FUSHI
COPPERWELD, INC.





CONDENSED
PARENT COMPANY BALANCE SHEETS


AS OF
SEPTEMBER 30, 2010 AND DECEMBER 31, 2009





September 30,
                                            
                                            
                                            December 31,2010
                                            
                                            
                                            2009UnauditedASSETSCURRENT
      ASSETS:Cash
                                            
                                            $
                                            5,762,820
                                            
                                            
                                            $
                                            98,839Other
      receivables and prepaid expenses
                                            
                                            
                                            131,763
                                            
                                            
                                            
                                            -Deposit
      in derivative hedge
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,000,000Total
      current assets
                                            
                                            
                                            5,894,583
                                            
                                            
                                            
                                            1,098,839OTHER
      ASSETS:Investments
      in subsidiaries
                                            
                                            
                                            336,661,019
                                            
                                            
                                            
                                            266,653,590Intercompany
      receivables
                                            
                                            
                                            3,256,489
                                            
                                            
                                            
                                            1,123,312Deferred
      loan expense, net
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,955,778Deferred
      tax assets
                                            
                                            
                                            15,407,083
                                            
                                            
                                            
                                            11,722,469Total
      other assets
                                            
                                            
                                            355,324,591
                                            
                                            
                                            
                                            281,455,149Total
      assets
                                            
                                            $
                                            361,219,174
                                            
                                            
                                            $
                                            282,553,988LIABILITIES AND SHAREHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Notes
      payable, current
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            10,000,000Other
      payables and accrued liabilities
                                            
                                            
                                            1,025,660
                                            
                                            
                                            
                                            2,609,037Cross
      currency hedge payable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            436,702Loan
      payable to shareholder
                                            
                                            
                                            15,000,000
                                            
                                            
                                            
                                            -Total
      current liabilities
                                            
                                            
                                            16,025,660
                                            
                                            
                                            
                                            13,045,739LONG-TERM  LIABILITIES:Notes
      payable, non-current
                                            
                                            
                                            -
                                            
                                            
                                            
                                            25,000,000Fair
      value of derivative instrument
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,532,527Total
      long-term liabilities
                                            
                                            
                                            0
                                            
                                            
                                            
                                            32,532,527Total
      liabilities
                                            
                                            
                                            16,025,660
                                            
                                            
                                            
                                            45,578,266COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Preferred
      stock,$0.001 par value, 5,000,000 shares authorized, none issued or
      outstanding as of September 30, 2010 and December 31, 2009
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Common
      stock,$0.006 par value, 100,000,000 shares authorized, September 30,
      2010: 37,779,839 shares issued and outstanding December 31, 2009:
      29,772,780 shares issued and outstanding
                                            
                                            
                                            226,680
                                            
                                            
                                            
                                            178,638Additional
      paid in capital
                                            
                                            
                                            166,297,828
                                            
                                            
                                            
                                            105,540,676Statutory
      reserves
                                            
                                            
                                            20,793,298
                                            
                                            
                                            
                                            16,282,793Retained
      earnings
                                            
                                            
                                            126,454,574
                                            
                                            
                                            
                                            97,283,748Accumulated
      other comprehensive income
                                            
                                            
                                            31,421,134
                                            
                                            
                                            
                                            17,689,867Total
      shareholders' equity
                                            
                                            
                                            345,193,514
                                            
                                            
                                            
                                            236,975,722Total
      liabilities and shareholders' equity
                                            
                                            $
                                            361,219,174
                                            
                                            
                                            $
                                            282,553,988


- 1
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FUSHI
COPPERWELD, INC.





CONDENSED
PARENT COMPANY STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(LOSS)


FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(UNAUDITED)





Three months ended September 30,
                
                
                Nine months ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009OPERATING
      EXPENSESGeneral
      and administrative expenses
                
                $
                1,081,804
                
                
                $
                600,777
                
                
                $
                3,233,300
                
                
                $
                2,701,597Total
      operating expenses
                
                
                1,081,804
                
                
                
                600,777
                
                
                
                3,233,300
                
                
                
                2,701,597OTHER
      INCOME (EXPENSE)Interest
      income (expense), net
                
                
                -
                
                
                
                (1,055,023
                )
                
                
                (444,420
                )
                
