**SECURITIES
      AND EXCHANGE COMMISSION** **Washington,
      D.C. 20549**





**FORM
      10-Q** **(** Mark
      One)





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


for
      the
      quarterly period ended March 31, 2008.





**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


For
      the
      transition period
      from                      
to




Commission
      File Number: **0-19276**





**Fushi
      Copperweld, Inc**.





**Nevada**
            **13-3140715**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)





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


(Address
      of principal executive offices) (Zip Code)





**011-86-411-8770-333
      (PRC); 931-433-0460 (US)**


(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 Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
      √


No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.


Large
      accelerated filer


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 Exchange Act).


Yes


No
      √









APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date. The total shares outstanding at March
      31, 2008 was 27,048,039.











**FUSHI
      COPPERWELD, INC.**





**INDEX
      TO MARCH 31, 2008 FORM 10-Q**







**Page**Part
                I - Financial Information
            
            
            2Item
                1 - Financial Statements
            
            
            2Consolidated
                Balance Sheets as of March 31, 2008 (unaudited)
            
            
            2and
                December 31, 2007Consolidated
                Statements of Income and Other Comprehensive Income for
            
            
            3the
                three months ended March 31, 2008 and 2007 (unaudited)Consolidated
                Statements of Cash Flows for the three months ended
            
            
            4March
                31, 2008 and 2007 (unaudited)Notes
                to the Consolidated Financial Statements (unaudited)
            
            
            5Item
                2 - Management's Discussion and Analysis of Results of
            
            
            31Operations
                and Financial ConditionItem
                3 - Quantitative and Qualitative Disclosure about Market
                Risk
            
            
            48Item
                4 - Controls and Procedures
            
            
            51Item
                6 - Exhibits
            
            
            51Signature
                Page
            
            
            52









**Part
        I - Financial Information**




Item
        1 -
        Financial Statements


**FUSHI
                  COPPERWELD, INC. AND SUBSIDIARIES****(Formerly
                  Fushi International, Inc.)****CONSOLIDATED
                  BALANCE SHEETS****AS
                  OF MARCH 31, 2008 AND DECEMBER 31,
                  2007**
  ASSETS**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007****(Unaudited)**CURRENT
                  ASSETS:Cash
              
              $
              78,580,616
              
              $
              79,914,758Marketable
                  securities
              
              
              -
              
              
              2,977,699Restricted
                  cash
              
              
              3,856,000
              
              
              1,000,000Accounts
                  receivable, trade, net of allowance of bad debt $211,629and
                  $135,418 as of March 31, 2008, and December 31, 2007
              
              
              34,369,645
              
              
              23,611,186Inventories,
                  net
              
              
              26,391,479
              
              
              12,308,295Notes
                  receivables
              
              
              485,813
              
              
              816,905Other
                  receivables and prepaid expenses
              
              
              1,991,838
              
              
              997,979Advances
                  to suppliers
              
              
              9,683,792
              
              
              2,341,839Cross
                  currency hedge receivable
              
              
              136,961
              
              
              706,170Deferred
                  tax assets
              
              
              3,651,003
              
              
              2,852,000Total
                  current assets
              
              
              159,147,147
              
              
              127,526,831PLANT
                  AND EQUIPMENT, net
              
              
              94,963,080
              
              
              87,228,600OTHER
                  ASSETS:Advances
                  to suppliers, noncurrent
              
              
              15,497,814
              
              
              18,204,775Prepaid
                  land use rights
              
              
              4,749,334
              
              
              4,559,760Intangible
                  asset, net of accumulated amortization
              
              
              6,004,316
              
              
              5,832,721Deferred
                  loan expense, net
              
              
              2,447,574
              
              
              3,115,930Total
                  other assets
              
              
              28,699,038
              
              
              31,713,186Total
                  assets
              
              $
              282,809,265
              
              $
              246,468,617LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable, trade
              
              $
              9,686,316
              
              $
              3,028,823Short
                  term bank loans
              
              
              27,053,926
              
              
              12,871,884Current
                  portion of long term debts
              
              
              11,424,000
              
              
              10,968,000Other
                  payables and accrued liabilities
              
              
              4,466,821
              
              
              5,791,597Customer
                  deposits
              
              
              182,443
              
              
              -Taxes
                  payable
              
              
              1,331,813
              
              
              1,005,259Total
                  current liabilities
              
              
              54,145,319
              
              
              33,665,563LONG
                  TERM LIABILITIES:Notes
                  payable
              
              
              45,000,000
              
              
              60,000,000Fair
                  value of derivative instrument
              
              
              13,624,876
              
              
              8,515,396Total
                  liabilities
              
              
              112,770,195
              
              
              102,180,959COMMITMENTS
                  AND CONTINGENCIES
              
              
              -
              
              
              -SHAREHOLDERS'
                  EQUITY:Preferred
                  stock,$0.001 par value, 5,000,000 shares authorized, none issued
                  or
                  outstanding
              
              
              -
              
              
              -Common
                  stock, $0.006 par value, 100,000,000 shares authorized, March 31,
                  2008:
                  27,454,162 issued and 27,354,162 outstanding; December 31, 2007:
                  25,311,304 shares issued and 25,211,304 outstanding
              
              
              164,125
              
              
              151,268Common
                  stock held in escrow, 100,000 shares
              
              
              600
              
              
              600Additional
                  paid in capital
              
              
              93,065,302
              
              
              77,665,064Statutory
                  reserves
              
              
              8,321,726
              
              
              8,321,726Retained
                  earnings
              
              
              61,703,566
              
              
              54,133,070Accumulated
                  other comprehensive income
              
              
              6,783,751
              
              
              4,015,930Total
                  shareholders' equity
              
              
              170,039,070
              
              
              144,287,658Total
                  liabilities and shareholders' equity
              
              $
              282,809,265
              
              $
              246,468,617




2




**FUSHI
                  COPPERWELD, INC. AND SUBSIDIARIES****(Formerly
                  Fushi International, Inc.)****CONSOLIDATED
                  STATEMENTS OF INCOME AND****OTHER
                  COMPREHENSIVE INCOME****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007****(UNAUDITED)**
  **2008**
              
              **2007**REVENUES
              
              $
              54,009,027
              
              $
              21,137,917COST
                  OF GOODS SOLD
              
              
              39,275,340
              
              
              13,452,737GROSS
                  PROFIT
              
              
              14,733,687
              
              
              7,685,180OPERATING
                  EXPENSESelling
                  expenses
              
              
              792,911
              
              
              175,194General
                  and administrative expenses
              
              
              5,054,183
              
              
              1,441,002Total
                  operating expense
              
              
              5,847,094
              
              
              1,616,196INCOME
                  FROM OPERATIONS
              
              
              8,886,593
              
              
              6,068,984OTHER
                  INCOME (EXPENSE)Interest
                  income
              
              
              160,363
              
              
              191,210Interest
                  expense
              
              
              (1,122,065
              )
              
              (1,282,072
              )Other
                  income
              
              
              189,954
              
              
              62,110Other
                  expense
              
              
              (75,914
              )
              
              (65,499
              )Total
                  other expense, net
              
              
              (847,662
              )
              
              (1,094,251
              )INCOME
                  BEFORE INCOME TAXES
              
              
              8,038,931
              
              
              4,974,733PROVISION
                  FOR INCOME TAXES
              
              
              468,435
              
              
              -NET
                  INCOME
              
              
              7,570,496
              
              
              4,974,733OTHER
                  COMPREHENSIVE INCOMERealized
                  loss on marketable securities
              
              
              22,301
              
              
              -Foreign
                  currency translation adjustment
              
              
              7,855,000
              
              
              902,861Change
                  in fair value of derivative instrument
              
              
              (5,109,480
              )
              
              -COMPREHENSIVE
                  INCOME
              
              $
              10,338,317
              
              $
              5,877,594BASIC
                  EARNINGS PER SHAREEarnings
                  Per Share
              
              $
              0.28
              
              $
              0.24Weighted
                  average shares outstanding
              
              
              27,048,039
              
              
              20,507,096DILUTED
                  EARNINGS PER SHAREEarnings
                  Per Share
              
              $
              0.26
              
              $
              0.21Weighted
                  average shares outstanding
              
              
              28,228,604
              
              
              23,824,495




3


**FUSHI
                  COPPERWELD, INC. AND SUBSIDIARIES****(Formerly
                  Fushi International, Inc.)****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2008 and 2007****(UNAUDITED)**
  **2008**
              
              **2007**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              7,570,496
              
              $
              4,974,733Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:Depreciation
              
              
              1,404,042
              
              
              301,596Amortization
                  of intangibles
              
              
              62,277
              
              
              57,483Amortization
                  of financing expense
              
              
              668,356
              
              
              149,589Amortization
                  of stock option compensation
              
              
              413,095
              
              
              -Gain
                  on derivative instrument
              
              
              (169,167
              )
              
              -Loss
                  on marketable securites
              
              
              16,158
              
              
              -Change
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (9,917,566
              )
              
              (2,599,888
              )Inventories
              
              
              (13,669,483
              )
              
              (321,590
              )Other
                  receivables and prepayments
              
              
              (908,504
              )
              
              (1,495,482
              )Notes
                  receivables
              
              
              357,309
              
              
              -Advance
                  to suppliers
              
              
              (7,031,475
              )
              
              -Deferred
                  tax assets
              
              
              (799,003
              )Accounts
                  payable
              
              
              6,602,565
              
              
              275,573Other
                  payables and accrued liabilities
              
              
              (1,364,005
              )
              
              904,538Customer
                  deposits
              
              
              178,572
              
              
              73,405Taxes
                  payable
              
              
              285,445
              
              
              (128,103
              )Net
                  cash (used in) provided by operating activities
              
              
              (16,300,888
              )
              
              2,191,854CASH
                  FLOWS FROM INVESTING ACTIVITIES:Proceeds
                  from derivative instrument
              
              
              738,376
              
              
              -Proceeds
                  from sale of marketable securities
              
              
              2,983,842
              
              
              -Purchase
                  of property and equipment
              
              
              (3,253,101
              )
              
              (3,118,108
              )Advances
                  for purchase of equipment
              
              
              -
              
              
              (4,682,463
              )Net
                  cash provided by (used in) investing activities
              
              
              469,117
              
              
              (7,800,571
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from bank loans
              
              
              16,908,000
              
              
              14,263,112Payments
                  on bank loans
              
              
              (5,814,432
              )
              
              (8,655,841
              )Change
                  in restricted cash
              
              
              (2,795,400
              )
              
              (5,728,044
              )Net
                  proceeds from stock issuance in private placement
              
              
              -
              
              
              1,826Net
                  borrowing on credit line
              
              
              2,749,402
              
              
              -Net
                  proceeds from convertible notes
              
              
              -
              
              
              56,400,000Proceeds
                  from exercise of stock warrants
              
              
              -
              
              
              1,115,313Net
                  cash provided by financing activities
              
              
              11,047,570
              
              
              57,396,366EFFECT
                  OF EXCHANGE RATE ON CASH
              
              
              3,450,059
              
              
              505,130(DECREASE)
                  INCREASE IN CASH
              
              
              (1,334,142
              )
              
              52,292,779CASH,
                  beginning of year
              
              
              79,914,758
              
              
              20,493,551CASH,
                  end of period
              
              $
              78,580,616
              
              $
              72,786,330




4


**FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
        Fushi International, Inc.)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
        31, 2008**
 **(Unaudited)**


**Note
        1 - Organization**
 
 Fushi
        Copperweld, Inc. (formerly Fushi International, Inc.) was incorporated under
        the
        name of M, Inc. in the state of Nevada on October 6, 1982. The name was changed
        to Parallel Technologies, Inc. (“Parallel”) on June 3, 1991 and changed to Fushi
        International, Inc. (“Fushi International”) on January 30, 2006. Effectively on
        January 15, 2008, Fushi International changed its name to Fushi Copperweld,
        Inc.
        (“Fushi”) after it acquired all of the issued and outstanding membership
        interests of Copperweld Holdings, LLP on October 29, 2007.
 
 On
        October 29, 2007, Fushi International acquired Copperweld Bimetallics Holdings,
        LLC, a North Carolina registered limited liability company and the holder
        of the
        partnership interest in Copperweld Bimetallics, LLC, (“Copperweld”) a limited
        liability company registered in the state of Delaware and the parent of
        Copperweld Bimetallics UK, LLC, a limited liability company registered in
        the
        United Kingdom and Copperweld International Holdings, LLC a North Carolina
        limited liability company. Copperweld is a bimetallic administrative, sales
        and
        manufacturing operation headquartered in Fayetteville, Tennessee. Copperweld
        Bimetallics UK, LLC (Copperweld UK) is a manufacturing, distribution and
        customer service facility located in Telford, England. Copperweld International
        Holdings, LLC is a non-operating company that held a certain partnership
        interest in a company located in Tongling, PRC at December 31, 2007. Those
        interests were liquidated in an agreement entered by Copperweld and its
        subsidiaries, affiliates and International Manufacturing Equipment Sales,
        Inc.
        on January 16, 2008. Additionally, Fushi acquired International Manufacturing
        Equipment Sales, LLC, a shell company that was, at the time of purchase,
        a
        non-affiliated but commonly owned Limited Liability Company.
 
 Fushi,
        Fushi Holdings, Fushi International (Dalian), Dalian Fushi, Copperweld and
        Copperweld UK are hereinafter referred to as “the Company”.
 
 **Note
        2 - Summary of Significant Accounting Policies**
 
 Principles
        of consolidation
 
 The
        accompanying consolidated financial statements include the financial statements
        of Fushi and it’s wholly owned subsidiaries, Fushi Holdings, Fushi International
        (Dalian), Copperweld, Copperweld UK and its 100% variable interest entity Dalian
        Fushi. All significant inter-company transactions and balances have been
        eliminated in consolidation.
 
 Consolidation
        of variable interest entity
 
 In
        accordance with FASB Interpretation No. 46R, Consolidation of Variable Interest
        Entities ("FIN 46R"), variable interest entities (VIEs) are generally entities
        that lack sufficient equity to finance their activities without additional
        financial support from other parties or whose equity holders lack adequate
        decision making ability. All VIEs with which the Company is involved must
        be
        evaluated to determine the primary beneficiary of the risks and rewards of
        the
        VIE. The primary beneficiary is required to consolidate the VIE for financial
        reporting purposes.
  5
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 The
        Company has concluded that Dalian Fushi is a VIE and that the Company is
        the
        primary beneficiary. Under the requirements of FIN 46R, the Company consolidated
        the financial statements of Dalian Fushi. As both companies are under common
        control, the financial statements have been prepared as if the transaction
        had
        occurred retroactively.
 
 Use
        of
        estimates
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        For
        example, the Company estimates the fair value of its derivative instrument.
        Actual results could differ from those estimates.
 
 Management
        has included all normal recurring adjustments considered necessary to give
        a
        fair presentation of operating results for the periods presented. Interim
        results are not necessarily indicative of results for a full year. The
        information included in this Form 10-Q should be read in conjunction with
        information included in the 2007 annual report filed on Form 10-K.
 
 Revenue
        recognition
  The
        Company's revenue recognition policies are in compliance with Staff Accounting
        Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectability is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are recorded as customer
        deposits.
 
 Shipping
        and handling costs
 
 Shipping
        and handling costs related to costs of goods sold are included in selling,
        general and administrative costs which totaled $453,851 and $143,427 for
        the
        three months ended March 31, 2008 and March 31, 2007, respectively,
 
 Foreign
        currency translation and other comprehensive income
 
 The
        reporting currency of the Company is the US dollar. The functional currency
        of
        Fushi Copperweld and its US subsidiary is the US dollar. The functional currency
        of Fushi International (Dalian) and Dalian Fushi is Renminbi (RMB). The
        functional currency of Copperweld UK is the British Pound.
 
