**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 September 30, 2008.
 
 ** ̈** **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
þ
 No
o
 
 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 o
 Accelerated
        filer o
 Non-accelerated
        filer þ
 (Do
        not
        check if a smaller reporting company)
 Smaller
        reporting company o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
o
 No
þ
  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
        September 30, 2008 was 27,503,885.
  
 
 **FUSHI
                  COPPERWELD, INC.****INDEX
                  TO September 30, 2008 FORM
                  10-Q**
  PagePart
                    I - Financial InformationItem
                    1 - Financial Statements
                
                
                2Consolidated
                    Balance Sheets as of September 30, 2008 (unaudited) and December
                    31,
                    2007
                
                
                2Consolidated
                    Statements of Income and Other Comprehensive Income for the six
                    months
                    ended September 30, 2008 and 2007 (unaudited)
                
                
                3Consolidated
                    Statements of Cash Flows for the six months ended September 30,
                    2008 and
                    2007 (unaudited)
                
                
                4Notes
                    to the Consolidated Financial Statements (unaudited)
                
                
                5Item
                    2 Management's Discussion and Analysis of Results of Operations
                    and
                    Financial Condition
                
                
                36Item
                    3 Quantitative and Qualitative Disclosure about Market
                    Risk
                
                
                61Item
                    4 Controls and Procedures
                
                
                64Part
                    IIItem
                    1 Legal Proceeding
                
                
                64Item
                    1A Risk Factor
                
                
                64Item
                    6 Exhibits
                
                
                65Signature
                    Page
                
                
                66




-
          1 -




FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      SEPTEMBER 30, 2008 AND DECEMBER 31, 2007


September 30,
              
              December 31,2008
              
              2007UnauditedASSETSCURRENT
                  ASSETS:Cash
              
              $
              50,043,410
              
              $
              79,914,758Marketable
                  securities
              
              
              -
              
              
              2,977,699Restricted
                  cash
              
              
              1,000,000
              
              
              1,000,000Accounts
                  receivable, trade, net of allowance of bad debt $498,205 and $135,418
                  as
                  of September 30,2008 and December 31, 2007
              
              
              50,018,459
              
              
              23,611,186Inventories
              
              
              20,444,709
              
              
              12,308,295Notes
                  receivables
              
              
              370,149
              
              
              816,905Other
                  receivables and prepaid expenses
              
              
              496,762
              
              
              997,979Advances
                  to suppliers
              
              
              25,046,960
              
              
              2,341,839Cross
                  currency hedge receivable
              
              
              55,322
              
              
              706,170Deposit
                  in derivative hedge
              
              
              1,000,000
              
              
              -Total
                  current assets
              
              
              148,475,771
              
              
              124,674,831PLANT
                  AND EQUIPMENT, net
              
              
              107,816,898
              
              
              87,228,600OTHER
                  ASSETS:Advances
                  to suppliers, noncurrent
              
              
              17,946,939
              
              
              18,204,775Prepaid
                  land use right
              
              
              -
              
              
              4,559,760Intangible
                  asset, net of accumulated amortization
              
              
              12,617,273
              
              
              5,832,721Deferred
                  loan expense, net
              
              
              3,612,387
              
              
              3,115,930Deferred
                  tax assets
              
              
              4,147,286
              
              
              2,852,000Total
                  other assets
              
              
              38,323,885
              
              
              34,565,186Total
                  assets
              
              $
              294,616,554
              
              $
              246,468,617LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable, trade
              
              $
              5,685,839
              
              $
              3,028,823Revolver
                  line
              
              
              9,410,373
              
              
              7,168,524Short
                  term bank loans
              
              
              17,673,600
              
              
              5,703,360Current
                  portion of long term debts
              
              
              -
              
              
              10,968,000Current
                  portion of notes payable
              
              
              5,000,000
              
              
              -Other
                  payables and accrued liabilities
              
              
              3,118,409
              
              
              5,791,597Customer
                  deposits
              
              
              570,990
              
              
              -Taxes
                  payable
              
              
              2,083,686
              
              
              1,005,259Total
                  current liabilities
              
              
              43,542,897
              
              
              33,665,563LONG
                  TERM LIABILITIES:Notes
                  payable, noncurrent
              
