U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      DC  20549





**FORM
      10-K**





**x**  **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**




For
      the
      fiscal year ended December 31, 2007




** ̈** **TRANSITION
      REPORT UNDER 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)*
            
            *(IRS
                Employer Identification No.)*





**1
      Shuang**  **Qiang
      Road,**  **Jinzhou,**  **Dalian** , **People’s Republic of China 116100** **


***(Address
      of Principal Executive Offices, Including Zip Code)***





Registrant’s
      telephone number: (011)-86-411-8770-3333





Securities
      registered pursuant to Section 12(b) of the Act:


**Common
      Stock, $0.006 Par Value**





Securities
      registered pursuant to Section 12(g) of the Act:  None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes  ̈ No **x**





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange
      Act.  Yes  ̈ No **x**





Indicate
      by check mark 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 report(s)), and (2) has been subject to such filing requirements
      for the past 90 days.  Yes **x** No  ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of Registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈





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 definitions of  “large accelerated filer,”
“accelerated filer,” and smaller reporting companies in Rule 12b-2 of the
      Exchange Act.





Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filerx
            Smaller
                reporting companyo




Do
      not
      check if a smaller reporting company




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









The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant, based upon the closing sale price of the
      registrant’s common stock as reported on the NASDAQ Global Market on March 14,
      2008 was approximately 156,448,469 .  Shares
      of common stock held by each officer and director and by each person who owns
      10% or more of the outstanding common stock have been excluded in that such
      persons may be deemed to be affiliates.





The
      number of outstanding shares of the registrant’s common stock on March
      14,
      2008 was 27,454,161 .









FORM
      10-K
      ANNUAL REPORT


YEAR
      ENDED DECEMBER 31, 2007




FUSHI COPPERWEL, INC.




**TABLE
      OF CONTENTS**




PAGEPART
                  IItem
                  1.
              Business
              1Item
                  1A
              Risk
                  Factors
              8Item
                  1B
              Unresolved
                  Staff Comments
              19Item
                  2.
              Properties
              19Item
                  3.
              Legal
                  Proceedings
              20Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              20PART
                  IIItem
                  5.
              Market
                  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity SecuritiesItem
                  6.
              Selected
                  Financial Data
              22Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              22Item
                  7A.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              34Item
                  8.
              Financial
                  Statements and Supplementary Data
              35Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              37Item
                  9A(T).
              Controls
                  and Procedures
              37Item
                  9B.
              Other
                  Information
              37PART
                  IIIItem
                  10.
              Directors,
                  Executive Officers and Corporate Governance
              37Item
                  11.
              Executive
                  Compensation
              39Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholders Matters
              45Item
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              45Item
                  14.
              Principal
                  Accountant Fees and Services
              46PART
                  IVItem
                  15.
              Exhibits
                  and Financial Statement Schedules
              46SIGNATURES
              S-1EXHIBIT
                  INDEX
              E-1FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY DATA
              F-1




i





**PART
      I**





**FORWARD-LOOKING
      STATEMENTS AND ASSOCIATED RISK**





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. These statements may be found under “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” and “Business,” as
      well as in this Report generally. 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”
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.




Unless
      otherwise noted, all currency figures in this filing are in U.S. dollars.
      References to "yuan" or "RMB" are to the Chinese yuan (also known as the
      renminbi). According to Xe.com as of March 14, 2008, US $1.00 = 7. 08939 yuan
      (or 1 yuan = US$ 0.14106).




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”), (vii) Copperweld Bimetallics UK, LLC, and (viii) Copperweld
      International Holdings, LLC.





**PART
      I**





**ITEM
              1.**
            **DESCRIPTION
                OF BUSINESS**





**Our
      History**




Fushi
      Copperweld, Inc. is the global leader in developing, designing, manufacturing,
      marketing, and distributing bimetallic wire products, principally copper-clad
      aluminum and copper-clad steel. Our products are primarily focused on serving
      end-user applications in the telecommunication, utility, and automotive markets.
      We add value through innovative design and engineering, excellence in
      manufacturing, superior product quality, and follow-on customer service.





We
      were
      incorporated as a Nevada company on October 6, 1982 under the name M, Inc.
      We
      changed our corporate name to Parallel Technologies, Inc. in June 1991. We
      were
      formed as a "blank check" entity for the purpose of seeking a merger,
      acquisition or other business combination transaction with a privately-owned
      entity seeking to become a publicly-owned entity. In a series of restructuring
      transactions which began in 2005 and were completed in 2006 (the
“Restructuring”), we acquired Fushi Holdings, Inc., incorporated in the state of
      Delaware, which is a holding company for Fushi International (Dalian) Bimetallic
      Cable Co., Ltd(“Fushi International (Dalian)”), organized under the laws of the
      People’s Republic of China (PRC). As a result of the restructuring transactions,
      Fushi International (Dalian) acquired substantially all of the manufacturing
      assets and business and controls the remaining assets and financial affairs
      of
      Dalian Fushi Bimetallic Manufacturing Co., Ltd (“Dalian Fushi”). Dalian Fushi is
      a limited liability company organized under the laws of the PRC, which is
      engaged in the manufacture and sale of bimetallic wire products. Following
      the
      restructuring, Dalian Fushi became a non-operating entity. The Restructuring
      is
      more fully described in our Current Report on Form 8-K filed with the SEC on
      December 14, 2005.




On
      September 25, 2007 Fushi International entered a LL Membership Interest Purchase
      Agreement (the “Purchase Agreement”) to acquire Copperweld Holdings, LLC, a
      limited liability company incorporated in the state of North Carolina and the
      sole member of Copperweld Bimetallics, LLC, a limited liability company
      incorporated in the state of Delaware (“Copperweld”) and all of the issued and
      outstanding membership interest of International Manufacturing Equipment
      Suppliers, LLC (“IMES”). Copperweld is the parent company of Copperweld
      Bimetallics UK, LLC, a limited liability company registered in the United
      Kingdom and Copperweld International Holdings, LLC, a limited liability company
      incorporated in the state of North Carolina. We closed on the purchase agreement
      as of the beginning of business on October 29, 2007 with all of the Copperweld
      entities and IMES becoming subsidiaries of Fushi International Inc.





Effective
      January 15, 2008, we changed our name from Fushi International, Inc. to Fushi
      Copperweld, Inc. to recognize the worldwide importance of the Copperweld brand
      while continuing to leverage the Fushi brand, especially in the PRC. We, and
      our
      customers, view the Copperweld brand as the premium brand of bimetallic products
      and will promote the Copperweld brand as a premier product,
      worldwide.




1




**Our
      Corporate Structure**




The
      following diagram shows the structure of our company from an operating
      perspective after giving effect to the Restructuring and our acquisition of
      Copperweld. The structure does not include Copperweld Holdings LLC, Copperweld
      International Holdings, LLC or International Manufacturing Equipment Sales,
      Inc.
      which we plan to dissolve. The top management functions reside at the Fushi
      Copperweld level with executive management, operations management, sales
      management and financial management functioning at this level. The PRC
      manufacturing, while managed at the corporate level, functions through Fushi
      Holdings, Fushi International (Dalian) and Dalian Fushi. The US and United
      Kingdom manufacturing occurs through Copperweld and report to an executive
      at
      the Fushi Copperweld level.




FUSHI COPPERWEL, INC.




The
      functions of each location are clearly defined with information reporting
      occurring for each entity. To facilitate management of the various operations,
      we plan to employ an Enterprise Resource Planning (ERP) system and a
      Manufacturing Execution System (MES) as one integrated information and
      management system. The system is in use in Fayetteville and we are in the
      process of implementing the system in Dalian. Once fully installed, the system
      will provide management with information that will allow us to further improve
      efficiencies of our operations through more effective management of our
      resources.




**Business
      Operations**





*Fushi*





Prior
      to
      the acquisition of Copperweld, we engaged, solely through our wholly owned
      operating subsidiary Fushi International (Dalian), in developing, designing,
      manufacturing, marketing and distributing bimetallic wire products, principally
      copper-clad aluminum wires (“CCA”). Through our Dalian facility operated by
      Fushi International (Dalian) we service the Asia-Pacific region, primarily
      the
      PRC market which constituted approximately two-thirds of our sales in fiscal
      year 2007 on a pro forma basis. Through our CCA products, we believe that we
      are
      the leading PRC provider of bimetallic wire in terms of quality, capacity,
      and
      products sold. We view the PRC as the fastest growing market for bimetallic
      wire
      worldwide and we expect to see our strong growth within the PRC continue due
      to
      organic expansion of our PRC business using Dalian legacy equipment and as
      a
      result of our October 29, 2007 acquisition of Copperweld. Additionally, we
      anticipate expanded product offering and higher quality from the incorporation
      of superior cladding technology and our planned transfer of higher capacity
      machinery from Copperweld to our Dalian facility. We expect to deploy the new,
      higher quality CCA production capacity in Dalian by the second quarter of 2008
      and expect CCS production capacity to be fully operational by the end of
      2008.





Within
      the PRC, Telecommunication applications currently serve as the largest market
      for bimetallic wire. We expect demand to remain strong and for this market
      to
      continue its strong growth patterns. Our expectation is based on our belief
      that
      the PRC’s leading telecom providers will continue to see strong growth of
      broadband and mobile subscribers, which is a key driver for investment into
      telecommunication infrastructure. According to data on the websites of China
      Telecom and China Netcom, the two largest broadband providers within the PRC
      accounting for over 80% combined market share, reported growth in their
      subscriber base in fourth quarter of 2007 of approximately 6% and annual
      subscriber base growth of 28% for 2007. Furthermore, since the PRC has lower
      penetration levels for broadband and mobile subscribers than developed countries
      in North America and Europe we believe the PRC’s telecommunication carriers will
      maintain their strong demand for infrastructure build out in 2008.





During
      fiscal year 2007, through development of a bimetallic flat wire product for
      use
      in electrical transformers, we have begun to expand our sales into the utility
      industry. CCA flat wire offers greater value than copper wire because of its
      reduced cost, improved bond, and weight while it maintains conductivity
      standards needed by utility companies. We believe that our proprietary process
      for making flat wire will continue to open this additional market for us. The
      addition of Copperweld’s cladding technology expected in the second quarter of
      2008 should enable us to produce larger diameter flat wire products for the
      PRC
      market, further expanding our product offerings.





2




We
      believe that the utility market for bimetallics in the PRC is underdeveloped
      relative to other markets worldwide and could serve as an area of significant
      growth for our Dalian facility. Our expectation is based on the response by
      the
      two largest power grid operators, State Grid Corporation (SGCC) and China
      Southern Grid (SGC), to widespread blackouts and power shortages experienced
      in
      the PRC between 2002 and 2005. According to strategy laid out by SGCC and SGC
      for the Eleventh Five Year Plan, they plan to spend RMB 1,200 billion in total
      transmission and distribution (“T&D”) capital expenditures over a five year
      time period beginning in 2007. Additionally, as we expand our product offering
      from our Dalian facility to include CCS in late 2008, we expect to expand into
      additional markets for our utility applications. For example, we view CCS as
      an
      ideal substitute to copper for use in grounding and electrified railway
      applications due its lower cost and superior strength.





*Copperweld*





Copperweld
      operates two manufacturing facilities in Fayetteville, Tennessee and Telford,
      England. Through these facilities we are engaged in developing, designing,
      manufacturing, marketing and distributing bimetallic products, principally
      CCA
      and CCS. We believe that through our operations at these two facilities our
      Copperweld subsidiary is the leading provider of bimetallic wire in the North
      American and European markets.





Copperweld’s
      Fayetteville plant will continue to produce CCA and CCS for the growing demand
      in the Americas, European, Middle Eastern and African markets where we believe
      demand from telecommunications companies will remain stable. We expect to see
      increased growth in the automotive, utility and consumer goods markets in North
      America and Europe.





Since
      2006, Copperweld has sold to customers who provide aftermarket products to
      the
      automotive industry. Copperweld will continue to test its products with Tier
      1
      suppliers to the auto industry. The high price of copper combined with reduced
      weight in automobiles has created opportunities that we expect to capitalize
      on
      in 2008. We have added additional product capabilities to our Fayetteville
      facility in anticipation of demand and to further our ability to provide
      products to end-users for automotive applications. The new equipment will allow
      us to draw CCA to smaller diameters and new bunching equipment will allow us
      to
      provide bulk cable for wiring harnesses in automobiles.





Similarly,
      our planned addition of stranding equipment in Fayetteville will provide our
      Copperweld subsidiary with the ability to provide additional products to the
      utility market, a market where Copperweld is the dominant supplier of CCS.
      The
      additional stranding equipment will bring us closer to the customer and reduce
      delivery times as we bring in-house value-added product
      enhancements.





The
      consumer goods market is driven by the high price of copper and not by any
      demonstrated advantages of bimetallic technology. Copperweld is working with
      several suppliers to appliance manufacturers and with United Laboratories to
      gain product approvals. We believe the price of copper will continue to provide
      customers with an economic incentive to convert from copper to CCA. The addition
      of drawing and bunching equipment will provide Copperweld with the ability
      to
      provide bulk cable to the white goods market.





We
      expect
      demand for bimetallic wire with diameters of less than 0.25 mm to continue
      to
      increase worldwide. We plan to supply smaller diameter wire from our Dalian
      facility which is better equipped to produce this product cost effectively
      because it is a more labor intensive product. As we further integrate the
      combined Company, we also expect to shift supply from Copperweld’s customers
      located in the Asia-Pacific geographic region to our Dalian facility to provide
      more efficient service and delivery.





During
      December 2007, we purchased additional equipment for our Fayetteville plant
      that
      will enable us to expand our finishing capabilities of our products. We expect
      this capacity to be in production by the end of the second quarter 2008. We
      anticipate the equipment to add increased value to our products and immediately
      improve margins seen at our Fayetteville plant by removing third party
      processors from between us and our end-user customers.




Our
      Telford facility provides manufacturing, sales and service to our European
      customers. The facility has drawing and stranding equipment that produces
      bimetallic products for the telephony segment of the telecommunications market.
      Telford also has extrusion capabilities and supplies markets outside of telecom.
      In both cases, the CCA and CCS originates primarily from Fayetteville and is
      imported and finished to customer specifications. Telford’s finishing
      capabilities are unique to the company and provide higher value added
      products.





**Our
      Products**





We
      are
      engaged in the manufacture and sale of bimetallic wire, principally copper-clad
      aluminum (“CCA”) and copper-clad steel (“CCS”). CCA and CCS are bimetallic
      products that have a copper strip formed around and bonded to a solid core
      of
      aluminum or steel.





CCA
      combines the conductivity and corrosion resistance of copper with the light
      weight and relatively low cost of aluminum. In many applications, it is more
      robust than an aluminum conductor. Easy to handle and install, CCA is widely
      used in applications requiring the conductivity of copper while retaining the
      light weight advantages of aluminum. Because television and networks have high
      frequency transmission signals and the high frequency signals are transmitted
      on
      the surface layer of a wire, CCA is an ideal inner conductor for trunk and
      distribution cables for the cable TV industry and for cables used in the
      cellular phone industry.




3




Our
      copper-clad steel (CCS) is an ideal substitute for solid copper, and is
      recognized around the world through its trademarked name, Copperweld®.
      Copperweld® combines the strength of steel with the conductivity of copper,
      offering increased strength in comparison to solid copper. The signal carrying
      capability of copper combined with the high resistance of steel, which decreases
      feedback and thus enhances signal quality, makes CCS the center conductor of
      choice in telecommunications. CCS is widely used in utility applications and
      has
      been introduced into automotive applications. Copperweld® is available in a
      variety of sizes, conductivities and strengths to meet the requirements of
      the
      most demanding customer. Our CCS delivers outstanding reliability and value
      relative to solid copper.





Prior
      to
      the acquisition of Copperweld, we engaged in business primarily in the PRC
      through manufacture and sale of CCA at our facility in Dalian, PRC. Acquiring
      Copperweld should allow us to incorporate superior proprietary technology and
      higher production capacity machinery for CCA by second quarter 2008 and CCS
      by
      the end of 2008 into our Dalian facility. Furthermore, the Copperweld
      acquisition has allowed for expansion and entrance into the worldwide bimetallic
      market with the addition of CCA and CCS manufacturing facilities in
      Fayetteville, Tennessee and Telford, England.




Our
      copper-clad products offer superior value compared to copper and are
      increasingly utilized as customers look to offset the rising cost of solid
      copper. The applications base for CCA and CCS as substitutes and/or improvements
      over solid copper are expanding to an ever-growing variety of end-user
      applications on a worldwide basis. Products manufactured by our facilities
      are
      typically used in the following products:





·
            *Telecommunications
                products*–
                Due primarily to the signal carrying capabilities of copper at the
                surface
                of the center conductor, bimetallic wire is the standard for
                telecommunication applications. The primary products in this grouping
                include coaxial cables for CATV, trunk and distribution cables, cables
                for
                the cellular industry and telephony drop cable. We believe that we
                are the
                leading supplier of bimetallic wire for telecommunication cables
                in the
                Asia-Pacific, the Americas and
                Europe.





·
            *Utility
                products*–
                Our CCA and CCS products are used for grounding applications and
                in power
                cables, electrified railways, transformer windings and tracer wire.
                We
                produce single end, three wire, seven wire and 19 wire strand
                constructions and hybrid cables that utilize a combination of CCA,
                CCS and
                copper wires that are used in these
                products.




·
            *Automotive
                products*– Our
                CCA and CCS wires are used in wiring harnesses for automobiles, trucks,
                motorcycles, commercial off road equipment and trailers. We also
                provide
                bimetallic wire for aftermarket applications such as booster cables.
                Automotive wiring harnesses include a variety of energy or control
                signal
                applications.




**The
      Bimetallic Industry**





We
      operate in the bimetallic wire manufacturing industry. We sell both directly
      to
      end-user manufacturers of our product and distributors typically within the
      wire
      and cable industry who in turn use bimetallic wire in products for sale into
      the
      Telecommunication, Utility, and Automotive markets. The bimetallic wire
      industry can be characterized as fast-growing on a worldwide basis and
      increasingly competitive, specifically in China where there is considerable
      fragmentation. A significant barrier to entry into this industry is
      technology, specifically in respect to cladding technologies. Cladding
      processes are typically proprietary in nature and have a direct impact on
      quality of the product, which is largely dependent on the characteristics of
      the
      bond between the differing metals. For many product offerings, there is
      significant differentiation among industry participants from a manufacturing,
      technological and quality standpoint.





Copper
      wires have historically been the dominant product for use in the wire and cable
      manufacturing industry due to its electrical conductivity and corrosion
      resistance; however, due to the rising costs of copper and demand for greater
      value products, end-user manufacturers in the industry have increasingly pursued
      and considered alternative technologies such as bimetallics. Relative to
      traditional copper wires, we believe that bimetallic wires offer greater value
      to end-users through its lower weight, theft deterrence and lower prices while
      still retaining the corrosion resistance and conductivity needs of the
      end-user. Because of the benefits of bimetallic wire, we believe there are
      substantial opportunities to capture increased market share in applications
      that
      have historically been largely dominated by traditional copper wire. As the
      leading bimetallic manufacturing in cladding technologies and quality, and
      increased capacity abilities, we believe we are well position to capitalize
      on
      the growing bimetallic demand worldwide.





The
      bimetallic wire industry is raw materials intensive with copper, aluminum and
      steel comprising the major cost components for products. Changes in the
      cost of raw materials are generally passed through to the customer, although
      there can be timing delays of varying lengths depending on the volatility in
      metal prices, the type of product, and competitive conditions.





**Manufacturing
      Process**




Manufacturing
      copper-clad products involves bonding copper strip to an aluminum or steel
      core,
      drawing the clad product to a finished diameter and heat treating as necessary
      depending upon the customer’s specifications. We use proprietary technologies
      developed in Dalian and Fayetteville. We also own the worldwide rights to other
      technologies. These proprietary technologies allow us to produce superior
      copper-clad products compared to other producers. The Copperweld acquisition
      has
      allowed us to share technology between our manufacturing locations. We have
      and
      will continue to integrate our technologies and equipment so we can better
      serve
      our customers from the location that permits us to deliver our products most
      efficiently to our customers. Our technology base allows us to produce superior
      products, our combined research and development department supports continuing
      development and the geographical spread of our manufacturing locations improves
      our ability to provide superior service to our international customer base.





4




**Research
      and Development**





We
      have
      combined our Research and Development Departments under a single manager to
      improve efficiencies and improve our coordination between facilities. We will
      continue to increase our R&D capacity and resources. In the fiscal years
      ended December 31, 2007, 2006 and 2005, we spent $154,127, $195,058 and $65,000
      respectively, on research and development. We are dedicated to improving our
      current products and to developing new technologies and products that will
      improve the performance and capabilities of bimetallic materials. Because of
      our
      research and development ("R&D") initiatives in Dalian, we are recognized by
      the Dalian Municipal Government as a "new- and high-technology" enterprise
      and
      have been receiving governmental funding or subsidies for our operations and
      R&D activities. Complementary to our internal product research and
      development is outside research from China’s scientific research institutions.
      We have cooperated closely with various scientific research institutions to
      advance development of new products and production methods. We have on-going
      relationships with Tsinghua University, North East University of China
      and Dalian Institute of Technology. Recently, we have formed strategic
      partnership with the Optical and Electronic Cable Association of China to
      establish a joint research and development center to further enhance our
      technology leadership in the industry. Furthermore, in November 2007, we were
      appointed to the Copper-Clad Aluminum Executive Standards committee by the
      National Standardization Administration of China. As part of the Copper-Clad
      Aluminum Executive Committee, we will assist in drafting China’s first-ever
      nationwide standards for copper-clad aluminum wire.




**Quality
      Control**




Our
      quality control begins with our ordering process because we believe that to
      produce quality products we must use high quality raw materials. We provide
      our
      suppliers with our required specifications that apply to each category of raw
      material that we use. When the raw materials arrive, our quality inspectors
      inspect each shipment for critical factors. During the manufacturing process,
      every employee has the responsibility and authority to identify non-conforming
      material or any material that shows manufacturing imperfections. 
Inspectors test our products during and after the manufacturing
      processes.





In
      our
      final inspection process, we complete additional testing to insure the customer
      receives what he has ordered. Additional testing in our laboratories includes
      breaking load, elongation, torsions, conductivity and the uniformity of the
      copper surface depending on the product and the individual customer’s
      requirements. We follow ISO guidelines in our process and in maintaining our
      testing equipment.





**Warranties**




We
      typically warrant all of our products and provide replacement or credit to
      our
      customers who are not satisfied with our products for a period of one year
      from
      the date of shipment. When we receive an indication that a product did not
      perform as expected, our quality control specialist and laboratory personnel
      test the product to determine if our process was correct for the specifications
      submitted by the customer and if the manufacturing process was completed as
      planned. If we failed to produce the product according to the customer’s
      specifications or if the manufacturing process was flawed, we provide immediate
      credit to the customer. If we produced the product to the customer’s
      specifications and if the manufacturing process was not flawed, we send a team
      to the customer’s facilities to see if we can assist the customer in correcting
      its process. Typically a team consists of at least one engineer, at least one
      experienced production person and the customer’s sales representative. If the
      product was manufactured to the proper specifications, our team works with
      the
      customer in developing corrective action to solve their problem.




We
      have
      not established reserve funds for potential customer claims because,
      historically, we have not experienced significant customer complaints about
      our
      products and none of our customers have requested damages for any loss incurred
      due to product quality problems. We believe that our customer support teams,
      our
      quality assurance and manufacturing monitoring procedures will continue to
      keep
      claims at a level that does not support a need for a reserve. We review customer
      returns on a monthly basis and may establish a reserve fund as we expand our
      business by volume and products. If we were to experience a significant increase
      in warranty claims, our financial results could be adversely affected.




**Raw
      Materials and Suppliers**





Our
      principal raw materials consist of copper, steel and aluminum rod. Other
      materials including packaging and shipping materials, lubricants and replacement
      parts for the equipment represent a relatively small part of our costs. Copper,
      steel and aluminum are available in the market and we have not experienced
      shortages. We are constantly reviewing sources for raw materials so that we
      do
      not expect shortages of these materials as we expand our business. During 2007,
      the largest raw material by weight was aluminum where, on a pro forma basis,
      Fushi and Copperweld purchased 17,917 metric tons of aluminum at an average
      cost
      of $2,481 per ton. Copper was second by volume at 7,809 tons at an average
      price
      of $8,016 per ton followed closely by steel at 7,104 tons with an average price
      of $946 per ton.




We
      have
      continued to significantly diversify our sources of supply. During 2006, two
      suppliers accounted for 41% of our raw material supply. During 2007, our five
      top suppliers provided 38.6% of our raw materials. Our acquisition of Copperweld
      made additional suppliers in different parts of the world available to us so
      we
      believe that we will continue to reduce our dependence on only a few suppliers
      in future periods.





5




We
      do not
      have formal long-term purchase contracts with our suppliers and, therefore,
      we
      are exposed to the risk of fluctuating raw material prices. Our raw material
      price risk is mitigated because we pass changes in raw material costs to our
      customers. When we determine that purchase contracts with our primary suppliers
      are beneficial to us in order to maintain supplies of raw materials, we
      typically specify the quantity of raw material purchases for the following
      6 to
      12 months, based on our projected manufacturing output determined by the
      purchase orders we receive and from projections of expected sales provided
      by
      our global sales group. The raw materials are delivered in installments based
      on
      our order flow throughout the period. See "Risk Factors - Risks Related to
      Our
      Business- We depend on a few suppliers for a significant portion of our
      principal raw materials and we do not have any long-term supply contracts with
      our raw materials suppliers. Interruptions of production at our key suppliers
      may affect our results of operations and financial performance."




In
      addition to these short-term purchase contracts, we also purchase from our
      primary suppliers or other suppliers to satisfy additional raw materials needs
      from additional orders we did not previously project. Due to fluctuating world
      wide supply and demand for our principal raw materials, we cannot guarantee
      that
      necessary materials will continue to be procured at the prices currently
      available or that are acceptable to our customers. However, prices adversely
      affecting the supply and prices of our raw materials have an equal or greater
      adverse effect on producers of alternatives to our bimetallic products. We
      maintain multiple suppliers for each type of raw material that we use and
      monitor the availability of additional suppliers so that we have access to
      sufficient raw material sources necessary to meet customer demand.
      Notwithstanding our supply availability practices, we do not have a guarantee
      that raw material availability will meet our demands. To the extent that our
      suppliers are not able to provide raw materials in sufficient quantity and
      quality on a timely and cost-efficient basis, our results of operations could
      be
      adversely impacted until we find other qualified suppliers.




Payment
      terms vary with each supplier. Some suppliers require payment prior to shipment,
      others offer varying terms from three to 30 days following shipment. Demand
      for
      raw material in the PRC often requires that we prepay for our raw materials.
      Price is often affected by our payment terms; therefore, we typically agree
      to
      shorter terms in exchange for reduced pricing for our raw materials. See “Risk
      Factors- Risks Related to Our Business- Increases in raw materials prices will
      increase our need for working capital.”




**Customers**




Our
      products' target markets are manufacturers of finished wire, cable products
      and
      other products using conductive materials. In most cases, our customers
      incorporate our products into end-products that they subsequently supply to
      their customers. The products we manufacture are used by these end-product
      makers as standard components, materials or parts that are built to their
      specifications. Therefore, our business is driven, in part, by the strength,
      growth prospects and activity in the end-markets in which our products are
      used.
      Our technical and sales staff frequently provides technical and sales support
      to
      our customers.




We
      have a
      large customer base, with approximately 300 customers in 30 countries around
      the
      world. The geographic dispersion and large number of customers provide a diverse
      base of revenue sources that we believe provide additional insulation to slowing
      economic conditions in selected regions. As a result of our large and diverse
      customer base our largest customers account for an increasingly smaller, but
      healthy, percentage of net sales compared to past fiscal years. Our top 5
      customers represented 24.6% and 28.9% of our net sales during the fiscal years
      ended December 31, 2007 and 2006, respectively on a pro forma basis. Times
      Fiber
      is the only customer that represents over 10% of the Copperweld’s 2007 sales, as
      well as on a pro-forma basis for the Company. Further, we anticipate that our
      overall customer composition and the concentration of our top customers will
      change as we expand our business and shift our product portfolio to
      higher-margin products; however, we can give no assurance that this will be
      the
      case.




The
      following table sets forth our ten largest customers in fiscal 2007 on a pro
      forma basis:





**Originating
                Office***
            
            **2007 Sales in USD**
            
            **Percentage of Total Sales**Fayetteville
            
            
            21,215,885
            
            
            10.80
            %Dalian
            
            
            8,027,451
            
            
            4.09
            %Dalian
            
            
            6,798,765
            
            
            3.46
            %Fayetteville
            
            
            6,638,111
            
            
            3.38
            %Dalian
            
            
            5,636,408
            
            
            2.87
            %Dalian
            
            
            5,518,656
            
            
            2.81
            %Dalian
            
            
            5,476,410
            
            
            2.79
            %Dalian
            
            
            5,222,391
            
            
            2.66
            %Dalian
            
            
            4,977,456
            
            
            2.53
            %Dalian
            
            
            4,624,811
            
            
            2.35
            %74,136,344
            
            
            37.74
            %





*Full
      year Fayetteville sales included for illustrative purpose.





**Marketing,
      Sales and Distribution**




Our
      sales
      and marketing is now a global operation. We market and sell our products through
      our direct sales force. In some countries we use sales agents to provide
      assistance with or lead our sales and distribution in selected
      countries.





Since
      the
      acquisition of Copperweld, we have begun integrating our sales and marketing
      functions on a global basis under the direction of a global sales manager.
      A
      majority of the sales from our Dalian Sales and Marketing Department, consisting
      of 17 people, are made to PRC customers. There are five outside direct sales
      representatives working from the Fayetteville and Telford offices supported
      by
      five customer service representatives in addition to the global sales manager.
      During 2007, our sales people working outside of the PRC sold to 193 customers
      located in 30 countries. As a result of increasing demand for our products
      and
      as new marketing opportunities develop, we expect to increase our outside sales
      force by reassigning current employees and through adding additional qualified
      personnel. During the fourth quarter and continuing into the 2008 year, we
      provided professional sales training to our sales force.





6




**Product
      Delivery and Risk of Loss**




We
      usually deliver our products to our customers' place of business, while in
      some
      cases customers make their own delivery arrangements. Our Shipping Departments
      arrange for all deliveries regardless of the delivery method. In Dalian we
      have
      four heavy trucks and eight contracted drivers that allow us to ship up to
      30
      tons per day. In Fayetteville and Telford, we use common carriers. International
      shipments are arranged through several ocean freight forwarding
      companies.




We
      include shipping expenses in the purchase price of our products or as separately
      stated charges. In either instance delivery costs are ultimately borne by our
      customers. In addition, some orders require us to purchase freight insurance
      on
      behalf of a customer in which case the cost of such freight insurance is
      included in the purchase price of the products.




**Insurance**




*Product
      Liability Insurance*





We
      currently do not carry product liability or other similar insurance to cover
      products made and shipped within the PRC. While product liability lawsuits
      in
      the PRC are rare and we have never experienced significant failures of our
      products, we cannot give any assurance that we will not have exposure for
      liability in the event of the failure of any of our products in the future.
      Outside of the PRC, litigation surrounding product liability is more prevalent
      and we have both primary coverage and umbrella coverage for our international
      business which is shipped primarily from our Fayetteville and Telford
      facilities.




*Property
      Insurance and Other Insurance* **





We
      maintain property and casualty insurance coverage consistent with local rules
      and best practices in the PRC, Fayetteville, TN and Telford, England. We use
      different insurers in each location and solicit competitive bids on a regular
      basis. We believe that we are adequately protected with an appropriate level
      of
      insurance coverage from normally anticipated events. We remain aware of
      replacement values





**Seasonality**





Our
      Fayetteville facility has historically experienced seasonal fluctuations in
      revenues, operating income and net income. Sales volumes out of
      Fayetteville are generally lower in our fourth and first quarters, due primarily
      to cold weather related reduction in demand in our Telecommunication and Utility
      product lines and shutdown of our facility during the year-end
      holidays. Additionally, Telecommunication, Utility and Automotive markets
      in the PRC historically experience a slowdown in demand during our first quarter
      due to the Chinese New Year holiday, however, we have yet to experience
      historically significant seasonality fluctuations in our revenues, operating
      and
      net income out of our Dalian facility due to aggressive organic expansion in
      our
      production capabilities over the past two years.




**Competition**




Competition
      in the bimetallic industry, particularly in the PRC, can be characterized by
      rapid growth and a concentration of manufacturers, primarily due to rising
      copper prices and accelerated replacement of copper by bimetallic products
      applications. The most significant factors that affect our competitive position
      are:




·
            the
                performance and cost effectiveness of our products relative to those
                of
                our competitors;





·
            our
                ability to manufacture and deliver products in required volumes,
                on a
                timely basis and at competitive
                prices;




·
            the
                superior quality and reliability of our
                products;




·
            our
                customer support capabilities, both from an engineering and operational
                perspective;




·
            excellence
                and flexibility in operations;




·
            world
                leader in bimetallic products;




·
            effectiveness
                of customer service and our ability to send experienced operators
                and
                engineers as well as a seasoned sales force to assist our customers.;




·
            overall
                management capability.




We
      believe that we can differentiate ourselves by offering superior product
      quality, timely delivery, and better value. See "Risk Factors - Risks Related
      to
      Our Business -- We may encounter substantial competition in our business and
      our
      failure to compete effectively may adversely affect our ability to generate
      revenue."




7




Our
      goal
      is to maintain our position as the worldwide leader in the bimetallic industry.
      Set forth below are our measures and strategies:





·
            *Manufacturing*.
                By improving our production ability and enhancing equipment management,
                optimizing the process and products structure, perfecting the supplier
                system and cutting production cost, we will strive to maintain and
                expand
                our profit margins.




·
            *Research
                and Development*.
                With the addition of the Fayetteville R&D department and the
                consolidation of our research and development capabilities we are
                well
                positioned to improve our existing products and to develop new
                applications for our customers and potential customers. We will continue
                to expand our association with the various universities and organizations
                who promote and support research into bimetallic
                technologies.





·
            *Domestic
                and International Expansion*.
                We are a global company and as such we will continue to seek opportunities
                all around the globe in addition to continuing to expand our presence
                in
                our existing markets.





·
            *Raw
                Materials*.
                We mitigate the risk of increases in raw material price volatility
                by
                passing changes in raw material prices through to our customers.
                We
                mitigate volatile supplies through effective planning, working closely
                with key suppliers to obtain the best possible supply schedules and
                delivery terms.





·
            *Acquisitions/
                Strategic Alliance*.
                We remain aware of opportunities that develop where we have opportunities
                to add to our product mix and global strategies in that will increase
                shareholder value.





**Intellectual
      Property**




Our
      principal intellectual property rights are our patents, patent application
      and
      the trademarks "FUSHI" and “Copperweld”. Additionally we have acquired the
      rights to superior processes that can be renewed when they expire in 2015.
      We
      continue to improve the products for which we hold the rights and through our
      research department, we anticipate continuing our development of proprietary
      intellectual properties. We employ the services of a law firm to maintain our
      trademark registrations throughout the world and to identify any potential
      infringements on our trademarks or our patents.




Domain
      Names . we own
      and operate websites, under the internet domain names www.fushiinternational.com , www.fushiinternational.cn , www.copperweld.com , www.copperweldbimetallic.com , and www.fushicopperweld.com .
      We pay
      an annual fee to maintain our registrations and for a service that identifies
      of
      any potential infringement on our domain names. The information contained on
      our
      website does not form part of this report.




**Government
      Regulation**




As
      a
      global company we are subject to rules and regulations imposed by a wide range
      of countries and are diligent in maintaining an awareness of those rules. Fushi
      Copperweld, Inc is a SEC registered company and as such, is subject to rules
      and
      regulations regarding our securities and disclosure requirements. Our
      headquarters and a major manufacturing facility are located in the PRC and
      as
      such, we are subject to various tax and business governance rules and
      regulations imposed by the PRC and it political subdivisions. We also operate
      a
      major operation in Fayetteville TN and are subject to various commercial and
      taxing regulations imposed by the US and Tennessee as well as local governments.
      Our UK operation is subject to rules and regulations applicable to businesses
      operating in Great Britain. Failure to comply with the various government
      regulations can have a negative impact on our company; therefore we are diligent
      in our compliance with these rules and regulations.





In
      addition, our common stock is traded on the NASDAQ stock exchange. NASDAQ,
      while
      not having the force of governmental regulations, imposes significant corporate
      governance and reporting rules where failure to follow its rules can have an
      adverse impact on the public’s perception of investing in our
      stock.




**Backlog of Orders**





We
      estimate that we have $17.3 million in backlogged orders which we believe are
      firm orders on March 14, 2008 as compared to $10.4 million on March 14, 2007.
      We
      believe 95% of our backlogged orders will be filled by the end of our fiscal
      year.




**Environmental
      Compliance**




We
      are
      subject to environmental regulations that are generally applicable to
      manufacturing companies in the PRC and in the US and we are subject to periodic
      inspection by environment regulators and must follow specific procedures in
      some
      of our processes. We do not have a record of violating environmental regulations
      or approved practices either in the PRC or in the US.





**Employees**




We
      have
      approximately 582 employees in Dalian, 119 in Fayetteville and 19 in Telford.
      Of
      Dalian and Fayetteville employees, approximately 60% work in manufacturing
      and
      79% of Telford works in the manufacturing process. The remainder of employees
      includes engineers, sales and administrative personnel.