 For
        the
        subsidiaries whose functional currencies are other than the US dollar, all
        assets and liabilities accounts were translated at the exchange rate on the
        balance sheet date; stockholder's equity is translated at the historical
        rates
        and items in the statement of operations items and cash flow statements are
        translated at the average rate for the year. Translation adjustments resulting
        from this process are included in accumulated other comprehensive income
        in the
        statement of shareholders’ equity. The resulting translation gains and losses
        that arise from exchange rate fluctuations on transactions denominated in
        a
        currency other than the functional currency are included in the results of
        operations as incurred.
  6
 
  **FUSHI
            COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
            Fushi International, Inc.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(Unaudited)**
  Accumulated
        other comprehensive income in the consolidated statement of shareholders’ equity
        amounted to $6,783,751 and $4,015,930 as of March 31, 2008 and December 31,
        2007, respectively. The balance sheet amounts with the exception of equity
        at
        March 31, 2008 were translated at 7.003 RMB and 0.501 GBP to $1.00 USD. The
        average translation rates applied to income and cash flow statement amounts
        for
        the three months ended March 31, 2008 were 7.155 RMB and 0.506 GBP to $1.00
        USD.
 
 Cash
        and concentration of risk
 
 The
        Company considers all highly liquid investments with original maturities
        of
        three months or less at the time of purchase to be cash equivalents, for
        cash
        flow statement purposes. Cash includes cash on hand and demand deposits in
        accounts maintained with state owned banks within the PRC and with banks
        in the
        UK and the US.
 
 Certain
        financial instruments, which subject the Company to concentration of credit
        risk, consist of cash. The Company maintains balances at financial institutions
        which, from time to time, may exceed Federal Deposit Insurance Corporation
        insured limits for the banks located in the Unites States. Balances at financial
        institutions or state owned banks within the PRC and in banks located in
        the
        United Kingdom are not covered by insurance. As of March 31, 2008 and December
        31, 2007, the Company had deposits in excess of federally insured limits
        totaling $78,396,134 and $83,871,892, respectively. The Company has not
        experienced any losses in such accounts and believes it is not exposed to
        any
        significant risks on its cash in bank accounts.
 
 Part
        of
        the Company's operations are carried out in the PRC and UK. Accordingly,
        the
        Company's business, financial condition and results of operations may be
        influenced by the political, economic and legal environments in the two
        countries, and by the general state of the two countries' economy. The Company's
        operations in the two countries are subject to specific considerations and
        significant risks not typically associated with companies in the North America.
        These include risks associated with, among others, the political, economic
        and
        legal environments and foreign currency exchange. The Company's results may
        be
        adversely affected by changes in governmental policies with respect to laws
        and
        regulations, anti-inflationary measures, currency conversion and remittance
        abroad, and rates and methods of taxation, among other things.
 
 Additional
        product sales information
  The
        Company has expanded its geographic sales area from mainly the Chinese domestic
        market to the international market with the Copperweld acquisition. The
        following chart shows that the PRC market remains the largest single market
        for
        the Company while approximately 35.7% sales were spread across international
        markets during the first quarter of 2008 and 1.8% during the first quarter
        of
        2007.
  7
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 **March
                  31, 2008**
              
              **March
                  31, 2007**Country
              
              **(Unaudited)**
              
              **(Unaudited)**China
              
              $
              34,752,795
              
              $
              20,763,863USA
              
              
              12,422,970
              
              
              -Europe
              
              
              3,507,766
              
              
              -Other
                  countries
              
              
              3,325,496
              
              
              374,054Total
                  sales
              
              $
              54,009,027
              
              $
              21,137,917
 
 Major
        customers and suppliers
 
 Ten
        major
        customers accounted for 32.3% and 55.9% of the net sales for the three months
        ended March 31, 2008 and 2007, respectively. We included Fayetteville’s sales
        for the three months ended March 31, 2008 to illustrate the effect the
        acquisition has towards reducing our dependence on a few customers. Total
        receivable balance due from the top ten customers at March 31, 2008 and December
        31, 2007 amounted to $9,464,907 and $15,029,038, respectively.
 
 Ten
        major
        suppliers provided approximately 86.6% and 63.9% of the Company’s purchases of
        raw materials for the three months ended March 31, 2008 and 2007, respectively.
        We included Copperweld’s purchases for the three months ended March 31,2008 for
        comparison purposes. As of March 31, 2008, our accounts payable to these
        suppliers were $3.76 million and our advances to these suppliers were $8.55
        million, all of which was current. As of December 31, 2007, we owed these
        suppliers $1.3 million.
 
 Accounts
        receivables and allowance for doubtful accounts
 
 Management
        regularly reviews aging of receivables and changes in payment trends by its
        customers, and records a reserve when they believe collection of amounts
        due are
        at risk. Accounts considered uncollectible are written off. As of March 31,
        2008, management concluded its allowance for bad debts in the amount of $211,629
        was sufficient.
 
 Inventories
  Inventories
        are stated at the lower of cost or market using a weighted average method.
        Inventories consist of raw materials, work in process, finished goods and
        packing materials. Raw materials consist of copper, aluminum and steel used
        in
        production. The cost of finished goods included direct costs of raw materials
        as
        well as direct labor used in production. Indirect production costs such as
        utilities and indirect labor related to production such as assembling, shipping
        and handling costs are also included in the cost of inventory.
  8
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 The
        Company reviews its inventory regularly for possible obsolete goods or to
        determine if any reserves are necessary for potential obsolescence. As of
        March
        31, 2008, the Company determined its allowance for obsolete inventory in
        the
        amount of $218,023 was sufficient.
 
 Financial
        instruments
 
 The
        Company analyzes all financial instruments with features of both liabilities
        and
        equity under SFAS 150, “Accounting for Certain Financial Instruments with
        Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
        Derivative Financial Instruments Indexed to, and Potentially Settled in,
        a
        Company’s Own Stock.” The convertible preferred shares issued in 2005 and the
        convertible note issued in 2007 did not require bifurcation or result in
        liability accounting. Additionally, the Company analyzes registration rights
        agreements associated with any equity instruments issued to determine if
        penalties triggered for late filing should be accrued under FSP EITF 00-19-2,
        “Accounting for Registration Payment Arrangements.”
 
 Fair
        value of financial instruments
  On
        January 1, 2008, the Company adopted SFAS No. 157. SFAS No. 157, Fair Value
        Measurements, defines fair value, establishes a three-level valuation hierarchy
        for disclosures of fair value measurement and enhances disclosures requirements
        for fair value measures. The carrying amounts reported in the balance sheets
        for
        current assets and current liabilities qualify as financial instruments are
        a
        reasonable estimate of fair value because of the short period of time between
        the origination of such instruments and their expected realization and their
        current market rate of interest. The three levels are defined as
        follow:
 
 ·
              Level
                  1 inputs to the valuation methodology are quoted prices (unadjusted)
                  for
                  identical assets or liabilities in active
                  markets.
 ·
              Level
                  2 inputs to the valuation methodology include quoted prices for
                  similar
                  assets and liabilities in active markets, and inputs that are observable
                  for the assets or liability, either directly or indirectly, for
                  substantially the full term of the financial
                  instruments.
 ·
              Level
                  3 inputs to the valuation methodology are unobservable and significant
                  to
                  the fair value.
 
 The
        Company analyzes all financial instruments with features of both liabilities
        and
        equity under SFAS 150, “Accounting for Certain Financial Instruments with
        Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
        Derivative Financial Instruments Indexed to, and Potentially Settled in,
        a
        Company’s Own Stock.” During 2007, the Company issued 3% secured convertible
        debentures in a face amount of $20,000,000 which are due in 2012 from issuance
        of common stock. As fixed prices are set for the conversion prices of such
        convertible debentures, the Company is in a position to be sure it had adequate
        authorized shares for the future conversion of convertible debentures.
        Therefore, no embedded derivatives are required to be recorded at fair value
        and
        marked-to-market at each reporting period. During 2007, the Company borrowed
        $40,000,000 debenture note with floating rate.
  9
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 As
        of
        March 31, 2008, the outstanding principal amounted to $45,000,000. The Company
        used Level 2 inputs for its valuation methodology for the notes payable,
        and
        their fair values are determined using cash flows discounted at relevant
        market
        interest rates in effect at the period close.
 
 The
        Company uses a cross currency hedge, a derivative financial instrument, to
        hedge
        the risk of rising interest rates on their variable interest rate debt. Under
        SFAS 157, market value is to represent fair value. As of March 31, 2008,
        the
        Company has a $13.6 million derivative instrument. Management obtains fair
        value
        of the derivative instrument from the financial institution using Level 3
        inputs
        since there is no observable market price, for the three months ended March
        31,
        2008, the Company recorded $5,109,480 changes in the fair value of the
        derivative instrument as other comprehensive loss.
 
 **Carrying
                  As of**
                **March
                  31, 2008**
              
              **Fair
                  Value Measurements at March 31, 2008**
                **Using
                  Fair Value Hierarchy**Liabilities
              
              
              
              **Level
                  1**
              ****
              **Level
                  2**
              ****
              **Level
                  3**Notes
                  payable
              
              $
              45,000,000
              
              
              
              
              $
              39,608,764Derivative
                  Instrument
              
              $
              13,624,876
              
              
              
              
              
              
              
              $
              13,624,876
  The
        Company did not identify any assets and liabilities that are required to
        be
        presented on the balance sheet at fair value in accordance with SFAS No.
        157.
 
 Derivative
        Instrument
 
 The
        Company uses a cross currency hedge, a derivative financial instrument, to
        hedge
        the risk of rising interest rates on their variable interest rate debt. This
        type of derivative financial instrument is known as a cash flow hedge. The
        Company accounts for this interest rate swap in accordance with FAS No. 133,
        “Accounting for Derivatives Instruments and Hedging Activity,” which requires
        the derivative to be carried on the balance sheet at fair value and to meet
        certain documentary and analytical requirements to qualify for hedge accounting
        treatment. The above derivative qualifies for hedge accounting under FAS
        133
        and, accordingly, changes in the fair value effective portion is reported
        in
        accumulated other comprehensive income, net of related income tax effects.
        Amounts included in accumulated other comprehensive income are reclassified
        into
        earnings when the hedged transaction affects earnings.
 
 At
        the
        inception of the transaction, the Company documents the relationship between
        hedging instruments and hedged items, as well as its risk management objective
        and the strategy for undertaking various hedge transactions. This process
        includes linking all derivatives designated to specific firm commitments
        of
        forecast transactions. The Company also documents its assessment, both at
        inception and on an ongoing basis, of whether the derivative financial
        instruments that are used in hedging transactions are highly effective in
        offsetting changes in fair values or cash flows of hedged items. Any portion
        deemed ineffective is recorded in earnings with the effective portion reflected
        in accumulated other comprehensive. Changes in the fair values of derivative
        financial instruments accounted for as cash flow hedges, to the extent they
        qualify for hedge accounting, are recorded in accumulated other comprehensive
        income. As of March 31, 2008, the fair value of the derivative instrument
        amounted to $13,624,876.
  10
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 Stock-Based
        Compensation
 
 The
        Company adopted Statement of Financial Accounting Standards No. 123R,
“Share-Based Payments”. This Statement requires a public entity to measure the
        cost of services received in exchange for an award of equity instruments
        based
        on the grant-date fair value of the award. That cost will be recognized over
        the
        period during which services are received. Stock compensation for stock granted
        to non-employees has been determined in accordance with SFAS 123R and the
        Emerging Issues Task Force consensus Issue No. 96-18, "Accounting for Equity
        Instruments that are issued to Other than Employees for Acquiring, or in
        Conjunction with Selling Goods or Services" ("EITF 96-18"), as the fair value
        of
        the consideration received or the fair value of equity instruments issued,
        whichever is more reliably measured.
 
 Plant
        and equipment, net
  Plant
        and
        equipment are stated at cost. Expenditures for maintenance and repairs are
        charged to earnings as incurred; additions, renewals and betterments are
        capitalized. When the asset property and equipment is retired or otherwise
        disposed of, the related cost and accumulated depreciation are removed from
        the
        respective accounts, and any gain or loss is included in operations.
        Depreciation of property and equipment is provided using the straight-line
        method for substantially all assets with estimated lives as follows:
 
 **Estimated
                  Useful Life**Buildings
              
              
              20-39.5
                  yearsMachinery
                  and equipment
              
              
              7-15
                  yearsOther
                  equipment
              
              
              3-5
                  yearsTransportation
                  equipment
              
              
              3-5
                  years
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service. The Company added production equipment
        during the first quarter of 2008 and the interest capitalized for the three
        months ended March 31, 2008 and March 31, 2007 amounted to $45,448 and
        $  75,518,
        respectively.
 
 The
        Company periodically evaluates the carrying value of long-lived assets in
        accordance with SFAS 144. When estimated cash flows generated by those assets
        are less than the carrying amounts of the asset, the Company recognizes an
        impairment loss. Based on its review, the Company believes that, as of March
        31,
        2008, there were no impairments of its long-lived assets.
  11
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  Intangible
        assets
 
 Intangible
        assets consist of land use rights and patents. Land in the People’s Republic of
        China is government owned and cannot be sold. However, the government grants
        “land use rights”. The Company amortizes land use rights on a straight line
        basis over the 50 year life and patents over 7-15 years.
 
 The
        Company evaluates intangible assets for impairment, at least on an annual
        basis
        and whenever events or changes in circumstances indicate that the carrying
        value
        may not be recoverable from its estimated future cash flows. Recoverability
        of
        intangible assets, other long-lived assets, and goodwill is measured by
        comparing their net book value to the related projected undiscounted cash
        flows
        from these assets, considering a number of factors including past operating
        results, budgets, economic projections, market trends and product development
        cycles. If the net book value of the asset exceeds the related undiscounted
        cash
        flows, the asset is considered impaired, and a second test is performed to
        measure the amount of impairment loss. Based on its review, the Company believes
        that, as of March 31, 2008, there was no impairment of intangible
        assets.
 
 Research
        and development
 
 Research
        and development expenses include salaries, consultant fees, supplies and
        materials, as well as costs related to other overhead such as facilities,
        utilities and other departmental expenses. The costs we incur with respect
        to
        internally developed technology and engineering services are included in
        research and development expenses as incurred as they do not directly relate
        to
        any particular licensee, license agreement or licenses fee.
 
 Research
        and development costs are recorded in selling and general and administrative
        expenses. Research and development costs were $81,333 and $4,511 for the
        three
        months ended March 31, 2008 and March 31, 2007, respectively.
 
 Earning
        per share
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        No.
        128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
        diluted earnings per share in conjunction with the disclosure of the methodology
        used in computing such earnings per share. Basic earnings per share excludes
        dilution and is computed by dividing income available to common stockholders
        by
        the weighted average common shares outstanding during the period. Diluted
        earnings per share takes into account the potential dilution that could occur
        if
        securities or other contracts to issue common stock were exercised and converted
        into common stock using the treasury method.
 
 Income
        taxes
 
 The
        Company records and reports income taxes pursuant to Statement of Financial
        Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109
        requires the recognition of deferred income tax liabilities and assets for
        the
        expected future tax consequences of temporary differences between income
        tax
        basis and financial reporting basis of assets and liabilities. Provision
        for
        income taxes consist of taxes currently due plus deferred taxes.
  12
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  The
        Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
        Taxes” (“FIN 48”), on January 1, 2007. A tax position is recognized as a benefit
        only if it is “more likely than not” that the tax position would be sustained in
        a tax examination, with a tax examination being presumed to occur. The amount
        recognized is the largest amount of tax benefit that is greater than 50%
        likely
        of being realized on examination. For tax positions not meeting the “more likely
        than not” test, no tax benefit is recorded. The adoption had no effect on the
        Company’s financial statements.
 
