SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549










FORM
10-Q/A








 ̈
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934





For
      the quarterly period ended March 31,
2010.




or





 ̈
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934





For
      the transition period from    
               to
                  .




Commission
File Number 000-52650







LIHUA
INTERNATIONAL, INC.








(Exact
name of registrant as specified in its charter)





Delaware
            14-1961536(State
      or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
      Employer Identification No.)




Houxiang
Five Star Industry District


Danyang
City, Jiangsu Province, PR China 212312


(Address
of Principal Executive Offices including zip code)




+86
51 86317399


(Registrant’s
Telephone Number, Including Area Code)




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




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




Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company


Large
      Accelerated Filer    ̈
              Accelerated
      Filer    ̈Non-Accelerated
      Filer    ̈
      (Do not check if a smaller reporting company)
              Smaller
      reporting company   ̈




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act).


Yes
    ̈
    No    ̈





There
were 29,143,432 shares of the Registrant’s Common Stock issued and outstanding
on May 3, 2010.





Lihua
International, Inc.




Index
to Form 10-Q/A





EXPLANATORY
NOTE




This
quarterly report on Form 10-Q is being filed as Amendment No. 1 to our Quarterly
Report on Form 10-Q which was originally filed on May 4, 2010 with the
Securities and Exchange Commission.  We are amending and restating our
financial statements to reclassify the Company’s warrants as derivative
liabilities and report any changes in their fair value up to the earlier of the
date of exercise or the reporting date in earnings.  The Company has
performed a thorough reassessment of the terms of all of the Company’s warrants
with reference to the guidance provided in ASC 815-40, “Derivatives andHedging– Contracts in Entity’s Own
Equity” (formerly EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock”), which has
been effective from January 1, 2009. In particular, the Company has considered
the guidance in ASC 815-40-15-7I (formerly paragraph 19 of EITF No. 07-5)
regarding the Company’s exposure to changes in currency exchange rates. This
reassessment has led to management’s conclusion that the Company’s warrants
should not be considered indexed to the Company’s own stock because the warrants
are denominated in U.S. Dollar, which is different from the Company’s functional
currency, Renminbi (the Chinese lawful currency). We have also revised the
disclosure under Part I Item 4 regarding Controls and Procedures.




Except as
specifically referenced herein, this Amendment No. 1 to the Quarterly Report on
Form 10-Q does not reflect any event occurring subsequent to May 4, 2010, the
filing date of the original report.





PagePart I.
                  Financial
      InformationItem
      1. Unaudited Condensed Financial Statements
                  2Condensed
      Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December
      31, 2009 (Audited)
                  2Condensed
      Consolidated Statements of Income and Comprehensive Income (Unaudited) for
      the three months ended March 31, 2010 and 2009
                  3Condensed
      Consolidated Statement of Stockholders’ Equity (Unaudited) for the three
      months ended March 31, 2010
                  4Condensed
      Consolidated Statements of Cash Flows (Unaudited) for the three months
      ended March 31, 2010 and 2009
                  5Notes
      to Condensed Consolidated Financial Statements
                  6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                  17Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  26Item
      4. Controls and Procedures
                  27Part II.
                  Other
      InformationItem
      1. Legal Proceedings
                  28Item
      1A. Risk Factors
                  28Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                  28Item
      3. Defaults Upon Senior Securities
                  28Item
      4. Other Information
                  28Item
      5. Exhibits
                  28SIGNATURES
                  
                  29


1


PART I — FINANCIAL INFORMATION


Item
1.  UNAUDITED CONDENSED FINANCIAL STATEMENTS


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(AMOUNTS
EXPRESSED IN US DOLLARS)





March 31
                                                    
                                                    
                                                    December 31,2010
                                                    
                                                    
                                                    2009(Unaudited
                                                      and as
                                                      restated)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                                    
                                                    $
                                                    46,334,532
                                                    
                                                    
                                                    $
                                                    34,614,838Restricted
      cash
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    575,000Accounts
      receivable, net
                                                    
                                                    
                                                    16,420,316
                                                    
                                                    
                                                    
                                                    10,996,430Other
      receivables and current assets
                                                    
                                                    
                                                    206,576
                                                    
                                                    
                                                    
                                                    493,006Prepaid
      land use right – current portion
                                                    
                                                    
                                                    172,563
                                                    
                                                    
                                                    
                                                    172,515Deferred
      income tax assets
                                                    
                                                    
                                                    55,398
                                                    
                                                    
                                                    
                                                    98,068Inventories
                                                    
                                                    
                                                    13,484,932
                                                    
                                                    
                                                    
                                                    17,534,254Total
      current assets
                                                    
                                                    
                                                    76,674,317
                                                    
                                                    
                                                    
                                                    64,484,111OTHER
      ASSETSProperty,
      plant and equipment, net
                                                    
                                                    
                                                    18,102,968
                                                    
                                                    
                                                    
                                                    18,424,080Construction
      in progress
                                                    
                                                    
                                                    519,216
                                                    
                                                    
                                                    
                                                    59,558Deposits
      for plant and equipment
                                                    
                                                    
                                                    177,431
                                                    
                                                    
                                                    
                                                    28,163Prepaid
      land use right – long-term portion
                                                    
                                                    
                                                    8,127,172
                                                    
                                                    
                                                    
                                                    8,168,039Intangible
      assets
                                                    
                                                    
                                                    5,904
                                                    
                                                    
                                                    
                                                    2,812Total
      non-current assets
                                                    
                                                    
                                                    26,932,691
                                                    
                                                    
                                                    
                                                    26,682,652Total
      assets
                                                    
                                                    $
                                                    103,607,008
                                                    
                                                    
                                                    $
                                                    91,166,763LIABILITIES AND SHAREHOLDERS'
      EQUITYCURRENT
      LIABILITIESShort
      term bank loans
                                                    
                                                    $
                                                    2,197,384
                                                    
                                                    
                                                    $
                                                    2,196,772Accounts
      payable
                                                    
                                                    
                                                    5,850,861
                                                    
                                                    
                                                    
                                                    4,923,360Other
      payables and accruals
                                                    
                                                    
                                                    1,140,162
                                                    
                                                    
                                                    
                                                    681,097Income
      taxes payable
                                                    
                                                    
                                                    2,662,951
                                                    
                                                    
                                                    
                                                    1,584,292Warrant
      liabilities
                                                    
                                                    
                                                    8,028,100
                                                    
                                                    
                                                    
                                                    14,275,483Total
      current liabilities
                                                    
                                                    
                                                    19,879,458
                                                    
                                                    
                                                    
                                                    23,661,004Total
      liabilities
                                                    
                                                    
                                                    19,879,458
                                                    
                                                    
                                                    
                                                    23,661,004SHAREHOLDERS'
      EQUITYPreferred
      stock: $0.0001 par value, 10,000,000 shares authorized, none issued and
      outstanding
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Common
      stock, $0.0001 par value: 75,000,000 shares authorized,24,857,717
      and 24,154,083 shares issued and outstanding
                                                    
                                                    
                                                    2,486
                                                    
                                                    
                                                    
                                                    2,416Additional
      paid-in capital
                                                    
                                                    
                                                    36,009,519
                                                    
                                                    
                                                    
                                                    28,692,812Statutory
      reserves
                                                    
                                                    
                                                    6,199,852
                                                    
                                                    
                                                    
                                                    5,400,994Retained
      earnings
                                                    
                                                    
                                                    38,838,007
                                                    
                                                    
                                                    
                                                    30,780,307Accumulated
      other comprehensive income
                                                    
                                                    
                                                    2,677,686
                                                    
                                                    
                                                    
                                                    2,629,230Total
      shareholders' equity
                                                    
                                                    
                                                    83,727,550
                                                    
                                                    
                                                    
                                                    67,505,759Total
      liabilities and shareholders' equity
                                                    
                                                    $
                                                    103,607,008
                                                    
                                                    
                                                    $
                                                    91,166,763





See
accompanying notes to these condensed consolidated financial statements


2


LIHUA INTERNATIONAL, INC.
AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)


(AMOUNTS
EXPRESSED IN US DOLLARS)





Three Months Ended
                                      March 31,2010
                                    
                                    
                                    2009(As restated)NET
      REVENUE
                                    
                                    $
                                    63,220,702
                                    
                                    
                                    $
                                    20,550,327Cost
      of sales
                                    
                                    
                                    (51,399,418
                                    )
                                    
                                    
                                    (14,851,807
                                    )GROSS
      PROFIT
                                    
                                    
                                    11,821,284
                                    
                                    
                                    
                                    5,698,520Selling
      expenses
                                    
                                    
                                    (450,877
                                    )
                                    
                                    
                                    (203,252
                                    )General
      and administrative expenses
                                    
                                    
                                    (1,293,603
                                    )
                                    
                                    
                                    (542,130
                                    )Income
      from operations
                                    
                                    
                                    10,076,804
                                    
                                    
                                    
                                    4,953,138Other
      income (expenses):Interest
      income
                                    
                                    
                                    33,351
                                    
                                    
                                    
                                    24,245Interest
      expenses
                                    
                                    
                                    (29,170
                                    )
                                    
                                    
                                    (113,126
                                    )Change
      in fair value of warrants classified as derivatives
                                    
                                    
                                    1,345,854
                                    
                                    
                                    
                                    (124,215
                                    )Gain
      on extinguishment of warrants
                                    
                                    
                                    135,369Total
      other income (expenses), net
                                    
                                    
                                    1,485,404
                                    
                                    
                                    
                                    (213,096
                                    )Income
      before income taxes
                                    
                                    
                                    11,562,208
                                    
                                    
                                    
                                    4,740,042Provision
      for income taxes
                                    
                                    
                                    (2,705,650
                                    )
                                    
                                    
                                    (764,065
                                    )NET
      INCOME
                                    
                                    
                                    8,856,558
                                    
                                    
                                    
                                    3,975,977OTHER
      COMPREHENSIVE INCOME:Foreign
      currency translation adjustments
                                    
                                    
                                    48,456
                                    
                                    
                                    
                                    (8,438)COMPREHENSIVE
      INCOME
                                    
                                    $
                                    8,905,014
                                    
                                    
                                    $
                                    3,967,539Net
      income per shareBasic
                                    
                                    $
                                    0.35
                                    
                                    
                                    $
                                    0.27Diluted
                                    
                                    $
                                    0.34
                                    
                                    
                                    $
                                    0.18Weighted
      average number of shares outstandingBasic
                                    
                                    
                                    25,450,624
                                    
                                    
                                    
                                    15,000,000Diluted
                                    
                                    
                                    26,308,735
                                    
                                    
                                    
                                    21,818,182





See
accompanying notes to these condensed consolidated financial
statements.