**ITEM
      1A RISK FACTORS**





**RISKS
      RELATED TO OUR BUSINESS**





***Our
      limited operating history may not serve as an adequate basis to judge our future
      prospects and results of operations.***





We
      began
      the sale of copper-clad aluminum wire in 2002. Our limited operating history
      may
      not provide a meaningful basis on which to evaluate our business. Although
      our
      revenues have grown rapidly since inception, we cannot assure you that we will
      maintain our rate of growth, our profitability or that we will not incur net
      losses in the future. We expect that our operating expenses will increase as
      we
      expand. Any significant failure to realize anticipated revenue growth could
      result in significant operating losses. We will continue to encounter risks
      and
      difficulties frequently experienced by companies at a similar stage of
      development, including our potential failure to:




8




-
            expand
                our product offerings and maintain the high quality of our products;


-
            maintain
                our proprietary copper-cladding technology for the manufacturing
                of
                bimetallic wires;


-
            manage
                our expanding operations, including the integration of Copperweld
                Bimetallics and any future acquisitions;


-
            maintain
                adequate control of our expenses;


-
            implement
                our product development, marketing, sales, and acquisition strategies
                and
                adapt and modify them as needed;


-
            anticipate
                and adapt to changing conditions in the bimetallic products markets
                in
                which we operate as well as the impact of any changes in government
                regulation, mergers and acquisitions involving our competitors,
                technological developments and other significant competitive and
                market
                dynamics.




If
      we are
      not successful in addressing any or all of these risks, our business may be
      materially and adversely affected.





***Quarterly
      operating results may fluctuate***





Our
      quarterly results of operations may fluctuate as a result of a number of
      factors, including fluctuation in the demand for and shipments of our products
      and changes in the prices of copper which directly affect the prices of our
      products and may influence the demand for our products. Therefore,
      quarter-to-quarter comparisons of results of operations have been and will
      be
      impacted by the volume of such orders and shipments. In addition, our operating
      results could be adversely affected by the following factors, among others,
      such
      as variations in the mix of product sales, price changes in response to
      competitive factors, increases in raw material costs and other significant
      costs, increases in utility costs (particularly electricity) and various types
      of insurance coverage and interruptions in plant operations resulting from
      the
      interruption of raw material supplies and other factors. Some uses of our
      products are subject to seasonality factors which can affect our quarter to
      quarter results as well.





***Fluctuating
      copper prices impact our business and operating results.***





Copper
      prices, which have increased over the past several years, have varied
      significantly and may vary significantly in the future because the copper
      industry is highly volatile and cyclical in nature. This affects our business
      both positively and negatively - as our products are a substitute for pure
      copper wire, higher prices increase demand, while lower copper prices can
      decrease demand. Numerous factors, most of which are beyond our control,
      influence copper price. These factors include general economic conditions,
      industry capacity utilization, import duties and other trade restrictions.
      We
      cannot predict copper prices in the future or the effect of fluctuations in
      the
      costs of copper on our future operating results. We mitigate the impact of
      changing raw material prices by passing changes in prices to our customers
      by
      adjusting prices at least monthly to reflect changes in raw material prices,
      as
      is customary in the industry. We may not be able to adjust our product prices
      rapidly enough in the short-term to recover the costs of increases in raw
      materials. Our future profitability may be adversely affected to the extent
      we
      are unable to pass on higher raw material costs to our customers.




***We
      may encounter substantial competition in our business and our failure to compete
      effectively may adversely affect our ability to generate
      revenue.***





The
      bimetallic industry is becoming increasingly competitive. The principal elements
      of competition in the bimetallic industry are, in our opinion, pricing, product
      availability and quality. While we believe that we have attained a leadership
      position with respect to all of these factors, our major competitors with
      substantially greater resources than us may be better able to successfully
      endure downturns in our industrial sector. In periods of reduced demand for
      our
      products, we can either choose to maintain market share by reducing our selling
      prices to meet competition or maintain selling prices, which may sacrifice
      market share. Sales and overall profitability would be reduced under either
      scenario. In addition, we cannot assure you that additional competitors will
      not
      enter our existing markets, or that we will be able to compete successfully
      against existing or new competition.





***We
      may not be able to effectively control and manage our
      growth.***





If
      our
      business and markets grow and develop as we expect, it will be necessary for
      us
      to finance and manage expansion in an orderly fashion. In addition, we may
      face
      challenges in managing expanding product offerings and in integrating acquired
      businesses with our own. Such eventualities will increase demands on our
      existing management and facilities. Failure to manage these growth and expansion
      could interrupt or adversely affect our operations and cause production
      backlogs, longer product development time frames and administrative
      inefficiencies.





***A
      significant portion of our sales are derived from a limited number of customers,
      and results from operations could be adversely affected and stockholder value
      harmed if we lose these customers.***





Our
      revenue is dependent, in large part, on significant orders from a limited number
      of customers. Sales to our five largest customers accounted for approximately
      41%, 28.9% and 24.6% of our net sales during the years ended December 31, 2005,
      2006, and 2007 respectively. We believe that revenue derived from current and
      future large customers will continue to decline but will continue to represent
      a
      significant portion of our total revenue. Our inability to continue to secure
      and maintain a sufficient number of large customers would have a material
      adverse effect on our business, operating results and financial condition.
      Moreover, our success will depend in part upon our ability to obtain orders
      from
      new customers, as well as the financial condition and success of our customers
      and general economic conditions.





9




***Shortages
      or disruptions in the availability of raw materials could have a material
      adverse effect on our business.***





Aluminum
      and steel rods and copper strips, our principal raw materials, collectively
      accounted for approximately 93 % of our costs of goods sold in Dalian and just
      over 75% for Fayetteville during the fiscal year ended December 31, 2007. We
      expect that raw materials will continue to account for a significant portion
      of
      our cost of goods sold in the future. The prices of raw materials fluctuate
      because of general economic conditions, global supply and demand and other
      factors causing monthly variations in the costs of our raw materials purchases.
      The macro-economic factors, together with labor and other business interruptions
      experienced by certain suppliers, have contributed to periodic shortages in
      the
      supply of raw materials, and such shortages may increase in the future. If
      we
      are unable to procure adequate supplies of raw material to meet our future
      production needs and customer demand, shortages could result in a material
      loss
      of customers and revenues and adversely impact our results of operations. In
      addition, supply shortages or disruptions or the loss of suppliers may cause
      us
      to procure our raw materials from less cost effective sources and may have
      a
      material adverse affect on our business, revenues and results of
      operations.





***We
      depend on a few suppliers for a significant portion of our principal raw
      materials and we do not have any long-term supply contracts with our raw
      materials suppliers. Interruptions of production at our key suppliers may affect
      our results of operations and financial performance.***





We
      rely
      on a limited number of suppliers for most of the raw materials we use. During
      the fiscal year ended December 31, 2007, purchase from our three largest
      suppliers of metal raw materials represented approximately 43.0% of our total
      raw material purchases. Interruptions or shortages of supplies from our key
      suppliers of raw materials could disrupt production or impact our ability to
      increase production and sales. We do not have long-term or volume purchase
      agreements with most of our suppliers and we may have limited options in the
      short-term for alternative supply if these suppliers fail for any reason,
      including their business failure or financial difficulties, to continue the
      supply of materials or components. Moreover, identifying and accessing
      alternative sources may increase our costs. Interruptions at our key suppliers
      could negatively impact our results of operations, financial performance and
      the
      price of our common stock.





***Due
      to increased volatility of raw material prices, the timing lag between the
      raw
      material purchase and product pricing can negatively impact our
      profitability.***





Volatility
      in the prices of raw materials, among other factors, may adversely impact our
      ability to accurately forecast demand and may have a material adverse impact
      on
      our results of operations. For example, our manufacturing activities are
      determined, and raw materials purchase scheduled, upon forecasted demand while
      sales prices are determined at the time of order placement, subject to
      adjustment at fulfillment. The lag between the point when raw materials are
      acquired in advance and the point when products are actually priced may impact
      us both positively and negatively, resulting in increased or reduced
      profitability. In addition, we routinely maintain a certain level of finished
      goods inventories to meet near term expected demand. Pricing for the sale of
      these inventories is generally based on current raw material prices. Rapid
      declines in the price of raw materials may result in our inventories being
      carried at costs in excess of net realizable value and may have an adverse
      effect on our results of operations and the price of our common
      stock.




***Increases
      in raw materials prices will increase our need for working
      capital.***





As
      the
      prices of raw materials increase, our working capital requirements increase.
      Increases in our working capital requirements can materially adversely impact
      our results of operations, our cash flow and our available liquidity to fund
      other business needs. Furthermore, there is no assurance we would be able to
      finance additional working capital requirements or finance such working capital
      requirements on favorable terms. If we were unable to obtain financing on
      favorable terms, our business and results of operations may be adversely
      affected. See “Management’s discussion and analysis of financial condition and
      results of operations—Liquidity and capital resources” below.





***Increases
      in raw materials prices may increase credit and default risk with respect to
      our
      customers.***





Increases
      in the price of our products, as raw material prices rise, may place additional
      demands on the working capital and liquidity needs of our customers.
      Accordingly, our customers’ cash flow may be negatively impacted which may have
      an adverse affect on the timing and amount of payment on our accounts
      receivable, which would in turn, negatively affect our results of operations.





***We
      face manufacturing challenges.***





The
      volume and timing of sales to our customers may vary due to: variation in demand
      for our customers’ products; our customers’ attempts to manage their inventory;
      design changes; changes in our customers’ manufacturing strategy; and
      acquisitions of or consolidations among customers. Due in part to these factors,
      many of our customers do not commit to long-term production schedules. Our
      inability to forecast the level of customer orders with certainty makes it
      difficult to schedule production and maximize utilization of manufacturing
      capacity. Customers may cancel their orders, change production quantities or
      delay production for a number of reasons and such actions could negatively
      impact our operating results. In addition, we make significant operating
      decisions based on our estimate of customer requirements. The short-term nature
      of our customers’ commitments and the possibility of rapid changes in demand for
      their products reduce our ability to accurately estimate the future requirements
      of those customers.





10




***Our
      rapid expansion could significantly strain our resources, management and
      operational infrastructure which could impair our ability to meet increased
      demand for our products and hurt our business results.***





To
      accommodate our anticipated growth and integrate the acquisition of Copperweld
      Bimetallics, we will need to expend capital resources and dedicate personnel
      to
      implement and upgrade our accounting, operational and internal management
      systems and enhance our record keeping and contract tracking system. Such
      measures will require us to dedicate additional financial resources and
      personnel to optimize our operational infrastructure and to recruit more
      personnel to train and manage our growing employee base. If we cannot
      successfully implement these measures efficiently and cost-effectively, we
      will
      be unable to satisfy the demand for our products, which will impair our revenue
      growth and hurt our overall financial performance.





***If
      we fail to accurately project market demand for our products, our business
      expansion plan could be jeopardized and our financial condition and results
      of
      operations will suffer.***





We
      plan
      to increase our annual manufacturing capacity and relocate unused capacity
      from
      Fayetteville, Tennessee to Dalian, China, to meet an expected increase in demand
      for our products in the Asia Pacific region. Our decision to increase our
      manufacturing capacity was based primarily on our projected increases in our
      sales volume and growth in the size of the bimetallic market in China. If actual
      customer orders are less than our projected market demand, we may suffer
      overcapacity problems and may have to leave capacity idle, which can reduce
      our
      overall profitability and hurt our financial condition and results of
      operations.





***If
      the bimetallic industry does not grow as we expect or grows at a slower speed
      than we expect, our sales and profitability may be materially adversely
      affected.***





We
      derive
      most of profits from sales of our products in China. The continued development
      of our business depends, in large part, on continued growth in the bimetallic
      industry in China. Although China’s bimetallic industry has grown rapidly in the
      past, it may not continue to grow at the same growth rate in the future or
      at
      all. Any reduced demand for our products, any downturn or other adverse changes
      in China’s bimetallic or related industries could severely impact the
      profitability of our business.




***We
      face the possibility that our gross margins may decline.***





In
      response to changes in product mix, competitive pricing pressures, increased
      sales discounts, introductions of new competitive products, product enhancements
      by our competitors, increases in manufacturing or labor costs or other operating
      expenses, we may experience declines in prices, gross margins and profitability.
      To maintain our gross margins we must maintain or increase current shipment
      volumes, develop and introduce new products and product enhancements and reduce
      the costs to produce our products. If we are unable to accomplish this, our
      revenue, gross profit and operating results may be below our expectations and
      those of investors and analysts.





***We
      may encounter problems associated with our global operations.***





As
      a
      result of the Copperweld acquisition, a significant portion of our operations
      consists of manufacturing and sales activities outside of PRC, primarily in
      the
      US. Our ability to sell our products and conduct our operations globally is
      subject to a number of risks. Local economic, political and labor conditions
      in
      each country could adversely affect demand for our products and services or
      disrupt our operations in these markets. We may also experience reduced
      intellectual property protection or longer and more challenging collection
      cycles as a result of different customary business practices in certain
      countries where we do business. Additionally, we face the following risks:




**-**
            International
                business conditions including the relationships between the U.S.,
                Chinese
                and other governments;


**-**
            Unexpected
                changes in laws, regulations, trade, monetary or fiscal policy, including
                interest rates, foreign currency exchange rates and changes in the
                rate of
                inflation in the U.S., China or other foreign countries;


**-**
            Tariffs,
                quotas and other import or export restrictions and other trade barriers;


**-**
            Difficulties
                in staffing and management;


**-**
            Language
                and cultural barriers; and


**-**
            Potentially
                adverse tax consequences.





***The
      anticipated benefits of the Copperweld transaction may not be realized.***





We
      entered the Copperweld acquisition agreement with the expectation that the
      acquisition will result in a number of benefits to us including, among other
      things:




-
            enhanced
                revenues;


-
            broader
                product offering;


-
            significant
                savings on capital expenditures;


-
            expansion
                of our global distribution and manufacturing capabilities;


-
            operational
                improvements;


-
            more
                effective use of our production capacity; and


-
            diversification
                of our customer base.




Achieving
      the anticipated benefits of the Copperweld acquisition is subject to a number
      of
      uncertainties, including,




-
            whether
                we can successfully integrate our business with Copperweld's business
                in
                an efficient and effective manner;




11




-
            the
                reaction of our existing or potential competitors to the transaction;
                and


-
            general
                competitive factors in the marketplace.




Failure
      to achieve these anticipated benefits could result in increased costs, decreases
      in the amount of expected revenues and diversion of management's time and energy
      and could materially impact our business, financial condition and operating
      results.





***The
      anticipated synergies and cost savings of the Copperweld transaction may not
      be
      realized.***





The
      success of the combined company after the Copperweld acquisition will depend,
      in
      part, on our ability to realize the anticipated growth opportunities, cost
      savings, more efficient use and location of production capacity, profitability
      enhancement, streamlining overheads and operating structure to optimize
      efficiency, building upon best practices in technology and manufacturing,
      reassessment of the inventory and supplier base to insure the availability
      of
      products at competitive prices. We cannot provide any assurance that these
      anticipated synergies and cost savings can be achieved in the amounts or during
      the periods expected. Further, we cannot provide any assurance that these
      actions can be completed without disruption to our business that the desired
      actions can be completed in the anticipated period of time or that anticipated
      improvements in operating performance can be achieved.





***There
      may be difficulty integrating Fushi's and Copperweld's businesses and
      substantial costs may be incurred in connection with the integration.***





Achieving
      the anticipated benefits of the Copperweld acquisition will depend on the
      successful integration of Fushi’s and Copperweld's products, services,
      operations, personnel, technology and facilities in a timely and efficient
      manner. Although we do not anticipate material difficulties in connection with
      such integration, the possibility exists that difficulties could be experienced,
      especially given the cultural difference, time zone difference, and language
      differences. The time and expense associated with converting the businesses
      of
      Fushi and Copperweld to a common platform may exceed our expectations and limit
      or delay the intended benefits of the transaction. Similarly, the process of
      reallocating machinery and capacity, combining sales, marketing and
      manufacturing forces, consolidating administrative functions, and coordinating
      product and service offerings could take longer, cost more, and provide fewer
      benefits than initially projected. To the extent any of these events occur,
      the
      benefits of the transaction may be reduced.




Integrating
      our business with that of Copperweld can be a complex, time-consuming and
      expensive process. Before the acquisition, Fushi and Copperweld operated
      independently, each with its own business, products, customers, employees,
      culture and systems. Fushi may face substantial difficulties, costs and delays
      in integrating the two businesses. These difficulties, costs and delays may
      include:




**-**
            Costs
                and delays in moving additional capacity from Fayetteville, TN to
                Dalian,
                China;


**-**
            Costs
                and delays in implementing common systems and procedures;


**-**
            Difficulties
                in combining research and development teams and processes;


**-**
            Potential
                difficulty in combining the separate product technologies of Fushi
                and
                Copperweld;


**-**
            Perceived
                adverse changes in product offerings available to customers or in
                customer
                service standards, whether or not these changes do, in fact exist;


**-**
            Difficulty
                comparing financial reports due to differing financial and/or internal
                reporting systems and practices;


**-**
            Diversion
                of management resources from the business;


**-**
            The
                inability to retain existing customers of each company;


**-**
            Reduction
                or loss of customer orders due to the potential for market confusion,
                hesitation and delay;


**-**
            Challenges
                in retaining and integrating management and other key employees of
                Fushi
                and Copperweld;


**-**
            Difficulty
                in coordinating operations in an effective and efficient manner;
                and


**-**
            The
                inability to achieve the synergies anticipated to be realized from
                the
                acquisition on the timeline presently anticipated, or at all.




After
      the
      acquisition, we may seek to combine certain operations and functions using
      common information and communication systems, operating procedures, financial
      controls and human resource practices, including training, professional
      development and benefit programs. We may be unsuccessful in implementing the
      integration of these systems and processes in a timely and efficient manner.
      Any
      one or all of these factors may cause increased operating costs, worse than
      anticipated financial performance or the loss of customers and employees. Many
      of these factors are also outside of our control.





***The
      integration process may result in a loss of key personnel of Fushi and/or
      Copperweld.***





Fushi
      and
      Copperweld both depend on the services of their key personnel. Current and
      prospective employees of Fushi and Copperweld may become uncertain or
      dissatisfied about their changing or future roles with Fushi as the integration
      evolves. Uncertainty or dissatisfaction may affect the performance of such
      personnel adversely and the ability of each company to retain and attract key
      personnel. The loss of the services of one or more of these key employees or
      the
      inability of Fushi or Copperweld to attract, train, and retain qualified
      employees could result in the loss of customers or otherwise inhibit the ability
      of Fushi to integrate and grow the combined businesses effectively.





12




***The
      combination of Copperweld and Fushi may result in a loss of customers of
      Copperweld and/or Fushi.***





Some
      customers may seek alternative sources of product and/or services due to, among
      other reasons, a lack of desire to do business with our combined company or
      perceptions that we may not continue to support and develop certain products.
      Difficulties in combining operations could also result in the loss of, potential
      disputes or litigation with, customers. Any steps by management to counter
      such
      potential increased customer attrition may not be effective. Failure by
      management to retain customers could result in worse than anticipated financial
      performance.





***There
      may be unknown risks inherent in our acquisition of Copperweld, which could
      result in a material adverse effect on our business.***





There
      may
      be risks associated with the acquisition of Copperweld, though not expected,
      that may not be yet apparent. Any discovery of adverse information concerning
      Copperweld since we acquired the entity could have a material adverse effect
      on
      our business, financial condition and results of operations. While we are
      entitled to seek indemnification in certain circumstances, successfully
      asserting indemnification or enforcing such indemnification could be costly
      and
      time consuming or may not be successful at all.





***Copperweld’s
      ability to sustain profitability is uncertain.***





Prior
      to
      its acquisition by us, Copperweld incurred losses for the entire time it
      operated as a stand-alone business. The combined company’s ability for the
      Fayetteville, TN location to generate sufficient revenues and make profits
      is
      dependent in large part on its ability to move more value-added production
      in
      house, control manufacturing related costs, manage its growth related expenses,
      make additional capital expenditure, expand its customer base, increase sales
      of
      its current products to existing customers, enter into additional supply and
      manage its working capital and other financial resources. We cannot provide
      any
      assurance that improved profitability can be achieved at the Fayetteville
      location in the amounts or during the periods expected.




***We
      face risks associated with future investments or acquisitions.***





An
      important element of our growth strategy is to invest in or acquire businesses
      that will enable us, among other things, to expand our manufacturing capacity
      and the products we offer. However, we may be unable to identify suitable
      investment or acquisition candidates or may be unable to make these investments
      or acquisitions on commercially reasonable terms, if at all.





If
      we
      complete an investment or acquisition, we may not realize the anticipated
      benefits from the transaction. Integrating an acquired business is distracting
      and time consuming, as well as a potentially expensive process. The successful
      integration of any acquired businesses requires us to:




·
            integrate
                and retain key management, sales, research and development, production
                and
                other personnel;




·
            incorporate
                the acquired products or capabilities into our offerings from an
                engineering, sales and marketing perspective;




·
            coordinate
                research and development efforts;




·
            integrate
                and support pre-existing supplier, distribution and customer
                relationships; and




·
            consolidate
                duplicate facilities and functions and combine back office accounting,
                order processing and support functions.




Geographic
      distance between business operations, the compatibility of the technologies
      and
      operations being integrated and the disparate corporate cultures being combined
      also present significant challenges. Acquired businesses are likely to have
      different standards, controls, contracts, procedures and policies, making it
      more difficult to implement and harmonize company-wide financial, accounting,
      billing, information and other systems. Our focus on integrating operations
      may
      also distract attention from our day-to-day business and may disrupt key
      research and development, marketing or sales efforts. If we cannot overcome
      these challenges, we may not realize actual benefits from future acquisitions,
      which will impair our overall business results.





***We
      may not be able to prevent others from unauthorized use of Fushi Copperweld
      patents, which could harm our business and competitive
      position.***





We
      believe that other manufacturers in the PRC have been infringing our patents
      and
      are using our core technology. Although we have pursued legal remedies available
      in the PRC to protect our patents, we can provide no assurance that the
      protection afforded under the laws of the PRC is adequate to maintain our
      competitive position or that we will be successful in all our efforts. Our
      patents and patent applications may be challenged, invalidated or circumvented
      in the future. We cannot assure you that our current or potential competitors
      do
      not have, and will not obtain, patents that will prevent, limit or interfere
      with our ability to make, use or sell our products in either the PRC or other
      countries.





Enforcement
      and implementation of PRC intellectual property-related laws has historically
      been lacking. Accordingly, intellectual property rights and confidentiality
      protections in the PRC may not be as effective as in the United States or other
      countries. Policing unauthorized use of proprietary technology is difficult
      and
      expensive, and we might need to resort to litigation to enforce or defend
      patents issued to us or to determine the enforceability, scope and validity
      of
      our proprietary rights or those of others. Such litigation may require
      significant expenditure of cash and management efforts and could harm our
      business, financial condition and results of operations. An adverse
      determination in any such litigation will impair our intellectual property
      rights and may harm our business, competitive position, business prospects,
      reputation and the price of our common stock.





13




***There
      have been historical deficiencies with our internal controls and these remain
      areas of our internal and disclosure controls that require improvements, and
      we
      are exposed to potential risks from legislation requiring companies to evaluate
      controls under Section 404 of the Sarbanes-Oxley Act of 2002.***





While
      we
      believe that we currently have adequate internal control procedures in place,
      we
      are still exposed to potential risks from legislation requiring companies to
      evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. Under
      the
      supervision and with the participation of our management, we have evaluated
      our
      internal controls systems in order to allow management to report on, and our
      registered independent public accounting firm to attest to, our internal
      controls, as required by Section 404 of the Sarbanes-Oxley Act. We have
      performed the system and process evaluation and testing required in an effort
      to
      comply with the management certification and auditor attestation requirements
      of
      Section 404. As a result, we have incurred additional expenses and a diversion
      of management’s time. If we are not able to continue to meet the requirements of
      Section 404 in a timely manner or with adequate compliance, we might be subject
      to sanctions or investigation by regulatory authorities, such as the SEC or
      the
      Nasdaq Global Market. Any such action could adversely affect our financial
      results and the market price of our stock.





***Potential
      environmental liability could have a material adverse effect on our operations
      and financial condition.***





As
      a
      manufacturer, we are subject to various Chinese environmental laws and
      regulations on air emission, waste water discharge, solid wastes and noise.
      Although we believe that our operations are in substantial compliance with
      current environmental laws and regulations, we may not be able to comply with
      these regulations at all times as the Chinese environmental legal regime is
      evolving and becoming more stringent. Therefore, if the Chinese government
      imposes more stringent regulations in the future, we will have to incur
      additional and potentially substantial costs and expenses in order to comply
      with new regulations, which may negatively affect our results of operations.
      If
      we fail to comply with any of the present or future environmental regulations
      in
      any material aspects, we may suffer from negative publicity and may be required
      to pay substantial fines, suspend or even cease operations.




Regulations
      promulgated by the US government, the State of Tennessee and local authorities
      impose environmental rules and regulations on our Fayetteville operation. Our
      Fayetteville plant is subject to regular reporting to and inspections by local,
      state and federal authorities. To date, inspections have not found our
      Fayetteville plant in violation of any rules or regulations. We believe that
      we
      comply in all material respects with the environmental rules imposed on our
      Fayetteville plant. Our internal procedures require regular monitoring of our
      processes to assure that we do not violate environmental standards. Failure
      to
      comply with Chinese or US environmental laws and regulations may materially
      and
      adversely affect our business, financial condition and results of operations.





***We
      do not presently maintain product liability insurance in the PRC, and our
      property and equipment insurance does not cover the full value of our property
      and equipment, which leaves us with exposure in the event of loss or damage
      to
      our properties or claims filed against us.***





We
      currently do not carry any product liability or other similar insurance in
      China. We cannot assure you that we would not face liability in the event of
      the
      failure of any of our products. This is particularly true given our plan to
      significantly expand our sales into international markets, like the United
      States, where product liability claims are more prevalent. We carry product
      liability insurance for our Fayetteville operations but we have no assurance
      that the coverage would be sufficient in the event of a claim.





We
      have
      purchased automobile insurance with third party liability coverage for our
      vehicles. In addition, we have purchased property insurance from China United
      Property Insurance Company to cover real property and plant. Except for property
      and automobile insurance, we do not have other insurance such as business
      liability or disruption insurance coverage for our operations in the PRC. In
      the
      event of a significant product liability claim or other uninsured event, our
      financial results and the price of our common stock may be adversely affected.
      Likewise, we maintain casualty insurance for our plant and equipment in
      Fayetteville and Telford; however, we cannot assure you that the coverage would
      be sufficient to replace our equipment in the event of a catastrophe.





***We
      do not maintain a reserve fund for warranty or defective products claims. Our
      costs could substantially increase if we experience a significant number of
      warranty claims.***





Our
      product warranties against technical defects of our copper-clad products wires
      vary, depending on our purchase orders with customers. The warranties require
      us
      to replace defective components and pay for the losses customers incur from
      defective products or a certain percentage of the purchase price as liquidated
      damages for our failure to meet the specified product specifications and
      packaging requirements in the purchase orders. We have not established any
      reserve funds for potential warranty claims since historically we have
      experienced few warranty claims for our products so that the costs associated
      with our warranty claims have been low. If we experience an increase in warranty
      claims or if our repair and replacement costs associated with warranty claims
      increase significantly, it would have a material adverse effect on our financial
      condition and results of operations.





14




***We
      could suffer significant business interruptions.***





Our
      operations and those of our suppliers may be vulnerable to interruption by
      natural disasters such as the snow storm recently experienced in certain parts
      of China, or other disasters such as fires, explosions, acts of terrorism or
      war, or failures of our management information or other systems. If a business
      interruption occurs, our business could be materially and adversely
      affected.





**RISKS
      RELATED TO DOING BUSINESS IN THE PRC**





***Changes
      in the policies of the PRC government could have a significant impact upon
      the
      business we may be able to conduct in the PRC and the profitability of that
      business.***





The
      PRC's
      economy is in a transition from a planned economy to a market oriented economy
      subject to five-year and annual plans adopted by the government that set
      national economic development goals. Policies of the PRC government can have
      significant effects on the economic conditions of the PRC. The PRC government
      has confirmed that economic development will follow the model of a market
      economy, such as the United States. Under this direction, we believe that the
      PRC will continue to strengthen its economic and trading relationships with
      foreign countries and business development in the PRC will follow market forces.
      While we believe that this trend will continue, we cannot assure you that this
      will be the case. Our interests may be adversely affected by changes in policies
      by the PRC government, including:




**-**
            changes
                in laws, regulations or their interpretation


**-**
            confiscatory
                taxation


**-**
            restrictions
                on currency conversion, imports or sources of supplies


**-**
            expropriation
                or nationalization of private enterprises.




Although
      the PRC government has been pursuing economic reform policies for more than
      two
      decades, we cannot assure you that the government will continue to pursue such
      policies or that such policies may not be significantly altered, especially
      in
      the event of a change in leadership, social or political disruption, or other
      circumstances affecting the PRC's political, economic and social
      life.




The
      PRC
      laws and regulations governing our current business operations are sometimes
      vague and uncertain. Any changes in such PRC laws and regulations may have
      a
      material and adverse effect on our business.





There
      are
      substantial uncertainties regarding the interpretation and application of PRC
      laws and regulations, including but not limited to the laws and regulations
      governing our business, or the enforcement and performance of our arrangements
      with customers in the event of the imposition of statutory liens, death,
      bankruptcy and criminal proceedings. We and any future subsidiaries are
      considered foreign persons or foreign funded enterprises under PRC laws, and
      as
      a result, we are required to comply with PRC laws and regulations. These laws
      and regulations are sometimes vague and may be subject to future changes, and
      their official interpretation and enforcement may involve substantial
      uncertainty. The effectiveness of newly enacted laws, regulations or amendments
      may be delayed, resulting in detrimental reliance by foreign investors. New
      laws
      and regulations that affect existing and proposed future businesses may also
      be
      applied retroactively. We cannot predict what effect the interpretation of
      existing or new PRC laws or regulations may have on our businesses.





***A
      slowdown or other adverse developments in the PRC economy may materially and
      adversely affect our customers, demand for our services and our
      business.***





A
      majority of our operations are conducted in the PRC and more than 92.1% of
      our
      net sales for 2007 were generated from sales in the PRC. (Had Copperweld’s
      operations for the full year been combined with Fushi, the percentage of sales
      in the PRC would have approximated 63 %) Although the PRC economy has grown
      significantly in recent years, we cannot assure you that such growth will
      continue. The bimetallic wire industry in the PRC is growing, but we do not know
      how sensitive we are to a slowdown in economic growth or other adverse changes
      in the PRC economy which may affect demand for our products. With the addition
      of Copperweld we are now exposed to global economic conditions. In the future,
      a
      slowdown in overall economic growth, an economic downturn or recession or other
      adverse economic developments globally or in a large segment of the world can
      have adverse economic developments and may materially and adversely affect
      our
      business.





***Inflation
      in the PRC could negatively affect our profitability and
      growth.***





While
      the
      PRC economy has experienced rapid growth, such growth has been uneven among
      various sectors of the economy and in different geographical areas of the
      country. Rapid economic growth can lead to growth in the money supply and rising
      inflation. If prices for our products rise at a rate that is insufficient to
      compensate for the rise in the costs of supplies, it may have an adverse effect
      on profitability. In order to control inflation in the past, the PRC government
      has imposed controls on bank credits, limits on loans for fixed assets and
      restrictions on state bank lending. The implementation of such policies may
      impede economic growth.





***Fushi
      International (Dalian) and Dalian Fushi are subject to restrictions on paying
      dividends and making other payments to us.***





We
      are a
      holding company incorporated in the State of Nevada and do not have any assets
      or conduct any business operations other than investments in our subsidiaries
      and affiliates, Copperweld Bimetallics, LLC, Fushi International (Dalian) and
      Dalian Fushi. As a result of this holding company structure, we rely on
      dividends payments from our subsidiaries for funds. PRC regulations, which
      apply
      to Fushi International (Dalian) and Dalian Fushi, currently permit payment
      of
      dividends only out of accumulated profits, as determined in accordance with
      PRC
      accounting standards and regulations. Fushi International (Dalian) and Dalian
      Fushi also are required to set aside a portion of their after-tax profits
      according to PRC accounting standards and regulations to fund certain reserve
      funds. The PRC government also imposes controls on the conversion of RMB into
      foreign currencies and the remittance of currencies out of the PRC. We may
      experience difficulties in completing the administrative procedures necessary
      to
      obtain and remit foreign currency. Furthermore, if Fushi International (Dalian)
      or Dalian Fushi incurs debt on its own in the future, the instruments governing
      the debt may restrict its ability to pay dividends or make other payments.
      If we
      or Fushi International (Dalian) are unable to receive all of the revenues from
      operations or if Copperweld is unable to pay dividends to the parent, we may
      be
      unable to pay dividends on our common stock. See also "Risk Factors--Risks
      Related to an Investment in Our Common Stock -- We are unlikely to pay cash
      dividends in the foreseeable future."





15




***Governmental
      control of currency conversion may affect the value of your
      investment.***





The
      PRC
      government imposes controls on the convertibility of Renminbi into foreign
      currencies and, in certain cases, the remittance of currency out of the PRC.
      Fushi International (Dalian) receives substantially all of its revenues in
      Renminbi, which is currently not a freely convertible currency. Shortages in
      the
      availability of foreign currency may restrict our ability to remit sufficient
      foreign currency to pay dividends, or otherwise satisfy foreign currency
      dominated obligations, to the extent they are incurred in the future. Under
      existing PRC foreign exchange regulations, payments of current account items,
      including profit distributions, interest payments and expenditures from the
      transaction, can be made in foreign currencies without prior approval from
      the
      PRC State Administration of Foreign Exchange by complying with certain
      procedural requirements. However, approval from appropriate governmental
      authorities is required where Renminbi is to be converted into foreign currency
      and remitted out of PRC to pay capital expenses such as the repayment of bank
      loans denominated in foreign currencies.





The
      PRC
      government also may at its discretion restrict access in the future to foreign
      currencies for current account transactions. If the foreign exchange control
      system prevents us from obtaining foreign currency, we may be unable to pay
      dividends or meet obligations that may be incurred in the future that require
      payment in foreign currency. See "Risk Factors--Risks Related to an Investment
      in Our Common Stock--We are unlikely to pay cash dividends in the foreseeable
      future."




***The
      fluctuation of the Renminbi may materially and adversely affect your
      investment.***





The
      value
      of the Renminbi against the U.S. dollar and other currencies may fluctuate
      and
      is affected by, among other things, changes in the PRC's political and economic
      conditions. Since a significant portion of our revenues are earned in the PRC,
      any significant revaluation of the Renminbi may materially and adversely affect
      our cash flows, revenues and financial condition. For example, to the extent
      that we need to convert U.S. dollars we receive from an offering of our
      securities into Renminbi for our operations, appreciation of the Renminbi
      against the U.S. dollar could have a material adverse effect on our business,
      financial condition and results of operations. Conversely, if we decide to
      convert our Renminbi into U.S. dollars for the purpose of making payments for
      dividends on our common stock or for other business purposes and the U.S. dollar
      appreciates against the Renminbi the U.S. dollar equivalent of the we convert
      would be reduced. In addition, the depreciation of significant U.S. dollar
      denominated assets could result in a charge to our income statement and a
      reduction in the value of these assets.





On
      July
      21, 2005, the PRC government changed its policy of tying the value of the
      Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted
      to
      fluctuate within a narrow and managed band against a basket of certain foreign
      currencies. This change in policy has resulted in a continuous appreciation
      of
      the Renminbi against the U.S. dollar. While the international reaction to the
      Renminbi revaluation generally has been positive, there remains significant
      international pressure on the PRC government to adopt an even more flexible
      currency policy, which could result in a further and more significant
      appreciation of the Renminbi against the U.S. dollar.





The
      following table sets forth information concerning exchange rates between the
      RMB
      and the U.S. dollar for the periods indicated. These rates are provided solely
      for your convenience and are not necessarily the exchange rates that we used
      in
      this presentation or will use in the preparation of our periodic reports or
      any
      other information to be provided to you. The source of these rates is the
      Federal Reserve Bank of New York.





Noon
                Buying RatePeriod
            
            Period
                End
            
            Average(1)
            
            Low
            
            High(RMB per US$1.00)2002
            
            
            8.2800
            
            
            8.2772
            
            
            8.2800
            
            
            8.27002003
            
            
            8.2767
            
            
            8.2771
            
            
            8.2800
            
            
            8.27652004
            
            
            8.2765
            
            
            8.2768
            
            
            8.2774
            
            
            8.27642005
            
            
            8.0702
            
            
            8.1826
            
            
            8.2765
            
            
            8.07022006
            
            
            7.8041
            
            
            7.9636
            
            
            8.0702
            
            
            7.80412007
            
            
            7.2946
            
            
            7.5806
            
            
            7.8127
            
            
            7.2946





(1)
            Annual
                averages are calculated from month-end rates. Monthly averages are
                calculated using the average of the daily rates during the relevant
                period.




(2)
            Unless
                otherwise noted, all translations from RMB to U.S. dollars and from
                U.S.
                dollars to RMB in this report were made in the statement of operations
                at
                7.2947 to $1, balance sheet at 7.2939 to $1 and equity section at
                historical rates.




