
	PRC		US		Corporate			Eliminations			Total

Revenues	$	47,364,786	$	13,306,004	$	-		$	(1,120,948	)	$	59,549,842

Gross Profit		16,014,292		1,806,974		-			-			17,821,266
Selling, general and administrative expenses		2,634,936		1,336,866		1,002,710			-			4,974,512
Operating income (loss)		13,378,356		470,108		(1,002,710	)		-			12,846,754
Capital expenditures		1,246,914		15,579		-			-			1,262,493
Depreciation expense (Included in cost of goods sold and Operating expense)	$	2,238,983	$	488,442	$	-		$	-		$	2,727,425

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(Unaudited)

For the three months ended March 31, 2009
	PRC		US			Corporate			Eliminations		Total

Revenues	$	26,337,445	$	8,770,228		$	-		$	148,863	$	35,256,536

Gross Profit		8,659,235		280,140			-			-		8,939,375
Selling, general and administrative expenses		1,663,817		1,596,048			1,012,524			-		4,272,389
Operating income (loss)		6,995,418		(1,315,908	)		(1,012,524	)		-		4,666,986
Capital expenditures		5,253,033		177,364			-			-		5,430,397
Depreciation expense (Included in cost of goods sold and Operating expense)	$	1,733,885	$	363,323		$	-		$	-	$	2,097,208

	PRC		US		Corporate		Total
As of March 31, 2010
Property, plant and equipment, net	$	110,232,771	$	11,611,623	$	-	$	121,844,394

Total assets	$	275,079,781	$	28,467,340	$	24,190,881	$	327,738,002

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 fair value of contingent liability that amounted to $4,819,107 to former Jinchuan shareholders by using an annual discount rate of 5.31%. See Note 19 – Business Combination for detail.

Note 22 – Subsequent Events

As detailed in Note 12, the Company paid off the remaining SWAP unwind price amounting to $5,650,000 to Merrill Lynch on April 6, 2010.

Note 23 – Condensed Parent Company Financial Statements

FUSHI COPPERWELD, INC.

CONDENSED PARENT COMPANY BALANCE SHEETS

AS OF MARCH 31, 2010 AND DECEMBER 31, 2009

(Restated)

	March 31,		December 31,
	2010		2009
	Unaudited
ASSETS
CURRENT ASSETS:
Cash	$	9,021,926	$	98,839
Deposit in derivative hedge		-		1,000,000
Total current assets		9,021,926		1,098,839

OTHER ASSETS:
Investments in subsidiaries		306,454,376		290,640,043
Deferred loan expense, net		-		1,955,778
Deferred tax assets		15,168,955		14,283,528
Total other assets		321,623,331		306,879,349

Total assets	$	330,645,257	$	307,978,188

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable, current	$	-	$	10,000,000
Other payables and accrued liabilities		1,132,161		2,609,037
Cross currency hedge payable		-		436,702
Derivative instrument settlement payable, net		5,650,000		-
Total current liabilities		6,782,161		13,045,739

LONG-TERM LIABILITIES:
Intercompany payables		18,823,958		22,863,141
Notes payable, non-current		-		25,000,000
Fair value of derivative instrument		-		7,532,527
Total long-term liabilities		18,823,958		55,395,668

Total liabilities		25,606,119		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 March 31, 2010 and December 31, 2009		-		-
Common stock,$0.006 par value, 100,000,000 shares authorized, March 31, 2010: 37,248,672 shares issued and outstanding December 31, 2009: 29,772,780 shares issued and outstanding		223,493		178,638
Additional paid in capital		162,050,378		105,540,676
Statutory reserves		17,566,294		16,282,793
Retained earnings		100,101,318		92,312,280
Accumulated other comprehensive income		25,097,655		25,222,394
Total shareholders' equity		305,039,138		239,536,781

Total liabilities and shareholders' equity	$	330,645,257	$	307,978,188

FUSHI COPPERWELD, INC.