3


LIHUA INTERNATIONAL, INC. AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


(AMOUNTS
EXPRESSED IN US DOLLARS)





AccumulatedCommon Stock
                                                                                            
                                                                                            Additional
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            OtherNumber of
                                                                                            
                                                                                            
                                                                                            
                                                                                            Paid-in
                                                                                            
                                                                                            Statutory
                                                                                            
                                                                                            Retained
                                                                                            
                                                                                            ComprehensiveShares
                                                                                            
                                                                                            Amount
                                                                                            
                                                                                            Capital
                                                                                            
                                                                                            Reserves
                                                                                            
                                                                                            Earnings
                                                                                            
                                                                                            Income
                                                                                            
                                                                                            Total(As restated)
                                                                                            
                                                                                            
                                                                                            
                                                                                            (As restated)At
      January 1, 2010 (Audited)
                                                                                            
                                                                                            
                                                                                            24,154,083
                                                                                            
                                                                                            $
                                                                                            2,416
                                                                                            
                                                                                            $
                                                                                            28,692,812
                                                                                            
                                                                                            $
                                                                                            5,400,994
                                                                                            
                                                                                            $
                                                                                            30,780,307
                                                                                            
                                                                                            $
                                                                                            2,629,230
                                                                                            
                                                                                            $
                                                                                            67,505,759Net
      income
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            8,856,558
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            8,856,558Foreign
      currency translation adjustment
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            48,456
                                                                                            
                                                                                            
                                                                                            48,456Comprehensive
      income
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            8,905,014Exercise
      of warrants
                                                                                            
                                                                                            
                                                                                            703,634
                                                                                            
                                                                                            
                                                                                            70
                                                                                            
                                                                                            
                                                                                            7,216,090
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            7,216,160Share-based
      payments to employees and directors
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            100,617
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            100,617Appropriation
      of statutory reserves
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            798,858
                                                                                            
                                                                                            
                                                                                            (798,858
                                                                                            )
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            -At
      March 31, 2010 (Unaudited)
                                                                                            
                                                                                            
                                                                                            24,857,717
                                                                                            
                                                                                            $
                                                                                            2,486
                                                                                            
                                                                                            $
                                                                                            36,009,519
                                                                                            
                                                                                            $
                                                                                            6,199,852
                                                                                            
                                                                                            $
                                                                                            38,838,007
                                                                                            
                                                                                            $
                                                                                            2,677,686
                                                                                            
                                                                                            $
                                                                                            83,727,550




See
accompanying notes to these condensed consolidated financial
statements.


4


LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(AMOUNTS
EXPRESSED IN US DOLLARS)





Three
      Months Ended
                                              March
      31,2010
                                            
                                            
                                            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                            
                                            $
                                            8,856,558
                                            
                                            
                                            $
                                            3,975,977Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
                                            
                                            
                                            493,599
                                            
                                            
                                            
                                            261,443Share-based
      compensation costs
                                            
                                            
                                            100,617
                                            
                                            
                                            
                                            63,563Change
      in fair value of warrants
                                            
                                            
                                            (1,345,854
                                            )
                                            
                                            
                                            124,215Gain
      on extinguishment of warrants
                                            
                                            
                                            (135,369
                                            )
                                            
                                            
                                            -(Increase)
      decrease in assets:Accounts
      receivable
                                            
                                            
                                            (5,420,349
                                            )
                                            
                                            
                                            (422,966
                                            )Notes
      receivable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            321,840Other
      receivables and current assets
                                            
                                            
                                            286,542
                                            
                                            
                                            
                                            (855,303
                                            )Inventories
                                            
                                            
                                            4,053,846
                                            
                                            
                                            
                                            (3,756,354
                                            )Deferred
      income tax benefits
                                            
                                            
                                            42,694
                                            
                                            
                                            
                                            23,391Increase
      (decrease) in liabilities:Accounts
      payable
                                            
                                            
                                            926,051
                                            
                                            
                                            
                                            1,856,914Other
      payables and accruals
                                            
                                            
                                            458,835
                                            
                                            
                                            
                                            283,087Income
      taxes payable
                                            
                                            
                                            1,078,125
                                            
                                            
                                            
                                            339,303Net
      cash provided by operating activities
                                            
                                            
                                            9,395,295
                                            
                                            
                                            
                                            2,215,110CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property, plant and equipment
                                            
                                            
                                            (123,585
                                            )
                                            
                                            
                                            (7,040,786
                                            )Addition
      to (Completion of) construction in progress
                                            
                                            
                                            (459,602
                                            )
                                            
                                            
                                            4,974,502Deposit
      for plant and equipments
                                            
                                            
                                            (149,248
                                            )
                                            
                                            
                                            (485,844
                                            )Net
      cash used in investing activities
                                            
                                            
                                            (732,435
                                            )
                                            
                                            
                                            (2,552,128
                                            )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayments
      of short-term bank loans
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (1,170,326
                                            )Release
      of restricted cash related to private placement of stock and
      warrants
                                            
                                            
                                            575,000
                                            
                                            
                                            
                                            800,000Proceeds
      from exercise of warrants
                                            
                                            
                                            2,450,000
                                            
                                            
                                            
                                            -Net
      cash provided by (used in) financing activities
                                            
                                            
                                            3,025,000
                                            
                                            
                                            
                                            (370,326
                                            )Foreign
      currency translation adjustment
                                            
                                            
                                            31,834
                                            
                                            
                                            
                                            (4,456
                                            )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                                            
                                            
                                            11,719,694
                                            
                                            
                                            
                                            (711,800
                                            )CASH
      AND CASH EQUIVALENTS, at the beginning of the period
                                            
                                            
                                            34,614,838
                                            
                                            
                                            
                                            26,041,849CASH
      AND CASH EQUIVALENTS, at the end of the period
                                            
                                            $
                                            46,334,532
                                            
                                            
                                            $
                                            25,330,049NON-CASH
      INVESTING AND FINANCING TRANSACTIONS:Shares-based compensation
      to employees and directors
                                            
                                            $
                                            100,617
                                            
                                            
                                            $
                                            63,563Issue
      of common stock to settle warrant liabilities, net of cash
      received
                                            
                                            $
                                            4,766,160
                                            
                                            
                                            $
                                            -SUPPLEMENTAL
      DISCLOSURE INFORMATIONCash
      paid for interest
                                            
                                            $
                                            29,168
                                            
                                            
                                            $
                                            113,126Cash
      paid for income taxes
                                            
                                            $
                                            1,584,594
                                            
                                            
                                            $
                                            401,371





See
accompanying notes to these condensed consolidated financial statements.


5


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      1
            DESCRIPTION
      OF BUSINESS AND ORGANIZATION





(A) 
         Business and Organization





Lihua
International, Inc. (“Lihua ” or the “
Company ”) was
incorporated in the State of Delaware on January 24, 2006 under the name
Plastron Acquisition Corp.  On September 22, 2008, the Company changed its
name from Plastron Acquisition Corp. to Lihua International, Inc. The Company
conducts its business through two operating subsidiaries, Danyang Lihua Electron
Co., Ltd. and Jiangsu Lihua Copper Industry Co., Ltd.





On
September 4, 2009, the Company’s common stock began trading on the NASDAQ
Capital Market under the symbol LIWA.





As of
March 31, 2010, details of the subsidiaries of the Company are as
follows:





Subsidiaries’ names
                                        
                                        Domicile and date of
                                          incorporation
                                        
                                        Paid-up capital
                                        
                                        
                                        Effective
                                          ownership
                                        
                                        Principal activitiesAlly
      Profit Investments Limited (“ Ally
      Profit ”)
                                        
                                        British
      Virgin Islands
                                          March
      12, 2008
                                        
                                        $
                                        100
                                        
                                        
                                        
                                        100
                                        %
                                        Holding
      company of other subsidiariesLihua
      Holdings Limited (“ Lihua
      Holdings ”)
                                        
                                        Hong
      Kong
                                          April
      17, 2008
                                        
                                        HK$
                                        100
                                        
                                        
                                        
                                        100
                                        %
                                        Holding
      company of other subsidiariesDanyang
      Lihua Electron Co., Ltd. (“ Lihua
      Electron ”)
                                        
                                        People’s
      Republic of China (“PRC”)
                                          December
      30, 1999
                                        
                                        $
                                        10,500,000
                                        
                                        
                                        
                                        100
                                        %
                                        Manufacturing
      and sales of bimetallic composite conductor wire such as copper clad
      aluminum (CCA) wire and enameled CCA wire.Jiangsu
      Lihua Copper Industry Co., Ltd. (“ Lihua
      Copper ”)
                                        
                                        PRC
                                          August 31,
      2007
                                        
                                        $
                                        15,000,000
                                        
                                        
                                        
                                        100
                                        %
                                        Manufacturing
      and sales of refined
copper.





(B) 
         Restatement of Financial
Statements





The
Company has performed a thorough reassessment of the terms of all its Company’s
warrants with reference to the guidance provided in ASC 815-40, “Derivatives andHedging– Contracts in Entity’s Own
Equity” (formerly EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock”), which has
been effective from January 1, 2009. In particular, the Company has considered
the guidance in ASC 815-40-15-7I (formerly paragraph 19 of EITF No. 07-5)
regarding the Company’s exposure to changes in currency exchange rates. This
reassessment has led to management’s conclusion that the Company’s warrants
should not be considered indexed to the Company’s own stock because the warrants
are denominated in U.S. Dollar, which is different from the Company’s functional
currency, Renminbi (the Chinese lawful currency). Therefore, the Company has
decided to properly reclassify the warrants as derivative liabilities and report
any changes in their fair value up to the earlier of the date of exercise or the
reporting date in earnings.