16




***If
      preferential tax concessions granted by the PRC government are changed or
      expire, our financial results and results of operations would be materially
      and
      adversely affected.***





Our
      results of operation may be adversely affected by changes to, or expiration
      of,
      preferential tax concessions that our subsidiaries in the PRC currently enjoy.
      The statutory tax rate generally applicable to domestic PRC companies is 33%,
      including 30% state income tax and 3% local income tax. Our subsidiaries, Fushi
      International (Dalian) as a Wholly Foreign Owned Enterprise, or WFOE, and Dalian
      Fushi as a “new or high-technology enterprise” located in Economic Development
      Zone of the Dalian City, have been subject to tax exemptions or relatively
      low
      tax rates. The estimated tax savings for the year ended December 31, 2007
      without preferential tax treatment amounted to approximately $12.8
      million.





As
      the
      newly adopted PRC corporate income tax law comes into effect, preferential
      tax
      benefits currently granted to WFOE’s are to be phased out and we would be
      subject to the same tax treatment as a domestic Chinese company, applying a
      uniform 25% tax rate to company profits. The loss of these preferential tax
      treatments that are currently available to us will have a material and adverse
      effect on our financial condition and results of operations and could adversely
      impact the price of our common stock.




In
      addition, tax laws in China are subject to interpretation by local tax
      authorities. Our preferential tax treatment may not remain in effect, or may
      change, in which case we may be required to pay the higher income tax rate
      generally applicable to Chinese companies, or such other rate as is required
      by
      the laws of China.





***The
      PRC State Administration of Foreign Exchange, or SAFE, requires PRC residents
      to
      register with, or obtain approval from, SAFE regarding their direct or indirect
      offshore investment activities.***





PRC
      State
      Administration of Foreign Exchange Regulations regarding offshore financing
      activities by PRC residents have undertaken continuous changes which may
      increase the administrative burden we face and create regulatory uncertainties
      that could adversely affect the implementation of our acquisition strategy,
      and
      a failure by our shareholders who are PRC residents to make any required
      applications and filings pursuant to such regulations may prevent us from being
      able to distribute profits and could expose us and our PRC resident shareholders
      to liability under PRC law.




***Any
      recurrence of severe acute respiratory syndrome, or SARS, or another widespread
      public health problem, could adversely affect our
      operations.***





A
      renewed
      outbreak of SARS or another widespread public health problem in the PRC, where
      a
      substantial portion of our revenue is derived, could have an adverse effect
      on
      our operations. Our operations may be impacted by a number of health-related
      factors, including quarantines or closures of some of our offices that could
      leave us without many employees to conduct our business which would materially
      and adversely affect our operations and financial condition.





***We
      may have difficulty establishing adequate management, legal and financial
      controls in the PRC.***





PRC
      companies have historically not adopted a Western style of management and
      financial reporting concepts and practices, which includes strong corporate
      governance, internal controls and, computer, financial and other control
      systems. In addition, we may have difficulty in hiring and retaining a
      sufficient number of qualified employees to work in the PRC. As a result of
      these factors, we may experience difficulty in establishing management, legal
      and financial controls, collecting financial data and preparing financial
      statements, books of account and corporate records and instituting business
      practices that meet Western standards. Therefore, we may, in turn, experience
      difficulties in implementing and maintaining adequate internal controls as
      required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result
      in
      significant deficiencies or material weaknesses in our internal controls which
      could impact the reliability of our financial statements and prevent us from
      complying with SEC rules and regulations and the requirements of the
      Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of
      compliance could have a materially adverse effect on our business.





**RISKS
      RELATED TO AN INVESTMENT IN OUR COMMON STOCK.**





***Our
      existing shareholders have substantial influence over our company and their
      interests may not be aligned with the interests of our other
      shareholders.*** **





Mr.
      Li
      Fu, our founder, chief executive officer and chairman of our board of directors,
      beneficially owns 41.6% of our outstanding share capital as of March 14, 2008.
      As such, Mr. Fu has substantial influence over our business, including decisions
      regarding mergers, consolidations and the sale of all or substantially all
      of
      our assets, election of directors and other significant corporate actions.
      This
      concentration of ownership may discourage, delay or prevent a change in control
      of our company, which could deprive our shareholders of an opportunity to
      receive a premium for their shares as part of a sale of our company and might
      reduce the price of our stock. These actions may be taken even if they are
      opposed by our other shareholders.




17


***We
      are unlikely to pay cash dividends in the foreseeable
      future.***





We
      currently intend to retain any future earnings for use in the operation and
      expansion of our business. We do not expect to pay cash dividends in the
      foreseeable future but will review this policy as circumstances dictate. Should
      we decide in the future to do so, as a holding company, our ability to pay
      dividends and meet other obligations depends upon the receipt of dividends
      or
      other payments from our operating subsidiaries. In addition, our operating
      subsidiaries, particularly those in the PRC, from time to time, may be subject
      to restrictions on its ability to make distributions to us, including as a
      result of restrictions on the conversion of local currency into U.S. dollars
      or
      other hard currency and other regulatory restrictions. See, "Risk Factors-Risks
      Related to Doing Business in the PRC— Fushi International (Dalian) and Dalian
      Fushi are subject to restrictions on paying dividends and making other payments
      to us", Risk Factors-Risks Related to Doing Business in the PRC— Governmental
      control of currency conversion may affect the value of your investment" and
      "Market for Our Common Stock— Dividends."





***Due
      to limited liquidity, our stock is subject to price volatility unrelated to
      our
      operations.***





The
      market price of our common stock could fluctuate substantially due to a variety
      of factors, including market perception of our ability to achieve our planned
      growth, quarterly operating results of other companies in the same industry,
      trading volume in our common stock, changes in general conditions in the economy
      and the financial markets or other developments affecting our competitors or
      us.
      In addition, the stock market may be subject to extreme price and volume
      fluctuations. This volatility has had a significant effect on the market price
      of securities issued by many companies for reasons unrelated to their operating
      performance and could have the same effect on our common stock.





**RISKS
      RELATED TO OUR HIGH YIELD AND CONVERTIBLE NOTES**





***Covenants
      in our debt instruments restrict or prohibit our ability to engage in or enter
      into a variety of transactions.***





On
      January 25, 2007, we entered a Notes Purchase Agreement with Citadel Equity
      Fund, LLC, as well as Indentures, a Share Pledge Agreement and an Investor
      Rights Agreement. The Notes Purchase Agreement relates to the purchase and
      sale
      of $40 million Guaranteed Senior Secured Floating Rate Notes Due 2012 and $20
      million of 3% Guaranteed Senior Secured Convertible Notes Due 2012 (collectively
      “Notes”).





The
      indentures governing our Notes contain various covenants that may limit our
      discretion in operating our business. In particular, we are limited in our
      ability to merge, consolidate or transfer substantially all of our assets,
      issue
      stock of subsidiaries, incur additional debts and create liens on our assets
      to
      secure debt. In addition, if there is default, and we do not maintain certain
      financial covenants or we do not maintain borrowing availability in excess
      of
      certain pre-determined levels, we may be unable to incur additional
      indebtedness, make restricted payments (including paying cash dividends on
      our
      capital stock) or redeem or repurchase our capital stock. If we can not satisfy
      the required business targets of the indentures, we also have the possibility
      to
      default.





The
      indentures governing our Notes require us to maintain certain financial ratios
      and limit our ability to make capital expenditures. These covenants and ratios
      could have an adverse effect on our business by limiting our ability to take
      advantage of financing, merger and acquisition or other corporate opportunities
      and to fund our operations. Any future debt could also contain financial and
      other covenants more restrictive than those imposed under the indenture
      governing our Notes.





The
      Notes
      and their corresponding debt could have significant consequences to investors.
      For example, they could: ****


-
            reduce
                the availability of our cash flow to fund future working capital,
                capital
                expenditures, acquisitions and other general corporate purposes;




-
            limit
                our ability to obtain additional financing for working capital, capital
                expenditures, and other general corporate requirements;




-
            expose
                us to interest rate fluctuations because the interest rate is variable;




-
            increase
                our vulnerability to general adverse economic and industry conditions;




-
            require
                us to sell assets to reduce indebtedness or influence our decisions
                about
                whether to do so;




-
            restrict
                us from making strategic acquisitions or pursuing business opportunities;




-
            limit
                our flexibility in planning for, or reacting to, changes in our business
                and the industry in which we operate;




-
            limit,
                along with the financial and other restrictive covenants in our
                indebtedness, among other things, our ability to borrow additional
                funds;
                and




-
            place
                us at a competitive disadvantage compared to competitors that may
                have
                proportionately less debt.




In
      addition, our ability to make scheduled payments or refinance our obligations
      depends on our successful financial and operating performance, cash flows,
      and
      capital resources, which in turn depend upon prevailing economic conditions
      and
      certain financial, business, and other factors, many of which are beyond our
      control. If our cash flows and capital resources are insufficient to fund our
      debt obligations, we may be forced to reduce or deplete our working capital,
      reduce or delay capital expenditures, sell material assets or operations, obtain
      additional capital, restructure our debt, or declare bankruptcy. In the event
      that we are required to dispose of material assets or operations to meet our
      debt service and other obligations, the value realized on such assets or
      operations will depend on market conditions and the availability of buyers.
      Accordingly, we may be forced to sell at an unfavorable price.





***We
      have pledged the shares of our subsidiaries as security for the Notes and upon
      a
      default, we could lose those securities and therefore, our
      business.***





Pursuant
      to our Share Pledge Agreement, we have pledged the shares of our wholly owned
      subsidiary, Fushi Holdings, and its shares of Fushi International (Dalian)
      as
      security for our obligations under the Notes. In the event of a default, we
      could lose the shares of our subsidiaries and therefore, a major portion of
      our
      business, to the holders of the Notes which would materially and adversely
      affect the price of our common stock.





18




***The
      issuance of shares upon conversion of the Convertible Notes may result in
      substantial dilution and may depress the market price of our common stock.***





As
      of
      March 14, 2008, we had 27,454,161 shares of common stock issued and outstanding,
      including 2,142,857 shares converted from the $15 million out of the $20 million
      Convertible Notes held by Citadel. The balance $5 million Convertible Notes
      are
      convertible into 714,286 additional shares should Citadel elect to convert
      in
      the future. Due to the conversion or the likelihood of conversion, our ordinary
      shareholders may experience substantial dilution and the market price of our
      shares of common stock could decline. Further, the perception that such
      convertible securities have been converted could adversely affect the market
      price of our shares of common stock. In addition, during the time that the
      foregoing Convertible Notes are outstanding, they may adversely affect the
      terms
      on which we could obtain additional capital.





***Future
      sales by us or our existing shareholders could depress the market price of
      our
      common shares.***





If
      we or
      our existing shareholders sell a large number of shares of our common stock,
      or
      if we sell additional securities that are convertible into common stock, the
      market price of our common stock could decline significantly. Further, even
      the
      perception in the public market that we or our existing shareholders might
      sell
      shares of common stock could depress the market price of our ordinary
      stock.




**ITEM
                1B**
              **UNRESOLVED
                  STAFF
                  COMMENTS**




None.




**ITEM 2.**
              ****PROPERTIES****




Under
      PRC
      law, all land in the PRC is owned by the government, which grants a "land use
      right" to an individual or entity after a purchase price for such "land use
      right" is paid to the government. The "land use right" allows the holder the
      right to use the land for a specified long-term periods of time and enjoys
      all
      the ownership incidents to the land. Dalian Fushi holds land use rights for
      one
      piece of land that was used in its business and Fushi International (Dalian)'s
      business. In addition, we have the right to use another smaller piece of land
      that is registered under the name of a formerly affiliated company (the “Dongyi
      Property”). Set forth below is the detailed information regarding these two
      pieces of land:




Registered
              Owner of land
              use right
            
            Location &
              Certificate of
              Land Use Right
              Number
            
            Usage
            
            Square Meters
            
            Construction on
              the Land
            
            Term of Use RightDalian
                Fushi
            
            1
                Shuang Qiang
            
            Industrial
            
            103,605
                Sq. M;
            
            Dalian
                Fushi's
            
            50
                years fromRoad,
                Yang Jia
            
            Use
            
            
            
            new
                facilities
            
            July,
                2003Village,
                JinzhouDistrict,
                Dalian,PRC;
                #0625014Dongyi
            
            8
                Hai La'er Road,
            
            Industrial
            
            3,569
                Sq. M;
            
            Dalian
                Fushi's
            
            40
                years fromDalian
            
            Use
            
            
            
            old
                facilities
            
            March
                4, 1989Development
                Zone;PRC;#0626006Wafargdian,
                Dalian
            
            Industrial
            
            
            
            
            
            50
                yearsCopperweld
                Bimetallics LLC
            
            254
                Cotton Mill Rd., Fayetteville, TN
            
            Industrial
            
            52
                Ares or
              210,437
            
            Industrial
                Building of 285,000 Sq.ft. or 26,477 Sq. M.
            
            1975
                with Construction in 1975, 1990, 1995,
                1998




We
      acquired the Dongyi Property in connection with the acquisition of Dongyi in
      2001. Dongyi was dissolved after the acquisition. Because of the transfer fees
      that would be incurred as a result of change of registered owner, and because
      this land is no longer being used in the business, we have not, and we do not
      intend to change the registered owner of this land. Currently, we lease the
      facilities located on the Dongyi Property to a third party.




The
      land
      registered under our name, as well as the buildings and improvements on the
      land, secures our bank loans from Bank of China and Industrial and Commercial
      Bank. W e
      acquired rights to the Wafergdian property during the fourth quarter of 2007
      in
      order to have access to electrical power required to operate larger machines.
      The property is currently used for retail trade but such use will cease if
      we
      develop the property. Management has not determined when construction will
      begin
      on this property.




Copperweld
      Bimetallics, LLC’s predecessor company acquired the Fayetteville Tennessee
      property in 1975 though a Payment In Lieu of Taxes (PILOT) program commonly
      offered in Tennessee by local industrial community development programs
      established to encourage industry development. Copperweld owns the property
      but
      the Industrial Development Board holds a lease on the property to secure qualify
      the “In Lieu of Taxes”. There is no financing lien on the property. The net
      affect of the lease is to provide Copperweld with a reduction in local city
      and
      county property taxes to a rate of 50% of the normal rate.





We
      believe these facilities are in good condition.





For
      information concerning the costs associated with land use rights, see note
      9 to
      Dalian Fushi's audited financial statements for the years ended December 31,
      2005 and 2006.




19




**ITEM
                3.**
              ****LEGAL
                  PROCEEDINGS****




From
      time
      to time, we may become involved in various lawsuits and legal proceedings which
      arise in the ordinary course of business. Litigation is subject to inherent
      uncertainties, and an adverse result in these or other matters may arise from
      time to time that may harm our business. In
      addition to the litigations described below, we have also commenced a number
      of
      legal actions against companies which we believe are infringing on our patents,
      as described above.




On
      December 11, 2006 we received service of a complaint filed by Kuhns Brothers,
      Inc., Kuhns Brothers Securities Corp., and Kuhns Brothers & Co., Inc.
      (collectively the “Kuhns Brothers”) in the United States District Court,
      District of Connecticut on November 27, 2006. Since that time, Kuhns
      Brothers have revised their complaint three times, and are currently seeking
      damages in excess of $7.0 million, primarily stemming from an alleged breach
      of
      an engagement letter agreement, dated May 27, 2005, by and between Kuhns
      Brothers, Inc. and Dalian Fushi Bimetallic Manufacturing Company Ltd., which
      was
      terminated in September 2006. The Kuhns Brothers’ claims are without merit and
      we intend to vigorously defend the action, and a trial has been scheduled for
      April 3, 2008. Except as described above, we are not currently involved in
      any material litigation.





We
      believe that the outcome of the matter above will have no material effect on
      our
      financial condition or results of operations. Except as described above, we
      are
      not currently involved in any material litigation.





September
      19, 2006, the Company was named a defendant in a pending litigation that was
      filed at the China International Economic and Trade Arbitration Commission
      over
      a disputed investment consulting agreement. The damage claimed was $420,000
      for
      past due commission. The Company claimed that the plaintiff did not render
      services as stipulated in the agreement. In 2007, the Company resolved the
      litigation with a one time payment of $200,000 as final settlement to the
      arbitration, which was expensed in 2007.




**ITEM
                4.**
              ****SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS****




There
      were no stockholders meetings in the fourth quarter of this fiscal year. On
      October 24, 2007, the holder of 53.5% of the issued and outstanding common
      stock
      of the Company’s approved the adoption of the Fushi International, Inc. 2007
      Stock Incentive Plan.





**PART
      II**




**ITEM
                5.**
              ****MARKET
                  FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY
                  SECURITIES****




**Market
      Information**





The
      Company's common stock is currently quoted on the NASDAQ Global Market under
      the
      trading symbol "FSIN."




On
      March
      14, 2008, the last reported close price of our common stock was $15.80 per
      share.




As
      of March
      14, 2008,
      there were 27,454,161
      sh ares
      of
      our common stock issued and outstanding on a fully diluted basis, and there
      were
      approximately 726 holders
      of record of our outstanding shares.




The
      closing prices for the fiscal quarters for fiscal years ended on December 31,
      2006 and December 31, 2007 are set forth below(1):




Quarter
                  Ended
              
              High
              
              Low
              
              Closing
                  Price03/31/2006
              
              $
              5.15
              
              $
              5.15
              
              $
              5.1506/30/2006
              
              $
              7.50
              
              $
              7.50
              
              $
              7.5009/29/2006
              
              $
              7.25
              
              $
              7.10
              
              $
              7.2512/29/2006
              
              $
              5.20
              
              $
              4.96
              
              $
              5.1003/30/2007
              
              $
              8.80
              
              $
              8.10
              
              $
              8.2006/29/2007
              
              $
              13.15
              
              $
              12.80
              
              $
              13.1509/28/2007
              
              $
              15.10
              
              $
              13.60
              
              $
              13.9512/31/2007
              
              $
              25.70
              
              $
              24.30
              
              $
              25.17




(1)
      Closing prices prior to 2006 are omitted as we completed as reverse merger
      in
      December, 2005.




**Dividends**





Our
      board
      of directors has not declared a dividend on our common stock during the last
      two
      fiscal years or the subsequent interim period and we do not anticipate the
      payments of dividends in the near future as we intend to reinvest our profits
      to
      grow operations. See "Risk Factors - Risks Related to an Investment in our
      common stock - We are unlikely to pay cash dividends in the foreseeable future."
      We rely entirely on dividends from Fushi International (Dalian) for our funds
      and PRC regulations may limit the amount of funds distributed to us from Fushi
      International (Dalian), which will affect our ability to declare any dividends.
      See "Risk Factors - Risks Related to Doing Business in the PRC - Fushi
      International (Dalian) and Dalian Fushi are subject to restrictions on paying
      dividends and making other payments to us" and "- Governmental control of
      currency conversion may affect the value of your investment."




20




**Equity
      Compensation Plan Information at December 31, 2007**




The
      following table sets forth information as of December 31, 2007 regarding
      compensation plans under which the Company’s equity securities are authorized
      for issuance.




**(a)**
                
                **(b)**
                
                **(c)****Plan Category**
                
                **Number of securities**
                  **to be issued upon**
                  **exercise of**
                  **outstanding equity**
                  **awards**
                
                **Weighted-average**
                  **exercise price of**
                  **outstanding equity**
                  **awards($)**
                
                **Number of securities**
                  **remaining available for**
                  **future issuance under**
                  **equity compensation plans**
                  **(excluding securities**
                  **reflected in column(a))****Equity
                    compensation plans approved by security holders**(1)
                  Fushi
                    International, Inc. 2007 Stock Incentive Plan.
                
                
                335,000
                
                
                18.62
                
                
                465,000
                (2)**Equity
                    compensation plans not approved by security holder**s
                  Issuances
                    of non-qualified options to employees (2)
                
                
                775,000
                
                $
                12.41
                
                
                —Total
                
                
                1,110,000
                
                $
                14.29
                
                
                465,000




1 On
      October 24, 2007, the holder of 53.5% of the issued and outstanding common
      stock
      of the Company’s approved the adoption of the Fushi International, Inc. 2007
      Stock Incentive Plan which will be effective
      upon the filing of a definitive 14C with the Securities and Exchange Commission.
      On October 29, 2007, in connection with Mr. J. Christopher Finley’s employment
      as Chief Operating Officer and Mr. James Todd’s employment as Financial
      Controller, the Board of Directors approved a non-qualified stock option grant
      to Mr. Finley and Mr. Todd in the amounts of 190,000 shares and 135,000 shares
      of common stock of the Company, respectively, for a service period of two years,
      vesting over a two (2) year period with 12.5% of the options vesting each
      quarter for eight (8) quarters. The exercise price of the grants is $18.69.
      On
      November 13, 2007 an option was granted to Nathan J. Anderson, our Director
      of
      Investor Relations of the Company to purchase 10,000 shares of our common stock
      at $16.36 per share, of which 5,000 shares vested upon the date and 2,500 shares
      vest on each of May 13, 2008 and November 13, 2008 and terminate two years
      after
      the date of vesting.





2 On
      May
      21, 2007 options were granted to executives of the Company to purchase 500,000
      shares of our common stock at an exercise price of $12.30 per share vesting
      over
      two years and terminate within two years of the date of vesting. On June 17,
      2007 options were granted to directors of the Company to purchase 150,000 shares
      of our common stock at an exercise price of $12.30 per share vesting over two
      years and terminated two years after the date of vesting. On October 27, 2007
      an
      option was granted to Christopher Wang, our Chief Financial Officer to purchase
      125,000 shares of our common stock at $13.70 per share which vested upon the
      date of the grant and terminate three years after the date of vesting. All
      of
      the options were granted in exchange for services. All options were issued
      with
      an exercise price that equaled or exceeded fair market value on the date of
      the
      grant. The Company relied on an exemption from registration under
      Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). No
      other options were issued during the twelve months ended December 31,
      2007.




**STOCK
      PERFORMANCE GRAPH**









Preceding
      is a graph comparing the cumulative total shareholder return on our Common
      Stock
      to the cumulative total return of the NASDAQ Composite and NASDAQ Industrial
      Indexes. We believe that the NASDAQ Composite and NASDAQ Industrial
      Indexes are appropriate indexes for comparison but it is not necessarily
      reflective of future performance. While many of the companies listed
      on those indexes may be larger in size based on market capitalization,
      the type of business of the small growth companies is comparable to our
      activities. The graph is generated by assuming that $100 was invested on the
      last trading day in the fiscal year ended December 31, 2005 in each of our
      Common Stock, the and the NASDAQ Composite and NASDAQ Industrial Indexes (all
      assume no dividends).





This
      performance graph shall not be deemed to be “soliciting material” or to be
“filed” with the SEC, or subject to Regulation 14A or 14C, other than as
      provided in Item 201 of Regulation S-K, or subject to the liability of Section
      18 of the Exchange Act, nor shall it be deemed incorporated by reference in
      any
      of our filings under the Securities Act or Exchange Act, except to the extent
      that we specifically request incorporation by reference thereof.





Information
      used on the graphs was obtained from Research Data Group, Inc, a source believed
      to be reliable, but we are not responsible for any errors or omissions in such
      information.





21




**Recent
      Sales of Unregistered Securities.**





During
      the fiscal year ended December 31, 2007, a total of 2,103,892 warrants were
      exercised, with 2,056,015 exercised at $3.67 per share and 47,877 at $3.11
      per
      share. The shares of common stock issued upon exercise were issued in reliance
      on Section 4(2) under the Securities Act of 1933.





On
      January 24, 2007, we and our subsidiaries, entered into a Note Purchase
      Agreement with Citadel Equity Fund Ltd. providing for the purchase of
      $40,000,000 of our Guaranteed Senior Secured Floating Notes due de 2012 and
      $20,000,000 of our 3% senior Secured Convertible Notes due 2012. The notes
      were
      issued upon reliance on Regulation D and Section 4(2) under the Securities
      Act
      of 1933.





On
      October 26, 2007, the Company entered into a Securities Purchase Agreement
      with
      a number of institutional investors providing for the purchase of an aggregate
      of 2,786,000 of our common stock for an aggregate purchase price of $39,000,000
      ($14.00 per share). The shares of common stock issued upon exercise were issued
      in reliance on Regulation D and Section 4(2) under the Securities Act of
      1933.





**Issuer
      Purchases of Equity Securities.**





None.




**ITEM
                6.**
              ****SELECTED
                  FINANCIAL
                  DATA****


The
      following table sets forth our selected consolidated financial data for the
      years ended December 31, 2007, 2006, 2005, 2004 and 2003. You should read
      the following table in conjunction with the consolidated financials statements
      and related notes contained elsewhere in the report on Form 10-K. Operating
      results for any year are not necessarily indicative of results for any future
      periods.


**Years
                  Ended December 31,****2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003****($
                  in thousands, except per share data)****Consolidated
                  Statements of Operations Data**NET
                  REVENUE
              
              
              128,222
              
              
              67,596
              
              
              33,709
              
              
              15,662
              
              
              11,955COST
                  OF REVENUE
              
              
              85,774
              
              
              42,782
              
              
              21,400
              
              
              8,947
              
              
              7,006GROSS
                  PROFIT
              
              
              42,448
              
              
              24,814
              
              
              12,309
              
              
              6,715
              
              
              4,949OPERATING
                  EXPENSES:Research
                  and development
              
              
              154
              
              
              195
              
              
              65
              
              
              -
              
              
              60Selling,
                  general and administrative
              
              
              12,303
              
              
              4,233
              
              
              2,282
              
              
              1,997
              
              
              1,360Total
                  operating expenses
              
              
              12,457
              
              
              4,428
              
              
              2,347
              
              
              1,997
              
              
              1,420INCOME
                  (LOSS) FROM OPERATIONS
              
              
              29,991
              
              
              20,386
              
              
              9,962
              
              
              4,718
              
              
              3,529INTEREST
                  AND OTHER INCOME (EXPENSE):Interest
                  and investment income
              
              
              3,553
              
              
              397
              
              
              288
              
              
              133
              
              
              5Interest
                  and other expense
              
              
              6,891
              
              
              2,575
              
              
              1,049
              
              
              379
              
              
              53(Total
                  interest and other income (expense), net
              
              
              (3,338
              )
              
              (2,178
              )
              
              (761
              )
              
              (246
              )
              
              (48
              )INCOME
                  (LOSS) BEFORE INCOME TAXES
              
              
              26,653
              
              
              18,208
              
              
              9,201
              
              
              4,472
              
              
              3,481(BENEFIT)
                  PROVISION FOR INCOME TAXES
              
              
              (2,852
              )
              
              398
              
              
              1,402
              
              
              (667
              )
              
              -NET
                  INCOME (LOSS)
              
              $
              29,505
              
              
              17,810
              
              
              7,799
              
              
              3,805
              
              
              3,481NET
                  INCOME (LOSS) PER SHARE:Basic
              
              $
              1.33
              
              
              0.89
              
              
              2,015.76
              
              
              -
              
              
              -Diluted
              
              $
              1.19
              
              
              0.84
              
              
              0.5
              
              
              0.25
              
              
              0.18WEIGHTED
                  AVERAGE SHARES USED IN NET INCOME (LOSS) PER SHARE
                  CALCULATION:Basic
              
              
              22,179
              
              
              19,933
              
              
              3,869
              
              
              -
              
              
              -Diluted
              
              
              25,244
              
              
              21,276
              
              
              15,689
              
              
              15,476
              
              
              19,244
  **Years
                  Ended December 31,****2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003****($
                  in thousands, except per share data)**
 **Consolidated
                  Balance Sheet Data**Cash
                  and cash equivalents
              
              
              79,915
              
              
              20,494
              
              
              6,164
              
              
              2,612
              
              
              260Plant,
                  property and equipment, net
              
              
              87,229
              
              
              47,256
              
              
              38,642
              
              
              33,467
              
              
              22,367Long
                  term debt
              
              
              60,000
              
              
              10,256
              
              
              9,676
              
              
              9,676
              
              
              9,676Working
                  capital
              
              
              93,861
              
              
              18,055
              
              
              10,077
              
              
              (2,729
              )
              
              4,343Total
                  assets
              
              
              246,469
              
              
              96,162
              
              
              71,137
              
              
              48,834
              
              
              36,337Total
                  stockholders’ equity
              
              
              144,288
              
              
              65,134
              
              
              44,465
              
              
              26,292
              
              
              22,887




*information
      presented includes combination of business and net assets with Copperweld
      Bimetallics, LLC.




**ITEM
              7.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION**





*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with our audited consolidated financial statements and
      the notes to those financial statements appearing elsewhere in this Form 10-K.
      This discussion contains forward-looking statements that involve significant
      risks and uncertainties. As a result of many factors, such as those set forth
      under “Forward Looking Statements” and “Item 1A. Risk Factors” and elsewhere in
      this Form 10-K, our actual results may differ materially from those anticipated
      in these forward-looking statements.*





**Overview**




Since
      our
      founding in 2002, we have grown to be the leading manufacturer of bimetallic
      products in the world. Today, we serve approximately 300 customers in 30
      countries from our facilities in Dalian, Fayetteville and Telford. Historically,
      our principal product has been Copper-Clad Aluminum, or CCA, which combines
      the
      conductivity and corrosion resistance of copper with the light weight and
      relatively low cost of aluminum. On October 29, of 2007, we completed the
      acquisition of Copperweld Bimetallics, LLC (Copperweld) with manufacturing
      operations in Fayetteville, Tennessee USA and Telford, England. Having a long
      history as the international leader in the worldwide market, particularly
      outside of the PRC, Copperweld sold to 193 customers in 30 countries on five
      continents during 2007. The Fayetteville facility produces both CCA and
      Copper-Clad Steel, or CCS which combines the conductivity of copper with the
      strength of steel. Now, we not only produce both CCA and CCS, Fushi Copperweld
      has a worldwide presence that combines Fushi’s recognition in China with the
      worldwide recognition of the Copperweld brand. As a result, we are now the
      leading producer of bimetallic wire products in the world.




22




Normally
      using 70% less copper than conventional copper wire, but offering materially
      the
      same utility and functionality, our CCA products provide a superior value
      compared to solid copper wire in a wide variety of applications such as,
      distribution lines for telecommunication networks, cables for the wireless
      industry, automotive and consumer products, video and data applications,
      electrical power cables, wire components for electronic devices, building wire,
      as well as other industrial wires. CCS combines the functionality of copper
      with
      the strength of steel to provide a higher value, stronger alternative to solid
      copper for use in coaxial drop cable for cable television, utility applications
      including ground cables and tracer wire, automotive wiring harness and other
      applications requiring specific levels of conductivity and higher levels of
      tensile strength. Copperweld CCS is synonymous with copper-clad steel and is
      registered as Copperweld®. Traditionally the telecom industry has been the
      primary user of bimetallic products for the combined companies; however, the
      utility, automotive and consumer goods are market sectors providing strong
      demand for copper-clad products. Both CCA and CCS products are available in
      a
      large variety of sizes, conductivities and strengths for the different
      applications of customer inquiries. CCA and Copperweld® deliver outstanding
      reliability, performance and value compared to solid copper.




The
      high
      price of copper over recent years has shifted demand to higher value products
      such as CCA and CCS. The volatility of copper is the primary cause of cost
      variations in our products. Although an increase in the price of copper may
      serve to reduce our gross margins as a percentage of net sales and a decline
      in
      copper prices will increase our gross margin as a percentage of net sales,
      changes in raw material costs do not materially affect our earnings per share.
      Because as is typical in the industry, we pass the dollar amount of changes
      to
      our customers rather than the percentage changes in our raw material costs;
      therefore, the impact on earnings per share from volatile raw material prices
      is
      minimal.





The
      price
      of copper impacts our operations in two significant ways.





First,
      copper is one of the principal raw materials used in manufacturing our product.
      Beginning in mid-2005, copper prices began trending upward. The upward trend
      continued during the first quarter of 2006 until a slight downturn during
      November and December. The trend for 2007 was similar to the previous year
      although the average Comex price was $7,103 per metric ton compared to $6,811
      during 2006. When the prices of raw materials increase, we pass those increases
      through to our customers. Conversely, when raw material prices decline, we
      pass
      those declines through to our customers as well. The practice of passing changes
      in raw material costs to our customers is not a perfect hedge against
      fluctuating prices, but it allows us to protect our net margin as measured
      by
      net income or by earnings per share since our sales prices are determined at
      the
      time the sales order is received. In Dalian we regularly make advance payments
      to our suppliers to lock in copper supplies with the side benefit of locking
      in
      prices when copper prices are increasing. At December 31, 2007, we had
      outstanding advances to raw material suppliers of $2.3 million. In Fayetteville,
      some suppliers of copper cathode require us to pay for the shipments at the
      cathode stage even though the copper must be further processed which locks
      in
      the cost of our future supply. In neither location are we attempting to forecast
      the cost of copper or other raw materials, nor are we attempting to hedge the
      changing costs of raw materials.




The
      second way that the price of copper influences our operations is that our
      product is used as a viable substitute for copper. Historically, when there
      is a
      large differential between the price of copper and aluminum, demand for our
      product increases. When the differential narrows, demand for our product may
      moderate. However, cost is not the only factor affecting the demand for our
      copper-clad products. Our expanding markets such as automotive and utility
      have
      factors driving their demand for bimetallic products other than cost. Our
      products advantages over copper including lower weight, greater strength and
      lower susceptibility to theft, among other factors. So, while price is a factor,
      price alone does not drive our business.











The
      preceding chart reflects the trend in copper based on average monthly Comex
      prices. Copper prices began trending upward during the third quarter of 2005
      and
      continued rather sharply through the second quarter of 2006. The average Comex
      copper prices declined during the fourth quarter of 2006 but remained above
      2005
      highs. Prices for 2007 followed the 2006 trend except the average monthly costs
      accelerated more rapidly during the first quarter and did not decline as low
      in
      the fourth quarter. The 2007 average Comex price for copper increased over
      the
      2006 Comex average by approximately $292 per ton and exceeds the 2005 Comex
      average by $3,394 per ton. The average price per ton paid for copper during
      the
      2007 year was $7,893 in Dalian and $8,175 in Fayetteville. As discussed
      previously, we do not attempt to hedge the costs of copper, but rather pass
      the
      changes in the price through to our customers.





The
      two
      other major components in our products are aluminum and steel. Aluminum has
      increased over 2005 levels by approximately $628 per ton but compared to copper
      has been stable. The following chart, based on Comex average monthly prices,
      shows an increase during the last quarter of 2006 which continued through April
      of 2007 when average aluminum prices began to decline ending 2007 close to
      2005
      levels. Based on monthly averages, the average price for aluminum declined
      by
      about $7 per ton during 2007. During the 2007 year, the average cost for
      aluminum paid by the Dalian facility was $2,285 per ton and by Fayetteville
      was
      $3,391 per ton. As with copper, we do not attempt to predict future prices
      for
      aluminum, but rather cover our risk by passing changes in the costs of aluminum
      to our customers.




23









The
      cost
      of steel varies by the type steel that is used for the various applications.
      The
      average cost of steel used by the Fayetteville facility over the past three
      years shows two factors compared to copper and to a lesser extent, to aluminum.
      First, the average cost of steel was less than one-half the cost of aluminum
      and
      was between one-eighth and one-fifth the cost of copper, during 2007. The
      average price paid by Fayetteville for steel increased $73 per ton between
      2005
      and 2007 with $26 of the increase occurring between 2006 and 2007. Consequently,
      changes in the price of steel have not been a major factor affecting the cost
      of
      our products to our customers. Our Dalian facility has not been a large consumer
      of steel because we have primarily produced CCA. We expect to begin production
      of CCS in Dalian during late 2008.




Fushi Copperweld





*2008
      Outlook*





With
      respect to the overall business trend in 2008 and forward, we anticipate sales
      growth to continue to be aggressive and broadly based, principally due to
      consolidating our marketing and sales operations, the continuing demand for
      our
      products in the PRC and the influence of the Copperweld name throughout the
      world. We have the resources, technology, working capital and capacity to meet
      growing market demands. We are now strategically located so that we can serve
      the world’s demand for bimetallic products.





**Financial
      Performance Highlights:**





Net
      Sales





**2007**
            
            **2006**
            
            **2005**Net
                Sales (in '000)
            
            $
            128,222
            
            $
            67,596
            
            $
            33,709%
                change year over year
            
            
            89.7
            %
            
            100.5
            %





Net
      revenue for fiscal 2007 of $128.2 million increased 89.7% over fiscal 2006
      net
      revenue of $67.6 million. Organic revenue growth for Dalian facility was 74.8%
      primarily due to 7.4% average selling price increase and 62.6% volume increase.
      As a result of acquisition, the revenue generated by Copperweld’s Fayetteville
      and Telford facilities for the period from October 29 to December 31, 2007
      contributed 14.9% growth. Our net sales experienced 100.5% growth from fiscal
      2005 to fiscal 2006 primarily due to 39% growth in average selling price and
      44.3% growth in shipped volume.





Specifically,
      the changes in net sales in 2007 and 2006 are attributable to the
      following:





Year
                over Year Comparison'06-
                '07
            
            '05-
                '06Price
                Increase
            
            
            7.4
            %
            
            39.0
            %Volume
                Increase
            
            
            62.6
            %
            
            44.30
            %Acquisition
                *
            
            
            14.9
            %89.7
            %
            
            100.5
            %





*Only
      includes Copperweld’s revenue from October 29 to December 31, 2007.





Gross
      margin





**2007**
            
            **2006**
            
            **2005**Cost
                of Goods Sold (in '000)
            
            $
            85,773.8
            
            $
            42,781.7
            
            $
            21,400.2*Gross
                Margin*
            
            
            *33.1*
            *%*
            
            *36.7*
            *%*
            
            *36.5*
            *%*





Gross
      margin decreased to 33.1% in 2007 compared with 36.7% in 2006 and 36.5% in
      2005.
      This was primarily driven by higher raw material costs that affected the selling
      price but not the dollar amount of margin.