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

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Restated)

	Three months ended March 31,
	2010			2009
	Unaudited			Unaudited
OPERATING EXPENSES

General and administrative expenses	$	1,002,710		$	1,012,524
Total operating expenses		1,002,710			1,012,524

OTHER INCOME (EXPENSE)

Interest and other expense, net		(458,056	)		(1,373,843	)
Loss on cross currency hedge		(753,666	)		(166,410	)
Loss on debt extinguishment		(2,395,778	)		-
Change in derivative liability - warrants		-			(63,238	)
Change in derivative liability - conversion option		-			(539,037	)
Change in fair value of derivative instrument		882,527			(2,762,129	)
Total other expense, net		(2,724,973	)		(4,904,657	)

EQUITY INCOME EARNINGS OF SUBSIDIARIES		11,914,795			4,629,441

INCOME (LOSS) BEFORE INCOME TAXES		8,187,112			(1,287,740	)

BENEFIT FOR INCOME TAXES		885,427			2,565,651

NET INCOME		9,072,539			1,277,911

OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		(124,739	)		(393,908	)

COMPREHENSIVE INCOME	$	8,947,800		$	884,003

FUSHI COPPERWELD, INC.

CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Restated)

	Unaudited			Unaudited
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	9,072,539		$	1,277,911
Adjustments to reconcile net loss
used in operating activities:
Change in fair value of derivative instrument		(882,527	)		2,762,129
Equity in earnings of subsidiaries		(11,914,795	)		(4,629,441	)
Deferred taxes		(885,427	)		(2,565,651	)
Amortization of loan commission		160,000			262,497
Amortization of stock compensation expense		193,057			590,868
Loss on cross currency hedge		753,666			166,410
Loss on debt extinguishment		2,395,778			-
Change in derivative liability - warrants		-			63,238
Change in derivative liability - conversion option		-			539,037
Change in operating assets and liabilities:
Other payables and accrued liabilities		(1,476,876	)		(2,225,024	)
Net cash used in operating activities		(2,584,585	)		(3,758,026	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries		(4,024,277	)		(2,630,753	)
Payments on cross currency hedge payable		(1,190,368	)		(114,580	)
Net cash used in investing activities		(5,214,645	)		(2,745,333	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany payables		(4,039,183	)		4,574,775
Payment of high yield notes payable		(35,600,000	)		-
Proceeds on issuance of common stock and warrants		56,361,500			1,920,000
Net cash provided by financing activities		16,722,317			6,494,775

CHANGE IN CASH		8,923,087			(8,584	)

CASH, beginning of period		98,839			30,414

CASH, end of period	$	9,021,926		$	21,830

SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	$	1,343,849		$	1,852,432

FUSHI COPPERWELD, INC.

CONDENSED NOTES TO PARENT FINANCIAL INFORMATION

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:

	March 31, 2010		December 31, 2009

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, thus left $5,650,000 payables to MLCS as of March 31, 2010 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.	Subsequent events

See Note 22 of the Notes to the Consolidated Financial Statements for a description of subsequent events.

Note 24 –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 acquisition of Jinchuan Electric Cable Co., Ltd. (“Jinchuan”). 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 ended March 31, 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. As a result, the purchase consideration exceeded the fair value of net assets acquired, resulting in goodwill of approximately $0.6 million. We restated our consolidated balance sheets as of March 31, 2010 and consolidated statement of income for the three months ended March 31, 2010 to reflect the above changes.

Balance Sheet sheet items	March 31		March 31		December 31		December 31
	2010		2010		2009		2009
	Restated		Original		Restated		Original

Plant and Equipment, net	$	121,844,394	$	125,677,015	$		$
Goodwill		567,892		-
Deferred tax assets						14,283,528		11,722,469
Deferred Tax Liabilities		260,853		-
Commitment and Contingencies		4,819,107		5,075,000

Retained earnings		100,101,318		103,371,007		92,312,280		97,283,748
Accumulated other comprehensive income						25,222,394		17,689,867
Total shareholders' equity		305,039,138		308,308,827		239,536,781		236,975,722
Total Assets	$	327,738,002	$	331,002,731	$	297,295,124	$	294,734,065

Income Statement item	FOR THE THREE MONTHS ENDED MARCH 31,
	2010			2010			2009			2009
	Restated			Original			Restated			Original