The
following tables present the effects of the restatement to properly account for
the above warrants as derivative liabilities instead of equity on the Company’s
consolidated financial statements as of and for the three months ended March 31,
2010:





As previously
                        reported
                      
                      
                      Increase
                        (decrease)
                      
                      
                      As restatedConsolidated Balance Sheet As Of March 31,
      2010Derivative
      liabilities
                      
                      $
                      -
                      
                      
                      $
                      8,028,100
                      
                      
                      $
                      8,028,100Total
      current liabilities
                      
                      $
                      11,851,358
                      
                      
                      $
                      8,028,100
                      
                      
                      $
                      19,879,458Additional
      paid-in capital
                      
                      $
                      42,472,264
                      
                      
                      $
                      (6,462,745
                      )
                      
                      $
                      36,009,519Retained
      earnings
                      
                      $
                      40,403,362
                      
                      
                      $
                      (1,565,355
                      )
                      
                      $
                      38,838,007Total
      equity
                      
                      $
                      91,755,650
                      
                      
                      $
                      (8,028,100
                      )
                      
                      $
                      83,727,550Consolidated
      Statement of Income and Comprehensive IncomeFor
      the Three Months Ended March 31, 2010Gain
      on change in fair value of warrants classified as
    derivatives
                      
                      $
                      -
                      
                      
                      $
                      1,345,854
                      
                      
                      $
                      1,345,854Gain
      on extinguishment of warrant liabilities
                      
                      $
                      -
                      
                      
                      $
                      135,369
                      
                      
                      $
                      135,369Total
      other income, net
                      
                      $
                      4,181
                      
                      
                      $
                      1,481,223
                      
                      
                      $
                      1,485,404Income
      before income taxes
                      
                      $
                      10,080,985
                      
                      
                      $
                      1,481,223
                      
                      
                      $
                      11,562,208Net
      income
                      
                      $
                      7,375,335
                      
                      
                      $
                      1,481,223
                      
                      
                      $
                      8,856,558Comprehensive
      income
                      
                      $
                      7,423,791
                      
                      
                      $
                      1,481,223
                      
                      
                      $
                      8,905,014Net
      income per share – basic
                      
                      $
                      0.29
                      
                      
                      
                      
                      
                      
                      $
                      0.35Net
      income per share – diluted
                      
                      $
                      0.28
                      
                      
                      
                      
                      
                      
                      $
                      0.34


6


There has
been no effect on the Company’s total assets, income from operations or cash
flows.





NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES





Principle
of consolidation


These
condensed consolidated financial statements include the financial statements of
Lihua and its subsidiaries.  All significant inter-company balances or
transactions have been eliminated on consolidation.





Basis
of preparation


These
interim condensed consolidated financial statements are unaudited.  In the
opinion of management, all adjustments and disclosures necessary for a fair
presentation of these interim condensed consolidated financial statements have
been included.  The results reported in the condensed consolidated
financial statements for any interim periods are not necessarily indicative of
the results that may be reported for the entire year.  The accompanying
condensed consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission and do
not include all information and footnotes necessary for a complete presentation
of financial statements in conformity with accounting principles generally
accepted in the United States. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and accompanying footnotes included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009.





Reclassification


Certain
prior period balances have been reclassified to conform to the current period’s
financial statement presentation. These reclassifications had no impact on
previously reported financial position, results of operations, or cash
flows.


7


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES –
CONTINUED





Research
and development costs


Research
and development costs are expensed as incurred. For the three months ended March
31, 2010 and 2009, research and development costs were $34,843 and $23,570,
respectively.





Advertising
costs


The
Company expenses all advertising costs as incurred.  The total amount of
advertising costs charged to selling, general and administrative expense were
$732 and $nil for the three months ended March 31, 2010 and 2009,
respectively.





Shipping
and handling costs


Substantially
all costs of shipping and handling of products to customers are included in
selling, general and administrative expense.  Shipping and handling costs
for the three months ended March 31, 2010 and 2009 were $357,537 and $116,306,
respectively.





Foreign
currency


The
Company uses the United States dollars (“U.S. Dollar” or “US$” or “$”) for
financial reporting purposes.  The PRC subsidiaries within the Company
maintain their books and records in their functional currency, Chinese Renminbi
(“RMB”), being the lawful currency in the PRC.  Assets and liabilities of
the PRC subsidiaries are translated from RMB into US Dollars using the
applicable exchange rates prevailing at the balance sheet date.  Items on
the statement of operations are translated at average exchange rates during the
reporting period.  Equity accounts are translated at historical
rates.  Adjustments resulting from the translation of the Company’s
financial statements are recorded as accumulated other comprehensive
income.




The
exchange rates used to translate amounts in RMB into U.S. Dollars for the
purposes of preparing the consolidated financial statements are based on the
rates as published on the website of People’s Bank of China.




No
representation is made that the RMB amounts could have been, or could be,
converted into U.S. dollars at the above rates. The value of RMB against U.S.
dollars and other currencies may fluctuate and is affected by, among other
things, changes in China’s political and economic conditions. Any significant
revaluation of RMB may materially affect the Company’s financial condition in
terms of U.S. dollar reporting.





Recent
accounting pronouncements




Effective
January 1, 2010, the Company adopted the provisions in ASU 2009-17,
“Consolidation (ASC Topic 810): Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities”, which changes how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
adoption of the provisions in ASU 2009-17 did not have an impact on the
Company’s consolidated financial statements.




Effective
January 1, 2010, the Company adopted ASU 2010-01, “Equity (ASC Topic 505):
Accounting for Distributions to Shareholders with Components of Stock and Cash”,
which clarifies that the stock portion of a distribution to shareholders that
allow them to elect to receive cash or stock with a potential limitation on the
total amount of cash that all shareholders can elect to receive in the aggregate
is considered a share issuance that is reflected prospectively in earnings per
share and is not considered a stock dividend for purposes of ASC Topic 505 and
ASC Topic 260. The adoption of the provisions in ASU 2010-01 did not have an
impact on the Company’s consolidated financial statements.




Effective
January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value
Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair
Value Measurements, which requires new disclosures related to transfers in and
out of levels 1 and 2 and activity in level 3 fair value measurements, as well
as amends existing disclosure requirements on level of disaggregation and inputs
and valuation techniques. The adoption of the provisions in ASU 2010-06 did not
have an impact on the Company’s consolidated financial statements.




Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s Consolidated Financial
Statements upon adoption.


8


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      3
            FAIR
      VALUE MEASUREMENTS AND FINANCIAL
INSTRUMENTS





ASC Topic
820, Fair Value Measurement
and Disclosures , defines fair value 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. This topic also
establishes a fair value hierarchy which requires classification based on
observable and unobservable inputs when measuring fair value. The fair value
hierarchy distinguishes between assumptions based on market data (observable
inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy
consists of three levels:





 ̈
            Level
      one — Quoted market prices in active markets for identical assets or
      liabilities; ̈
            Level
      two — Inputs other than level one inputs that are either directly or
      indirectly observable; and ̈
            Level
      three — Unobservable inputs developed using estimates and assumptions,
      which are developed by the reporting entity and reflect those assumptions
      that a market participant would
use.




Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter.




Assets
and liabilities measured at fair value on a recurring basis are summarized as
follows:
 
 Fair value measurement using inputs
                  
                  Carrying
                    amount at
                    March 31,Financial instruments
                  Level 1
                  
                  Level 2
                  
                  
                  Level 3
                  
                  2010(Unaudited)
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  (Unaudited)Liabilities:Derivative
      instruments − Warrants
                  
                  $
                  —
                  
                  
                  $
                  8,028,100
                  
                  
                  $
                  —
                  
                  
                  $
                  8,028,100Total
                  
                  $
                  —
                  
                  
                  $
                  8,028,100
                  
                  
                  $
                  —
                  
                  
                  $
                  8,028,100
 
 The
carrying values of cash and cash equivalents, trade receivables and payables,
and short-term bank loans and debts approximate their fair values due to the
short maturities of these instruments.
 
 Derivative
Instruments – Warrants
  The Company’s warrants have been classified as derivatives in
accordance with the guidance provided in FASB ASC 815-40-15-7I, because they are
denominated in U.S. dollar, which is different from the Company’s functional
currency being Renminbi:
 
 The
Company estimates the fair value of the warrants as of March 31, 2010 using the
Black-Scholes option pricing model using the following assumptions:
 
 Market
      price of common stock:
                    $
                    9.180
                    
                    
                    $
                    9.180Exercise
      price:
                    
                    3.50
                    
                    
                    $
                    4.80Remaining
      contractual life (years):
                    
                    3.58
                    
                    
                    
                    4.43Dividend
      yield:
                    
                    −
                    
                    
                    
                    −Expected
      volatility:
                    
                    41.94
                    %
                    
                    
                    39.78
                    %Risk-free
      interest rate:
                    
                    1.84
                    %
                    
                    
                    2.24
                    %
 
 On
January 14, 2010,700,000 warrants were exercised at $3.5 each in cash. On March
12, 2010, 6,000 warrants were exercised cashless to purchase 3,634 shares of
common stock. The Company accounted for the exercise of these warrants as
extinguishment of debts in accordance with ASC 815-10-40-1,“Derivatives and Hedges –
Derecognition”. In accordance with ASC 470-50-40, “Debt – Modification and
Extinguishments – Derecognition”, an aggregate gain of $135,369 was
recognized as the difference between the reacquisition price (determined based
on the closing price of the common stock of $10.26 each issued on January 14,
2010 to settle the warrant liabilities less the exercise price of $3.5 each
received, and the closing price of the common stock of $9.4 on March 12, 2010,
respectively) and the fair values of the warrants of $6.9482 and $6.2975 each at
January 14, 2010 and March 12, 2010, respectively. The fair value of the
warrants on January 14, 2010 was determined using the Black-Scholes option
pricing model based on the following assumptions: dividend yield: 0%, expected
volatility:41.12%, risk-free interest rate: 1.87%, and expected term: 3.79
years. The fair value of the warrants on January 14, 2010was determined using
the Black-Scholes option pricing model based on the following assumptions:
dividend yield: 0%, expected volatility: 41.70%, risk-free interest rate: 1.77%,
and expected term: 3.63 years.


9


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4
            RESTRICTED
      CASH





As of
December 31, 2009, $575,000 in total was held in escrow arising from agreements
in conjunction with the a private placement of 6,818,182 shares of Series A
Convertible Preferred Stock and Series A warrants to purchase 1,500,000 shares
of Common Stock, completed on October 31, 2008.





All of
the restricted cash was fully released from escrow to the Company in January
2010.