              
              40,000,000
              
              
              60,000,000Fair
                  value of derivative instrument
              
              
              5,305,993
              
              
              8,515,396Total
                  liabilities
              
              
              88,848,890
              
              
              102,180,959COMMITMENTS
                  AND CONTINGENCIES
              
              
              7,197,794
              
              
              -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, September
                  30, 2008:
                  27,503,885 shares issued and 27,403,885 outstanding December 31,
                  2007:
                  25,311,304 shares issued and 25,211,304 outstanding
              
              
              164,424
              
              
              151,268Restricted
                  common stock in escrow
              
              
              600
              
              
              600Additional
                  paid in capital
              
              
              90,741,609
              
              
              77,665,064Statutory
                  reserves
              
              
              8,321,726
              
              
              8,321,726Retained
                  earnings
              
              
              78,031,362
              
              
              54,133,070Accumulated
                  other comprehensive income
              
              
              21,310,149
              
              
              4,015,930Total
                  shareholders' equity
              
              
              198,569,870
              
              
              144,287,658Total
                  liabilities and shareholders' equity
              
              $
              294,616,554
              
              $
              246,468,617





The
      accompany notes are an integral part of this statement.


-
          2 -





FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF INCOME AND


OTHER
      COMPREHENSIVE INCOME


FOR
      THE
      THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007





Three months ended September 30,
            
            Nine months ended September 30,2008
            
            2007
            
            2008
            
            2007Unaudited
            
            Unaudited
            
            Unaudited
            
            UnauditedREVENUES
            
            $
            63,823,927
            
            $
            32,014,592
            
            $
            180,369,083
            
            $
            79,238,417COST
                OF GOODS SOLD
            
            
            46,931,400
            
            
            21,481,175
            
            
            131,996,263
            
            
            51,367,707GROSS
                PROFIT
            
            
            16,892,527
            
            
            10,533,417
            
            
            48,372,820
            
            
            27,870,710OPERATING
                EXPENSESelling
                expenses
            
            
            1,223,087
            
            
            189,625
            
            
            3,274,048
            
            
            558,735General
                and administrative expenses
            
            
            3,418,704
            
            
            1,447,530
            
            
            11,335,948
            
            
            4,588,010Total
                operating expense
            
            
            4,641,791
            
            
            1,637,155
            
            
            14,609,996
            
            
            5,146,745INCOME
                FROM OPERATIONS
            
            
            12,250,736
            
            
            8,896,262
            
            
            33,762,824
            
            
            22,723,965OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            176,830
            
            
            565,383
            
            
            529,651
            
            
            1,074,837Interest
                expense
            
            
            (1,800,738
            )
            
            (1,523,343
            )
            
            (7,386,274
            )
            
            (4,800,554
            )Gain
                (loss) on derivative instrument
            
            
            (32,482
            )
            
            286,245
            
            
            322,708
            
            
            1,088,768Other
                income (expense)
            
            
            (65,305
            )
            
            14,077
            
            
            (30,600
            )
            
            188,693Other
                expense
            
            
            (6,348
            )
            
            (5,298
            )
            
            (149,055
            )
            
            (84,992
            )Total
                other expense, net
            
            
            (1,728,043
            )
            
            (662,936
            )
            
            (6,713,570
            )
            
            (2,533,248
            )INCOME
                BEFORE INCOME TAXES
            
            
            10,522,693
            
            
            8,233,326
            
            
            27,049,254
            
            
            20,190,717INCOME
                TAXESDeferred
                income tax benefit
            
            
            (106,390
            )
            
            
            
            
            (1,295,285
            )Current
                income tax expense
            
            
            1,582,133
            
            
            -
            
            
            4,446,247
            
            
            -Total
                income tax expense
            
            
            1,475,743
            
            
            -
            
            
            3,150,962
            
            
            -NET
                INCOME
            
            
            9,046,950
            
            
            8,233,326
            
            
            23,898,292
            
            
            20,190,717OTHER
                COMPREHENSIVE INCOMEUnrealized
                gain on marketable securities
            
            
            -
            
            
            
            
            
            22,301Foreign
                currency translation adjustment
            
            
            1,899,163
            
            
            2,250,423
            
            
            14,062,515
            
            
            5,266,973Change
                in fair value of derivative instrument
            
            
            3,940,908
            
            
            (3,738,571
            )
            
