Fushi Copperweld (FSIN) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended     June 30, 2009

or

o 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:  0-19276

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.)

1 Shuang Qiang Road, Jinzhou

Dalian, People’s Republic of China 116100

(Address of principal executive offices) (Zip Code)

(011)-86-411-8770-3333

(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 August 1, 2009 the registrant had 27,902,485 shares of common stock outstanding.

 TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008	2
	Consolidated Statements of Income and Other Comprehensive Income for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited)	4
	Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2009 (Unaudited) and the Year Ended December 31, 2008	5
	Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		48
Item 3. Quantitative and Qualitative Disclosures About Market Risk		78
Item 4. Controls and Procedures		80
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		82
Item 1A. Risk Factors		84
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		84
Item 3. Defaults Upon Revolving Line of Credit		84
Item 4. Submission of Matters to a Vote of Security Holders		85
Item 5. Other Information		85
Item 6. Exhibits		85
Signatures		86

- 1 - -

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FUSHI COPPERWELD, INC.  AND SUBSIDIARIES

CONSOLIDATED  BALANCE SHEETS

AS OF JUNE 30, 2009 AND DECEMBER 31, 2008

	June 30,			December 31,
	2009			2008
	Unaudited
ASSETS
CURRENT ASSETS:
Cash	$	49,933,562		$	65,611,770
Restricted cash		-			1,000,000
Accounts receivable, trade, net of allowance of bad debt of $345,983 and $318,529 as of June 30, 2009 and December 31, 2008, respectively		59,630,681			49,782,548
Inventories		17,600,577			6,977,852
Notes receivables		147,599			171,300
Other receivables and prepaid expenses		844,158			869,973
Advances to suppliers		8,002,246			20,261,585
Deposit in derivative hedge		1,000,000			1,000,000
Prepaid taxes		-			670,805
Total current assets		137,158,823			146,345,833
PLANT AND EQUIPMENT, net		117,683,413			119,761,027
OTHER ASSETS:
Advances to suppliers, noncurrent		6,493,174			4,022,879
Notes receivables, noncurrent		759,106			799,106
Intangible assets, net of accumulated amortization		12,155,202			12,406,920
Deferred loan expense, net		2,772,825			3,317,725
Deferred tax assets		10,168,733			7,804,027
Total other assets		32,349,040			28,350,657
Total assets	$	287,191,276		$	294,457,517
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolver line of credit	$	4,489,366		$	4,712,075
Accounts payable, trade		5,126,855			7,204,156
Notes payable, current		10,000,000			5,000,000
Short-term bank loans		-			17,588,400
Other payables and accrued liabilities		9,004,077			4,751,460
Customer deposits		80,652			542,540
Taxes payable		1,390,026			-
Cross currency hedge payable		372,118			104,324
Total current liabilities		30,463,094			39,902,955
LONG-TERM  LIABILITIES:
Derivative liability - conversion option		6,351,413			-
Notes payable, non-current		35,729,652			40,000,000
Fair value of derivative instrument		7,890,432			4,377,076
Total long-term liabilities		49,971,497			44,377,076
Total liabilities		80,434,591			84,280,031
COMMITMENTS AND CONTINGENCIES					7,197,794
SHAREHOLDERS' EQUITY:
Preferred stock,$0.001 par value, 5,000,000 shares authorized, none issued or outstanding as of June 30, 2009 and December 31, 2008		-			-
Common stock,$0.006  par value, 100,000,000 shares authorized, June 30, 2009: 30,100,659 shares issued and 27,900,659 outstanding December 31, 2008: 27,499,034 shares issued and 27,399,034 outstanding		167,405			164,395
Restricted common stock in escrow		13,200			600
Additional paid in capital		101,020,802			91,172,890
Common stock subscription receivable		(5,919,597	)		-
Statutory reserves		13,988,671			12,316,147
Retained earnings		80,247,101			78,613,158
Accumulated other comprehensive income		17,239,103			20,712,502
Total shareholders' equity		206,756,685			202,979,692
Total liabilities and shareholders' equity	$	287,191,276		$	294,457,517

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

- 2 - -

FUSHI COPPERWELD, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
REVENUES	$	48,301,545		$	62,536,129		$	83,558,081		$	116,545,156
COST OF GOODS SOLD		34,848,865			45,789,522			61,166,026			85,064,862
GROSS PROFIT		13,452,680			16,746,607			22,392,055			31,480,294
OPERATING EXPENSES
Selling expenses		1,086,414			1,258,050			2,288,561			2,050,961
General and administrative expenses		3,167,361			3,521,466			6,237,603			7,917,245
Total operating expenses		4,253,775			4,779,516			8,526,164			9,968,206
INCOME FROM OPERATIONS		9,198,905			11,967,091			13,865,891			21,512,088
OTHER INCOME (EXPENSE)
Interest income		83,004			192,458			166,621			352,821
Interest expense		(1,478,203	)		(3,805,067	)		(2,949,071	)		(5,585,536	)
(Loss) gain on derivative instrument		(215,964	)		186,022			(382,374	)		355,190
Change in fair value of derivative liability - warrants		(688,876	)		-			(752,114	)		-
Change in fair value of derivative liability - conversion option		(4,583,809	)		-			(5,122,846	)		-
Other expense		(140,133	)		(52,875	)		(246,482	)		(108,002	)
Total other expense, net		(7,023,981	)		(3,479,462	)		(9,286,266	)		(4,985,527	)
INCOME BEFORE INCOME TAXES		2,174,924			8,487,629			4,579,625			16,526,561
PROVISION (BENEFIT) FOR INCOME TAXES		612,224			1,206,783			(83,992	)		1,675,218
NET INCOME		1,562,700			7,280,846			4,663,617			14,851,343
OTHER COMPREHENSIVE INCOME
Unrealized gain on marketable securities		-			-			-			22,301
Foreign currency translation adjustment		433,866			4,308,352			39,957			12,163,352
Change in fair value of derivative instrument		(751,227	)		4,377,975			(3,513,356	)		(731,505	)
COMPREHENSIVE INCOME	$	1,245,339		$	15,967,173		$	1,190,218		$	26,305,491
EARNINGS PER SHARE:
Basic	$	0.06		$	0.27		$	0.17		$	0.55
Diluted	$	0.06		$	0.25		$	0.17		$	0.51
WEIGHTED AVERAGE SHARES:
Basic		27,827,838			27,354,215			27,696,388			27,201,127
Diluted		28,323,611			28,732,109			28,054,226			28,690,851

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

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FUSHI COPPERWELD, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(UNAUDITED)

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,663,617		$	14,851,343
Adjustments to reconcile net income
provided by (used in) operating activities:
Bad debt expense		27,793			379,581
Inventories write-off		179,654			-
Reserve for inventories		23,272			185,749
Depreciation		4,612,405			3,026,421
Loss on sale of property and equipment		117,430			-
Deferred taxes		(2,364,707	)		(1,188,895	)
Amortization of intangible assets		238,283			158,651
Amortization of loan commission		544,900			2,253,306
Interest penalty		-			710,544
Amortization of stock compensation expense		928,727			914,083
Loss (gain) on derivative instrument		382,374			(355,189	)
Change in fair value of derivative liability - conversion option		5,122,846			-
Change in fair value of derivative liability - warrants		752,114			-
Investment loss on marketable securities		-			16,158
Change in operating assets and liabilities:
Accounts receivable		(9,906,381	)		(19,191,506	)
Inventories		(10,699,400	)		(13,000,865	)
Other receivables and prepayments		102,867			549,790
Advances to suppliers - current		12,233,042			(2,697,002	)
Notes receivables		63,638			320,603
Accounts payable		(2,091,085	)		7,347,146
Other payables and accrued liabilities		(2,009,752	)		(1,260,185	)
Customer deposits		(467,587	)		621,290
Taxes payable		2,062,180			1,779,587
Net cash provided by (used in) operating activities		4,516,230			(4,579,390	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities		-			2,983,842
Payments on derivative instrument		(114,580	)		-
Proceeds from derivative instrument		-			738,376
Purchase of land use right		-			(1,687,468	)
Proceeds from sale of property and equipment		424,444			-
Purchases of property and equipment		(3,135,693	)		(13,600,999	)
Change in purchases on advances for purchase of equipment		(2,473,841	)		(3,148,802	)
Net cash used in investing activities		(5,299,670	)		(14,715,051	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Release of restricted cash		1,000,000			-
Net (payments) borrowings on revolver line of credit		(222,709	)		1,763,772
Proceeds from bank loans		-			16,908,000
Payments on bank loans		(17,553,600	)		(17,268,032	)
Proceeds on issuance of common stock and warrants		1,920,000			-
Net cash (used in) provided by financing activities		(14,856,309	)		1,403,740
EFFECT OF EXCHANGE RATE ON CASH		(38,459	)		4,837,022
DECREASE IN CASH		(15,678,208	)		(13,053,679	)
CASH, beginning of period		65,611,770			79,914,758
CASH, end of period	$	49,933,562		$	66,861,079
Supplemental cash flow disclosures:
Interest paid	$	1,988,420		$	3,438,440
Income tax paid	$	1,933,546		$	1,303,257

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

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FUSHI COPPERWELD, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common stock
	Shares outstanding						Shares In escrow						Additional			Common stock			Retained earnings					Accumulated
	Number			Par			Number			Par			paid in			subscription			Statutory		Unrestricted			comprehensive
	of shares			value			of shares			value			capital			receivable			reserves		earnings			income (loss)			Totals
BALANCE, December 31, 2007		25,211,304		$	151,268			100,000		$	600		$	77,665,064		$			$	8,321,726	$	54,133,070		$	4,015,930		$	144,287,658
																												-
CB transfer to common stock @$7.00		2,142,857			12,857									14,987,143														15,000,000
Adjustment to shares outstanding		4,851			29									(29	)													-
Stock compensation expense														914,083														914,083
Net income																						14,851,343						14,851,343
Allocation of APIC due to Kuhn's litigation														(3,487,250	)													(3,487,250	)
Adjustment to statutory reserve																				2,142,419		(2,142,419	)					-
Change in fair value of derivative instrument																									(731,505	)		(731,505	)
Foreign currency translation gain																									12,163,352			12,163,352
Reverse unrealized loss on marketable securities																									22,301			22,301
BALANCE, June 30, 2008 (unaudited)		27,359,012			164,154			100,000			600			90,079,011			-			10,464,145		66,841,994			15,470,078			183,019,982
Exercise of warrants for cash @ $3.11		44,873			270									139,124														139,394
Adjustment to shares outstanding		(4,851	)		(29	)								29
Stock compensation expense														954,726														954,726
Net income																						13,623,166						13,623,166
Adjustment to statutory reserve																				1,852,002		(1,852,002	)					-
Change in fair value of derivative instrument																									4,869,825			4,869,825
Foreign currency translation gain																									372,599			372,599
BALANCE, December 31, 2008, as previously reported		27,399,034			164,395			100,000			600			91,172,890			-			12,316,147		78,613,158			20,712,502			202,979,692
Cumulative effect of reclassification of conversion option																						(1,357,150	)					(1,357,150	)
BALANCE, January 1, 2009, as adjusted (unaudited)		27,399,034			164,395			100,000			600			91,172,890			-			12,316,147		77,256,008			20,712,502			201,622,542
Shares issued for cash @ $4.80		400,000			2,400									1,706,157														1,708,557
Shares placed in escrow (subscription receivable)								2,200,000			13,200			6,249,481			(6,262,681	)										-
Shares removed from escrow as payment		100,000			600			(100,000	)		(600	)					343,084											343,084
Reclassification of derivative liability-warrant to equity														963,557														963,557
Exercise of stock option		1,625			10									(10	)													-
Stock compensation expense														928,727														928,727
Net income																						4,663,617						4,663,617
Adjustment to statutory reserve																				1,672,524		(1,672,524	)					-
Change in fair value of derivative instrument																									(3,513,356	)		(3,513,356	)
Foreign currency translation gain																									39,957			39,957
BALANCE, June 30, 2009 (unaudited)		27,900,659		$	167,405			2,200,000		$	13,200		$	101,020,802		$	(5,919,597	)	$	13,988,671	$	80,247,101		$	17,239,103		$	206,756,685

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

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FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Note 1 - Organization and Line of Business

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

Fushi acquired Copperweld Bimetallics Holdings, LLC, a North Carolina limited liability company and the holder of the partnership interest in Copperweld Bimetallics, LLC, (“Copperweld”) a limited liability company registered in the state of Delaware and the parent of Copperweld Bimetallics UK, Ltd. ("Copperweld UK"), a private company registered in the United Kingdom and Copperweld International Holdings, LLC a North Carolina limited liability company.  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. Copperweld International Holdings, LLC was a non-operating company that held partnership interests in a company located in Tongling, PRC at December 31, 2007.  Those interests were liquidated in an agreement entered into by Copperweld and its subsidiaries, affiliates and International Manufacturing Equipment Sales, Inc. on January 16, 2008. Additionally, Fushi acquired International Manufacturing Equipment Sales, LLC, a shell company that was, at the time of purchase, a non-affiliated but commonly owned limited liability company.

Three of the companies acquired on October 29, 2007 were dissolved in 2008:

1. Copperweld Holdings, LLC, a North Carolina limited liability company. This company had no liabilities and its only asset was the ownership of Copperweld Bimetallics, LLC, which the ownership rights were transferred to Fushi Copperweld, Inc. on October 29, 2007.

2. Copperweld Bimetallics International Holdings, LLC, a Delaware limited liability company was established to hold the partnership interest in the Tongling joint venture which has been dissolved.  This company was a shell company with no assets or liabilities at the time the joint venture was dissolved.

3. International Manufacturing Equipment Suppliers, LLC, a North Carolina limited liability company.  This company was not an affiliate of the Copperweld companies. This company was formed by the prior owner of Copperweld Bimetallics to facilitate the transfer of equipment to the Tongling joint venture.  As noted above, the Tongling joint venture has been dissolved.  This company had no assets or liabilities at the time of the dissolution.

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

- 6 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

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.

Note 2 - Summary of Significant Accounting Policies

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 2008 annual report filed on Form 10-K.

Principles of consolidation

The accompanying consolidated financial statements include the financial statements of Fushi and its wholly owned subsidiaries, Fushi Holdings, Fushi International, Copperweld, Copperweld UK and its 100% variable interest entity Dalian Fushi. All significant inter-company transactions and balances have been eliminated in consolidation.

In accordance with FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R"), 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.

The Company has concluded that Dalian Fushi is a VIE and that the Company is the primary beneficiary.  Under the requirements of FIN 46R, the Company consolidated the financial statements of Dalian Fushi.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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.

- 7 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Revenue recognition

The Company's revenue recognition policies are in accordance with Staff Accounting Bulletin (“SAB”) 104. 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.

Shipping and handling costs

Shipping and handling costs related to costs of goods sold are included in selling costs which totaled $985,222 and $1,054,515 for the six months ended June 30, 2009 and 2008, respectively, and $431,577 and $600,664 for the three months ended June 30, 2009 and 2008, respectively.

Foreign currency translation and other comprehensive income

The reporting and functional currency of the Company is the US dollar. The subsidiaries Fushi International, VIE Dalian Fushi and Beijing Office use the local currency Renminbi (RMB) to conduct business. Copperweld UK conducts business in British Pounds.

For the subsidiaries whose functional currencies are other than the US dollar, 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.

The balance sheet amounts with the exception of equity at June 30, 2009 were translated at 6.830 RMB and £0.608 to $1.00, respectively. The balance sheet amounts with the exception of equity at December 31, 2008 were translated at 6.823 RMB and £0.684 to$1.00. The average translation rates applied to the income and cash flow statement amounts for six months ended June 30, 2009 were 6.833 RMB and £0.669 to $1.00, respectively. The average translation rates applied to income and cash flow statement amounts for the six months ended June 30, 2008 were 6.958 RMB and £0.507 to $1.00, respectively.

In accordance with FAS 95, "Statement of Cash Flows," cash flows from the Company's operations is 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 United Kingdom (“UK”) and the USA.

- 8 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

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 United States and UK. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. As of June 30, 2009, the Company had deposits in excess of federally insured limits totaling $49,457,235. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

Parts of the Company’s operations are carried out in the PRC and UK. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the two countries, and by the general state of the two countries' economy. The Company's operations in the two countries are subject to specific considerations and significant risks not typically associated with companies in North America. 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.

Restricted cash

Restricted cash consists of monies placed in escrow for Kuhns lawsuit settlement. On May 21, 2009, the company delivered $1,000,000 plus accrued interest (the “Escrow Payment”) as partial payment to reduce the settlement liability owed to Kuhns pursuant to the Settlement Agreement signed on May 19, 2009. See Note 18 for details.

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 31% of sales were spread across international markets during the first two quarters of 2009 and 2008, respectively.

	June 30, 2009		June 30, 2008
	(Unaudited)		(Unaudited)
China	$	64,210,887	$	79,859,350
USA		14,933,674		25,944,828
Europe		1,943,156		5,871,508
Other countries		2,470,364		4,869,470
Total sales	$	83,558,081	$	116,545,156

- 9 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Major customers and suppliers

Ten major customers accounted for 27% and 21% of the sales for the six months ended June 30, 2009 and 2008, respectively. Total receivable balance due from the top ten customers at June 30, 2009 and December 31, 2008 amounted to $18,972,679 and $11,838,214, respectively.

Five major suppliers provided approximately 82% of the Company’s raw materials for the six months ended June 30, 2009 and five major suppliers provided 64% of the Company’s raw materials for the six months ended June 30, 2008. At June 30, 2009,  advances to the Company’s major five suppliers were $7,630,038, all of which was current. At December 31, 2008, advances to the Company’s major five suppliers were $20,111,644, all of which was current.

Accounts receivables

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 June 30, 2009 and December 31, 2008, 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 copper, aluminum and steel used in production. The cost of finished goods included 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.

Derivative instrument

Effective January 1, 2009, the Company adopted FAS 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FAS 133, which amends and expands the disclosure requirements of FAS 133.” SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives and quantitative disclosures about the fair value of and gains and losses on derivative instruments. The Company uses a cross currency hedge, a derivative financial instrument, to hedge the risk of rising interest rates on its variable interest rate debt. This type of derivative financial instrument is known as a cash flow hedge. The Company accounts for this interest rate swap in accordance with FAS 133, “Accounting for Derivatives Instruments and Hedging Activity,” which requires the derivative to be carried on the consolidated balance sheet at fair value and to meet certain documentary and analytical requirements to qualify for hedge accounting treatment. The above derivative qualifies for hedge accounting under FAS 133 and, accordingly, changes in the fair value effective portion is reported in accumulated other comprehensive income, net of related income tax effects. Amounts included in accumulated other comprehensive income are reclassified into earnings when the hedged transaction affects earnings.