General and administrative expenses	$	3,722,550		$	3,757,874		$			$
Acquisition gain		-			3,305,013
Loss on extinguishment of derivative instrument		-			(6,650,000	)
Change in fair value of derivative instrument- gain/(loss)		882,527			-			(2,762,129	)		-

Deferred income tax expense (benefit)		(885,427	)		(3,446,486	)		(2,565,651	)		-
Net Income		9,072,539			7,370,760			1,277,912			3,100,917
Other Comprehensive Income		(124,739	)		7,407,788			(393,908	)		(3,156,037	)
Comprehensive Income	$	8,947,800		$	14,778,548		$	884,004		$	(55,120	)

Earnings per share:
Basic	$	0.26		$	0.21		$	0.05		$	0.11
Diluted	$	0.26		$	0.21		$	0.05		$	0.11

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) Dalian Jinchuan Power Cable Co., Ltd. (“Jinchuan”); (v) Dalian Fushi Bimetallic Wire Manufacturing, Co., Ltd. (“Dalian Fushi”), (vi) Copperweld Holdings, LLC, (vii) Copperweld Bimetallic, LLC (“Copperweld”) and (viii) 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 producer, based on manufacturing capacity, and a leading innovator of bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS) products. Our products are primarily used within the telecommunications, electrical utility, and transportation industries, and are sold as conductor components within the broadband wire and cable market, and finished products in the electrical utility and transportation markets. Our products significantly reduce the amount of copper required to manufacture a conductor, and since copper is expensive; we significantly reduce conductor cost through the addition of an aluminum or steel core. CCA and CCS conductors are generally used in substitution of solid copper conductors where either cost savings or specific electrical and/or physical attributes are either required or desired. In the first fiscal quarter of 2010, our products were sold to over 500 customers in 25 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 primarily served by each of our manufacturing facilities and significant differences in the operating results among each of our facilities, starting with the second fiscal quarter of 2009, we began to analyze our worldwide operations based on two geographic reportable segments: 1) “PRC” which consists of our facilities located in Dalian, Liaoning, the People’s Republic of China (PRC) and 2) “US” which consists of our Fayetteville, Tennessee, (USA), and Telford, England, (UK) facilities. We have combined our U.S. and U.K. operations as one segment since the UK is a subsidiary of the US operating company and is under the direction of our U.S. segment manager. Further, the nature of our products, services and production processes at our U.S. and U.K. facilities, along with the customer base, methods to distribute products and services are nearly identical.

We believe we have a strong market position in all markets in which we compete due to the quality of our products, 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 bimetallic wire products in the world and are one of the market leaders in North America, Europe, North 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 into 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, delivery, cost 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 of 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 to the company and our customers. For many applications, bimetallic conductors offer significant advantages over copper wire. End-user manufacturers in the 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, 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 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 for 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 March 31, 2010 include:

GAAP net income increased 610.0% to $9.1M or $0.26 per diluted share compared to the three months ended March 31, 2009, adjusted net income increased 148.3% to $10.2M or $0.29 per diluted share;

Metric tons of volume shipped from our PRC segment increased 13.3% compared to the first quarter of 2009;

Closed acquisition of Dalian Jinchuan Power Cable;

Operating income margin increased 840 basis points from 13.2% to 21.6% of revenues;

Returned to profitability at Fayetteville facility; generated approximately $0.3 million of net income; and

Generated $7.9 million of cash flow from operations in the quarter compared to a deficit $1.0 million in the same period of 2009.

Current Business Environment and Outlook for the remainder of 2010

With respect to the overall business trends for the remainder of 2010 and beyond, statistics showed that the global economy has been making a gradual recovery since the second half of 2009. China, a market from which we have generated most of our revenue and growth, saw its GDP growth in the first quarter of 2010 jump by 11.9% compared with the same period of last year, and the GDP growth in the full year 2009 increased by 8.7% compared with that of 2008.

Furthermore, we think the following macro-level trends will positively impact our business and offer us opportunities to preserve profitability and capture new business despite global economic conditions:

3G in China and continued growth in demand for CCA-based telecommunication products;

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

Continued strength of the grounding wire market;

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

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 are eager to begin targeting this market more aggressively. Furthermore, we believe the acquisition of Jinchuan will accelerate our expansion into the power cable industry by allowing us to provide our products to the early adopters, both suppliers and customers, more quickly.