            3,209,403
            
            
            (4,610,090
            )COMPREHENSIVE
                INCOME
            
            $
            14,887,021
            
            $
            6,745,178
            
            $
            41,192,511
            
            $
            20,847,600EARNINGS
                PER SHARE:BASIC
            
            $
            0.33
            
            $
            0.37
            
            $
            0.88
            
            $
            0.94DILUTED
            
            $
            0.31
            
            $
            0.33
            
            $
            0.83
            
            $
            0.85WEIGHTED
                AVERAGE NUMBER OF SHARES:BASIC
            
            
            27,387,302
            
            
            22,263,618
            
            
            27,263,638
            
            
            21,422,610DILUTED
            
            
            28,446,786
            
            
            25,454,871
            
            
            28,601,237
            
            
            24,335,426





The
      accompany notes are an integral part of this statement.


-
          3 -





FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)





2008
            
            2007CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            23,898,292
            
            $
            20,190,717Adjustments
                to reconcile net income to cash(used
                in) provided by operating activities:Bad
                debt expense
            
            
            355,293
            
            
            -Reserve
                for obsolete inventory
            
            
            401,646
            
            
            -Depreciation
            
            
            4,728,235
            
            
            2,029,646Amortization
                of intangibles
            
            
            256,722
            
            
            174,627Amortization
                of loan commission
            
            
            2,525,756
            
            
            491,178Amortization
                of stock option compensation
            
            
            1,437,557
            
            
            887,080Interest
                penalty
            
            
            710,544
            
            
            -Gain
                on derivative instrument
            
            
            (322,708
            )
            
            (1,088,768
            )Investment
                loss on marketable securities
            
            
            16,158
            
            
            -Change
                in operating assets and liabilities:Accounts
                receivable
            
            
            (24,965,036
            )
            
            (5,426,757
            )Inventories
            
            
            (7,885,132
            )
            
            (5,175,451
            )Other
                receivables and prepayments
            
            
            (395,449
            )
            
            (1,306,764
            )Notes
                receivables
            
            
            487,946
            
            
            (104,512
            )Advance
                to suppliers
            
            
            (22,061,823
            )
            
            (5,600,003
            )Deferred
                tax assets
            
            
            (1,295,286
            )
            
            -Accounts
                payable
            
            
            2,521,359
            
            
            (58,813
            )Other
                payables and accrued liabilities
            
            
            (2,737,772
            )
            
            570,231Customer
                deposits
            
            
            528,731
            
            
            (198,848
            )Taxes
                payable
            
            
            960,752
            
            
            (177,576
            )Net
                cash (used in) provided by operating activities
            
            
            (20,834,215
            )
            
            5,205,987CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sale of marketable securities
            
            
            2,983,842
            
            
            -Payment
                for investment deposit
            
            
            -
            
            
            (3,000,000
            )Proceeds
                from derivative instrument
            
            
            973,556
            
            
            802,523Purchase
                of land use right
            
            
            (1,687,468
            )
            
            -Advance
                for land use right
            
            
            -
            
            
            (4,109,757
            )Purchase
                of property and equipment
            
            
            (15,540,210
            )
            
            (8,613,889
            )Advances
                for equipment purchases
            
            
            (3,148,802
            )
            
            (25,724,917
            )Net
                cash used in investing activities
            
            
            (16,419,082
            )
            
            (40,646,040
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Payments
                to shareholders
            
            
            -
            
            
            (3,985,698
            )Net
                borrowings on revolver line
            
            
            2,279,289
            
            
            -Proceeds
                from bank loans
            
            
            16,908,000
            
            
            11,546,600Payments
                on bank loans
            
            
            (17,268,032
            )
            
            (12,507,240
            )Net
                proceeds from notes payable
            
            
            -
            
            
            56,400,000Proceeds
                from exercise of stock warrants
            
            
            139,394
            
            
            7,541,346Net
                cash provided by financing activities
            
            
            2,058,651
            
            
            58,995,008EFFECT
                OF EXCHANGE RATE ON CASH
            
            
            5,323,298
            
            
            1,984,326(DECREASE)
                INCREASE IN CASH
            
            
            (29,871,348
            )
            
            25,539,281CASH,
                beginning of period
            
            
            79,914,758
            
            
            20,493,551CASH,
                end of period
            
            $
            50,043,410
            
            $
            46,032,832





The
      accompany notes are an integral part of this statement.