NOTE
      5
            ACCOUNTS
      RECEIVABLE, NET





Accounts
receivable consisted of the following:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Accounts
      receivable
                  
                  $
                  16,420,316
                  
                  
                  $
                  10,996,430Less:
      Allowance for doubtful debts
                  
                  
                  -
                  
                  
                  
                  -Accounts
      receivable, net
                  
                  $
                  16,420,316
                  
                  
                  $
                  10,996,430





NOTE
      6
            OTHER
      RECEIVABLES AND CURRENT ASSETS





Other
receivables and current assets consisted of the following:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Prepayment
                  
                  $
                  10,857
                  
                  
                  $
                  17,298Recoverable
      value added tax
                  
                  
                  184,000
                  
                  
                  
                  475,708Other
      receivables
                  
                  
                  11,719
                  
                  
                  
                  -Less:
      Allowance for valuation and doubtful debts
                  
                  
                  -
                  
                  
                  
                  -$
                  206,576
                  
                  
                  $
                  493,006


10


LIHUA INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7
            INVENTORIES





Inventories
by major categories are summarized as follows:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Raw
      materials
                  
                  $
                  4,399,045
                  
                  
                  $
                  8,832,262Work
      in progress
                  
                  
                  1,004,132
                  
                  
                  
                  1,316,422CCA
      and copper wire
                  
                  
                  3,758,412
                  
                  
                  
                  3,052,604Refined
      copper rod
                  
                  
                  4,323,343
                  
                  
                  
                  4,332,966$
                  13,484,932
                  
                  
                  $
                  17,534,254





NOTE
      8
            INTANGIBLE
      ASSETS





March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Computer
      software, cost
                  
                  $
                  10,788
                  
                  
                  $
                  7,030Less:
      Accumulated amortization
                  
                  
                  (4,884
                  )
                  
                  
                  (4,218
                  )$
                  5,904
                  
                  
                  $
                  2,812





Amortization
expenses for the three months ended March 31, 2010 and 2009 were $665 and
$351.





NOTE
      9
            PREPAID
      LAND USE RIGHTS





The
Company has recorded as prepaid land use rights the lump sum payments paid to
acquire long-term interest to utilize the land underlying the building and
production facility.  This type of arrangement is common for the use of
land in the PRC.  The prepaid land use rights are expensed on the
straight-line basis over the term of the land use rights of 50
years.




The
amount expensed on prepaid land use right for the three months ended March 31,
2010 and 2009 were $43,137 and $43,091, respectively.  The estimated
expense of the prepaid land use rights over each of the next five years and
thereafter will be $172,563 per annum.


11


LIHUA INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      10
            PROPERTY,
      PLANT AND EQUIPMENT, NET





Property,
plant and equipment, net consisted of the following:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Cost:Buildings
                  
                  $
                  9,450,407
                  
                  
                  $
                  9,736,531Office
      equipment
                  
                  
                  314,204
                  
                  
                  
                  321,741Motor
      vehicles
                  
                  
                  398,637
                  
                  
                  
                  315,727Machinery
                  
                  
                  11,832,075
                  
                  
                  
                  11,491,642Total
      cost
                  
                  
                  21,995,323
                  
                  
                  
                  21,865,641Less:
      Accumulated depreciation
                  
                  
                  (3,892,355
                  )
                  
                  
                  (3,441,561
                  )Net
      book value
                  
                  $
                  18,102,968
                  
                  
                  $
                  18,424,080





Depreciation
expenses for the three months ended March 31, 2010 and 2009 were
$449,797 and $218,001, respectively.





NOTE
      11
            CONSTRUCTION
      IN PROGRESS





Construction
in progress consisted of the following:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Construction
      of plant and equipment
                  
                  $
                  490,650
                  
                  
                  $
                  31,000Construction
      of buildings
                  
                  
                  28,566
                  
                  
                  
                  28,558$
                  519,216
                  
                  
                  $
                  59,558





NOTE
      12
            SHORT
      TERM BANK LOANS





Short-term
bank loans consisted of the following:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Bank
      loan granted by Agriculture Bank of China, with interest rate of
      5.31% p.a., guaranteed by Mr. Jianhua Zhu and maturing on August 20,
      2010 (extended from August 21, 2009)
                  
                  $
                  732,461
                  
                  
                  $
                  732,257Bank
      loan granted by Agriculture Bank of China, Danyang Branch with an interest
      rate of 5.31% p.a., guaranteed by by Mr. Jianhua Zhu and maturing on April
      15, 2010
                  
                  
                  761,760
                  
                  
                  
                  761,548Bank
      loan granted by Agriculture Bank of China, Danyang Branch with an interest
      rate of 5.31% p.a., guaranteed by Mr. Jianhua Zhu and maturing on May 21,
      2010
                  
                  
                  703,163
                  
                  
                  
                  702,967Total
                  
                  $
                  2,197,384
                  
                  
                  $
                  2,196,772


12


LIHUA INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      13
            OTHER
      PAYABLES AND ACCRUALS





Other
payables and accruals consisted of the following:


March
      31
                  
                  
                  December
      312010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Accrued
      staff costs
                  
                  $
                  477,333
                  
                  
                  $
                  476,978Other
      taxes payable
                  
                  
                  659,588
                  
                  
                  
                  181,286Other
      payables
                  
                  
                  3,241
                  
                  
                  
                  22,833$
                  1,140,162
                  
                  
                  $
                  681,097





NOTE
      14
            COMMON
      STOCK AND COMMON STOCK PURCHASE
WARARNTS















Warrants
issued and outstanding at March 31, 2010, and changes during the three months
then ended, are as follows:




Warrants Outstanding
                  
                  
                  Warrants ExercisableNumber of
                    underlying
                    shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Average
                    Remaining
                    Contractual
                    Life (years)
                  
                  
                  Number of
                    underlying
                    shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Average
                    Remaining
                    Contractual
                    Life (years)Balance,
      December 31, 2009
                  
                  
                  2,102,100
                  
                  
                  $
                  3.59
                  
                  
                  
                  3.93
                  
                  
                  
                  1,964,100
                  
                  
                  $
                  3.50
                  
                  
                  
                  3.
      17Granted
      / Vested
                  
                  
                  -Forfeited
                  
                  
                  -Exercised
                  
                  
                  (706,000
                  )
                  
                  
                  3.50Balance,
      March 31, 20 10 (Unaudited)
                  
                  
                  1,396,100
                  
                  
                  $
                  3.63
                  
                  
                  
                  3.55
                  
                  
                  
                  1,258,100
                  
                  
                  $
                  3.50
                  
                  
                  
                  2.92




NOTE
      15
            SHARE-BASED
      COMPENSATION





Common
Stock awarded to Employees by a Majority Shareholder


The
Company recognized a compensation expense of $63,563, related to the restricted
shares granted by a principal stockholder to Mr. Yang “Roy” Yu, the Company’s
Chief Financial Officer (CFO), based on the grant-date fair value of the
Company’s common stock of $2.26 per share, for the three months ended March 31,
2010.





Options
granted to Independent Directors


Options
issued and outstanding at March 31, 2010 and their movements during the three
months then ended are as follows:


Number of
                  underlying
                  shares
                
                
                Weighted-
                  Average
                  Exercise Price
                  Per Share
                
                
                Aggregate
                  Intrinsic
                  Value(1)
                
                
                Weighted-
                  Average
                  Contractual Life
                  Remaining in
                  YearsOutstanding
      at December 31, 2009
                
                
                65,000
                
                
                $
                4.06
                
                
                $
                415,450
                
                
                
                9.2Granted
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
      at March 31, 2010 (Unaudited)
                
                
                65,000
                
                
                $
                4.06
                
                
                $
                332,900
                
                
                
                9.2Exercisable
      at March 31, 2010 (Unaudited)
                
                
                40,000
                
                
                $
                2.955
                
                
                $
                249,000
                
                
                
                9.11


(1)
            The intrinsic value of the stock
      option at March 31, 2010 is the amount by which the market value of the
      Company’s common stock of $9.18 as of March 31, 2010 exceeds the exercise
      price of the option.


13


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      16
            INCOME
      TAXES





The
Company is subject to income tax on an entity basis on income arising from the
tax jurisdiction in which they operate.





Lihua is
subject to taxes in the U.S.





Ally
Profit being incorporated in the British Virgin Islands (“BVI”) is not subject
to any income tax in the BVI.





Lihua
Holdings is generally subject to Hong Kong income tax on its taxable income
derived from trade or businesses carried out in Hong Kong at 16.5% for the two
years ended December 31, 2010. However, as Lihua Holdings has not generated any
revenue or income, no pro vision for Hong Kong income tax has been
made.





The
Company’s two operating subsidiaries, Lihua Electron and Lihua Copper, are
generally subject to PRC enterprise income tax (“EIT”). Before January 1,
2008, Lihua Electron was subject to an EIT rate of 24% on its taxable income
because it is located in an economic development zone.  Furthermore, Lihua
Electron is a production-based foreign investment enterprise and was granted an
EIT holiday for the two years ended December 31, 2006 and 2005 and a 50%
reduction on the EIT rate for the three years ended December 31, 2007, 2008 and
2009.





On March
16, 2007, the PRC government promulgated a new tax law, China’s Unified
Enterprise Income Tax Law (“New EIT Law”), which took effect from January 1,
2008. Under the New EIT Law, foreign-owned enterprises as well as domestic
companies are subject to a uniform tax rate of 25%. The New EIT Law provides for
a grandfathering and five-year transition period from its effective date for
those enterprises which were established before the promulgation date of the New
EIT Law and which were entitled to a preferential EIT treatment. Accordingly,
Lihua Electron has continued to be entitled to the 50% reduction on its EIT rate
for the two years ended December 31, 2008 and 2009. Lihua Electron has been
subject to an EIT rate of 25% for the year ended December 31, 2010 under the New
EIT Law.





Lihua
Copper has been subject to an EIT rate of 25% for the years ended December 31,
2010 and 2009 under the New EIT Law.