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, 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:

	Three Months Ended
	March 31,			March 31,			Change
	2010			2009			%

Revenues		59.5			35.3			68.9	%
Gross Profit		17.8			8.9			99.4	%
Selling, general and administrative expenses		5.0			4.3			16.3	%
Operating Income		12.8			4.7			172.3	%
Income Before Taxes		10.1			(0.3	)		-2932.2	%
Benefit for income taxes		(1.0	)		1.6			-164.2	%
Net Income		9.1			1.3			610.0	%

Comparison of the Three Months Ended March 31, 2010 and March 31, 2009:

Net Sales

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

	Net Sales
	Three Months Ended March 31,
	2010					2009
	Amount		% of Net Sales			Amount		% of Net Sales			Dollar Change		% Change
PRC	$	46.2		77.6	%	$	26.4		74.8	%	$	19.8		75.0	%
US	$	13.3		22.4	%	$	8.9		25.2	%	$	4.4		49.4	%
Total net sales	$	59.5		100.0	%	$	35.3		100.0	%	$	24.2		68.9	%

	Metric Tons Sold
	Three Months Ended March 31,
	2010					2009
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change		% Change
PRC *		6,669		73.3	%		5,886		73.7	%		783		13.3	%
US		2,431		26.7	%		2,096		26.3	%		335		16.0	%
Total sales volume		9,100		100.0	%		7,982		100.0	%		1,118		14.0	%

* Not including volume contributed by the Jinchuan acquisition which is measured by meters.

Net sales were $59.5 million in the first quarter of 2010, compared to $35.3 million in the same period of last year. The 68.9% increase in sales was primarily attributable to (i) an increase in copper-clad sales volume of 14.0%; ii) the inclusion of the Jinchuan acquisition which contributed $4.3 million in sales, and iii) a 48.2% increase in the average selling price as a result of a rise in the cost of our raw materials. We generally pass the cost of price changes in raw materials to customers when we set the base price for our products. As raw material prices change, we pass through that change whether it results in an increase or decrease in the base price of our products.

The PRC segment experienced an increase of 75.0% in net sales for the first quarter ended March 31, 2010 compared to the similar period of 2009. The increase in PRC net sales is due to a (i) 41.4% increase in average selling prices of CCA as a result of higher acquisition costs of raw materials, (ii) a 13.3% increase in sales volume, and (iii) the inclusion of Jinchuan. Historically, the first quarter of the calendar year has been a slower quarter in light of the spring festival in PRC. For the remainder of the year and beyond, we expect (i) demand for our telecom based products to be positively affected by the continued build-out of the homegrown 3G network in the PRC, and (ii) continued expansion into the utility market due to government spending on infrastructure related build-out and installation of CCS cladding capacity. In addition, the acquisition of Jinchuan allowed us to process our products further downstream and provide a strategic expansion into the utility market sub-segment.

The US segment experienced an increase of 49.4% in net sales for the first quarter of 2010 compared to the first quarter of 2009. The increase is primarily due to the increase in the utilization rate in Fayetteville from 27.9% in the first quarter of 2009 to 32.1% in the same period of 2010, and higher acquisition costs of raw materials on a year-to-year basis.

Net Sales by Industry

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

	Net Sales
	Three Months Ended March 31,
	2010					2009
	Amount		% of Net Sales			Amount		% of Net Sales			Dollar Change		% Change
Telecommunication	$	25.1		42.2	%	$	14.3		40.5	%		10.8		75.5	%
Utility		29.5		49.6	%		18.9		53.6	%		10.6		56.1	%
Transportation		0.6		1.0	%		0.4		1.1	%		0.2		50.2	%
Other		4.3		7.2	%		1.7		4.8	%		2.6		152.9	%
Total net sales	$	59.5		100.0	%	$	35.3		100.0	%		24.2		68.9	%

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

	Three Months Ended March 31,
	2010					2009
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change			% Change
Telecommunication		4,351		47.8	%		3,468		43.4	%		883			25.5	%
Utility *		3,703		40.7	%		4,026		50.5	%		(323	)		-8.0	%
Transportation		74		0.8	%		61		0.8	%		13			21.3	%
Other		972		10.7	%		427		5.3	%		545			127.6	%
Total sales volume		9,100		100.0	%		7,982		100.0	%		1,118			14.0	%

* Not including volume contributed by the Jinchuan acquisition which is measured by meters.