-
          4 -




FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**Note
      1 - Organization**





On
      January 15, 2008, Fushi International changed its name to Fushi Copperweld,
      Inc.
      (“Fushi”). On October 29, 2007, Fushi International acquired Copperweld
      Bimetallics Holdings, LLC, a North Carolina 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, Ltd., a private 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, Ltd. (Copperweld UK) is a manufacturing, distribution
      and customer service facility located in Telford, England. Copperweld
      International Holdings, LLC was a non-operating company that held partnership
      interests in a company located in Tongling, PRC at December 31, 2007. Those
      interests were liquidated in an agreement entered into 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.





Three
      of
      the companies acquired on October 29, 2007 were dissolved in 2008:





1.
      Copperweld Holdings, LLC a North Carolina limited liability company.  This
      company had no liabilities and it’s only asset was ownership of Copperweld
      Bimetallics, LLC, which ownership rights were transferred to Fushi Copperweld,
      Inc. on October 29, 2007.




2.
      Copperweld Bimetallics International Holdings, LLC a Delaware limited liability
      company was established to hold the partnership interest in the Tongling joint
      venture which has been dissolved.  This company was a shell company with no
      assets or liabilities at the time the joint venture was dissolved.





3.
      International Manufacturing Equipment Suppliers, LLC a North Carolina limited
      liability company.  This company was not an affiliate of the Copperweld
      companies. This company was formed by the prior owner of Copperweld
      Bimetallics to facilitate the transfer of equipment to the Tongling joint
      venture.  As noted above, the Tongling joint venture has been
      dissolved.  This company had no assets or liabilities at the time of the
      dissolution.





Additional
      office location established during 2008:





Fushi
      International (Dalian) established a branch office in Beijing, China (“Beijing
      Office”) in March, 2008 and began operations as an administrative and sales
      office in the third quarter of 2008.


-
          5 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





Fushi,
      Fushi Holdings, Fushi
      International (Dalian) ,
      Dalian
      Fushi with Beijing Office, 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) with Beijing Office, Copperweld, Copperweld UK and its 100% variable
      interest entity Dalian Fushi. All significant inter-company transactions and
      balances have been eliminated in consolidation.





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.





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.





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.


-
          6 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





Shipping
      and handling costs




Shipping
      and handling costs related to costs of goods sold are included in selling costs
      which totaled $530,891 and $85,804 for the three months ended September 30,
      2008
      and September 30, 2007, respectively and $1,585,406 and $358,597 for the nine
      months ended September 30, 2008 and September 30, 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 USA subsidiary is the US dollar. The functional
      currency of Fushi International (Dalian), Dalian Fushi and Beijing Office 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 in each applicable period. Translation
      adjustments resulting from this process are included in accumulated other
      comprehensive income in the statement of shareholders’ equity. The resulting
      translation gains and losses that arise from exchange rate fluctuations on
      transactions denominated in a currency other than the functional currency are
      included in the results of operations as incurred.





Accumulated
      other comprehensive income amounted to $21,310,149 and $4,015,930 as of
      September 30, 2008 and December 31, 2007, respectively. The balance sheet
      amounts with the exception of equity at September 30, 2008 were translated
      at
      6.790 RMB and 0.562 GBP to $1.00 USD. The average translation rates applied
      to
      income and cash flow statement amounts for the three months ended September
      30,
      2008, June 30, 2008 and March 31, 2008 were 6.837 RMB and 0.528 GBP to $1.00
      USD, 6.958 RMB and 0.507 GBP to $1.00 USD and 7.155 RMB and 0.506 GBP to $1.00
      USD respectively.





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
      United Kingdom (“UK”) and the USA.





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 are not covered by insurance.
      As of September 30, 2008 and December 31, 2007, the Company had deposits in
      excess of federally insured limits totaling $49,777,778 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.


-
          7 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





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 the Chinese domestic market
      to the international market. The following chart shows that the PRC market
      remains the largest single market for the Company while approximately 30.4%
      sales were spread across international markets during the nine months of 2008
      and 1.9% during the nine months of 2007, respectively.