The
Company’s provision for income taxes consisted of:


Three
      months ended
                  March 31,2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)PRC
      income tax:Current
                
                $
                2,662,956
                
                
                $
                740,674Deferred
                
                
                42,694
                
                
                
                23,391$
                2,705,650
                
                
                $
                764,065




Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of deferred
income tax assets are as follows:




March 31
                    2010
                  
                  
                  December 31
                    2009(Unaudited)
                  
                  
                  (Audited)Deferred income tax assets -
      current:Unrealized
      intercompany profit in inventory
                  
                  $
                  55,398
                  
                  
                  $
                  98,068Less:
      Valuation allowance
                  
                  
                  −
                  
                  
                  
                  −$
                  55,398
                  
                  
                  $
                  98,068


14


LIHUA INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      17
            EARNINGS
      PER SHARE





The
following table is a reconciliation of the net income and the weighted average
shares used in the computation of basic and diluted earnings per share for the
periods presented:





Three months ended
                  March 31,2010
                
                
                2009(Unaudited
                  and as
                  restated)
                
                
                (Unaudited)Income
      available to common stockholders:-
      Basic
                
                $
                8,856,558
                
                
                $
                3,975,977-
      Diluted
                
                $
                8,856,558
                
                
                $
                3,975,977Weighted
      average number of shares:-
      Basic
                
                
                25,450,624
                
                
                
                15,000,000-
      Effect of dilutive convertible preferred stock
                
                
                -
                
                
                
                6,818,182-
      Effect of dilutive warrants and options
                
                
                858,111
                
                
                
                --
      Diluted
                
                
                26,308,735
                
                
                
                21,818,182Net
      income per share-
      Basic
                
                $
                0.35
                
                
                $
                0.27-
      Diluted
                
                $
                0.34
                
                
                $
                0.18





NOTE
      18
            RELATED
      PARTY TRANSACTIONS





(1) 
        Sales





For the
three months ended March 31, 2010 and 2009, the sales included Nil and $169,775,
respectively, that were made to Tianyi Telecom.  The controlling
stockholders of Tianyi Telecom are related to Yaying Wang, our COO and one of
our directors.





(2) 
        Guarantees





As of
March 31, 2010 and December 31, 2009, Mr. Jianhua Zhu, the Company’s CEO and
director provided guarantees for the Company’s short-term bank loans of
$2,197,384 and $2,196,772, respectively. (See Note 12 above).


15


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      19
            CERTAIN
      RISKS AND CONCENTRATION





Credit
risk and major customers





As of
March 31, 2010, 100% of the Company’s cash included cash on hand and deposits in
accounts maintained within the PRC where there is currently no rule or
regulation in place for obligatory insurance to cover bank deposits in the event
of bank failure. However, 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.





For the
three months ended March 31, 2010 and 2009, all of the Company’s sales arose in
the PRC.  In addition, all accounts receivable as of March 31, 2010 and
2009 were due from customers located in the PRC.





There was
no single customer who accounted for more than 10% of the accounts receivable of
the Company as of March 31, 2010 and December 31, 2009.  There was no
single customer who constituted 10% or more of the Company’s net revenue for the
three months ended March 31, 2010 or 2009.





Risk
arising from operations in foreign countries





Substantially
all of the Company’s operations are conducted in China. The Company’s operations
are subject to various political, economic, and other risks and uncertainties
inherent in China. Among other risks, the Company’s operations are subject to
the risks of restrictions on transfer of funds; export duties, quotas, and
embargoes; domestic and international customs and tariffs; changing taxation
policies; foreign exchange restrictions; and political conditions and
governmental regulations.





NOTE
      20
            SEGMENT
      DATA AND RELATED INFORMATION





The
Company operates in one business segment, manufacturing and sale of copper clad
aluminum (CCA) wire and copper wire produced from refined copper materials , as
well as refined copper rod . The Company also operates only in one geographical
segment – China, as all of the Company’s products are sold to customers located
in China and the Company’s manufacturing operations are located in
China.




The
Company’s major product categories are (1) wire manufacturing, consisting of (a)
CCA, which is an electrical conductor consisting of an outer sleeve of copper
that is metallurgically bonded to a solid aluminum core, and (b) copper wire,
manufactured from recycled copper rod; and (2) recycled copper, consisting of
fire refined copper produced from scrap copper and used to manufacture copper
rod, raw wire, cable and magnet wire. The manufacturing of refined copper was
launched in the first quarter of 2009.




Management
evaluates performance based on several factors, of which net revenue and gross
profit by product are the primary financial measures:




Three months ended
                  March 31,2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)Net
      revenue from unaffiliated customers:CCA
      and Copper wire
                
                $
                40,618,931
                
                
                $
                16,313,595Refined
      copper rod
                
                
                22,601,771
                
                
                
                4,236,732$
                63,220,702
                
                
                $
                20,550,327Gross
      profit:CCA
      and Copper wire
                
                $
                9,898,637
                
                
                $
                5,310,089Refined
      copper  rod
                
                
                1,922,647
                
                
                
                388,431$
                11,821,284
                
                
                $
                5,698,520


16


LIHUA
INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
      21
            SUBSEQUENT
      EVENTS





On April
14, 2010, the Company closed an offering of 4,285,715 shares of its common stock
at a public offering price of $8.05 per share, which included the sale of
559,006 shares of its common stock as a result of the exercise of the
over-allotment option by the underwriters. The Company received net proceeds of
approximately $32.5 million from the offering, after deducting underwriting
discounts and estimated offering expenses.





The
offering was underwritten by Rodman & Renshaw, LLC, Chardan Capital Markets,
LLC and Brean Murray, Carret & Co., LLC, pursuant to an underwriting
agreement with the Company dated April 8, 2010. The offering was made pursuant
to the Company’s effective registration statement on Form S-3, as amended
(Registration Statement No. 333-164269), filed with the United States Securities
and Exchange Commission and, as disclosed in a prospectus supplement dated April
8, 2010 filed with the Securities and Exchange Commission.




Item.
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
      OPERATIONS




FORWARD-LOOKING
STATEMENTS




This
quarterly report on Form 10-Q and other reports filed by the Company from time
to time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, the Company’s
management as well as estimates and assumptions made by Company’s management.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which are only predictions and speak only as of the date hereof.
When used in the filings, the words “anticipate”, “believe”, “estimate”,
“expect”, “future”, “intend”, “plan”, or the negative of these terms and similar
expressions as they relate to the Company or the Company’s management identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to risks, uncertainties,
assumptions, and other factors, including the risks contained in the “Risk
Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 filed with the Securities and Exchange Commission,
relating to the Company’s industry, the Company’s operations and results of
operations, and any businesses that the Company may acquire. Should one or more
of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended, or planned.




Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, or achievements. Except as required by applicable law,
including the securities laws of the United States, the Company does not intend
to update any of the forward-looking statements to conform these statements to
actual results.




Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that
the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management’s judgment in its application.
There are also areas in which management’s judgment in selecting any available
alternative would not produce a materially different result.  The following
discussion should be read in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this report.




OVERVIEW




We are
principally engaged in the production of copper replacement products which
include copper rod and copper wire produced from refined scrap copper and CCA
wire.




We
manufacture and sell three major types of copper replacement products: pure
copper wire, pure copper rod and CCA wire.  The pure copper wire and pure
copper rod products are produced from refined scrap copper utilizing our
proprietary scrap copper recycling and cleaning technology and
process.





In the
first quarter of 2009, we introduced a new production process and product line
which enables us to produce pure copper products from scrap copper.  The
new production process involves the fire refining of bulk recycled copper into
high purity, low oxygen content copper rods (also known as fire-refined
high-conductivity rods).  We then either sell these large diameter (8mm)
copper rods into a range of markets, or we further process these rods into much
smaller diameter (e.g., 0.03 mm) copper wire (also known as “superfine” copper
wire). We believe this recycled superfine copper wire is generally a more cost
effective product for our customers, comparing with pure copper wires
manufactured from newly mined copper.   We believe that our pricing
advantage can be maintained regardless of fluctuations in the commodity price of
copper.


17


We are
currently one of the leading CCA superfine wire producers in China. Furthermore,
we believe we were among one of the first manufacturers which commercialized CCA
superfine wire production in China. Currently we have three different CCA
products: CCA fine wire, CCA magnet wire and CCA tin plated wire. CCA fine wire
is the raw material for CCA magnet wire and CCA tin plated wire.  In the
case of CCA magnet wire, we coat the CCA fine wire with a special magnetic
coating, while in the case of CCA tin plated wire, we plate the CCA fine wire
with a very thin layer of tin.  The value added nature of our CCA superfine
wire products lies in our ability and technology to draw down from much larger
diameter CCA raw wire, and further process it to produce super fine CCA magnet
wire and CCA tin plated wire. As a result, CCA magnet wire and CCA tin plated
wire command higher market prices and higher gross margins than plain CCA fine
wire.




We have
expanded our business from the CCA superfine wire segment into the recycled
copper rod and wire business because we believe that the recycled copper rod and
wire segment allows us to sell into the much bigger pure copper wire market and
offers us the ability to grow more rapidly while utilizing the proprietary
equipment and technology that we possess relating to superfine wire
drawing.  We believe that both the CCA superfine wire and the copper rod
and wire segments are growing markets and offer us substantial opportunity to
increase our sales in the future.  In absolute terms, the copper rod and
copper wire markets are much larger than the CCA superfine wire market, which
although fast growing as a pure copper wire substitute, still has its own
limitations and cannot replace the entire pure copper wire market.  While
the copper rod and copper wire markets generally carry lower gross margins than
our higher value-added CCA fine wire products, the potential absolute dollar
value of gross profit available to us from the copper rod and wire markets are
greater than those available from the CCA fine wire market.  We anticipate
that we will continue to expand production capacity in both segments, but that
the majority of our investment and resulting planned growth in sales volume will
occur in the copper rod and fine wire segment, which caters to a much bigger
pure copper products market, compared with the CCA wire market.




We sell
our products primarily in China, either through distributors or directly to
users, including distributors in the wire and cable industries and manufacturers
in the consumer electronics, white goods, automotive, utility,
telecommunications and specialty cable industries.