24




SG&A





**2007**
            
            **2006**
            
            **2005**SG&A
                (in ‘000)
            
            $
            12,456.5
            
            $
            4,428.5
            
            $
            2,346.6*Percentage
                of Sales*
            
            
            *9.7*
            *%*
            
            *6.5*
            *%*
            
            *6.9*
            *%*





SG&A
      as a percentage of sales increased sharply to 9.7% in 2007 from 6.5% in 2006
      and
      6.9% in 2005, principally driven by higher depreciation expenses, professional
      fees and share based compensation expense which is $1.9m in 2007. We incurred
      no
      share based compensation expense in 2006 and 2005.





Net
      income


**2007**
            
            **2006**
            
            **2005**Net
                income (in '000)
            
            $
            29,506
            
            $
            17,810.0
            
            $
            7,799.0*net
                margin*
            
            
            *23.0*
            *%*
            
            *26.3*
            *%*
            
            *23.2*
            *%*





Net
      margin decreased primarily from 26.3% in 2006 and 23.2% in 2005 to 23.0% in
      2007, primarily due to lower gross margin and higher SG&A as well as higher
      interest expense.




**Results
      of Operations**





***Year
      ended December 31, 2007 compared to year ended December 31, 2006***




The
      following table shows, for the periods indicated, information derived from
      our
      consolidated statements of income. (Revenues and expenses for the Fayetteville
      and Telford (Copperweld) are included for the period beginning October 29,
      2007
      through December 31, 2007)





(in
                ‘000 except for percentage and EPS)
            
            Increase/
              (Decrease)
            
            2007
            
            2006Net
                sales
            
            
            89.69
            %
            $
            128,222
            
            $
            67,596Gross
                Profit
            
            
            71.06
            %
            
            42,448
            
            
            24,814Operating
                Income
            
            
            47.12
            %
            
            29,992
            
            
            20,386Net
                income
            
            
            65.67
            %
            
            29,506
            
            
            17,810Gross
                Margins
            
            
            
            
            
            33.1
            %
            
            36.7
            %Net
                Margins
            
            
            
            
            
            23.0
            %
            
            26.3
            %EPS-
                Basic
            
            
            49.44
            %
            $
            1.33
            
            $
            0.89EPS-
                Diluted
            
            
            41.67
            %
            $
            1.19
            
            $
            0.84




Financial
      position at year end (in ‘000):





Cash
            
            $
            79,915
            
            $
            20,494Accounts
                Receivable
            
            
            23,611
            
            
            7,042PP&E,
                net
            
            
            87,229
            
            
            47,256Total
                assets
            
            
            246,469
            
            
            96,162Short
                term debt
            
            
            23,840
            
            
            12,504Long
                term debt
            
            
            60,000
            
            
            10,256Total
                stockholders’ equity
            
            
            144,288
            
            
            65,134





**Net
      Sales**





Net
      sales
      were $128.2 million in 2007 including sales from Fayetteville and Telford
      facilities for the period October 29 through the end of the period, compared
      to
      $67.6 million in 2006. Of the 89.7% sales growth in the fiscal year ended
      December 31, 2007, 74.8% was due to organic growth and 14.8% was attributable
      to
      sales from Fayetteville and Telford for November and December of 2007. The
      74.8%
      organic growth was primarily driven by a 7.4% increase in the average selling
      price of product sold and 62.6% increase in the volume of bimetallic products
      sold. The increase in average selling price in 2007 was primarily due to the
      increase in raw material prices, particularly copper prices, and the increased
      sales volume primarily reflects expanded production capacity as a result of
      our
      capital investment.





The
      following table breaks down application categories as percentage of total
      sales.


FY2007
            
            FY
                2006sales (tons)
            
            % of total sales
            
            sales (tons)
            
            % of total salesTelecom
            
            
            19,451
            
            
            92.9
            %
            
            11,548
            
            
            98.69
            %Utility
            
            
            923
            
            
            4.4
            %
            
            -
            
            
            -Auto
            
            
            59
            
            
            0.3
            %
            
            -
            
            
            -Other
            
            
            504
            
            
            2.4
            %
            
            153
            
            
            1.31
            %Total
            
            
            20,937
            
            
            100.00
            %
            
            11,701
            
            
            100.00
            %




25




The
      following table presents sales breaks down by categories on pro forma basis,
      including Fayetteville’s full year volumes for illustrative
      purposes.


FY2007
            
            FY
                2006Dalian
            
            Fayetteville
            
            Dalian
            
            Fayettevillesales
                (tons)
            
            %
                of
            
            sales
                (tons)
            
            %
                of
            
            sales
                (tons)
            
            %
                of
            
            sales
                (tons)
            
            %
                oftotal
                sales
            
            
            
            total
                sales
            
            
            
            total
                sales
            
            
            
            total
                salesTelecom
            
            
            18,316
            
            
            96.2
            %
            
            7,564
            
            
            56.9
            %
            
            11,548
            
            
            98.7
            %
            
            10,413
            
            
            75.0
            %Utility
            
            
            492
            
            
            2.6
            %
            
            2,560
            
            
            19.3
            %
            
            -
            
            
            -
            
            
            1,363
            
            
            9.8
            %Automotive
            
            
            -
            
            
            -
            
            
            2,593
            
            
            19.5
            %
            
            -
            
            
            -
            
            
            484
            
            
            3.5
            %Other
            
            
            222
            
            
            1.2
            %
            
            579
            
            
            4.3
            %
            
            153
            
            
            1.3
            %
            
            1,630
            
            
            11.7
            %Total
            
            
            19,030
            
            
            100.0
            %
            
            13,296
            
            
            100.0
            %
            
            11,701
            
            
            100.0
            %
            
            13,890
            
            
            100.0
            %





The
      following table summarizes installed capacities and outputs for both Dalian
      and
      Fayetteville for the year ended December 31, 2007. Telford’s production is
      reflected in Fayetteville’s numbers. (We have used Fayetteville’s volumes for
      the full year for illustrative purposes.)





**Dalian**
            
            **Fayetteville**Installed Capacity
            
            Output
            
            Installed Capacity
            
            OutputProduct
                line
            
            (Metric Tons)
            
            (MetricTons)
            
            (Metric Tons)
            
            (Metric Tons)CCA
            
            
            26,000
            
            
            19,030
            
            
            15,000
            
            
            3,643CCS
            
            
            
            
            
            
            
            
            20,000
            
            
            9,60226,000
            
            
            19,030
            
            
            35,000
            
            
            13,245





Capacity
      in Transit: CCA 12,000 M Tons and CCS 10,000 M Tons




At
      December 31, 2007, we had combined production capacity for CCA of 41,000 metric
      tons and CCS capacity of 20,000 metric tons. We had an addition 12,000 metric
      tons of CCA capacity and 10,000 of CCS capacity in transit to Dalian. We expect
      to have the additional CCA capacity installed in Dalian by the first quarter
      of
      2009 and the CCS capacity installed by the end of 2008. The average price of
      CCA
      produced in Dalian and sold primarily in the PRC was $6,209 per ton while the
      average price of CCA produced in Fayetteville and shipped to over thirty
      countries was $7,126 per ton. CCS produced in Fayetteville sold for an average
      of $4,041 during 2007. Both Dalian and Fayetteville sell a variety of CCA
      products and the price for each variety may vary based on the amount of
      manufacturing required and the ratio of copper to aluminum. Dalian did not
      sell
      a significant amount of CCS during 2007. The average selling price of CCS sold
      by Fayetteville was $4,041 per ton with the price varying by product type
      primarily based on the amount of copper (conductivity) in the product and the
      amount of manufacturing required. Sales referred to as Fayetteville include
      the
      sales from Telford also. (The average prices listed for Fayetteville represent
      an average for the entire year even though we acquired Fayetteville during
      the
      fourth quarter 2007. We did not produce sufficient quantities of CCS in Dalian
      to provide a meaningful comparison.)





*Customers*





We
      significantly expanded and diversified our customer base in 2007 both through
      our acquisition of Copperweld and through organic growth. Our five largest
      customers accounted for 24.6% of total sales in 2007, down from 29% in 2006
      and
      41% in 2005. Times Fiber is the only customer that represents over 10% of the
      Copperweld’s full year sales in 2007, as well as on a pro-forma basis for the
      Company, accounting for 10.8% of our combined sales in 2007. In fact, our ten
      largest customers in 2007 accounted for only 37.75% of net sales, on a pro
      forma
      basis including full year sales for Fayetteville facility. We believe this
      increased diversification significantly limits our market risk and gives us
      a
      stronger base on which to expand. We further believe our overall customer
      composition and the concentration of our top customers will change as we expand
      our business and seek to shift our product sales portfolio to higher margin
      products. However, the loss of, or significant reduction in orders from any
      of
      our largest customers may have a material adverse impact on our financial
      condition and operating results. We are continuing to expand and consolidate
      the
      direction of our combined sales and marketing group in order to focus our
      resources towards diversification of our customer base, product mix and
      geographic presence to mitigate customer concentration risk. Our objective
      is to
      focus on expanding our existing business relationships by offering a wider
      range
      of products and building new sales relationships throughout the world with
      our
      expanded sales organization.





The
      following table (which considers Fayetteville’s sales for the full year of 2007)
      sets forth our ten largest customers in fiscal 2007:





Originating
                Office
            
            2007 Sales inUSD
            
            Percentage ofTotal SalesFayetteville
            
            
            21,215,885
            
            
            10.80
            %Dalian
            
            
            8,027,451
            
            
            4.09
            %Dalian
            
            
            6,798,765
            
            
            3.46
            %Fayetteville
            
            
            6,638,111
            
            
            3.38
            %Dalian
            
            
            5,636,408
            
            
            2.87
            %Dalian
            
            
            5,518,656
            
            
            2.81
            %Dalian
            
            
            5,476,410
            
            
            2.79
            %Dalian
            
            
            5,222,391
            
            
            2.66
            %Dalian
            
            
            4,977,456
            
            
            2.53
            %Dalian
            
            
            4,624,811
            
            
            2.35
            %74,136,344
            
            
            37.74
            %





Our
      manufacturing activities are determined and scheduled upon both firm orders
      and
      projected sales information gathered by our sales personnel from direct contact
      with our customers. Customers typically submit purchase orders seven to thirty
      days prior to the requested delivery date. However, depending on the product
      and
      the available equipment run schedules, the lead time can be as short as three
      days. The sales price is determined at the time of purchase based on a formula
      or a unit price for each product. In either case, the purchase price is a
      function of the market price of our raw materials at the time of purchase,
      subject to adjustment at the time of delivery. For some customers, we adjust
      our
      prices based on the cost of raw materials for the previous month.




26




Geographically,
      a substantial portion of our customers served by our Dalian sales force is
      based
      in the PRC. Some of our customers are US based corporations that have
      established subsidiaries operating inside the PRC. Several of these corporations
      were former customers of our Fayetteville facility but now place orders through
      their subsidiaries located in the PRC. We categorize these orders as domestic
      orders. On the other hand, most of our customers served by our Fayetteville
      and
      Telford based sales group are located in the Americas, Europe, Africa, Asia,
      excluding the PRC and the Middle East. We are transferring all of our Asian
      customers to our PRC based sales group in order to provide more efficient
      customer service. As a result, we anticipate that most of our net sales will
      continue to be derived from sales to our Asian customers. During the fourth
      quarter of 2007, we provided additional resources to our Fayetteville operation
      that will allow it to expand our penetration of the Eastern European, African,
      Middle East and Americas markets. Combined, we expect our sales growth to
      continue worldwide because of our working capital base, our combined sales
      force, our production capacity and our commitment to innovative research and
      development of our existing products and for developing new
      products.





**Cost
      of Goods Sold**





Cost
      of
      goods sold increased to $85.8 million in 2007, from $42.8 million in
      2006. As measured by percentage of net sales, our cost of goods sold was 66.9%
      in 2007 compared with 63.3% in 2006. Cost of goods sold principally consists
      of
      the cost of raw materials, labor, utilities, manufacturing costs, manufacturing
      related depreciation, machinery maintenance costs, purchasing and receiving
      costs, inspection costs, shipping and handling costs, and other fixed
      costs  associated
      with the manufacturing process . The
      increase in Cost of Goods Sold as a percentage of net sales was principally
      due
      to the cost of adding capacity in Dalian and labor and overhead costs in
      Fayetteville that historically have been greater than in
      Dalian.





Copper,
      aluminum and steel are the primary raw materials we use in the manufacture
      of
      our products. In 2007, we purchased over 7,809 tons of copper, 17,917 tons
      of
      aluminum, and 7,104 tons of steel, including Fayetteville’s purchases for the
      full year. Raw material costs accounted for 76.68% of total costs for
      Fayetteville and 92.73% for Dalian in 2007. Other variable costs included
      manufacturing labor, maintenance, shipping and handling, and utility expenses.
      Depreciation and overhead costs as a percentage of COGS were 5.39% in 2007.
      The
      manufacturing related depreciation for 2007 was $769,983.





*Suppliers*





We
      also
      significantly diversified our sources of supply. In Dalian we have historically
      relied on two key suppliers for the procurement of copper strip and aluminum.
      These two suppliers combined to account for approximately 41% of our total
      raw
      material purchases during the fiscal years prior to 2007. During 2007, four
      suppliers provided 43.0% of our raw material for us. With the addition of
      Fayetteville and Telford, we will increase the number of raw material suppliers
      further spreading our supply risk over a larger number of suppliers. We will
      continue our strategy of expanding our sources of supply to overcome supply
      and
      price issues that can develop with only one or two suppliers, particularly
      for
      copper.





The
      following table sets forth our ten largest raw material suppliers for fiscal
      2007:





Ten Largest RawMaterial Suppliers 2007
            
            Purchases
              in USD
            
            % of Raw MaterialPurchasesCopper—Dalian
            
            
            26,122,785
            
            
            12.5
            %Aluminum—Dalian
            
            
            13,462,792
            
            
            11.0
            %Aluminum—Dalian
            
            
            13,220,800
            
            
            10.8
            %Copper—Dalian
            
            
            10,895,561
            
            
            8.9
            %Aluminum—Dalian
            
            
            10,334,099
            
            
            8.4
            %Copper—Fayetteville
            
            
            9,222,531
            
            
            7.5
            %Aluminum—Fayetteville
            
            
            7,693,142
            
            
            6.3
            %Copper—Fayetteville
            
            
            5,894,133
            
            
            4.8
            %Copper—Fayetteville
            
            
            4,758,723
            
            
            3.9
            %Steel—Fayetteville
            
            
            4,274,291
            
            
            3.5
            %Total—Top
                Ten
            
            
            105,878,856
            
            
            77.6
            %


*The
      information in the preceding chart includes Fayetteville’s purchases for the
      full year of 2007.*





**Gross
      margin**





Gross
      profit was $42.4 million in 2007, increased 71.1% from approximately $24.8
      million in 2006. As a percentage of net sales, gross profit decreased from
      36.7%
      to 33.1%. This was primarily driven by higher raw material costs that affected
      the selling price but not the dollar amount of margin. As we discussed in the
      overview, we pass increases in raw material costs to our customers rather than
      the percentage changes in our raw material costs. Therefore, when raw material
      increases are passed through to our customers, the sales price will increase
      and
      the net margin as a percentage of net sales will decline. However, the dollar
      amount of gross margin remains stable.





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. Timing
      differences will cause some slight variations. Passing the costs of changing
      raw
      material costs to our customers allows us to maintain the amount of our gross
      margin per pound.





27





Fushi Copperweld Inc





The
      above
      chart demonstrates how changes in the 2007 Comex monthly average copper and
      aluminum prices changed from approximately $3.89 at month one to a high of
      $4.82
      in month four and then trended generally down during the remainder of the year.
      In this example, we have a gross margin per pound of $1.00 for illustrative
      purposes. Passing the changing costs through to our customers’ prices allows us
      to maintain a level amount of dollar gross margin. Considering gross margin
      as a
      percentage of net sales can be misleading when raw materials costs are
      increasing even though the dollar amount of gross margin remains the same.
      Although the gross margin would have declined from 20% to 17% in our example,
      the dollar amount of gross margin and resulting net income flowing to earnings
      per share remained the same.




Further,
      the attractiveness of most of our CCA products is considerably affected by
      the
      price ratio between copper and aluminum. Over the last twelve quarters, spot
      price of copper has escalated rapidly and has been subject to significant
      volatility. The ratio of average quarterly spot prices per ton of copper to
      aluminum for COMEX, LME and Shanghai Yangtze of China for the periods indicated
      is summarized as follows:





1Q'07
            
            2Q'07
            
            3Q'07
            
            4Q'07
            
            **2007**Comex
            
            
            2.19
            
            
            2.78
            
            
            3.08
            
            
            2.93
            
            
            2.74LME
            
            
            2.12
            
            
            2.88
            
            
            3.03
            
            
            2.94
            
            
            2.73Yangtze
            
            
            3.15
            
            
            3.24
            
            
            3.32
            
            
            3.41
            
            
            3.281Q'06
            
            
            2Q'06
            
            
            3Q'06
            
            
            4Q'06
            
            
            **2006**Comex
            
            
            2.01
            
            
            2.75
            
            
            3.17
            
            
            2.6
            
            
            2.64LME
            
            
            2.02
            
            
            2.69
            
            
            3.04
            
            
            2.6
            
            
            2.59Yangtze
            
            
            2.39
            
            
            3.14
            
            
            3.46
            
            
            3.16
            
            
            3.061Q'05
            
            
            2Q'05
            
            
            3Q'05
            
            
            4Q'05
            
            
            **2005**Comex
            
            
            1.61
            
            
            1.81
            
            
            1.99
            
            
            2.12
            
            
            1.89LME
            
            
            1.73
            
            
            1.89
            
            
            2.03
            
            
            2.08
            
            
            1.94Yangtze
            
            
            1.98
            
            
            2.07
            
            
            2.14
            
            
            2.2
            
            
            2.1




**Selling,
      General and Administrative Expenses**




Selling
      expenses, which principally include sales related staff salary and benefits,
      travel expenses, and sales commissions, were $1.8 million or 1.4% of net sales
      in 2007, compared to $613,119 or 0.9% of net sales in 2006, a 187.5% increase.
      As a percentage of net sales, selling expenses increased by 0.5% in 2007
      compared to 2006. General and administrative expenses, as a percentage of net
      sales, increased to 8.3% of net sales in 2007, compared to 5.6% in 2006. The
      increase was primarily due  to
      increased depreciation associated with expanded asset base amounting to $2.2
      million, $1.9 million share based compensation, $1.6 million professional fee
      and costs associated with expanding our staff in Dalian to accommodate the
      increasing demand for our products and the inclusion of Copperweld operating
      expenses for the period October 29, 2007 through December 31, 2007. We expect
      our general and administrative to increase slightly over the coming year as
      we
      incur some additional integration costs .




**Interest
      Expense**





Interest
      expense increased to $6.9 million in 2007 from $1.07 million in 2006,
      while as a percentage of net sales, interest expense increased to 5.4% in 2007
      from 1.6% in 2006. We issued $40 million in HY notes and $20 million in
      convertible notes that were purchased by Citadel Equity Fund Ltd. on January
      24,
      2007. Interest expense related to those notes during 2007 was approximately
      $5.2
      million.




**Taxation**





*U.S.
      income tax*





Fushi
      Copperweld, Inc. (formerly Fushi International, Inc.) is a company incorporated
      in the State of Nevada, Fushi Holdings is a company incorporated in the State
      of
      Delaware, Copperweld Bimetallics, LLC is chartered in the State of Delaware
      and
      Copperweld UK, LLC is registered in the United Kingdom. Prior to the acquisition
      of Copperweld, we conducted substantially all our operations through our PRC
      operating subsidiaries. With the acquisition of Copperweld, we have a
      manufacturing facility and administrative offices located in Fayetteville,
      Tennessee, USA and in Telford, England, UK. We are subject to United States
      taxation; however, we do not anticipate incurring significant United States
      income tax liability during fiscal year 2008.





We
      anticipate that Copperweld has sufficient tax loss carry forwards to offset
      any
      taxable income earned during the coming year.





-
      the
      earnings generated from our non-U.S. operating companies are generally eligible
      for a deferral from United States taxation until such earnings are repatriated
      to the United States, and





28




-
      We
      believe that we will not generate any significant amount of income inclusions
      under the income imputation rules applicable to a United States company that
      owns "controlled foreign corporations" for United States federal income tax
      purposes.




Therefore,
      no provision for U.S. federal income taxes or tax benefits on the undistributed
      earnings and/or losses of our company has been made.




*P.R.C.
      enterprise income tax*




In
      the
      fiscal year ended December 31, 2007, our business operations were principally
      conducted by our subsidiaries incorporated in the PRC. PRC enterprise income
      tax
      is calculated based on taxable income determined under PRC accounting
      principles. In accordance with “Income Tax Law of China for Enterprises with
      Foreign Investment and Foreign Enterprises,” or the Income Tax Law, “Foreign
      Invested Enterprises”, or FIEs, established in the PRC are generally subject to
      an “Enterprise Income Tax”, or EIT, rate of 33%. PRC domestic companies are
      governed by the Enterprise Income Tax Laws of the PRC and are also generally
      subject to an EIT rate of 33%. However, the Income Tax Laws provide certain
      favorable tax treatment to a company that qualifies as a "New or High-technology
      Enterprise" or a “Foreign Invested Enterprise” located in the old town of an
      inshore open city”. Additionally, the governments at the provincial, municipal
      and local levels can provide many tax incentives and abatements based on a
      number of programs at each level.




The
      Dalian Municipal Government issued a notice in 2000 providing for a series
      of
      tax preferential treatments to companies that qualify as "New or High-tech
      Enterprise” or companies that are registered and operate in a specified
      development zone in Dalian City.





Dalian
      Fushi, a 100% variable interest, non-operating subsidiary, was incorporated
      in
      the PRC and is subject to PRC income tax which is computed according to the
      relevant laws and regulations in the PRC. Dalian Fushi's bimetallic composite
      conductor wire product was approved by Dalian Cit as a "high-tech" project.
      As a
      result, Dalian Fushi is a business entity that is qualified as a "new or
      high-technology enterprise," and is entitled to a two-year full exemption from
      the PRC enterprise income tax starting from its first year of operation, which
      expired on December 31, 2003, followed by a 50% reduction and other favorable
      tax treatment for the succeeding three years, which expires on December 31,
      2006. The provision for income taxes for the twelve months ended December 31,
      was zero as we didn’t have any operation under Dalian Fushi from the beginning
      of 2007.





Fushi
      International (Dalian) (“FID”), a wholly owned subsidiary of Fushi Holdings,
      Inc., was incorporated in the PRC as an FIE and is subject to PRC income tax
      which is computed according to the relevant laws and regulations in the PRC.
      FID
      has located its factories in a special economic region in Dalian and is granted
      certain preferential treatments including a corporate income tax rate of 24%.
      In
      September 2005, FID was approved as a wholly foreign owned enterprise. This
      economic region allows FID a two-year income tax exemption for the years ended
      December 31, 2006 and 2007, and a 50% income tax reduction for the following
      three years ended December 31, 2008, 2009, and 2010.





Effective
      January 1, 2008, the new EIT Law in PRC imposes a unified income tax rate
      of 25.0% on all domestic-invested enterprises and FIEs, such as our PRC
      operating subsidiaries, unless they qualify under certain limited exceptions.
      But the EIT Law permits companies to continue to enjoy their existing
      preferential tax treatments until such treatments expire in accordance with
      their current terms. Any increase in our effective tax rate as a result of
      the
      above may adversely affect our operating results





**Net
      Income**





Net
      income increased to approximately $29.5 million, or 23.0% of net sales for
      the
      year ended December 31, 2007, from approximately $17.8 million, or 26.3% of
      net
      sales for the year ended December 31, 2006, representing an increase of $11.7
      million or 65.7%. Standalone net income from Fushi legacy operations was $27.6
      million, or 23.4% of net sales, representing 54.9% increase year over year.
      The
      bottom line increase is primarily due to substantial revenue increases
      while decrease as a percentage of the net sales was primarily due to lower
      gross
      margin and higher SG&A.





Basic
      and
      diluted earnings per share (EPS) for the fiscal year ended December 31, 2007
      were $1.33 and $1.19, compared to $0.89 and $0.84 for the prior year. The
      weighted average number of shares outstanding to calculate basic EPS was 22.2
      million and 19.9 million for 2007 and 2006, respectively. The weighted average
      number of shares outstanding to calculate diluted EPS was 25.2 million and
      21.3
      million for 2007 and 2006, respectively.





**Foreign
      Currency Translation Gains**





Fushi Copperweld Inc





29




In
      the
      year ended December 31, 2007, the RMB steadily rose against the US dollar.
      As a
      result of the appreciation of the RMB, we recognized a foreign currency
      translation gain of $9.9 million. Given the uncertainty of exchange rate
      fluctuations, we cannot estimate the effect of these fluctuations on our future
      business, product pricing, and results of operations or financial condition.
      See
“Risk Factors- Risks Related to Doing Business in the PRC. - The fluctuation
      of
      the Renminbi may materially and adversely affect your investment.”




Prior
      to
      acquiring Copperweld, materially all of our revenues and a majority of our
      expenses in 2007 were denominated in RMB Yuan. For our operations in the PRC,
      the income statement accounts and balance sheet amounts with the exception
      of
      equity at December 31, 2007 were translated at 1 RMB Yuan to 0.1371 USD, or
      1
      USD to 7.2941 RMB Yuan. The equity accounts were stated at their historical
      rate.





***Year
      ended December 31, 2006 compared to year ended December 31,
      2005***





**Net
      Sales**





Net
      sales
      were $67.6 million in 2006, compared to $33.7 million in 2005. The 100.5%
      sales growth in the fiscal year ended December 31, 2006 was primarily
      attributable to a 39.0% increase in the average selling price of product sold
      and 44.3% increase in the volume of bimetallic products sold, along with a
      change in the mix of product sold. The significant increases in average selling
      price in 2006 were primarily due to the increase in raw material prices,
      particularly copper prices, and to a lesser degree, changes in the mix of
      product sold towards more profitable products. Sales volume increases were
      generally driven by several factors, including increased capacity utilization,
      accelerated customer acceptance of bimetallic products as a low cost substitute
      for solid copper wire, and more effective sales and marketing efforts, partially
      offset by the negative effect of limited and fluctuating availability of working
      capital.




*Customers*





We
      significantly expanded and diversified our customer base in 2006. Our five
      largest customers accounted for 28.9% of total sales in 2006, down significantly
      from 41% in 2005 and 75.4% in 2004. Our largest customer accounted for less
      than
      6.6% of sales in 2006. In fact, our ten largest customers in 2006 accounted
      for
      only 49.5% of net sales.





**Cost
      of Goods Sold**





Cost
      of
      goods sold increased to $42.8 million in 2006, from $21.4 million in
      2005, as measured by percentage of net sales, was 63.3% in 2006 compared with
      63.5% in 2005. The significant increase in Cost of Goods Sold was principally
      due to increased volume shipped resulting from strong market demand and added
      capacity. The slight drop in Cost of Goods Sold as a percentage of sales largely
      reflects our pricing success in passing on the increases in our principal raw
      material costs, especially the volatile copper price, in almost its entirety
      to
      the customers.




Copper
      and aluminum are the primary raw materials we use in the manufacture of our
      products. In 2006, we purchased over 2,567 tons of copper strip and 7,727 tons
      of aluminum bar. Raw materials and other raw material costs accounted for 89.6%
      and 3.9%of COGS, respectively, in 2006. Other variable costs including
      manufacturing labor, maintenance, shipping and handling, utility amounted to
      $0.82 million, or 1.9% of COGS. Depreciation and overhead costs as a percentage
      of COGS were 3.8% in 2006. The manufacturing related depreciation for 2006
      was
      $0.81 million.




**Gross
      margin**





Gross
      profit was $24.8 million in 2006, up 101.6% from gross profit of approximately
      $12.3 million in 2005. As a percentage of net sales or gross margin, gross
      profit increased slightly from 36.5% to 36.7%. This was primarily driven by
      higher raw material costs and correspondingly higher average selling prices,
      and
      to a lesser degree, particularly in the case of second quarter of 2006, the
      favorable impact of advance payments where we were able to lock in raw material
      prices at low levels upon points of purchase and price the products at high
      levels upon delivery. In addition, we benefited from improved product
      mix.





Our
      gross
      profit margins have historically fluctuated between 30% and 45%. We realized
      a
      slight increase in the gross margin for fiscal 2006 as a whole, although the
      quarterly margins varied widely. The first quarter of 2006 had a normal margin
      of 36.1%. During the second quarter as copper ran to a record high, margins
      rose
      to 44.4%. Margin declined sharply in the third quarter to 30.9% and then
      rebounded back to 33.1% in the fourth quarter of 2006. In the second quarter,
      we
      benefited from the rapidly rising copper price to realize increased
      profitability by utilizing previously-acquired, lower cost raw material
      inventory to fulfill orders priced at current higher copper prices. In the
      third
      quarter, the reverse happened, but to a much lesser degree.




**Selling,
      General and Administrative Expenses**




Selling
      expenses, which principally include sales related staff salary and welfare,
      travel expenses, and sales commissions, were $613,119 in 2006, compared to
      $317,324 in 2005, a 93.2% increase. As a percentage of net sales, selling
      expenses remained unchanged at 0.9% in 2006 compared to 2005. General and
      administrative expenses, as a percentage of net sales, dropped to 5.6% of net
      sales in 2006, compared to 6.0% in 2005. The decrease was primarily due to
      the
      semi-fixed nature of many of these costs including office expenses, supplies,
      administrative salaries, insurance, and utilities. Research and development
      expense, which is included in general and administrative expenses, amounted
      to $195,058 in 2006.




30




**Interest
      Expense**





Interest
      expense increased to $1.07 million in 2006 from $1.03 million in 2005,
      while as a percentage of net sales, interest expense dropped to 1.6% in 2006
      from 3.1%. The slight increase in absolute amount is largely due to the higher
      average short term bank loan levels on our revolving credit facility partially
      offset by capitalization of interest relating to the construction of assets
      in
      the amounts of approximately $282,641 in 2006.




**Registration
      Rights Penalty**





In
      December 2005, we entered into stock purchase agreements (the “Stock Purchase
      Agreements”) pursuant to which we raised gross proceeds of $12 million. The
      Stock Purchase Agreements required that we file a registration statement
      registering the resale of the securities sold pursuant thereto, and that the
      registration statement be effective within 120 days of filing. In the event
      the
      registration statement was not declared effective within that time period,
      each
      investor was entitled to liquidated damages equal to 3% of each investor’s
      shares for each 30 day period after 120 days that the registration statement
      was
      not declared effective.





As
      a
      result of the foregoing provisions, we incurred a penalty of 255,000 shares
      as
      of August 2, 2006, the date our registration statement on Form SB-2 was declared
      effective, which resulted in a charge to income of $1.5 million.





**Net
      Income**





Net
      income increased to approximately $17.8 million, or 26.3% of net sales for
      the
      year ended December 31, 2006, from approximately $7.8 million, or 23.1% of
      net
      sales for the year ended December 31, 2005, representing an increase of $10
      million or 128.4% and an expansion of net margin by 3.1% percentage points.
      The
      net income increase is primarily due to i) substantial revenue increases,
      ii) sustained gross margin in spite of extremely volatile raw material prices.
      Earning per share was $0.84 and $0.50 on a diluted basis.





The
      pro
      forma net income would amount to $19.3 million and the EPS would increase from
      $0.84 to $0.91 had the 255,000 registration rights penalty shares valued at
      approximately $1.5 million not been charged to the income statement.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      historically financed our operations and capital expenditures principally
      through private placements of debt and equity offerings, bank loans, and cash
      provided by operations. Specifically, from inception through December 31, 2007,
      our primary financing activities included the following:




-
            We
                financed previous expansion through long term bank loans amounting
                to RMB
                80 million, interest rate at 5.58% per annum, with a maturity of
                April,
                2008. We also used short term bank loans and revolving facilities
                to
                finance our working capital needs.





-
            On
                December 13 and December 28, 2005 in two closings, we raised $12
                million
                in gross proceeds through a private placement offering of our series
                B
                convertible preferred stock (the “Equity Financing”). The convertible
                preferred stocks were subsequently converted into 4,250,000 shares
                of our
                common stock. We received $9,930,412 in net proceeds after deducting
                placement agent discounts and commissions and payment of professional
                and
                other related expenses. The investors in this offering also received
                2,125,000 warrants and each warrant granted the holder the right
                to
                purchase one additional share of our common stock at $3.67 per
                share





-
            Of
                the 2,125,000 warrants issued in the Equity Financing, 68,985 were
                exercised during the year ended December 31, 2006 and 304,389 were
                exercised during the three months ended March 31, 2007. Pursuant
                to
                Section 2.5 (b) of the warrants, the Company called the exercise
                of the
                warrants outstanding on April 20, 2007 and all of the warrants were
                subsequently exercised




-
            On
                January 24, 2007, we raised $60 million in gross proceeds and $56.4
                million in net proceeds, through the sale of high yield and convertible
                senior notes. Detailed discussion regarding this financing is provided
                in
                the footnotes to financial statements and risk factors of this report
                as
                well below.




-
            On
                October 30, 2007, we completed the sale to a number of institutional
                investors for an aggregate of 2,786,000 shares of the Company’s Common
                Stock for an aggregate purchase price of $39,004,000 (or $14 per
                Share).
                The offering closed on October 29, 2007 and part of the proceeds
                was
                applied to close the Copperweld
                acquisition.




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.





31




In
      summary, our cash flows were:





December 31, 2007
            
            December 31, 2006Net
                cash provided by operating activities
            
            $
            26,152,847
            
            $
            13,310,693Net
                cash used in investing activities
            
            
            (50,380,349
            )
            
            (12,959,742
            )Net
                cash provided by financing activities
            
            
            79,455,079
            
            
            12,107,377Effect
                of exchange rate on cash and cash equivalents
            
            
            4,193,630
            
            
            1,868,337Cash
                and cash equivalents at beginning of period
            
            
            20,493,551
            
            
            6,166,886Cash
                and cash equivalents at end of period
            
            $
            79,914,758
            
            $
            20,493,551





For
      the
      fiscal year ended December 31, 2007, net cash provided by operating activities
      was $26.2 million. This was primarily attributable to our net income of $29.5
      million, adjusted by an add-back of non-cash expenses mainly consisting of
      depreciation and amortization of $ 4.1 million and share-based compensation
      expense of $1.9 million, offset by a $7.86 million increase in working capital
      and a deduction of $2.9 million deferred tax assets. Specifically, the
      working capital increase was primarily due to i) a $9.2 million accounts
      receivable increase driven by revenue growth; ii) a $4.3 million inventory
      decrease, principally raw materials, to support planned expansion and sales
      growth; iii) a $1.0 million decrease in advance to suppliers to secure price
      of
      copper; iv) a $0.2 million decrease in other receivables and prepaid expenses,
      consisting primarily of prepayments for copper supplies in advance of shipment;
      partially offset by a $2.7 million increase in other payables and accrued
      liabilities.




For
      the
      fiscal year ended December 31, 2007, net cash used in investing activities
      was
      $50.4 million, and was primarily attributable to i) a $3.0 million secured
      bridge funding advanced to Copperweld Bimetallics; ii) a $4.4 million advance
      for purchase of land use rights; iii) a $44 million capital expenditure on
      improvement of property and purchase of new equipment and machinery including
      advances for purchase, which includes $5.08 million for the purchase of
      Copperweld.





For
      the
      fiscal year ended December 31, 2007, net cash provided by financing activities
      was $79.5 million, which was primarily attributable to $56.4 million in net
      proceeds from the sale of high yield notes and convertible notes as described
      in
      our Current Report on Form 8-K filed on January 26, 2007, $37.2 million net
      proceeds from the private placement of common stocks to a number of
      institutional investors as described in our Current Report on Form 8-K filed
      on
      October , 2007, and $7.7 million in proceeds from warrants exercised. We paid
      off maturing, long term and short term working capital loan in the amount of
      $29.6 million and drew down $11.7 million from our existing credit line
      facilities. In addition, we repaid $4.0 million of loan from shareholder. Prior
      to the acquisition, Copperweld maintained a line of credit to finance its
      working capital needs. We have maintained the line and at December 31, 2007,
      the
      line had a balance of $6.9 million.





As
      of
      December 31, 2007, we had cash and cash equivalents of $79.9 million, up $59.4
      million from $20.5 million at December 31, 2006.




In
      future
      periods, as we proceed with integration of the Copperweld acquisition, we
      believe we can realize significant savings on capital expenditures. We
      anticipate that our working capital requirements may increase as a result of
      the
      expanded scale of the combined business, continued increases in sales, potential
      increases in the price of copper, 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 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.





On
      January 24, 2007, we and Citadel Equity Fund Ltd. ("Citadel") entered a Notes
      Purchase Agreement (the “Notes Purchase Agreement”) pursuant to indicative
      financing term sheets dated December 19, 2006. Pursuant to the terms of the
      Notes Purchase Agreement, the Company offered and sold and Citadel purchased
      (a)
      $40,000,000 of the Company’s Guaranteed Senior Secured Floating Rate Notes due
      2012 (the “HY Notes”) and (b) $20,000,000 of the Company’s 3.0% Senior Secured
      Convertible Notes due 2012 (the “Convertible Notes” and collectively with the HY
      Notes, the "Notes"). The details of the indentures are available in previous
      filing. The indenture for the Convertible Notes, among other provisions, allows
      the holder to convert the debt to common stock at a conversion rate of $7.00
      for
      each share. On January 8, 2008, Citadel converted $15.0 million in debt to
      2,141,857 shares of our common stock.