- 10 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

At the inception of the transaction, the Company documented the relationship between hedging instruments and hedged items, as well as its risk management objective and the strategy for undertaking various hedge transactions. This process includes linking all derivatives designated to specific firm commitments of forecast transactions. The Company also documents its assessment, both at inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Any portion deemed ineffective is recorded in earnings with the effective portion reflected in accumulated other comprehensive. Changes in the fair values of derivative financial instruments accounted for as cash flow hedges to the extent they qualify for hedge accounting, are recorded in accumulated other comprehensive income.

Financial instruments

The Company analyzes all financial instruments with features of both liabilities and equity under FAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” FAS 133 and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” Before the adoption of EITF 07-5 "Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock,” the convertible note issued in 2007 did not require bifurcation or result in liability accounting. However, with the recent adoption of EITF 07-5, the embedded conversion feature must be bifurcated from its host instrument and accounted for separately as a derivative liability. Additionally, the Company analyzes registration rights agreements associated with any equity instruments issued to determine if penalties triggered for late filing should be accrued under FSP EITF 00-19-2, “Accounting for Registration Payment Arrangements.”

FAS 107, “Disclosures About the Fair Value of Financial Instruments” defines financial instruments and requires fair value disclosure about those instruments. FAS 157, “Fair Value Measurements,” was adopted by the Company on January 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. Receivables, payables, notes, loans, and derivatives all meet the definition of financial instruments. The carrying amounts reported in the balance sheets for accounts receivable, notes receivable, accounts payable, other payables, and short term bank loans qualify as financial instruments are a reasonable estimate of fair value because of the short period of time between the origination and their expected realization and, if applicable, the stated interest rate is equivalent to interest rates currently available.  The three levels are defined as follows:

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

- 11 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

· Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

· Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

Other than as listed below, the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with FAS 157.

During 2007, the Company issued 3% secured convertible debentures in a face amount of $20,000,000 which are due in 2012.  The conversion option embedded in the convertible notes requires liability accounting at fair value and periodically marked-to-market.  The Company used level 3 inputs for its valuation methodology for the embedded feature as the fair value was determined by using Cox-Ross-Rubinstein binomial pricing model based on various assumptions as follows: volatility of 60%, risk free interest rate of 1.42%, and a conversion price of $3.97.

Also during 2007, the Company borrowed $40,000,000 in the form of a high yield debenture note with a floating rate. As of June 30, 2009, the outstanding principal of high yield debenture note amounted to $40,000,000 and the outstanding principal of convertible debenture note amounted to $5,000,000.  The Company used Level 3 inputs for its valuation methodology for the notes payable, and their fair values are determined using cash flows discounted at relevant market interest rates in effect at the period close since there is no observable market price.

The Company’s warrant liability is carried at fair value.  The Company used Level 3 inputs for its valuation methodology for the warrant liability as their fair values were determined by using the Cox-Ross-Rubinstein binomial pricing model based on various assumptions as follows: volatility of 60%, risk free interest rate ranging from 0.42% to 0.83%, and exercise prices ranging from $5.25 to $6.00.  As of June 30, 2009, the Company has re-classified its warrant liability to equity as explained in further detail at Note 13.

As of June 30, 2009, the Company had a derivative instrument with a carrying value of $7.9 million. The Management calculated the fair value of the derivative instrument using Level 3 inputs since there is no observable market price.

	Carrying Value June 30, 2009 (Unaudited)		Fair Value Measurements  June 30, 2009  Using Fair Value Hierarchy (Unaudited)
			Level 1	Level 2	Level 3
Derivative liability – conversion option	$	6,351,413			$	6,351,413
Convertible note	$	5,729,652			$	5,729,652
Derivative instrument	$	7,890,432			$	7,890,432

- 12 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

For the six months ended June 30, 2009 and 2008 the Company recognized a loss in the change in fair value of derivative liability – conversion option in the amounts of $5,122,846 and $0, respectively. For the three months ended June 30, 2009 and 2008 the Company recognized a loss in the change in fair value of derivative liability – conversion option in the amounts of $4,583,809 and $0, respectively.

For the six months ended June 30, 2009 and 2008 the Company recognized a loss in the change in fair value of derivative liability – warrants in the amounts of $752,114 and $0, respectively. For the three months ended June 30, 2009 and 2008 the Company recognized a loss in the change in fair value of derivative liability – warrants in the amounts of $688,876 and $0, respectively.

Derivative liability

Emerging Issues Task Force (“EITF”) 00-19 “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock”, provides a criteria for determining whether freestanding contracts that are settled in a company’s own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under FAS 133 “Accounting for Derivative Instruments and Hedging Activities.” Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in a company’s results of operations.  Using the criteria in EITF 00-19, the Company determines which options, warrants and embedded features require liability accounting and records the fair value as a derivative liability. The changes in the values of these instruments are shown in the accompanying consolidated statements of income and other comprehensive income as “change in fair value of derivative liability – warrants or conversion option and change in fair value of derivative instrument.”

Stock-based compensation

The Company records and reports stock-based compensation under FAS 123R, “Share-Based Payments." This Statement requires a public entity to measure 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 in accordance with FAS 123R and the EITF 96-18, "Accounting for Equity Instruments that are issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services," as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Plant and equipment, net

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

- 13 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

	EstimatedUsefulLife
Buildings	20-39.5 years
Machinery and equipment	7-15 years
Other 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 six months ended June 30, 2009 and 2008 amounted to $1,350 and $62,812, respectively. Total interest capitalized for the three months ended June 30, 2009 and 2008 was $0 and $17,364, 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 and six months ended June 30, 2009 and 2008, there were no amounts expended for major renewals and betterments that were capitalized.

The repairs and maintenance expense for the six months ended June 30, 2009 and 2008 amounted to $324,416 and $514,772, respectively, and the three months ended June 30, 2009 and 2008 amounted to $193,998 and $223,709, respectively.

Long-lived assets

The Company evaluates the carrying value of long-lived assets each reporting period in accordance with FAS 144 "Accounting for the Impairment of Disposal of Long-Lived Assets.” 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 June 30, 2009, there were no impairments of its long-lived assets.

Intangible assets

Land use rights – land in the People’s Republic of China is government owned. However, 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.

- 14 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

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 June 30, 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.

Research and development costs are recorded in general and administrative expenses. Research and development costs were $107,701 and $155,040 for the six months ended June 30, 2009 and June 30, 2008, respectively and $31,149 and $73,707 for the three months ended June 30, 2009 and 2008, respectively.

Earnings per share

The Company reports earnings per share in accordance with the provisions of FAS 128, "Earnings Per Share.” FAS 128 requires presentation of 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 six and three months ended June 30, 2009 and 2008, the Company properly excluded options, warrants and convertible notes with anti-dilutive effects from the diluted earnings per share calculation.

- 15 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Income taxes

The Company records and reports income taxes pursuant to FAS 109, “Accounting for Income Taxes," and FIN 48, “Accounting for Uncertainty in Income Taxes.” The provision for income taxes consists of taxes currently due plus deferred taxes. FAS 109 requires the recognition of deferred income tax liabilities and assets for the estimated future tax effects attributable to temporary differences and operating loss and tax credit carryforwards. 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 allowanceif, 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.

Under FIN 48, 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. FIN 48 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 15% 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.

- 16 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Adoption of EITF 07-5

Effective January 1, 2009, the Company adopted the provisions of EITF 07-5, "Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,” which is effective with respect to financial statements for fiscal years beginning after December 15, 2008 and replaced the previous guidance on this topic in EITF 01-6.  Paragraph 11a of FAS 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument.  EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the FAS 133 paragraph 11(a) scope exception.

The conversion option embedded in the Company’s convertible notes previously met the criteria in EITF 01-6, as well as the other criteria of FAS 133, paragraph 11(a) and, accordingly, it was not separately accounted for as a derivative instrument liability.  However, the conversion option does not meet the criteria of EITF 07-5 because it requires that the conversion price be adjusted in certain circumstances that do not meet the “fixed-for-fixed’ criteria in that issue.  As a result, the Company is now required to separately account for the embedded conversion option as a derivative instrument liability, carried at fair value and marked-to-market each period, with changes in the fair value each period charged or credited to income.

In accordance with the transition provisions of EITF 07-5, the new guidance has been applied to the $5,000,000 of the Company’s convertible notes that were outstanding as of January 1, 2009.  The cumulative effect of this change in accounting principle of $1,357,150 has been recognized as a reduction of the opening balance of Retained Earnings as January 1, 2009.  That cumulative effect adjustment is the difference between the amounts previously recognized in the Company’s consolidated balance sheet as of December 31, 2008 and the amounts that would have been recognized if the guidance in EITF 07-5 had been applied from the issuance date of the outstanding Convertible Notes.

Segment Reporting

SFAS No. 131 (“SFAS 131”), “Disclosure about Segments of an Enterprise and Related Information,” requires use of the “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 U.S. (See Note 17).

Recently issued accounting pronouncements

In December 2007, FAS 141(R), “Business Combinations," was issued. FAS 141R replaces FAS 141. FAS 141R retains the fundamental requirements in FAS 141 that the acquisition method of accounting, which FAS 141 called the purchase method, be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This replaces FAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. FAS 141R also requires the acquirer in a business combination achieved in stages, sometimes referred to as a step acquisition, to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values, or other amounts determined in accordance with FAS 141R. FAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company has adopted FAS 141R and believes that if the Company consummated a business combination transaction, the Company’s adoption of FAS 141R would have a material impact on the consolidated financial statements.

- 17 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

On October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of FAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 became effective on October 10, 2008, and its adoption did not have a material impact on the Company’s financial position or results for the year ended December 31, 2008.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” FSP FAS 140-4 and FIN 46(R)-8 amends FAS 140 and FIN 46(R) to require additional disclosures regarding transfers of financial assets and interest in variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for interim or annual reporting periods ending after December 15, 2008. The adoption of FSP FAS 140-4 and FIN 46(R)-8 did not have a material impact on the Company’s consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.” FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment model of FAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on the Company’s consolidated financial statements because all of the Company’s investments in debt securities are classified as trading securities.

- 18 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. FSP FAS 157-4 amends FAS 157 and provides additional guidance for estimating fair value in accordance with FAS 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This FSP shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting this FSP must also early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. Additionally, if an entity elects to early adopt either FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt this FSP. The adoption of FSP FAS 157-4 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This FSP will replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This FSP provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this FSP does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. This FSP became effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends FAS 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of FAS 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on the Company’s consolidated financial statements.

- 19 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

In May 2009, the FASB issued FAS 165, Subsequent Events [ASC 855-10-05], 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. FAS 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. FAS 165 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. FAS 165 requires that public entities evaluate subsequent events through the date that the financial statements are issued. The Company has evaluated subsequent events through the time of filing these consolidated financial statements with the SEC on August 10, 2009.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (“FAS 166”) [ASC 860], which requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets. FAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures. FAS 166 is effective for fiscal years beginning after November 15, 2009. The Company has not completed the assessment of the impact FAS 166 will have on the Company’s financial condition, results of operations or cash flows.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”) [ASC 810-10], which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. FAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. FAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. FAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. FAS 167 is effective for fiscal years beginning after November 15, 2009. The Company has not completed the assessment of the impact FAS 167 will have on the Company’s financial condition, results of operations or cash flows.

- 20 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162 (“FAS 168”). This Standard 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 in the third quarter of 2009, and accordingly, the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.

Reclassification

Certain reclassifications have been made to the 2008 consolidated financial statements to conform to the 2009 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:

	June 30, 2009			December 31, 2008
	(Unaudited)
Trade accounts receivable	$	59,976,664		$	50,101,077
Allowance for bad debts		(345,983	)		(318,529	)
Trade accounts receivable, net	$	59,630,681		$	49,782,548

The following table consists of allowance for doubtful accounts.

Allowance for doubtful accounts at December 31, 2007	$	135,418
Reserve adjustment		379,581
Accounts receivable write off		(9,426	)
Effect of foreign currency translation		11,880
Allowance for doubtful accounts at June 30, 2008 (Unaudited)		517,453
Reserve adjustment		(201,115	)
Accounts receivable write off		-
Effect of foreign currency translation		2,191
Allowance for doubtful accounts at December 31, 2008		318,529
Reserve adjustment		27,793
Accounts receivable write off		-
Effect of foreign currency translation		(339	)
Allowance for doubtful accounts at June 30, 2009 (Unaudited)	$	345,983

Note 4 - Inventories

Inventories consisted of the following:

- 21 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

	June 30, 2009			December 31, 2008
	(Unaudited)
Raw materials	$	14,328,523		$	3,929,585
Work in process		1,547,648			1,337,703
Finished goods		1,908,165			1,832,511
Scrap		-			38,540
Totals		17,784,336			7,138,339
Less allowance for obsolete inventory		(183,759	)		(160,487	)
Totals	$	17,600,577		$	6,977,852

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 following table consists of allowance for obsolete inventory:

Allowance for obsolete inventory at December 31, 2007	$	63,594
Reserve adjustment		185,749
Allowance for obsolete inventory at June 30, 2008 (Unaudited)		249,343
Reserve adjustment		(88,856	)
Allowance for obsolete inventory at December 31, 2008		160,487
Reserve adjustment		23,272
Allowance for obsolete inventory at June 30, 2009 (Unaudited)	$	183,759

Note 5 - Plant and equipment

Plant and equipment consisted of the following:

	June 30, 2009			December 31, 2008
	(Unaudited)
Land	$	100,726		$	100,726
Buildings and improvements		43,373,862			43,418,544
Transportation equipment		4,134,392			4,138,892
Machinery and equipment		73,095,975			55,147,707
Office furniture		1,169,354			1,166,477
Construction in progress		16,752,253			33,163,330
Totals		138,626,562			137,135,676
Less accumulated depreciation		(20,943,149	)		(17,374,649	)
Totals	$	117,683,413		$	119,761,027

- 22 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Construction in progress at June 30, 2009 consisted of the following:

		June 30,			Expected
No.	Project Description	2009 (Unaudited)		Commencement Date	completion date
1	Manufacturing machinery and equipment for CCA/CCS	$	3,033,509	Dec-07	Dec-09
2	Corporation administration office building		13,052,689	May-03	Dec-10
3	Manufacture building (Dalian)		630,001	Jan-08	Dec-09
4	Manufacturing machinery and equipment for CCA (Multiple)		29,972	Oct-07 thru July-09	Sep-09
5	Building attachment (Fayetteville)		6,082	Apr-09	Sep-09
	Total	$	16,752,253

Construction in progress as of December 31, 2008 consisted of the following:

					Expected
No.	Project description	December 31, 2008		Commencement date	completion date
1	Manufacturing machinery and equipment for CCA/CCS	$	14,507,534	Dec-07	Dec-09
2	Corporation administration office building		12,964,718	May-03	Dec-10
3	Manufacturing machinery and equipment for CCA (Multiple)		3,298,681	Oct-07 thru Jan-08	Mar-09 thru Dec-09
4	Manufacturing machinery and equipment for CCS (Multiple)		1,775,300	Mar-07 thru Sep-08	Mar-09 thru Dec-09
5	Manufacture building		617,097	Jan-08	Dec-09
	Total	$	33,163,330

The decrease in the construction in progress balance for the six months period ended June 30, 2009 is primarily related to $12.5 million of machinery and equipment (Project No. 1) that was deemed completed through its installation and testing process during the first quarter.  As a result, the machinery and equipment was then transferred from construction in progress to depreciable fixed assets. The estimated costs to complete Project No. 1 (Manufacturing Machinery and Equipment) as of June 30, 2009, and December 31, 2008 was $1.98 million and $2.34 million, respectively.  The estimated costs to complete Project No. 2 (Tower B) as of June 30, 2009, and December 31, 2008 was $2.99 million and $3.09 million, respectively.

The change in plant and equipment is as follows:

- 23 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

	Plant and equipment
Balance as of December 31, 2008	$	137,135,676
Acquired through cash payment		373,333
Acquired from advanced payments		2,762,360
Fixed assets transferred from CIP		19,316,033
CIP transferred to fixed assets		(19,316,033	)
Disposal		(1,697,776	)
FX rate effect		52,969
Balance as of June 30, 2009 (Unaudited)	$	138,626,562

Depreciation expense for the six months ended June 30, 2009 and 2008 amounted to $4,612,405 and $3,026,421, respectively, and the three months ended June 30, 2009 and 2008 amounted to $2,515,197 and $1,622,379, respectively.

Note 6 – Advances to suppliers

Advances on purchases 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:

	June 30, 2009		December 31, 2008
	(Unaudited)
Advances for inventories – current	$	8,002,246	$	20,261,585
Advances for equipment – non current		6,493,174		4,022,879
Total advances to suppliers	$	14,495,420	$	24,284,464

Due to globally depressed commodity prices, the Company believed there was an opportunity to secure lower purchase prices through increased investments in deposit (advance) to suppliers which in turn lowered the average purchase price of raw materials and minimized the loss resulting from the significant decline in spot prices in the fourth quarter of 2008.

Note 7 – Intangible assets

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

	June 30, 2009			December 31, 2008
	(Unaudited)
Patents	$	1,753,300		$	1,755,025
Land use rights		12,464,469			12,478,090
Total:		14,217,769			14,233,115
Less: accumulated amortization		(2,062,567	)		(1,826,195	)
Intangible assets, net	$	12,155,202		$	12,406,920

- 24 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Amortization expense for the six months ended June 30, 2009 and 2008 amounted to $238,283 and $158,651, and for the three months ended June 30, 2009 and 2008 amounted to $119,207 and $96,374, respectively.

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

June 30,	Amount
2010	$	476,566
2011		476,566
2012		476,566
2013		391,294
2014		332,972

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

Prepaid taxes and taxes payable consisted of the following:

	June 30, 2009			December 31, 2008
	(Unaudited)
Income tax	$	1,342,946		$	997,581
VAT benefit		(59,634	)		(1,779,973	)
Others		106,714			111,587
Total taxes payable (prepayment)	$	1,390,026		$	(670,805	)

Income tax

Under the former Income Tax Laws of PRC, the Company is generally subject to an income tax at an effective rate of 33% (30% state income taxes plus 3% local income taxes) on income reported in the statutory financial statements after appropriate tax adjustments. For an enterprise that qualifies as a new or high-technology enterprise or a Foreign Invested Enterprise (“FIE”) located in the old town of an inshore open city, it is subject to an income tax rate of 24%. In addition, if the enterprise is located in a specially designated region that allows foreign enterprises, the enterprise is entitled to a two-year income tax exemption and a 50% income tax reduction for the following three years.

Beginning January 1, 2008, the new Chinese Enterprise Income Tax (“EIT”) law replaced the former income tax laws for Domestic Enterprises (“DEs”) and 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.