During the quarter ended March 31, 2010, our copper-clad sales to the telecommunication markets increased by 883 metric tons, or 25.5%, compared to the same period in 2009, primarily due to continued strong demand for our CCA products in the PRC as a result of the 3G build-out and strengthening of demand within markets served by our US segment. With CCS capacity at our PRC facility now complete, as we recently announced, we will be pursuing the telecommunications market opportunity even more vigorously.

Utility sales of copper-clad products in volume decreased by 323 metric tons, or 8.0%, in the first quarter 2010 compared to the similar period in 2009, reflecting fluctuating demand tied to the timing of government capital spending on infrastructure related projects. This was partially offset by improving sales within markets served by our US operations as a result of recovering economic conditions. The 56.1% increase in net sales in dollar amount to the utility markets was primarily attributable to higher average selling price and the inclusion of the Jinchuan acquisition which contributed $4.3 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 Output

The following table summarizes installed cladding capacities and output for the three month period ended March 31, 2010:

	Three Months Ended March 31, 2010
	PRC *				US
	Capacity (MT)		Output (MT)		Capacity (MT)		Output (MT)
CCA		10,000		7,039		3,100		794
CCS		200		12		4,075		1,606
Total		10,200		7,051		7,175		2,400

* Not including the capacity and output of Jinchuan for power cable production.

Product Mix

The following table summarizes the breakdown of metric tons shipped to customers by product mix:

	Metric Tons Sold
	Three Months Ended March 31,
	2010					2009
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change		% Change
CCA		7,330		80.5	%		6,323		79.2	%		1,007		15.9	%
CCS		1,619		17.8	%		1,585		19.9	%		34		2.1	%
Others *		151		1.7	%		74		0.9	%		77		104.1	%
Total net sales		9,100		100.0	%		7,982		100.0	%		1,118		14.0	%

* Not including volume contributed by the Jinchuan acquisition which is measured by meters.

The sales of CCA in volume from our PRC segment increased by 12.1%, or 708 metric tons in the first quarter of 2010 compared to the same period in 2009. The demand for our CCA products in the PRC strengthened during the first quarter of 2010 compared to 2009 due to increased traction of domestic infrastructure projects related to the stimulus package and 3G network build-out. The sales of CCA in volume from our Fayetteville facility increased by 58.8%, or 290 metric tons in the first quarter of 2010 compared to the same period in 2009. The increase is primarily due to the extensive use of CCA within telecom in the U.S., European, and South America markets and improving economic conditions in those areas.

The sales of CCS on a consolidated basis slightly increased by 2.1%, or 34 metric tons in the first quarter of 2010 compared to the same period in 2009. We successfully installed 8,200 MT of CCS cladding capacity at our Dalian facility within the PRC segment at onset of the second quarter of 2010.

Gross Profit and Gross Margin

	Three Months Ended March 31,						Change
(in millions)	2010			2009			Dollar		%
Gross Margin	$	17.8		$	8.9		$	8.9		99.4	%
Gross Margin		29.9	%		25.4	%				4.5	%

Gross profit was $17.8 million in the quarter ended March 31, 2010 compared to $8.9 million in the same period of 2009, representing an increase of 99.4%. This increase is primarily driven by $24.2 million increase in net sales compared to the quarter ended March 31, 2009, higher gross margins, and inclusion of Jinchuan. Gross margin increased from 25.4% to 29.9% due primarily to improved product mix and higher capacity utilization rates.

Selling Expenses

	Three Months Ended March 31,						Change
(in millions)	2010			2009			Dollar		%
Selling Expenses	$	1.3		$	1.2		$	0.1		8.3	%
as a percentage of net sales		2.2	%		3.4	%				-1.2	%

Selling expenses were $1.3 million in the quarter ended March 31, 2010 compared to $1.2 million in the similar period in 2009, representing an increase of 8.3%. This increase is primarily due to increased efforts to penetrate the electrical utility market. As a percentage of net sales, selling expenses decreased from 3.4% in the first quarter of 2009 to 2.2% in the same period of 2010 as we benefited from the cost cutting initiatives implemented.