Our
markets for our three main product categories (copper rod, copper wire and CCA
wire) overlap to a degree, and are characterized by their breadth and depth,
with a very large number of current and potential customers for each product
category. Copper rod is a raw material used in wire and cable production. 
Our copper rod, which is manufactured from recycled scrap copper, competes
directly with copper rod made from “virgin” (e.g. newly mined) copper.  To
date, our raw material costs for bulk scrap copper have been lower than prices
for “virgin” copper, which provides us with a pricing advantage in the
market.  During 2009, we sold copper rod to approximately 100 customers,
most of which are producers of smaller diameter copper wire used in power cables
ranging in size from high voltage power transmission cables to white good
applications such as internal wiring in household appliances and consumer
electronics.  Our copper wire, which is sold in a variety of diameters and
may have undergone further in-line processing such as coating with plastic, is
sold to many of the same types of end-use customers who purchase copper wire
from our copper rod customers.  These include manufacturers of a wide range
of power cables and products that incorporate wiring, such as household
appliances, automobiles, consumer electronics and telecommunications
equipment.  Our CCA wire is sold to many of these manufacturers also. 
CCA wire sells at a lower cost per unit of weight than pure copper wire, due to
the relatively lower density of the aluminum core which makes up most of the
volume of CCA wire.  Our CCA wire offers conductivity performance
characteristics that are only marginally below those of pure copper wire, which
means they are attractive in a wide variety of product applications where a
slight reduction in conductivity standards is tolerable (such as most of the
household appliance, automotive, consumer electronics and telecommunications
applications).  Examples of relatively high tolerance product applications
where our CCA wire would not provide an acceptable replacement option for pure
copper wire would be military/space equipment and wiring in nuclear power
plants.  One low tolerance product category that requires pure copper wire
rather than our less costly CCA wire is electric motors, which require pure
copper wire windings.  The markets for each of our three product lines are
growing rapidly, due both to growing demand in China for all types of basic wire
raw materials and the relative cost advantages our product lines carry over
“virgin” pure copper competitor products.




We
believe that we are well positioned to continue to capture further market share
in the copper wire industry. CCA and copper wire produced from recycled copper
are increasingly being accepted as cheaper alternatives to pure copper wire. As
a result, our sales and net income have increased substantially during the last
three years. We generated sales of $32.5 million, $50.0 million and $161.5
million for the years ended December 31, 2007, 2008 and 2009, respectively. We
achieved net income of $7.7 million, $11.7 million and $13.7 million for the
years ended December 31, 2007, 2008 and 2009, respectively.  In 2009, we
had a non-cash charge of $11.9 million, which resulted from the change in the
fair value of the warrants issued to investors in conjunction with the Company’s
issuance of convertible Preferred Stock in October 2008. Excluding the impact of
this non-cash charge, net income for 2009 was $25.6 million, up 118.7% from the
same period last year.





Our
capacity to sell our copper rod, recycled copper wire products (drawn from
copper rod) and CCA wire products (drawn from larger diameter CCA wire) is
limited by the equipment we have installed to produce these products.  Our
copper rod is made from bulk scrap copper, which is cleaned, purified and
smelted in large capacity smelter units.  At the present time we have a
single horizontal copper rod extrusion production line, fed by two smelters,
which is capable of producing 25,000 tons of copper rod per year in total. 
As noted above, for the three months ended March 31, 2010, we sold 2,997 tons of
copper rod, all of which was produced on this smelter/extrusion line.  As
of March 31, 2010, we operated approximately 80 high speed wire drawing
machines, which draw larger diameter copper rod or CCA rod into much finer
diameter wires, with a total capacity of approximately 7,500 tons per annum of
CCA wire and approximately 20,000 tons per annum of copper wire.  Certain
of these drawing machines incorporate additional production steps such as
coating, annealing or magnetizing the fine wire produced.  These drawing
machines are manufactured to our design and specifications by custom equipment
manufacturers located in China.  We are not dependent on any single custom
equipment manufacturer for the fabrication of our drawing lines.  We have
added two high-capacity copper wire drawing production lines in first quarter
2010, and anticipate that we will add four additional high-capacity drawing
production lines in 2010, all of which will be used to draw copper wire from our
copper rod, and which will increase our annual capacity to 25,000 tons of copper
wire, equivalent to the annual output of the existing smelters.  We further
anticipate that we will continue to add drawing machines in the second half of
2010.  We may also add to our smelter/extrusion capacity in the second half
of 2010 or the first half of 2011, so that we can increase our production
volumes of copper rod.  Accordingly, we do not anticipate that our sales
will be capacity-constrained in the near future, even if we continue to
experience rapid sales growth.


18


Significant
Factors Affecting Our Results of Operations




The most
significant factors that affect our financial condition and results of
operations are:


 ̈
            economic
      conditions in China; ̈
            the
      market price for copper; ̈
            demand
      for, and market acceptance of, copper replacement
  products; ̈
            production
      capacity; ̈
            supply
      and costs of principal raw materials; and ̈
            product
      mix and implications on gross
margins.




Economic
conditions in China




We
operate our manufacturing facilities in China and derive the majority of our
revenues from sales to customers in China. As such, economic conditions in China
will affect virtually all aspects of our operations, including the demand for
our products, the availability and prices of our raw materials and our other
expenses. China has experienced significant economic growth, achieving a CAGR of
9.65% in gross domestic product from 1999 through 2009. Domestic demand for and
consumption of copper and CCA products have increased substantially as a result
of this growth. We believe that economic conditions in China will continue to
affect our business and results of operations.




Copper
prices




Generally
the price of our products is set at a certain discount to local retail copper
prices, and we believe our products replace or supplement copper. For these
reasons, our products are affected by the market price, demand and supply of
copper.




We price
our recycled copper and CCA wire products based on the market price for
materials plus a fixed dollar mark-up, which is essentially our gross profit.
Despite the implications of copper price volatility on our gross and net profit
margins in percentage terms, during the past three years the markup, or our
gross and net profit in absolute dollar terms, has not been materially affected
by the change of copper prices. Shanghai Changjiang Commodity Market, one of the
major metal trading markets in China, publishes the copper trading prices twice
daily. These prices typically set the range for the prices of our materials as
well as finished products, and are generally followed by all industry
participants.




Production
capacity




In order
to capture the market opportunity for our products, we have expanded, and plan
to continue to expand, our production capacity. Increased capacity has had, and
could continue to have, a significant effect on our results of operations, by
allowing us to produce and sell more products to generate higher revenues and
net income.




Supply
and costs of principal raw materials




Our
ability to manage our operating costs depends significantly on our ability to
secure affordable and reliable supplies of raw materials. We have been able to
secure a sufficient supply of raw materials, which primarily consist of CCA raw
material wire and scrap copper.




The price
of our primary raw materials varies with reference to copper prices, and changes
in copper price affect our cost of sales.  However, we are able to price
our copper and CCA products based on our material procurement costs plus a fixed
dollar mark-up, which is essentially our gross profit.  Therefore, despite
the implications of copper price movement on our gross and net profit margin
figures, during the past three years the mark-up, or our gross and net profit in
absolute dollars, have not been materially affected by the change in copper
prices.


19


Product
mix and effect on gross margins




Our gross
margin is also affected by our product mix. We produce and sell products
according to customer orders.  CCA magnet wire and CCA tin plated wire are
final products from which we will derive the highest production markup, or gross
profit.  We also generate a significant portion of revenue from selling
semi-finished products such as CCA fine wire at a lower production cost markup,
or gross profit.




The March
2009 launch of our scrap copper refinery business has changed our product mix
and gross margins.  Generally, copper rod contributes a lower gross profit
margin compared to finished wire products.  We are still at a development
stage of this new business segment, and our copper rod production capacity
exceeds our copper wire drawing capacity.  Therefore, we currently must
sell a percentage of our copper rod production into the open market on an
unimproved basis, at lower profit margins.  However, we expect a gradual
ramping up of our wire production facilities and thus we will likely be able to
utilize a substantial proportion of our copper rod production capacity as raw
material for our copper wire production. As a result, we expect to sell more
copper wire at higher profit margins than copper rod over time.




PRINCIPAL
INCOME STATEMENT COMPONENTS




Sales




Our sales
are derived from sales of CCA wire, copper wire and copper rod produced from
refined scrap copper, net of value-added taxes.




The most
significant factors that affect our sales are shipment volume and average
selling prices.




Our
collection practices generally consist of cash payment on delivery. However, we
also extend credit for 30 days to 60 days to certain of our established
customers.




Cost
of sales




Our cost
of sales primarily consists of direct material costs, and, to a lesser extent,
direct labor costs and manufacturing overhead costs. Direct material costs
generally accounted for the majority of our cost of sales.




Gross
Profit




Our gross
profit is affected primarily by the cost of raw materials, which is defined with
reference to the cost of copper.  We are also able to price our products
based on the market price for materials plus a fixed dollar mark-up, which is
essentially our gross profit.




Operating
expenses




Our
operating expenses consist of selling, general and administrative expenses, and
research and development expenses.




Selling,
general and administrative expenses




Our
selling, general and administrative expenses include salaries, shipping
expenses, and traveling expenses for our sales personnel, administrative staff
costs and other benefits, depreciation of office equipment, professional service
fees and other miscellaneous expenses related to our administrative corporate
activities.




Our sales
activities are conducted through direct selling by our internal sales
staff.  Because of the strong demand for our products, we have not had to
start to aggressively market and distribute our products, and our selling
expenses have been relatively small as a percentage of our
revenues.




We
anticipate that our selling, general and administrative expenses will increase
with the anticipated growth of our business and continued upgrades to our
information technology infrastructure. We expect that our selling, general and
administrative expenses will also increase as a result of compliance,
investor-relations and other expenses associated with being a publicly listed
company.


20


Other
income and expense




Other
income and expense include interest income, interest expense, merger costs,
foreign currency translation adjustments, and other income.




Our
interest expense consists of expenses related to our short term bank
borrowings.  We expense all interest as it is incurred.





Change in fair value of
warrants




The fair
value of the Company’s issued and outstanding Series A Warrants and Series B
Warrants, and the Warrants issued to placement agents  in conjunction with
the company's initial public offering in September 2009, decreased to $8,028,100
as of March 31, 2010 as a result of 700,000 Series A warrants and 6,000 Series B
warrants exercised and the change in our stock price during the first quarter of
2010. As such, the Company recognized a $1,345,854 gain, which is a non-cash
charge from the change in fair value of these warrants for the period ended
March 31, 2010.


21


Income
taxes




Under the
current laws of the Cayman Islands and British Virgin Islands, we are not
subject to any income or capital gains tax, and dividend payments we make are
not subject to any withholding tax in the Cayman Islands or British Virgin
Islands. Under the current laws of Hong Kong, we are not subject to any income
or capital gains tax and dividend payments we make are not subject to any
withholding tax in Hong Kong.