                
                (3,859,033
                )Loss
      on cross currency hedge
                
                
                -
                
                
                
                (1,199,438
                )
                
                
                (753,666
                )
                
                
                (1,581,812
                )Loss
      on derivative instrument settlement
                
                
                -
                
                
                
                -
                
                
                
                (6,650,000
                )
                
                
                -Gain
      (loss) on debt extinguishment
                
                
                -
                
                
                
                3,842,935
                
                
                
                (2,395,778
                )
                
                
                3,842,935Change
      in derivative liability - warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (752,114
                )Change
      in derivative liability - conversion option
                
                
                -
                
                
                
                (2,058,352
                )
                
                
                -
                
                
                
                (7,181,198
                )Other
      income, net
                
                
                -
                
                
                
                -
                
                
                
                306,040
                
                
                
                -Total
      other income (expense), net
                
                
                -
                
                
                
                (469,878
                )
                
                
                (9,937,824
                )
                
                
                (9,531,222
                )EQUITY
      INCOME EARNINGS OF SUBSIDIARIES
                
                
                13,793,967
                
                
                
                9,377,210
                
                
                
                43,167,841
                
                
                
                22,838,284INCOME
      BEFORE INCOME TAXES
                
                
                12,712,163
                
                
                
                8,306,555
                
                
                
                29,996,717
                
                
                
                10,605,465BENEFIT
      FOR INCOME TAXES
                
                
                158,599
                
                
                
                888,378
                
                
                
                3,684,614
                
                
                
                3,253,085NET
      INCOME
                
                
                12,870,762
                
                
                
                9,194,933
                
                
                
                33,681,331
                
                
                
                13,858,550OTHER
      COMPREHENSIVE INCOME (LOSS):Foreign
      currency translation adjustment
                
                
                4,433,165
                
                
                
                72,136
                
                
                
                6,198,740
                
                
                
                112,093Change
      in fair value of derivative instrument
                
                
                -
                
                
                
                237,768
                
                
                
                882,527
                
                
                
                (3,275,588
                )Reclassification
      of change in cash flow hedge to earnings
                
                
                -
                
                
                
                -
                
                
                
                6,650,000
                
                
                
                -COMPREHENSIVE
      INCOME
                
                $
                17,303,927
                
                
                $
                9,504,837
                
                
                $
                47,412,598
                
                
                $
                10,695,055


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FUSHI
COPPERWELD, INC.





CONDENSED
PARENT COMPANY STATEMENTS OF CASH FLOWS


FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(UNAUDITED)





2010
                          
                          
                          2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income
                          
                          $
                          33,681,331
                          
                          
                          $
                          13,858,550Adjustments
      to reconcile net income used in operating activities:Equity
      in earnings of subsidiaries
                          
                          
                          (43,167,841
                          )
                          
                          
                          (22,838,284
                          )Deferred
      taxes
                          
                          
                          (3,684,614
                          )
                          
                          
                          (3,253,085
                          )Amortization
      of loan commission
                          
                          
                          160,000
                          
                          
                          
                          787,492Amortization
      of stock compensation expense
                          
                          
                          528,207
                          
                          
                          
                          1,108,254Loss
      on cross currency hedge
                          
                          
                          753,666
                          
                          
                          
                          1,581,812Loss
      on derivative instrument settlement
                          
                          
                          6,650,000
                          
                          
                          
                          -Loss
      (gain) on debt extinguishment
                          
                          
                          2,395,778
                          
                          
                          
                          (3,842,935
                          )Change
      in derivative liability - warrants
                          
                          
                          -
                          
                          
                          
                          752,114Change
      in derivative liability - conversion option
                          
                          
                          -
                          
                          
                          
                          7,181,198Change
      in operating assets and liabilities:Other
      receivables and prepayments
                          
                          
                          (24,100
                          )Other
      payables and accrued liabilities
                          
                          
                          (1,583,377
                          )
                          
                          
                          (2,866,051
                          )Net
      cash used in operating activities
                          
                          
                          (4,290,950
                          )
                          
                          
                          (7,530,935
                          )CASH
      FLOWS FROM INVESTING ACTIVITIES:Investment
      in subsidiaries
                          
                          
                          (18,040,848
                          )
                          
                          
                          (3,130,132
                          )Payment
      for unwind of cross currency hedge
                          