General and Administrative Expenses

	Three Months Ended March 31,						Change
(in millions)	2010			2009			Dollar		%
General and Administrative Expenses	$	3.7		$	3.1		$	0.6		19.4	%
as a percentage of net sales		6.3	%		8.8	%				-2.5	%

General and administrative (G&A) expenses were $3.7 million in the quarter ended March 31, 2010 compared to $3.1 million in the same period in 2009, representing an increase of 19.4%, or $0.6 million. This increase is primarily due to increased revenues and additional G&A expenses from our newly acquired Jinchuan facility. As a percentage of net sales, G&A expenses decreased from 8.8% in the first quarter of 2009 to 6.3% in the same period of 2010 primarily due to increased revenues and increased operating leverage.

Operating Income

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

	Three Months Ended March 31,
	2010						2009
	Amount			% of Operating income			Amount			% of Operating income			Dollar Change		% Change
PRC	$	13.3			103.9	%	$	7.0			148.9	%	$	6.3		90.0	%
US	$	0.5			3.9	%	$	(1.3	)		-27.7	%	$	1.8		-138.5	%
Corporate	$	(1.0	)		-7.8	%	$	(1.0	)		-21.2	%	$	-		-
Total operating income	$	12.8			100.0	%	$	4.7			100.0	%	$	8.1		172.3	%

Total operating income was $12.8 million in the quarter ended March 31, 2010 compared to $4.7 million in the same period of 2009, representing an increase of 172.3%, or $8.1 million. This increase is primarily due to a significant increase of revenues and operating profit contributed by our PRC segment of $19.8 million and $6.3 million, respectively. The operating income within our US segment was $0.5 million compared with a deficit of $1.3 million in the same period of last year due to increased revenues, cost savings initiatives and higher capacity utilization.

Other Income (Expense)

Interest income (expenses)

	Three Months Ended March 31,						Change
(in millions)	2010			2009			Dollar		%
Interest Income	$	0.2		$	0.1		$	0.1		100.0	%
Interest Expense	$	(0.5	)	$	(1.5	)	$	1.0		-66.7	%
Net Interest Expense	$	(0.3	)	$	(1.4	)	$	1.1		-78.6	%
as a percentage of net sales		-0.5	%		-4.0	%				3.5	%

Net interest expense decreased to $0.3 million in the quarter ended March 31, 2010 from $1.4 million in the same period of 2009, while as a percentage of net sales, net interest expense decreased to 0.5% of net sales from 4.0% of net sales. This decrease is primarily the result of the repayment of PRC’s short term bank loans in 2009 and repurchase and retirement of the Company’s Senior Secured Convertible Notes and Senior Secured Floating Rate Notes Due 2012 in the fourth quarter of 2009 and the first quarter of 2010, respectively.

Tax

	Three Months Ended March 31, 2010
	PRC		US		Parent Company			Consolidated
Profit (Loss) before income tax	$	10.2	$	0.4	$	(0.5	)	$	10.1
Income tax expense (credit)	$	1.9		-		(0.9	)		1.0
Profit (loss) after income tax	$	8.3	$	0.4	$	0.4		$	9.1

Profit before tax for PRC was $10.2 million in the three months ended March 31, 2010 with profits from the US segment before tax of $0.4 million. Loss at the parent company level was $0.5 million primarily due to the unwinding of a cross currency hedge, which resulted in a loss upon the debt extinguishment of the high yield note and upon the derivative extinguishment, as well as professional fees and outside service expenses. On a consolidated basis, profit before tax was $10.1 million and we recognized a net of tax expense of $1.0 million. The effective tax rate on a consolidation basis for this quarter was an expense of 10.4%.

Net Income

	Three Months Ended March 31,						Change
(in millions)	2010			2009			Dollar		%
Net Income Before Taxes	$	10.1		$	(0.3	)	$	10.4		-3466.7	%
Benefit for Income Taxes	$	1.0		$	(1.6	)	$	2.6		162.5	%
Net Income After Taxes	$	9.1		$	1.3		$	7.8		600.0	%
as a percentage of net sales		15.2	%		3.6	%				11.6	%

Net income was $9.1 million in the quarter ended March 31, 2010 compared to $1.3 million in the same period in 2009, representing an increase of 600.0%. As a percentage of net sales, net income increased from 3.6% in the first quarter of 2009 to 15.2% in the same period of 2010 primarily due to higher profitability.