- 25 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

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 full income tax exemption for the years ended December 31, 2006 and 2007 and 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 continues to enjoy the former preferential tax rate until it expires in December 2010. So, the applicable corporate income tax rate in 2009 is 12%. The provision for income tax for the six months ended June 30, 2009 and 2008 was $2,280,715 and $2,844,180, respectively.

Dalian Fushi was incorporated in the PRC and is subject to PRC income tax. Dalian Fushi located its factory in a special economic region in Dalian, PRC and qualified as a "new or high-technology enterprise" that is allowed a two year income tax exemption beginning in 2002, the first year after it became profitable, and a 50% income tax reduction for the following three years, 2004 through 2006. Dalian Fushi had a loss from operations in the first six months of 2009, so no provision for income taxes was made during this period.

The Company is subject to the United States federal income tax at a tax rate of 34%. No provision for income taxes in the U.S. has been made as the Company had no U.S. taxable income for the six months ended June 30, 2009 and 2008, respectively.

Fushi, Fushi Holdings, Copperweld Bimetallics Holdings, LLC and Copperweld Bimetallics, LLC were incorporated in the United States and 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, if not utilized, through 2025 and 2029.

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 a loss from operations in the first six months in year 2009, so no provision for income taxes was made during this period.

The (Benefit) Provision for income taxes consisted of the following for the six months ended June 30:

	2009			2008
	(Unaudited)			(Unaudited)
Provision for China income taxes	$	2,280,715		$	2,844,180
Deferred income taxes		(2,364,707	)		(1,168,962	)
(Benefit) Provision for income taxes	$	(83,992	)	$	1,675,218

The (Benefit) Provision for income taxes consisted of the following for the three months ended June 30:

- 26 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

	2009			2008
	(Unaudited)			(Unaudited)
Provision for China income taxes	$	1,350,404		$	1,576,742
Deferred income taxes		(738,180	)		(369,959	)
(Benefit) Provision for income taxes	$	612,224		$	1,206,783

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended June 30, 2009 and 2008:

	June 30, 2009			June 30, 2008
	(Unaudited)			(Unaudited)
U.S. Statutory rates on foreign income		34.0	%		34.0	%
Foreign income not recognized in U.S.		(34.0	)		(34.0	)
China income taxes		25.0			25.0
China income tax exemption		(13.0	)		(13.0	)
Deferred tax recognized from NOL		(34.0	)		(34.0	)
Other item (a)		20.2			32.1
Effective income tax rate		(1.8	)%		10.1	%

a) The 20.2% and 32.1%  represents the $5,874,960 and $914,083 of expenses incurred by the Company that are not subject to income tax for the six months ended June 30, 2009 and 2008, respectively.

The estimated tax savings from the tax exemptions for the six months ended June 30, 2009, amounted to $2,470,774. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.17 to $0.08 and diluted earnings per share from $0.17 to $0.08.

The estimated tax savings from the tax exemptions for the three months ended June 30, 2009, amounted to $1,462,937. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.06 to $0.004 and diluted earnings per share from $0.06 to $0.004.

The estimated tax savings from the tax exemptions for the six months ended June 30, 2008, amounted to $3,081,195. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.55 to $0.43 and diluted earnings per share from $0.51 to $0.41.

The estimated tax savings from the tax exemptions for the three months ended June 30, 2008, amounted to $1,708,138. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share from $0.27 to $0.20 and diluted earnings per share from $0.25 to $0.19.

- 27 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

The Company has cumulative undistributed earnings from foreign subsidiaries of approximately $115 million as of June 30, 2009, included in the consolidated retained earnings and will continue to be indefinitely reinvested in international operations.  Accordingly, no provision has been made for U.S. 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.

Deferred tax asset

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”).FAS 109 requires the recognition of 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 of temporary differences between income tax basis and financial reporting basis of assets and liabilities.

Fushi was incorporated in the United States and has incurred net operating losses for income tax purposes since inception. The pre-tax operating loss including time differences as of June 30, 2009 and December 31, 2008 amounted to $29,908,038 and $23,266,152, respectively. The estimated loss carryforwards for United States income taxes as of June 30, 2009 and December 31, 2008 may be available to reduce future years’ taxable income. These carry forwards will expire in varying amounts in the years 2025 to 2029 if not utilized.

The deferred tax asset consisted of the following:

	June 30, 2009			December 31,
	(Unaudited)			2008
Accruals not yet deductible	$	743,336		$	696,120
Stock based compensation		1,610,107			1,294,340
Bad debt allowance		(69,951	)		(70,822	)
Loss carryforward		7,885,241			5,884,389
Total deferred tax assets	$	10,168,733		$	7,804,027

The deferred tax activity consisted of the following:

Deferred tax asset at December 31, 2008	$	7,804,027
Additions to deferred tax asset		2,364,706
Deferred tax asset at June 30, 2009 (Unaudited)	$	10,168,733

- 28 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

A valuation allowance is required against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. Management believes that the realization of the benefits can be used by their US operating subsidiary in future periods because expectations are that Copperweld U.S. will have taxable income in future periods. US companies must generate a total of $29,908,038 of taxable net income (including the recovery of time difference) by years 2025 to 2029 (the recovery of time difference is not subject to those years) in order to recover the deferred tax asset balance. Profits of Fayetteville in each of the first three quarters of 2008 were $1,036,996, $244,546 and $102,198 respectively. Through cost savings initiatives implemented beginning in the fourth quarter of 2008; the Company has lowered total labor overhead by approximately $100,000 per month. The Company is also in the process of refining and improving their manufacturing processes that may further realize cost savings of approximately $300,000 per month. With these cost saving measures in place, the Company believes that it is possible to realize profit at current sales levels at the Fayetteville facility and that Fayetteville will be well positioned to experience increased profitability when the global economic crisis subsides and sales begin to rebound to historical levels. The Company projects the Fayetteville facility to start generating positive annual pre-tax income in fiscal year 2010. Based on its review, the Company believes that, as of June 30, 2009, it was not necessary to provide a valuation allowance for deferred tax assets.

Value added tax

VAT on sales and VAT on purchases in Dalian China amounted to $11,187,919 and $9,072,688 for the six months ended June 30, 2009, and $14,005,473 and $10,434,463 for the six months ended June 30, 2008, respectively.

VAT on sales and VAT on purchases in Copperweld UK amounted to $50,567 and $111,827 for the six months ended June 30, 2009 and $133,722 and $225,936 for the six months ended June 30, 2008, respectively.

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

Note 9 - Short term bank loans and revolving credit lines

Short term bank loans represent amounts due to various banks and are due on demand or normally within one year. These loans generally can be renewed with the banks. Short term bank loans consisted of the following:

Name of lender	June 30, 2009		December 31, 2008
	(Unaudited)
Guangdong Development bank, Dalian Stadium branch, due February 25, 2009, annual interest at 8.96%,secured by the Company’s land use right and building.	$	-	$	8,794,200
Guangdong Development bank, Dalian Stadium branch, due March 9, 2009, annual interest at 8.96%, secured by the Company’s land use right and building		-		2,931,400
Guangdong Development bank, Dalian Stadium branch, due March 19, 2009, annual interest at 8.96%, secured by the Company’s land use right and building		-		1,465,700
Guangdong Development bank, Dalian Stadium branch, due March 26, 2009, annual interest at 8.96%, secured by the Company’s land use right and building		-		4,397,100
Total Short-Term Bank Loans		-		17,588,400
Wells Fargo Bank revolving credit line, annual interest rate at 0.25% plus Chase Bank rate, the line of credit has three years life from closing date and shall automatically continue every year thereafter, secured by all present and future account receivables, equipment, inventory and other goods, documents of title, general intangibles, investment property, real estate and other collateral of Copperweld defined in the financing agreement.		4,489,366		4,712,075
Total	$	4,489,366	$	22,300,475

- 29 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

The Company paid off its four short-term loans with total balances of $17,588,400 on January 5, 2009.

Revolving line of credit – Copperweld U.S.

Copperweld maintains a revolving line of credit with Wells Fargo Bank. Availability of the credit line is the lower of $12.8 million or the borrowing base, which is calculated by reference to, among other things, eligible accounts receivable, eligible inventory and eligible other collateral less availability reserve. The borrowing base will be calculated and reported to Wells Fargo Bank each week. For the week ended on June 27, 2009, the availability under the Revolving Credit Facility was $4,772,966. The outstanding balance was $4,489,366 and $4,712,075 as of June 30, 2009 and December 31, 2008, respectively. The Company deposits the cash collections from its customers against the outstanding account balance of the line of credit on a daily basis. The line of credit has three years life from closing date and shall automatically continue every year thereafter.

The annual interest rate is equal to the applicable margin of 0.25% plus the Chase Bank reference rate. Copperweld also has to pay a monthly administration management fee and a monthly unused line fee of 0.2% (annual rate) on the unused balance of its revolving credit line.

- 30 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

The asset-based revolving line of credit with Wells Fargo contains various covenants that may limit Copperweld’s discretion in operating its business. These covenants include limitations on Coppwerweld’s ability to declare or pay dividends or distribute equity interest, make acquisitions, dispose of assets, incur additional indebtedness, incur guarantee obligations, create liens, pledge or encumbrances, make investments, engage in mergers, change the nature of its business or engage in certain transactions with a related party, enter into operating leases or incur obligations on capital expenditures. In addition, Copperweld is required to comply with certain financial covenants that are reported on a quarterly basis, including maintenance of a fixed charge coverage ratio of at least 1.0 to 1.0 and maintenance of a tangible net worth of 4.4 million starting from January 31, 2009.

For both quarters ended on June 30, 2009 and March 31, 2009, Copperweld reported a negative fixed charge ratio due to the loss incurred on a rolling 12 months basis, thus Copperweld was in violation of maintaining a fixed charge ratio of at least 1.0 to 1.0. This was the sole violation of the covenant under the terms of the revolving line of credit agreement with Wells Fargo.  On May 6, 2009, Wells Fargo exercised its right to implement the 2% additional default rate of interest effective April 1, 2009 for the covenant violation as of March 31, 2009.

Copperweld is currently in discussions with Wells Fargo Bank regarding the existing defaults, and a possible modification of certain of the borrowing terms and existing covenants under the line of credit.

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 June 30, 2009 and December 31, 2008.

Total interest expense on the revolving credit line and short term loans for the six months ended June 30, 2009 and 2008 amounted to $136,938 and $1,059,628, respectively. Interest for the three months ended June 30, 2009 and 2008 was $46,163 and $565,295, respectively.

- 31 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Note 10 – Notes payable

Notes payable consisted of the following:

	June 30, 2009		December 31, 2008
	(Unaudited)
Senior secured convertible notes (“Convertible Notes”), bearing interest at 3% per annum, maturing on January 24, 2012, convertible to common stock at an initial conversion price of $7.00 per share (ii)	$	5,729,652	$	5,000,000
Guaranteed senior secured floating rate notes (“HY Notes”) maturing between July 24, 2010 to January 24, 2012 (i)		40,000,000		40,000,000
Subtotal		45,729,652		45,000,000
Less current portion		10,000,000		5,000,000
Total notes payable, noncurrent	$	35,729,652	$	40,000,000

On January 24, 2007, the Company and Citadel Equity Fund Ltd. ("Citadel") entered a Notes Purchase Agreement.  In this transaction, Citadel purchased:

(i)           $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

(ii)           $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. $15 million of the convertible notes was converted in 2008.

The HY notes bear interest at LIBOR (approximately 1.60% at June 30, 2009) + 7% and changes to LIBOR + 5.6% permanently upon successful completion of Qualifying IPO within eighteen months from January 24, 2007.  See below for discussion of swap agreement changing variable interest to 8.3% fixed.The Convertible Notes bear interest at a fixed rate of 3.00%, payable semi-annually in arrears, and mature in 2012.  The HY Notes and the Convertible Notes are guaranteed, jointly and severally, on a senior secured basis, by all of the Company’s wholly-owned existing and future domestic subsidiaries.   Subsequently on November 15, 2007, the Company filed Form S-3 with the Securities and Exchange Commission (SEC) with a proposed prospectus to register up to 5,743,143 shares including 2,857,143 shares underlying the 3% Senior Convertible Notes. On November 21, 2007, the registration statement was declared effective by the SEC. Upon the S-3 registration statement being declared effective, management concluded that the Company had met all the requirements for a Qualifying IPO and therefore notified the HY Notes holders of the 140 basis points step-down and subsequently paid interest per the stepped down rate in January 2008.

Management determined that the conversion option in Convertible Notes qualified as an embedded derivative under FAS 133 through the adoption of EITF 07-5, as discussed in Note 2.

- 32 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

In connection with the transaction, Citadel was also granted certain rights over the Company and its subsidiaries. On January 25, 2007, Fushi, Fushi Holdings, Fushi International, Dalian Fushi, (the “Group Companies”), Li Fu, Chairman and Chief Executive Officer, Mathus Yue Yang, the Company’s then President, Chris Wenbing Wang, President and Chief Financial Officer and Citadel entered into an Investor Rights Agreement. Subsequently on June 4, 2008, the Group Companies, Li Fu, Chris Wenbing Wang and Citadel entered in an Amended and Restated Investor Rights Agreement.  Pursuant to the Investor Rights Agreement and the Amended and Restated Investor Rights Agreement, Citadel was granted, among other things and subject to certain conditions, a right of first refusal with respect to any debt or equity financing sought by the Company. In addition, Messrs. Fu, Yang and Wang agreed to a non-competition covenant relating to their employment and ability to engage in a business that is competitive with the Company's business for five years.

The HY Notes and the Convertible Notes were issued pursuant to indentures, each dated January 25, 2007 (the “HY Indenture” and “CB Indenture”, respectively, and together, the "Indentures") among the Company, Fushi Holdings, as guarantor, and the Bank of New York, as trustee for the Notes.  The indenture, notes purchase agreement and investor rights agreement related to the HY Notes and Convertible Notes contain various covenants that may limit the Company’s discretion in operating its business. In particular, the Company is limited in its ability to merge, consolidate or transfer substantially all of its assets, issue stock of its subsidiaries, incur additional debt and create liens on assets to secure debt. In addition, the Company is required to comply with certain financial covenants, including maintenance of a fixed charge coverage ratio of at least 2.0 and maintenance of a leverage ratio not exceeding 5.5. In addition, upon occurrence of events defined as “Asset Sale,” “Change of Control” or “Designated Event (means any Fundamental Change or Termination of Trading)” under the Indentures, holders of the HY Notes and Convertible Notes may require the Company to make an offer to repurchase the principal amounts.

The Company also agrees that on the dates indicated in the following table, the Company will prepay the corresponding principal amount (or such lesser principal amount as shall then be outstanding) in respect of the aggregate principal amounts.

Date	Principal Amount
July 24, 2009	$	5,000,000
January 24, 2010	$	5,000,000
July 24, 2010	$	5,000,000
January 24, 2011	$	5,000,000
July 24, 2011	$	10,000,000
January 24, 2012	$	10,000,000

The entire remaining principal amount of the Notes shall become due and payable on January 24, 2012.

- 33 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Unless previously redeemed, converted, purchased or cancelled, the Company must repay the Convertible Notes on January 24, 2012. The Convertible Notes may not be prepaid at any time prior to maturity. At maturity, the Company must repay all of the outstanding Convertible Notes plus a premium of 15.00% per annum on the principal amount calculated on a semi-annual basis, plus accrued and unpaid interest on the late payment, if any, to reflect an additional 5% per annum interest in excess of the rate of interest then in effect. It’s estimated that the Company will have to repay the principal of $5 million and an additional redemption cost of $5,305,158.

The Convertible Notes are convertible at the option of the holder into the Company’s common stock at an initial conversion price of $7 per share (approximating 14,286 shares per $100,000 principal amount of the Convertible Notes), subject to downward adjustments of conversion price on March 1 and September 1 of each year, beginning with March 1, 2008, to equal the simple arithmetic average of VWAP for the fifteen trading days preceding such March 1 or September 1, with a floor of $4.5.  On March 2, 2009, the conversion price was adjusted to $5.11 (approximating 19,569 shares per $100,000 principal amount of the Convertible Notes) to reflect the simple arithmetic average of VWAP for the fifteen trading days preceding the reset date.

In addition, adjustment of the Conversion Rate will be made if and at each time, upon completion of the quarter reviews (for each Fiscal Quarter ended March 31, June 30 and September 30) or annual audit (for each Fiscal Quarter ended December 31) of the Company’s consolidated financial statements an event defined as Financial and Operational Trigger under the CB indenture shall have occurred in the immediately preceding Fiscal Quarter, then within five (5) Business Days following issuance of the review or audit report, as the case may be, for such Fiscal Quarter, the Conversion Rate shall be adjusted pursuant to a formula provided in the CB Indenture and not subjective to the floor of $4.50.  The Financial and Operational Trigger means, for the Company and its subsidiaries on a consolidated basis, that net income for a Fiscal Quarter shall be less than the US dollar amount indicated in the table below opposite such Fiscal Quarter:

Fiscal Quarter Ending	Net Income
June 30, 2007	$5.0 million
September 30, 2007	$5.0 million
December 31, 2007	$5.0 million
March 31, 2008	$6.0 million
June 30, 2008	$6.0 million
September 30, 2008	$6.0 million
December 31, 2008	$6.0 million
March 31, 2009	$7.2 million
June 30, 2009	$7.2 million
September 30, 2009	$7.2 million
December 31, 2009	$7.2 million

- 34 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Upon review of the consolidated financial statements, the Company determined that a Financial and Operational Trigger as defined under the CB indenture occurred during the quarters ended June 30, 2009, March 31, 2009 and December 31, 2008. To the extent a conversion occurs, the Company shall be required to deliver approximately 421,000 additional shares of the Company’s common stock to the holder of the Convertible Notes by decreasing the Conversion Rate with respect to such notes.  Further, the Company cannot provide assurance that the Financial and Operational Trigger may not occur again in future fiscal quarters especially under challenging macro-economic conditions and difficult operating environments like the current one.  As of June 30, 2009, the Conversion Rate was adjusted to $3.97.  As a result of the adjusted conversion price used by the Company to fair value the embedded conversion option feature of the convertible notes, as of June 30, 2009, the Company recognized an increase to derivative liability – conversion option and an increase to change in fair value derivative liability – conversion option in the amount of $2,023,663.

On January 8, 2008, Citadel Equity Fund Ltd. exercised its rights under the CB indenture and received 2,142,857 shares in exchange for $15.0 million in debt with an exchange factor of $7.00 in debt for each share of stock.

As of June 30, 2009, the Company had a carrying value of $5,729,652 of Convertible Notes, of which, $5 million is principal and $729,652 is accrued interest and redemption accretion.