                          
                          (5,650,000
                          )
                          
                          
                          -Payments
      on cross currency hedge payable
                          
                          
                          (1,190,368
                          )
                          
                          
                          (614,580
                          )Net
      cash used in investing activities
                          
                          
                          (24,881,216
                          )
                          
                          
                          (3,744,712
                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from shareholder loan
                          
                          
                          15,000,000
                          
                          
                          
                          -Intercompany
                          
                          
                          (2,133,177
                          )
                          
                          
                          13,330,755Release
      of restricted cash
                          
                          
                          -
                          
                          
                          
                          1,000,000Payment
      of high yield notes payable
                          
                          
                          (35,600,000
                          )
                          
                          
                          (5,000,000
                          )Proceeds
      on issuance of common stock and warrants
                          
                          
                          56,361,500
                          
                          
                          
                          1,920,000Proceeds
      from exercise of warrants
                          
                          
                          1,180,599
                          
                          
                          
                          -Proceeds
      from exercise of stock options
                          
                          
                          27,225
                          
                          
                          
                          -Net
      cash provided by financing activities
                          
                          
                          34,836,147
                          
                          
                          
                          11,250,755CHANGE
      IN CASH
                          
                          
                          5,663,981
                          
                          
                          
                          (24,892
                          )CASH,
      beginning of period
                          
                          
                          98,839
                          
                          
                          
                          30,414CASH,
      end of period
                          
                          $
                          5,762,820
                          
                          
                          $
                          5,522SUPPLEMENTAL
      CASH FLOWS DISCLOSURE:Interest
      paid
                          
                          $
                          1,343,849
                          
                          
                          $
                          3,375,092


- 3
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FUSHI
COPPERWELD, INC.




CONDENSED
NOTES TO PARENT FINANCIAL INFORMATION




(UNAUDITED)





1.
            Basis
      of presentation




Certain
information and footnote disclosures normally included in financial statements
prepared in conformity with generally accepted accounting principles have been
condensed or omitted. The Company’s financial information has been derived from
the consolidated financial statements and should be read in conjunction with the
consolidated financial statements included in this Form 10-Q. The Company’s
investment in subsidiaries is stated at cost plus equity in undistributed
earnings of subsidiaries.





2.
            Restricted
      net assets





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





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





3.
            Notes
      payable consisted of the following:




September 30,
                          2010
                        
                        
                        December 31,
                          2009(Unaudited)Guaranteed
      senior secured floating rate notes (“HY Notes”)
                        
                        
                        -
                        
                        
                        
                        35,000,000Less
      current portion
                        
                        
                        -
                        
                        
                        
                        10,000,000Total
      notes payable, noncurrent
                        
                        $
                        -
                        
                        
                        $
                        25,000,000





Please
refer to Note 10 of the Notes to the Consolidated Financial Statements for a
more detailed description of the notes payable.





4.
            Derivative
      instrument





The
Company's operations are exposed to a variety of global market risks, including
the effect of changing interest rates. This exposure is managed, in part, with
the use of financial derivatives. The Company uses financial derivatives only to
hedge exposures in the ordinary course of business and does not invest in
derivative instruments for speculative purposes. 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.





Effective
March 31, 2010 (the termination date), the SWAP, with an outstanding USD
notional amount of $30,000,000 and an outstanding CNY notional amount of
233,175,000 was unwound with a premium payment price of $6,650,000 to
MLCS.




On March
31, 2010, the $1,000,000 deposit with MLCS to secure the agreement was released
to MLCS as partial payment of the $6,650,000 payment price and the remaining
$5,650,000 payment was made to Merrill Lynch on April 6, 2010.




Changes
in the fair values of derivative instruments accounted for as cash flow hedges
to the extent they qualify for hedge accounting, are recorded in accumulated
other comprehensive income.  For the nine months ended September 30,
2010 and 2009, a gain of $882,527 and loss of $3,275,588 was recorded on
the derivative instrument, respectively, in other comprehensive income. For
the three months ended September 30, 2010 and 2009, a loss of $0 and a gain
of $237,768 was recorded on the derivative instrument, respectively, in
other comprehensive income.


- 4
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FUSHI
COPPERWELD, INC.