Earnings per Share

	Three Months Ended March 31
	2010		2009
	Unaudited		Unaudited
Net Income for Basic Earnings Per Share	$	9,072,539	$	1,277,912
Basic Weighted Average Number of Shares		34,673,692		27,563,478
Net Income per Share – Basic	$	0.26	$	0.05
Net Income for Diluted Earnings Per Share	$	9,072,539	$	1,277,912
Diluted Weighted Average Number of Shares		35,309,847		27,695,464
Net Income per Share – Diluted	$	0.26	$	0.05

Basic and diluted earnings per share (EPS) for the quarter ended March 31, 2010, were $0.26 and $0.26, respectively, compared to $0.05 and $0.05, respectively, for the comparable period in 2009.

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

	Selected Balance Sheet Data
	March 31, 2010,		December 31, 2009		Change
(in millions)	Unaudited				Dollar			%
Cash	$	78.5	$	60.6	$	17.9			29.5	%
Accounts Receivable, net	$	57.0	$	67.3	$	(10.3	)		-15.3	%
PP&E	$	121.8	$	117.4	$	4.4			3.7	%
Total Assets	$	327.7	$	297.3	$	30.4			10.2	%
Short Term Debt	$	6.2	$	14.0	$	(7.8	)		-55.7	%
Long Term Debt	$	-	$	25.0	$	(25.0	)		-100.0	%
Shareholders' Equity	$	305.0	$	239.5	$	65.5			27.3	%

Our financial condition continues to improve as measured by an increase of 27.3% in shareholders’ equity during the three months of 2010. Cash increased 29.5% 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 $25.0 million long term loans. Accounts receivable decreased 15.3% as a result of collection of long-time outstanding receivables. Short term debt decreased by 55.7%, primarily as a result of repayments of the current portion of the high yield notes. Long term debt declined by $25.0 million because we repurchased and cancelled the Senior Secured Floating Rate Notes Due 2012 in March, 2010.

Plant and equipment consisted of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Land	$	100,726		$	100,726
Buildings and improvements		63,563,230			43,665,594
Transportation equipment		4,177,943			4,177,943
Machinery and equipment		77,787,498			74,463,717
Office furniture		1,267,021			1,172,121
Construction in progress		6,101,868			19,449,384
Totals		152,998,286			143,029,485
Less accumulated depreciation		(31,153,892	)		(25,643,919	)
Totals	$	121,844,394		$	117,385,566

Construction in progress at March 31, 2010 consisted of the following:

		March 31, 2010		Commencement	Expected
No.	Project Description	(Unaudited)		Date	completion date
1	Manufacturing machinery and equipment for CCA/CCS (Multiple)	$	3,245,052	Dec-07	Jun-10
2	Manufacturing machinery and equipment for CCA/CCS (Multiple)		2,766,237	Dec-09	Mar-11
3	Manufacturing machinery and equipment for CCA		90,579	Oct-09	Sep-10
	Total	$	6,101,868

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 costs to complete Project No.1 as of March 31, 2010 are approximately $0.4 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 costs to complete Project No.2 as of March 31, 2010 are approximately $0.3 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-07	Mar-10
2	Corporation administration office building		13,144,394	May-03	Dec-10
3	Manufacture building (PRC)		630,389	Jan-08	Jun-10
4	Manufacturing machinery and equipment for CCA/CCS (Multiple)		1,322,848	Dec-09	Mar-11
5	Manufacturing machinery and equipment for CCA		75,000	Oct-09	Mar-10
	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.