On
      January 16, 2008, Copperweld Bimetallics, LLC (“Copperweld”), Copperweld
      Bimetallics International Holdings, LLC (“International Company”), International
      Manufacturing Equipment Suppliers, LLC (“IMES”), all of which are wholly-owned
      U.S. subsidiaries of the Company (collectively, “Subsidiaries”), entered a
      Settlement Agreement and a number of ancillary agreements with Tongling Jingda
      Special Magnet Wire Co., Ltd. (“TJS”) and Tongling Copperweld Bimetallics Co.
      Ltd. (“JV Company”), both of which are companies organized under the laws of the
      People’s Republic of China, in order for International Company to withdraw as a
      joint venture partner in the JV Company, to terminate certain contractual
      relationships between the JV Company and IMES, and to resolve all disputes
      that
      may exist among the Subsidiaries and/or TJS and the JV Company as a result
      of
      these transactions.




Pursuant
      to the terms of the Settlement Agreement and related ancillary agreements:




(1)
      The
      International Company transferred its equity interest in the JV Company to
      Hong
      Kong Heavy Trade Co., Ltd (“HK Company”), a limited liability company organized
      under the laws of Hong Kong, for a purchase price of $2.7 million pursuant.
      Of
      the $2.7 million purchase price, the HK Company will pay $2.08 million to the
      JV
      Company on behalf of IMES as part of the refund of the down payment specified
      in
      (2) below, and the International Company will waive the remaining $620,000
      in
      consideration of the JV Company’s entering into and performance of its
      obligations set forth in the agreement specified in (3) below.




32




(2)
      IMES
      and the JV Company agreed to fully terminate and cancel the three equipment
      purchase contracts entered pursuant to which IMES had agreed to manufacture
      and
      deliver to the JV Company CCA clad line (Contract No. CPW061206/1), CCA
      Annealing Furnace (Contract No. CPW061206/2), and CPS Plating Line and Drawing
      Machine (Contract No. CPW061206/3) (collectively, “Equipment Contracts”), and
      IMES agreed to refund the down payment paid by the JV Company under the
      Equipment Contracts in the total amount of $ 3,137,019. Of the down payment
      to
      be refunded, the JV Company had previously paid $200,000 to the JV Company’s
      current account, Copperweld agreed to pay, on behalf of IMES, $857,019 to the
      JV
      Company, and the HK Company agreed to pay the JV Company the balance of $2.08
      million pursuant to the arrangement described in (1) above.




(3)
      To
      resolve all remaining disputes among the parties as a result of International
      Company’s withdrawal from the JV Company, Copperweld agreed to purchase from the
      JV Company a CCA rod breakdown machine, CPS rectifiers and a Metallographic
      Microscope for a total purchase price of $230,000.




In
      consideration for the Subsidiaries’ entering into and performing the Settlement
      Agreement and related ancillary agreements, TJS, the JV Company and the HK
      Company each also agreed to (1) fully and completely release International
      Company from its obligation to contribute $1.22 million to the JV Company’s
      capital account under the Sino-foreign equity joint venture contract dated
      September 30, 2006 between TJS and the International Company, and (2) waive
      all
      claims that any of them may have against any of the Subsidiaries for damages
      or
      for specific performance under any and all causes of action, including but
      not
      limited to causes of action under any and all oral or written agreements entered
      into by the parties prior to the Settlement Agreement.




**Critical
      Accounting Policies**





Management's
      discussion and analysis of its financial condition and results of operations
      are
      based upon the Company's consolidated financial statements, which have been
      prepared in accordance with United States generally accepted accounting
      principles. The Company's financial statements reflect the selection and
      application of accounting policies which require management to make significant
      estimates and judgments. See note 1 to the Company's consolidated financial
      statements, "Summary of Significant Accounting Policies and Organization".
      Management bases its estimates on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances. Actual
      results may differ from these estimates under different assumptions or
      conditions. The Company believes that the following reflect the more critical
      accounting policies that currently affect the Company's financial condition
      and
      results of operations:





*Revenue
      recognition*





Revenue
      is recognized when product is shipped and title passes to the customer and
      collectibility is reasonably assured. Sales revenue represents the invoiced
      value of goods, net of a VAT. All of the Company's products that are sold in
      the
      PRC are subject to a Chinese value-added tax at a rate of 17% 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 its finished
      products.




Although
      most of our products are covered by our warranty programs, the terms and
      conditions of which vary depending on the customers and the product sold.
      Because we have not experienced any significant warranty claims in the past,
      we
      have not established any reserve fund for warranty claims or defective
      products.





*Property,
      Plant and Equipment*





Building,
      plant and equipment are recorded at cost less accumulated depreciation and
      amortization. Depreciation and amortization are recorded utilizing the
      straight-line method over the estimated original useful lives of the assets.
      Amortization of leasehold improvements is calculated on a straight-line basis
      over the life of the asset or the term of the lease, whichever is shorter.
      Major
      renewals and betterments are capitalized and depreciated; maintenance and
      repairs that do not extend the life of the respective assets are charged to
      expense as incurred. Upon disposal of assets, the cost and related accumulated
      depreciation are removed from the accounts and any gain or loss is included
      in
      income. Depreciation related to property and equipment used in production is
      reported in cost of sales.





Long-term
      assets of the Company are reviewed annually as to whether their carrying value
      has become impaired.





*Bad
      debts*





The
      Company's business operations are conducted in the PRC and in the US. The
      Company extends unsecured credit to customers with good credit history.
      Management reviews its accounts receivable on a regular basis to determine
      if
      the bad debt allowance is adequate at each year-end. Because we only extend
      trade credits too many of our customers, who tend to be well-established and
      large sized businesses, and we have not experienced any write-offs in our PRC
      operations and no material write-off of accounts receivable in our US
      operations. At December 31, we had an allowance of bad debts in the amount
      of
      $135,418 for our US subsidiary.





*Income
      taxes*




We
      record
      a valuation allowance to reduce our deferred tax assets to the amount that
      we
      believe to be more likely than not to be realized. In the event we were to
      determine that we would be able to realize our deferred tax assets in the future
      in excess of their recorded amount, an adjustment to our deferred tax assets
      would increase income in the period such determination was made. Likewise,
      should we determine that we would not be able to realize all or part of our
      net
      deferred tax assets in the future, an adjustment to our deferred tax assets
      would be charged to income in the period such determination was made.





33




Fushi
      International, Inc., 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 for 2007 and 2006.
      Management believes that the realization of the benefits can be used by our
      US
      operating subsidiary in future periods because expectations are that Copperweld
      will have taxable income in future periods.




*Stock-based
      compensation.*




In
      preparing the consolidated financial statements for 2007, we adopted SFAS
      No. 123 (revised 2004), or SFAS No. 123(R), issued by the FASB in
      December 2004, to measure our issued share options based on the grant-date
      fair value of the options and recognized as compensation expense over the
      requisite service period, with a corresponding addition to equity. We adopt
      the
      Black-Scholes Model to value the fair value of the share options and the
      following major assumptions are adopted: average risk-free rate of return of
      3.540 to 4.574%, expected option life of 2 years, volatility rate of 50% and
      no
      dividend yield.




*Off-Balance
      Sheet Arrangements*





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




**ITEM
                    7A.**
                  **QUANTITATIVE****AND QUALITATIVE DISCLOSURES ABOUT MARKET
                      RISKS**
  **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
      manufacture 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 December 31, 2007 and did not employ any
      commodity price derivatives during the fiscal year ended December 31,
      2007.




***Foreign
      Exchange Risk***




While
      our
      reporting currency is the US dollar, majority 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 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 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. In
      addition, commencing on July 21, 2005, China reformed its exchange rate
      regime by changing to a managed floating exchange rate regime based on market
      supply and demand with reference to a basket of currencies. Under the managed
      floating exchange rate regime, the RMB is no longer pegged to the US Dollar.
      The
      exchange rate of the RMB against the US Dollar was adjusted to RMB 8.11 per
      US Dollar as of July 21, 2005, representing an appreciation of about 2%.
      The People’s Bank of China will announce the closing prices of foreign
      currencies such as the US Dollar traded against the RMB in the inter-bank
      foreign exchange market after the closing of the market on each business day,
      and will make such prices the central parity for trading against the RMB on
      the
      following business day. 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.




To
      date,
      we have not entered into any hedging transactions in an effort to reduce our
      exposure to foreign currency exchange risk. We recognized a foreign currency
      translation adjustment of approximately $9.8 million for the fiscal year ended
      December 31, 2007.




***Interest
      Rate Risk***





We
      are
      primarily exposed to interest rate risk arising from 6 months LIBOR rate on
      which the interest rate for our Guaranteed Senior Secured Floating Rate Notes
      due 2012 (HY Notes) totaling $40 million or 48% of our total debt, is based.
      If
      there was a hypothetical 1% change in 6-month LIBOR interest rate, the net
      impact to earnings would be approximately $0.4 million on annualized basis.





34




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 payment in arrears on July
      24
      and January 24 and matures 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.





The
      fair
      value of the Swap is determined with the assistance of third party provided
      calculations which reflect the present values of the difference between
      estimated future variable-rate receipts in USD and future fixed-rate payments
      in
      RMB. For the fiscal year ended December 31, 2007, changes in fair value of
      the
      Swap designated and effective as cash flow hedge resulted in an increase in
      the
      liability and a loss to other comprehensive income of $8.5 million, net of
      taxes. On July 24, 2007, the first interest payment date, the Company received
      cash in the amount of $802,523 from MLCS, which was recorded as a gain from
      derivative transactions. As of December 31, 2007, the Company had cross currency
      hedge receivable amounting to $706,170. For fiscal year ended December 31,
      2007,
      there were no amounts recorded in the consolidated statement of income in
      relation to this interest rate swap related to ineffectiveness.





The
      Company accounts for this interest rate swap in accordance with FAS No. 133,
      “Accounting for Derivatives Instruments and Hedging Activity,” which requires
      all derivatives to be carried on the 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 is reported in accumulated other
      comprehensive income, net of related income tax effects.





The
      Company also has outstanding senior convertible notes that may be converted
      into
      the Company’s common stock. Accordingly, the price of its common stock may
      affect the fair value of the Company’s convertible notes. On January 8, 2008,
      the convertible notes holder elected to convert $15.0 million of the $20 million
      convertible notes into common shares. The estimated fair value of the Company’s
      outstanding convertible notes was $18.0 million at December 31, 2007 from
      $5 million at January 25, 2007, primarily due to the increase in the
      Company’s stock price during the eleven months ended December 31, 2007. A
      hypothetical 10% decrease in the price of the Company’s common stock from the
      price at December 31, 2007 would have reduced the fair value of its then
      outstanding convertible senior notes by $1.8 million.




Changes
      in the market value of the Company’s debt do not affect the reported results of
      operations unless the Company is retiring such obligations prior to their
      maturity. This analysis did not consider the effects of a changed level of
      economic activity that could exist in such an environment and certain other
      factors. Further, this sensitivity analysis assumes no changes in the Company’s
      financial structure.




***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 90 day trade credit to our largest
      customers, which tend to be well-established and large businesses, and we have
      not seen any accounts receivable go uncollected beyond 90 days or experienced
      any 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 3.9%, 1.8% and 1.5% in 2004, 2005 and
      2006, respectively. However, in the fiscal year ended December 31, 2007,
      according to NBS, CPI rose significantly at a monthly average rate of 4.8%.
      Especially during the months of August, September, October, November, and
      December, CPI was up 6.5%, 6.2%, 6.5%, 6.9% and 6.5%, 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
              8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





Balance
      sheets, as of December 31, 2007 and December 31, 2006, and statements of
      operations, stockholders’ equity and cash flows for each of the three years in
      the period ended December 31, 2007, and for the statement of operations and
      cash
      flow for the period of August 5, 2004 through December 31, 2007, together with
      the related notes and the reports of independent registered public accounting
      firms, are set forth on the “F” pages of the Form 10-K.





35




**ITEM
              9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**





ITEM 9A (T).
            CONTROLS
                AND PROCEDURES





EVALUATION
      OF INTERNAL CONTROLS AND PROCEDURES





The
      Company's Chief Executive Officer and Chief Financial Officer have reviewed
      and
      evaluated the effectiveness of our disclosure controls and procedures, which
      included inquiries made to certain other of the Company's employees. Based
      on
      their evaluation, the Company's Chief Executive Officer and Chief Financial
      Officer have each concluded that, as of December 31, 2007, the Company's
      disclosure controls and procedures were effective and sufficient to ensure
      that
      we record, process, summarize and report information required to be disclosed
      by
      the Company in its periodic reports filed under the Securities and Exchange
      Commission's rules and forms.





MANAGEMENT'S
      REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting. The Company's internal control over financial
      reporting is designed to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting principles in the
      United States of America. The Company's internal control over financial
      reporting includes those policies and procedures that: (i) pertain to the
      maintenance of records that, in reasonable detail, accurately and fairly reflect
      the transactions and dispositions of the assets of the Company; (ii) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles in the United States of America, and that receipts and
      expenditures of the Company are being made only in accordance with
      authorizations of management and directors of the Company; and (iii) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of the Company's assets that could have a
      material effect on the financial statements.





Any
      system of internal control, no matter how well designed, has inherent
      limitations, including the possibility that a control can be circumvented or
      overridden and misstatements due to error or fraud may occur and not be detected
      in a timely manner. Also, because of changes in conditions, internal control
      effectiveness may vary over time. Accordingly, even an effective system of
      internal control will provide only reasonable assurance with respect to
      financial statement preparation.





Management
      assessed the effectiveness of the Company's internal control over financial
      reporting as of December 31, 2007. In making this assessment, management used
      the criteria set forth by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO) in "Internal Control-Integrated Framework." Based
      on
      management's assessment using the COSO criteria, management has concluded that
      the Company's internal control over financial reporting was effective as of
      December 31, 2007.





This
      annual report does not include an attestation report of the Company's registered
      public accounting firm regarding internal control over financial reporting.
      Management's report was not subject to attestation by the Company's registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the company to provide only management's report
      in this Annual Report.





CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING





The
      Copperweld acquisition during the quarter ended December 31, 2007, added two
      additional plants to our Company and increased the burden of employing adequate
      controls over financial reporting. We believe that the controls over financial
      reporting in place at Copperweld at the time of acquisition were and remain
      adequate. Management has reviewed these controls and believes that .there was
      no
      condition with the Company’s internal control over financial reporting that
      materially affected, or was reasonably likely to materially affect, this
      control.





**ITEM
              9B.**
            **OTHER
                INFORMATION**





There
      were no matters required to be disclosed on Form 8-K during the quarter ended
      December 31, 2007 which were not disclosed on such form.





**Report
      of Independent Registered Public Accounting Firm**





**PART
      III**




**ITEM
              10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**




**Our
      Directors and Executive Officers**




The
      following are our Directors and Executive Officers. The same persons also have
      been elected as directors of Fushi Holdings and Fushi International (Dalian)
      and
      hold similar positions with each of these entities. Except for, Christopher
      Finley and James Todd each of our current executive officers and directors
      is a
      resident of the PRC.





Directors
                and Executive Officers
            
            Position/Title
            
            AgeLi
                Fu
            
            Chairman
                of Board and CEO
            
            42Yue
                Mathus Yang
            
            President,
                Director
            
            40Wenbing
                Christopher Wang
            
            Chief
                Financial Officer
            
            37J.
                Christopher Finley
            
            EVP,
                Chief Operating Officer
            
            48James
                A. Todd
            
            EVP,
                Corporate Controller
            
            64Barry
                Raeburn
            
            Director
            
            36Feng
                Bai
            
            Director
            
            37Jiping
                Hua
            
            Director
            
            66




36




All
      of
      our directors hold office until the next annual meeting of shareholders, and
      until their successors have been qualified after being elected or appointed.
      On
      January 21, 2008 Mr. Yang resigned as our director and as an officer at Fushi
      Copperweld and Dalian Fushi and Mr. Wang was appointed President and a Director.
      Officers serve at the discretion of our Board of Directors.




The
      following is a description of the business experience for the last five years
      for each of the above named directors and executive officers of our company,
      Fushi Holdings, Fushi International (Dalian) and Dalian Fushi.




*Mr.
      Li Fu* was
      appointed our Chairman and CEO on December 13, 2005. Mr. Fu is a founder of
      Dalian Fushi and has been the Executive Director of Dalian Fushi since he
      founded the company in 2001. Prior to founding Dalian Fushi and focusing his
      time on Dalian Fushi's management and operations, Mr. Fu had founded and managed
      Dalian Fushi Enterprise Group Co., Ltd., a holding company owning various
      subsidiaries in the hotel, process control instrumentation, international trade,
      automobile maintenance and education businesses. Mr. Fu graduated from PLA
      University of Science and Technology with a degree in Engineering.




*Mr.
      Yue Mathus Yang* was
      appointed a director and President of our company on December 13, 2005 and
      served in both positions until January 21, 2008. He has served as the General
      Manager of Dalian Fushi since November 2004. Mr. Yang is the founder of Forward
      Investment Co., Ltd and has served as its Chairman since 2000. Prior to that,
      Mr. Yang worked for Liaoning Province Economic & Trade Collaboration
      Enterprise Group as an Executive VP from 1994 to 1998 and the Export Department
      of Liaoning Province Chemicals Import & Export Corporation as a Business
      Manager from 1990 to 1994. Mr. Yang graduated from Shenyang Finance University
      with a Bachelor's Degree in International Trade.





*Mr.
      Wenbing Christopher Wang* has
      served as our Chief Financial Officer since December 13, 2005 and on January
      21,
      2008 was appointed as our President and director. Mr. Wang has served as Chief
      Financial Officer of Dalian Fushi since March 2005. Mr. Wang served as an
      Executive Vice President of Redwood Capital, Inc. from November 2004 to March
      2005, with specific focus on providing strategic and financial advisory services
      to China based clients seeking access to the U.S. capital markets. Mr. Wang
      previously served as Assistant VP of Portfolio Management at China Century
      Investment Corporation from October 2002 to September 2004. Mr. Wang began
      his
      investment banking career at Credit Suisse First Boston (HK) Ltd in 2001. From
      1999 to 2000, Mr. Wang worked for VCChina as Management Analyst. Fluent in
      both
      English and Chinese, Mr. Wang holds an MBA in Finance and Corporate Accounting
      from Simon Business School of University of Rochester.




*Mr.
      J. Christopher Finley* joined
      Fushi Copperweld as Chief Operating Officer on October 29, 2007. Mr. Finley
      was
      employed by Copperweld Bimetallics, LCC prior to its acquisition by Fushi.
      He
      began as the Manager of Business Development and Technology and subsequently
      worked as an Operations Manager and Vice President of Operations. In May 2007,
      he was promoted to Chief Executive Officer of Copperweld. Mr. Finley has over
      20
      years of experience in manufacturing and operations, including being the
      President and founder of Carolina Core Conductor, a manufacturer of copper
      plated steel for over two years prior to being acquired by Copperweld in
      2004.




*Mr.
      James A. Todd* was
      appointed to serve as Controller on October 29, 2007. Mr. Todd was Chief
      Financial Officer of Copperweld Bimetallics, LLC. and previously, Mr. Todd
      had
      been a co-principal of James A. Todd Associates providing consulting services
      relating to corporate management, financial services management and delivery
      to
      individuals, small companies and to the financial services industry. Prior
      to
      that, he was President, CEO, and Chairman of AF Financial Group, the holding
      company for AF Bank, AF Insurance Services, Inc. and AF Brokerage, Inc. from
      1994 to 2004.





*Mr.
      Barry L Raeburn* has
      served as our director since June 15, 2007. Mr. Raeburn holds considerable
      expertise in international business operations with a specific focus on equity
      finance, corporate finance, mergers and acquisitions, and corporate risk
      management. From November 2007 through the present, Barry Raeburn is Chief
      Financial Officer and Chief Operating Officer of LS2, Inc a government services
      contractor based in Reston VA. From September 2005 to October 2007, Mr. Raeburn
      was Executive Vice President of Finance and Corporate Development for Harbin
      Electric, a developer and manufacturer of customized linear motors and other
      special electric motors based in China. During his tenure at Harbin Electric
      as
      Head of U.S Operations, he led the company in their successful upgrade listing
      to the NASDAQ Stock Exchange, assisted in various M&A evaluations, and
      provided key leadership in the areas of finance, accounting, investor and public
      relations, SEC compliance, corporate governance, and administration. Mr. Raeburn
      has extensive experience in global public equity markets. From to April 2003
      to
      September 2005, Mr. Raeburn worked as a specialty technology analyst an
      investment bank covering early stage companies within multiple industries.
      Mr.
      Raeburn also spent the prior 6 years at a multi-billion dollar investment
      advisory firm as a financial analyst responsible for developing various
      quantitative ranking models and analyzing equity investments. His previous
      experience also includes forecasting and analysis of major macro economic
      activity. Mr. Raeburn graduated in 1996 with his BBA degree in Finance and
      Risk
      Management from Temple University.




37





*Mr.
      Feng Bai* has
      served as our Director since June 15, 2007. Mr. Feng Bai founded Lighthouse
      Consulting Ltd. in Hong Kong in February 2003 and has been its Managing Director
      since then. Mr. Bai has been active in advising foreign corporations to invest
      and setup joint ventures in the PRC. Since 1999, Mr. Bai has been doing business
      in China mainly in consulting, investment and distribution. From 1997 to 1999,
      Mr. Bai was employed by the investment banking division of Banco Santander,
      focusing on clients and transactions in Asia. Mr. Bai received his M.B.A. degree
      from Harvard Business School in 1997 and graduated from Babson College in 1993
      with a B.S. in Finance/Investment and International Business Administration.
      Mr.
      Bai presently also sits on the board of Harbin Electric, Inc.





*Mr.
      Japing Hue* has
      served as our Director since June 15, 2007.Mr. Hue has been Chairman of China
      Optical & Electrical Cable Association since 2000 and is a preeminent expert
      in the wire and cable industry of People’s Republic of China. He brings to Fushi
      over 40 years of experience focused on the research and development of special
      cable and new materials applications. He was one of the major authors of the
      widely used textbook, “Information Transmission Line and Applications”. Over the
      years, Mr. Hua has been awarded the prestigious title of “Expert with
      Outstanding Contributions” by the Ministry of Electrical Industry of China and
      has been the recipient of National Special Allowance to Outstanding Scientists
      from the Chinese government. Mr. Hua was also a member of the 10 th Shanghai
      People’s Congress, former President of the 23 rd Research
      Institute of Electronics Industry, Fellow of the China Institute of Electronics
      (CIE), Senior Member of the Institute of Electrical and Electronics Engineers
      (IEEE) and Director of the Shanghai Science & Technology Veterans
      Association. Mr. Hua graduated from the Shanghai Jiao Tong University in 1962
      with a BS in Electrical Engineering.





**Family
      Relationships**




There
      are
      no family relationships among our directors or executive officers.





**Section 16(a)
      Beneficial Ownership Reporting Compliance**





Section 16(a)
      of the Securities Exchange Act of 1934, as amended, requires the Company’s
      directors, executive officers and persons who own more than 10% of the Company’s
      Common Stock to file reports of ownership and changes in ownership on Forms
      3, 4
      and 5 with the Securities and Exchange Commission (the “SEC”). Directors,
      executive officers and greater than 10% stockholders are required by SEC rules
      to furnish the Company with copies of Section 16(a) forms they file.





The
      Company believes that all of its directors, executive officers and greater
      than
      10% beneficial owners complied with all filing requirements applicable to them
      in 2007.





***Codes
      of Ethics.*** The
      Company has adopted a Code of Business Conduct and Ethics (“Code”), and a Code
      of Ethics for the Principal Executive Officer and Senior Financial Officers.





As
      described in the Code, the Company does not permit activities that give rise
      to
      conflicts of interest by directors, executive officers or employees. With regard
      to directors, the Corporate Governance Guidelines establish directors’ duties to
      adhere to the Code, specifically including the policies on conflicts of interest
      expressed therein, and to avoid any action, position or interest that conflicts
      with an interest of the Company, or gives the appearance of a conflict.





Our
      Code
      is available on our website at www.fushicopperweld.com. Any amendment to, or
      waiver from, a provision of the Code of ethics will be posted on our website
      or
      in a report on Form 8-K.





**Meetings
      and Committees of the Board of Directors**




The
      Board
      of Directors met four times during the fiscal year. In addition to meetings
      of
      the full Board, directors attended meetings of Board committees on which they
      served. The Board’s standing committees are the Audit, Compensation and
      Nominating Committees.




**Committee
      Membership**





The
      following table shows the current membership on the standing committees:





**Name**
            
            **Audit**
            
            **Compensation**
            
            **Nominating**Barry
                Raeburn
            
            Chair
            
            Member
            
            MemberFeng
                Bai
            
            Member
            
            Chair
            
            MemberJiping
                Hua
            
            Member
            
            Member
            
            Chair





*Audit
      Committee.*





The
      Board
      of Directors has an Audit Committee established in accordance with section
      3(a)(58) of Securities Exchange Act of 1934 (the “Exchange Act”). The Board of
      Directors has determined that each of the members of the Audit Committee is
      “independent,” as defined in the corporate governance listing standards of
      NASDAQ and Rule 10A-3 under the Exchange Act relating to audit committees.
      In addition, the Board has determined that all members of the Audit Committee
      are financially literate and that Mr. Barry Raeburn qualifies as an “audit
      committee financial expert” as defined by the Securities and Exchange
      Commission.





The
      committee assists the Board in fulfilling its oversight responsibilities
      relating to:




· our
      auditing, accounting and reporting practices;


· the
      adequacy of our systems of internal controls;


· and
      the quality and integrity of publicly reported financial disclosures.





In
      this
      role, the committee appoints the independent auditors and reviews and approves
      the scope of the audit, the financial statements and the independent auditors’
fees. The Audit Committee met three times during the fiscal year, and the
      Chairman met quarterly with management and the external auditors prior to the
      release of our financial results.




38




The
      Audit
      Committee exercises the powers of the Board of Directors in connection with
      our
      accounting and financial reporting practices, and provides a channel of
      communication between the Board of Directors and independent registered public
      accountants.





*Compensation
      Committee.*





The
      Compensation Committee is comprised of three directors who meet the independence
      requirements of NASDAQ, are “non-employee directors” for purposes of Rule 16b-3
      under the Securities Exchange Act of 1934 and are “outside directors” for
      purposes of Section 162(m) of the Internal Revenue Code. The purpose of our
      compensation committee is to discharge the responsibilities of our board of
      directors relating to compensation of our executive officers. Specific
      responsibilities of our compensation committee include:




·reviewing
      and recommending approval of
      compensation of our executive officers;


·administering
      our stock incentive plan;


·and
      reviewing and making recommendations to
      our board with respect to incentive compensation and equity plans.





The
      Compensation met two times during the fiscal year.





*Nominating
      Committee* **.**





This
      committee is comprised of three directors who meet the independence requirements
      of NASDAQ. This committee identifies and recommends candidates for Board
      membership. The committee also considers the size, structure and general
      composition of the Board. The Nominating Committee met one time during the
      fiscal year.





**ITEM
                  11.**
                **EXECUTIVE
                    COMPENSATION**


**COMPENSATION
      DISCUSSION AND ANALYSIS**




**Introduction
      and Corporate Governance**





Our
      Compensation Committee (which is referred to herein as the “Committee” or as the
“Compensation Committee”) oversees and administers our executive compensation
      programs. The Committee seeks to ensure that the total compensation paid to
      our
      named executive officers is fair, reasonable and competitive. The Committee’s
      complete roles and responsibilities are set forth in the written charter adopted
      by the Board of Directors, which can be found at *www.fushicopperweld.com* under
“Corporate Governance.” The Board of Directors selected the following three
      individuals to serve on the Committee on July 3, 2007: Feng Bai (Chair), Barry
      L. Raeburn, and Ji Ping Hua. All of these individuals qualify as independent
      directors under the rules of the NASDAQ Stock Exchange. The Compensation
      Committee is comprised entirely of non-employee directors.




The
      Committee meets at regularly scheduled times during the year and on an ad hoc
      basis as business needs necessitate. During the fiscal year ended December
      31,
      2007, the Committee held two ad hoc meeting. As part of his duties as the
      Committee Chair, Mr. Bai reports on Committee actions and recommendations to
      the
      Board of Directors.





**Executive
      Compensation Philosophy and Objectives**





Our
      compensation program for the individuals named in the Summary Compensation
      Table
      (the “named executive officers”) is designed and implemented to maximize value
      for shareholders over the long term. Competing for talent in the rapidly
      changing and increasingly competitive. The quality of the Company’s talent is a
      key driver of long-term stockholder value. Establishing and maintaining
      executives’ long-term commitment to us is critical to the development of our
      product pipeline, as development of new products often takes three years or
      more, and time to market is critical to our business success.





The
      Committee was organized in July of 2007 and set out to establish basic
      principles for compensating the Company’s personnel and to assess the current
      compensation structure of the Company. The primary actions by the Committee
      in
      fiscal year 2007 were to insure that senior executives, key employees and
      consultants were provided incentives to meet the Company’s short term objectives
      in the PRC and to provide similar incentives to executives at Copperweld after
      it was acquired in October of 2007. In fiscal year 2008 the Committee plans
      to
      evaluate and establish a performance based compensation plan substantially
      in
      the form described below.





Our
      compensation philosophy is based on a total rewards framework supported through
      the following objectives:




·
            to
                afford our executives a competitive total rewards opportunity relative
                to
                organizations with which we compete for executive talent,·
            to
                allow us to attract and retain superior, experienced people who can
                perform and succeed in our fast-paced, dynamic and challenging
                environment,·
            to
                support our meritocracy by ensuring that our top performers receive
                rewards that are substantially greater than those received by average
                performers at the same position level, and·
            to
                deliver pay in a cost efficient manner that aligns employees’ rewards with
                stockholders’ long-term interests.




39





***What
      is our compensation program designed to reward?***





The
      compensation program rewards superior financial, strategic and operational
      performance that is achieved in a manner consistent with the Company’s values.
      Results and how the results are attained are both critically important. Our
      executive officers are assessed on the basis of demonstrated results relative
      to
      their performance of pre-established goals, ability to assess and adapt to
      change in a timely and efficient manner, as well as demonstrated competencies
      and behavioral attributes.





**Compensation
      Program Elements and Pay Level Determination**





***What
      factors are considered in determining the amounts of
      compensation?***





The
      Compensation Committee believes that an effective executive compensation program
      should provide base annual compensation that is reasonable in relation to
      individual executive’s job responsibilities and reward the achievement of both
      annual and long-term strategic goals of our company.





The
      key
      metrics we use to measure performance differ by individual, but can be grouped
      into the following categories:




·
            Financial —
                we evaluate measures of Company financial performance, including
                revenue
                growth, gross margins, operating margins and other measures such
                as
                expense management.·
            Strategic —
                we monitor the success of our executive team in furthering the strategic
                success of the Company, including the development of the Company’s product
                pipeline.·
            Operational —
                we include operational measures in our determination of success,
                including
                our production capacity and capability, the timeliness and effectiveness
                of new product launches, the execution of important internal Company
                initiatives and customer growth and retention.




The
      Committee considers the totality of the information presented (including
      external competitiveness, the performance review, Company performance, progress
      towards strategic objectives and internal equity) and applies its knowledge
      and
      discretion to determine the compensation for each executive officer. As a
      manufacturing company operating in three continents -- Dalian, Laioning, China;
      Fayetteville, Tennessee; Telford, UK, the Committee also takes the local average
      executives’ salary level into account in its compensation decisions. The
      Committee may reassess the proper level of equity and cash compensation in
      light
      of the company’s improved profitability and shareholder value
      creation.





Based
      on
      the foregoing objectives, the Committee has structured the Company’s annual cash
      and incentive-based cash and non-cash executive compensation to motivate
      executives to achieve the business goals set by the Company, to reward the
      executives for achieving such goals, and to retain the executives. In designing
      the employment agreement with our Chief Operating Officer, Christopher Finley,
      and Corporate Controller, James Todd, the Committee employed outside
      compensation consultants from Weil Gatshal & Manges LLP. Specifically, the
      Committee utilized the consultant service and research data primarily from
      Salary.com to set compensation for the two executive officers at levels targeted
      at or around the average of the compensation amounts provided to executives
      at
      comparable local companies considering, for each individual, their individual
      experience level related to their position with us. There is no pre-established
      policy or target for the allocation between either cash and non-cash incentive
      compensation.




***What
      is each element of compensation and why is it paid?***





Each
      of
      the two elements serves an important role in supporting the Fushi Copperweld
      pay-for-performance philosophy and in realizing our compensation program
      objectives:





*Base
      Compensation.*





The
      Company provides named executive officers and other employees with a base salary
      to compensate them for services rendered during the fiscal year. Base salary
      ranges for the named executive officers are determined for each executive based
      on his or her position and responsibility.




During
      its review of base salaries for executives, the Committee primarily considers:





·
            the
                negotiated terms of each executive employment
                agreement;


·
            internal
                review of the executive’s compensation, both individually and relative to
                other executive officers;


·
            and
                individual performance of the
                executive.





Salary
      levels are typically considered annually as part of the company’s performance
      review process, as well as upon a change in job responsibility. The Committee
      considers the facts presented by each individual case including but not limited
      to the employee’s longevity with the Company, his or her educational background
      and experience, the particular responsibilities of his or her position, the
      compensation of others with similar background credentials and responsibilities,
      and his or her past level of performance, as well as prospective
      assumptions.  It is important for the Company to remain competitive
      with not only its domestic competition, but also its competitors participating
      in world markets.  Therefore, the Company attempts at all levels of
      management and operations to control costs such that the Company can strive
      for
      a relatively low-cost structure.  Merit-based increases to salaries
      are based on the Committee’s assessment of the individual’s performance. This
      element is important because, in our experience, prospective employees view
      salary levels as the most important determinant of where they choose to
      work.  In order to maintain an advantageous cost structure, it is
      necessary that the Company provide enhancement to base compensation when certain
      levels of profitability are achieved.




40




Mr.
      Christopher Finley and Mr. James Todd joined our company during this fiscal
      year. Base salary for our Chief Executive Officer, Mr. Li Fu in 2007 has not
      been changed from the base salary in effect during the prior year. Base salary
      for our Chief Financial Officer, Mr. Christopher Wang was increased from
      $120,000 to $180,000 on an annual basis, effective November 2007.





*Long-Term
      Incentive Compensation.*





The
      Company also provides to senior managers a long-term incentive component to
      compensation.  Prior to July 2007, the vehicle for this component was
      a 500,000 unqualified stock options granted to individuals by the Board of
      Directors which were not governed by any formal plan. In October of 2007,
      the Fushi International, Inc. 2007 Stock Incentive Plan was approved by our
      majority stockholder and the Committee may award incentives through grants
      of
      options, stock appreciation rights, restricted stock, performance shares and
      other stock based awards under the 2007 Stock Incentive Plan. Currently our
      option grants vest incrementally over a period of two to three years and
      terminate two years after the vesting date. Due to the rapid growth of our
      business in the PRC and increasing worldwide demand we believe the program,
       over time, will provides an incentive for the executive to achieve short
      term goals while remaining with the Company over the long term, as executives
      exercise their options and continue to hold our common stock
      .




The
      Compensation Committee understands that the costs of stock grants under the
      Plan
      are a tax deductible expense to the Company measured on the date of
      vesting.  Cash compensation is a direct expense to the Company in the
      time frame dictated by applicable accounting rules.




The
      granting of awards under the 2007 Stock Incentive Plan begins with a
      determination by the Committee of the dollar value of the stock available to
      be
      awarded for performance. The awards are made based on the total number of shares
      available to be awarded is determined by dividing the previously determined
      dollar value of available stock by the average of the high and low sales prices
      on the trading day immediately prior to the determination date. The number
      of
      shares so determined is the maximum number that may be awarded.




The
      senior executives and the Committee also agree upon specific milestones, largely
      comprised of measurable business metrics which can be impacted by management.
      The Committee reviews progress towards the goals and evaluates performance.
      Based on its evaluation, the Committee grants awards to the participants as
      it
      deems appropriate.




The
      Committee has and uses its discretion to determine the number of shares awarded
      to each named executive officer. The Committee does not use multiple levels
      of
      performance which are tied to multiple levels of awards. Rather, it subjectively
      evaluates the extent to which an executive officer has achieved or made progress
      toward achieving the officer’s goals after considering the available data and it
      then uses its collective judgment to make awards it believes to be appropriate
      to the level of performance.




Corporate
      goals for 2007 included both financial and operating
      targets.  Financial targets included, among others, revenue and profit
      growth, return on invested capital, and cost control.  Operating
      targets included, among others, customer relationship issues, product quality
      and plant process efficiency.





Prior
      to
      July of 2007 the Board of Directors approved non-qualified option grants to
      senior management and directors to purchase an aggregate of 650,000 shares
      of
      our common stock. They were granted to management in order to align their
      interests with the shareholders and in recognition of prior services. After
      July
      2007, the Committee recommended grants of options for 125,000 shares of our
      common stock to our Chief Financial Officer and in October non-qualified options
      to purchase 325,000 shares of our common stock to key senior executives at
      Copperweld.