CONDENSED
NOTES TO PARENT FINANCIAL INFORMATION




(UNAUDITED)





On March
31, 2010, $6,650,000 was transferred from the accumulated other comprehensive
loss into earnings as a loss from termination of the SWAP.  There were
no amounts recorded in the consolidated statements of income in relation to
ineffectiveness of this interest SWAP prior to unwind.





During
the nine and three months ended September 30, 2010 and prior to the termination
date the Company paid $1,190,368 and $0 as hedging payment related to the
cross currency hedge payable and recognized $753,666 and $0 of loss from
derivative transactions as cash flow hedge. During the nine and three
months ended September 30, 2009, the Company paid $614,580 and $500,000 as
hedging payment related to the cross currency hedge payable and recognized
$1,581,812 and $1,199,438 of loss related to derivative transactions
as cash flow hedge.





Please
refer to Note 12 of the Notes to the Consolidated Financial Statements for the
derivative instrument.





5.
            Related
      party transaction





In
September 2010, the Company’s Co-CEO and majority shareholder, Mr. Li Fu,
advanced the Company $15,000,000 related to required timely registered capital
payments for Fushi JiangSu as discussed in Note 18 – Commitments and
Contingencies of the Notes to the Consolidated Financial Statements. The loan is
non-interest bearing and is due on demand. Mr. Fu also advanced the Company
$8,000,000 in October 2010 for additional registered capital payments for Fushi
JiangSu. In October 2010, the Company had fully repaid this shareholder
liability in the amount of $23,000,000.





During
October 2010, the Company’s wholly owned subsidiary, Fushi International, on
behalf of the Parent Company repaid the loan due to the shareholder in the
amount of $23,000,000. As a result of such repayment, Fushi International
distributed $23,000,000 to the Parent Company through this
transaction.





6.
            Reclassification





Certain
reclassifications have been made to the 2009 parent financial statements to
conform to the 2010 parent financial statement presentation. These
reclassifications had no effect on net income or cash flows as previously
reported.





7.
            Subsequent
      event





The
Company has performed an evaluation of subsequent events through the date which
the consolidated financial statements were available to be issued.





On
November 3, 2010, the Company’s Board of Directors  received a
proposal from its Chairman and Chief Executive Officer, Mr. Li Fu ("Mr. Fu") and
Abax Global Capital (Hong Kong) Limited on behalf of funds managed by it and its
affiliates ("Abax") for Mr. Fu and Abax to acquire all of the outstanding shares
of Common Stock of Fushi not currently owned by Mr. Fu and his affiliates in a
going private transaction for $11.50 per share in cash, subject to certain
conditions. Mr. Fu and his affiliates own approximately 29.2% of Fushi's Common
Stock.  According to the proposal letter, Mr. Fu and Abax will form an
acquisition vehicle for the purpose of completing the acquisition and plan to
finance the acquisition with a combination of debt and equity capital. The
proposal letter states that the equity portion of the financing would be
provided by Mr. Fu, Abax and related sources. The proposal letter also states
that Mr. Fu and Abax are currently in discussion to engage a financial advisor
to the acquisition vehicle that will be formed by Mr. Fu and
Abax.  The Company’s Board of Directors has formed a special committee
of independent directors to evaluate and consider this proposal. No decisions
have been made by the Special Committee with respect to the Company’s response
to the proposal.




A shareholder class action complaint
has been filed against Fushi and certain officers and directors thereof in
connection with the November 3, 2010 proposal made by Mr. Li Fu and Abax for Mr.
Fu and Abax to acquire all of the outstanding shares of Common Stock of Fushi
not currently owned by Mr. Fu and his affiliates in a going private transaction
for $11.50 per share in cash, subject to certain conditions (the “Fu Proposal”).
In the complaint, the plaintiffs challenge the Fu Proposal and allege, among
other things, that the consideration to be paid in such proposal is grossly
inadequate. The complaint seeks, among other relief, to enjoin defendants from
consummating the Fu Proposal and to direct defendants to exercise their
fiduciary duties to obtain a transaction that is in the best interests of our
shareholders. The complaint was filed in Nevada. We have reviewed the
allegations contained in the complaint and believe they are without merit. We
intend to defend the litigation vigorously. As such, based on the information
known to us to date, we do not believe that it is probable that a material
judgment against us will result. In accordance with ASC Topic 450, no liability
has been accrued.


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