 Deferred
        tax is accounted for using the balance sheet liability method in respect
        of
        temporary differences arising from differences between the carrying amount
        of
        assets and liabilities in the financial statements and the corresponding
        tax
        basis used in the computation of assessable tax profit. In principle, deferred
        tax liabilities are recognized for all taxable temporary differences, and
        deferred tax assets are recognized to the extent that it is probably that
        taxable profit will be available against which deductible temporary differences
        can be utilized. Deferred tax is calculated at the tax rates that are expected
        to apply to the period when the asset is realized or the liability is settled.
        Deferred tax is charged or credited in the income statement, except when
        it
        related to items credited or charged directly to equity, in which case the
        deferred tax is also dealt with in equity. Deferred tax assets and liabilities
        are offset when they relate to income taxes levied by the same taxation
        authority and the Company intends to settle its current tax assets and
        liabilities on a net basis. As of March 31, 2008, the deferred tax assets
        amounted to $3,651,003 generated from the accumulated net operating loss
        of US
        operations as of March 31, 2008.
 
 Value
        Added Tax
 
 Sales
        revenue represents the invoiced value of goods, net of a value-added tax
        (“VAT”). All of the Company’s products that are produced and sold in the PRC are
        subject to a Chinese value-added tax at a rate of 17% of the gross sales
        price.
        All of the Company’s products that are manufactured and sold in the UK are
        subject to a UK value-added tax at a rate of 17.5% of the gross sales price.
        This VAT may be offset by VAT paid by the Company on raw materials and other
        materials included in the cost of producing their finished product. The Company
        recorded VAT Payable and VAT receivable net of payments in the financial
        statements. The VAT tax return is filed offsetting the payables against the
        receivables.
 
 Recently
        issued accounting pronouncements
 
 In
        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities—including an amendment of FASB Statement No.
        115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
        instruments and certain other items at fair value that  are
        not
        currently required to be measured at fair value. The objective of FAS 159
        is to
        provide opportunities to mitigate volatility in reported earnings caused
        by  measuring
        related assets and liabilities differently without having to apply hedge
        accounting provisions. FAS 159 also establishes presentation and
        disclosure  requirements
        designed to facilitate comparisons between companies that choose different
        measurement attributes for similar types of assets and liabilities. The Company
        adopted SFAS No. 159 on January 1, 2008. The Company chose not to elect the
        option to measure the fair value of eligible financial assets and
        liabilities.
  13
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 In
        June
        2007, the
        FASB
        issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
        Payments for Goods or Services Received for use in Future Research and
        Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable
        advance payments for goods or services that used or rendered for research
        and
        development activities should be expensed when the advance payment is made
        or
        when the research and development activity has been performed. The Company
        adopted FSP EITF 07-3 and expensed the research and development as
        incurred.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of Accounting Research Bulletin
        No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
        ownership interests in subsidiaries held by parties other than the parent,
        the
        amount of consolidated net income attributable to the parent and to the
        noncontrolling interest, changes in a parent’s ownership interest and the
        valuation of retained non-controlling equity investments when a subsidiary
        is
        deconsolidated. The Statement also establishes reporting requirements that
        provide sufficient disclosures that clearly identify and distinguish between
        the
        interests of the parent and the interests of the non-controlling owners.
        SFAS
        160 is effective for fiscal years beginning after December 15, 2008. The
        Company
        has not determined the effect that the application of SFAS 160 will have
        on its
        consolidated financial statements.
 
 In
        December 2007, Statement of Financial Accounting Standards No. 141(R), *Business
        Combinations* ,
        was
        issued. SFAS No. 141R replaces SFAS No. 141, *Business
        Combinations.* SFAS
        141R
        retains the fundamental requirements in SFAS 141 that the acquisition method
        of
        accounting (which SFAS 141 called the *purchase
        method* )
        be used
        for all business combinations and for an acquirer to be identified for each
        business combination. SFAS 141R requires an acquirer to recognize the assets
        acquired, the liabilities assumed, and any noncontrolling interest in the
        acquiree at the acquisition date, measured at their fair values as of that
        date,
        with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
        required the cost of an acquisition to be allocated to the individual assets
        acquired and liabilities assumed based on their estimated fair values. SFAS
        141R
        also requires the acquirer in a business combination achieved in stages
        (sometimes referred to as a step acquisition) to recognize the identifiable
        assets and liabilities, as well as the noncontrolling interest in the acquiree,
        at the full amounts of their fair values (or other amounts determined in
        accordance with SFAS 141R). SFAS 141R applies prospectively to business
        combinations for which the acquisition date is on or after the beginning
        of the
        first annual reporting period beginning on or after December 15, 2008. An
        entity
        may not apply it before that date. The Company is currently evaluating the
        impact that adopting SFAS No. 141R will have on its financial
        statements.
  14
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  Reclassifications
 
 Certain
        prior period amounts have been reclassified to conform to the current period
        presentation. These reclassifications have no effect on net income or cash
        flows.
  **Note
        3 - Accounts receivable**
 
 Accounts
        receivable at March 31, 2008 and December 31, 2007 consisted of the following:
 
 **March
                  31, 2008**
              
              **December
                  31, 2007****(Unaudited)**Trade
                  Accounts Receivable
              
              $
              34,581,274
              
              $
              23,746,604Allowance
                  for bad debts
              
              
              (211,629
              )
              
              (135,418
              )Trade
                  Accounts Receivable, Net
              
              $
              34,369,645
              
              $
              23,611,186
 
 The
        following table consists of allowance for doubtful accounts at March 31,
        2008
        and December 31, 2007.
 
 Allowance
                  for doubtful accounts at December 31, 2007
              
              $
              135,418Additional
                  reserves
              
              
              72,469Effect
                  of foreign currency translation
              
              
              3,742Allowance
                  for doubtful accounts at March 31, 2008
              
              $
              211,629
 
 **Note
        4 - Inventories**
 
 Inventories
        at March 31, 2008 and December 31, 2007 consisted of the following:
 
 **March
                  31, 2008**
              ****
              **December
                  31, 2007**
              ********
              ****
              **(Unaudited)**Raw
                  materials
              
              $
              16,503,062
              
              $
              5,965,306Work
                  in process
              
              
              3,193,269
              
              
              2,260,015Finished
                  goods
              
              
              6,819,597
              
              
              4,120,559Packaging
                  materials
              
              
              74,414
              
              
              7,984Low
                  cost consumables
              
              
              19,160
              
              
              18,025Totals
              
              
              26,609,502
              
              
              12,371,889Less
                  allowance for obsolete inventory
              
              
              (218,023
              )
              
              (63,594
              )Totals
              
              $
              26,391,479
              
              $
              12,308,295
 
 The
        following table consists of allowance for obsolete inventory at March 31,
        2008
        and December 31, 2007.
 
 Allowance
                  for obsolete inventory at December 31, 2007
              
              $
              63,594Additional
                  reserves
              
              
              154,429Allowance
                  for obsolete inventory at March 31, 2008
              
              $
              218,023
  15
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  **Note
        5 - Plant and equipment**
 
 Plant
        and
        equipment at March 31, 2008 and December 31, 2007 consisted of the
        following:
 
 **March
                  31, 2008**
              ****
              **December31, 2007**
              ********
              ****
              **(Unaudited**)Land
              
              $
              100,726
              
              $
              100,726Buildings
                  and improvements
              
              
              34,113,346
              
              
              32,846,156Transportation
                  equipment
              
              
              3,806,321
              
              
              3,193,995Machinery
                  and equipment
              
              
              25,250,224
              
              
              24,111,971Office
                  Furniture
              
              
              1,007,209
              
              
              833,474Construction
                  in progress
              
              
              43,170,555
              
              
              36,880,809Totals
              
              
              107,448,381
              
              
              97,967,131Less
                  accumulated depreciation
              
              
              (12,485,301
              )
              
              (10,738,531
              )Totals
              
              $
              94,963,080
              
              $
              87,228,600
 
 Depreciation
        expense for the three months ending March 31, 2008 and 2007 amounted to
        $1,404,042 and $301,596, respectively.
 
 Capitalized
        interest for construction projects was $45,448 for the three months ended
        March
        31, 2008 and $285,689 for the year ended December 31, 2007,
        respectively.
 
 **Note
        6 - Advances to suppliers**
 
 Advances
        on purchases are monies deposited or advanced to outside vendors for future
        inventory and equipment purchases. Most of Company’s vendors require a certain
        amount of money to be deposited with them as a guarantee that the Company
        will
        receive their purchase on a timely basis.
 
 Advances
        to suppliers as of March 31, 2008 and December 31, 2007 consisted of the
        following:
 
 **March
                  31, 2008**
              ****
              **December31, 2007**
              ********
              ****
              **(Unaudited)**Advances
                  for inventories - current
              
              $
              9,683,792
              
              $
              2,341,839Advances
                  for equipment - non current
              
              
              15,497,814
              
              
              18,204,775Total
                  advances to suppliers
              
              $
              25,181,606
              
              $
              20,546,614
 
 **Note
        7 - Intangible assets**
 
 Intangible
        assets consist of loan closing cost, land use rights and patents. Intangible
        assets at March 31, 2008 and December 31, 2007 consisted of the
        following:
 
 **March
                  31, 2008**
              ****
              **December31, 2007**
              ********
              ****
              **(Unaudited)**Patents
              
              $
              1,714,384
              
              $
              1,652,938Land
                  use rights
              
              
              5,720,425
              
              
              5,492,089Total:
              
              
              7,434,809
              
              
              7,145,027Less:
                  accumulated amortization
              
              
              (1,430,493
              )
              
              (1,312,306
              )Intangible
                  assets, net
              
              $
              6,004,316
              
              $
              5,832,721
  16
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 Amortization
        expense for the three months ended March 31, 2008 and March 31, 2007 amounted
        to
        $62,277and $57,483, respectively.
 
 **Note
        8 - Income taxes**
 
 Under
        the
        former Income Tax Laws of PRC, the Company is generally subject to an income
        tax
        at an effective rate of 33% (30% state income taxes plus 3% local income
        taxes)
        on income reported in the statutory financial statements after appropriate
        tax
        adjustments. For an enterprise that qualifies as a "new or high-technology
        enterprise" or a “Foreign Invested Enterprise (“FIE”) located in the old town of
        an inshore open city, it is subject to an income tax rate of 24%. In addition,
        if the enterprise is located in a specially designated region that allows
        foreign enterprises the enterprise is entitled to a two-year income tax
        exemption and a 50% income tax reduction for the following three years.
 
 Beginning
        January 1, 2008, the new Chinese Enterprise Income Tax (“EIT”) law replaced the
        former income tax laws for Domestic Enterprises (“DEs”) and Foreign Invested
        Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate
        previously applicable to both DEs and FIEs. The two years tax exemption,
        three
        years 50% tax reduction tax holiday for production-oriented FIEs was eliminated.
        However, the new EIT Law permits companies to continue to enjoy their former
        preferential tax treatments until such treatments expire in accordance with
        their current terms.
 
 The
        Company’s wholly owned subsidiary, Fushi International (Dalian), is a foreign
        limited liability company and is located in the old town of an inshore open
        city. Under the former Income Tax Laws of PRC, the Company qualified to use
        24%
        income tax rate and has a full income tax exemption for the years ended December
        2006 and 2007 and a 50% income tax reduction for the years ending December
        31,
        2008, 2009 and 2010. Under the new EIT law effected in 2008, the company
        continues to enjoy the former preferential tax rate until it expires in December
        2010. So, the applicable corporate income tax rate in 2008 is 12% and the
        provision for income tax for the three months ended March 31, 2008 and 2007
        was
        $1,267,438 and 0, respectively.
 
 Dalian
        Fushi was incorporated in the PRC and is subject to PRC income tax. Dalian
        Fushi
        located its factory in a special economic region in Dalian, PRC and qualified
        as
        a "new or high-technology enterprise" that is allowed a two year income tax
        exemption beginning in 2002, the first year after it became profitable, and
        a
        50% income tax reduction for the following three years, 2004 through 2006.
        Dalian Fushi had a loss from operations in the first quarter of 2008, so
        no
        provision for income taxes was made during this period.
  17
  **FUSHI
        COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
        Fushi International, Inc.)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
        31, 2008**
 **(Unaudited)**
  **March
                  31, 2008**
              ****
              **March
                  31, 2007**
              ********
              ****
              **(Unaudited)**
              ****
              **(Unaudited)**Provision
                  for China Income Taxes
              
              $
              1,267,438
              
              $
              -Benefit
                  for US Income Taxes
              
              
              (799,003
              )
              
              -Provision
                  for Income Taxes
              
              $
              468,435
              
              $
              -
 
 The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the three months ended March 31, 2008:
 
 **March
                  31, 2008**
              ****
              **March
                  31, 2007**
              ********
              ****
              **(Unaudited)**
              ****
              **(Unaudited)**U.S.
                  Statutory rates
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recognized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              25.0
              
              
              33.0China
                  income tax exemption
              
              
              (13.0
              )
              
              (33.0
              )Total
                  provision for income taxes
              
              
              12.0
              %
              
              -
              %
 
 The
        estimated tax savings from the tax exemptions for the three months ended
        March
        31, 2008, amounted to $1,373,058 The net effect on earnings per share had
        the
        income tax been applied would decrease basic earnings per share from $0.28
        to
        $0.23 and diluted earnings per share from $0.29 to $0.24.
 
 The
        estimated tax savings from the tax exemptions for the three months ended
        March
        31, 2007, amounted to $1,641,662. The net effect on earnings per share had
        the
        income tax been applied would decrease basic earnings per share from $0.24
        to
        $0.16 and diluted earning per share from $0.21 to $0.14.
 
 Fushi,
        Fushi Holdings, Copperweld Bimetallics Holdings, LLC and Copperweld Bimetallics,
        LLC were incorporated in the United States and have incurred net operating
        losses for income tax purposes for the three months ended March 31, 2008
        and
        previous years. The net operating loss carry forwards for United States income
        taxes may be available to reduce future years’ taxable income. These carry
        forwards will expire, if not utilized, through 2025 and 2027. The deferred
        tax
        asset amounted to $3,651,003 as of March 31, 2008. Management believes that
        the
        realization of the benefits can be used by our US operating subsidiary in
        future
        periods because expectations are that Copperweld will have taxable income
        in
        future periods.
 
 The
        deferred tax asset consisted of the following:
  Deferred
                  tax asset at December 31,2007
              
              $
              2,852,000Additions
                  to deferred tax asset
              
              
              799,003Deferred
                  tax asset at March 31,2007
              
              $
              3,651,003
 
 Copperweld
        UK is organized as a United Kingdom private company and subject to 20% to
        28%
        statutory taxes on its taxable income.
  18
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  Value
        Added Tax
 
 VAT
        on
        sales and VAT on purchases in Dalian China amounted to $6,123,424 and $5,253,457
        for the three months ended March 31, 2008 and $ 1,896,386 and $ 3,637,680
        for
        the three months ended March 31, 2007, respectively.
 
 VAT
        on
        sales and VAT on purchases in Copperweld UK amounted to $73,284 and $86,906
        for
        the three months ended March 31, 2008.
 