Our two
operating subsidiaries are governed by the PRC income tax laws and are subject
to the PRC enterprise income tax (“EIT”).  Each of the two entities files
its own separate tax return.  According to the relevant laws and
regulations in the PRC, foreign invested enterprises established prior to
January 1, 2008 were entitled to full exemption from income tax for two years
beginning from the first year when enterprises become profitable and have
accumulative profits and a 50% income tax reduction for the subsequent three
years.  Being converted into a Sino-foreign joint equity enterprise in
2005, Lihua Electron was thus entitled to the EIT exemption in 2005 and 2006,
and has been subject to the 50% income tax reduction for the period from 2007 to
2009.  Set out in the following table are the EIT rates for our two PRC
Operating Companies from 2006 to 2011:




2006
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2011Lihua
      Electron
                  
                  
                  –
                  
                  
                  
                  12
                  %
                  
                  
                  12.50
                  %
                  
                  
                  12.50
                  %
                  
                  
                  25
                  %
                  
                  
                  25
                  %Lihua
      Copper
                  
                  
                  –
                  
                  
                  
                  25
                  %
                  
                  
                  25
                  %
                  
                  
                  25
                  %
                  
                  
                  25
                  %
                  
                  
                  25
                  %




RESULTS
OF OPERATIONS




THREE
MONTHS ENDED MARCH 31, 2010 COMPARED TO THREE MONTHS ENDED MARCH 31,
2009




Sales




Our
business for the three months ended March 31, 2010 continued to demonstrate
robust growth.  Net sales increased by 206.7% from $20.6 million in the
three months ended March 31, 2009 to $63.2 million in the three months ended
March 31, 2010. This growth was primarily driven by strong market demand in our
copper rod and copper wire products from the scrap copper refinery business as
well as our CCA wire products. In the first quarter of 2010, the majority of our
sales volume was comprised of copper rod and copper wire.  Please see the
table below for more details regarding the product sales breakdown by specific
category.





Three months ended March 31,2010
                    
                    
                    2009Sales
                    
                    
                    Volume
                      (m.t.)
                    
                    
                    Average
                      price
                    
                    
                    Sales
                    
                    
                    Volume
                      (m.t.)
                    
                    
                    Average
                      priceCCA
      and Copper wire
                    
                    $
                    40,618,931
                    
                    
                    
                    4,678
                    
                    
                    $
                    8,683
                    
                    
                    $
                    16,313,595
                    
                    
                    
                    2,639
                    
                    
                    $
                    6,182Copper
      rod
                    
                    $
                    22,601,771
                    
                    
                    
                    2,997
                    
                    
                    $
                    7,541
                    
                    
                    $
                    4,236,732
                    
                    
                    
                    1,102
                    
                    
                    $
                    3,845Total
                    
                    $
                    63,220,702
                    
                    
                    
                    7,675
                    
                    
                    $
                    8,237
                    
                    
                    $
                    20,550,327
                    
                    
                    
                    3,741
                    
                    
                    $
                    5,493




Cost
of Sales and Gross Margin




The
following table sets forth our cost of sales and gross profit, both in amounts
and as a percentage of total sales for the three months ended March 31, 2010 and
2009:




Three months ended March 31,
                      
                      
                      Growth in
                        three
                        months
                        ended
                        March
                        31, 2010
                        Compared
                        to
                        three
                        months
                        ended
                        March
                        31, 20092010
                      
                      
                      2009In thousands, except for percentage
                      
                      US$
                      
                      
                      % of Sales
                      
                      
                      US$
                      
                      
                      % of Sales
                      
                      
                      %Total
      Sales
                      
                      $
                      63,221
                      
                      
                      
                      100.0
                      %
                      
                      $
                      20,550
                      
                      
                      
                      100.0
                      %
                      
                      
                      207.6
                      %Total
      cost of sales
                      
                      
                      (51,399
                      )
                      
                      
                      (81.3
                      )%
                      
                      
                      (14,852
                      )
                      
                      
                      (72.3
                      )%
                      
                      
                      246.1
                      %Gross
      Profit
                      
                      $
                      11,821
                      
                      
                      
                      18.7
                      %
                      
                      $
                      5,699
                      
                      
                      
                      27.7
                      %
                      
                      
                      107.4
                      %


22


Total
cost of sales for the three month ended March 31, 2010 was $51.4 million,
reflecting an increase of 246.1% f rom the same period last year. As a
percentage of total sales, our cost of sales increased to 81.3% of total sales
for the quarter ended March 31, 2010, compared to 72.3% of total sales in the
same period last year. Consequently, gross margin as a percentage of total sales
decreased to 18.7% in the quarter ended March 31, 2010 from 27.7% for the same
period last year, principally due to i) the addition of refined copper products,
which have a lower margin compared to our CCA products; ii) the sharp increase
in copper price. During the first quarter of 2010, the average copper price was
$7,320 compared to $3,739 from the same period last year, reflecting an increase
of 95.8%.




Gross
profit for the three months ended March 31, 2010 was $11.8 million, up 107.4%
from gross profit of $5.7 million for the same period in 2009.




Selling,
General and Administrative Expenses




The
following table sets forth operating expenses and income from operations both in
amounts and as a percentage of total sales for Selling, General and
Administrative Expenses for the three months ended March 31, 2010 and
2009:




Three months ended March 31,
                  
                  
                  Growth in
                    three
                    months
                    ended
                    March
                    31, 2010
                    compared
                    to
                    three
                    months
                    ended
                    March
                    31, 20092010
                  
                  
                  2009In thousands, except for percentage
                  
                  US$
                  
                  
                  % of
                    Sales
                  
                  
                  US$
                  
                  
                  % of
                    Sales
                  
                  
                  %Gross
      profit
                  
                  $
                  11,821
                  
                  
                  
                  18.7
                  %
                  
                  $
                  5,699
                  
                  
                  
                  27.7
                  %
                  
                  
                  107.4
                  %Operating
      Expenses:Selling
      expenses
                  
                  
                  (451
                  )
                  
                  
                  (0.7
                  )%
                  
                  
                  (203
                  )
                  
                  
                  (1.0
                  )%
                  
                  
                  122.2
                  %General
      & administrative expenses
                  
                  
                  (1,294
                  )
                  
                  
                  (2.1
                  )%
                  
                  
                  (542
                  )
                  
                  
                  (2.6
                  )%
                  
                  
                  138.6
                  %Total
      operating expense
                  
                  
                  (1,745
                  )
                  
                  
                  (2.8
                  )%
                  
                  
                  (745
                  )
                  
                  
                  (3.6
                  )%
                  
                  
                  134.0
                  %Income
      from operations
                  
                  $
                  10,076
                  
                  
                  
                  15.9
                  %
                  
                  $
                  4,954
                  
                  
                  
                  24.1
                  %
                  
                  
                  103.4
                  %




Total
selling, general and administrative expenses were $1,745,000 for the three
months ended March 31, 2010, compared to $745,000 for the same period last year,
an increase of 134.0%.




Selling
expenses were $451,000 for the three months ended March 31, 2010, an increase of
122.2% compared to the same period last year. The increase was attributable
to:


 ̈
            Increased
      costs related to product distribution and insurance as a result of
      expanded business volume; and ̈
            Increased
      staffing costs as we continued to expand the sales force during the
      period,




General
& administrative expenses were $1,294,000 for the three months ended March
31, 2010, an increase of 138.6% compared to the same period last
year. Factors which caused this increase were higher administrative and
professional fees associated with the Company being a public reporting company
and our expanded scale of operations.




Interest
Expense




Interest
expense was $29,170 for the three months ended March 31, 2010, compared to
$113,126 for the same period last year. The decrease was mainly due to the
repayment of short term bank loans which were used for working capital
purposes.


23


Income
tax




For the
three months ended March 31, 2010, income tax expense was $2,705,650,
reflecting an effective tax rate of 23.4% from operation.  The effective
tax rate for the same period in 2009 was 16.1%.




In 2009,
Lihua Electron was subject to an enterprise income tax (“EIT”) rate of 12.5%,
and Lihua Copper was subject to an EIT rate of 25%.  Starting 2010, both
entities’ EIT rate is 25%.


24


Net
Income




Net
income for the three months ended March 31, 2010 was $8.9 million, or 14.0%
of net revenue, compared to $4.0 million, or 19.3% of net revenue, in the
same period in 2009.




Foreign
Currency Translation Gains




During
the three months ended March 31, 2010, the RMB rose slightly against the US
dollar, and we recognized a foreign currency translation gain of
$48,456.




LIQUIDITY
AND CAPITAL RESOURCES




We have
historically financed our operations and capital expenditures through cash flows
from operations, bank loans and fund raising through issuing new shares from
capital market.




As of
March 31, 2010, we had approximately $46.3 million in cash, up $11.7 million
from $34.6 million at December 31, 2009.  The following table summarizes
our cash flows for each of the periods indicated:




For the three monthsended
                    March 31,2010
                  
                  
                  2009(US$)Net
      cash provided by operating activities
                  
                  $
                  9,395,295
                  
                  
                  $
                  2,215,110Net
      cash used in investing activities
                  
                  
                  (732,435
                  )
                  
                  
                  (2,552,128
                  )Net
      cash provided by financing activities
                  
                  
                  3,025,000
                  
                  
                  
                  (370,326
                  )Effect
      of exchange rate on cash and cash equivalents
                  
                  
                  31,834
                  
                  
                  
                  (4,456
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  34,614,838
                  
                  
                  
                  26,041,849Cash
      and cash equivalents at end of period
                  
                  $
                  46,334,532
                  
                  
                  $
                  25,330,049




Operating
activities




For the
three months ended March 31, 2010, cash provided by operating activities totaled
$9.4 million compared to $2.2 million in the same period of 2009. This was
primarily attributable to: i) a $8.9 million increase in net earnings; ii) a
$5.4 million accounts receivable increase driven by revenue growth; iii) a $4.1
million inventory decrease, resulting from more efficient use of raw materials
and finished goods; iv) a $1.1 million increase in tax payable as a result of
the increase in sales; v) a shortened cash cycle between timing of inventory
purchases and collection of accounts receivable, resulting in $0.9 million
decrease in accounts payables.




Investing
activities




For the
three months ended March 31, 2010, we had a net cash outflow of $0.7 million
from investing activities for the purchase of property, plant and
equipment, primarily as a result of capital investment in new equipment and
machinery, and building up new workshops, all being part of our planned
expansion.




Financing
activities




For the
three months ended March 31, 2010, we had a net cash inflow of $3.0 million from
financing activities which was primly driven by $2.5 million proceeds from the
exercise of warrants of the PIPE investors.




Capital
expenditure




Our
capital expenditures are principally comprised of construction and purchases of
property, plant and equipment for expansion of our production facilities. In
2007, 2008 and 2009, we funded our capital expenditures primarily through cash
flows from operating activities and the proceeds of bank borrowings, and equity
issuance.