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 March 31, 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 to recapitalize our non-PRC operations and plan on securing new working capital lines for non-PRC operations as necessary as our sales increases 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:

	Three Months Ended March 31,
(in millions)	2010			2009
Net cash provided by (used in) operating activities	$	7.9		$	(1.0	)
Net cash used in investing activities	$	(6.7	)	$	(5.5	)
Net cash provided by (used in) financing activities	$	16.7		$	(16.2	)
Effect of exchange rate on cash	$	0.0		$	(0.1	)
Cash and cash equivalents at beginning of period	$	60.6		$	65.6
Cash and cash equivalents at end of period	$	78.5		$	42.7

For the three months ended March 31, 2010, net cash provided by operating activities was $7.9 million, an increase of $8.9 million compared to the same period in 2009, reflecting a significant improvement in operating cash flow year over year. The favorable change is primarily attributable to an increase in net income of $7.8 million and a $7.2 million decrease in accounts receivables and a $7.3 million decrease in inventories, partially offset by an $17.3 million increase for advance to suppliers.

For the three months ended March 31, 2010, net cash used in investing activities was a deficit of $6.7 million, and was primarily attributable to the $5.075 million of acquisition costs associated with Jinchuan.

For the three months ended March 31, 2010, net cash provided by financing activities was of $16.7 million, which was primarily attributable to the net proceeds of $56.4 million from stock issuance in the quarter, partially offset by $35.6 million payment to retire our Senior Secured Floating Rate Notes Due 2012.

At March 31, 2010, our cash balance was $78.5 million compared to $42.7 million at March 31, 2009 and $60.6 million at December 31, 2009.

Days sales outstanding (DSO) has decreased from 117 days at December 31, 2009, to 95 days at March 31, 2010, while days payable outstanding (DPO) decreased to 11 days as of March 31, 2010, from 20 days at December 31, 2009.

The decrease in DSO is primarily attributable to increased efforts to step-up our collection efforts. 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 increased 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. The Company has established appropriate procedures to facilitate collection.

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

	Year ended December 31, 2009	Three months ended March 31, 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:

	March 31, 2010			December 31, 2009
	(Unaudited)
1-30 days	$	21,688,608		$	19,055,520
31-60 days		34,743,613			17,199,485
61-90 days		1,345,563			15,029,899
91-180 days		208,627			12,776,229
180-365 days		4,436			4,027,988
Over 365 days		-			220,163
Bad debts allowance		(1,024,684	)		(1,024,684	)
Total	$	56,966,163		$	67,284,600

Inventory turnover days increased from 25 days at December 31, 2009 to 31 days at March 31, 2010. Advance to supplier’s turnover days has increased from 24 days at December 31, 2009, to 32 days at March 31, 2010. The Company’s principal raw materials consist of aluminum and steel rods and copper strips. Changes in the price of copper, which has an established history of volatility, directly affect 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 first quarter of 2010 was primarily due to the projected increased demand of our products.

COMMITMENTS AND CONTINGENCIES

Contractual Obligations

Set out below are our contractual obligations at March 31, 2010:

Contractual obligations	Total		Payment due by less than 1 year		2 – 3 years		4-5 years		More than 5 years
Contingent second installment payment for Jinchuan acquisition *	$	4,819,107	$	4,819,107	$	-	$	-	$	-
Capital lease obligation	$	206,547	$	74,030	$	132,517	$		$
Total	$	5,025,654	$	4,893,137	$	132,517	$	-	$	-

Assumption:

* 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 date. Thus the fair value of the contingent consideration arrangement was determined at $4,819,107 by using an annual discount rate of 5.3%.

Legal Proceedings

We know of no 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.

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.

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 March 31, 2010:

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

As of March 31, 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 quarter ended March 31, 2010.

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

As of March 31, 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 combination, in accordance with the U.S. GAAP. As a result, adjustments to the fair values of assets acquired through business combination were recorded in our consolidated financial statements for the quarter ended March 31, 2010.

We acquired Jinchuan in February 2010. Management excluded from its assessment of the effectiveness of our internal control over financial reporting as of March 31, 2010, the internal control over financial reporting of Jinchuan associated with total assets of USD14,528,337 and total revenues of USD4,264,977 included in our consolidated financial statements as of and for the quarter ended March 31, 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 March 31, 2010 was filed, on May 7, 2010, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 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 March 31, 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).

Fushi Copperweld, Inc. - FORM 10-Q/A - April 4, 2011

Attached files

Fushi Copperweld, Inc. Reports