 Sales
        and
        purchases are recorded net of VAT collected and paid as the Company acts
        as an
        agent for the government. VAT taxes are not impacted by the income tax
        holiday.
 
 Taxes
        payable at March 31, 2008 and December 31, 2007 consisted of the
        following:
 
 **March
                  31, 2008**
              ****
              **December
                  31, 2007**
              ********
              ****
              **(Unaudited)**Income
                  Tax
              
              $
              1,285,929
              
              $
              -VAT
                  (Benefit) or Payable
              
              
              (170,694
              )
              
              856,482Others
              
              
              216,578
              
              
              148,777Total
                  taxes payable
              
              $
              1,331,813
              
              $
              1,005,259
 
 **Note
        9 - Short term bank loans and revolving credit lines**
 
 Short
        term bank loans represent amounts due to various banks and are due on demand
        or
        normally within one year. These loans generally can be renewed with the banks.
        Short term bank loans at March 31, 2008 and December 31, 2007, consisted
        of the
        following:
 
 **Name
                  of lender**
              ****
              **March
                  31, 2008**
              ****
              **December
                  31, 2007**
              ********
              ****
              **(Unaudited**)Bank
                      of China, Xinghaiwan Branch, due March 28, 2008, annual
                      interest at 7.227% secured by the Company’s land use right and
                      building.
              
              $
              -
              
              $
              2,687,160Bank
                  of China, Xinghaiwan Branch, due February 15, 2008,and was renewed
                  to May
                  15, 2008annual
                  interest at 7.029%, secured by the Company’sLand
                  use right and building.
              
              
              -
              
              
              3,016,200Guangdong
                  Development bank, Dalian Stadium branch,due
                  February 25, 2009,annual
                  interest at 8.96%, secured by the Company’sLand
                  use right and building.
              
              
              8,568,000
              
              
              -Guangdong
                  Development bank, Dalian Stadium branch,due
                  March 9, 2009,annual
                  interest at 8.96%, secured by the Company’sLand
                  use right and building.
              
              
              2,856,000
              
              
              -Guangdong
                  Development bank, Dalian Stadium branch,due
                  March 19, 2009,annual
                  interest at 8.96%, secured by the Company’sLand
                  use right and building.
              
              
              1,428,000
              
              
              -Guangdong
                  Development bank, Dalian Stadium branch,due
                  March 26, 2009,annual
                  interest at 8.96%, secured by the Company’sLand
                  use right and building.
              
              
              4,284,000
              
              
              -Total
                  Short Term Bank Loan
              
              $
              17,136,000
              
              $
              5,703,360CIT
                  revolving credit line, annual interest at 6.25%, mature in
                  2010
              
              
              9,917,926
              
              
              7,168,524Total
              
              $
              27,053,926
              
              $
              12,871,884
  19
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 The
        Company paid off its two short term loans with outstanding balances of
        $5,703,360, in the first quarter of 2008 and obtained four new short term
        loans
        with balances of $17,136,000 at March 31 2008 at annual interest rate of
        8.96%
        which are due in February and March 2009.
 
 Copperweld
        maintains a revolving line of credit through CIT with a limit of $12.8 million
        and an outstanding balance of $9,917,926 at March 31, 2008, the Company deposits
        the proceeds from customers to the line of credit outstanding account on
        a daily
        basis. Copperweld UK maintains a revolving line of credit with a limit of
        approximately $1,539,600 (or ₤750,000) but had no balance outstanding at March
        31, 2008. Both lines of credit expire in 2010.
 
 Current
        portion of long term debts represents the loan that was borrowed on May 2003
        and
        due on April 10, 2008 at an annual rate of 5.58%, secured by the Company’s land
        use right and building, total outstanding as of March 31, 2008 and December
        31,
        2007 amounted to $11,424,000 and $10,968,000.
 
 **Name
                  of Lender**
              
              **March
                  31, 2008**
              ****
              **December
                  31, 2007**
              ********
              ****
              **(Unaudited)**ICBC,
                  Dalian JinZhou BranchDue
                  April 10, 2008, annual interest at 5.58%,secured
                  by the Company’s land use right and building
              
              $
              5,712,000
              
              $
              5,484,000ICBC,
                  Dalian JinZhou BranchDue
                  April 10, 2008, annual interest at 5.58%,secured
                  by the Company’s land use right and building
              
              
              5,712,000
              
              
              5,484,000Total
                  current portion of long term debts
              
              $
              11,424,000
              
              $
              10,968,000
  20
 **FUSHI
            COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
            Fushi International, Inc.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(Unaudited)**
 Total
        interest expense on revolving credit line, short term and long term loans
        for
        the three months ended March 31, 2008 and March 31, 2007 amounted to $494,332
        and $341,027, respectively. Capitalized interest for construction projects
        was
        $45,448 and $75,518 for the three months ended March 31, 2008 and March 31,
        2007, respectively.
 
 **Note
        10 - Notes payable**
 
 Notes
        payable as of March 31, 2008 and December 31, 2007 consisted of the
        following:
 
 **March
                  31, 2008**
              ****
              **December
                  31, 2007**
              ********
              ****
              **(Unaudited)**Senior
                  secured convertible notes (“Convertible Notes”) , bearing interest at 3%
                  per annum, maturing on January 24, 2012, convertible to common
                  stock at an
                  initial conversion price of $7.00 per share
              
              $
              5,000,000
              
              $
              20,000,000Guaranteed
                  senior secured floating rate notes (“HY Notes”) maturing on January 24,
                  2012
              
              
              40,000,000
              
              
              40,000,000Notes
                  payable total
              
              $
              45,000,000
              
              $
              60,000,000
 
 On
        January 24, 2007, the Company and Citadel Equity Fund Ltd. ("Citadel") entered
        a
        Notes Purchase Agreement. On January 29, 2007, the Company closed a $60
        million financing with Citadel.  In this transaction, Citadel purchased
 
 (i)
        floating rate $40 million principal amount (less 3% Notes Discount and 4%
        commission for proceeds of $37,200,000) of guaranteed senior secured
        floating rate notes (“HY Notes”) due 2012 and
 
 (ii)
        $20
        million principal amount (less 4% commission for proceeds of $19,200,000)
        of the
        Company’s 3% senior secured convertible notes (“Convertible Notes”) due 2012,
        which are convertible into shares of the Company's common stock at an initial
        conversion price of $7.00 per share.
 
 The
        HY
        notes bear interest at LIBOR (approximately 3.15% at March 31, 2008) + 7%
        and
        changes to LIBOR + 5.6% permanently upon successful completion of Qualifying
        IPO
        within eighteen months from January 24, 2007. The interest on the HY Notes
        and
        Convertible notes are payable semi-annually in arrears in January and July.
        See
        below for discussion of swap agreement changing variable interest to 8.3%
        fixed.
 
 Management
        completed its review of the accounting for the transactions and has concluded
        that the conversion option does not qualify as an embedded derivative under
        FAS
        133 nor does it qualify for fair value treatment under EITF 00-19 or beneficial
        conversion treatment under EITF 98-5 and 00-27.
  21
 **FUSHI
            COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
            Fushi International, Inc.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(Unaudited)**
 On
        November 15, 2007, the Company filed Form S-3 with the Securities and Exchange
        Commission (SEC) with a proposed prospectus to register up to 5,743,143 shares
        including 2,857,143 shares underlying the 3% Senior Convertible Notes, On
        November 21, 2007, the registration statement was declared effective by SEC.
        On
        January 8, 2008, $15.0 million of the Convertible Notes were exchanged for
        2,142,857 shares of common stock.
 
 As
        security for the Notes, the Company and the Bank of New York, as collateral
        agent, entered into a share pledge agreement, dated January 25, 2007 (the
        "Share
        Pledge Agreement"), to guarantee the Notes with all of the shares of common
        stock of Fushi Holdings, the Company’s wholly-owned subsidiary, as
        collateral.
 
 In
        connection with the transaction, Citadel was also granted certain rights
        over
        the Company and its subsidiaries. On January 25, 2007, Fushi, Fushi Holdings,
        Fushi International (Dalian), Dalian Fushi, Li Fu, our Chairman and Chief
        Executive Officer, Mathus Yue Yang, our then President, Chris Wenbing Wang,
        our
        current President and Chief Financial Officer and Citadel entered into an
        Investor Rights Agreement dated January 25, 2007. Pursuant to the Investor
        Rights Agreement, Citadel was granted, among other things and subject to
        certain
        conditions, the right to designate up to certain number of the Company's
        board
        of directors, a right of first refusal with respect to any debt or equity
        financing sought by the Company and the right to approve the Company's annual
        business plan and budget. In addition, pursuant to the Investor Rights
        Agreement, Messrs. Fu, Yang and Wang agreed to a non-competition covenant
        relating to their employment and ability to engage in a business that is
        competitive with the Company's business for five years.
 
 The
        HY
        Notes and the Convertible Notes were issued pursuant to indentures, each dated
        January 25, 2007 (the “HY Indenture” and “CB Indenture”, respectively, and
        together, the "Indentures") among the Company, Fushi Holdings, as guarantor,
        and
        the Bank of New York, as trustee for the Notes. Pursuant to the Indentures,
        Fushi Holdings has agreed, and all of the Company's other existing and future
        domestic subsidiaries are obligated, to guarantee, on a senior secured basis,
        to
        the holders of the Notes and the trustee the payment and performance of the
        Company's obligations there under.
 
 Additionally,
        if there is no NASDAQ listing by the eighteenth month from the issue date
        of the
        HY Notes and Convertible Notes, the Company must pay liquidated damage in
        the
        amount of 3.3% of the principal amount of the Notes. The Company’s shares of
        common stock commenced trading on the NASDAQ Global Market on August 31,
        2007.
 
 Cash
        coupon rate on the HY Notes will step down permanently by 140 basis points
        upon
        successful completion of Qualifying IPO within eighteen months from January
        24,
        2007. A “Qualifying IPO” is defined as an initial public offering and/or
        secondary offering of Shares that satisfies all of the following criteria
        (except that either 1 or 2 need to be met):
  1.
              a
                  minimum public float representing at least 25% of the Shares of
                  the
                  Company after the Qualifying lPO and a minimum market capitalization
                  of
                  the Company of $200 million after the Qualifying
                  IPO;
  22
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  2.
              with
                  respect to (1) above, such other offering size or market capitalization
                  as
                  may be agreed by Convertible Note holders holding more than 50%
                  of the
                  outstanding principal amount of Convertible
                  Notes;
  3.
              the
                  minimum number of investors purchasing Shares in such offering
                  prescribed
                  by a stock exchange or the relevant regulatory authorities, and
                  resulting
                  in the listing and commencement of trading of the Shares on such
                  exchange;
                  and
  4.
              the
                  listing is on the NASDAQ Stock Market or another international
                  exchange to
                  be approved by Citadel.
 
 Upon
        the
        aforementioned S-3 registration statement being declared effective, Management
        concluded that the Company had met all the requirements for a Qualifying
        IPO and
        therefore notified the HY Notes holders of the 140 basis points step-down
        and
        subsequently paid interest per the stepped down rate in January
        2008.
 
 The
        indenture, notes purchase agreement and investor rights agreement related
        to the
        HY Notes and Convertible Notes contain various covenants that may limit the
        Company’s discretion in operating its business. In particular, the Company is
        limited in its ability to merge, consolidate or transfer substantially all
        of
        its assets, issue stock of its subsidiaries, incur additional debt and create
        liens on assets to secure debt. In addition, the Company is required to comply
        with certain financial covenants, including maintenance of a fixed charge
        coverage ratio of at least 2.0 and maintenance of a leverage ratio not exceeding
        5.5. Management believes the Company was in compliance with all of these
        covenants as of March 31, 2008.
 
 Unless
        previously redeemed, converted, purchased or cancelled, the Company must
        repay
        the Convertible Notes on January 24, 2012. The Convertible Notes may not
        be
        prepaid at any time prior to maturity. At maturity, the Company must repay
        all
        of the outstanding Convertible Notes plus a premium of 15.00% per annum on
        the
        principal amount calculated on a semi-annual basis, plus accrued and unpaid
        interest on late payment, if any, to reflect a additional 5% per annum interest
        in excess of the rate if interest then in effect.
 
 As
        of
        December 31, 2007, the Company had $20 million Convertible Notes and $40
        million
        HY notes, a total of $60 million long term notes payable outstanding. On
        January
        8, 2008, Citadel converted $15.0 million of the Convertible Notes into 2,142,857
        shares of common stock. As of March 31, 2008, the Company had $5 million
        Convertible Notes and $40 million HY notes, a total of $45,000,000 long term
        notes payable and outstanding. Deferred commissions amounted to $2,288,336
        and
        interest expense on long term notes for the three months ended March 31,
        2008
        amounted to $592,047 **.**
 
 If
        the $5
        million Convertible Notes outstanding as of March 31, 2008 are not converted
        at
        maturity, January 24, 2012, the Company will have to repay the principle
        of $5
        million and an additional redemption cost of $5,305,158.
 
 23
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 
 **Note
        11 - Derivative instrument**
 
 The
        Company's operations are exposed to a variety of global market risks, including
        the effect of changing interest rates. This exposure is managed, in part,
        with
        the use of financial derivatives. The Company uses financial derivatives
        only to
        hedge exposures in the ordinary course of business and dose not invest in
        derivative instruments for speculative purposes.
 
 On
        April
        10, 2007, effective January 24, 2007, the Company entered a cross currency
        swap
        transaction (the Swap) with Merrill Lynch Capital Services, Inc. (“MLCS”) on the
        $40 million HY notes which converts the LIBOR + 7% per annum USD variable
        interest rate to an 8.3% per annum RMB fixed interest rate. The agreement
        was
        deemed effective January 24, 2007. The Swap requires semi-annual payment
        in
        arrears on July 24 and January 24 and matures earlier of (1) cash settlement
        defined as early termination; or (2) January 24, 2012, at which point the
        Swap
        requires an exchange of RMB and USD based principals. Under the terms of
        the
        cross currency swap, the Company receives variable interest rate payments
        in USD
        and makes fixed interest rate payments in RMB with settlement netted in USD,
        thereby creating the equivalent of fixed-rate debt. MLCS requires the Company
        to
        deposit $1,000,000 with them to secure the agreement. The deposit may be
        increased to $3,000,000 if the exchange rate for RMB to USD falls below 6.5
        and
        to $5,000,000 if the exchange rate falls below 5.5. This swap is designated
        and
        qualified as a cash flow hedge. As of March 31, 2008, the Company has not
        placed
        the $1,000,000 deposit with MLCS.
 
 For
        the
        period ended March 31, 2008, the Swap resulted in the liability of $13,624,876
        and a loss to other comprehensive income of $5,109,480, net of taxes.
 
 As
        of
        March 31, 2008, the Company had cross currency hedge receivable amounting
        to
        $136,961. The total gain from derivative transactions for the first quarter
        of
        year 2008 was $169,167. For the three months ended March 31, 2008, there
        were no
        amounts recorded in the consolidated statement of income in relation to this
        interest rate swap related to ineffectiveness of the swap
        transaction.
 
 **Note
        12 - Supplemental disclosure of cash flow information**
 
 Total
        interest paid for the three months ended March 31, 2008 and March 31, 2007
        amounted to $  2,853,861
        and $  341,027,
        respectively.
 
 No
        income
        tax was paid for the three months ended March 31, 2008 and March 31,
        2007.
 
 Convertible
        notes totaling $15,000,000 were converted into 2,142,857 shares of common
        stock
        at $7.00 per share, during the quarter ended March 31, 2008.
  24
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
  **Note
        13 - Accumulated other comprehensive income**
 
 The
        components of accumulated other comprehensive income are as
        follows.
 