As mentioned in Note 2, due to the recent adoption of EITF 07-5, the Company has re-evaluated the Convertible Notes’ conversion option and has since then determined that it would require liability accounting.  The Company has since then recorded the fair value of the conversion option as “derivative liability – conversion option” in the accompanying consolidated financial statements. The change in the values of the conversion option is shown in the accompanying consolidated statements of income and other comprehensive income.

Deferred commissions on long term notes amounted to $2,663,349 (of which $1,125,000 was due to Kuhns’ verdict as explained in Note 18) as of June 30, 2009 and $3,188,344 as of December 31, 2008.  Amortized commission for the six months ended June 30, 2009 and 2008 amounted to $524,995 (of which $225,000 was due to Kuhns’ verdict as explained in Note 18) and $ 2,233,401, respectively. Amortized commission for the three months ended June 30, 2009 and 2008 amounted to $262,497 and $1,574,997, respectively.

Interest on long term notes for the six months ended June 30, 2009 and 2008 amounted to $2,185,542 and $1,509,588, respectively. Interest for the three months ended June 30, 2009 and 2008 was $1,073,352 and $917,541, respectively. Both amortized commission and interest on long term notes are recorded as interest expense.

Note 11 – 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.

- 35 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

On April 10, 2007, effective January 24, 2007, the Company entered into 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. The agreement was deemed effective January 24, 2007. The Swap requires semi-annual payment in arrears on July 24 and January 24 and matures on the earlier of (1) cash settlement defined as early termination; or (2) January 24, 2012, at which point the Swap requires an exchange of RMB and USD based principals. Under the terms of the cross currency swap, the Company receives variable interest rate payments in USD and makes fixed interest rate payments in RMB with settlement netted in USD, thereby creating the equivalent of fixed-rate debt. MLCS requires the Company to deposit $1,000,000 with them to secure the agreement. The deposit may be increased to $3,000,000 if the exchange rate for RMB to USD falls below 6.5 and to $5,000,000 if the exchange rate falls below 5.5. This swap is designated and qualified as a cash flow hedge. In July, 2008, the Company placed the $1,000,000 deposit with MLCS to secure the agreement. As of June 30, 2009, the deposit has remained the same.

Since its effective date, the fair value of this Swap Agreement changed to a payable of $7,890,432 and $4,377,076 as of June 30, 2009, and December 31, 2008, respectively. For the six months ended June 30, 2009 and 2008, changes in fair value of the Swap resulted in an increase in the liability and a loss to other comprehensive income of $3,513,356 and $731,505, respectively, net of taxes. For the three months ended June 30, 2009 and 2008, changes in fair value of the Swap resulted in an increase in the liability and a loss to other comprehensive income of $751,227, and a decrease in the liability and a gain to other comprehensive income of $4,377,975, respectively, net of taxes.

The Company had cross currency hedge payable amounting to $372,118 and $104,324 as of June 30, 2009 and December 31, 2008, respectively. The total loss from derivative transactions for the six months ended June 30, 2009 was $382,374 and the total gain from derivative transactions for the six months ended at June 30, 2008 was $355,190, respectively.  The total loss from derivative transactions for the three months ended June 30, 2009 was $215,964 and the total gain from derivative transactions for the three months ended at June 30, 2008 was $186,022, respectively. For the three and six months ended June 30, 2009, there were no amounts recorded in the consolidated statements of income in relation to this interest rate swap related to ineffectiveness of the swap transaction.

Note 12 - Earnings per share

The following is information of net income per share:

	Three months ended June 30,					Six months ended June 30,
	2009		2008			2009		2008
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net income for basic earnings per share	$	1,562,700	$	7,280,846		$	4,663,617	$	14,851,343
Add: Interest expense for convertible note		-		24,887			-		52,649
Deduct: Loan issuance cost		-		(209,590	)		-		(209,590	)
Net income for diluted earnings per share	$	1,562,700	$	7,096,143		$	4,663,617	$	14,694,402
Weighted average shares used in basic computation		27,827,838		27,354,215			27,696,388		27,201,127
Diluted shares		495,773		1,377,894			357,838		1,489,724
Weighted average shares used in diluted  computation		28,323,611		28,732,109			28,054,226		28,690,851
Earnings per share
Basic	$	0.06	$	0.27		$	0.17	$	0.55
Diluted	$	0.06	$	0.25		$	0.17	$	0.51

- 36 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

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
02/23/2009	Warrants	$	5.25-6.00		300,000	Anti-dilutive
05/21/2007 to 11/13/2007	Options	$	11.75-20.94		923,333	Anti-dilutive
04/10/2008 to 6/25/2008	Options	$	15.04-23.25		144,000	Anti-dilutive

Convertible notes were anti-dilutive and excluded from the calculation of diluted earnings per share as well.

Note 13 - Stockholders' Equity

During the first two quarters of 2009, the following activities were recorded:

On February 23, 2009, the Company sold in a private placement 400,000 shares of its common stock, par value $0.006 per share (the “Common Stock”) for an average price of $4.80 per share, and warrants to purchase 300,000 shares of Common Stock, for a total purchase price of $1,920,000.

- 37 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

The warrants consisted of Series A Warrants to purchase 100,000 shares of Common Stock at an exercise price of $5.25 per share, Series B Warrants to purchase 100,000 shares of Common Stock at an exercise price of $5.50 per share, and Series C Warrants to purchase 100,000 shares of Common Stock at an exercise price of $6.00 per share.

The Series A and B Warrants are exercisable starting from the date of issuance through the later of (i) February 22, 2010 and (ii) the date which is six (6) months following the effective date of a registration statement filed by the Company under which the resale of all of the shares of Common Stock underlying the warrants have been registered under the Securities Act of 1933, as amended (the “Securities Act”). The Series C Warrants are exercisable starting from the date of issuance through the later of (i) August 22, 2010 and (ii) the date which is twelve (12) months following the effective date of a registration statement filed by the Company under which the resale of all of the shares of Common Stock underlying the warrant have been registered under the Securities Act.

Because of certain cash redemption clauses related to these warrants, the Company at issuance followed the criteria in EITF 00-19 and recorded the fair value of these warrants as “derivative liability – warrants” in the accompanying consolidated financial statements.  On June 30, 2009, the Company amended and the holders amended the original warrant agreements to remove the certain cash redemption clauses as mentioned above.  As of June 30, 2009, the Company has re-classified the derivative liability – warrants to additional paid in capital.  The changes in the values of these warrants are shown in the accompanying consolidated statements of income and other comprehensive income.  On June 30, 2009, the value of the warrants were calculated using the Cox-Ross-Rubinstein binomial model with the following assumptions: exercise price of $5.25 for Series A, $5.50 for Series B and $6.00 for Series C Warrants; share price of $8.27 for all warrants; risk free interest rate of 0.42% for Series A and B Warrants, and 0.83% for Series C Warrants; expected remaining life of 0.65 year for Series A and B Warrants, and 1.15 years for Series C Warrants; and volatility of 60% for all warrants.

The value of the warrants at issuance were calculated using the Cox-Ross-Rubinstein binomial model with the following assumptions: exercise price of $5.25 for Series A, $5.50 for Series B and $6.00 for Series C Warrants; share price of $4.27 for all warrants; risk free interest rate of 0.57% for Series A and B Warrants, and 0.69% for Series C Warrants; expected life of 1 year for Series A and B Warrants, and 1.5 years for Series C Warrants; and volatility of 60% for all warrants.

On June 5, 2009, as partial payment to reduce the judgment pursuant to the Settlement Agreement signed with Kuhns on May 19, 2009, the Company issued and deposited a stock certificate for 2.2 million shares of Common Stock in escrow (the “Escrow Shares”) with the Escrow Agent along with an executed stock power in blank, to be held pursuant to the Escrow Agreement. The Company agreed to deposit a total of 2.2 million shares of Common Stock; however, Kuhns will only receive proceeds from the sale of such number of Escrow Shares necessary to satisfy the Judgment, after reducing the Judgment by the Escrow Assets. Once the Judgment has been satisfied Kuhns shall instruct the Escrow Agent to return any remaining Escrow Shares to the Company and such Escrow Shares shall be cancelled. See Note 18 for more detail.

- 38 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Also, as detailed in Note 18, as part of the settlement liability to Kuhns, the Company during May 2009, delivered to Kuhns 100,000 shares of Escrow Shares of common stock as partial payment to Kuhns, which reduced the judgment by $343,084 per the valuation determined by the Settlement Agreement .

The company issued 1,625 shares of common stock during the second quarter of 2009 per exercise of stock options.

The following is a summary of the outstanding and exercisable warrant balance:

	Exercise Price	Number		Average Remaining Life (years)
$	3.11		332,124		2.50
$	16.80		100,000		2.40
$	5.25		100,000		0.65
$	5.50		100,000		0.65
$	6.00		100,000		1.15
			732,124		1.80

The following is a summary of the warrant activity:

	Number of Warrants Outstanding			Weighted -Average Exercise Price		Average Remaining Contractual Life
Balance, at December 31, 2007		477,052		$	5.98	4.00 years
Granted		(55	)
Forfeited		-
Exercised		-
Balance, at June 30, 2008 (Unaudited)		476,997		$	5.98	3.50 years
Granted		-
Forfeited		-
Exercised		(44,873	)	$	3.11
Balance, at December 31, 2008		432,124		$	6.28	2.92 years
Granted		300,000		$	5.58
Forfeited		-
Exercised		-
Balance, at June 30, 2009 (Unaudited)		732,124		$	5.99	1.80 years

- 39 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Note 14 – 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 aggregate number of shares of Common Stock that may be issued under this Plan shall not exceed 800,000 shares, provided, however, that such number shall be increased at the end of each fiscal year of the Company in the same proportion as the issued and outstanding stock of such fiscal year; subject to a maximum of 10%of the issued and outstanding stock of the Company. Share options must be granted with an exercise price of at least 100% of the closing market price on the date of grant. The Compensation Committee (or Chief Executive Officer) had authority to set all the terms of each grant. Under the 2007 Plan, forfeited shares will become available for grant again.

The majority of the options awarded under the 2007 Plan vest in two years from the grant date. The majority of the options granted under the 2007 Plan expire in 3 years.

Under the 2007 Plan, the Company granted share options to all executives, directors and employees as summarized below:

Grant Year	Number of Shares		Exercise Price Range
2007		335,000	$	16.36-$20.94
2008		151,000	$	15.04-$23.25
2009		388,000	$	4.95
Total		874,000

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:

	Q1			Year ended December 31
	2009			2008			2007
Risk-free interest rate(1)		0.78	%		1.84%-2.82	%		3.54%-4.57	%
Expected dividend yield(2)		-			-			-
Expected option life(3)	2 Year			0.5-2 Years			2 Years
Expected stock price volatility(4)		60	%		50	%		50	%
Weighted average fair value of options granted	$	1.85		$	4.57		$	4.06

(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.

- 40 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

(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.

(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.  FAS 123R requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates. To the extent the actual forfeiture rate is different from the original estimate, actual share based compensation related to these awards may be different from the expectation. There is no material difference between actual and estimated forfeitures during the six months ended June 30, 2009.

The Company recognized $928,727 and $914,083 share-based compensation expense in general and administrative expenses for the six months ended June 30, 2009 and 2008, respectively. For the three months ended June 30, 2009 and 2008, the Company recognized share-based compensation expense of $337,859 and $500,988, respectively. As of June 30, 2009, the total compensation cost related to stock options not yet recognized was $419,591 and will be recognized over the weighted average life of 0.16 years.

As of June 30, 2009, the 892,333 executive options, 240,000 director options and 283,750 employee options outstanding had fair values of approximately $3,473,081, $912,761 and $750,908, respectively.

- 41 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

The following is a summary of the stock option activity:

	Number of Options Outstanding			Weighted -Average Exercise Price		Aggregate Intrinsic Value
Balance, December 31, 2007		1,110,000		$	14.30	$	12,075,850
Granted		151,000		$	21.20		-
Forfeited		(186,667	)	$	16.30		-
Exercised		-			-		-
Balance, June 30, 2008 (Unaudited)		1,074,333		$	15.10	$	9,271,494
Granted		-			-		-
Forfeited		(7,000	)	$	23.25		-
Exercised		-			-		-
Balance, December 31, 2008		1,067,333		$	14.90	$	-
Granted		388,000		$	4.95		-
Forfeited		(35,250	)	$	4.95		-
Exercised		(4,000	)	$	4.95		-
Balance, June 30, 2009 (Unaudited)		1,416,083		$	12.42	$	-

Following is a summary of the status of options outstanding at June 30, 2009:

Outstanding Option				Exercisable Options
Exercise Price	Number		Average Remaining Contractual Life	Average Exercise Price		Number		Weighted Average Exercise Price
$12.30		408,333	2.89years	$	12.30		408,333	$	12.30
$11.75		150,000	3.01years	$	11.75		150,000	$	11.75
$13.70		125,000	2.24years	$	13.70		125,000	$	13.70
$16.44 - $20.94		230,000	0.57 to 2.62 years	$	18.69		230,000	$	18.69
$16.36		10,000	2.37 years	$	16.36		10,000	$	16.36
$23.25		77,000	2.50 years	$	23.25		77,000	$	23.25
$15.04		17,000	2.78 years	$	15.04		17,000	$	15.04
$20.04		50,000	3.89 years	$	20.04		33,308	$	20.04
$4.95		348,750	3.50 years	$	4.95		174,750	$	4.95
Total		1,416,083					1,225,391

Note 15 - Statutory reserves

The laws and regulations of the People’s Republic of China require that before a Sino-foreign cooperative joint venture enterprise distributes profits to its partners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the board of directors, after the statutory reserve.

Surplus reserve fund

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. As of June 30, 2009, the Company has total registered capital of approximately $120,248,923 (RMB 821.3 million). The Company is required to contribute an additional $44,804,308 from future earnings if the company’s China facility has net income for future years. The transfer to this reserve must be made before distribution of any dividend to shareholders. The Company will transfer at year end 10% of the year’s net income determined in accordance with PRC accounting rules and regulations.

- 42 - -

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 50% of the registered capital.

Note 16 – 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 $77,602 and $66,706 in contributions of employment benefits for China employees in the six months ended June 30, 2009 and 2008, respectively. For the three months ended June 30, 2009 and 2008, the Company made contributions of employee benefits for China employees of $45,611 and $36,244, 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 $47,729 and $70,568 in contributions of employment benefits for US employees in the six months ended June 30, 2009 and 2008, respectively. For the three months ended June 30, 2009 and 2008, the Company made contributions of employment benefits for US employees of $17,189 and $37,233, respectively.

Copperweld UK operates a defined contribution pension scheme for employees. All UK employees are eligible to join the pension on satisfactory completion of their trial period, which is typically three months. UK employees can contribute as much as they like subject to current UK laws, but the company will match only the first 2.5% of gross pay in the current year. The assets of the scheme are held separately from those of the company. The annual contributions payable are charged to expense. The Company made $5,400 and $19,656 in contributions of employment benefits for UK employees in the six months ended June 30, 2009 and 2008. For the three months ended June 30, 2009 and 2008, the Company made contributions of employment benefits for UK employees of $2,622 and $5,980, respectively.

Note 17 - Segment Information

The Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, 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.

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FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

As of June 30, 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 theDalian manufacturing facility, is engaged in developing, designing, manufacturing, marketing and distributing copper cladded bi-metallicengineered conductor products, principally copper-clad aluminum (CCA) and primarily services the Asia-Pacific region, and specifically thePRC 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 conductorproducts, principally CCA and copper-clad steel (CCS) and primarily services the North and South American, European, Middle Eastern andNorth African markets.

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.

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FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Analysis of reportable segments (management information):

	For the Three Months Ended June 30, 2009
	China		US			Corporate			Eliminations			Total
Revenues		39,480,037		8,879,618						(58,110	)		48,301,545
Gross Profit		12,229,639		1,223,041									13,452,680
Selling, general and administrative expenses		1,829,642		1,335,836			1,088,297						4,253,775
Operating income (loss)		10,399,997		(112,795	)		(1,088,297	)					9,198,905
Capital expenditures		100,857		78,280									179,137
	For the Six Months Ended June 30, 2009
	China		US			Corporate			Eliminations			Total
Revenues		65,817,481		17,649,847						90,753			83,558,081
Gross Profit		20,888,875		1,503,180									22,392,055
Selling, general and administrative expenses		3,493,460		2,931,883			2,100,821						8,526,164
Operating income (loss)		17,395,415		(1,428,703	)		(2,100,821	)					13,865,891
Capital expenditures		5,353,890		255,645									5,609,535
	For the Three Months Ended June 30, 2008
	China		US			Corporate			Eliminations			Total
Revenues		46,364,995		16,207,248						(36,114	)		62,536,129
Gross Profit		14,677,325		2,069,282									16,746,607
Selling, general and administrative expenses		1,984,039		1,709,381			1,086,096						4,779,516
Operating income (loss)		12,693,286		359,901			(1,086,096	)					11,967,091
Capital expenditures		14,386,560		797,607									15,184,167

	For the Six Months Ended June 30, 2008
	China		US		Corporate			Eliminations			Total
Revenues		82,344,315		35,028,979					(828,138	)		116,545,156
Gross Profit		26,842,941		4,637,353								31,480,294
Selling, general and administrative expenses		4,358,071		2,946,039		2,664,096						9,968,206
Operating income (loss)		22,484,458		1,691,726		(2,664,096	)					21,512,088
Capital expenditures		15,743,250		1,726,660								17,469,910

As of December 31, 2008	China		US		Corporate		Total
Property, plant and equipment, net		103,473,792		16,287,235				119,761,027
Total assets		252,707,535		28,727,197		13,022,785		294,457,517
As of June 30, 2009	China		US		Corporate		Total
Property, plant and equipment, net		103,057,104		14,626,309				117,683,413
Total assets		245,733,007		27,482,540		13,975,729		287,191,276

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FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Note 18 - Commitments and contingencies

Swap agreement

As discussed in Note 11, the Company entered into a swap agreement that required a $1,000,000 deposit to secure the transaction. If the exchange rate for RMB to US Dollars drops below certain levels, the Company will be required to deposit up to $5,000,000. In July 2008, the Company deposited the $1,000,000 with MLCS to secure the agreement.

Kuhns Brothers litigation settlement

On December 11, 2007, the Company received service of an action filed by Kuhns Brothers, Inc., Kuhns Brothers Securities Corp., and Kuhns Brothers & Co., Inc. against the Company in the United States District Court, District of Connecticut on November 27, 2006.  On August 5, 2008, the Company received verdict from the United States District Court that Kuhns is entitled to recover a total of $7,197,794. During the fourth quarter of 2008, the Company appealed to the court on the verdict and settlement.  