In 2010,
as we accelerate our expansion, we expect continued capital expenditure for
maintaining existing machines and adding manufacturing equipment in our new
facility, which is adjacent to our old facility. In the new production
facilities we currently have two horizontal smelters, which can produce 25,000
tons of refined copper rods per year, we plan to add additional smelting
facility in 2011 and increase our refinery copper capacity to 100,000 tons per
year. With our current capacity of production lines, we can produce 7,500 tons
of CCA wire and 20,000 tons of copper wire, as of March 31, 2010. We plan to
have four new additional high-capacity drawing production lines in production by
the end of 2010 while increasing our copper wire production capacity to 25,000
tons per year. Of that capacity, 15,000 tons per year will be copper magnet wire
and 10,000 tons per year will be copper fine wire. We also plan to have another
four production lines in production by the end of 2010, increasing our CCA wire
production capacity to 10,000 tons per year. Of that capacity, 6,000 tons per
year will be CCA magnet wire and 4,000 ton per year will be CCA fine wire. For
the 2010 capacity expansion, we believe that our existing cash, cash equivalents
and cash flows from operations, proceeds from our initial public offering and
our revolving credit facility will be sufficient to meet our presently
anticipated future cash needs to bring all of our facilities into full
production. We may, however, require additional cash resources due to changing
business conditions or other future developments, including any investments or
acquisitions we may decide to pursue.


25


Accounts
receivable




Our Days
Sales Outstanding (DSO) has improved to 23 days in quarter ended March 31, 2010
comparing with 48 days in the same period last year, because of the change in
our product mix. In quarter ended March 31, 2009, we produced 2,639 tons of CCA
and copper wire and 1,102 tons of copper rod.  In the first quarter of
2010, we produced 4,678 tons of CCA and copper wire and 2,997 tons of copper
rod. As CCA is an emerging product in China, Lihua extends credit terms to some
of its larger customers. However, pure copper products, such as our copper rod
and copper wire, are in such high demand that we don’t have to extend credit
terms, which is the primary reason our overall DSO has improved as we have
introduced recycled copper wire and copper rod as new product lines. Our
customers often purchase more than one type of product from us (for example, one
customer may purchase both CCA wire and copper wire).  CCA wire purchases
are generally accorded 30 to 60 day payment terms, depending upon the
creditworthiness of the customer, while the copper wire (and copper rod)
purchases are payable upon delivery to the customer, which may occur two to
seven days after we ship the product and recognize our revenue. This decision to
extend terms or to collect payment upon receipt (essentially a “cash sale”,
although due to the shipping time this effectively becomes a very short
receivable), is based primarily upon the product type. We may extend terms for
CCA purchases to a credit-worthy customer, but for that same customer require
payment upon delivery for purchases of copper rod and/or copper
wire.




The table
below shows the breakdown of accounts receivable by products:





For the period ended,March 31,
                    2010
                  
                  
                  December 31,
                    2009Accounts
                    Receivable
                  
                  
                  Accounts
                    ReceivableCCA
      wire and Copper wire
                  
                  $
                  11,890,072
                  
                  
                  $
                  8,714,670Copper
      rod
                  
                  
                  4,530,244
                  
                  
                  
                  2,281,760Total
                  
                  
                  16,420,316
                  
                  
                  
                  10,996,430




Item 3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Foreign
Exchange Risk




Our
reporting currency is the Renminbi. Transactions in other currencies are
recorded in Renminbi at the rates of exchange prevailing when the transactions
occur. Monetary assets and liabilities denominated in other currencies are
remeasured into Renminbi at rates of exchange in effect at the balance sheet
dates. Exchange gains and losses are recorded in our statements of operations as
a component of current period earnings.




The State
Administration for Foreign Exchange, or SAFE of the PRC, under the authority of
the People’s Bank of China, controls the conversion of Renminbi into foreign
currencies. The principal regulation governing foreign currency exchange in
China is the Foreign Currency Administration Rules (1996), as amended, or the
“Rules”. Under the Rules, once various procedural requirements are met, Renminbi
is convertible for current account transactions, including trade and
service-related foreign exchange transactions and dividend payments, but not for
capital account transactions, including direct investment, loans or investments
in securities outside China, without prior approval of the SAFE of the PRC, or
its local counterparts.




Since
July 2005, the Renminbi is no longer pegged to the U.S. dollar. Although
currently the Renminbi exchange rate versus the U.S. dollar is restricted to a
rise or fall of no more than 0.3% per day and the People’s Bank of China
regularly intervenes in the foreign exchange market to prevent significant
short-term fluctuations in the exchange rate, the Renminbi may appreciate or
depreciate significantly in value against the U.S. dollar in the medium to long
term. Moreover, it is possible that in the future, the PRC authorities may lift
restrictions on fluctuations in the Renminbi exchange rate and lessen
intervention in the foreign exchange market. As of March 31, 2010, the exchange
rate of RMB to $1 was RMB 6.8258.




We
conduct substantially all of our operations through our PRC operating companies,
and their financial performance and position are measured in terms of Renminbi.
Our raw materials are primarily procured, sold and delivered in the PRC for
Renminbi. The majority of our net revenue are denominated in
Renminbi.


26


Any
devaluation of the Renminbi against the U.S. dollar would consequently have an
adverse effect on our financial performance and asset values when measured in
terms of U.S. dollars. On the other hand, the appreciation of the Renminbi could
make our customers’ products more expensive to purchase because many of our
customers are involved in the export of goods, which may have an adverse impact
on their sales. A decrease in sales by our customers could have an adverse
effect on our operating results. In addition, as of March 31, 2010 and
December 31, 2009, we have cash denominated in U.S. dollars amounting to RMB
316,293,412 (USD 46,334,532) and RMB 236,357,039 (USD 34,614,838) . Also, from
time to time we may have U.S. dollar denominated borrowings. Accordingly, a
decoupling of the Renminbi many affect our financial performance in the
future.




We
recognized a foreign currency translation adjustment of approximately RMB
330,775 (USD 48,456) for the quarter ended March 31, 2010. We do not currently
engage in hedging activities, as such, we may in the future experience economic
loss as a result of any foreign currency exchange rate
fluctuations.




Interest
Rate Risk




We are
exposed to interest rate risk arising from short-term variable rate borrowings
from time to time. Our future interest expense will fluctuate in line with any
change in our borrowing rates. We do not have any derivative financial
instruments and believe our exposure to interest rate risk and other relevant
market risks is not material. Our bank borrowings amounted to RMB 15,000,000
(USD 2,197,384) as of March 31, 2010. Based on the variable nature of the
underlying interest rate, the bank borrowings approximated fair value at that
date.




If there
was a hypothetical 1% change in interest rates, the net impact to earnings and
cash flows would be approximately RMB 150,000  (USD 21,974). The potential
change in cash flows and earning is calculated based on the change in the net
interest expense over a one year period due to an immediate 1% change in
price.




Inflation




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, the change in Consumer Price Index in
China was 4.8%, 5.9%, and 5.2% in 2007, 2008 and 2009 respectively.




Item 4.
            CONTROLS
      AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Disclosure
controls and procedures are designed to ensure that information required to be
disclosed by us in reports filed or submitted under the Securities Exchange Act
of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed under
the Exchange Act is accumulated and communicated to management, including the
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control
objectives.




In
connection with the preparation of the quarterly report on Form 10-Q/A for the
quarter ended March 31, 201, we carried out a re-evaluation of the effectiveness
of our disclosure controls and procedures, which are defined in Rules 13a-15(e)
and 15d-15(e) of the Exchange Act of 1934 (the “Act”). Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Act is accumulated and communicated to the
issuer’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.




Based on
this re-evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were not effective as of
March 31, 2010 because of the material weakness described under “Management’s
Report on Internal Control over Financial Reporting” in our amended Annual
Report on Form 10-K/A filed with the SEC on July 12, 2010.




Changes
in Internal Control over Financial Reporting




Except as
otherwise discussed herein, there have been  no changes in our internal
control over financial reporting that occurred during the first fiscal quarter
of 2010 covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


27


PART
II — OTHER INFORMATION




Item 1.
            LEGAL
      PROCEEDINGS




There
have been no material developments in the Company’s legal proceedings from those
previously disclosed in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009.





Item 1A.
            RISK
      FACTORS




There
have been no material changes in the Company’s risk factors from those
previously disclosed in the Company’s Form 10-K for the year ended December 31,
2009.




Item 2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




On
September 10, 2009, we consummated a public offering of 2,300,000 shares of
common stock at a public offering price of $4.00 per share and an over-allotment
of an additional 300,000 shares for gross proceeds of approximately $10,400,000
and net proceeds of $9,580,000, after deducting underwriting discounts and
offering commissions.  There were no payments, direct or indirect, made to
any directors, officers, or their associates; to persons owning 10% percent or
more of any class of our equity securities; or affiliates of the issuer; or
direct or indirect payments to others.




We
offered the shares sold in the offering pursuant to Registration Statements on
Forms S-1, as amended (Registration Statement Nos. 333-159705 and 333-161726)
filed with the Securities and Exchange Commission), which were declared
effective by the SEC on September 4, 2009.  We used approximately $3.9
million of net proceeds to purchase additional high speed fine wire drawing
machines to process excess copper rod and the remainder of the net proceeds for.
general working capital, including increased corporate governance
costs.




The
offering was underwritten by Broadband Capital Management LLC and Rodman &
Renshaw, LLC, who acted as joint book-running managers.




Item 3.
            DEFAULTS
      UPON SENIOR SECURITIES




None.




Item 4.
            OTHER
      INFORMATION




None.




Item 5.
            EXHIBITS





(b)
            Exhibits




Exhibit No.
                
                Document Description31.1
                
                Certification
      of Chief Executive Officer (Principal Executive Officer) pursuant to Rule
      13A-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.31.2
                
                Certification
      of the Chief Financial Officer (Principal Financial Officer) pursuant to
      Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
                
                Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
      Sarbanes-Oxley Act of 2002).32.2
                
                Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
      Sarbanes-Oxley Act of
2002).


28


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





LIHUA
      INTERNATIONAL, INC.July
      12,  2010
              By:
              /s/ Jianhua ZhuJianhua
      Zhu, Chairman and Chief Executive Officer(Principal
      Executive Officer)July
      12,  2010
              By:
              /s/ Yang “Roy” YuYang
      “Roy” Yu Chief Financial Officer(Principal
      Financial Officer)


29