 **Accumulated
                  other comprehensive income:**
              
              **Amount**Balance
                  at December 31, 2007
              
              $
              4,015,930Unrealized
                  loss on marketable securities
              
              
              22,301Foreign
                  currency translation gain
              
              
              7,855,000Change
                  in fair value of derivative instrument
              
              
              (5,109,480
              )Balance
                  at March 31, 2008
              
              $
              6,783,751
 
 **Note
        14 - Earnings per share**
 
 The
        following is information of net income per share:
 
 **March
                  31, 2008**
              ****
              **March
                  31, 2007**
              ********
              ****
              **(Unaudited)**
              ****
              **(Unaudited)**Net
                  income for basic earnings per share
              
              $
              7,570,496
              
              $
              4,974,733Add:
                  Interest expense for convertible note
              
              
              27,762
              
              
              110,000Deduct:
                  Loan issuance cost
              
              
              152,559Net
                  income for diluted earnings per share
              
              $
              7,445,699
              
              $
              5,084,733Weighted
                  average shares used in basic computation
              
              
              27,048,039
              
              
              20,507,096Diluted
                  effect of warrants and convertible note
              
              
              1,180,566
              
              
              3,317,400Weighted
                  average shares used in diluted computation
              
              
              28,228,604
              
              
              23,824,496Earnings
                  per share:Basic
              
              $
              0.28
              
              $
              0.24Diluted
              
              $
              0.26
              
              $
              0.21
  100,000
        shares of common stock held in escrow were excluded from both the basic and
        diluted earnings per share calculation, since the shares were issued under
        the
        Company’s name.
  100,000
        warrants granted on October 30, 2007 at an exercise price of $16.80 were
        excluded from the diluted earnings per share calculation due to the anti-diluted
        effect.
 
 335,000
        options granted on October 29, 2007 and November 13, 2007 at an excise price
        from $16.36 to $20.94 were excluded from the diluted earnings per share
        calculation due to the anti-diluted effect.
  25
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 **Note
        15 - Stockholders' Equity**
 
 (A)
              Series
                  A and Series B Convertible Preferred
                  Stocks
 The
        Series A and Series B Convertible Preferred Stocks (“Series A and B Stocks”)
        were automatically converted into common stock upon the effectiveness of
        the
        reverse split on January 30, 2006 under the certificates of designation for
        Series A and B Stocks. Specifically, 784,575 shares of Series A preferred
        stock
        and 216,000 shares of Series B preferred stock were converted into 19,818,718
        shares of common stock. In connection with the $12 million financing closed
        in
        December 2005, we granted 2,125,000 warrants exercisable at $3.67 to the
        investors, 424,929 warrants exercisable at $3.11 to Kuhns Brothers, Inc.
        and its
        certain affiliates and 80,000 warrants exercisable at $0.01 to Glenn Little,
        then President of Parallel Technology. During 2006, a total of 148,985 warrants
        were exercised.
  (B)
              As
                  of March 31, 2008, the Company had
                  outstanding:
  (1)
              27,454,162
                  shares of common stock, including 100,000 shares in escrow, par
                  value
                  $0.006.(2)
              Warrants
                  purchasing 377,052 shares of common stock with exercise prices
                  of $3.11
                  per share, expiring December 2011.(3)
              Warrants
                  purchasing 100,000 shares of common stock with exercise prices
                  of $16.80
                  per share, expiring November 2011.
  (C)
              During
                  the first quarter of 2008, the following activities were
                  recorded:
 
 (1)
              On
                  January 8, 2008, Citadel Equity Fund Ltd. exercised its rights
                  under the
                  “Convertible Notes” indenture and received 2,142,857 in exchange for $15.0
                  million in debt with an exchange factor of $7.00 in debt for each
                  share of
                  stock.
 
 The
        Company has 377,052 warrants exercisable at $3.11 and 100,000 warrants
        exercisable at $16.80 outstanding as of March 31, 2008.
 **Outstanding
                    Warrants**
                ****
                **Exercisable
                    Warrants****Exercise
                    Price**
                ****
                **Number**
                ****
                **Average
                    Remaining Life (years)**
                ****
                **Average**
                  **Exercise
                    Price**
                ****
                **Number**
                ****
                **Average**
                  **Remaining
                    Life**
                  **(years)**$3.11
                
                377,052
                
                2.87
                
                $3.11
                
                377,052
                
                2.87$16.80
                
                100,000
                
                3.67
                
                $16.80
                
                100,000
                
                3.67
  26
  **FUSHI
            COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
            Fushi International, Inc.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(Unaudited)**
 The
        following is a summary of the warrant activities:
 
 **Number
                  of**
                **Warrants
                  Outstanding**
              ****
              **Number
                  of**
                **Warrants**
                **Exercisable**
              ****
              **Weighted-Average
                  Exercise Price**
              ****
              **Average
                  Remaining Contractual Life**Balance,
                  January 1, 2007
              
              
              2,480,944
              
              
              2,480,944
              
              $
              3.57
              
              
              4.12
                  yearsGranted
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Exercised
              
              
              (304,389
              )
              
              (304,389
              )
              $
              3.67Balance,
                  at March 31, 2007
              
              
              2,176,555
              
              
              2,176,555
              
              $
              3.56
              
              
              3.7
                  yearsGranted
              
              
              100,000
              
              
              100,000
              
              $
              16.80
              
              
              4.00
                  yearsForfeited
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              (1,799,503
              )
              
              (1,799,503
              )
              $
              3.66Balance,
                  at December 31, 2007
              
              
              477,052
              
              
              477,052
              
              $
              3.11
              
              
              3.12
                  yearsGranted
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Balance,
                  at March 31, 2008
              
              
              477,052
              
              
              477,052
              
              $
              3.11
              
              
              2.87
                  years
 
 **Note
        16 - Stock based compensation**
 
 On
        May 21
        and June 7, 2007, the Company issued 500,000 and 150,000 options to four
        executives and three independent directors, respectively, both for a service
        period of two years starting from the grant date. The vesting period is two
        years for both grants. These options were not awarded pursuant to the 2007
        Stock
        Incentive Plan.
 
 On
        September 27, 2007, the Company granted to Mr. Chris Wenbing Wang a
        non-qualified stock option to purchase 125,000 shares of its Common Stock
        vesting immediately at an exercise price of $13.70 and terminating in five
        (5)
        years from the grant date. The option grant was approved by the Compensation
        Committee of the Board of Directors of the Company in consideration of Mr.
        Wang’s efforts on behalf of the Company. Mr. Wang may exercise his option after
        the effective date of the Schedule 14 C that will be filed with the Securities
        and Exchange Commission in connection with the approval of the grant by the
        majority stockholder of the Company.
 
 On
        October 29, 2007, in connection with Mr. Chris Finley’s employment as Chief
        Operating Officer and Mr. Jim Todd’s employment as Financial Controller, the
        Board of Directors approved a non-qualified stock option grant to Mr. Finley
        and
        Mr. Todd in the amounts of 190,000 shares and 135,000 shares of common stock
        of
        the Company, respectively, for a service period of two years, vesting over
        a two
        (2) year period with 12.5% of the options vesting each quarter for eight
        (8)
        quarters. The grants to Mr. Finley and Mr. Todd were pursuant to the Fushi
        International, Inc. 2007 Stock Incentive Plan.
 
 On
        November 13, 2007, the Company issued 10,000 options to Mr. Nathan J. Anderson,
        the Director of Investor Relations. The vesting period is one year.
 
 On
        January 24, 2008, Mr. Yue Yang resigned as our president and member of the
        board. As a result, 50,000 options unvested options were forfeited.
 
 As
        of
        March 31, 2008, options held by executives, directors and employees representing
        1,060,000 shares were outstanding, of which, 554,557 were vested .
  27
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 The
        fair
        values of stock options granted to the executives and the independent directors
        were estimated at the date of grant using the Black-Scholes option-pricing
        model
        with the following assumptions:
 
 **Expected**
              **Expected**
              **Dividend**
              **Risk
                  Free**
              **Grant
                  Date****Life**
              **Volatility**
              **Yield**
              **Interest
                  Rate**
              **Fair
                  Value**Executives
              2.0
                  yrs
              50%
              0%
              3.3%
                  - 4.57%
              $3.81
                  - $5.93Independent
                  Directors
              2.0yrs
              50%
              0%
              4.57%
              $3.64
 
 -
              Volatility:
                  One year historical volatility of our stock is 58%. Adjustment
                  is made
                  based on volatility of industry peers average which is 31%, to
                  arrive at
                  50% as expected volatility.
 
 -
              Dividend
                  Yield: The expected dividend yield is zero. The Company has not
                  paid a
                  dividend and does not anticipate paying dividends in the foreseeable
                  future.
 
 -
              Risk
                  Free Rate: Risk-free interest rate of 3.3% to 4.57% was used. The
                  risk-free interest rate was based on U.S. Treasury yields with
                  a remaining
                  term that corresponded to the expected term of the option calculated
                  on
                  the granted date.
 
 -
              Expected
                  Life:  Because the Company has no historical share option exercise
                  experience to estimate future exercise patterns, the expected life
                  was
                  determined using the simplified method as these awards meet the
                  definition
                  of "plain-vanilla" options under the rules prescribed by Staff
                  Accounting
                  Bulletin No. 107.
 
 The
        fair
        value of the stock option grant to the executives was $3.81- $5.93 per share
        on
        the date of grant.  The fair value of the stock option grant to the
        independent directors was $3.64 per share on the date of grant.
 
 Stock
        compensation expense is recognized based on awards expected to vest. There
        were
        no estimated forfeitures as the Company has a short history of issuing options.
        SFAS No. 123R requires forfeitures to be estimated at the time of grant and
        revised in subsequent periods, if necessary, if actual forfeitures differ
        from
        those estimates.
 
 As
        of
        March 31, 2008, the 910,000 executive options and 150,000 director options
        issued during the year of 2007 had fair values of approximately $3,906,220
        and
        $546,506 respectively. The Company recognized $413,095 of compensation expenses
        in general and administrative expenses for the three months ended March 31,
        2008.
 
 As
        of
        March 31, 2008, the total compensation cost related to stock options not
        yet
        recognized was $1,989,695 and will be recognized over the weighted average
        life
        of 2 years.
 
 28
 **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 
 The
        following is a summary of the stock options activity:
 
 **Number
                  of Options Outstanding**
              ****
              **Weighted-Average
                  Exercise Price**
              ****
              **Aggregate**
                **Intrinsic
                  Value**Balance,
                  January 1, 2007
              
              
              -
              
              
              -
              
              
              -Granted
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Balance,
                  at March 31, 2007
              
              
              -
              
              
              -
              
              
              -Granted
              
              
              1,110,000
              
              $
              14.3
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Balance,
                  December 31, 2007
              
              
              1,110,000
              
              $
              14.3
              
              $
              12,075,850Granted
              
              
              
              
              
              
              
              
              -Forfeited
              
              
              50,000
              
              $
              12.3
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Balance,
                  March 31, 2008
              
              
              1,060,000
              
              $
              14.4
              
              $
              1,865,000
 
 Following
        is a summary of the status of options outstanding at March 31, 2008:
 
 **Outstanding
                  Option**
              ****
              **Exercisable
                  Options****Exercise
                  Price**
              ****
              **Number**
              ****
              **Average
                  Remaining Contractual Life**
              ****
              **Average**
                **Exercise
                  Price**
              ****
              **Number**
              ****
              **Weighted
                  Average Exercise Price**$12.30
              
              450,000
              
              1.18
                  years
              
              $12.30
              
              275,000
              
              $12.30$11.75
              
              150,000
              
              1.14years
              
              $11.75
              
              79,682
              
              $11.75$13.70
              
              125,000
              
              1.45
                  years
              
              $13.70
              
              125,000
              
              $13.70$16.44
                  - $20.94
              
              325,000
              
              1.58
                  years
              
              $18.69
              
              68,003
              
              $16.40$16.36
              
              10,000
              
              0.62
                  years
              
              $16.36
              
              6,872
              
              $16.36Total
              
              1,060,000
              
              
              
              
              
              554,557
 
 **Note
        17 - Statutory reserves**
 
 The
        laws
        and regulations of the People’s Republic of China require that before a
        Sino-foreign cooperative joint venture enterprise distributes profits to
        its
        partners, it must first satisfy all tax liabilities, provide for losses in
        previous years, and make allocations, in proportions determined at the
        discretion of the board of directors, after the statutory reserve.
 
 29
  **FUSHI
          COPPERWELD, INC. AND SUBSIDIARIES**
 **(Formerly
          Fushi International, Inc.)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
          31, 2008**
 **(Unaudited)**
 Surplus
        reserve fund
 
 The
        Company is required to transfer 10% of its net income, as determined in
        accordance with the PRC accounting rules and regulations, to a statutory
        surplus
        reserve fund until such reserve balance reaches 50% of the Company’s registered
        capital.
 
 The
        transfer to this reserve must be made before distribution of any dividend
        to
        shareholders. The company will transfer at year end 10% of the year’s net income
        determined in accordance with PRC accounting rules and
        regulations..
 
 The
        surplus reserve fund is non-distributable other than during liquidation and
        can
        be used to fund previous years’ losses, if any, and may be utilized for business
        expansion or converted into share capital by issuing new shares to existing
        shareholders in proportion to their shareholding or by increasing the par
        value
        of the shares currently held by them, provided that the remaining reserve
        balance after such issue is not less than 25% of the registered
        capital.
 
 **Note
        18 - Employee pension**
 
 The
        Company’s employee pension for China employees generally includes two parts: the
        first to be paid by the Company is 20% of the employee’s actual salary in the
        prior year. The other part, paid by the employee, is 8% of the actual salary.
        The Company made $30,462 and $5,693 in contributions of employment benefits,
        including pension in the period ended March 31, 2008 and March 31, 2007,
        respectively.
 
 US
        employees are provided a 401(k) plan where during the first quarter of 2008,
        employer contributions totaled $33,335.
 
 Copperweld
        UK operates a defined contribution pension scheme for employees. The assets
        of
        the scheme are held separately from those of the company. The annual
        contributions payable are charged to expense. The company made $13,676 in
        contributions of employment benefits.
 
 **Note
        19 - Commitments and contingencies**
 
 As
        discussed in Note 11, the Company entered into a swap agreement that required
        a
        $1,000,000 deposit to secure the transaction. If the exchange rate for RMB
        to US
        Dollars drops below certain levels, the Company will be required to deposit
        up
        to $5,000,000. As of March 31, 2008, the Company had not deposited the
        $1,000,000 with MLCS to secure the agreement.
 
 On
        December 11, 2007, Fushi International, Inc. (the “Company”) received service of
        an action filed by Kuhns Brothers, Inc., Kuhns Brothers Securities Corp.,
        and
        Kuhns Brothers & Co., Inc. against the Company in the United States District
        Court, District of Connecticut on November 27, 2006.  The Action seeks
        declaratory judgment concerning the interpretation and enforceability of
        specific terms of the engagement letter agreement, dated May 27, 2005, by
        and
        between Kuhns Brothers, Inc. and the Company, which the Company terminated
        in
        September 2006.  The Company believes that the plaintiffs’ claims are
        without merit and intends to vigorously defend the Action. On October 4,
        2007,
        the Company had signed an escrow agreement with Kuhns Brothers & Co., Inc.,
        the Company had put $1,000,000 restricted cash and 100,000 shares of common
        stock in escrow. The Company was notified on March 2, 2008 that the court
        has
        set a trial date during the week of May 26, 2008.
  **Note
        20 - Subsequent events**
 
 On
        April
        29, 2008, the Company paid off all long term debts represented by the loan
        that
        was borrowed on May 2003 and due on April 10, 2008 at an annual rate of 5.58%
        and secured by the Company’s land use right and building.
 