On May 19, 2009, the Company entered into a Settlement and Forbearance Agreement and Release with Kuhns Brothers, Inc., Kuhns Brothers Securities Corp., and Kuhns Bros. & Co. Inc. (collectively “Kuhns”), in which Kuhns agreed to reduce the judgment to $7,000,000 (the “Judgment”) and the Company then agreed to withdraw the appeal. The Company had initially accrued $7.2 million for this litigation settlement as a contingent liability in the second quarter of 2008 and allocated the amount into deferred commissions, additional paid in capital and current expenses based on the nature of each charge due to Kuhns as below:

Description	Amount		Accounting Treatment
Placement agent fees associated to the Copperweld acquisition and Common stock issuance and to be deducted from the proceeds and debited to additional paid-in capital	$	3,487,250	Allocated to additional paid-in capital in 2008 under SAB Topic 5A.
Deferred placement agent fee related to $60 million Citadel Notes issuance		3,000,000	Being amortized over the Notes' life and $1,875,000 has been amortized as at June 30, 2009 under FAS 91.
Interests of all due placement agent fees		710,544	Expensed in 2008
Total	$	7,197,794

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FUSHI COPPERWELD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 JUNE 30, 2009

(Unaudited)

Pursuant to the Settlement Agreement, the Judgment shall be satisfied in full no later than January 15, 2010 through a combination of cash and shares. As partial payment to reduce the Judgment, the Company delivered to Kuhns on May 21, 2009, $1,000,000 plus accrued interest (the “Escrow Payment”), which was held in an escrow account (the “Escrow Assets”) in the U.S. which is outside of the PRC , that was governed by an Escrow Agreement between the Company and Kuhns, dated October 3, 2007. At the closing date on June 5, 2009, the Company also delivered to Kuhns a stock certificate for 100,000 shares of Common Stock (the “Initial Shares”), which had been part of the Escrow Assets, and (ii) deposited a stock certificate for 2,200,000 shares of Common Stock in escrow (the “Escrow Shares”) with the Escrow Agent along with an executed stock power in blank, to be held pursuant to the Escrow Agreement. The Company then agreed to deposit a total of 2,200,000 shares of Common Stock. However, as stated in the settlement agreement, Kuhns will only receive proceeds from the sale of such number of Escrow Shares necessary to satisfy the Judgment, after reducing the Judgment by the Escrow Assets. Once the Judgment has been satisfied Kuhns shall instruct the Escrow Agent to return any remaining Escrow Shares to the Company and such Escrow Shares shall be cancelled.  The Company may pay the balance of the Judgment to Kuhns at any time without any pre-payment penalty.

On or prior to the thirtieth day after the Closing Date, the Company shall file a registration statement on Form S-3 (the “Registration Statement”) with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) to register the Initial Shares and Escrow Shares for resale. The Company shall use its best efforts to have the Registration Statement declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than 120 days from Closing (the “Registration Deadline”). In the event the Registration Statement is declared effective, then, upon written notice to the Escrow Agent, the Escrow Agent will deposit the Escrow Shares into a brokerage account and will thereafter sell shares in such amounts and at such times as Kuhns directs until such time as the Judgment including any accrued interest has been paid in full. Kuhns shall use its reasonable efforts to direct sale of the Escrow Shares resulting in full payment of the Current Judgment Amount by January 15, 2010.

In the event the Company meets the Registration Deadline and for so long as the Registration Statement remains effective, the Judgment shall be reduced by an amount equal to the cash proceeds distributed by the Escrow Agent to Kuhns in connection with sales of the Escrow Shares. If the Company fails to meet the Registration Deadline, but causes a Registration Statement to be declared effective by October 31, 2009, the Judgment shall instead be further reduced by an amount equal to ninety percent (90%) of the cash proceeds distributed by the Escrow Agent to Kuhns in connection with sales of the Escrow Shares.

In the event that (i) the Company’s Registration Statement is not declared effective by the Registration Deadline and (ii) for so long as the Registration Statement is not effective subsequent to the Registration Deadline, the Current Judgment Amount as defined in the Settlement Agreement shall accrue interest at the rate of 18% per annum. In addition, upon such events, Kuhns shall be entitled to receive Escrow Shares from the Escrow Agent (the “Restricted Shares”) in such amounts, and at such times, as it determines until the Judgment is satisfied. The Current Judgment Amount shall thereupon be reduced by the Restricted Share Value, which shall mean an amount equal to fifty percent (50%) of the daily volume weighted average price of the Common Stock on the NASDAQ Global Select Market as reported by Bloomberg (“VWAP”) for the ten trading days before the date of delivery of the Restricted Shares to Kuhns.

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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, and the documents incorporated by reference herein, 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. (formerly Fushi International, Inc.), (ii) Fushi Holdings, Inc.(formerly Diversified Product Inspections, Inc.) (“Fushi Holdings”), (iii) Fushi International (Dalian) Bimetallic Cable Co., Ltd. (formerly Dalian Diversified Product Inspections Bimetallic Cable, Co., Ltd.) (“Fushi International (Dalian)”), (iv) Dalian Fushi Bimetallic Wire Manufacturing, Co., Ltd. (“Dalian Fushi”), (v) Copperweld Holdings, LLC, (vi) Copperweld Bimetallic, LLC (“Copperweld”) and (vii) 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.

- 48 - -

Overview

We believe we are 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 second fiscal quarter of 2009, our products were sold to over 300 customers in 38 countries, are marketed under the trademarked names of “Copperweld®” and “Fushi™,” and are sold directly to cable manufacturers or through either 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) “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. 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 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 the leading producer of bimetallic wire products in the world and are 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 to 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.

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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.  This is a considerable cost savings.  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.

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.

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 cladded 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.

- 50 - -

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 Quarter include:

-  EPS of $0.06 for the three months ended June 30, 2009;

-  Metric tons of volume shipped increased 9.5% compared to the second quarter 2008;

- Significantly improved performance at Fayetteville facility; generated approximately $0.5 million of net income during the month of June 2009;

- Expects to benefit from increased demand in coming quarters due to strength in the utility and telecommunications markets as well as the Chinese government's stimulus package;

- Successfully increased annual CCA capacity by 6,000 metric tons at Dalian facility; and

- Improved cash flows from operating activities by $9.1 million compared to the second quarter 2008

Current Business Environment and Outlook for the remainder of 2009

With respect to the overall business trends for the remainder of 2009 and forward, management is increasingly encouraged by recent trends that show positive metrics in the economy and our markets around the world. Statistics released by the PRC’s National Bureau of Statistics indicate that the $586 billion stimulus package implemented by the Chinese government in November 2008 began to gain further traction during the first half of 2009, as total fixed asset investment grew 33.5%, a growth of 7.2% compared to the same period in 2008. We believe the following macro-level trends will positively impact our business and offer us opportunities to capture new business despite global economic conditions and preserved profitability:

· Strong incremental demand for CCA-based telecommunication products in China, primarily due to 3G related capital investment;

· Chinese 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 long-term growth trends in electric utility and infrastructure markets; and

· Continued demand for cost effective and energy saving alternatives.

Furthermore, we have focused on driving profitability by streamlining our organizational structure and business procedures, increasing operational efficiency and optimizing operating processes, while managing production costs and operating expenses.

- 51 - -

In order to enhance our productivity and expand our sales of higher margin products, we are continuing to develop applications in high-potential utility and electrical appliance markets. 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 will continuously improve our ability to efficiently utilize existing and new manufacturing capacity to manage expansion and growth. We believe that investment to increase capacity will pay off by increased product sales in the future. We believe that effectively utilizing manufacturing assets, and generating economies of scale, will help offset high raw material prices and dilute overhead over time. Moving forward, as we are optimistic about the demand growth for our various products, we expect our combined utilization rates to improve.

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 to potentially enter new markets both vertically and horizontally, in order to achieve better returns.  We believe that 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 and as percentage of net sales. Percentages may not add due to rounding:

	Three Months Ended				%			Six Months Ended				%
	June 30, 2009		June 30, 2008		Change			June 30, 2009		June 30, 2008		Change
	(in millions, except percentages)
Revenues		48.3		62.5		-22.8	%		83.6		116.5		-28.3	%
Gross Profit		13.5		16.7		-19.4	%		22.4		31.5		-28.8	%
Selling, general and administrative expenses		4.3		4.8		-10.0	%		8.5		10.0		-14.7	%
Operating Income		9.2		12.0		-23.1	%		13.9		21.5		-35.4	%
Income Before Taxes		2.2		8.5		-74.1	%		4.6		16.5		-72.2	%
Net Income Provision		0.6		1.2		-50.3	%		-0.1		1.7		-106.0	%
Net Income		1.6		7.3		-78.1	%		4.7		14.9		-68.4	%

Comparison of the Three Fiscal Months Ended June 30, 2009 and June 30, 2008:

Net Sales

The following tables set forth net sales in millions by each of our reporting segments and metric tons sold on a combined basis:

- 52 - -

	Net Sales
	Three Fiscal Months Ended June 30,
	2009					2008
	Amount		% of Net Sales			Amount		% of Net Sales			Dollar Change			% Change
P.R.C.	$	39.4		81.6	%	$	46.3		74.1	%	$	(6.9	)		-14.9	%
US	$	8.9		18.4	%	$	16.2		25.9	%	$	(7.3	)		-45.1	%
Total net sales	$	48.3		100.0	%	$	62.5		100.0	%	$	(14.2	)		-22.8	%

	Metric Tons Sold
	Three Fiscal Months Ended June 30,
	2009					2008
	MT		% of MT Sales			MT		% of MT Sales			Tonnage Change		% Change
P.R.C.		9,060		82	%		7,247		72	%		1,813		25.0	%
US		1,960		18	%		2,814		28	%		-854		-30.3	%
Total sales volume		11,020		100	%		10,061		100	%		959		9.5	%

Net sales decreased 22.8% over the same quarter one year earlier primarily due to a 29.3% decline in average selling prices resulting from a decline in the costs of our raw materials, which we pass on to our customer.  This was partially offset by a 9.5% growth in metric tons sold over the same period.

The P.R.C. segment experienced a decline of 14.9% in net sales for the three months ended June 30, 2009 relative to the comparable 2008 period. The majority of the decrease in P.R.C. net sales is due to a 31.9% decline in the average selling price as a result of lower metal prices relative to the comparable 2008 periods. We generally pass the cost of price changes in raw materials to customers and set the base price for our products.  As raw material prices change we pass that change through, whether it results in an increase or decrease in the base price for our products. This decline was partially offset by a 25.0% increase in metric tons sold.  We expect long-term demand for our P.R.C. products to be positively affected by the build-out of the homegrown 3G network in the P.R.C. and continued traction of the government stimulus package announced in November 2008.

The US segment experienced a significant decline in net sales in all major geographic regions with particular weakness in Europe and North America, resulting in a decline of 45.1% for the three months ended June 30, 2009 relative to the comparable 2008 period. The decline in the US segment net sales is primarily the result of a 30.4% decline in metric tons shipped and a 21.8% decline in the average selling price. We continue to remain optimistic that the electrical utility industries provide strong growth opportunities for our CCS products within the markets served by our US segment operations.  However, delays in disbursement of government stimulus packages and uncertainty in the global economy may continue to depress capital spending by telecommunication and electrical utility providers, and negatively impact markets and consequently our net sales within in the markets of the US segment.

Net Sales by Industry

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

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	Net Sales
	Three Fiscal Months Ended June 30,
	2009					2008
	Amount		% of Net Sales			Amount		% of Net Sales			Dollar Change		% Change
Telecommunication		23.1		47.8	%		32.7		52.3	%		-9.6		-29.4	%
Utility		22.1		45.8	%		26.7		42.7	%		-4.6		-17.2	%
Transportation		0.4		0.8	%		1.1		1.8	%		-0.7		-63.5	%
Other		2.7		5.6	%		2.0		3.2	%		0.7		35.0	%
Total net sales		48.3		100.0	%		62.5		100.0	%

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

	Three Fiscal Months Ended June 30,
	2009					2008
	Tons		% of Tons Sold			Tones		% of Tons Sold			Tonnage Change		% Change
Telecommunication		5,294		48.0	%		4,909		48.8	%		385		8	%
Utility		4,887		44.4	%		4,514		44.9	%		373		8	%
Transportation		64		0.6	%		155		1.5	%		-91		-59	%
Other		775		7.0	%		483		4.8	%		292		60	%
Total sales volume		11,020		100	%		10,061		100	%

In China, we are increasing sales volume in the telecommunication market, which has been our largest market, and we are focused on increasing market share in the underdeveloped utility market.  During the three month period ended June 30, 2009, our sales to the telecommunication and utility markets increased by 385 and 373 metric tons, respectively, primarily due to strong demand for CCA products in the P.R.C. and partially offset by decreased demand from the North American and European markets.

Capacity and Output

The following table summarizes installed cladding capacities and output by for the three month period ended June 30, 2009:

	Three Fiscal Months Ended June 30, 2009
	P.R.C.				US
	Capacity		Output		Capacity		Output
CCA		10,000		8,828		3,100		480
CCS		200		15		4,075		1,465
Other		-		217		35		15
Total		10,200		9,060		7,210		1,960

- 54 - -

As of June 30, 2009, we had combined CCA annual production capacity of 49,400, metric tons and CCS cladding capacity of 17,100 metric tons on an annualized basis based on our product mix. Installed capacity can increase or decrease based on the size of the rod used in the cladding operation for CCA and on the conductivity engineered into the CCS production. The above capacity figures reflect a further 6,000 metric tons of annualized CCA capacity which was successfully installed and commissioned at our Dalian facility during the second quarter of 2009.  We also have plans to install a further 8,200 metric tons of annualized CCS cladding capacity online at our Dalian facility by the end of the first quarter of 2010.  We expect the first 4,100 metric tons of annualized CCS cladding capacity to be fully operational at our Dalian facility by the end of the third quarter of 2009 and an additional 4,100 metric to be operational during the course of first quarter of 2010.

Product Mix

	Metric Tons Sold
	Three Fiscal Months Ended June 30,
	2009					2008
	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change		% Change
CCA		9,309		84	%		7,775		77	%		1,534		20	%
CCS		1,479		13	%		2,065		21	%		-586		-28	%
Others		232		2	%		221		2	%		11		5	%
Total net sales		11,020		100	%		10,061		100	%

The chart above illustrates the growth of CCA as a percentage of tons sold comparing the three month period ended June 30, 2009, to June 30, 2008, for the combined reporting segments.  The demand for our CCA products in the PRC strengthened during the second quarter 2009 compared to the same period in 2008 due to increased traction of domestic infrastructure projects related to the stimulus package and 3G network build-out. However, we experienced a significant tapering of demand of 29.5% for CCA and CCS products served by facilities in our US reporting segment, which primarily serve the North American and European markets.

Gross Margin

	Three Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
Gross Margin	$	13.5		$	16.7		$	(3.2	)		-19.4	%
as a percentage of net sales		27.9	%		26.8	%					1.1	%

Gross margin decreased $3.2 million or 19.4% quarter over quarter. The decline in gross margin was primarily due to lower average selling prices, which resulted in lower revenues. Despite the decline in absolute gross margin, the gross margin for the three months ended June 30, 2009, as a percentage of net sales increased from 26.8% to 27.9% when compared to the same period in 2008 due primarily to higher margins contributed by our Fayetteville facility.  Higher margins in Fayetteville for the three months ended June 30, 2009 was primarily a result of cost savings initiatives implemented in the first quarter of 2009.  Gross margins at our Dalian facility remained relatively stable for the three fiscal month period ended June 30, 2009, slightly decreasing from 31.7% to 31.0% compared to the same period in 2008.

- 55 - -

Selling Expenses

	Three Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
Selling Expenses	$	1.1		$	1.3		$	(0.2	)		-15.4	%
as a percentage of net sales		2.2	%		2.0	%					0.2	%

Selling expense decreased by $0.2 million or 15.4% for the three months ended June 30, 2009, compared to the same quarter of 2008.  Selling expenses decreased primarily because of the cost saving initiatives implemented by management and decreased sales volume from our Fayetteville and Telford facility.  As a percentage of net sales, selling expenses experienced a slight increase from 2.0% of net sales for the 2008 quarter to 2.2% of net sales due to decreased revenue.

General and Administrative Expenses

	Three Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
General and Administrative Costs	$	3.2		$	3.5		$	(0.3	)		-8.6	%
as a percentage of net sales		6.6	%		5.6	%					1.0	%

General and administrative expenses decreased by $0.3 million or 8.6% to $3.2 million during the three month period ended June 30, 2009, compared to the same period in 2008. This decrease is primarily a result of cost saving initiatives implemented by management in response to the economic downturn. As a percentage of net sales, general and administrative expenses increased slightly by 1.0% to 6.6% from 5.6% for the second quarter of 2008 as a result of decreased revenue in the second quarter of 2009. During the second quarter of 2009, included in general and administrative expenses were non-factory depreciation and amortization of $444,275 and amortization of intangible assets of $119,207, compared to $440,028 and $158,651, respectively in the second quarter of 2008.

Operating Income

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

	Three Months Ended June 30,
	2009						2008
	Amount			% of operating income			Amount			% of operating income			Dollar Change			% Change
P.R.C.	$	10.4			113	%	$	12.7			106	%	$	(2.3	)		-18.1	%
US	$	(0.1	)		-1	%	$	0.4			3	%	$	(0.5	)		-125.0	%
Corporate	$	(1.1	)		-12	%	$	(1.1	)		-9	%	$	-			0.0	%
Total operating income	$	9.2			100	%	$	12.0			100	%	$	(2.8	)		-23.3	%

Operating income in the three months ended June 30, 2009, declined approximately $2.8 million, or 23.3%, compared to the same period in 2008, which was primarily due to lower net sales and partially offset by cost savings initiatives implemented by management.

Operating income in the P.R.C. segment decreased approximately $2.3 million, or 18.1%, in the second quarter of 2009 when compared to the same period in 2008, primarily due to a decline in total net sales.

- 56 - -

Operating income in the US segment decreased approximately $0.5 million in the second quarter of 2009 when compared to the same period in 2008, primarily as a result of lower net sales. Also contributing to the decline was the underabsorption of manufacturing overhead as production levels were lowered in response to weaker global demand. Cost savings initiatives implemented by management helped reduce certain manufacturing costs.