*Tax-deductibility
      of Compensation*





Section 162(m)
      of the Internal Revenue Code of 1986, as amended, limits to $1 million the
      amount a company may deduct for compensation paid to its CEO or any of its
      other
      four named executive officers. This limitation does not, however, apply to
      compensation meeting the definition of “qualifying performance-based”
compensation.





Management
      works with the Committee to assess alternatives to preserve the deductibility
      under Section 162(m) of compensation payments to the extent reasonably
      practicable, consistent with our compensation policies and as determined to
      be
      in the best interests of the Company and its stockholders. For the fiscal year
      ended December 31, 2007, the Company believes that the Compensation payments
      will meet the requirements of Section 162(m) of the Internal Revenue Code of
      1986, as amended.





*Perquisites
      and Personal Benefits*





In
      addition to participating in the benefit programs provided to all other
      employees (for example, medical, dental, vision, life and disability insurance,
      employee stock purchase plan), we provide certain perquisites and additional
      benefits to executives.





*Retirement
      Plans and Social Benefits*





We
      maintain a pre-tax savings plan covering substantially all U.S. employees,
      which
      qualifies under Section 401(k) of the Internal Revenue Code. Under the
      plan, eligible employees, including executive management, may contribute a
      portion of their pre-tax salary, subject to certain limitations. Under the
      laws
      of the PRC, we provide social and retirements benefits to executives and
      employees at our Dalian facility.




41




**Compensation
      Committee Interlocks and Insider Participation**




None
      of
      the Compensation Committee members is, or was ever, an officer or employee
      of
      the Company or any of its subsidiaries, nor did any of the Compensation
      Committee members have any relationship requiring disclosure by the Company
      under any subsection of Item 404 of Regulation S-K promulgated by the
      SEC. During the last fiscal year, none of the executive officers of the Company
      served on the board of directors or on the compensation committee of any other
      entity, any of whose executive officers served on the Board.





**Compensation
      Committee Report**




The
      Compensation Committee, comprised of independent directors, reviewed and
      discussed the Compensation Discussion and Analysis set forth above with the
      Company’s management. Based on such review and discussion, the Compensation
      Committee recommended to the Board of Directors that the Compensation Discussion
      and Analysis be included in the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2007 and in the proxy statement.





**Compensation
      Committee:**





Feng
      Bai
      (Chairman)


Barry
      L
      Raeburn


Ji
      Ping
      Hua





**COMPENSATION
      TABLES**





The
      following table shows the compensation (in $’000) paid to or earned by the named
      executive officers during the fiscal year ended December 31, 2007.





**Name and****'Principal** **Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock**
              **Awards**
              **($) (1)**
            
            **Option**
              **Awards**
              **($) (2)**
            
            **Non-Equity**
              **Incentive Plan**
              **Compensation****($) (3)**
            
            **Change in**
              **Pension Value**
              **and**
              **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings ($)****(4)**
            
            **All Other**
              **Compensation****($) (5)**
            
            **Total**
              **($)**(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)
            
            (g)
            
            (h)
            
            (i)
            
            (j)Li
                Fu(1)
            
            
            2007
            
            $
            240
            
            $
            -
            
            $
            -
            
            $
            318
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            558Chief
                Executive Officer, Director
            
            
            2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -2005
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Yue
                Mathus Yang(2)
            
            
            2007
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            191
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            191President,
                Director
            
            
            2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -2005
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Wenbing
                Christopher Wang
            
            
            2007
            
            $
            130
            
            $
            -
            
            $
            -
            
            $
            922
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            1,052President,
                Chief Financial Officer
            
            
            2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -2005
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -J.
                Christopher Finley
            
            
            2007
            
            $
            200
            
            $
            -
            
            $
            -
            
            $
            83
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            283Chief
                Operating Officer
            
            
            2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -2005
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -James
                Todd
            
            
            2007
            
            $
            144
            
            $
            -
            
            $
            -
            
            $
            59
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            203Financial
                Controller
            
            
            2006
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -2005
            
            $
            
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -





*Notes
      to Summary Compensation Table*





*Mr.
                Fu's*annual salary is $240,000 per year. Mr. Fu elected to forego his
                salary in
                fiscal years 2005 and 2006 in exchange for the receipt of options
                to
                purchase 200,000 shares of our common stock granted on May 21, 2007.
                The
                options have an exercise price of $12.30 with 33,334 shares vesting
                immediately and 25,000 shares vesting for the initial 4 quarterly
                periods
                and 16,677 shares for the next 4 quarterly periods thereafter. The
                options
                expire 2 years after each vesting date Mr. Fu may receive adiscretionary
                bonus, performance based awards, is subject to termination for cause
                and
                receives labor-related benefits in conformance with PRC labor laws.
              
              *Mr.
                Yang*'s
                annual salary is $180,000 per year. Mr. Fu elected to forego his
                salary in
                fiscal years 2005 and 2006 in exchange for the receipt of options
                to
                purchase 50,000 shares of our common stock granted on May 21, 2007.
                The
                options have an exercise price of $12.30 with 33,334 shares vesting
                immediately and 8,333 shares vesting for 2 quarterly periods thereafter.
                The options expire 2 years after each vesting date. Mr. Yang resigned
                from
                the Company on January 21, 2008.
              
              *Mr.
                Wang*'s
                annual salary was $120,000 per year until November 2007 and increased
                to
                $180,000 per year since then. Mr. Wang elected to forego his salary
                in
                fiscal years 2005 and 2006 in exchange for the receipt of options
                to
                purchase 100,000 shares of our common stock granted on May 21, 2007.
                The
                options have an exercise price of $12.30 with 33,334 shares vesting
                immediately and 8,333 shares vesting for 8 quarterly periods thereafter.
                The options expire 2 years after each vesting date. Mr. Wang may
                receive adiscretionary
                bonus, performance based awards, is subject to termination for cause
                and
                receives labor-related benefits in conformance with PRC labor laws.
                On
                September 27, 2007, the Company granted to Mr. Wang a non-qualified
                stock
                option to purchase 125,000 shares of its Common Stock vesting immediately
                at an exercise price of $13.70 and terminating in four years from
                the date
                of its grant. The option grant was approved by the Compensation Committee
                of the Board of Directors of the Company in consideration of Mr.
                Wang’s
                efforts on behalf of
                the Company.




42




*Mr. Finley*’s
              term of employment is for two (2) years commencing October 29, 2007
              and
              automatically extended for additional two (2) year terms unless six
              (6)
              months prior written notice of nonrenewal is given by Mr. Finley or
              the Company. Mr. Finley receives a base salary of $200,000 per year,
              with such amount available to increase at the discretion of the Board
              of
              Directors of the Company. Mr. Finley is eligible to participate in
              any
              annual cash bonus plan that is generally available to senior executives
              of
              the Company. In connection with Mr. Finley’s employment, the Board of
              Directors has approved a non-qualified stock option grant to Mr. Finley
              in
              the amount of 190,000 shares of common stock of the Company vesting
              over a
              two (2) year period with 12.5% of the options vesting each quarter
              for
              eight (8) quarters pursuant to the Fushi International, Inc. 2007 Stock
              Incentive Plan. All shares pursuant to the option must be exercised
              within
              three years after the date of the vesting. If the Company terminates
              Mr.
              Finley without cause or if Mr. Finley terminates his employment for
              Good Reason (as defined therein), Mr. Finley is entitled to receive
              (i) a
              lump sum cash payment equal to any accrued and unpaid salary and bonus;
              (ii) an amount equal to the sum of (a) 50% of his then current base
              salary
              and (b) 50% of the average annual cash bonus payments during the preceding
              3 fiscal years, with such sum payable in 6 substantially equal monthly
              installments; (iii) 6 months of health insurance; and (iv) the
              reimbursement of any expenses. If the Company terminates Mr. Finley’s
              employment with Cause, he is entitled to his accrued and unpaid salary
              and
              accrued and unpaid bonus through the effective date of termination
              as well
              as the reimbursement of any expenses. During the term of Mr. Finley’s
              employment with the Company and for 12 months thereafter, he is not
              allowed to engage in certain competitive activities with the Company.
              During the term of his employment and for 18 months thereafter, Mr.
              Finley
              cannot solicit any employees or customers of the
              Company.
              
              *Mr. Todd*’s
                  term of employment is for two (2) years commencing October 29,
                  2007 and
                  automatically extended for additional two (2) year terms unless
                  six (6)
                  months prior written notice of nonrenewal is given by Mr. Todd or the
                  Company.  Mr. Todd receives a base salary of $144,000 per year,
                  with such amount available to increase at the discretion of the
                  Board of
                  Directors. Mr. Todd is eligible to participate in any annual cash
                  bonus
                  plan that is generally available to senior executives of the Company.
                  In
                  connection with Mr. Todd’s employment, the Board of Directors has approved
                  a non-qualified stock option grant to Mr. Todd in the amount of
                  135,000
                  shares of common stock of the Company vesting over a two (2) year
                  period
                  with 12.5% of the options vesting each quarter for eight (8) quarters
                  pursuant to the Fushi International, Inc. 2007 Stock Incentive
                  Plan. All
                  shares pursuant to the option must be exercised within three years
                  after
                  the date of the vesting. If the Company terminates Mr. Todd without
                  Cause
                  (as defined therein) or if Mr. Todd terminates his employment for
                  Good Reason (as defined therein), Mr. Todd is entitled to receive
                  (i) a
                  lump sum cash payment equal to any accrued and unpaid salary and
                  bonus;
                  (ii) an amount equal to the sum of (a) 50% of his then current
                  base salary
                  and (b) 50% of the average annual cash bonus payments during the
                  preceding
                  3 fiscal years with such sum payable in 6 substantially equal monthly
                  installments; (iii) 6 months of health insurance; and (iv) the
                  reimbursement of any expenses. If the Company terminates Mr. Todd’s
                  employment with Cause, he is entitled to his accrued and unpaid
                  salary and
                  accrued and unpaid bonus through the effective date of termination
                  as well
                  as the reimbursement of any expenses. During the term of Mr. Todd’s
                  employment with the Company and for 12 months thereafter, he is
                  not
                  allowed to engage in certain competitive activities with the Company.
                  During the term of his employment and for 18 months thereafter,
                  Mr. Todd
                  cannot solicit any employees or customers of the Company. Mr. Todd is
                  also entitled to a life insurance policy in an amount of
                  $144,000.
                
                Non-employee
                    directors are paid an annual retainer of $15,000, and a stock
                    based
                    compensation Award. In 2007, each director elected to received
                    options to
                    purchase 50,000 of our common stock with options to purchase12,500
                    shares vesting on June 15, 2007 and options to purchase 4,687vesting
                    each of the next 8 quarterly periods. The options have an exercise
                    price
                    of $11.75 per share which was the fair market value of the underlying
                    common stock at the time of the grant. The unvested options granted
                    to the
                    directors are subject to forfeiture upon the occurrence of certain
                    events.
                    In addition, directors are compensated $1,000 for each board
                    meeting
                    attended; and $500 for attendance at committee meetings. The
                    Audit
                    Committee Chair receives additional annual compensation of $5,000.
                    Directors are reimbursed for travel and other expenses related
                    to
                    attendance at meetings. Directors who are employees are not paid
                    extra
                    compensation for service on the Board or any committee of the
                    Board.





**Employment
      Agreements**





Effective
      November 8, 2005, the Company entered into employment agreements with Mr. Fu,
      our Chief Executive Officer, Mr. Yang, our President, Mr. Wang, our Chief
      Operating Officer. Their employment with the Company is for an indefinite period
      unless terminated by the Company or the Executive. Their compensation is subject
      to an annual review by the Compensation Committee of the Board of Directors.
      The
      agreements also set forth their respective duties and confidentiality
      responsibilities.





On
      October 29, 2007, Mr. Finley and Mr. Todd entered into an Executive Employment
      Agreement with the Company which provides that Mr. Finley and Mr. Todd will
      serve as Chief Operating Officer and Corporate Controller of the Company.
      Details of the contracts are disclosed in notes provide above.




43




*Adoption
      of 2007 Stock Incentive Plan*




On
      October 24, 2007 the Board of Directors (the “Board of Directors”) of Fushi
      International, Inc. (the “Company”) approved the adoption of the Fushi
      International, Inc. 2007 Stock Incentive Plan (the “2007 Plan”). The Board of
      Directors adopted the 2007 Plan to enhance the profitability and value of the
      Company for the benefit of its stockholders by enabling the Company to offer
      eligible employees, consultants and non-employee directors cash and stock-based
      incentives and to attract, retain and reward such individuals. In addition
      the
      Board of Directors authorized the officers of the Company to prepare and file
      a
      Form S-8 registering the shares of Common Stock authorized under the 2007 Plan
      and a resale registration statement covering officers, directors and control
      persons of the Company. The majority stockholder of the Company approved the
      2007 Plan and the related filings with the Commission in a written consent
      shortly after the meeting of the Board of Directors on October 24,
      2007.





The
      2007
      Plan became effective after the effective date of the Schedule 14C that was
      filed with the Securities and Exchange in connection with the approval of the
      2007 Plan by the majority stockholder. The 2007 Plan is administered by a
      committee consisting of all of the members of the Compensation Committee of
      the
      Company. All officers and key employees, and directors of, and consultants
      to
      the Company and its subsidiaries and affiliates, who are responsible for or
      contribute to the management, growth and/or profitability of the business of
      the
      Company and/or its subsidiaries and affiliates are eligible for participation
      in
      the 2007 Plan. Eight Hundred Thousand (800,000) shares of Common Stock have
      been
      authorized for the 2007 Plan, subject to an increase of up to 10% of the
      Company’s issued and outstanding Common Stock, and any shares that may become
      available for issuance under awards under the 2007 Plan as a result of
      expiration or forfeiture. The Company may issue stock options, stock
      appreciation rights, restricted stock awards, restricted stock units,
      performance awards and other stock-based awards under the 2007
      Plan.





**2007
      Grants of Plan-Based Awards**


(in
      thousands, except per share data)




The
      following table shows additional information regarding all grants of plan-based
      awards made to our named executive officers for the year ended December 31,
      2007.




**Name**
              **(a)**
            
            **Grant**
              **Date**
              **(b)**
            
            **All Other**
              **Stock**
              **Awards:**
              **Number of**
              **SecuritiesStocks or**
              **Units (#)**
              **(i)**
            
            **All otherOption**
              **Awards :**
              **Number of**
              **Securities**
              **Underlying**
              **Options**
              **(#)(1)**
              **(j)**
            
            **Exercise or**
              **Base Stock**
              **and Option**
              **Awards**
              **($/sh)**
              **(k) (2)**
            
            **Grant Date**
              **Fair Value of**
              **Awards**
              **(3)**J.
                Christopher Finley
            
            
            10/29/2007
            
            
            
            
            
            190,000
            
            $
            18.69
            
            
            4.84James
                Todd
            
            
            10/29/2007
            
            
            
            
            
            135,000
            
            $
            18.69
            
            
            4.84




*Notes
      to 2007 Grants of Plan-Based Awards Table*


Please
      see notes to Summary Compensation Table.





**Director
      Compensation**




**DIRECTOR
                COMPENSATION**




**Name**
            
            **Fees**
              **Earned**
              **or Paid**
              **in Cash**
              **($) (2)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($) (3)**
            
            **Non-Equity**
              **Incentive Plan**
              **Compensation**
              **($)**
            
            **Change in**
              **Pension Value**
              **and**
              **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings ($)**
            
            **All Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)**Li
                Fu (1)Yue
                Mathus Yang (1)Feng
                Bai
            
            
            
            
            
            11.5
            
            
            
            
            
            
            
            
            96.8
            
            
            
            
            
            -
            
            
            
            
            
            **-**
            
            
            
            
            
            -
            
            
            108.3Barry
                Raeburn
            
            
            
            
            
            14.5
            
            
            
            
            
            
            
            
            96.8
            
            
            
            
            
            -
            
            
            
            
            
            **-**
            
            
            
            
            
            -
            
            
            111.3Jiping
                Hua
            
            
            
            
            
            11.5
            
            
            
            
            
            
            
            
            96.8
            
            
            
            
            
            -
            
            
            
            
            
            **-**
            
            
            
            
            
            -
            
            
            108.3





(1)
            Mr.
                Fu and Mr. Yang do not receive additional compensation for their
                role as
                Directors. For information relating to Mr. Fu’s compensation as Chairman
                and Chief Executive Officer and Mr. Yang’s compensation as President, see
                the Summary Compensation Table above.


(2)
            The
                amounts in this column represent cash payments made to Non-Employee
                Independent Directors for attendance at meetings during the year.


(3)
            The
                amounts in this column represent the compensation cost of stock options
                awarded by the Board, except that these amounts do not include any
                estimate of forfeitures. The grant was awarded on June 17, 2007 and
                grant
                date fair value of option awards granted were determined in accordance
                with Statement of Financial Accounting Standards No. 123R (SFAS123(R))
                and
                are recognized as compensation cost over the requisite service period.
                The
                amount recognized for these awards was calculated using the Black
                Scholes
                option-pricing model, with the following assumptions: expected option
                life
                of 2 years, expected volatility 50%, dividend 0 and riskfree rate
                4.574%.




44




We
      use a
      combination of cash and stock-based compensation to attract and retain qualified
      candidates to serve on our board of directors. Directors who also are employees
      of our company currently receive no compensation for their service as directors
      or as members of board committees. In setting director compensation, we consider
      the significant amount of time that directors dedicate to the fulfillment of
      their director responsibilities, as well as the competency and skills required
      of members of our board. The current compensation schedule includes i) an annual
      cash compensation of $15,000; ii) options with the right to purchase 50,000
      of
      our common stock at exercise price equal to the grant day’s stock price, with
      12,500 shares vested immediately and the balance vesting 4,687 shares each
      quarter for eight quarters; iii) $1,000 per full board meeting attended; iv)
      $500 per full committee meeting attended. The directors’ current compensation
      schedule has been in place since June 2007. The directors’ annual compensation
      year begins with the annual election of directors at the annual meeting of
      shareholders. Periodically, our board of directors reviews our director
      compensation policies and, from time to time, makes changes to such policies
      based on various criteria the board deems relevant.





Non-employee
      directors are reimbursed for travel, lodging and other reasonable out-of-pocket
      expenses incurred in attending meetings of our board of directors and for
      meetings of any committees of our board of directors on which they serve. During
      2007, Mr. Raeburn, Mr. Bai and Mr. Hua had received or earned cash compensation
      for attending board or committee meetings of $14,500, $11,500 and $11,500,
      respectively. . In June, 2007, the Board of Directors approved a total of
      150,000 options to be issued to the three non-employee directors. Each
      non-employee director received options to purchase 50,000 shares of common
      stock
      with an exercise price of $11.75 per share in exchange for two years service.
      If
      a non-employee director is not re-elected at the annual shareholders’ meeting,
      the unvested options will be forfeited.




**ITEM
                12.**
              ****SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
                  RELATED   STOCKHOLDERS
                  MATTERS****




**Equity
      Compensation Plan Information at December 31, 2007**


The
        following table sets forth information as of December 31, 2007 regarding
        compensation plans under which the Company’s equity securities are authorized
        for issuance.
  **(a)**
              
              **(b)**
              
              **(c)****Plan
                  Category**
              
              **Number of securities**
                **to be issued upon**
                **exercise
                  of**
                **outstanding equity**
                **awards**
              
              **Weighted-average**
                **exercise
                  price of**
                **outstanding equity**
                **awards($)**
              
              **Number of securities**
                **remaining available for**
                **future
                  issuance under**
                **equity compensation plans**
                **(excluding securities**
                **reflected
                  in column(a))****Equity
                  compensation plans approved by security holders**(1)
                
                Fushi
                  International, Inc. 2007 Stock Incentive Plan.
              
              
              335,000
              
              
              18.62
              
              
              465,000
              (2)**Equity
                  compensation plans not approved by
                  security****holder****s**
                
                Issuances
                  of non-qualified options to employees(2)
              
              
              775,000
              
              $
              12.41
              
              
              —Total
              
              
              1,110,000
              
              $
              14.29
              
              
              465,000
  
 1 On
        October 24, 2007, the holder of 53.5% of the issued and outstanding common
        stock
        of the Company’s approved the adoption of the Fushi International, Inc. 2007
        Stock Incentive Plan which will be effective
        upon the filing of a definitive 14C with the Securities and Exchange Commission.
        On October 29, 2007, in connection with Mr. J. Christopher Finley’s employment
        as Chief Operating Officer and Mr. James Todd’s employment as Financial
        Controller, the Board of Directors approved a non-qualified stock option
        grant
        to Mr. Finley and Mr. Todd in the amounts of 190,000 shares and 135,000 shares
        of common stock of the Company, respectively, for a service period of two
        years,
        vesting over a two (2) year period with 12.5% of the options vesting each
        quarter for eight (8) quarters. The exercise price of the grants is $18.69.
        On
        November 13, 2007 an option was granted to Nathan J. Anderson, our Director
        of
        Investor Relations of the Company to purchase 10,000 shares of our common
        stock
        at $16.36 per share, of which 5,000 shares vested upon the date and 2,500
        shares
        vest on each of May 13, 2008 and November 13, 2008 and terminate two years
        after
        the date of vesting.
 
 2 On
        May
        21, 2007 options were granted to executives of the Company to purchase 500,000
        shares of our common stock at an exercise price of $12.30 per share vesting
        over
        two years and terminate within two years of the date of vesting. On June
        17,
        2007 options were granted to directors of the Company to purchase 150,000
        shares
        of our common stock at an exercise price of $12.30 per share vesting over
        two
        years and terminated two years after the date of vesting. On October 27,
        2007 an
        option was granted to Christopher Wang, our Chief Financial Officer to purchase
        125,000 shares of our common stock at $13.70 per share which vested upon
        the
        date of the grant and terminate three years after the date of vesting. All
        of
        the options were granted in exchange for services. All options were issued
        with
        an exercise price that equaled or exceeded fair market value on the date
        of the
        grant. The Company relied on an exemption from registration under
        Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). No
        other options were issued during the twelve months ended December 31,
        2007.





**Beneficial
      Ownership of Our Voting Securities**





The
      following table sets forth certain information as of
      March
      10, 2008 with
      respect to the beneficial ownership of each class of our voting securities
      by
      (i) any person or group owning more than 5% of each class of our voting
      securities, (ii) each director, (iii) each executive officer, and (iv) all
      executive officers and directors as a group.




In
      determining beneficial ownership of the common stock, the number of shares
      shown
      includes shares which the beneficial owner may acquire upon exercise of warrants
      or options which may be acquired within 60 days. In determining the percentage
      of common stock beneficially owned by a person on March 14, 2008, (a) the
      numerator is the number of shares of the common stock beneficially owned by
      such
      person, including shares which the beneficial owner may acquire within 60 days
      upon conversion or exercise of a derivative security (in this case the warrants)
      and (b) the denominator is the sum of (i) the total shares of common stock
      outstanding on March14, 2008 which is approximately 27,454,161 ,
      and
      (ii) the total number of shares that the beneficial owner may acquire upon
      exercise of the options and warrants. Unless otherwise stated, each beneficial
      owner has sole power to vote and dispose of the shares.




Except
      as
      otherwise stated, the address of the directors and executive officers listed
      in
      the table is c/o our company, 1 Shuang Qiang Road, Jinzhou, Dalian, People's
      Republic of China 116100.





Beneficial
                Ownershipof
                Common StockName
                  of Beneficial Owner
            
            Shares
            
            Percent**Owners
                of More than 5%**Li
                Fu
            
            
            12,096,576
            (2)
            
            41.61
            %Pope
                Asset Management LLC (1)
            
            
            3,196,260
            
            
            10.99
            %5100
                Poplar Avenue, Suite 512Memphis,
                TN 38137Citadel
                Investment Group, L.L.C.
            
            
            2,857,143
            (3)
            
            9.83
            %131
                S. Dearborn Street, 32nd FloorChicago,
                Illinois 60603**Directors
                and Executive Officers**Li
                Fu
            
            
            12,096,576
            
            
            41.61
            %Chairman
                of Board, Director,CEOWenbing
                Christopher Wang
            
            
            383,333
            (4)
            
            1.31
            %Director,
                President,Chief
                Financial OfficerJohn
                Christopher Finley
            
            
            23,750
            (5)
            
            0.08
            %Chief
                Operating OfficerJames
                Todd
            
            
            16,875
            (5)
            
            0.06
            %Financial
                ControllerFeng
                Bai
            
            
            26,561
            (5)
            
            0.09
            %DirectorJiping
                Hua
            
            
            26,561
            (5)
            
            0.09
            %DirectorBarry
                Raeburn
            
            
            26,561
            (5)
            
            0.09
            %DirectorAll
                Directors and Executive Officers as a group
            
            
            12,600,217
            
            
            43.34
            %





1)
            Pope
                Asset Management LLC, a registered investment advisor, acquired these
                shares for the accounts of 139 of its clients and has sole voting
                power
                over these shares, but shares dispositive power with its clients
                over the
                shares in their respective
                accounts.


2)
            Includes
                vested options to purchase 83,334 common
                shares;


3)
            Holder
                of Convertible Notes convertible into 2,857,143 shares. As of March
                14,
                2007, 2,142,857 shares have been
                converted.


4)
            Includes
                vested options to purchase 383,333
                shares; 5)
            All
              represent vested options to purchase certain number of
              shares.





**ITEM
              13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE**





As
      of
      December 31, 2006 **,** Kuhns
      Brothers, Inc was paid $80,000 based on an engagement letter agreement dated
      May
      27, 2005, by and between Kuhns Brothers, Inc. and the Company, which the Company
      terminated in September 2006. The majority owner of Kuhns Brothers, Inc. is
      John
      D. Kuhns, one of our Directors.




On
      September 13, 2006, Mr. Li Fu, our largest shareholder, Chief Executive Officer
      and Chairman of the Board, entered into two stock purchase agreements to sell
      a
      total of 800,000 shares of common stock of the Company to Pope Investments
      LLC
      and Halter Pope USX China Fund. The transaction closed on September 19, 2006.
      The shares were sold in a private sale transaction and with a restrictive
      legend. On September 20, 2006, Mr. Fu advanced a large portion of the proceeds
      from the private sale amounting to $4.45 million to the Company in meeting
      the
      Company’s working capital needs. The loan is unsecured, interest free and
      repayable on demand.




45




**ITEM
                  14.**
                **PRINCIPAL
                    ACCOUNTANT FEES AND
                    SERVICES**




The
      Company paid or accrued the following fees in each of the prior two fiscal
      years
      to its principal accountants:





1.**Jimmy
                C.H. Cheung & Co.**Fiscal Year Ended
            
            Fiscal
                Year EndedDecember 31, 2006
            
            December
                31, 2005Audit
                Fees
            
            
            None
            
            $
            70,000Audit
                Related Fees
            
            $
            41,000
            
            $
            32,000Tax
                Fees
            
            
            None
            
            
            NoneAll
                Other Fees
            
            
            None
            
            
            NoneTotal
            
            $
            41,000
            
            $
            102,000





2.
**Moore
              Stephens Wurth Frazer and Torbet, LLP**Fiscal
                Year Ended
            
            Fiscal
                Year EndedDecember
                31, 2007
            
            December
                31, 2006Audit
                Fees
            
            $
            190,000
            
            $
            90,000Audit
                Related Fees
            
            $
            45,000
            
            $
            15,000Tax
                Fees
            
            $
            5,000
            
            $
            8,543All
                Other Fees
            
            $
            42,200
            
            
            NoneTotal
            
            $
            282,200
            
            $
            113,543




In
      the
      event that we should require substantial non-audit services, the Board of
      Directors would approve such services and the fees therefore.




**PART
      IV**




**Item
                  15.**
                **Exhibits
                    and Financial Statement
                    Schedules**
 (a)  The
              following documents are filed as part of this report:
  1.  Financial
              Statements
 
 The
              following financial statements of Fushi Copperweld, Inc. and Reports
              of
              Independent Registered Public Accounting Firms are presented in the
“F” pages of
              this report:
 
 Reports
                        of Independent Registered Public Accounting Firms
                    F-1
                        - F-2Consolidated
                        Balance Sheets - as of December 31, 2007 and 2006
                    F-3Consolidated
                        Statements of Income and Other Comprehensive Income - for the
                        Years ended December 31, 2007, 2006, 2005
                    F-4Consolidated
                        Statements of Shareholders’ Equity - for the Years ended December 31,
                        2007, 2006, 2005
                    F-5Consolidated
                        Statements of Cash Flows - for the Years ended December 31,
                        2007, 2006,
                        2005
                    F-6Notes
                        to Consolidated Financial Statements
                    F-7
                        - F-36
 
 2.  Financial
              Statement Schedule II Valuation and Qualifying Accounts. The information
              for
              Schedule II as well as other Schedules has been omitted since they
              are not
              applicable.
 
 3.  All
              management contracts and compensatory plans and arrangements are specifically
              identified on the attached Exhibit Index.
 
 (b)  Exhibits
 
 See
              the
              Exhibit Index following the signature page of this report, which Index
              is
              incorporated herein by reference.
 
 (c)  Financial
              Statements and Schedules - See Item 15(a)(1) and Item 15(a)(2)
              above.
 46




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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: March
                14th, 2008
            By:
            /s/
                Li FuLi
                Fu, CEO
              (principal
                executive officer)




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, this Report has been signed below by the following persons on behalf
      of
      the Registrant and in the capacities and on the dates indicated.




March
                14th, 2008
            
            /s/
                Wenbing Christopher WangWenbing
                Christopher Wang, President and Chief Financial Officer
              (principal
                financial officer and principal accounting officer)March
                14th, 2008
            
            /s/
                Li FuLi
                Fu, DirectorMarch
                14th, 2008
            
            /s/
                Bai FengBai
                Feng, DirectorMarch
                14th, 2008
            
            /s/
                Jiping HuaJiping
                Hua, DirectorMarch
                14th, 2008
            
            /s/
                Barry RaeburnBarry
                Rayburn, Director


S-1


**FUSHICOPPERWELD,
      INC.**


**Exhibit
      Index to Annual Report on Form 10-K**


**For
      the Year Ended December 31, 2007**





Number
            Description2.1
            LLC
                Membership Interest Purchase Agreement by and between Fushi International,
                Inc. and David S. Jones, dated as of September 25, 2007.(1)3.1
            Articles
                of Incorporation, as amended(2)3.2
            Bylaws(2)3.3
            Specimen
                of Common stock certificate(2)3.4
            Certificate
                of Designations authorizing the Series A Convertible Preferred Stock(2)3.5
            Certificate
                of Designations authorizing the Series B Convertible Preferred Stock.(2)4.1
            Form
                of Stock Purchase Agreement, dated as of December 13, 2005 by and
                among
                Parallel Technologies, Inc., Dalian Fushi, the management of Dalian
                Fushi,
                Chinamerica Fund, LP, and the other investors named therein.(2).4.2
            Form
                of Warrant (included as Exhibit A to Exhibit 4.1).4.4
            Form
                of Amendment No. 1 to Stock Purchase Agreement, dated as of December
                13,
                2005 by and among Parallel Technologies, Inc., Dalian Fushi, the
                management of Dalian Fushi, Chinamerica Fund, LP, and the other investors
                named therein.(4)4.5
            Form
                of Stock Purchase Agreement, dated as of December 28, 2005, by and
                among
                Parallel Technologies, Inc., Dalian Fushi, the management of Dalian
                Fushi,
                Heller Capital Investments, LLC and the other investors named
                therein.(4)4.6
            Form
                of Notes Purchase Agreement, dated as of January 24, 2007, by and
                among
                the Company and Citadel Equity Fund Ltd.(5)4.7
            Form
                of HY Indentures, dated as of January 25, 2007, by and among the
                Company,
                the FHI and the Bank of New York.(5)4.8
            Form
                of CB Indentures, dated as of January 25, 2007, by and among the
                Company,
                the FHI and the Bank of New York.(5)4.9
            Form
                of Share Pledge Agreement, dated as of January 25, 2007, by and among
                the
                Company and the Bank of New York.(5)4.10
            Form
                of Investor Rights Agreement, dated as of January 25, 2007, by and
                among
                the Company, FHI, FID, DF, Li Fu, Mathus Yue Yang, Chris Wenbing
                Wang and
                Citadel.(5)10.1
            Share
                Exchange Agreement dated as of December13, 2005 between Parallel
                Technologies, Inc. and the stockholders of Diversified Product
                Inspections, Inc.(2)10.2
            Translation
                of Purchase Agreement, dated as of December 13, 2005, between Fushi
                International (Dalian) and Dalian Fushi.(2)10.3
            Translation
                of Entrusted Management Agreement, dated as of December 13, 2005,
                by and
                among Fushi International (Dalian), Dalian Fushi, Dalian Fushi Enterprise
                Group Co., Ltd., Yue Yang, Xishan Yang, and Chunyan Xu.(2)10.4
            Translation
                of First Patents Transfer Contract, dated as of December 13, 2005,
                by and
                between Fushi International (Dalian) and Dalian Fushi.(2)10.5
            Translation
                of Second Patent Transfer Contract, dated as of December 13, 2005,
                by and
                between Fushi International (Dalian) and Li Fu.(2)10.6
            Translation
                of Voting Proxy Agreement, dated as of December 13, 2005, by and
                among
                Fushi International (Dalian), Dalian Fushi Enterprise Group Co.,
                Ltd., Yue
                Yang, Xishan Yang, and Chunyan Xu.(2)10.7
            Translation
                of Exclusive Option Agreement, dated as of December 13, 2005, by
                and among
                Fushi International (Dalian), Dalian Fushi, Dalian Fushi Enterprise
                Group
                Co., Ltd., Yue Yang, Xishan Yang, and Chunyan Xu.(2).10.8
            Translation
                of Shares Pledge Agreement, dated as of December 13, 2005, by and
                among
                Fushi International (Dalian), Dalian Fushi Enterprise Group Co.,
                Ltd., Yue
                Yang, Xishan Yang, and Chunyan Xu.(2)10.10
            Stock
                Purchase Agreement dated as of November 8, 2005 between Glenn A.
                Little
                and Dalian Fushi.(2)10.11
            Consulting
                Agreement dated as of November 8, 2005 between Parallel Technologies,
                Inc.
                and Glenn A. Little.(2)10.12
            Form
                of Engagement Letter dated May 27, 2005 between Dalian Fushi and
                Kuhns
                Brothers, Inc.(2)10.13
            Securities
                Purchase Agreement dated as of October 26, 2007 by and among the
                Company
                and the investors named therein.(6)10.14
            Registration
                Rights Agreement dated as of October 26, 2007 by and among the Company
                and
                the investors named therein.(6)10.15
            Closing
                Escrow Agreement dated as of October 26, 2007 by and between the
                Company,
                Roth Capital Partners, LLC and Tri-State Title & Escrow, LLC, as
                escrow agent.(6)10.16
            Waiver
                and Consent of Citadel Equity Fund, Ltd., dated as of October 26,
                2007.(6)10.17
            Fushi
                International, Inc. 2007 Stock Incentive Plan .(7)10.18
            Agreement
                between Nexans Deutschland Industries GmbH & Co. KG and Tongling
                Copperweld Bimetallics CO, LTD, dated April 24, 2007.*10.19
            Consent
                and Agreement of Licensor to Collateral Assignment among Nexans
                Deutschland Industries GmbH & Co. KG, Copperweld Bimetallics, LLC and
                The CIT Group/Commercial Services, Inc. dated March
                2007.*10.20
            License
                Agreement Addendum between Nexans Deutschland Industries GmbH & Co. KG
                and Tongling Copperweld Bimetallics CO, LTD, dated April
                2007.*10.21
            Financing
                Agreement between CIT Group/Commercial Services, Inc and Copperweld
                Bimetallics, LLC, dated April 5,
                2007.




E-1




10.22
            Pledge
                Agreement between CIT Group/Commercial Services, Inc and Copperweld
                Bimetallics, LLC, dated October, 2007.10.23
            Guaranty
                of Copperweld Bimetallics, LLC, dated April 5, 2007.14.1
            Code
                of ethics.*16.1
            Letter
                dated December 2, 2005 from Parallel Technologies, Inc. to S.W. Hatfield,
                CPA(2)16.2
            Letter
                dated December 2, 2005 from S.W. Hatfield, CPA to the Securities
                and
                Exchange Commission.(3)21.1
            List
                of Subsidiaries*23.1
            Consent
                of Moore Stephens Wurth Frazer and Torbet, LLP*23.2
            Consent
                of Jimmy C.H. Cheung & Co. *31.1
            Certification
                of Li Fu pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002*;31.2
            Certification
                of Wenbing Wang pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002*;32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.*





*
      Filed
      herein.





(1)  Incorporated by reference to the Registrant’s Current Report on Form 8-K
      (07-051117) filed on September 26, 2007.




(2)  Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on December
      14, 2005.





(3)  Incorporated
      by reference to the Registrant's Current Report on Form 8-K/A (Amendment No.
      1)
      filed on December 20, 2005.





(4)  Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on January
      5,
      2006.





(5)  Incorporated
      by reference to the Registrant’s Current Report on Form 8-K (07-003608 )
      filed on January 26, 2007.





(6)
      Incorporated by reference to the Registrant’s Current Report on Form 8-K
      (07-057089) filed on October 31, 2007.





(7)
      Incorporated by reference to the Registrant’s Preliminary Schedule 14C
      (07-069247 ) filed on December 27, 2007.


E-2




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and


Shareholders
      of Fushi Copperweld, Inc.