 30




**Item
      2. **Management’s
      Discussion and Analysis of Operations and Financial
      Conditions.****





*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with our audited consolidated financial statements and
      the notes to those financial statements appearing elsewhere in this Form 10-Q.*





*Certain
      statements in this Report, and the documents incorporated by reference herein,
      constitute "forward-looking statements" within the meaning of Section 27A of
      the
      Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934
      and
      the Private Securities Litigation Reform Act of 1995. Such forward-looking
      statements include statements, which involve risks and uncertainties, regarding,
      among other things, (a) our projected sales, profitability, and cash flows,
      (b)
      our growth strategies, (c) anticipated trends in our industries, (d) our future
      financing plans, and (e) our anticipated needs for, and use of, working capital.
      They are generally identifiable by use of the words “may,” “will,” “should,”
“anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,”
“ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the
      negative of these words or other variations on these words or comparable
      terminology. Actual events or results may differ materially from those discussed
      in forward-looking statements as a result of various factors, including, without
      limitation, the risks outlined under “Risk Factors” in our Annual Report on Form
      10-K and matters described in this report generally. In light of these risks
      and
      uncertainties, there can be no assurance that the forward-looking statements
      contained in this filing will in fact occur. You should not place undue reliance
      on these forward-looking statements.*





*The
      forward-looking statements speak only as of the date on which they are made,
      and, except to the extent required by federal securities laws, we undertake
      no
      obligation to update any forward-looking statement to reflect events or
      circumstances after the date on which the statement is made or to reflect the
      occurrence of unanticipated events.*




*The
      "Company", "we," "us," "our," and the "Registrant" refer to (i) Fushi
      Copperweld, Inc. (formerly Fushi International, Inc.), (ii) Fushi Holdings,
      Inc.(formerly Diversified Product Inspections, Inc.) (“Fushi Holdings”), (iii)
      Fushi International (Dalian) Bimetallic Cable Co., Ltd. (formerly Dalian
      Diversified Product Inspections Bimetallic Cable, Co., Ltd.) (“Fushi
      International (Dalian)”), (iv) Dalian Fushi Bimetallic Wire Manufacturing, Co.,
      Ltd. (“Dalian Fushi”), (v) Copperweld Holdings, LLC, (vi) Copperweld Bimetallic,
      LLC (“Copperweld”), (vii) Copperweld Bimetallics UK, LLC, and (viii) Copperweld
      International Holdings, LLC.*




31




**Overview**




Since
      our
      founding in 2002, we have grown to be the leading manufacturer of bimetallic
      products in the world. Today, we serve approximately 300 customers in 30
      countries from our facilities in Dalian, PRC, Fayetteville, Tennessee and
      Telford, U.K. Historically, our principal product produced in Dalian has been
      Copper-Clad Aluminum, or CCA, which combines the conductivity and corrosion
      resistance of copper with the light weight and relatively low cost of aluminum.
      On October 29, of 2007, we acquired Copperweld with manufacturing operations
      in
      Fayetteville, Tennessee and Telford, U.K. During the first quarter of 2008,
      Fayetteville shipped our products to 128 customers in 16 countries on four
      continents, Telford shipped to 44 customers in 11 countries and Dalian shipped
      to 230 customers in seven countries. The Fayetteville facility produces both
      CCA
      and Copper-Clad Steel, or CCS which combines the conductivity of copper with
      the
      strength of steel. The Telford facility further processes material produced
      in
      Fayetteville. We now produce both CCA and CCS and have a worldwide presence
      that
      combines Fushi’s recognition in China with the worldwide recognition of the
      Copperweld brand.





During
      the first quarter 2008, in Dalian, we continued our development of bimetallic
      wire products to further expand our sales in the utility industry.  CCA
      flat wire offers greater value than copper wire because of its reduced cost
      and
      weight while it maintains conductivity standards needed by utility
      companies.  We believe the successful installation of Copperweld’s cladding
      technology completed at the onset of second quarter of 2008 should further
      allow
      us to improve the quality of our bimetallic flat wire and enable us to produce
      larger diameter flat wire products for the PRC market, further expanding our
      product offerings.





During
      first quarter 2008, we further increased sales into the utility market at our
      Dalian facility through the introduction of small amounts of CCA wire for use
      in
      low voltage power cable.  CCA wire for use in low voltage power cable is
      still in the early stages of its development; however, we are working closely
      with customers and regulatory bodies to gain nationwide approval in the
      PRC.  We believe that as we further develop and improve this product
      application, CCA wire for use in power transmission applications will prove
      to
      be a viable substitute to copper wire.





We
      believe that the utility market for bimetallics in the PRC is underdeveloped
      relative to other markets worldwide and could serve as an area of significant
      growth for our Dalian facility. Our expectation is based on the response by
      the
      two largest power grid operators, State Grid Corporation (SGCC) and China
      Southern Grid (SGC), to widespread blackouts and power shortages experienced
      in
      the PRC between 2002 and 2005. According to strategy laid out by SGCC and SGC
      for the Eleventh Five Year Plan, they plan to spend RMB 1,200 billion in total
      transmission and distribution (“T&D”) capital expenditures over a five year
      time period beginning in 2007.





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




32




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





The
      price
      of copper impacts our operations in two significant ways. First, copper is
      one
      of the principal raw materials used in manufacturing our products. Beginning
      in
      mid-2005, copper prices began trending upward. The upward trend continued during
      the first quarter of 2006 until a slight downturn during November and December.
      The trend for 2007 was similar to the previous year although with an average
      Comex price of $7,103 per metric ton compared to $6,811 during 2006. During
      the
      first quarter of 2008, copper prices continued to escalate compared to the
      same
      quarter last year. The average Comex copper price was $7,791 per ton for the
      first quarter of 2008 compared to an average of $5,954 during the same quarter
      in 2007. When the prices of raw materials increase, we pass those increases
      through to our customers. Conversely, when raw material prices decline, we
      pass
      those savings through to our customers as well. The practice of passing changes
      in raw material costs to our customers is not a perfect hedge against
      fluctuating prices, but it allows us to protect our net margin as measured
      by
      net income or by earnings per share since our sales prices are determined at
      the
      time the sales order is received. In Dalian we regularly make advance payments
      to our suppliers to lock in copper supplies with the side benefit of locking
      in
      prices when copper prices are increasing. At March 31, 2008, we had outstanding
      advances to raw material suppliers of $10.5 million. In Fayetteville, some
      suppliers of copper cathode require us to pay for the shipments at the cathode
      stage even though the copper must be further processed which locks in the cost
      of our future supply. In neither location are we attempting to forecast the
      cost
      of copper or other raw materials, nor are we attempting to hedge the changing
      costs of raw materials.




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




33










The
      preceding chart reflects the trend in copper based on average monthly Comex
      prices. The chart shows the general trend to higher copper prices over the
      prior
      three years and during the first quarter of 2008. The 2008 year began at the
      highest level of the four comparative years shown in the chart. For the quarter
      ended March 31, 2008, the average Comex price for copper increased over the
      same
      quarter in 2007 by $1,837 per ton. As a measure of the increasing trend in
      the
      price of copper over time, the Comex average price per ton for the first quarter
      of 2008 increased over the first quarter of 2005 Comex average by $4,556 per
      ton, an increase of 140.8%. The average price per ton paid for copper including
      processing costs during the first quarter of 2008 was $8,439 in Dalian and
      $8,018 in Fayetteville compared to $7,485 and $7,520 for the same quarter in
      2007. As discussed previously, we do not attempt to hedge the costs of copper,
      but rather pass the changes in price through to our customers.





The
      two
      other major components in our products are aluminum and steel. The monthly
      average cost of aluminum for the first quarter of 2008 increased over first
      quarter 2007 levels by approximately $4.34 per ton but compared to copper,
      aluminum has been stable. The following chart, based on Comex average monthly
      prices, shows that the average Comex price for aluminum began near 2006 levels
      but moved upward each month during this most recent quarter surpassing the
      average price for the same quarter in 2007. During the quarter ended March
      31,
      2008, the average cost for aluminum purchased by the Dalian facility was $2,284
      per ton and $3,195 per ton by Fayetteville. As with copper, we do not attempt
      to
      predict future prices for aluminum, but rather cover our risk by passing changes
      in the costs of aluminum to our customers.




34









The
      cost
      of steel varies by the type steel that is used for the various applications.
      The
      average cost of steel used by the Fayetteville facility over the past three
      years was less than one-half the cost of aluminum and was between one-eighth
      and
      one-fifth the cost of copper. Steel prices have been relatively stable; however,
      beginning with the first quarter of 2008, the price of steel began to increase.
      The average price paid by Fayetteville for steel increased $131 per ton, from
      $918 per ton paid during the first quarter of to $1,050 per ton during the
      first
      quarter of 2008, a 14.3% increase. We do not project the cost of raw materials
      but our suppliers believe that steel will remain at higher levels throughout
      2008. Our Dalian facility purchased an insignificant amount of steel because
      we
      primarily produce CCA in Dalian.











*Outlook
      for the remainder of 2008*





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




35




**Results
      of Operations**





***Quarter
      Ended***




The
      following table shows, for the periods indicated, information derived from
      our
      consolidated statements of income.





(in
                ‘000 except for percentage and EPS)
            
            **Increase/**
              **(Decrease)**
            
            **3/31/2008**
              **Unaudited**
            
            **3/31/2007**
              **Unaudited**Net
                sales
            
            
            155.5
            %
            $
            54,009
            
            $
            21,138Gross
                Profit
            
            
            91.7
            %
            
            14,734
            
            
            7,685Operating
                Income
            
            
            46.4
            %
            
            8,887
            
            
            6,069Net
                income
            
            
            52.2
            %
            
            7,570
            
            
            4,975Gross
                Margins
            
            
            
            
            
            27.3
            %
            
            36.4
            %Net
                Margins
            
            
            
            
            
            14.3
            %
            
            23.5
            %EPS-
                Basic
            
            
            15.4
            %
            $
            0.28
            
            $
            0.24EPS-
                Diluted
            
            
            23.8
            %
            $
            0.26
            
            $
            0.21




Net
      sales
      increased 155.5% for the quarter ended March 31, 2008 compared to the comparable
      quarter of the previous year. Approximately one-third of the increase resulted
      from the Copperweld acquisition in October of 2007. The balance of the increase
      is primarily due to an increase in volume at the Dalian facility from 3,408
      metric tons to 5,771 metric tons, representing a 69.4% growth. Gross profit
      increased $7.05 million or 91.7% quarter over quarter. Net income increased
      by
      $2.6 million or 52.2% for the quarter ended March 31 2008 compared to the same
      quarter in 2007. The gross margin declined from 36.4% to 27.3% from the first
      quarter of 2007 to the same quarter this year due primarily to lower margins
      contributed by the Fayetteville and Telford facilities. Basic earnings per
      share
      was $0.28 and on a fully diluted basis was $0.26.





**Financial
      position at quarter ended March 31, 2008 (unaudited) and the year ended December
      31, 2007:**





(in
                ‘000)
            
            **3/31/2008**
              **Unaudited**
            
            **12/31/2007**
              **Unaudited**Cash
            
            $
            78,581
            
            $
            79,915Accounts
                Receivable, net
            
            
            34,370
            
            
            23,611PP&E,
                net
            
            
            94,963
            
            
            87,229Total
                assets
            
            
            282,809
            
            
            246,469Short
                term debt
            
            
            38,478
            
            
            23,840Long
                term debt
            
            
            45,000
            
            
            60,000Total
                stockholders’ equity
            
            
            170,039
            
            
            144,288




36




Our
      financial condition continues to improve as shown by an increase of 17.8% in
      shareholders’ equity during the first quarter of 2008. Cash decreased 1.7%
      during the quarter and our accounts receivable increased by 45.6% as a result
      of
      increased sales volume. Property, plant and equipment increased by 8.9% during
      the quarter ended March 31, 2008 compared to the prior year end. Short term
      debt
      increased by 61.1% as a result of an increase in short term borrowings. Long
      term debt declined by 25.0% because the holder of $20.0 million in our
      convertible notes converted $15.0 million of such notes during the first quarter
      of 2008.





**Net
      Sales**





Net
      sales
      were $54.0 million during the first quarter of 2008 compared to $21.1 million
      during the first quarter of 2007. Of the 155.5% in sales growth in the quarter
      ended March 31, 2008, Fayetteville and Telford contributed $18.0 million or
      33.4% of first quarter sales based on net revenue. Dalian increased net revenue
      by 70.2% based on net revenue for the quarter ended March 31, 2008 compared
      to
      the same quarter in 2007. The increase in Dalian’s net revenue was based on
      increased volumes. The majority of the increase quarter over quarter resulted
      from increased volumes coming from the addition of Fayetteville and Telford,
      including sales from CCS that we had not had prior to the current quarter.





**31-Mar-08**
            
            **31-Mar-07**
            
            **Change**CCA
            
            $
            42,325,612
            
            $
            21,137,917
            
            
            100.2
            %CCS
            
            
            10,615,699
            
            
            -
            
            
            100.0
            %Other(include
                Scrap, FCA, FCS etc)
            
            
            1,067,716
            
            
            -
            
            
            100.0
            %Total
                Net Revenue
            
            $
            54,009,027
            
            $
            21,137,917
            
            
            155.5
            %





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




**3/31/2008**
              ****
              **3/31/2007**
              ********
              ****
              **Tons**
                **shipped**
              
              **%
                  of**
                **Total
                  Sales**
              
              **Tons**
                **shipped**
              
              **%
                  of**
                **Total
                  Sales**Telecom
              
              
              6,007
              
              
              63.3
              %
              
              2,450
              
              
              71.9
              %Utility
              
              
              2,264
              
              
              23.9
              %
              
              1
              
              
              0.0
              %Auto
              
              
              3
              
              
              0.0
              %
              
              -
              
              
              0.0
              %Other
              
              
              1,213
              
              
              12.8
              %
              
              957
              
              
              28.1
              %Total
              
              
              9,486
              
              
              100.0
              %
              
              3,408
              
              
              100.0
              %


We
      are
      continuing to expand our markets beyond telecom, which historically has been
      the
      major user of our products, both in Dalian and Fayetteville. Telecom represented
      71.9% of sales for the quarter that ended at March 31, 2007, but dropped to
      62.9% at the end of the first quarter of 2008 while the actual volume increased
      by 145.2% comparing the two quarters. We anticipate that telecom will continue
      to maintain current or expanded volumes but our goal is to expand into other
      markets as well. The addition of Telford and Fayetteville has provided
      additional sales opportunities in the utility area. We believe that automotive,
      while comparatively small at present, joins the utility market as a potential
      market for future growth.