Other Income (Expense)

Interest Income (Expense)

	Three Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
Interest Income	$	0.1		$	0.2		$	(0.1	)		-57.9	%
Interest Expense	$	(1.5	)	$	(3.8	)	$	2.3			-61.2	%
Net Interest Expense	$	(1.4	)	$	(3.6	)	$	2.2			-61.3	%
as a percentage of net sales		-2.9	%		-5.8	%					2.9	%

Net interest expense in the second quarter of 2009 decreased by approximately $2.2 million versus the second quarter of 2008, which was primarily the result of the repayment of Dalian’s short term bank loans and one time interest accrued and amortization of costs relating to commission on debt issues resulting from the Kuhn’s’ judgment amounting to $2.0 million in the second quarter of 2008. As a percentage of net sales, net interest expense decreased from 5.8% for the second quarter of 2008 to 2.9% during the second quarter of 2009.

Change in fair value of derivative instruments and liabilities

The Company analyzes all financial instruments with features of both liabilities and equity under FAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” FAS 133 and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” Before the adoption of EITF 07-5 "Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock", the convertible note issued in 2007 did not require bifurcation or result in liability accounting. However, with the recent adoption of EITF 07-5, the embedded conversion feature must be bifurcated from its host instrument and accounted for separately as a derivative liability.

Emerging Issues Task Force (“EITF”) 00-19 “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,” provides a criteria for determining whether freestanding contracts that are settled in a company’s own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under FAS  133 “Accounting for Derivative Instruments and Hedging Activities.” Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in a company’s results of operations.  Using the criteria in EITF 00-19, the Company determines which options, warrants and embedded features require liability accounting and records the fair values as a derivative liability. The changes in the values of these instruments are shown in the accompanying consolidated statements of income and other comprehensive income as “change in fair value of derivative liabilities.”

- 57 - -

The fair market values of our warrant and conversion option derivatives are determined by the market price of our stock, strike price, volatility, risk free interest rate, expected life and dividend yield. An increase in our stock price can generate material losses on our warrant and conversion option derivatives.

For the three months ended June 30, 2009 and 2008, the Company recognized a loss in the change in fair value of derivative liability – conversion option in the amounts of $4,583,809 and $0, respectively.

For the three months ended June 30, 2009 and 2008, the Company recognized a loss in the change in fair value of derivative liability – warrants in the amounts of $688,876 and $0, respectively.

The fair market value of our derivative hedge is mainly determined based upon changes in the forward market six month USD LIBOR rates and changes in the forward market exchange rate between USD and Chinese RMB. A decline in forward market LIBOR rates and accelerated depreciation in Chinese RMB against USD can generate material losses on our derivative hedge. Since its effective date, the fair value of this Swap Agreement changed to a payable of $7,890,432 and $4,377,076 as of June 30, 2009, and December 31, 2008, respectively.

Tax

Profit before tax for Dalian was $10.4 million in the second quarter 2009 with losses from Fayetteville and Telford before tax of $0.2 million.  Loss at the Fushi Copperweld parent company level was $8.0 million primarily due to interest expenses on the high yield notes, stock-based compensation, changes in fair value of derivative liabilities related to convertible note conversion options, and warrants, as well as professional fees and outside service expenses. On a consolidated basis, profit before tax was $2.2 million and we recognized a tax expense of $0.6 million.

	Dalian		Fayetteville & Telford			Parent Company			Consolidated
Profit (Loss) before income tax		10.4		(0.2	)		(8.0	)		2.2
Income tax expense (credit)		1.3		-			(0.7	)		0.6
Profit after income tax		9.1		(0.2	)		(7.3	)		1.6

- 58 - -

Net Income

	Three Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
Net Income Before Taxes	$	2.2		$	8.5		$	(6.3	)		-74.4	%
(Benefit) Provision for Income Taxes	$	0.6		$	1.2		$	(0.6	)		-49.4	%
Net Income After Taxes	$	1.6		$	7.3		$	(5.7	)		-78.5	%
as a percentage of net sales		3.2	%		11.6	%					-8.4	%

Net income for the three months period ended June 30, 2009, was $1.6 million compared to $7.3 million for the comparable period in 2008, a decrease of approximately $5.7 million or 78.5%. Net income as a percentage of net sales declined from 11.6% for the prior period to 3.2% primarily due to lower revenue and significant non-cash losses in the change in fair values of derivative liabilities.

- 59 - -

Earnings Per Share

	Three Months Ended June 30,
	2009		2008
	Unaduited		Unaudited
Net Income for Basic Earnings Per Share		1,562,700		7,280,846
Basic Weighted Average Number of Shares		27,827,838		27,354,215
Net Income per Share - Basic		0.06		0.27
Net Income for Diluted Earnings Per Share		1,562,700		7,096,143
Diluted Weighted Average Number of Shares		28,323,611		28,732,109
Net Income per Share - Diluted		0.06		0.25

Basic and diluted earnings per share (EPS) for the quarter ended June 30, 2009, were $0.06 and $0.06, compared to $0.27 and $0.25 for the second quarter last year.

Comparison of the Six Fiscal Months Ended June 30, 2009 and June 30, 2008:

Net Sales

	Net Sales
	Six Fiscal Months Ended June 30,
	2009					2008
	Amount		% of Net Sales			Amount		% of Net Sales			Dollar Change		% Change
P.R.C.		65.8		78.7	%		81.5		70.0	%		-15.7		-19.3	%
US		17.8		21.3	%		35.0		30.0	%		-17.2		-49.1	%
Total net sales		83.6		100.0	%		116.5		100.0	%		-32.9		-28.2	%

	Six Fiscal Months Ended June 30,
	2009					2008
	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change		% Change
P.R.C.		14,947		79	%		13,166		68	%		1,781		13.5	%
US		4,054		21	%		6,157		32	%		-2,103		-34.2	%
Total sales volume		19,001		100	%		19,323		100	%		-322		-1.7	%

Net sales decreased 28.2% over the same period one year earlier primarily due to a 26.2% decline in average selling prices resulting from a decline in the costs of our raw materials, which we pass on to our customers. This was partially offset by an increase of 13.5% in tons sold from our P.R.C. segment over the same period.

The P.R.C. segment experienced a decline of 19.3% in net sales for the six months ended June 30, 2009 relative to the comparable 2008 periods. The majority of the decrease in P.R.C. net sales for the six months ended June 30, 2009, is due to a 29.6% decline in the average selling price as a result of lower metal prices relative to the comparable 2008 periods. We generally pass the cost of price changes in raw materials to customers and set the base price for our products. As raw material prices change we pass that change through, whether it results in an increase or decrease in the base price for our products. This decline was partially offset by a 13.5% increase in metric tons sold.  We expect long-term demand for our P.R.C. products to be positively affected by the build-out of the homegrown 3G network in the P.R.C. and continued traction of the government stimulus package announced in November 2008.

- 60 - -

The US segment experienced a significant decline in net sales in all major geographic regions with particular weakness in Europe and North America, experiencing a decline of 49.1% for the six months ended June 30, 2009 relative to the comparable 2008 periods. The decline in US segment net sales for the six months period ended June 30, 2009 as relative to comparable 2008 periods is primarily the result of a 34.2% decline in metric tons shipped and a 21.2% decline in average selling price. We continue to remain optimistic that the electrical utility industries provide strong growth opportunities for our CCS products within the markets served by our US segment operations. However, delays in disbursement of government stimulus packages and uncertainty in the global economy may continue to depress capital spending by telecommunication and electrical utility providers negatively impacting markets and consequently our net sales within in the markets of the US segment.

Metric tons sold decreased 1.7% over the same quarter one year earlier primarily due to a decrease of 34.2% in metric tons sold from our U.S. segment partially offset by a 13.5% increase in our P.R.C. segment.

Net Sales by Industry

	Net Sales
	Six Fiscal Months Ended June 30,
	2009					2008
	Amount		% of Net Sales			Amount		% of Net Sales			Dollar Change		% Change
Telecommunication		37.7		45.1	%		62.1		53.3	%		-24.4		-39.3	%
Utility		41.0		49.0	%		48.1		41.3	%		-7.1		-14.8	%
Transportation		0.8		1.0	%		1.6		1.4	%		-0.8		-49.8	%
Other		4.1		4.9	%		4.7		4.0	%		-0.6		-12.5	%
Total net sales		83.6		100.0	%		116.5		100.0	%		-32.9		-28.2	%

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

	Net Sales
	Six Fiscal Months Ended June 30,
	2009					2008
	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change		% Change
Telecommunication		8,762		46.1	%		9,646		50.0	%		-884		-9.2	%
Utility		8,915		46.9	%		8,427		43.6	%		488		5.8	%
Transportation		124		0.7	%		198		1.0	%		-74		-37.4	%
Other		1,200		6.3	%		1,052		5.4	%		148		14.1	%
Total sales volume		19,001		100.0	%		19,323		100.0	%

- 61 - -

We are expanding our sales to the utility market. During the six month period ended June 30, 2009, our sales to the utility segment increased by 488 metric tons.  Shipments to the utility segment increased from 43.6% of total shipments for the six months ended June 30, 2008, to 46.9% of total shipments for the same period in 2009.  Shipments to the telecom segment declined by 9.2% or by 884 tons and declined from 49.9% of total shipments to 46.1% when comparing the six months ended June 30, 2008 and 2009, respectively, primarily due to decreased demand from North American and European markets.

Capacity and Output

The following table summarizes installed cladding capacities and output for the six months ended June 30, 2009:

	Six Fiscal Months Ended June 30, 2009
	P.R.C.				US
	Capacity		Output		Capacity		Output
CCA		18,500		14,657		6,200		974
CCS		400		22		8,150		3,042
Other		-		268		-		38
Total		18,900		14,947		14,350		4,054

As of June 30, 2009, we had combined annual production capacity for CCA of 49,400, metric tons and CCS cladding capacity of 17,100 metric tons on an annual basis based on our product mix. Installed capacity can increase or decrease based on the size of the rod used in the cladding operation for CCA and on the conductivity engineered into the CCS production. The above capacity figures reflect a further 6,000 metric tons of annualized CCA capacity which was successfully installed and commissioned at our Dalian facility during the second quarter 2009.  We also have plans to install a further 8,200 metric tons of annualized CCS cladding capacity online at our Dalian facility by the end of the first quarter 2010.  We expect the first 4,100 metric tons of annualized CCS cladding capacity to be fully operational at our Dalian facility by the end of the third quarter 2009 and an additional 4,100 metric tons to be operational during the course of first quarter 2010.

Product Mix

	Metric Tons Sold
	Six Fiscal Months Ended June 30,
	2009					2008
	Tonnage		% of Net Sales			Tonnage		% of Net Sales			Tonnage Change		% Change
CCA		15,631		82	%		14,619		76	%		1,012		7	%
CCS		3,064		16	%		4,296		22	%		-1,232		-29	%
Others		306		2	%		408		2	%		-102		-25	%
Total sales volume		19,001		100	%		19,323		100	%

The chart above illustrates the growth of CCA as a percentage of tons sold comparing the six month period ended June 30, 2009 to June 30, 2008 for the combined facilities.  The demand for our CCA products in the PRC remained strong during the first six months of the fiscal year 2009 compared to the same periods in 2008 despite worsened macro-economic conditions. However, we experienced a significant tapering of demand of 45.8% in CCA products in the North American and European markets, which we primarily serve from our Fayetteville and Telford facilities.

- 62 - -

Gross Margin

	Six Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
Gross Margin	$	22.4		$	31.5		$	(9.1	)		-28.8	%
as a percentage of net sales		26.8	%		27.0	%					-0.2	%

Gross margin profit decreased $9.1 million or 28.8% for the six months ended June 30, 2009 compared to the comparable period in 2008. The gross margin for the six months period ended June 30, 2009, as a percentage of net sales stayed stable relative to the same period in 2008 decreasing only 20 basis points to 26.8%.  

Selling Expenses

	Six Months Ended June 30,						Change
(in millions)	2009			2008			Dollar		%
Selling Expenses	$	2.3		$	2.1		$	0.2		11.6	%
as a percentage of net sales		2.7	%		1.8	%				1.0	%

Selling expense increased by $0.2 million or 11.6% for the six month period ended June 30, 2009, compared to the same quarter of 2008.  Selling expenses increased primarily because of increased efforts in sales to penetrate the electrical utility market partially offset by cost savings initiatives implemented. As a percentage of net sales, selling expenses increased from 1.8% of net sales for the six month period ended June 30, 2008 period to 2.7% of net sales during the same period in 2009.

General and Administrative Expenses

	Six Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
General and Administrative Costs	$	6.2		$	7.9		$	(1.7	)		-21.7	%
as a percentage of net sales		7.4	%		6.8	%					0.6	%

General and administrative expenses decreased by $1.7 million or 21.7% to $6.2 million during the six month period ended June 30, 2009, compared to the same period in 2008. This decrease is primarily a result of cost saving initiatives implemented by management. As a percentage of net sales, general and administrative expenses increased slightly by 0.6% to 7.4% from 6.8% for the first six months of fiscal year 2008 as a result pf decreased revenue in the first six months of fiscal year 2009. During the first six months of fiscal year 2009, included in general and administrative expenses were non-factory depreciation and amortization of $888,358 and amortization of intangible assets of $238,283, compared to $842,480 and $178,073, respectively during the same period in 2008.

- 63 - -

Operating Income

	Six Fiscal Months Ended June 30,
	2009						2008
	Amount			% of operating income			Amount			% of operating income			Dollar Change			% Change
P.R.C.	$	17.4			125.2	%	$	22.5			104.7	%	$	(5.1	)		-22.7	%
US	$	(1.4	)		-10.1	%	$	1.7			7.9	%	$	(3.1	)		-182.4	%
Corporate	$	(2.1	)		-15.1	%	$	(2.7	)		-12.6	%	$	0.6			-22.2	%
Total operating income	$	13.9			100.0	%	$	21.5			100.0	%	$	(7.6	)		-35.4	%

Operating income in the six months ended June 30, 2009 declined approximately $7.6 million, or 35.4%, compared to the same period in 2008, which was primarily due to lower net sales and partially offset by cost savings initiatives implemented by management.

The operating income in the P.R.C. segment decreased approximately $5.1 million, or 22.7%, in the six months ended June 30, 2009, when compared to the same period in 2008, primarily due to a decline in total net sales.

The operating income in the US segment decreased approximately $3.1 million in the six months ended June 30, 2009, when compared to the same period in 2008, primarily, as a result of lower net sales. Also contributing to the decline was the underabsorption of manufacturing overhead as production levels were lowered in response to weaker global demand. Cost savings initiatives implemented by management helped reduce certain manufacturing costs.

Other Income （Expense）

Interest Income (Expense)

	Six Months Ended June 30,						Change
(in millions)	2009			2008			Dollar			%
Interest Income	$	0.2		$	0.4		$	(0.2	)		-50.0	%
Interest Expense	$	(3.0	)	$	(5.6	)	$	2.6			-46.4	%
Net Interest Expense	$	(2.8	)	$	(5.2	)	$	2.4			-46.2	%
as a percentage of net sales		-3.3	%		-4.5	%					1.2	%

Net interest expense decreased by approximately $2.4 million, or 46.2%, during the six month period ended June 30, 2009, compared to the same period in 2008. This decrease is primarily the result of the repayment of Dalian’s short term bank loans and one time interest accrued and amortization of costs relating to commission on debt issues resulting from the Kuhn’s’ judgment amounting to $2.0 million in the second quarter of 2008. As a percentage of net sales, net interest expense decreased from 4.5% for the second quarter of 2008 to 3.3% during the second quarter of 2009.

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Change in fair value of derivative instruments and liabilities

The Company analyzes all financial instruments with features of both liabilities and equity under FAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” FAS 133 and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” Before the adoption of EITF 07-5 "Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock", the convertible note issued in 2007 did not require bifurcation or result in liability accounting. However, with the recent adoption of EITF 07-5, the embedded conversion feature must be bifurcated from its host instrument and accounted for separately as a derivative liability.

Emerging Issues Task Force (“EITF”) 00-19 “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,” provides a criteria for determining whether freestanding contracts that are settled in a company’s own stock, including common stock warrants, should be designated as either an equity instrument, an asset or as a liability under FAS 133 “Accounting for Derivative Instruments and Hedging Activities.” Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in a company’s results of operations.  Using the criteria in EITF 00-19, the Company determines which options, warrants and embedded features require liability accounting and records the fair values as a derivative liability. The changes in the values of these instruments are shown in the accompanying consolidated statements of income and other comprehensive income as “change in fair value of derivative liabilities.”

The fair market values of our warrant and conversion option derivatives are determined by the market price of our stock, strike price, volatility, risk free interest rate, expected life and dividend yield. An increase in our stock price can generate material losses on our warrant and conversion option derivatives.

For the six months ended June 30, 2009 and 2008, the Company recognized a loss in the change in fair value of derivative liability – conversion option in the amounts of $5,122,846 and $0, respectively.

For the six months ended June 30, 2009 and 2008, the Company recognized a loss in the change in fair value of derivative liability – warrants in the amounts of $752,114 and $0, respectively.

The fair market value of our derivative hedge is mainly determined based upon the changes in the forward market six month USD LIBOR rates and changes in the forward market exchange rate between USD and Chinese RMB. A decline in the forward market LIBOR rates and accelerated depreciation in Chinese RMB against USD can generate material losses on our derivative hedge. Since its effective date, the fair value of this Swap Agreement changed to a payable of $7,890,432 and $4,377,076 as of June 30, 2009, and December 31, 2008, respectively.

Tax

Profit before tax for Dalian was $17.3 million for the six months ended June 30, 2009, with losses from Fayetteville and Telford before tax of $1.5 million.  Loss at the Fushi Copperweld parent company level was $11.2 million primarily due to interest expenses on the high yield notes, stock-based compensation, changes in fair value of derivative liabilities related to convertible notes conversion options, and warrants, as well as professional fees and outside service expenses. On a consolidated basis, profit before tax was $4.6 million and we recognized a net tax benefit of $0.1 million.

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	Dalian		Fayetteville & Telford			Parent Company			Consolidated
Profit (Loss) before income tax		17.3		(1.5	)		(11.2	)		4.6
Income tax expense (credit)		2.3		-			(2.4	)		(0.1	)
Profit after income tax		15.0		(1.5	)		(8.8	)		4.7

The amount of taxable income that the US companies must generate in order to recover the $10,168,733 deferred tax asset balance at June 30, 2009, is approximately $29,908,038 in the next 20 years.  As of June 30, 2009, the accumulated pretax loss is $35,782,999, of which $32,709,986 is incurred by the parent company, Fushi Copperweld, and only $3,073,013 incurred by our operations at Fayetteville facility. The parent company does not generate revenues and its expenses primarily include interest expenses on the High Yield Notes, stock-based compensation, changes in fair value of derivative liabilities related to Convertible Notes conversion options, hedge and warrants, as well as professional fees and outside service expenses.

