Fushi Copperweld (FSIN) 10-Q 2009 Q3 Quarterly report

Condensed Parent-Only Financial Statements of Fushi Copperweld, Inc. under Schedule I of Article 5-04 of Regulation S-X

Restricted Net Assets

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

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

The condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements. Refer to the consolidated financial statements and notes presented in this 10Q filing for additional information and disclosures with respect to these financial statements.

FUSHI COPPERWELD, INC.
CONDENSED PARENT COMPANY BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
ASSETS
	September 30,			December 31,
	2009			2008
	Unaudited
CURRENT ASSETS:
Cash	$	5,522		$	30,414
Restricted cash		-			1,000,000
Deposit in derivative hedge		1,000,000			1,000,000
Total current assets		1,005,522			2,030,414
OTHER ASSETS:
Investments in subsidiaries		278,842,423			252,761,912
Deferred loan expense, net		2,400,851			3,188,344
Deferred tax assets		11,057,111			7,804,027
Total other assets		292,300,385			263,754,283
Total assets	$	293,305,907		$	265,784,697
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current	$	10,000,000		$	5,000,000
Other payables and accrued liabilities		7,237,859			3,613,789
Extinguished convertible note liabilities		6,060,000			-
Cross currency hedge payable		1,071,557			104,324
Total current liabilities		24,369,416			8,718,113
LONG-TERM  LIABILITIES:
Intercompany payables		15,842,779			2,512,023
Notes payable, non-current		25,000,000			40,000,000
Fair value of derivative instrument		7,652,664			4,377,076
Total long-term liabilities		48,495,443			46,889,099
Total liabilities		72,864,859			55,607,212
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 September 30, 2009 and December 31, 2008		-			-
Common stock,$0.006  par value, 100,000,000 shares authorized,
September 30, 2009: 30,543,716 shares issued and 28,343,716 outstanding
December 31, 2008: 27,499,034 shares issued and 27,399,034 outstanding		170,063			164,395
Restricted common stock in escrow		13,200			600
Additional paid in capital		105,197,671			91,172,889
Common stock subscription receivable		(5,919,597	)		-
Statutory reserves		14,979,861			12,316,147
Retained earnings		88,450,843			78,613,158
Accumulated other comprehensive income		17,549,007			20,712,502
Total shareholders' equity		220,441,048			202,979,691
Total liabilities and shareholders' equity	$	293,305,907		$	265,784,697

FUSHI COPPERWELD, INC.
CONDENSED PARENT COMPANY STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
OPERATING EXPENSES
General and administrative expenses	$	600,777		$	765,766		$	2,701,597		$	3,429,862
Total operating expenses		600,777			765,766			2,701,597			3,429,862
OTHER INCOME (EXPENSE)
Interest and other expense, net		(1,055,023	)		(1,252,839	)		(3,859,033	)		(5,770,730	)
(Loss) gain on derivative instrument		(1,199,438	)		(32,482	)		(1,581,812	)		322,708
Gain on convertible note extinguishment		3,842,935						3,842,935
Change in fair value of derivative liabilities		(2,058,352	)		-			(7,933,312	)		-
Total other expense, net		(469,878	)		(1,285,321	)		(9,531,222	)		(5,448,022	)
EQUITY INCOME EARNINGS OF SUBSIDIARIES		9,377,210			10,991,647			22,838,284			31,480,891
INCOME BEFORE INCOME TAXES		8,306,555			8,940,560			10,605,465			22,603,007
BENEFIT FOR INCOME TAXES		(888,378	)		(106,390	)		(3,253,085	)		(1,295,285	)
NET INCOME		9,194,933			9,046,950			13,858,550			23,898,292
OTHER COMPREHENSIVE INCOME
Unrealized gain on marketable securities		-			-			-			22,301
Foreign currency translation adjustment		72,136			1,899,163			112,093			14,062,515
Change in fair value of derivative instrument		237,768			3,940,908			(3,275,588	)		3,209,403
COMPREHENSIVE INCOME	$	9,504,837		$	14,887,021		$	10,695,055		$	41,192,511

FUSHI COPPERWELD, INC.
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	13,858,550		$	23,898,292
Adjustments to reconcile net loss
used in operating activities:
Equity in earnings of subsidiaries		(22,838,284	)		(31,480,891	)
Deferred taxes		(3,253,085	)		(1,295,286	)
Amortization of loan commission		787,492			2,495,899
Interest penalty		-			710,544
Amortization of stock compensation expense		1,108,254			1,437,557
Loss (gain) on derivative instrument		1,581,812			(322,708	)
Gain on convertible note extinguishment		(3,842,935	)		-
Change in fair value of derivative liabilities		7,933,312			-
Investment loss on marketable securities		-			16,158
Change in operating assets and liabilities:
Net intercompany payables		13,330,755			4,086,624
Other payables and accrued liabilities		(2,866,051	)		(2,312,830	)
Net cash provided by (used in) operating activities		5,799,820			(2,766,641	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries		(3,130,132	)		(849,980	)
Proceeds from sale of marketable securities		-			2,983,842
Deposit in derivative hedge		-			(1,000,000	)
Payments on derivative instrument		(614,580	)		-
Proceeds from derivative instrument		-			973,556
Net cash (used in) provided by investing activities		(3,744,712	)		2,107,418
CASH FLOWS FROM FINANCING ACTIVITIES:
Release of restricted cash		1,000,000			-
Payment of high yield notes payable		(5,000,000	)		-
Proceeds from exercise of stock warrants		-			139,394
Proceeds on issuance of common stock and warrants		1,920,000			-
Net cash (used in) provided by financing activities		(2,080,000	)		139,394
DECREASE IN CASH		(24,892	)		(519,829	)
CASH, beginning of period		30,414			591,087
CASH, end of period	$	5,522		$	71,258
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	$	3,375,092		$	4,233,231