37




The
      following table presents sales breaks down by categories among our
      facilities:




**Dalian**
              
              **Fayetteville**
              
              **Telford****Tons
                  shipped**
              
              **%
                  of**
                **Total
                  Sales**
              
              **Tons**
                **shipped**
              
              **%
                  of**
                **Total
                  Sales**
              
              **Tons**
                **shipped**
              
              **%
                  of**
                **Total
                  Sales**Telecom
              
              
              4,437
              
              
              46.77
              %
              
              1,551
              
              
              16.35
              %
              
              19
              
              
              0.20
              %Utility
              
              
              590
              
              
              6.22
              %
              
              1,656
              
              
              17.45
              %
              
              18
              
              
              0.19
              %Auto
              
              
              -
              
              
              0.00
              %
              
              3
              
              
              0.09
              %
              
              -
              
              
              0.00
              %Other
              
              
              748
              
              
              7.88
              %
              
              425
              
              
              4.48
              %
              
              40
              
              
              0.42
              %Total
              
              
              5,774
              
              
              60.87
              %
              
              3,635
              
              
              38.37
              %
              
              77
              
              
              0.81
              %




The
      following table summarizes installed capacities and outputs for both Dalian
      and
      Fayetteville for the quarter ended March 31, 2008. Capacity is stated on an
      annual basis while output is that for the quarter. Telford’s production is
      reflected in Fayetteville’s numbers because Telford further processes
      Fayetteville’s production.





**Dalian**
            
            **Fayetteville****Installed
                Capacity**
            
            **Output**
            
            **Installed
                Capacity**
            
            **Output****Product
                line**
            
            **Metric
                Tons**
            
            **Metric
                Tons**
            
            **Metric
                Tons**
            
            **Metric
                Tons**CCA
            
            
            33,600
            
            
            5,774
            
            
            15,000
            
            
            1,073CCS
            
            
            
            
            
            
            
            
            20,000
            
            
            2,559Total
            
            
            33,600
            
            
            5,774
            
            
            35,000
            
            
            3,632





At
      March
      31, 2008, we had combined annual production capacity for CCA of 48,600 metric
      tons and CCS capacity of 20,000 metric tons on an annual basis. We expect to
      have additional CCA capacity installed in Dalian during the first quarter of
      2009. Nexans confirmed our order for a new cladding line on March 18, 2008
      and
      we made the deposit on the line on April 22, 2008 with delivery and installation
      expected in early 2009. The decision to purchase a new clad line versus
      refurbishing an existing line was made on the basis of costs. The estimated
      cost
      to refurbish a line from Fayetteville was approximately the same as purchasing
      a
      new machine. We plan to have additional CCS capacity installed by the end of
      2008 if sales projections for CCS in the Asian markets warrant expansion. For
      the first quarter of 2008, the average price of CCA produced in Dalian and
      sold
      primarily in the PRC was $6,137 per ton while the average price of CCA produced
      in Fayetteville was $6,443 per ton. CCS produced in Fayetteville sold for an
      average of $3,968. Both Dalian and Fayetteville sell a variety of CCA products
      and the price for each variety may vary based on the amount of manufacturing
      required and the ratio of copper to aluminum. Dalian did not sell a significant
      amount of CCS during the first quarter of 2008. As with CCA, the average selling
      price of CCS varies by product type primarily based on the amount of copper
      in
      the product and the amount of manufacturing required. Sales referred to as
      Fayetteville include the sales from Telford also.




38




*Customers*





We
      continued to expand and diversify our customer base during the first quarter of
      2008. Our five largest customers accounted for 19.9% of sales during the first
      quarter of 2008, down from 32.6% for the first quarter of 2007. No single
      customer represented more than 5.0% of net sales during the most recent quarter.
      During the same quarter last year, we had a customer that represented 11.0%
      of
      net sales. Our ten largest customers accounted for 32.3% of net sales during
      the
      first quarter of 2008 compared to 55.9% during the first quarter of 2007. We
      believe this increased diversification significantly limits our market risk
      and
      gives us a stronger base on which to expand. We further believe our overall
      customer composition and the concentration of our top customers will continue
      to
      change as we expand our business and seek to shift our product sales portfolio
      to higher margin products. However, the loss of, or significant reduction in
      orders from any of our largest customers may have a material adverse impact
      on
      our financial condition and operating results. We are continuing to expand
      and
      consolidate the direction of our combined sales and marketing group in order
      to
      focus our resources on diversification of our customer base, product mix and
      geographic presence to mitigate customer concentration risk. Our objective
      is to
      focus on expanding our existing business relationships by offering a wider
      range
      of products and building new sales relationships throughout the world with
      our
      expanded sales organization.





The
      following table for the first quarter of 2008 sets forth our ten largest
      customers:





**Originating
                Office**
            
            **Tons
                Sold Quarter**
            
            **Amount
                of Sales**
            
            **%
                Total Sales**Fayetteville
            
            
            527.7
            
            
            2,598,588
            
            
            4.8
            %Fayetteville
            
            
            424.8
            
            
            2,528,059
            
            
            4.7
            %Dalian
            
            
            389.3
            
            
            1,945,591
            
            
            3.6
            %Dalian
            
            
            329.1
            
            
            1,861,780
            
            
            3.4
            %Dalian
            
            
            293.8
            
            
            1,804,143
            
            
            3.3
            %Dalian
            
            
            278.7
            
            
            1,637,728
            
            
            3.0
            %Dalian
            
            
            220.7
            
            
            1,383,480
            
            
            2.6
            %Fayetteville
            
            
            235.3
            
            
            1,314,123
            
            
            2.4
            %Dalian
            
            
            215.9
            
            
            1,256,044
            
            
            2.3
            %Dalian
            
            
            192.4
            
            
            1,115,674
            
            
            2.1
            %





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




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




39




**Cost
      of Goods Sold**





**Combined**
            
            **2008
                Q1**
            
            **2007
                Q1**Cost
                of Goods Sold
            
            $
            39,275,340
            
            $
            13,452,737Primary
                Material Cost
            
            $
            33,881,482
            
            $
            12,519,758Accessorial
                Material Cost
            
            $
            570,324
            
            $
            289,261Labor
            
            $
            1,832,670
            
            $
            152,632Manufacturing
                Overhead
            
            $
            2,990,864
            
            $
            491,086





Cost
      of
      goods sold increased to $39.3 million during the first quarter ending March
      31,
      2008, from $13.5 million first quarter of 2007. As measured as a percentage
      of
      net revenue, cost of goods sold for the first quarter of 2008 was 72.7% compared
      to 63.6% for the same quarter of 2007. The increase results from a higher ratio
      of cost of goods sold to net sales in Fayetteville and Telford. Cost of goods
      sold principally consists of the cost of raw materials, labor, utilities,
      manufacturing costs, manufacturing related depreciation, machinery maintenance
      costs, purchasing and receiving costs, inspection costs, shipping and handling
      costs, and other fixed costs associated with the manufacturing process. The
      increase in Cost of Goods Sold as a percentage of net sales was principally
      due
      to the cost of adding capacity in Dalian and labor and overhead costs in
      Fayetteville that historically have been greater than in Dalian.





Copper,
      aluminum and steel are the primary raw materials we use to manufacture our
      products. During the first quarter of 2008, we purchased over 3,094 tons of
      copper, 7,128 tons of aluminum and 2,267 tons of steel. Raw material costs
      accounted for 86.7% of total cost of goods sold during the first quarter of
      2008
      and 93.1% for the first quarter of 2007. Other variable costs included
      manufacturing labor, maintenance, shipping and handling, and utility expenses.
      Cost of goods sold excluding raw material costs as a percentage of cost of
      good
      sold was 13.7% for the quarter ended March 2008 and was 6.9% for the first
      quarter of 2007. The major change in cost of goods sold excluding raw materials,
      occurred in labor and overhead. As a percentage of net sales, manufacturing
      labor increased by 3.5% and manufacturing overhead increased by 7.6% comparing
      the quarter ending March 2007 and the quarter that ended with March 2008. The
      increase is reflective of the higher labor and overhead costs in Fayetteville
      and Telford.





*Suppliers*





We
      also
      significantly diversified our sources of supply. In Dalian, we have historically
      relied on two key suppliers for the procurement of copper strip and aluminum.
      These two suppliers combined to account for approximately 58.8% of our total
      raw
      material purchases during the quarter ended March 31, 2007. Our two largest
      suppliers accounted for 34.3% of our raw material purchases during the first
      quarter of 2008.




40




The
      following table sets forth our ten largest raw material suppliers for quarter
      ended March 31, 2008. (Purchases exceeded the amount of raw material actually
      used during the period.)





**Quarter
                3/31/2008**
            
            **Quarter
                3/31/2007****Top
                Ten Raw Material Suppliers**
            
            **Amount
                of**
              **Purchases**
            
            **%
                of**
              **Total
                Purchases**
            
            **Amount
                of**
              **Purchases**
            
            **%
                of**
              **Total
                Purchases**Dalian---Copper
            
            
            10,968,287
            
            
            24.0
            %
            
            2,693,456
            
            
            11.36
            %Dalian--Aluminum
            
            
            4,701,631
            
            
            10.3
            %
            
            897,933
            
            
            3.79
            %Dalian---Copper
            
            
            4,247,954
            
            
            9.3
            %
            
            386,263
            
            
            1.63
            %Dalian--Aluminum
            
            
            4,050,891
            
            
            8.9
            %
            
            502,101
            
            
            2.12
            %Dalian--Aluminum
            
            
            3,717,659
            
            
            8.1
            %
            
            4,667,660
            
            
            19.69
            %Fayetteville---Copper
            
            
            3,121,751
            
            
            6.8
            %
            
            N/A
            
            
            0.0
            %Fayetteville---Copper
            
            
            2,842,733
            
            
            6.2
            %
            
            N/A
            
            
            0.0
            %Fayetteville---Copper
            
            
            2,134,365
            
            
            4.7
            %
            
            N/A
            
            
            0.0
            %Fayetteville--Aluminum
            
            
            2,040,077
            
            
            4.5
            %
            
            N/A
            
            
            0.0
            %Fayetteville--Aluminum
            
            
            1,760,940
            
            
            3.8
            %
            
            N/A
            
            
            0.0
            %





**Gross
      margin**





Gross
      profit was $14.7 million for the first quarter of 2008 compared to $7.7 million
      for the same quarter in 2007. As a percentage of net sales, gross profit
      decreased from 36.4% to 27.3%. This was primarily driven by the inclusion of
      sales from Fayetteville and Telford during the most recent quarter. Both have
      historical margins that have been below the level enjoyed by Dalian. The
      Fayetteville and Telford operations are succeeding in increasing margins through
      an improved pricing methodology, moving away for products with little or no
      margins and through utilizing better sales techniques. Higher raw material
      costs
      typically increase the selling price and reduce the percentage of gross margin
      but not the dollar amount of margin. We pass increases in raw material costs
      to
      our customers rather than the percentage changes in our raw material costs.
      Therefore, when raw material cost increases are passed through to our customers,
      the sales price will increase and the net margin as a percentage of net sales
      will decline. However, the dollar amount of gross margin remains
      stable.





**Quarter
                Ended**
            
            **31-Mar-08**
            
            **31-Mar-07**Net
                Sales
            
            $
            54,009,027
            
            $
            21,137,917Cost
                of Goods sold
            
            $
            39,275,340
            
            $
            13,452,737Gross
                Margin
            
            $
            14,733,687
            
            $
            7,685,180Gross
                Margin as % of Net Sales
            
            
            27.3
            %
            
            36.4
            %





We
      establish prices for our products based on market factors and our cost to
      produce our products. Typically, we set a base price for our products for our
      customers with an understanding that as prices of raw materials change,
      primarily for copper but also for aluminum and steel, we will pass the change
      through to our customers. Therefore, when prices of raw materials increase,
      our
      prices to our customers increase and the amount of our total net sales increases
      while the dollar amount of our gross margin remains relatively stable. Timing
      differences will cause some slight variations. Passing the costs of fluctuating
      raw material costs to our customers allows us to maintain the amount of our
      gross margin.




41










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




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





**1Q'07**
            
            **2Q'07**
            
            **3Q'07**
            
            **4Q'07**
            
            **1Q'08**Comex
            
            
            2.19
            
            
            2.78
            
            
            3.08
            
            
            2.93
            
            
            3.53LME
            
            
            2.12
            
            
            2.88
            
            
            3.03
            
            
            2.94
            
            
            3.54Yangtze
            
            
            3.15
            
            
            3.24
            
            
            3.32
            
            
            3.41
            
            
            3.69





**Selling
      Expenses**





**31-Mar-08**
            
            **31-Mar-07**
            
            **Change**Sales
                costs
            
            
            792,911
            
            
            175,194
            
            
            352.6
            %Percentage
                of Net Sales
            
            
            1.47
            %
            
            0.83
            %
            
            77.1
            %




42




Selling
      expenses, which principally include sales related staff salary and benefits,
      travel expenses, and sales commissions, were $792,911 or 1.5% of net sales
      in
      for the first quarter of 2008, compared to $175,194 or 0.8% of net sales for
      the
      first quarter of 2007. As a percentage of net sales, selling expenses increased
      $616,926 or 77.0% for the first quarter of 2008 compared to the same quarter
      of
      2007. The increase is attributable to additional sales staff to service ongoing
      demand for our products in PRC as well as the addition of the sales forces
      in
      Fayetteville and Telford.





**General
      and Administrative Expenses**





**31-Mar-08**
            
            **31-Mar-07**
            
            **Change**Total
                G&A Expense
            
            $
            5,054,183
            
            $
            1,441,002
            
            $
            250.7
            %Percentage
                of Net Sales
            
            $
            9.364
            %
            $
            6.82
            %
            $
            37.3
            %





General
      and administrative expenses, as a percentage of net sales, increased to 9.4%
      during the first quarter of 2008, compared to 6.82% during the first quarter
      of
      2007. The increase was primarily due to increased costs associated with
      expanding our staff in Dalian to accommodate the increasing demand for our
      products and the inclusion of operating expenses from Fayetteville and Telford
      for the 2008 quarter. Professional services were a major category increased
      by
      $1.2 million over the first quarter of 2007. The majority of the increase was
      related to legal cost resulting from litigation and audit expenses related
      to
      additional corporate entities within Fushi. .We expect our general and
      administrative to remain relatively stable as measured by a percentage of net
      sales over the remainder of the current year even as we incur some additional
      integration costs.




**Interest
      Expense**





Interest
      expense decreased by $160,007or 12.5% for the quarter ended March 31, 2008
      compared to the same quarter of 2007. The reduction is largely the result of
      the
      exercise of $15 million of outstanding convertible notes in January 2008.




**Taxation**





*U.S.
      income tax*





Fushi
      Copperweld, Inc. (formerly Fushi International, Inc.) is a company incorporated
      in the State of Nevada, Fushi Holdings is a company incorporated in the State
      of
      Delaware, Copperweld Bimetallics, LLC is chartered in the State of Delaware
      and
      Copperweld Bimetallics UK, Ltd., is registered in the United Kingdom. Prior
      to
      the acquisition of Copperweld, we conducted substantially all our operations
      through our PRC operating subsidiaries. With the acquisition of Copperweld,
      we
      have a manufacturing facility and administrative offices located in
      Fayetteville, Tennessee, USA and in Telford, England, UK. We are subject
      taxation on our net taxable income in the PRC, the US and the UK. We did not
      provide for United States income tax liability during the first quarter of
      2008
      because we have sufficient tax loss carry forwards to offset any taxable income
      earned during the quarter. We have a tax loss carry forward asset arising from
      tax losses because Fushi had US expenses during prior periods but its revenue
      produced in PRC was not considered taxable income. No provision for US income
      tax was accrued on the earnings of our non-US operations because the earnings
      generated from our non-U.S. operating companies are generally subject to United
      States taxation only when such earnings are repatriated to the United States.
      Additionally, we believe that we will not generate any significant amount of
      US
      income tax liability under the income imputation rules applicable to a United
      States company that owns "controlled foreign corporations" for United States
      federal income tax purposes. Therefore, no provision for U.S. federal income
      taxes or tax benefits on the undistributed earnings and/or losses of our company
      has been made.