U.S. operations at our Fayetteville facility experienced profits in the first three quarters of fiscal year 2008 of $1,036,996, $244,546 and $102,198 respectively. The net loss in the fourth quarter of 2008 and the first half of 2009 was mainly due to the global economy downturn, but management believes Fayetteville will be able to generate enough profit in the next 20 years to realize the deferred tax assets at that time. Furthermore, we expect to realize taxable income in future periods at our Fayetteville facility as a result of cost saving initiatives and restructuring of manufacturing and sales that begin in the fourth quarter of 2008. With these cost saving measures in place, we believe that it is possible to realize profit at current sales levels at our Fayetteville facility and that we will be well positioned to experience increased profitability when the global economic crisis subsides and sales begin to rebound to historical levels. We currently estimate that the Fayetteville facility will start generating positive annual pre-tax income in fiscal year 2010.

As a result, we did not record a valuation allowance at June 30, 2009. A valuation allowance would not cause us to violate any debt covenants.

The Company has cumulative undistributed earnings from foreign subsidiaries of approximately $115 million as of June 30, 2009, included in the consolidated retained earnings and will continue to be indefinitely reinvested in international operations.  Accordingly, no provision has been made for U.S. 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.

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Net Income

	Six Months Ended June 30,					Change
(in millions)	2009			2008		Dollar			%
Net Income Before Taxes	$	4.6		$	16.5	$	(11.9	)		-72.3	%
(Benefit) Provision for Income Taxes	$	(0.1	)	$	1.7	$	(1.8	)		-105.0	%
Net Income After Taxes	$	4.7		$	14.9	$	(10.2	)		-68.6	%

Net income for the six months period ending June 30, 2009, was $4.7 million compared to $14.9 million for the comparable period in 2008, a decrease of approximately $10.2 million or 68.6%. Net income as a percentage of net sales declined from 12.7% for the prior period to 5.6%, principally a result of lower revenue and a significant non-cash loss in the change in fair value of derivative liability.

Earnings Per Share

	Six Months Ended June 30,
	2009		2008
	Unaduited		Unaudited
Net Income for Basic Earnings Per Share		4,663,617		14,851,343
Basic Weighted Average Number of Shares		27,696,388		27,201,127
Net Income per Share - Basic		0.17		0.55
Net Income for Diluted Earnings Per Share		4,663,617		14,694,402
Diluted Weighted Average Number of Shares		28,054,226		28,690,851
Net Income per Share - Diluted		0.17		0.51

Basic and diluted earnings per share (EPS) for the six months ended June 30, 2009, were $0.17 and $0.17, compared to $0.55 and $0.51 for the same period last year.

Selected Balance Sheet Data at June 30, 2009 (unaudited) and the year ended December 31, 2008:

	Selected Balance Sheet Data
	June 30, 2009		December 31, 2008		Change
(in millions)	Unaudited				Dollar			%
Cash	$	49.9	$	65.6	$	(15.7	)		-23.9	%
Accounts Receivable, net	$	59.6	$	49.8	$	9.8			19.8	%
PP&E	$	117.7	$	119.8	$	(2.1	)		-1.7	%
Total Assets	$	287.2	$	294.5	$	(7.2	)		-2.5	%
Short Term Debt	$	14.5	$	27.3	$	(12.8	)		-46.9	%
Long Term Debt	$	35.7	$	40.0	$	(4.3	)		-10.8	%
Shareholders' Equity	$	206.8	$	203.0	$	3.8			1.9	%

Our financial condition continues to improve as measured by an increase of 1.9% in shareholders’ equity during the first half of 2009. Cash decreased 23.9% during the period primarily due to the repayment of $17.5 million short term loans. Accounts receivable increased 19.8% as a result of extended credit terms in 2009 to certain credible customers that have long-standing business relationships with us in order to capture increased market share. Short term debt decreased by 46.9% primarily as a result of repayments of short term loans at our PRC operation. Long term debt declined by 10.8% because $5.0 million of our outstanding $40.0 million notes was reclassified to short term debt because of a January 2010 due date on such portion of the notes.

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Plant and equipment consisted of the following:

	June 30, 2009			December 31, 2008
	(Unaudited)
Land	$	100,726		$	100,726
Buildings and improvements		43,373,862			43,418,544
Transportation equipment		4,134,392			4,138,892
Machinery and equipment		73,095,975			55,147,707
Office furniture		1,169,354			1,166,477
Construction in progress		16,752,253			33,163,330
Totals		138,626,562			137,135,676
Less accumulated depreciation		(20,943,149	)		(17,374,649	)
Totals	$	117,683,413		$	119,761,027

Construction in progress at June 30, 2009 consisted of the following:

		June 30, 2009		Commencement	Expected
No.	Project Description	(Unaudited)		Date	completion date
1	Manufacturing machinery and equipment for CCA/CCS	$	3,033,509	Dec-07	Dec-09
2	Corporation administration office building		13,052,689	May-03	Dec-10
3	Manufacture building (Dalian)		630,001	Jan-08	Dec-09
4	Manufacturing machinery and equipment for CCA (Multiple)		29,972	Oct-07 thru July-09	Sep-09
5	Building attachment (Fayetteville)		6,082	Apr-09	Sep-09
	Total	$	16,752,253

Construction in progress as of December 31, 2008 consisted of the following:

		December 31, 2008		Commencement	Expected
No.	Project description			date	completion date
1	Manufacturing machinery and equipment for CCA/CCS	$	14,507,534	Dec-07	Dec-09
2	Corporation administration office building		12,964,718	May-03	Dec-10
3	Manufacturing machinery and equipment for CCA (Multiple)		3,298,681	Oct-07 thru Jan-08	Mar-09 thru Dec-09
4	Manufacturing machinery and equipment for CCS (Multiple)		1,775,300	Mar-07 thru Sep-08	Mar-09 thru Dec-09
5	Manufacture building		617,097	Jan-08	Dec-09
	Total	$	33,163,330

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At June 30, 2009, construction in progress mainly consists of $13.1 million in Tower B (corporate administration office building) located at our Dalian facility. The building consists of two towers, Tower A and Tower B. For Tower A, approximately $11 million had been recorded in construction in progress and transferred to fixed assets when management determined that the building was completed and ready for use in 2007. Tower A is currently utilized as administration offices for our Dalian facility.  Tower B began construction in May 2003 and was originally designed to be constructed as a hotel; however, construction plans were amended in 2007 to construct Tower B as solely additional office space which will be solely used by the Company instead. The Company does not expect any lease cancellation/moving expenses/impairment charges as they are not moving out of their current office space, which is Tower A. Tower B will be used as the Company’s additional office space and the Company does not plan to lease any part of Tower B to others. Total gross floor area of Tower B is approximately 13,000 square meters. Tower B is still currently under construction and is expected to be completed by December 2010.  All costs incurred relating to Tower B have all been recorded in construction in progress Project No. 2 and have not yet transferred to fixed assets. As of June 30, 2009, the total construction in progress balance related to Project No.2 is $13,052,689. The estimated costs to complete Tower B as of June 30, 2009, and December 31, 2008, were approximately $2.99 million and $3.09 million, respectively.

Construction in progress at June 30, 2009 also consists of a $3 million project of manufacturing machinery and equipment related to CCA and CCS production lines and ancillary equipment, which is used to produce CCA and CCS wire products respectively. Management believes that these CCA and CCS related machinery and equipment will be in service for a minimum of 10 years. Upon successful installation, these production lines and ancillary equipment will increase the Company’s CCA and CCS wire production capacity in Dalian which the Company believes will have a positive impact on their future cash flow through increased sales and profit. The designed/expected annual capacity of the $14.5 million machinery/equipment as of December 31, 2008 is approximately 6,000 Metric tons (not including relocated capacity between Fayetteville and Dalian facilities).  At December 31, 2008, the production capacity in Dalian was 34,800 Metric tons.  The Company believes the addition of this machinery/equipment could result in a production capacity increase of approximately 17%. The machinery and equipment is located in Dalian, China. The estimated completion date of this project is December 2009. By June 30, 2009, $12.5 million of the above mentioned machinery and equipment was completed and transferred to fixed assets. The $3 million balance as of June 30, 2009 is primarily related to relocated CCS product lines from Fayetteville facility to Dalian facility, which will add about 8,200 Metric tons of CCS capacity annually to the Dalian facility and the project is expected to be completed by the end of 2009. The estimated additional annual costs to operate and maintain the relocated machinery and equipment range from approximately $100,000 to $150,000. The estimated costs to complete this project as of June 30, 2009, and December 31, 2008 were $1.98 million and $2.34 million, respectively.

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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 June 30, 2009, 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, in the future, we may face difficulties in moving funds deposited within the PRC to fund working capital or capital expenditure requirements for our locations outside the PRC. To mitigate the difficulties of moving funds, we plan to maintain and expand our working capital lines for Fayetteville and Telford 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.

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In summary, our cash flows were:

	Six Months Ended June 30,
(in millions)	2009			2008
Net cash provided by (used in) operating activities	$	4.5		$	(4.6	)
Net cash used in investing activities	$	(5.3	)	$	(14.7	)
Net cash (used in) provided by financing activities	$	(14.9	)	$	1.4
Effect of exchange rate on cash	$	(0.0	)	$	4.8
Cash and cash equivalents at beginning of period	$	65.6		$	79.9
Cash and cash equivalents at end of period	$	49.9		$	66.9

For the six months ended June 30, 2009, net cash provided by operating activities was $4.5 million, which is an increase of $9.1 million from a deficit of $4.6 million for the same period in 2008, reflecting a significant improvement in operating cash flow year over year.  The favorable change is primarily attributable to decreases in accounts receivable and advance to suppliers consistent with decreased revenue, partially offset by a decrease in net income and a decrease in accounts payable.

For the six months ended June 30, 2009, net cash used in investing activities was a deficit of $5.3 million, and was primarily attributable to $5.6 million in property and equipment purchases and advances. The repairs and maintenance expense for the six months ended June 30, 2009 and 2008, amounted to $324,416 and $514,772 respectively. The repairs and maintenance expense for the three months ended June 30, 2009 and 2008 amounted to $193,998 and $223,709, respectively. We do not expect significant increases in repairs and maintenance in the future.

For the six months ended June 30, 2009, net cash provided by financing activities was a cash deficit of $14.9 million, which was primarily attributable to the repayments on $17.5 million in bank loans and a decrease in our revolving line of credit of $0.2 million partially offset by proceeds on a private placement of $1.9 million.

At June 30, 2009, our cash balance was $49.9 million compared to $66.9 million at December 31, 2008.

Days sales outstanding (DSO) has increased from 82 days at December 31, 2008, to 128 days at June 30, 2009, while days payable outstanding remains stable at 15 days as of June 30, 2009, compared to 16 days at December 31, 2008.

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

	Year ended December 31, 2008	Six months ended June 30, 2009
Customer Payment Term	Payment in advance to 90 days	Payment in advance to 120 days
Supplier Payment Term	Payment in advance to 30 days	Payment in advance to 30 days

The increase in DSO was because we extended credit terms for P.R.C. segment in late 2008 and 2009 to certain credible customers that have long-standing business relationships with us in order to capture increased market share, which further put pressure on smaller competitors whose limited capital resources have become further strained due to the global economic crisis.  Prior to this adjustment in customer credit policies, the standard number of days we give our customers to pay is 90 days. We write off receivables specifically based on the facts we obtain about the customers’ ability to pay.

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Aging Analysis of accounts receivable:

	June 30, 2009			December 31, 2008
	(Unaudited)
1-30 days	$	19,383,593		$	7,967,992
31-60 days		16,383,269			14,981,574
61-90 days		13,557,118			17,033,521
91-180 days		9,511,415			9,394,901
180-365 days		1,141,269			723,089
Over 365 days		-			-
Bad debts allowance		(345,983	)		(318,529	)
Total	$	59,630,681		$	49,782,548

Inventory turnover days increased from 16 days at December 31, 2008, to 53 days at June 30, 2009. Meanwhile, advance to supplier’s turnover days has decreased from 45 days at December 31, 2008, to 24 days at June 30, 2009, as we utilized the advances to purchase raw materials.

The primary reason for the increased investments in inventory is due to increased demand forecasts of our products within the P.R.C. market as a result of increased government spending related to infrastructure projects. Our 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 our products and influence the demand for our products. Our decision to make advanced purchases of raw materials is mainly based upon (1) the current market price of raw materials and projected future market price of raw materials, (2) the demand and supply situation in the raw materials market, and (3) forecasted demand of our products. By securing these raw materials in advance, we believe that we are able to manage and control our cost of products.  Furthermore, due to globally depressed commodity prices, management believed there was an opportunity to lock-in lower purchase prices through increasing the deposit (advance) to suppliers which in turn lowered the average purchase price of raw materials and minimized the loss resulting from the significant decline in spot prices in the fourth quarter 2008.

Like all businesses, we are assessing the current financial environment on a daily basis from financial data published in the market place, discussions with our customers regarding their current and future purchasing plans and through discussions with our suppliers and others with some insight within the financial realm in order to develop a better perspective of the future opportunities for our company.  At this time, we believe that our sales will continue to grow because of the infrastructure development in the PRC and throughout Asia. In future periods, as a result of our acquisition of Copperweld, we believe we can realize significant savings on capital expenditures by moving underutilized equipment to locations with a need for that equipment. We anticipate that our working capital requirements may increase as a result of the continued expansion of our combined business, continued increases or recovery in sales, potential increases in the price of copper and our other raw materials over the longer term, competition and our relationship with suppliers or customers. We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next 12 to 18 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. Considering the current global liquidity shortage, there can be no assurance that such finding will be available when needed, or, if available, that it will be available on terms acceptable to the Company.

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COMMITMENTS AND CONTINGENCIES

Contractual Obligations

Set out below are our contractual obligations at June 30, 2009:

Contractual obligations	Total		Payment due by less than 1 year		2–3 years		4-5 years		More than 5 years
Long-Term Debt Obligations-High Yield note principal	$	40,000,000	$	10,000,000	$	30,000,000	$	0	$	0
Estimated variable rate interest payment related to High Yield notes (semi-annual)	$	5,727,000	$	2,684,531	$	3,042,469	$	0	$	0
Long-Term Debt Obligations-SWAP settlement	$	7,348,001	$	2,237,123	$	5,110,878	$	0	$	0
Long-Term Debt Obligations-Convertible note principal	$	5,000,000	$	0	$	5,000,000	$	0	$	0
Estimated fixed rate interest payment related to Convertible notes(semi-annual)	$	450,000	$	150,000	$	300,000	$	0	$	0
Long-Term Debt Obligations-Estimated interest  upon redemption of Convertible Notes at Mature	$	5,305,158	$	0	$	5,305,158	$	0	$	0
Total	$	63,830,159	$	15,071,654	$	48,758,505	$	0	$	0

Assumption:

·       We will repay the HY Note strictly according to the mandatory redemption schedule defined in the HY note agreement.  Six months LIBOR as of January 21, 2009 is 1.56% and spread rate is 5.60%. The USD/CNY Spot Rate is 6.8302.

·       CB Note will not be converted and will be redeemed by January 24, 2012, the maturity date.

Legal Proceedings

On August 5, 2008, a judgment was entered in the Kuhn’s Brothers, Inc., Kuhn’s Brothers Securities Corp., and Kuhn’s Bros. & Co. Inc. (collectively “Kuhn’s”) matter awarding the plaintiffs $7.2 million which we have already accrued $7.2 million for this litigation settlement as a contingent liability in the second quarter of 2008 and allocated the amount into deferred commissions, additional paid in capital and current expenses based on the nature of each charge due to Kuhn’s as below:

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Description		Amount	Accounting Treatment
Placement agent fees associated with the Copperweld acquisition and Common stock issuance and to be deducted from the proceeds and debit to additional paid-in capital	$	3,487,250	Allocated to additional paid-in capital in 2008 under SAB Topic 5A.
Deferred placement agent fee related to $60 million Citadel Notes issuance		3,000,000	Being amortized over the Notes' life and $1,762,500 has been amortized as at 31 March 2009 under FAS 91.
Interests of all due placement agent fees		710,544	Expensed in 2008
Total	$	7,197,794

As disclosed in the Current Report on Form 8-K filed on May 26, 2009, we entered into a Settlement and Forbearance Agreement and Release with Kuhn’s in which Kuhn’s agreed to reduce the judgment to $7,000,000 (the “Judgment”) and we agreed to withdraw the appeal.

Pursuant to the Settlement Agreement, the Judgment shall be satisfied in full no later than January 15, 2010 through a combination of cash and shares. As partial payment to reduce the Judgment, we delivered to Kuhn’s on May 21, 2009, $1,000,000 plus accrued interest (the “Escrow Payment”), which was being held in an escrow account (the “Escrow Assets”) located in the U.S. that was governed by an Escrow Agreement between us and Kuhn’s, dated October 3, 2007. This is the only cash payment to be made per the settlement agreement (cash was not transferred out of China), therefore, we do not believe that it has any material adverse effect on our liquidity. At a closing which was held on June 5, 2009 (the “Closing Date”), we (i) delivered to Kuhns a stock certificate for 100,000 shares of Common Stock (the “Initial Shares”), which had been part of the Escrow Assets, and (ii) deposited a stock certificate for 2.2 million shares of Common Stock in escrow (the “Escrow Shares”) with the Escrow Agent along with an executed stock power in blank, to be held pursuant to the Escrow Agreement. We agreed to deposit a total of 2.2 million shares of Common Stock. However, Kuhn’s can only receive proceeds from the sale of such number of Escrow Shares necessary to satisfy the Judgment, after reducing the Judgment by the Escrow Assets.  Once the Judgment has been satisfied Kuhn’s shall instruct the Escrow Agent to return any remaining Escrow Shares to us and such Escrow Shares shall be cancelled.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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.

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Revenue recognition

The Company's revenue recognition policies are in accordance with Staff Accounting Bulletin (“SAB”) 104. 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.

Segment reporting

For the quarter ended June 30, 2009, we adopted SFAS No. 131 (“SFAS 131”), “Disclosure about Segments of an Enterprise and Related Information,” which requires use of the “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. As of June 30, 2009, the Company has two reportable segments: China and US. The China segment, through the Dalian 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 service the North and South American, European, Middle Eastern and North African markets.

Adoption of EITF 07-5

Effective January 1, 2009, the Company adopted the provisions of EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,” which is effective for financial statements for fiscal years beginning after December 15, 2008 and which replaced the previous guidance on this topic in EITF Issue 01-6.  Paragraph 11a of FAS 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument.  EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the FAS 133 paragraph 11(a) scope exception.

The conversion option embedded in the Company’s Convertible Notes previously met the criteria in EITF Issue 01-6, as well as the other criteria of FAS 133, paragraph 11(a) and, accordingly, it was not separately accounted for as a derivative instrument liability.  However, the conversion option does not meet the criteria of EITF 07-5 because it requires that the conversion price be adjusted in certain circumstances that do not meet the “fixed-for-fixed’ criteria in that Issue.  As a result, the Company is now required to separately account for the embedded conversion option as a derivative instrument liability, carried at fair value and marked-to-market each period, with changes in the fair value each period charged or credited to income.