We
      have
      audited the consolidated balance sheets of Fushi Copperweld, Inc. and
      Subsidiaries as of December 31, 2007 and 2006, and the consolidated statement
      of
      income and other comprehensive income, shareholders’ equity, and cash flows for
      each of the years in the two-year period ended December 31, 2007. Fushi
      Copperweld, Inc. and Subsidiaries’ management is responsible for these financial
      statements. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Fushi Copperweld, Inc and
      Subsidiaries as of December 31, 2007 and 2006, and the results of its operations
      and its cash flows for each of the years in the two-year period ended December
      31, 2007 in conformity with accounting principles generally accepted in the
      United States of America.








/S/
      Moore
      Stephens Wurth Frazer and Torbet, LLP





Moore
      Stephens Wurth Frazer and Torbet, LLP





Walnut,
      California


March
      13,
      2008




F-1


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors of:
 Parallel
        Technologies, Inc. and subsidiaries
 
 We
        have
        audited the accompanying balance sheets of Parallel Technologies, Inc. and
        subsidiaries, as of December 31, 2005 (consolidated) and 2004 and the related
        statements of operations and comprehensive income, stockholders’ equity and cash
        flows for the years ended December 31, 2005 (consolidated) and 2004. These
        financial statements are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these financial statements based
        on
        our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits of the financial
        statements provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Parallel Technologies, Inc.
        and
        subsidiaries, as of December 31, 2005 and 2004, and the results of its
        operations and its cash flows for the years ended December 31, 2005 and 2004,
        in
        conformity with accounting principles generally accepted in the United States
        of
        America.
 
  /s/
        Jimmy C.H. Cheung & Co
 
 Jimmy
        C.H. Cheung & Co
 Certified
        Public Accountants
 
 Hong
        Kong
 
 Date:
        March 4, 2006


F-2


FUSHI
                COPPERWELD, INC. AND SUBSIDIARIES(Formerly
                Fushi International, Inc.)CONSOLIDATED
                BALANCE SHEETSAS
                OF DECEMBER 31, 2007 AND 2006




2007
            
            2006ASSETSCURRENT
                ASSETS:Cash
            
            $
            79,914,758
            
            $
            20,493,551Marketable
                Securities
            
            
            2,977,699
            
            
            -Restricted
                cash
            
            
            1,000,000
            
            
            -Accounts
                receivable, trade, net of allowance of bad debt $135,418and
                $0 as of December 31, 2007 and 2006
            
            
            23,611,186
            
            
            7,042,408Inventories
            
            
            12,308,295
            
            
            7,403,116Notes
                receivables
            
            
            816,905
            
            
            -Other
                receivables and prepaid expenses
            
            
            997,979
            
            
            497,380Advances
                to suppliers
            
            
            2,341,839
            
            
            3,390,917Cross
                currency hedge receivable
            
            
            706,170
            
            
            -Deferred
                tax assets
            
            
            2,852,000
            
            
            -Total
                current assets
            
            
            127,526,831
            
            
            38,827,372PLANT
                AND EQUIPMENT, net
            
            
            87,228,600
            
            
            47,256,475OTHER
                ASSETS:Advances
                to suppliers, noncurrent
            
            
            22,764,535
            
            
            4,559,357Intangible
                asset, net of accumulated amortization
            
            
            5,832,721
            
            
            5,518,931Deferred
                loan expense, net
            
            
            3,115,930
            
            
            -Total
                other assets
            
            
            31,713,186
            
            
            10,078,288Total
                assets
            
            $
            246,468,617
            
            $
            96,162,135LIABILITIES
                AND SHAREHOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable, trade
            
            $
            3,028,823
            
            $
            1,055,684Liquidated
                damage payable
            
            
            -
            
            
            1,466,250Short
                term bank loans
            
            
            12,871,884
            
            
            12,504,135Current
                portion of long term debts
            
            
            10,968,000
            
            
            -Other
                payables and accrued liabilities
            
            
            5,791,597
            
            
            321,276Customer
                deposits
            
            
            -
            
            
            531,065Taxes
                payable
            
            
            1,005,259
            
            
            982,345Loan
                from shareholder
            
            
            -
            
            
            3,911,256Total
                current liabilities
            
            
            33,665,563
            
            
            20,772,011LONG
                TERM LIABILITIES:Long
                term bank loans, net of current portion
            
            
            -
            
            
            10,256,000Notes
                payable
            
            
            60,000,000
            
            
            -Fair
                value of derivative instrument
            
            
            8,515,396
            
            
            -Total
                liabilities
            
            
            102,180,959
            
            
            31,028,011COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -SHAREHOLDERS'
                EQUITY:Preferred
                stock,$0.001 par value, 5,000,000 shares authorized, none issued
                or
                outstanding as of December 31, 2007 and 2006
            
            
            -
            
            
            -Common
                stock, $0.006 par value, 100,000,000 shares authorized, 2007: 25,311,304
                issued and 25,211,304 outstanding, 2006: 20,046,162 shares issued
                and
                outstanding
            
            
            151,268
            
            
            120,277Common
                stock held in escrow, 100,000 shares
            
            
            600
            
            
            -Additional
                paid in capital
            
            
            77,665,064
            
            
            29,364,955Statutory
                reserves
            
            
            8,321,726
            
            
            4,452,467Retained
                earnings
            
            
            54,133,070
            
            
            28,496,702Accumulated
                other comprehensive income
            
            
            4,015,930
            
            
            2,699,723Total
                shareholders' equity
            
            
            144,287,658
            
            
            65,134,124Total
                liabilities and shareholders' equity
            
            $
            246,468,617
            
            $
            96,162,135





See
      report of independent registered public accounting firm.




The
      accompany notes are an integral part of this statement.





F-3


FUSHI
                COPPERWELD, INC. AND SUBSIDIARIES(Formerly
                Fushi International, Inc.)CONSOLIDATED
                STATEMENTS OF INCOME ANDOTHER
                COMPREHENSIVE INCOMEFOR
                THE YEARS ENDED DECEMBER 31, 2007, 2006 AND
                2005




2007
            
            2006
            
            2005REVENUES
            
            $
            128,222,083
            
            $
            67,595,774
            
            $
            33,709,428COST
                OF GOODS SOLD
            
            
            85,773,819
            
            
            42,781,669
            
            
            21,400,248GROSS
                PROFIT
            
            
            42,448,264
            
            
            24,814,105
            
            
            12,309,180OPERATING
                EXPENSESelling
                expenses
            
            
            1,762,461
            
            
            613,119
            
            
            317,324General
                and administrative expenses
            
            
            10,694,087
            
            
            3,815,380
            
            
            2,029,239Total
                operating expense
            
            
            12,456,548
            
            
            4,428,499
            
            
            2,346,563INCOME
                FROM OPERATIONS
            
            
            29,991,716
            
            
            20,385,606
            
            
            9,962,617OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            1,822,048
            
            
            73,949
            
            
            95,766Interest
                expense
            
            
            (6,891,375
            )
            
            (1,072,769
            )
            
            (1,033,861
            )Gain
                on derivative instrument
            
            
            1,508,693
            
            
            -
            
            
            -Other
                income
            
            
            222,545
            
            
            300,185
            
            
            176,694Registration
                rights penalty
            
            
            -
            
            
            (1,478,520
            )Total
                other expense, net
            
            
            (3,338,089
            )
            
            (2,177,155
            )
            
            (761,401
            )INCOME
                BEFORE INCOME TAXES
            
            
            26,653,627
            
            
            18,208,451
            
            
            9,201,216(BENEFIT)
                PROVISION FOR INCOME TAXES
            
            
            (2,852,000
            )
            
            398,425
            
            
            1,402,235NET
                INCOME
            
            
            29,505,627
            
            
            17,810,026
            
            
            7,798,981OTHER
                COMPREHENSIVE INCOMEUnrealized
                loss on marketable securities
            
            
            (22,301
            )
            
            -
            
            
            -Foreign
                currency translation adjustment
            
            
            9,853,904
            
            
            1,923,828
            
            
            775,895Change
                in fair value of derivative instrument
            
            
            (8,515,396
            )
            
            -
            
            
            -COMPREHENSIVE
                INCOME
            
            $
            30,821,834
            
            $
            19,733,854
            
            $
            8,574,876NET
                INCOME PER SHARE-BASIC
            
            $
            1.33
            
            $
            0.89
            
            $
            2,015.76BASIC
                WEIGHTED AVERAGE NUMBER OF SHARES
            
            
            22,178,517
            
            
            19,933,193
            
            
            3,869NET
                INCOME PER SHARE-DILUTED
            
            $
            1.19
            
            $
            0.84
            
            $
            0.50DILUTED
                WEIGHTED AVERAGE NUMBER OF SHARES
            
            
            25,243,788
            
            
            21,276,263
            
            
            15,689,053





See
      report of independent registered public accounting firm.




The
      accompany notes are an integral part of this statement.





F-4




FUSHI
                COPPERWELD, INC AND SUBSIDIARIES(Formerly
                Fushi International, Inc.)CONSOLIDATED
                STATEMENTS OF SHAREHOLDERS' EQUITYFOR
                THE YEARS ENDED DECEMBER 2007, 2006 AND
                2005




Series
                A
            
            Series
                BConvertible
            
            Convertible
            
            Common
                StockPreferred
                stock
            
            Preferred
                stock
            
            Shares
                Outstanding
            
            Shares
                In Escrow
            
            Additional
            
            
            
            
            
            AccumulatedNumber
            
            
            
            Number
            
            
            
            Number
            
            Par
            
            Number
            
            Par
            
            paid
                in
            
            Statutory
            
            Retained
            
            comprehensiveof
                shares
            
            Amount
            
            of
                shares
            
            Amount
            
            of
                shares
            
            Value
            
            of
                shares
            
            Value
            
            capital
            
            reserves
            
            earnings
            
            income
                (loss)
            
            TotalsBALANCE,
                January 1, 2005
            
            
            784,575
            
            $
            785
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            
            
            $
            
            
            $
            19,350,932
            
            $
            1,220,164
            
            $
            6,119,998
            
            $
            -
            
            $
            26,691,879Recapitalization
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            78,459
            
            
            471
            
            
            
            
            
            
            
            
            26,157
            
            
            
            
            
            
            
            
            
            
            
            26,628Shares
                issued for placement
            
            
            
            
            
            
            
            
            216,000
            
            
            216
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,930,196
            
            
            
            
            
            
            
            
            
            
            
            9,930,412Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,798,981
            
            
            
            
            
            7,798,981Adjustment
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,208,146
            
            
            (1,208,146
            )
            
            
            
            
            -Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            775,895
            
            
            775,895BALANCE,
                December 31, 2005
            
            
            784,575
            
            
            785
            
            
            216,000
            
            
            216
            
            
            78,459
            
            
            471
            
            
            
            
            
            
            
            
            29,307,285
            
            
            2,428,310
            
            
            12,710,833
            
            
            775,895
            
            
            45,223,795Conversion
                of preferred stock
            
            
            (784,575
            )
            
            (785
            )
            
            (216,000
            )
            
            (216
            )
            
            19,818,718
            
            
            118,912
            
            
            
            
            
            
            
            
            (195,411
            )
            
            
            
            
            
            
            
            
            
            
            (77,500
            )Exercise
                of stock warrants
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            148,985
            
            
            894
            
            
            
            
            
            
            
            
            253,081
            
            
            
            
            
            
            
            
            
            
            
            253,975Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,810,026
            
            
            
            
            
            17,810,026Adjustment
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,024,157
            
            
            (2,024,157
            )
            
            
            
            
            -Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,923,828
            
            
            1,923,828BALANCE,
                December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            20,046,162
            
            
            120,277
            
            
            
            
            
            
            
            
            29,364,955
            
            
            4,452,467
            
            
            28,496,702
            
            
            2,699,723
            
            
            65,134,124Shares
                issued for liquidated penalty
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            255,000
            
            
            1,530
            
            
            
            
            
            
            
            
            1,464,720
            
            
            
            
            
            
            
            
            
            
            
            1,466,250Exercise
                of warrants for cash @ $3.67
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,056,015
            
            
            12,336
            
            
            
            
            
            
            
            
            7,533,239
            
            
            
            
            
            
            
            
            
            
            
            7,545,575Exercise
                of warrants for cash @ $3.11
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            47,877
            
            
            287
            
            
            
            
            
            
            
            
            148,609
            
            
            
            
            
            
            
            
            
            
            
            148,896Stock
                compensation expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,938,073
            
            
            
            
            
            
            
            
            
            
            
            1,938,073Shares
                placed in escrow
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            100,000
            
            
            600
            
            
            (600
            )
            
            
            
            
            
            
            
            
            
            
            -Shares
                issued for cash @ $14.00
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,786,000
            
            
            16,716
            
            
            
            
            
            
            
            
            37,216,190
            
            
            
            
            
            
            
            
            
            
            
            37,232,906Adjustment
                to shares outstanding
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,250
            
            
            122
            
            
            
            
            
            
            
            
            (122
            )
            
            
            
            
            
            
            
            
            
            
            -Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,505,627
            
            
            
            
            
            29,505,627Adjustment
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,869,259
            
            
            (3,869,259
            )
            
            
            
            
            -Net
                change related to cash flow hedge
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,515,396
            )
            
            (8,515,396
            )Unrealized
                loss on marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (22,301
            )
            
            (22,301
            )Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,853,904
            
            
            9,853,904BALANCE,
                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





See
      report of independent registered public accounting firm.




The
      accompany notes are an integral part of this statement.





F-5




FUSHI
                COPPERWELD, INC. AND SUBSIDIARIES(Formerly
                Fushi International, Inc.)CONSOLIDATED
                STATEMENTS OF CASH FLOWSFOR
                THE YEARS ENDED DECEMBER 31, 2007, 2006 AND
                2005




2007
            
            2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            29,505,627
            
            $
            17,810,026
            
            $
            7,798,981Adjustments
                to reconcile net income to cashprovided
                by (used in) operating activities:Depreciation
            
            
            3,117,837
            
            
            2,208,924
            
            
            1,779,898Amortization
                of intangibles
            
            
            234,672
            
            
            223,800
            
            
            207,489Amortization
                of financing expense
            
            
            721,455
            
            
            -
            
            
            -Amortization
                of stock option compensation
            
            
            1,938,073
            
            
            -
            
            
            -Gain
                on derivative instrument
            
            
            (1,508,693
            )
            
            -
            
            
            -Change
                in operating assets and liabilities:Accounts
                receivable
            
            
            (9,151,252
            )
            
            (616,477
            )
            
            (4,334,780
            )Inventories
            
            
            4,344,568
            
            
            478,455
            
            
            (5,451,667
            )Other
                receivables and prepayments
            
            
            200,721
            
            
            726
            
            
            (820,169
            )Notes
                receivables
            
            
            (784,551
            )
            
            -
            
            
            -Advance
                to suppliers
            
            
            1,015,842
            
            
            -
            
            
            -Deferred
                tax assets
            
            
            (2,852,000
            )Accounts
                payable
            
            
            (2,564,797
            )
            
            (1,747,265
            )
            
            1,130,246Other
                payables and accrued liabilities
            
            
            2,667,158
            
            
            (360,312
            )
            
            40,327Customer
                deposits
            
            
            (545,440
            )
            
            404,906
            
            
            112,189Taxes
                payable
            
            
            (186,374
            )
            
            (5,092,090
            )
            
            2,610,434Net
                cash provided by operating activities
            
            
            26,152,846
            
            
            13,310,693
            
            
            3,072,948CASH
                FLOWS FROM INVESTING ACTIVITIES:Marketable
                securities
            
            
            (2,977,699
            )
            
            -
            
            
            -Payment
                for swap liability
            
            
            (127,380
            )
            
            -
            
            
            -Proceeds
                from derivative instrument
            
            
            802,523
            
            
            -
            
            
            -Advance
                for purchase of land use right
            
            
            (4,379,166
            )
            
            -
            
            
            -Purchase
                of property and equipment
            
            
            (31,115,408
            )
            
            (8,493,919
            )
            
            (6,913,780
            )Advances
                for purchase of equipment
            
            
            (12,583,219
            )
            
            (4,465,823
            )
            
            -Net
                cash used in investing activities
            
            
            (50,380,349
            )
            
            (12,959,742
            )
            
            (6,913,780
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Loan
                from shareholder
            
            
            -
            
            
            4,450,000
            
            
            -Payments
                to shareholders
            
            
            (3,985,698
            )
            
            -
            
            
            -Restricted
                cash in escrow
            
            
            (1,000,000
            )
            
            -
            
            
            -Advance
                to shareholder
            
            
            -
            
            
            (532,379
            )
            
            (108,958
            )Due
                to related companies
            
            
            -
            
            
            3,367,897
            
            
            (46,175
            )Due
                from related companies
            
            
            -
            
            
            -
            
            
            (2,825,230
            )Borrowings
                for credit line
            
            
            1,025,814
            
            
            -
            
            
            -Proceeds
                from bank loans
            
            
            11,718,630
            
            
            24,365,120
            
            
            16,927,470Payments
                on bank loans
            
            
            (29,628,641
            )
            
            (19,714,490
            )
            
            (16,499,700
            )Net
                proceeds from stock issuance in private placement
            
            
            37,232,906
            
            
            -
            
            
            9,930,412Net
                proceeds from convertible notes
            
            
            56,400,000
            
            
            -
            
            
            -Proceeds
                from exercise of stock warrants
            
            
            7,692,068
            
            
            248,729
            
            
            -(Fees
                paid for) proceeds from recapitalization
            
            
            -
            
            
            (77,500
            )
            
            471Additional
                paid-in capital
            
            
            -
            
            
            -
            
            
            26,157Net
                cash provided by financing activities
            
            
            79,455,079
            
            
            12,107,377
            
            
            7,404,447EFFECT
                OF EXCHANGE RATE ON CASH
            
            
            4,193,631
            
            
            1,868,337
            
            
            (9,011
            )INCREASE
                IN CASH
            
            
            59,421,207
            
            
            14,326,665
            
            
            3,554,604CASH,
                beginning of year
            
            
            20,493,551
            
            
            6,166,886
            
            
            2,612,282CASH,
                end of year
            
            $
            79,914,758
            
            $
            20,493,551
            
            $
            6,166,886





See
      report of independent registered public accounting firm.




The
      accompany notes are an integral part of this statement.





F-6


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


**Note
      1 - Organization**





Fushi
      Copperweld, Inc. (formerly Fushi International, Inc.) was incorporated under
      the
      name of M, Inc. in the state of Nevada on October 6, 1982. The name was changed
      to Parallel Technologies, Inc. (“Parallel”) on June 3, 1991 and changed to Fushi
      International, Inc. (“Fushi International”) on January 30, 2006 on consummation
      of a business combination transaction. Effectively on January 15, 2008, Fushi
      International changed its name to Fushi Copperweld, Inc. (“Fushi”) after it
      acquired all of the issued and outstanding membership interests of Copperweld
      Holdings, LLP on October 29, 2007.





During
      1995, Parallel ceased all business operations and disposed of all assets,
      liabilities and operating activities. Since the fiscal year ended December
      31,
      1995, Parallel had no business operations, assets or liabilities, until December
      13, 2005, when it acquired Diversified Product Inspections, Inc. (“DPI”) and its
      wholly owned subsidiary, Dalian Diversified Product Inspections Bimetallic
      Cable
      Co., Ltd. (“Dalian DPI”).





DPI
      was
      incorporated on September 22, 2005 in the state of Delaware. Through its wholly
      owned subsidiary, Dalian DPI incorporated in the People's Republic of China
      (“PRC”) as a wholly owned foreign limited liability company on September 24,
      2005. DPI is engaged in the manufacturing and selling of copper clad aluminum
      and steel wire, both of which are bimetallic composite wire products that are
      principally used for network signal transmission cable, cable television wire
      and other applications. Dalian DPI commenced business on December 28,
      2005.





Dalian
      Fushi Bimetallic Manufacturing Company Limited (“Dalian Fushi”) was incorporated
      on January 16, 2002 in the PRC as a limited liability company. The business
      activities of Dalian Fushi are the same with those of Dalian DPI. Dalian Fushi
      is a 100% variable interest entity of the Company.





On
      December 13, 2005, Parallel consummated a Plan of Exchange (“the Agreement”)
      with the shareholders of DPI pursuant to which Parallel issued 784,575.16 shares
      of newly designated Series A Convertible Preferred Stock to the stockholders
      of
      DPI for all the issued and outstanding stock of DPI.





The
      merger of Parallel and DPI was treated for accounting purposes as a capital
      transaction and recapitalization by DPI (“the accounting acquirer”) and
      re-organization by Parallel (“the accounting acquiree”). The financial
      statements have been prepared as if the reorganization had occurred
      retroactively.




DPI
      and
      Dalian DPI changed their names to Fushi Holdings, Inc. (“Fushi Holdings”) and
      Fushi International (Dalian) Bimetallic Cable Co., Ltd (Fushi International
      (Dalian)) on November 29, 2006 and December 26, 2006, respectively.





On
      October 29, 2007, Fushi International acquired Copperweld Bimetallics Holdings,
      LLC, a North Carolina registered 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, LLC, a limited liability company registered in the
      United Kingdom and Copperweld International Holdings, LLC a North Carolina
      limited liability company. Copperweld is a bimetallic administrative, sales
      and
      manufacturing operation headquartered in Fayetteville, Tennessee. Copperweld
      Bimetallics UK, LLC (Copperweld UK) is a manufacturing, distribution and
      customer service facility located in Telford, England. Copperweld International
      Holdings, LLC is a non-operating company that held a certain partnership
      interest in a company located in Tongling, PRC at December 31, 2007. Those
      interests were liquidated in an agreement entered by Copperweld on January
      16,
      2008 as disclosed more fully in Note 25 - Subsequent Events. 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. For additional information on this transaction, see Note
      16 -
      Business Combinations.




F-7


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


Accordingly,
      the financial statements include the following:




(1)  The
      balance sheet consists of the net assets of Fushi at historical cost and the
      net
      assets of Copperweld at fair value allocated by the total purchase price.





(2) The
      statement of operations includes the operations of Fushi for the periods
      presented and the operations of Copperweld from the date of the acquisition,
      October 29, 2007 through December 31, 2007.




The
      acquisition has been accounted for as a purchase and the financial statements
      are prepared including the results of operations from the acquisition date
      of
      October 29, 2007 through the end of the period presented.





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





**Note
      2 - Summary of Significant Accounting Policies**





Principles
      of consolidation





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





Consolidation
      of variable interest entity





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.




F-8


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





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. As both companies are under common
      control, the financial statements have been prepared as if the transaction
      had
      occurred retroactively.





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.





Revenue
      recognition




The
      Company's revenue recognition policies are in compliance 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 related to costs of goods sold are included in selling,
      general and administrative costs which totaled $1,006,769 , $349,257 and
      $196,948 for the years ended December 31, 2007, 2006 and 2005, respectively,





Foreign
      currency translation and other comprehensive income





The
      reporting currency of the Company is the US dollar. The functional currency
      of
      Fushi Copperweld and its US subsidiary is the US dollar. The functional currency
      of Fushi International (Dalian) and Dalian Fushi is Renminbi (RMB). The
      functional currency of Copperweld UK is the British Pound.





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 statement of operations items and cash flow statements are
      translated at the average rate for the year. Translation adjustments resulting
      from this process are included in accumulated other comprehensive income in
      the
      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.




Accumulated
      other comprehensive income in the consolidated statement of shareholders’ equity
      amounted to $4,015,930, $2,699,723 and $775,895 as of December 31, 2007, 2006
      and 2005, respectively. The balance sheet amounts with the exception of equity
      at December 31, 2007 were translated at 7.29 RMB and 0.501 GBP to $1.00 USD.
      The
      average translation rates applied to income and cash flow statement amounts
      for
      the year ended December 31, 2007 were 7.59 RMB and 0.49 GBP to $1.00.




F-9


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007




Cash
      and concentration of risk





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





Certain
      financial instruments, which subject the Company to concentration of credit
      risk, consist of cash. The Company maintains balances at financial institutions
      which, from time to time, may exceed Federal Deposit Insurance Corporation
      insured limits for the banks located in the Unites States. Balances at financial
      institutions or state owned banks within the PRC and in banks located in the
      United Kingdom are not covered by insurance. As of December 31, 2007 and 2006
      the Company had deposits in excess of federally insured limits totaling
      $83,871,892 and $20,195,702, respectively. The Company has not experienced
      any
      losses in such accounts and believes it is not exposed to any significant risks
      on its cash in bank accounts.





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





Accounts
      receivables and allowance for doubtful accounts





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. At December 31,
      2007, management concluded its allowance for bad debts in the amount of $135,418
      was sufficient. The Company had trade accounts receivable of $23,611,186 as
      of
      December 31, 2007.





2007
            
            2006Trade
                Accounts Receivable
            
            $
            23,746,604
            
            $
            7,042,408Allowance
                for bad debts
            
            
            (135,418
            )
            
            -Trade
                Accounts Receivable, Net
            
            $
            23,611,186
            
            $
            7,042,408





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 costs are also included in the cost of inventory.




F-10


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





The
      Company reviews its inventory regularly for possible obsolete goods or to
      determine if any reserves are necessary for potential obsolescence. As of
      December 31, 2007, the Company determined no material reserves are
      necessary.





Financial
      instruments





The
      Company analyzes all financial instruments with features of both liabilities
      and
      equity under SFAS 150, “Accounting for Certain Financial Instruments with
      Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company’s Own Stock.” The convertible preferred shares issued in 2005 and the
      convertible note issued in 2007 did not require bifurcation or result in
      liability accounting. 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.”





Fair
      value of financial instruments




Statement
      of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
      Value of Financial Instruments” requires disclosure of the fair value of
      financial instruments held by the Company. SFAS 107 defines the fair value
      of
      financial instruments as the amount at which the instrument could be exchanged
      in a current transaction between willing parties.





The
      Company considers the carrying amount of cash, accounts receivable, other
      receivables, accounts payable, accrued liabilities, and long term debts to
      approximate their fair values because of the short period of time between the
      origination of such instruments and their expected realization and their current
      market rate of interest. Hedging instruments are carried at fair
      value.





Derivative
      Instrument





The
      Company uses a cross currency hedge, a derivative financial instrument, to
      hedge
      the risk of rising interest rates on their 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 No. 133,
      “Accounting for Derivatives Instruments and Hedging Activity,” which requires
      the derivative to be carried on the 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.




F-11


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





At
      the
      inception of the transaction, the Company documents 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. As of December 31, 2007, the fair value of the derivative instrument
      amounted to $8,515,396.





Stock-Based
      Compensation





The
      Company adopted Statement of Financial Accounting Standards No. 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 will be recognized over
      the
      period during which services are received. Stock compensation for stock granted
      to non-employees has been determined in accordance with SFAS 123R and the
      Emerging Issues Task Force consensus Issue No. 96-18, "Accounting for Equity
      Instruments that are issued to Other than Employees for Acquiring, or in
      Conjunction with Selling Goods or Services" ("EITF 96-18"), 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. Expenditures for maintenance and repairs are
      charged to earnings as incurred; additions, renewals and betterments are
      capitalized. When the asset property and equipment is retired or otherwise
      disposed of, the related cost and accumulated depreciation are removed from
      the
      respective accounts, and any gain or loss is included in operations.
      Depreciation of property and equipment is provided using the straight-line
      method for substantially all assets with estimated lives as follows:





Estimated
              Useful
                LifeBuildings
            
            
            20-39.5
                yearsMachinery
                and equipment
            
            
            7-15
                yearsOther
                equipment
            
            
            3-5
                yearsTransportation
                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. No depreciation is
      provided for construction in progress until such time as the assets are
      completed and are placed into service. The Company added production equipment
      during 2007 and the interest capitalized for the year ended December 31, 2007
      and 2006 amounted to $285,689 and $282,641, respectively.




F-12


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





The
      Company periodically evaluates the carrying value of long-lived assets in
      accordance with SFAS 144. 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 December
      31, 2007, there were no impairments of its long-lived assets.





Intangible
      assets





Intangible
      assets consist of land use rights and patents. Land in the People’s Republic of
      China is government owned and cannot be sold to any individual or company.
      However, the government grants “land use rights” to use the land. The Company
      amortizes land use rights on a straight line basis over 50 years and patents
      over 7-15 years.





The
      Company evaluates intangible assets for impairment, at least on an annual basis
      and 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 December 31, 2007, 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 we incur 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 licenses fee.





Research
      and development costs are recorded in selling and general and administrative
      expenses. Research and development costs were $154,127, $195,058 and $65,000
      for
      the years ended December 31, 2007, 2006 and 2005, respectively.





Earning
      per share





The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128, "Earnings Per Share." SFAS No. 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.




F-13


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





Income
      taxes





The
      Company records and reports income taxes pursuant to Statement of Financial
      Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109
      requires the recognition of deferred income tax liabilities and assets for
      the
      expected future tax consequences of temporary differences between income tax
      basis and financial reporting basis of assets and liabilities. Provision for
      income taxes consist of taxes currently due plus deferred taxes.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), on January 1, 2007. A tax position is recognized as a benefit
      only if it is “more likely than not” that the tax position would be sustained in
      a tax examination, with a tax examination being presumed to occur. The amount
      recognized is the largest amount of tax benefit that is greater than 50% likely
      of being realized on examination. For tax positions not meeting the “more likely
      than not” test, no tax benefit is recorded. The adoption had no effect on the
      Company’s financial statements.





Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit. In principle, deferred
      tax liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probably that
      taxable profit will be available against which deductible temporary differences
      can be utilized. Deferred tax 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
      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. As of December 31, 2007, the deferred tax assets
      amounted to $2,852,000 generated from the net operating loss as of December
      31,
      2007.





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 sold in the PRC are subject to a
      Chinese value-added tax at a rate of 17% 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 financial statements.
      The
      VAT tax return is filed offsetting the payables against the
      receivables.





F-14


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


Recently
      issued accounting pronouncements





In
      September 2006, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 157, Fair Value
      Measurements” ** (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value under accounting principles generally accepted in the United States (GAAP)
      and expands disclosures about fair value measurements. Fair value is defined
      under SFAS 157 as the exchange price that would be received for an asset or
      paid
      to transfer a liability (an exit price) in the principal or most advantageous
      market for the asset or liability in an orderly transaction between market
      participants on the measurement date. SFAS 157 also establishes a fair value
      hierarchy which requires the Company to maximize the use of observable inputs
      and minimize the use of unobservable inputs when measuring fair value. The
      Company does not expect the adoption of SFAS 157 to have a material impact
      on
      the Company’s financial position or results of operations.





In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities—including an amendment of FASB Statement No.
      115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that  are
      not
      currently required to be measured at fair value. The objective of FAS 159 is
      to
      provide opportunities to mitigate volatility in reported earnings caused
      by  measuring
      related assets and liabilities differently without having to apply hedge
      accounting provisions. FAS 159 also establishes presentation and
      disclosure  requirements
      designed to facilitate comparisons between companies that choose different
      measurement attributes for similar types of assets and liabilities.
      SFAS  159
      will
      be effective in the first quarter of fiscal 2009. The Company is evaluating
      the
      impact that this statement will have on its consolidated financial  statements.





In
      June
      2007, the
      FASB
      issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
      Payments for Goods or Services Received for use in Future Research and
      Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable
      advance payments for goods or services that used or rendered for research and
      development activities should be expensed when the advance payment is made
      or
      when the research and development activity has been performed. The Company
      adopted FSP EITF 07-3 and expensed the research and development as
      incurred.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained non-controlling equity investments when a subsidiary
      is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 is effective for fiscal years beginning after December 15, 2008. The Company
      has not determined the effect that the application of SFAS 160 will have on
      its
      consolidated financial statements.




F-15


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


In
      December 2007, Statement of Financial Accounting Standards No. 141(R), *Business
      Combinations* ,
      was
      issued. SFAS No. 141R replaces SFAS No. 141, *Business
      Combinations.* SFAS
      141R
      retains the fundamental requirements in SFAS 141 that the acquisition method
      of
      accounting (which SFAS 141 called the *purchase
      method* )
      be used
      for all business combinations and for an acquirer to be identified for each
      business combination. SFAS 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 SFAS 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. SFAS
      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 SFAS 141R). SFAS 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 is currently evaluating the
      impact that adopting SFAS No. 141R will have on its financial
      statements.




Reclassifications





Certain
      prior period amounts have been reclassified to conform to the current period
      presentation. These reclassifications have no effect on net income or cash
      flows.





**Note
      3 - Additional product sales information**




The
      Company has expanded its geographic sales area from mainly the Chinese domestic
      to the international market with the Copperweld acquisition. The following
      chart
      shows that the PRC market remains the largest single market for the Company.
      However the majority of sales are spread across the international market as
      a
      result of the Copperweld acquisition.





Country
            
            2007
            
            2006
            
            2005China
            
            $
            117,737,442
            
            $
            67,595,774
            
            $
            33,709,428USA
            
            
            9,327,218
            
            
            -
            
            
            -Europe
            
            
            1,157,423
            
            
            -
            
            
            -Total
                sales
            
            $
            128,222,083
            
            $
            67,595,774
            
            $
            33,709,428




**Note
      4 - Inventories**





Inventories
      at December 31, 2007 and 2006 consisted of the following:





2007
            
            2006Raw
                materials
            
            $
            5,965,306
            
            $
            5,380,640Work
                in process
            
            
            2,260,015
            
            
            271,242Finished
                goods
            
            
            4,056,965
            
            
            1,736,507Packaging
                materials
            
            
            26,009
            
            
            14,727Totals
            
            $
            12,308,295
            
            $
            7,403,116




F-16


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


**Note
      5 - Plant and equipment**





Plant
      and
      equipment at December 31, 2007 and 2006 consisted of the following:





2007
            
            2006Land
            
            $
            100,726
            
            $
            -Buildings
                and improvements
            
            
            32,846,156
            
            
            18,809,588Transportation
                equipment
            
            
            3,177,195
            
            
            2,559,806Machinery
                and equipment
            
            
            24,962,245
            
            
            9,229,354Construction
                in progress
            
            
            36,880,809
            
            
            22,110,429Totals
            
            
            97,967,131
            
            
            52,709,177Less
                accumulated depreciation
            
            
            (10,738,531
            )
            
            (5,452,702
            )Totals
            
            $
            87,228,600
            
            $
            47,256,475





Depreciation
      expense for the years ending December 31, 2007, 2006 and 2005 amounted to
      $3,117,837, $2,208,924 and $1,779,898, respectively.





**Note
      6 - Advances to suppliers**





Advances
      on inventory purchases are monies deposited or advanced to outside vendors
      for
      future inventory and equipment purchases. Most of 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 as of December 31, 2007 and 2006 consisted of the
      following:





2007
            
            2006Advances
                for inventories - current
            
            $
            2,341,839
            
            $
            3,390,917Advances
                for land use rights - non current
            
            
            4,559,760
            
            
            4,559,357Advances
                for equipment - non current
            
            
            18,204,775
            
            
            -Total
                advances to suppliers
            
            $
            25,106,374
            
            $
            7,950,274





**Note
      7 - Major customers and suppliers**





Ten
      major
      customers accounted for 30% of the sales for the year ended December 31, 2007
      and six customers accounted for 34% of the Company’s total sales for the year
      ended December 31, 2006. We included Fayetteville’s sales for the full year to
      illustrate the effect the acquisition has towards reducing our dependence on
      a
      few customers. Total receivable balance due from the top ten customers at
      December 31, 2007 and 2006 amounted to $15,029,038 and $3,645,893,
      respectively.




Eight
      major suppliers provided approximately 79% of the Company’s purchases of raw
      materials for the year ended December 31, 2007 including Fayetteville’s
      purchases for the full year. Four suppliers provided approximately 85% of the
      Company’s raw materials for the year ended December 31, 2006. At December 31,
      2007, we owed these suppliers $1.3 million, all of which was
      current.




F-17


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


**Note
      8 - Intangible assets**





Intangible
      assets consist of loan closing cost, land use rights and patents. Intangible
      assets at December 31, 2007 and 2006 consisted of the following:





2007
            
            2006Patents
            
            $
            1,652,938
            
            $
            1,381,996Land
                use rights
            
            
            5,492,089
            
            
            5,135,564Total:
            
            
            7,145,027
            
            
            6,517,560Less:
                accumulated amortization
            
            
            (1,312,306
            )
            
            (998,629
            )Intangible
                assets, net
            
            $
            5,832,721
            
            $
            5,518,931





Amortization
      expense for the years ended December 31, 2007, 2006 and 2005 amounted to
      $234,672, $223,801 and $207,489, respectively.





**Note
      9 - Income taxes**





Under
      the
      existing 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.





The
      Company’s wholly owned subsidiary, Fushi International (Dalian), is a foreign
      limited liability company and is located in the old town of an inshore open
      city. The company has an income tax exemption for the years ended December
      2006
      and 2007 and a 50% income tax reduction for the years ending December 31, 2008,
      2009 and 2010. In 2007, Fushi International (Dalian) remained in its full
      exemption period, so no provision for income taxes was made during
      2007.





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 2007, so no provision for income
      taxes was made during 2007.





2007
            
            2006
            
            2005Provision
                for China Income Tax
            
            $
            -
            
            $
            362,205
            
            $
            1,274,452Provision
                for China Local Tax
            
            
            -
            
            
            36,220
            
            
            127,783Benefit
                for US Income Tax
            
            
            (2,852,000
            )
            
            -
            
            
            -Total
                provision for taxes
            
            $
            (2,852,000
            )
            $
            398,425
            
            $
            1,402,235




F-18


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the years ended December 31, 2007:





2007
            
            2006
            
            2005U.S.
                Statutory rates
            
            
            34.0
            %
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in USA
            
            
            (34.0
            )
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            33.0
            
            
            33.0
            
            
            33.0China
                income tax exemption
            
            
            (33.0
            )
            
            (31.0
            )
            
            (18.0
            )Total
                provision for income taxes
            
            
            -
            %
            
            2.0
            %
            
            15.0
            %





The
      estimated tax savings from the tax exemptions for the year ended December 31,
      2007, amounted to $12,815,700. The net effect on earnings per share had the
      income tax been applied would decrease basic earnings per share from $1.33
      to
      $0.75 and diluted earning per share from $1.19 to $0.66.