43




*P.R.C.
      enterprise income tax*




During
      the first quarter of 2008, our PRC chartered subsidiaries continue to produce
      taxable income for PRC tax purposes. PRC enterprise income tax is calculated
      based on taxable income determined under PRC accounting principles. In
      accordance with “Income Tax Law of China for Enterprises with Foreign Investment
      and Foreign Enterprises,” or the Income Tax Law, “Foreign Invested Enterprises”,
      or FIEs, established in the PRC are generally subject to an “Enterprise Income
      Tax”, or EIT, rate of 33%. PRC domestic companies are governed by the Enterprise
      Income Tax Laws of the PRC and are also generally subject to an EIT.





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





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





A
      provision for PRC income taxes was made during the quarter ended March 31,
      2008
      in the amount of $1,267,438. No provision was made for the quarter ended March
      31, 2007.





**Net
      Income**





Net
      income increased to approximately $7.6 million, for the quarter ended March
      31,
      2008, from approximately $5.0 million for the quarter ended March 31,
      2007representing an increase of $2.6 million or 52.2%. Net income for the
      current quarter was 14% of net sales compared to 23.5% for the same quarter
      for
      the prior year. The decline in net margin quarter over quarter is the results
      primarily from higher general and administrative costs and increased cost of
      goods sold from Fayetteville and Telford.





Basic
      and
      diluted earnings per share (EPS) for the quarter ended March 31, 2008 were
      $0.28
      and $0.26, compared to $0.24 and $0.21 for the first quarter last year. The
      weighted average number of shares outstanding to calculate basic EPS was 27.0
      million and 20.5 million for March 31, 2008 and March 31, 2007, respectively.
      The weighted average number of shares outstanding to calculate diluted EPS
      was
      28.2 million and 23.8 million for the same periods.




44




**Foreign
      Currency Translation Gains**











The
      value
      of the USD versus the RMB continued to decline during the first quarter of
      2008.
      As a result of the appreciation of the RMB, we recognized a foreign currency
      translation gain of $7.9 million for the first quarter of 2008 compared to
      a
      gain of $902,861 for the same quarter last year. Given the uncertainty of
      exchange rate fluctuations, we cannot estimate the effect of these fluctuations
      on our future business, product pricing, and results of operations or financial
      condition.





Prior
      to
      acquiring Copperweld, materially all of our revenues and a majority of our
      expenses were denominated in RMB Yuan. For our operations in the PRC, the income
      statement accounts were translated at 1 RMB Yuan to 0.13977 USD and balance
      sheet amounts with the exception of equity at March 31, 2008 were translated
      at
      1 RMB Yuan to 0.14280 USD.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      historically financed our operations and capital expenditures principally
      through private placements of debt and equity offerings, bank loans, and cash
      provided by operations. At March 31, 2008, the majority of our liquid assets
      were held in RMB denominations deposited in banks within the PRC. The PRC has
      strict rules for converting RMB to other currencies and for movement of funds
      from the PRC to other countries. Consequently, in the future, we may face
      difficulties in moving funds deposited within the PRC to fund working capital
      or
      capital expenditure requirements for our locations outside the PRC.





As
      is
      customary in the industry, we provide payment terms to most of our customers
      that exceed terms that we receive from our suppliers. Therefore, the Company’s
      liquidity needs have generally consisted of working capital necessary to finance
      receivables and raw material inventory. Capital expenditures have historically
      been necessary to expand the production capacity of the Company’s manufacturing
      operations.




45




In
      summary, our cash flows were:




**March
                31, 2008**
            
            **March
                31, 2007**Net
                cash provided by operating activities
            
            $
            (16,300,888
            )
            $
            2,191,854Net
                cash used in investing activities
            
            
            469,117
            
            
            (7,800,571
            )Net
                cash provided by financing activities
            
            
            11,047,570
            
            
            57,396,366Effect
                of exchange rate on cash and cash equivalents
            
            
            3,450,059
            
            
            505,130Cash
                and cash equivalents at beginning of period
            
            
            79,914,758
            
            
            20,493,551Cash
                and cash equivalents at end of period
            
            $
            78,580,616
            
            $
            72,786,330




For
      the
      three months ended March 31, 2008, net cash provided by operating activities
      was
      a deficit of $16.3 million. This was primarily attributable to increases of
      $13.7 million in inventories, $7.3 million in accounts receivable, $7.0 million
      in advances to suppliers and $2.2 million in other payable and accrued
      liabilities. These reductions were offset to some degree by earnings of $7.6
      million, decreases in accounts payable of $6.3 million and an adjustment for
      depreciation of $1.4 million.





For
      the
      three months ended March 31, 2008, net cash used in investing activities was
      $469,117, and was primarily attributable to proceeds of $3.0 million received
      from selling the marketable securities, reduced by purchases and advance
      payments for purchases for equipment of approximately $3.3 million.





For
      the
      three months ended March 31, 2008, net cash provided by financing activities
      was
      $11.0 million, which was primarily attributable to $16.9 million in bank loans
      and an increase in our revolving line of credit of $2.7 million. Net cash
      provided from financing activities amounting to $16.9 million was reduced by
      repayments on bank loans of $5.8 million and change in the restricted cash
      2.8
      million.





At
      March
      31, 2008, our cash balance was $78.6 million compared to $79.9 million at
      December 31, 2007.




In
      future
      periods, as we proceed with integration of the Copperweld acquisition, we
      believe we can realize significant savings on capital expenditures by moving
      under utilized equipment to locations with a need for that equipment. We
      anticipate that our working capital requirements may increase as a result of
      the
      expanded scale of the combined business, continued increases in sales, potential
      increases in the price of copper, competition and our relationship with
      suppliers or customers. We believe that our existing cash, cash equivalents
      and
      cash flows from operations, combined with availability under our revolving
      credit facility, will be sufficient to meet our presently anticipated future
      cash needs for at least the next 12 months. We may, however, require additional
      cash resources due to changed business conditions or other future developments,
      including any investments or acquisitions we may decide to pursue. There can
      be
      no assurance that such finding will be available when needed, or, if available,
      that it will be available on terms acceptable to the Company.





On
      January 24, 2007, we and Citadel Equity Fund Ltd. ("Citadel") entered a Notes
      Purchase Agreement (the “Notes Purchase Agreement”). Pursuant to the terms of
      the Notes Purchase Agreement, the Company offered and sold and Citadel purchased
      (a) $40,000,000 of the Company’s Guaranteed Senior Secured Floating Rate Notes
      due 2012 (the “HY Notes”) and (b) $20,000,000 of the Company’s 3.0% Senior
      Secured Convertible Notes due 2012 (the “Convertible Notes” and collectively
      with the HY Notes, the "Notes"). The details of the indentures are available
      in
      the Company’s Current Report on Form 8-K filed with the Commission on January
      26, 2007. The Convertible Notes allow the holder to convert the debt to common
      stock at a conversion rate of $7.00 for each share. On January 8, 2008, Citadel
      converted $15.0 million in debt to 2,141,857 shares of our common
      stock.




46




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




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




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




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




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




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




47




The
      cost
      to close the Tongling joint venture totaled $977,519 in addition to the cost
      of
      the equipment in paragraph (3) above. A claim was duly filed against an escrow
      account establish by the Seller at the time we purchased Copperweld. We agreed
      to settle our claim against the escrow in the amount of $900,000. The remainder
      of our cost was expensed during the reporting period.




**Critical
      Accounting Policies**





There
      have been no changes in our critical accounting policies or significant
      accounting estimates as disclosed in our 2007 Annual Report on Form 10-K Note
      2
      in the Notes to the Consolidated Financial Statements.




**Item
      3.** **Quantitative
      and Qualitative Disclosures about Market Risk**





***Commodity
      Price Risk***




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




We
      are
      primarily exposed to price risk related to our purchase of copper used in the
      manufacture of our products. Our copper price management strategy involves
      the
      use of natural techniques, where possible, such as purchasing copper for future
      delivery at fixed prices. We did not have any commodity price derivatives or
      hedging arrangements outstanding at March 31, 2008 and did not employ any
      commodity price derivatives during the quarter ended March 31,
      2008.




***Foreign
      Exchange Risk***




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




The
      RMB
      is currently freely convertible under the “current account”, which includes
      dividends, trade and service-related foreign exchange transactions, but not
      under the “capital account”, which includes foreign direct investment. In
      addition, commencing on July 21, 2005, China reformed its exchange rate
      regime by changing to a managed floating exchange rate regime based on market
      supply and demand with reference to a basket of currencies. Under the managed
      floating exchange rate regime, the RMB is no longer pegged to the US Dollar.
      The
      exchange rate of the RMB against the US Dollar was adjusted to RMB 8.11 per
      US Dollar as of July 21, 2005, representing an appreciation of about 2%.
      The People’s Bank of China will announce the closing prices of foreign
      currencies such as the US Dollar traded against the RMB in the inter-bank
      foreign exchange market after the closing of the market on each business day,
      and will make such prices the central parity for trading against the RMB on
      the
      following business day. On May 19, 2007, the People’s Bank of China
      announced a policy to expand the maximum daily floating range of RMB trading
      prices against the U.S. dollar in the inter-bank spot foreign exchange market
      from 0.3% to 0.5%. While the international reactions to the RMB revaluation and
      widening of the RMB’s daily trading band have generally been positive, with the
      increased floating range of the RMB’s value against foreign currencies, the RMB
      may appreciate or depreciate significantly in value against the U.S. dollar
      or
      other foreign currencies in the long term, depending on the fluctuation of
      the
      basket of currencies against which it is currently valued.




48




To
      date,
      we have not entered into any hedging transactions in an effort to reduce our
      exposure to foreign currency exchange risk. We recognized a foreign currency
      translation adjustment of approximately $7.9 million for the quarter ended
      March
      31, 2008.




***Interest
      Rate Risk***





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





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





The
      fair
      value of the Swap is determined on an annual basis with the assistance of third
      party provided calculations which reflect the present values of the difference
      between estimated future variable-rate receipts in USD and future fixed-rate
      payments in RMB. For the fiscal year ended December 31, 2007, changes in fair
      value of the Swap designated and effective as cash flow hedge resulted in an
      increase in the liability and a loss to other comprehensive income of $8.5
      million, net of taxes. For the period ended March 31, 2008, the Swap resulted
      in
      a liability of $13,624,876 and a loss to other comprehensive income of
      $5,109,480, net of taxes. On January 24, 2008, the most recent interest payment
      date, the Company received cash in the amount of $738,376 from MLCS, which
      was
      recorded as a gain from derivative transactions. As of March 31, 2008, the
      Company had cross currency hedge receivable amounting to $136,962. For the
      quarter ended March 31, 2008, there were no amounts recorded in the consolidated
      statement of income in relation to this interest rate swap related to
      ineffectiveness.




49




The
      Company accounts for this interest rate swap in accordance with FAS No. 133,
      “Accounting for Derivatives Instruments and Hedging Activity,” which requires
      all derivatives to be carried on the balance sheet at fair value and to meet
      certain documentary and analytical requirements to qualify for hedge accounting
      treatment. The above derivative qualifies for hedge accounting under FAS 133
      and, accordingly, changes in the fair value is reported in accumulated other
      comprehensive income, net of related income tax effects.





The
      Company also has outstanding senior convertible notes that may be converted
      into
      the Company’s common stock. On January 8, 2008, the convertible notes holder
      elected to convert $15.0 million of the $20 million convertible notes into
      common shares. If the $5 million Convertible Notes outstanding as of March
      31,
      2008 are not converted at maturity, January 24, 2012, the Company will have
      to
      repay the principle of $5 million and an additional redemption cost of
      $5,305,158.





Under
      SFAS 157, the Company used Level 2 inputs for its valuation methodology for
      the
      $40 million HY note and $5 million convertible notes payable and outstanding,
      and their fair values are determined using cash flows discounted at relevant
      market interest rates in effect at the period close. The estimated fair value
      of
      the Company’s outstanding HY notes and convertible notes was $39.6 million at
      March 31, 2008.




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




***Credit
      Risk***





We
      have
      not experienced significant credit risk, as most of our customers are long-term
      customers with excellent payment records. We review our accounts receivable
      on a
      regular basis to determine if the allowance for doubtful accounts is adequate
      at
      each quarter-end. We only extend 30 to 90 day trade credit to our largest
      customers, which tend to be well-established and large businesses, and we have
      not seen any major customer’s accounts receivable go uncollected beyond 90 days
      or experienced any material write-off of accounts receivable in the past.




***Inflation
      Risk***





In
      recent
      years, China has not experienced significant inflation, and thus inflation
      has
      not had a material impact on our results of operations. According to the
      National Bureau of Statistics of China (NBS) (www.stats.gov.cn), the change
      in
      Consumer Price Index (CPI) in China was 3.9%, 1.8% and 1.5% in 2004, 2005 and
      2006, respectively. However, in the fiscal year ended December 31, 2007,
      according to NBS, CPI rose significantly at a monthly average rate of 4.8%.
      Especially during the months of August, September, October, November, and
      December, CPI was up 6.5%, 6.2%, 6.5%, 6.9% and 6.5%, respectively. Inflationary
      factors, such as increases in the cost of our products and overhead costs,
      could
      impair our operating results. Although we do not believe that inflation has
      had
      a material impact on our financial position or results of operations to date,
      a
      high rate of inflation may have an adverse effect on our ability to maintain
      current levels of gross margin and selling, general and administrative expenses
      as a percentage of sales revenue if the selling prices of our products do not
      increase with these increased costs.




50




**Item
      4.**  **Controls
      and Procedures.**




(a) *Evaluation
      of disclosure controls and procedures* .
      Our
      chief executive officer and our chief financial officer, after evaluating the
      effectiveness of the company’s “disclosure controls and procedures” (as defined
      in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules
      13a-15e and 15d-15e) as of the end of the period covered by this report (the
      “Evaluation Date”), have concluded that, as of the Evaluation Date, our
      disclosure controls and procedures were effective.




(b) *Changes
      in internal controls* .
      During
      the fiscal quarter covered by this quarterly report, there was no change in
      our
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect our internal control over financial
      reporting.





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





**PART
      II**





**Item
      6.** **Exhibits**





(a)
      Exhibits


10.1 
            - Settlement
            Agreement among Copperweld, Copperweld Bimetallics International Holdings,
            LLC ,
            International Manufacturing Equipment Suppliers, LLC, Tongling Jingda
            Special
            Magnet Wire Co., Ltd. and Tongling Copperweld Bimetallics Co. Ltd. Dated
            January
            18, 2008.


31.1
      -
      Certification of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.





31.2
      -
      Certification of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.





32.1
      -
      Certification of Chief Executive Officer and Chief Financial Officer pursuant
      to
      Section 906 of the Sarbanes-Oxley Act of 2002.





51





**SIGNATURES**





Pursuant
      to the requirements of the Securities Act of 1934, the Registrant has duly
      caused this report to be signed on its behalf by the undersigned there unto
      duly
      authorized.





**FUSHI
                COPPERWELD, INC.**Date:
                May 14, 2008
            BY:
            /s/
                  Wenbing Chris WangWenbing
                Chris WangPresident
                and Chief Financial Officer




52




**INDEX
      TO EXHIBITS**





**EXHIBIT**
              **NUMBER**
            
            **DESCRIPTION**10.1
            
            Settlement
                Agreement among Copperweld, Copperweld Bimetallics International
                Holdings,
                LLC , International Manufacturing Equipment Suppliers, LLC, Tongling
                Jingda Special Magnet Wire Co., Ltd. and Tongling Copperweld Bimetallics
                Co. Ltd. Dated January 18, 2008.31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of 2002.