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In accordance with the transition provisions of EITF 07-5, the new guidance has been applied to the $5,000,000 of the Company’s Convertible Notes that were outstanding as of January 1, 2009.  The cumulative effect of this change in accounting principle of $1,357,150 has been recognized as a reduction of the opening balance of Retained Earnings as of that date.  That cumulative effect adjustment is the difference between the amounts previously recognized in the Company’s balance sheet as of December 31, 2008 and the amounts that would have been recognized if the guidance in EITF 07-5 had been applied from the issuance date of the outstanding Convertible Notes.

Recent Accounting Pronouncements

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets”. FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment model of FAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on our consolidated financial statements because all of our investments in debt securities are classified as trading securities.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. FSP FAS 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This FSP shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting this FSP must also early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. Additionally, if an entity elects to early adopt either FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt this FSP. The adoption of FSP FAS 157-4 did not have a material impact on the Company’s consolidated financial statements.

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In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This FSP will replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This FSP provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this FSP does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1, the entity also is required to early adopt this FSP. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of SFAS 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on the Company’s consolidated financial statements.

In May 2009, the FASB issued FAS 165, Subsequent Events [ASC 855-10-05], 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. FAS 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. FAS 165 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. FAS 165 requires that public entities evaluate subsequent events through the date that the financial statements are issued. The Company has evaluated subsequent events through the time of filing these consolidated financial statements with the SEC on August 10, 2009.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (“FAS 166”) [ASC 860], which requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets. FAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures. FAS 166 is effective for fiscal years beginning after November 15, 2009. The Company has not completed the assessment of the impact FAS 166 will have on the Company’s financial condition, results of operations or cash flows.

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In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”) [ASC 810-10], which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. FAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. FAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. FAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. FAS 167 is effective for fiscal years beginning after November 15, 2009. The Company has not completed the assessment of the impact FAS 167 will have on the Company’s financial condition, results of operations or cash flows.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162 (“FAS 168”). This Standard 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 in the third quarter of 2009, and accordingly, the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

Certain raw materials used by us are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. The primary purpose of our commodity price management activities is to manage the volatility associated with purchases of commodities in the normal course of business. We do not speculate on commodity prices.

We are primarily exposed to price risk related to our purchase of copper used in the manufacturing of our products. Our copper price management strategy involves the use of natural techniques, where possible, such as purchasing copper for future delivery at fixed prices. We did not have any commodity price derivatives or hedging arrangements outstanding at June 30, 2009, and did not employ any commodity price derivatives during the six months ended June 30, 2009.

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Foreign Exchange Risk

While our reporting currency is the US dollar, a substantial percentage of our revenues and costs are denominated in RMB and a significant portion of our assets and liabilities are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the US Dollar and RMB. If the RMB depreciates against the US Dollar, the value of our RMB revenues and assets as expressed in our US Dollar consolidated financial statements will decline.

The RMB is currently freely convertible under the “current account”, which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”, which includes foreign direct investment. On May 19, 2007, the People’s Bank of China announced a policy to expand the maximum daily floating range of RMB trading prices against the U.S. dollar in the inter-bank spot foreign exchange market from 0.3% to 0.5%. While the international reactions to the RMB revaluation and widening of the RMB’s daily trading band have generally been positive, with the increased floating range of the RMB’s value against foreign currencies, the RMB may appreciate or depreciate significantly in value against the U.S. dollar or other foreign currencies in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued.

We recognized a foreign currency translation gain adjustment of $39,957 and $12,163,352 for the six months ended June 30, 2009 and 2008, respectively.

Interest Rate Risk

We are primarily exposed to interest rate risk arising from the 6 month LIBOR rate on which the interest rate for our Guaranteed Senior Secured Floating Rate Notes due 2012 (“HY Notes”) totaling $40 million or 50% of our total liability, is based. If there was a hypothetical 1% change in the 6-month LIBOR interest rate, the net impact to earnings would be approximately $0.4 million on an annualized basis.

In order to mitigate our exposure to volatility in interest rates and foreign currency exchange rates associated with the HY Notes, on April 10, 2007, the Company entered into a cross currency swap transaction (the “Swap”) with Merrill Lynch Capital Services, Inc. (“MLCS”). The Swap, with a notional principal value of $40 million, converts the LIBOR + 7% per annum USD variable interest rate to an 8.3% per annum RMB fixed interest rate. The agreement was deemed effective January 24, 2007. The Swap requires semi-annual payments in arrears on July 24 and January 24 and matures the earlier of (1) cash settlement defined as early termination; or (2) January 24, 2012, at which point the Swap requires an exchange of RMB and USD based principals. Under the terms of the cross currency swap, the Company receives variable interest rate payments in USD and makes fixed interest rate payments in RMB with settlement netted in USD, thereby creating the equivalent of fixed-rate debt. The Company uses this derivative instrument only to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative purposes.

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The fair value of the Swap is determined based on our own model which reflects the present values of the difference between estimated future variable-rate receipts in USD and future fixed-rate payments in RMB. Since its effective date, the fair value of this Swap agreement changed to a payable of $7,890,432 and $4,377,076 as of June 30, 2009, and December 31, 2008, respectively.

For the six months ended June 30, 2009, changes in fair value of the Swap resulted in an increase in the liability and a loss to other comprehensive income of $3,513,356. For the six months ended June 30, 2008, changes in fair value of the Swap resulted in an increase in the liability and a loss to other comprehensive income of $731,505, net of taxes.

For the three months ended June 30, 2009, changes in fair value of the Swap resulted in an increase in the liability and a loss to other comprehensive income of $751,227. For the three months ended June 30, 2008, changes in fair value of the Swap resulted in an decrease in the liability and a gain to other comprehensive income of $4,377,975, net of taxes.

Credit Risk

We have not experienced significant credit risk, as most of our customers are long-term customers with excellent payment records. We review our accounts receivable on a regular basis to determine if the allowance for doubtful accounts is adequate at each quarter-end. We only extend 30 to 120 day trade credit to our largest customers, which tend to be well-established and large businesses, and we have not seen any major customer’s accounts receivable go uncollected beyond 180 days or experienced any material write-off of accounts receivable in the past.

Inflation Risk

In recent years, China has not experienced significant inflation, and thus inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China (NBS) (www.stats.gov.cn), the change in Consumer Price Index (CPI) in China was 1.5%, 4.7% and 5.9% in 2006, 2007 and 2008, respectively. Inflationary factors, such as increases in the cost of our products and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.

Item 4. Controls and Procedures

(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.

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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.   Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2009, our disclosure controls and procedures were effective.

(b) Changes in internal controls.

As part of the evaluation and assessment process, when any change in internal control over financial reporting is made that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting,  management is required to disclose such changes.

During the second quarter, we addressed the material weakness disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008 (“Form 10-K”).  The identified material weakness was related to specific instances of management’s override of control over cash disbursements. Our control system governing cash disbursement practices were adequately designed, faithfully implemented and properly documented. However, there occurred instances that management was able to override these controls and did not maintain segregation of duties within our business operations.   For example, our CEO approved certain payments to our vendors. However, our Accounting Department Manager overrode the controls and instructed the cashier to wire money to a payee which was not consistent with the originally approved payee when the original payee contacted the Accounting Department Manager and requested payment to their subsidiary.  In response, we have taken the following remedial measures to rectify these instances:

· We reorganized and established clear roles, responsibilities and accountability to our financial reporting structure starting from management to staff;

· We reorganized the cash disbursement process by including staff from different departments to ensure adequate segregation of duties; and

· We increased the level of awareness of designed controls and have established a more effective control environment by communicating to management that under no circumstance can the controls be overridden going forward.

Additionally, we addressed the significant deficiency noted in our Form 10-K.  The deficiency that was identified was that the Company’s controls were not effective to ensure the accurate and timely accounting for, and the disclosure of fixed assets at the end of the monthly closing process, which was directly related to certain construction in progress (“CIP”).  This resulted in a failure to maintain effective controls over the financial closing process.  CIP was not being moved and accounted for as PPE until the closing of the quarter, when it should have been moved and accounted for as PPE at the close of each month during the quarter.  During the second quarter 2009, we addressed the identified significant deficiency by implementing and putting in place additional controls to continuously improve our period-end closing procedures to ensure account reconciliations and analyses are adequately reviewed for completeness and accuracy on a monthly basis to timely identify adjustments to re-classify completed projects as depreciable fixed assets.

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A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures, such as simple errors or mistakes or intentional circumvention of the established process.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

On November 27, 2006, Kuhns Brothers, Inc., Kuhns Brothers Securities Corp. and Kuhns Brothers & Co. (collectively, “Kuhns”) filed a lawsuit against us alleging a breach of an engagement letter, dated May 27, 2005, between us and Kuhns.  On August 5, 2008, a judgment was entered against us in the amount of $7,197,794, plus interest and attorneys fees, which we subsequently appealed.

On May 19, 2009 (the “Execution Date”), we entered into a Settlement and Forbearance Agreement and Release (the “Settlement Agreement”) with Kuhns, in which Kuhns agreed to reduce the judgment to $7,000,000 (the “Judgment”) and we agreed to withdraw the appeal.  In the second quarter of 2008, we accrued a $7.2 million contingent liability for this litigation settlement as a contingent liability in the second quarter of 2008 and allocated the amount between equity and expenses accordingly.  On the Execution Date, we also entered into an Escrow Agreement (the “Escrow Agreement”), among the Company, Kuhns and Continental Stock Transfer & Trust Company, as Escrow Agent (the “Escrow Agent”).

Pursuant to the Settlement Agreement, the Judgment shall be satisfied in full no later than January 15, 2010 through a combination of cash and shares. As partial payment of the Judgment, we paid to Kuhns on May 21, 2009, $1,000,000 plus accrued interest of $29,922.61(the “Escrow Payment”), which had been held in an escrow account (the “Escrow Assets”), that was governed by an escrow agreement between us and Kuhns, dated October 3, 2007.  At a closing which was held on June 5, 2009 (the “Closing Date”), we (i) delivered to Kuhns a stock certificate for 100,000 shares of Common Stock (the “Initial Shares”), which had been part of the Escrow Assets, and (ii) deposited a stock certificate for 2.2 million shares of Common Stock in escrow (the “Escrow Shares”) with the Escrow Agent along with an executed stock power in blank, to be held pursuant to the Escrow Agreement. While we deposited a total of 2.2 million shares of Common Stock, Kuhns can only receive proceeds from the sale of such number of Escrow Shares necessary to satisfy the Judgment, after reducing the Judgment by the Escrow Assets.  Once the Judgment has been satisfied, Kuhns shall instruct the Escrow Agent to return any remaining Escrow Shares to us and such Escrow Shares shall be cancelled. The Company may pre-pay the balance of the Judgment to Kuhns at any time without any pre-payment penalty.  If at any time prior to January 15, 2010, the Company (i) prior to any sales of Escrow Shares, prepays the entire outstanding balance of the Judgment, or (ii) taking into account the cash proceeds received by Kuhns for sales of Escrow Shares up to such time, pays the remaining balance of the Judgment to Kuhns, then any remaining Escrow Shares shall be released to the Company and cancelled.  Upon payment in full of the Judgment, Kuhns shall deliver to the Company a satisfaction of Judgment.

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The Judgment has been reduced by (i) the amount of the Escrow Payment; and shall be reduced further by (ii) the Initial Share Value (as described in more detail below), (iii) the amount of cash proceeds received by Kuhns from sales of the Escrow Shares, or their delivery to Kuhns as restricted shares if there is not an effective registration statement covering such Escrow Shares; and/ or (iv) any other payments made to Kuhns by the Company.  Kuhns shall continue to have all rights as a Judgment creditor, subject to its forbearance obligations pursuant to the Settlement Agreement, until the Judgment is satisfied.

On or prior to the thirtieth day after the Closing Date, the Company was obligated to file a registration statement on Form S-3 (the “Registration Statement”) with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) to register the Initial Shares and Escrow Shares for resale, so that they may be sold in the public markets in accordance with the Escrow Agreement.  The Company shall use its best efforts to have the Registration Statement declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than 120 days from the Closing Date (the “Registration Deadline”). The registration statement of which this prospectus forms a part, registers for resale the Initial Shares and Escrow Shares.

The Judgment has been reduced by $343,084, the Initial ShareValue, which amount was equal to forty percent (40%) of the VWAP for the ten trading days before the Closing Date multiplied by 100,000.  However, if the Registration Statement is declared effective by the Registration Deadline and it remains effective through the earlier of (i) the sale of the Initial Shares or (ii) December 31, 2009, the Judgment shall instead by reduced by ninety percent (90%) of the VWAP for the ten trading days before the effective date of the Registration Statement.

In the event the Registration Statement is declared effective, then, upon written notice to the Escrow Agent, the Escrow Agent will deposit the Escrow Shares into a brokerage account and will thereafter sell the Escrow Shares in such amounts and at such times as Kuhns directs.  The Judgment shall be reduced by an amount equal to the cash proceeds distributed by the Escrow Agent to Kuhns in connection with sales of the Escrow Shares.  The Escrow Shares shall be sold in this manner until such time as the Judgment, including any accrued interest, has been paid in full.  Kuhns shall use its reasonable efforts to direct the sale of the Escrow Shares resulting in full payment of the Judgment by January 15, 2010.  If the Company fails to meet the Registration Deadline, but causes a Registration Statement to be declared effective by October 31, 2009, the Judgment shall instead by further reduced by an amount equal to ninety percent (90%) of the cash proceeds distributed by the Escrow Agent to Kuhns in connection with sales of the Escrow Shares.

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In the event that (i) the Company’s Registration Statement is not declared effective by the Registration Deadline and (ii) for so long as the Registration Statement is not effective subsequent to the Registration Deadline, the Current Judgment Amount as defined in the Settlement Agreement shall accrue interest at the rate of eighteen percent per annum.  In addition, upon such events, Kuhns shall be entitled to receive Escrow Shares from the Escrow Agent (the “Restricted Shares”) in such amounts, and at such times, as it determines until the Judgment is satisfied.  The Current Judgment Amount as defined in the Settlement Agreement shall thereupon be reduced by the restricted share value, which shall mean an amount equal to fifty percent (50%) of the daily volume weighted average price of the Common Stock on the Nasdaq Global Select Market as reported by Bloomberg (“VWAP”) for the ten trading days before the date of delivery of the Restricted Shares to Kuhns.

Item 1A. Risk Factors

The risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 have not materially changed as of June 30, 2009.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 

The Company’s 300,000 Series A, Series B and Series C Warrants in the aggregate (the “Warrants”), originally issued on February 23, 2009, were amended and restated on June 30, 2009. The Warrants were amended to remove certain cash redemption clauses resulting in a reclassification of the Warrants from a derivative liability to additional paid in capital. No consideration was paid to the Company or to the holders of the Warrants in connection with the amendment of the Warrants. A form of the Amended and Restated Warrant is attached as Exhibit 4.1 to this Quarterly Report on Form 10-Q.

Item 3.  Defaults Upon Senior Securities

Our subsidiary, Copperweld Bimetallics, LLC maintains a revolving line of credit with Wells Fargo Bank.  Pursuant to the terms of the revolving line of credit, availability is the lower of $12.8 million or the collateral balances. The outstanding balance was $4,489,366 and $4,712,075 at June 30, 2009 and December 31, 2008, respectively.

The asset-based revolving line of credit with Wells Fargo contains various covenants that may limit Copperweld’s discretion in operating its business. These covenants include limitations on Coppwerweld’s ability to declare or pay dividends or distribute equity interest, make acquisitions, dispose of assets, incur additional indebtedness, incur guarantee obligations, create liens, pledge or encumbrances, make investments, engage in mergers, change the nature of its business or engage in certain transactions with a related party, enter into operating leases or incur obligations on capital expenditures. In addition, Copperweld is required to comply with certain financial covenants that are reported on a quarterly basis, including maintenance of a fixed charge coverage ratio of at least 1.0 to 1.0 and maintenance of a tangible net worth of 4.4 million starting from January 31, 2009.

For both quarters ended on June 30, 2009 and March 31, 2009, Copperweld reported a negative fixed charge ratio due to the loss incurred on a rolling 12 months basis, thus Copperweld was in violation of maintaining a fixed charge ratio of at least 1.0 to 1.0. This was the sole violation of the covenant under the terms of the revolving line of credit agreement with Wells Fargo.  On May 6, 2009, Wells Fargo exercised its right to implement the 2% additional default rate of interest effective April 1, 2009, for the covenant violation as of March 31, 2009.

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Copperweld is currently in discussions with Wells Fargo Bank regarding the existing defaults, and a possible modification of certain of the borrowing terms and existing covenants under the line of credit.

We will not be in compliance with the fixed charge ratio for the quarter ended September 30, 2009. Fixed charge ratio is calculated based on rolling 12 months net income (loss) and Copperweld is still picking up 2008’s loss to calculate Q3’s fixed charge ratio.

Item 4.  Submission of Matters to a Vote of Security Holders

Our 2009 Annual Meeting of Stockholders was held on May 14, 2009.  At the Annual Meeting, (i) each of the six nominees was elected to serve as a director until the end of their respective terms and (ii) the appointment of Moore Stephens Wurth Frazer and Torbet, LLP, as our independent public accountants, was ratified by the stockholders. The election results are as follows:

Election of Six Directors (Proposal No. 1):

Name	For	Withheld
Li Fu	17,297,793	890,216
Wenbing Christopher Wang	16,996,107	1,191,902
Barry Raeburn	17,297,793	890,016
Feng Bai	17,005,097	1,182,912
Jiping Hua	17,005,097	1,182,912
John Francis Perkowski	17,005,097	1,182,912

Ratification of Appointment of Independent Registered Public Accountants (Proposal No. 2):

For	Against	Abstain
18,184,193	2,366	1,450

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit No.	Document Description
4.1	Form of Amended and Restated Warrant
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).
99.1	Condensed Parent-Only Financial Statements of Fushi Copperweld, Inc. under Schedule I of Article 5-04 of Regulation S-X.

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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: August 10, 2009	By:	/s/ Wenbing Chris Wang
		Name: Wenbing Chris Wang
		Title: Chief Financial Officer (Principal Accounting and Financial Officer)

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Exhibit Index

Exhibit No.	Document Description
4.1	Form of Amended and Restated Warrant
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).
99.1	Condensed Parent-Only Financial Statements of Fushi Copperweld, Inc. under Schedule I of Article 5-04 of Regulation S-X.

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