The
      estimated tax savings for the year ended December 31, 2006 amounted to
      $6,281,290. The net effect on earnings per share had the income tax been applied
      would decrease basic earnings per share from $0.89 to $0.58 and diluted earning
      per share from $0.84 to $0.54.





The
      estimated tax savings for the year ended December 31, 2005 amounted to
      $1,681,436. The net effect on earnings per share had the income tax been applied
      would decrease basic earnings per share from $3,869 to $3,034 and diluted
      earning per share from $0.50 to $0.39.





Beginning
      January 1, 2008, the new Chinese Enterprise Income Tax (“EIT”) law will replace
      the existing income tax laws for Domestic Enterprises (“DEs”) and Foreign
      Invested Enterprises (“FIEs”). The new standard EIT rate of 25% will replace the
      33% rate currently applicable to both DEs and FIEs. The two years tax exemption,
      three years 50% tax reduction tax holiday for production-oriented FIEs will
      be
      eliminated. However, the new EIT Law permits companies to continue to enjoy
      their existing preferential tax treatments until such treatments expire in
      accordance with their current terms. The Company is currently evaluating the
      effect of the new EIT law will have on its financial position.





Fushi
      International, Inc., 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 for 2007 and 2006. The
      net
      operating loss carry forwards for United States income taxes amounted to
      $2,852,000 which may be available to reduce future years’ taxable income. These
      carry forwards will expire, if not utilized, through 2025 and 2027. Management
      believes that the realization of the benefits can be used by our US operating
      subsidiary in future periods because expectations are that Copperweld will
      have
      taxable income in future periods. Accordingly, the Company has provided a 0%
      valuation allowance on the deferred tax asset.




F-19


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


Copperweld
      UK is organized as a United Kingdom private company and subject to applicable
      statutory taxes on its taxable income.





Value
      Added Tax





VAT
      on
      sales and VAT on purchases in Dalian China amounted to $20,030,111 and
      $12,303,624 for the year ended December 31, 2007 and $ 60,346,802 and $7,161,857
      for the year ended December 31, 2006, respectively. VAT
      on
      sales and VAT on purchases in Copperweld UK amounted to $96,167 and $89,099
      for the period from October 29, 2007 to December 31, 2007,
      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.




Taxes
      payable at December 31, 2007 and 2006 consisted of the following:





2007
            
            2006VAT
            
            $
            856,482
            
            $
            606,758Others
            
            
            148,777
            
            
            375,587Total
                taxes payable
            
            $
            1,005,259
            
            $
            982,345





**Note
      10 - Loan from shareholder**





In
      September 2006, one of the Company's shareholders advanced $4,451,328 to
      the Company for operations. The balance as of December 31, 2006 was $3,911,256.
      This loan was non-interest bearing, unsecured and paid off in full by the
      Company during the third quarter of 2007 for the amount of
      $3,985,698.





**Note
      11- Liquidated damage payable**





The
      Company was obligated to make efforts to file a registration statement with
      the
      SEC for the registration of the common stock issued upon the conversion of
      the
      series B convertible preferred stock to be declared effective by the SEC within
      90 days and not later than 120 days from the date of its initial filling. After
      the 120 th day of
      the initial filing and for each 30-calendar day period thereafter in which
      the
      registration statement fails to be declared effective, the Company shall issue
      to each investor a number of shares of common stock equal to 3% of such
      investor's shares covered by such registration statement at that time.





The
      Company accrued $1,466,250 as liquidated damages payable and expensed that
      amount in the year ended December 31, 2006. This amount accrued is based on
      the
      penalties due between May 14, 2006 through August 2, 2006 and it is valued
      at
      $5.75, the highest bid on August 2, 2006, the date of the registration statement
      was declared effective. In January 2007, the Company issued 255,000 shares
      of
      common stock to the investors as payment for the liquidated damages.




F-20


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





**Note
      12 - Short term bank loans**





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 at December 31, 2007 and 2006, consisted of the following:





Name
                of lender
            
            December
                31, 2007
            
            December
                31, 2006Dalian
                Commercial Bank Sahekou Branch, due May 15, 2007annual
                interest at 6.338%, secured by the Company’sLand
                use right and building.
            
            $
            -
            
            $
            974,320Bank
                of China Dalian Xinhaiwan Branch, due March 11, 2007annual
                interest at 5.94%, secured by the Company’sLand
                use right and building.
            
            
            -
            
            
            3,846,000Bank
                of China Dalian Xinhaiwan Branch,due
                February 22, 2007, annual interest at 6.547%, secured by the Company’sLand
                use right and building.
            
            
            -
            
            
            2,564,000Bank
                of China Dalian Xinhaiwan Branch,due
                March 27, 2007annual
                interest at 6.547%, secured by the Company’sland
                use right and building
            
            
            -
            
            
            2,179,400Bank
                of China Dalian Xinhaiwan Branch, due April 21, 2007annual
                interest at 6.732%, secured by the Company’s landuse
                right and building.
            
            
            -
            
            
            2,820,400ShenZhen
                Development Bank, Dalian Branchvarious
                due dates and interest rates, secured byexport
                letter of credits.
            
            
            -
            
            
            120,015Bank
                of China, Xinghaiwan Branch, due March 28, 2008,annual
                interest at 7.227%, secured by the Company’sLand
                use right and building.
            
            
            2,687,160
            
            
            -Bank
                of China, Xinghaiwan Branch, due February 15, 2008,and was renewed
                to May
                15, 2008annual
                interest at 7.029%, secured by the Company’sLand
                use right and building.
            
            
            3,016,200
            
            
            -CIT
                revolver credit line, annual interest at 6.25%, mature in
                2010
            
            
            7,168,524Total
            
            $
            12,871,884
            
            $
            12,504,135




F-21


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


The
      Company paid off its six short term loans with outstanding balances of
      $12,504,135, in 2007 and obtained two new short term loans with balances of
      $5,703,360 at December 31 2007 at annual interest rate of 7.23% and 7.03% which
      are due in February and March 2008. Additionally, Copperweld maintains a
      revolving line of credit through CIT with a limit of $12.8 million and an
      outstanding balance of $7,168,524 at December 31, 2007, the Company deposit
      the
      proceeds from customers to the line of credit outstanding account on a daily
      basis. Copperweld UK maintains a revolving line of credit with a limit of
      approximately $1,539,600 (or ₤750,000) but had no balance outstanding at
      December 31, 2007. Both lines of credit expire in 2010.





Current
      portion of long term debts represents the loan that was borrowed on May 2003
      and
      due on April 10, 2008 at an annual rate of 5.58%, secured by the Company’s land
      use right and building, total outstanding as of December 31, 2007 and 2006
      amounted to $10,968,000 and $0.





**Note
      13 - Long term debts**





Long
      term
      debts are loans borrowed from banks which are mainly used for the purpose of
      purchasing additions to the plant and equipment and consisted of the following
      at December 31, 2007 and 2006:





2007
            
            2006ICBC,
                Dalian JinZhou BranchDue
                April 10, 2008, annual interest at 5.58%,secured
                by the Company’s land use right and building
            
            $
            5,484,000
            
            $
            5,128,000ICBC,
                Dalian JinZhou BranchDue
                April 10, 2008, annual interest at 5.58%,secured
                by the Company’s land use right and building
            
            
            5,484,000
            
            
            5,128,000Minus
                : current maturities
            
            
            (10,968,000
            )
            
            -Long
                term debt, net
            
            $
            -
            
            $
            10,256,000





Total
      interest expense on both short term and long term loans for the years ending
      December 31, 2007, 2006 and 2005 amounted to $1,424,824, $1,352,377, and
      $1,371,642. Capitalized interest for construction projects was $285,689,
      $282,641 and $337,781 for the years ended December 31, 2007, 2006 and 2005,
      respectively.




F-22


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


**Note
      14 - Notes payable**





Notes
      payable as of December 31, 2007 and 2006 consisted of the
      following:





2007
            
            2006Senior
                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
            
            $
            20,000,000
            
            $
            -Guaranteed
                senior secured floating rate notes (“HY Notes”) maturing on January 24,
                2012
            
            
            40,000,000
            
            
            -Notes
                payable total
            
            $
            60,000,000
            
            $
            -





On
      January 24, 2007, the Company and Citadel Equity Fund Ltd. ("Citadel") entered
      a
      Notes Purchase Agreement. On January 29, 2007, the Company closed a $60
      million financing with Citadel.  In this transaction, Citadel purchased





(i)
      floating rate $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 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 2012,
      which are convertible into shares of the Company's common stock at an initial
      conversion price of $7.00 per share.





The
      HY
      notes bear interest at LIBOR (approximately 4.8% at December 31, 2007) + 7%
      and
      changes to LIBOR + 5.6% permanently upon successful completion of Qualifying
      IPO
      within eighteen months from January 24, 2007. The interest on the HY Notes
      and
      Convertible notes are payable semi-annually in arrears in January and July.
      See
      below for discussion of swap agreement changing variable interest to 8.3% fixed.





Management
      completed its review of the accounting for the transactions and has concluded
      that the conversion option does not qualify as an embedded derivative under
      FAS
      133 nor does it qualify for fair value treatment under EITF 00-19 or beneficial
      conversion treatment under EITF 98-5 and 00-27.





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 SEC.
      On
      January 8, 2008, $15.0 million of the Convertible Notes were exchanged for
      2,142,857 shares of common stock (see Note 25 - Subsequent Events).





As
      security for the Notes, the Company and the Bank of New York, as collateral
      agent, entered into a share pledge agreement, dated January 25, 2007 (the "Share
      Pledge Agreement"), to guarantee the Notes with all of the shares of common
      stock of Fushi Holdings, the Company’s wholly-owned subsidiary, as
      collateral.




F-23


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


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), Dalian Fushi, Li Fu, our Chairman and Chief
      Executive Officer, Mathus Yue Yang, our then President, Chris Wenbing Wang,
      our
      current President and Chief Financial Officer and Citadel entered into an
      Investor Rights Agreement dated January 25, 2007. Pursuant to the Investor
      Rights Agreement, Citadel was granted, among other things and subject to certain
      conditions, the right to designate up to certain number of the Company's board
      of directors, a right of first refusal with respect to any debt or equity
      financing sought by the Company and the right to approve the Company's annual
      business plan and budget. In addition, pursuant to the Investor Rights
      Agreement, 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. Pursuant to the Indentures,
      Fushi Holdings has agreed, and all of the Company's other existing and future
      domestic subsidiaries are obligated, to guarantee, on a senior secured basis,
      to
      the holders of the Notes and the trustee the payment and performance of the
      Company's obligations there under.





Additionally,
      if there is no NASDAQ listing by the eighteenth month from the issue date of
      the
      HY Notes and Convertible Notes, the Company must pay liquidated damage in the
      amount of 3.3% of the principal amount of the Notes. The Company’s shares of
      common stock commenced trading on the NASDAQ Global Market on August 31, 2007.





Cash
      coupon rate on the HY Notes will step down permanently by 140 basis points
      upon
      successful completion of Qualifying IPO within eighteen months from January
      24,
      2007. A “Qualifying IPO” is defined as an initial public offering and/or
      secondary offering of Shares that satisfies all of the following criteria
      (except that either 1 or 2 need to be met):




1.
            a
                minimum public float representing at least 25% of the Shares of the
                Company after the Qualifying lPO and a minimum market capitalization
                of
                the Company of $200 million after the Qualifying
                IPO;




2.
            with
                respect to (1) above, such other offering size or market capitalization
                as
                may be agreed by Convertible Note holders holding more than 50% of
                the
                outstanding principal amount of Convertible
                Notes;




3.
            the
                minimum number of investors purchasing Shares in such offering prescribed
                by a stock exchange or the relevant regulatory authorities, and resulting
                in the listing and commencement of trading of the Shares on such
                exchange;
                and




4.
            the
                listing is on the NASDAQ Stock Market or another international exchange
                to
                be approved by Citadel.




Upon
      the
      aforementioned 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.




F-24


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





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. Management believes the Company was in compliance with all of these
      covenants as of December 31, 2007.





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 late payment, if any, to reflect a additional 5% per annum interest
      in excess of the rate if interest then in effect.





As
      of
      December 31, 2007, the Company had a total of $60,000,000 long term notes
      payable outstanding. On January 8, 2008, Citadel elected to convert $15.0
      million of the Convertible Notes into common shares, (see Note 25 Subsequent
      events). Deferred commissions amounted to $2,946,740 and interest expense on
      long term notes for the year ended December 31, 2007 amounted to
      $5,180,067 **.**





**Note
      15 - 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 dose not invest in
      derivative instruments for speculative purposes.





On
      April
      10, 2007, effective January 24, 2007, the Company entered a cross currency
      swap
      transaction (the Swap) with Merrill Lynch Capital Services, Inc. (“MLCS”) on the
      $40 million HY notes which converts the LIBOR + 7% per annum USD variable
      interest rate to an 8.3% per annum RMB fixed interest rate. The agreement was
      deemed effective January 24, 2007. The Swap requires semi-annual payment in
      arrears on July 24 and January 24 and matures 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. As of December 31, 2007, the Company has not
      placed the $1,000,000 deposit with MLCS.




F-25


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





For
      the
      period ended December 31, 2007, the Swap resulted in the liability and a loss
      to
      other comprehensive income of $8,515,396, net of taxes.





On
      July
      24, 2007, the first interest payment date, the Company received cash in the
      amount of $802,523 from MLCS. As of December 31, 2007, the Company had cross
      currency hedge receivable amounting to $706,170 and was paid by MLCS on January
      24, 2008. The total gain from derivative transactions for 2007 was $1,508,693.
      For the year ended December 31, 2007, there were no amounts recorded in the
      consolidated statement of income in relation to this interest rate swap related
      to ineffectiveness of the swap transaction.





**Note
      16 - Business combinations**





On
      July
      18, 2007, the Company, Copperweld Bimetallics, Inc. and David S. Jones entered
      into a non-binding Memorandum of Understanding. Pursuant to the Memorandum
      of
      Understanding and certain agreements signed, Fushi extended $3,000,000 secured
      bridge funding to Copperweld Bimetallics, Inc.





On
      September 25, 2007, the Company entered into a LLC Membership Interest Purchase
      Agreement (the “Purchase Agreement”) with David S. Jones (the “Seller”),
      pursuant to which the Company agreed to purchase all of the issued and
      outstanding membership interests of Copperweld Holdings, LLC (“Copperweld”), the
      sole member of Copperweld Bimetallics, LLC, and all of the issued and
      outstanding membership interests of International Manufacturing Equipment
      Suppliers, LLC. The transaction is valued at $22.5 Million, including the
      assumption of debt and is subject to adjustment based upon Copperweld’s net
      working capital at closing.





10%
      of
      the purchase price ($2.25 million) has been deposited in escrow at closing
      to
      secure the indemnification obligations of the Seller. The Purchase Agreement
      also contains customary representations, warranties and covenants.





The
      Company subsequently completed the transaction on October 29, 2007 and the
      investment in Copperweld balance was eliminated on consolidation basis as of
      December 31, 2007. The results of operations of the acquired companies are
      included in the consolidated statement of income from October 29, 2007 to the
      end of the year.





Assets
      acquired and debts assumed of the transaction are listed as below:





Fair
                Value
            
            Acquired
                or Assumed by the CompanyCurrent
                assets
            
            $
            16,241,211
            
            $
            16,241,211Property,
                plant and equipment, net
            
            
            31,274,166
            
            
            12,600,484Other
                assets
            
            
            726,987
            
            
            726,987Total
                assets
            
            
            48,242,364
            
            
            29,568,682Total
                liabilities
            
            
            12,597,320
            
            
            12,597,320Net
                assets
            
            $
            35,645,044
            
            $
            16,971,362




F-26


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007




We
      determined the fair value of the acquired assets of Copperweld based on an
      independent appraisal. The fair value of Copperweld’s net assets pursuant to the
      independent appraisals was $35,645,044, exceeding total consideration by
      $18,673,682. Pursuant to *SFAS
      141, Business Combination,* the
      excess of total fair value acquired over the acquisition cost should be
      allocated as pro rata deduction of the amount of Copperweld’s fixed assets and
      intangible assets that would have been assigned to those assets. As a result,
      we
      arrived at the above list of amount of assets acquired and debt assumed.





**Pro
      Forma**





The
      following unaudited pro forma condensed income statement for the years ended
      December 31, 2007, 2006 and 2005 were prepared under generally accepted
      accounting principles as if the acquisition of Copperweld had occurred on
      January 1, 2005. The pro forma information may not be indicative of the results
      that actually would have occurred if the acquisition had been in effect from
      and
      on the dates indicated.





2007
            
            2006
            
            2005Sales
            
            $
            196,408,689
            
            $
            118,948,616
            
            $
            33,709,428Cost
                of Goods Sold
            
            
            147,783,268
            
            
            88,988,424
            
            
            21,400,248Gross
                Profit
            
            
            48,625,421
            
            
            29,960,192
            
            
            12,309,180Operating
                Expenses
            
            
            20,218,701
            
            
            9,413,338
            
            
            2,346,563Other
                expense (income), net
            
            
            4,594,233
            
            
            (1,230,647
            )
            
            761,401Income
                Tax
            
            
            -
            
            
            398,425
            
            
            1,402,235Net
                Income
            
            $
            23,812,487
            
            $
            21,379,076
            
            $
            7,798,981





Prior
      to
      the purchase of Copperweld Bimetallics, LLC, a subsidiary of Copperweld had
      an
      interest in a joint venture with a company located in Tongling, PRC that the
      Company had required to be dissolved prior to closing of the purchase
      transaction. As a part of the closing agreement, the Company agreed to close
      the
      joint venture on behalf of the seller with the costs to be paid from the
      seller’s escrow established at the closing of the purchase. An agreement was
      reached on January 8, 2008 removing Copperweld and its associated companies
      from
      the joint venture. (See Note 25 - Subsequent Events) At the time of the
      purchase, Copperweld had reported an investment in the Tongling joint venture
      at
      $2.7 million. The investment was valued at zero in the total purchased
      consideration of the net assets acquired.





**Note
      17 - Supplemental disclosure of cash flow information**





Total
      interest paid for the years ended December 31, 2007, 2006 and 2005 amounted
      to
      $4,249,882, $1,352,377 and $1,371,642, respectively.





Total
      income taxes paid for the years ended December 31, 2007, 2006 and 2005 amounted
      to $0, $2,288,242 and $0, respectively.




F-27


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





On
      January 5, 2007, the Company issued 255,000 shares of common stock in payment
      of
      liquated damage Associated with the late registration of common stocks acquired
      by certain institutional investors as discussed in Note 11.





In
      January 2007, $3.6 million in loan commissions and discount were netted
      against $60 million in loan proceeds.





On
      May
      21, 2007 and June 17, 2007, options representing 500,000 and 150,000 shares
      respectively were granted to executives and directors in exchange for two year
      services.





During
      the fourth quarter of 2007, additional options representing 460,000 shares
      were
      granted to executives and employee in exchange for services.





**Note
      18 - Accumulated other comprehensive income**





The
      components of accumulated other comprehensive income are as
      follows.





Accumulated
                other comprehensive income:
            
            AmountBalance
                at December 31, 2005
            
            $
            775,895Foreign
                currency translation gain
            
            
            1,923,828Balance
                at December 31, 2006
            
            
            2,699,723Unrealized
                loss on marketable securities
            
            
            (22,301
            )Foreign
                currency translation gain
            
            
            9,853,904Change
                in fair value of derivative instrument
            
            
            (8,515,396
            )Balance
                at December 31, 2007
            
            $
            4,015,930





**Note
      19 - Earnings per share**





The
      following is information of net income per share at December 31,
      2007:





2007
            
            2006
            
            2005Net
                income for basic earnings per share
            
            $
            29,505,627
            
            $
            17,810,026
            
            $
            7,798,981Add:
                Interest expense for convertible note
            
            
            4,151,233
            
            
            -
            
            
            -Deduct:
                Loan issuance cost
            
            
            (3,600,000
            )Net
                income for diluted earnings per share
            
            $
            30,056,860
            
            $
            17,810,026
            
            $
            7,798,981Weighted
                average shares used in basic computation
            
            
            22,178,517
            
            
            19,933,193
            
            
            3,869Diluted
                effect of warrants and convertible note
            
            
            3,065,271
            
            
            1,343,070
            
            
            15,685,184Weighted
                average shares used in diluted computation
            
            
            25,243,788
            
            
            21,276,263
            
            
            15,689,053Earnings
                per share:Basic
            
            $
            1.33
            
            $
            0.89
            
            $
            2,015.76Diluted
            
            $
            1.19
            
            $
            0.84
            
            $
            0.50




F-28


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


100,000
      shares of common stock held in escrow were excluded from both the basic and
      diluted earnings per share calculation, since the shares were issued under
      the
      Company’s name.





100,000
      warrants granted on October 30, 2007 at an exercise price of $16.80 were
      excluded from the diluted earnings per share calculation due to the anti-diluted
      effect.





335,000
      options granted on October 29, 2007 and November 13, 2007 at an excise price
      from $16.36 to $20.94 was excluded from the diluted earnings per share
      calculation due to the anti-diluted effect.





**Note
      20 - Stockholders' Equity**




(A)
            Reverse
                stock split





On
      January 30, 2006, the Company affected a 245.27:1 reverse stock split.  All
      share and per share amounts have been retroactively restated throughout these
      financial statements to reflect the effect of the reverse split.




(B)
            Series
                A and Series B Convertible Preferred
                Stocks




The
      Series A and Series B Convertible Preferred Stocks (“Series A and B Stocks”)
      were automatically converted into common stock upon the effectiveness of the
      reverse split on January 30, 2006 under the certificates of designation for
      Series A and B Stocks. Specifically, 784,575 shares of Series A preferred stock
      and 216,000 shares of Series B preferred stock were converted into 19,818,718
      shares of common stock. In connection with the $12 million financing closed
      in
      December 2005, we granted 2,125,000 warrants exercisable at $3.67 to the
      investors, 424,929 warrants exercisable at $3.11 to Kuhns Brothers, Inc. and
      its
      certain affiliates and 80,000 warrants exercisable at $0.01 to Glenn Little,
      then President of Parallel Technology. During 2006, a total of 148,985 warrants
      were exercised.




(C)
            As
                of December 31, 2007, the Company had
                outstanding:




(1)
            25,311,304
                shares of common stock, including 100,000 shares in escrow, par value
                $0.006.(2)
            Warrants
                purchasing 377,052 shares of common stock with exercise prices of
                $3.11
                per share, expiring December 2011.




(D)
            During
                2007, the following activities were
                recorded:


(1)
              255,000
                    shares of common stock at $0.006 par value were issued pursuant
                    to
                    liquidated damage payable that was recorded in
                    2006.
  F-29
 FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
          Fushi International, Inc.)
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 (2)
              100,000
                    shares of common stock at $0.006 par value were issued in Fushi
                    Holdings’
                    name pursuant to an escrow agreement entered into with Kuhns
                    Brothers,
                    Inc, and certain of its affiliates.(3)
              2,786,000
                  shares of common stock at $0.006 par value were issued and sold
                  at $14 per
                  share to finance acquisition of Copperweld on October 29, 2007.(4)
              2,056,015
                  shares of warrants were exercised for common stock. The warrants
                  were
                  initially issued to investors on January 30, 2006 and were each
                  exercisable for one share of the Company’s common stock at $3.67 per
                  share. As of December 31, 2007, all warrants with exercise price
                  of $3.67
                  were exercised.(5)
              3,739
                  shares of warrants were exercised for common stock. The warrants
                  were
                  initially issued on January 30, 2006 and were each exercisable
                  for one
                  share of the Company’s common stock at $3.11per share.(6)
              On
                  November 30, 2007, pursuant to the Engagement Letter with Roth
                  Capital
                  Partners in connection with the sale of aforementioned 2,786,000
                  shares of
                  common stock, the Company granted Roth Capital Partners 100,000
                  warrants
                  with exercise price of $16.8 per share.


Number
                of common shares outstandingBalance,
                January 1, 2005
            
            
            -Recapitalization
            
            
            78,459Balance,
                December 31, 2005
            
            
            78,459Conversion
                of preferred stock
            
            
            19,818,718Exercise
                of stock warrants
            
            
            148,985Balance,
                December 31, 2006
            
            
            20,046,162Issuance
                of common stock
            
            
            3,141,000Warrants
                exercised
            
            
            2,103,892Shares
                rounding adjustment
            
            
            20,250Balance,
                December 31, 2007
            
            
            25,311,304





The
      Company has 421,190 warrants exercisable at $3.11 outstanding as of December
      31,
      2007.




Outstanding
                Warrants
            
            Exercisable
                WarrantsExercise
                Price
            
            Number
            
            Average
              Remaining
              Life
                (years)
            
            Average
              Exercise
                Price
            
            Number
            
            Average
              Remaining
              Life(years)$
            3.11
            
            
            377,052
            
            
            3.12
            
            $
            3.11
            
            
            377,052
            
            
            3.12$
            16.80
            
            
            100,000
            
            
            3.92
            
            $
            16.80
            
            
            100,000
            
            
            3.92





F-30


FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES
 (Formerly
        Fushi International, Inc.)
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


The
      following is a summary of the warrant activities:





Number
                of Warrants Outstanding
            
            Number
                of Warrants Exercisable
            
            Weighted-Average
                Exercise Price
            
            Average
                Remaining Contractual LifeBalance,
                January 1, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            2,629,929
            
            
            2,629,929
            
            $
            3.47
            
            
            5.11
                yearsForfeitedExercised
            
            
            (148,985
            )
            
            (148,985
            )
            $
            1.70Balance,
                December 31, 2006
            
            
            2,480,944
            
            
            2,480,944
            
            $
            3.57
            
            
            4.12
                yearsGranted
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            (2,103,892
            )
            
            (2,103,892
            )
            $
            3.66Balance,
                at December 31, 2007
            
            
            377,052
            
            
            377,052
            
            $
            3.11
            
            
            3.92
                years





**Note
      21 - Stock based compensation**





On
      May 21
      and June 7, 2007, the Company issued 500,000 and 150,000 options to four
      executives and three independent directors, respectively, both for a service
      period of two years starting from the grant date. The vesting period is two
      years for both grants. These options were not awarded pursuant to the 2007
      Stock
      Incentive Plan.





On
      September 27, 2007, the Company granted to Mr. Chris Wenbing Wang a
      non-qualified stock option to purchase 125,000 shares of its Common Stock
      vesting immediately at an exercise price of $13.70 and terminating in five
      (5)
      years from the grant date. The option grant was approved by the Compensation
      Committee of the Board of Directors of the Company in consideration of Mr.
      Wang’s efforts on behalf of the Company. Mr. Wang may exercise his option after
      the effective date of the Schedule 14 C that will be filed with the Securities
      and Exchange Commission in connection with the approval of the grant by the
      majority stockholder of the Company.





On
      October 29, 2007, in connection with Mr. Chris Finley’s employment as Chief
      Operating Officer and Mr. Jim Todd’s employment as Financial Controller, the
      Board of Directors approved a non-qualified stock option grant to Mr. Finley
      and
      Mr. Todd in the amounts of 190,000 shares and 135,000 shares of common stock
      of
      the Company, respectively, for a service period of two years, vesting over
      a two
      (2) year period with 12.5% of the options vesting each quarter for eight (8)
      quarters. The grants to Mr. Finley and Mr. Todd were pursuant to the Fushi
      International, Inc. 2007 Stock Incentive Plan.





On
      November 13, 2007, the Company issued 10,000 options to Mr. Nathan J. Anderson,
      the Director of Investor Relations. The vesting period is one year.




F-31


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





As
      of
      December 31, 2007, options held by executives, directors and employees
      representing 1,110,000 shares were outstanding, of which, 428,956 were
      vested .





The
      fair
      values of stock options granted to the executives and the independent directors
      were estimated at the date of grant using the Black-Scholes option-pricing
      model
      with the following assumptions:





Expected
            
            Expected
            
            Dividend
            
            Risk
                Free
            
            Grant
                DateLife
            
            Volatility
            
            Yield
            
            Interest
                Rate
            
            Fair
                ValueExecutives
            
            
            2.0
                yrs
            
            
            50
            %
            
            0
            %
            
            3.3%
                - 4.57
            %
            $
            3.81
                - $5.93Independent
                Directors
            
            
            2.0yrs
            
            
            50
            %
            
            0
            %
            
            4.57
            %
            $
            3.64





·
            Volatility:
                One year historical volatility of our stock is 58%. Adjustment is
                made
                based on volatility of industry peers average which is 31%, to arrive
                at
                50% as expected volatility.





·
            Dividend
                Yield: The expected dividend yield is zero. The Company has not paid
                a
                dividend and does not anticipate paying dividends in the foreseeable
                future.





·
            Risk
                Free Rate: Risk-free interest rate of 3.3% to 4.57% was used. The
                risk-free interest rate was based on U.S. Treasury yields with a
                remaining
                term that corresponded to the expected term of the option calculated
                on
                the granted date.





·
            Expected
                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.




The
      fair
      value of the stock option grant to the executives was $3.81- $5.93 per share
      on
      the date of grant.  The fair value of the stock option grant to the
      independent directors was $3.64 per share on the date of grant.





Stock
      compensation expense is recognized based on awards expected to vest. There
      were
      no estimated forfeitures as the Company has a short history of issuing options.
      SFAS No. 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.





The
      960,000 executive options and 150,000 director options issued during the year
      of
      2007 had fair values of approximately $3,963,262 and $546,506 respectively.
      The
      Company recognized $1,938,073 of compensation expenses in general and
      administrative expenses for the year ended December 31, 2007.





As
      of
      December 31, 2007, the total compensation cost related to stock options not
      yet
      recognized was $2,571,695 and will be recognized over the weighted average
      life
      of 2 years.





F-32


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007




The
      following is a summary of the stock options activity:





Number
                of Options Outstanding
            
            Weighted-Average
                Exercise Price
            
            Aggregate
                Intrinsic ValueBalance,
                December 31, 2005
            
            
            -
            
            
            -
            
            
            -GrantedForfeitedExercisedBalance,
                December 31, 2006
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            1,110,000
            
            $
            14.3
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2007
            
            
            1,110,000
            
            $
            14.3
            
            $
            12,075,850





Following
      is a summary of the status of options outstanding at December 31, 2007:




Outstanding
                Option
            
            Exercisable
                OptionsExercise
                Price
            
            Number
            
            Average
                Remaining Contractual Life
            
            Average
                Exercise Price
            
            Number
            
            Weighted
                Average Exercise Price$
            12.30
            
            
            500,000
            
            
            1.43
                years
            
            $
            12.30
            
            
            233,334
            
            $
            12.30$
            11.75
            
            
            150,000
            
            
            1.39
                years
            
            $
            11.75
            
            
            65,622
            
            $
            11.75$
            13.70
            
            
            125,000
            
            
            1.70
                years
            
            $
            13.70
            
            
            125,000
            
            $
            13.70$
            16.44
                - $20.94
            
            
            325,000
            
            
            1.83
                years
            
            $
            18.69
            
            
            -
            
            
            -$
            16.36
            
            
            10,000
            
            
            0.87
                years
            
            $
            16.36
            
            
            5,000
            
            $
            16.36Total
            
            
            1,110,000
            
            
            
            
            
            
            
            
            428,956





**Note
      22 - 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.





The
      transfer to this reserve must be made before distribution of any dividend to
      shareholders. For the year ended December 31, 2007, the Company transferred
      $3,869,259 representing 10% of the year’s net income determined in accordance
      with PRC accounting rules and regulations, to this reserve.




F-33


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007




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 25% of the registered
      capital.





**Note
      23 - 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 $43,381 contributions of employment benefits, including pension
      in the period ended December 31, 2007. The Company made $20,375 in contributions
      of employment benefits, including pension in the period ended December 31,
      2006.





US
      employees are provided a 401(k) plan where during the full year of 2007,
      employer contributions totaled $378,849. Only that portion incurred between
      October 29, 2007 and December 31, 2007, totaling $25,004 are included in the
      consolidated statement of income.





Copperweld
      UK operates a defined contribution pension scheme for employees. The assets
      of
      the scheme are held separately from those of the company. The annual
      contributions payable are charged to expense. No material contributions
      were made for the period from inception, April 29, 2006, through December 31,
      2007.





**Note
      24 - Commitments and contingencies**





On
      September 19, 2006, the Company was named a defendant in a pending litigation
      that was filed at the China International Economic and Trade Arbitration
      Commission over a disputed investment consulting agreement. The damage claimed
      was $420,000 for past due commission. The Company claimed that the plaintiff
      did
      not render services as stipulated in the agreement. In 2007, the Company
      resolved the litigation with a one time payment of $200,000 as final settlement
      to the arbitration, which was expensed in 2007.





As
      discussed in Note 14, 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. As of December 31, 2007, the Company had not deposited the
      $1,000,000 with MLCS to secure the agreement.





On
      December 11, 2007, Fushi International, Inc. (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.  The Action seeks
      declaratory judgment concerning the interpretation and enforceability of
      specific terms of the engagement letter agreement, dated May 27, 2005, by and
      between Kuhns Brothers, Inc. and the Company, which the Company terminated
      in
      September 2006.  The Company believes that the plaintiffs’ claims are
      without merit and intends to vigorously defend the Action. On October 4, 2007,
      the Company had signed an escrow agreement with Kuhns Brothers & Co., Inc.,
      the Company had put $1,000,000 restricted cash and 100,000 shares of common
      stock in escrow account. The Company was notified on March 2, 2008 that the
      court has set a trial date of April 3, 2008.




F-34


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007





**Note
      25 - Subsequent events**





On
      January 8, 2008, Citadel Equity Fund Ltd. exercised its rights under the
“Convertible Notes” indenture mentioned above and received 2,142,857 in exchange
      for $15.0 million in debt with an exchange factor of $7.00 in debt for each
      share of stock. We unaware of any planned exercise of the remaining $5.0 million
      of convertible debt.





On
      January 16, 2008, Copperweld, Copperweld International, International
      Manufacturing Equipment Suppliers, LLC (“IMES”), all of which are wholly-owned
      U.S. subsidiaries of the Company (collectively, “Subsidiaries”), entered into a
      Settlement Agreement and a number of ancillary agreements with Tongling Jingda
      Special Magnet Wire Co., Ltd. (“TJS”) and Tongling Copperweld Bimetallics Co.
      Ltd. (“JV Company”), both of which are companies organized under the laws of the
      People’s Republic of China, in order for International Company to withdraw as a
      joint venture partner in the JV Company, to terminate certain contractual
      relationships between the JV Company and IMES, and to resolve all disputes
      that
      may exist among the Subsidiaries and/or TJS and the JV Company as a result
      of
      these transactions.




Pursuant
      to the terms of the Settlement Agreement and related ancillary agreements:




(1)
      The
      International Company transferred its equity interest in the JV Company to
      Hong
      Kong Heavy Trade Co., Ltd (“HK Company”), a limited liability company organized
      under the laws of Hong Kong, for a purchase price of $2.7 million. Of the $2.7
      million purchase price, the HK Company will pay $2.08 million to the JV Company
      on behalf of IMES as part of the refund of the down payment specified in (2)
      below, and the International Company will waive the remaining $620,000 in
      consideration of the JV Company’s entering into and performance of its
      obligations set forth in the agreement specified in (3) below.




(2)
      IMES
      and the JV Company agreed to fully terminate and cancel the three equipment
      purchase contracts entered pursuant to which IMES had agreed to manufacture
      and
      deliver to the JV Company CCA clad line (Contract No. CPW061206/1), CCA
      Annealing Furnace (Contract No. CPW061206/2), and CPS Plating Line and Drawing
      Machine (Contract No. CPW061206/3) (collectively, “Equipment Contracts”), and
      IMES agreed to refund the down payment paid by the JV Company under the
      Equipment Contracts in the total amount of $ 3,137,019. Of the down payment
      to
      be refunded, the JV Company had previously paid $200,000 to the JV Company’s
      current account, Copperweld agreed to pay, on behalf of IMES, $857,019 to the
      JV
      Company, and the HK Company agreed to pay the JV Company the balance of $2.08
      million pursuant to the arrangement described in (1) above.




F-35


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007




(3)
      To
      resolve all remaining disputes among the parties as a result of International
      Company’s withdrawal from the JV Company, Copperweld agreed to purchase from the
      JV Company a CCA rod breakdown machine, CPS rectifiers and a Metallographic
      Microscope for a total purchase price of $230,000.




In
      consideration for the Subsidiaries’ entering into and performing the Settlement
      Agreement and related ancillary agreements, TJS, the JV Company and the HK
      Company each also agreed to (1) fully and completely release Copperweld
      International from its obligation to contribute $1.22 million to the JV
      Company’s capital account under the Sino-foreign equity joint venture contract
      dated September 30, 2006 between TJS and the International Company, and (2)
      waive all claims that any of them may have against any of the Subsidiaries
      for
      damages or for specific performance under any and all causes of action,
      including but not limited to causes of action under any and all oral or written
      agreements entered into by the parties prior to the Settlement
      Agreement.




On
      January 24, 2008, Mr. Yue Yang resigned as our president and member of the
      board. As a result, 50,000 options unvested options were forfeited.




F-36