September 30, 2008
            
            September 30, 2007(Unaudited)
            
            (Unaudited)China
            
            $
            125,585,203
            
            $
            77,769,677USA
            
            
            38,650,665
            
            
            -Europe
            
            
            8,177,409
            
            
            -Other
                countries
            
            
            7,955,806
            
            
            1,468,740Total
                sales
            
            $
            180,369,083
            
            $
            79,238,417





Major
      customers and suppliers





Five
      major customers accounted for 19% and 28% of the net sales for the nine months
      ended September 30, 2008 and 2007, respectively, and 17% and 27% of the net
      sales for the three months ended September 30, 2008 and 2007, respectively.
      Total receivable balance due from the five major customers at September 30,
      2008
      and September 30, 2007 amounted to $8,186,204 and $3,189,494,
      respectively.





Five
      major suppliers provided approximately 63% and 96% of the Company’s purchases of
      raw materials for the nine months ended September 30, 2008 and 2007,
      respectively, and 63% and 95% of the Company's purchases of raw materials for
      the three months ended September 30, 2008 and 2007, respectively. As of
      September 30, 2008, our advances to these suppliers were $25,012,572, all of
      which was current. As of September 30, 2007, our advances to the major five
      suppliers were $9,877,729.


-
          8 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





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 September
      30,
      2008 and December 31, 2007, management concluded its allowance for bad debts
      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 for raw material costs are also included in the cost of inventory.





The
      Company reviews its inventory regularly for possible obsolete goods or to
      determine if any reserves are necessary for potential obsolescence. As of
      September 30, 2008, the Company determined its allowance for obsolete inventory
      in the amount of $465,240 was sufficient.





Derivative
      Instrument





The
      Company uses a cross currency hedge, a derivative financial instrument, to
      hedge
      the risk of rising interest rates on its 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 documented 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 September 30, 2008, the fair value of the derivative instrument
      amounted to $5,305,993.


-
          9 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





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 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 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.”





On
      January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements,” which
      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 did not identify any assets and liabilities that are required to be
      presented on the balance sheet at fair value in accordance with SFAS 157.





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. The notes
      qualify as conventional convertible debt and thus the embedded conversion
      feature was not separated from the host instrument. Also during 2007, the
      Company borrowed $40,000,000 in the form of a debenture note with floating
      rate.





As
      of
      September 30, 2008, the outstanding principal amounted to $45,000,000. The
      Company used Level 3 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 since there is no observable
      market price.


-
          10 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





As
      of
      September 30, 2008, the Company had a $5.3 million derivative instrument.
      Management obtains the fair value of the derivative instrument from a financial
      institution using Level 3 inputs since there is no observable market price.
      For
      the three months ended September 30, 2008, the Company recorded a $3,940,908
      change in the fair value of the derivative instrument as other comprehensive
      gain; for the nine months ended September 30, 2008, the Company recorded a
      $3,209,403 change in the fair value of the derivative instrument as other
      comprehensive gain.





Carrying As of
              September 30,
              2008
            
            Fair Value Measurements at September 30,
              2008 Using Fair Value HierarchyLiabilities
            
            
            
            Level
                1
            
            Level
                2
            
            Level
                3Notes
                payable
            
            $
            45,000,000
            
            
            
            
            
            
            
            $
            39,378,954Derivative
                Instrument
            
            $
            5,305,993
            
            
            
            
            
            
            
            $
            5,305,993





Stock-Based
      Compensation





The
      Company records and reports stock-based compensation under SFAS  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 is recognized over the
      period during which services are received. Stock compensation for stock granted
      to non-employees is determined in accordance with SFAS 123R and the EITF 96-18,
      "Accounting for Equity Instruments that are issued to Other than Employees
      for
      Acquiring, or in Conjunction with Selling Goods or Services", as the fair value
      of the consideration received or the fair value of equity instruments issued,
      whichever is more reliably measured.





Plant
      and equipment, net




Plant
      and
      equipment are stated at cost. Expenditures for maintenance and repairs are
      charged to earnings as incurred; additions, renewals and betterments are
      capitalized. When the asset property and equipment is retired or otherwise
      disposed of, the related cost and accumulated depreciation are removed from
      the
      respective accounts, and any gain or loss is included in operations.
      Depreciation of property and equipment is provided using the straight-line
      method for substantially all assets with estimated lives as follows:





Estimated Useful LifeBuildings
            
            
            20-39.5
                yearsMachinery
                and equipment
            
            
            7-15
                yearsOther
                equipment
            
            
            3-5
                yearsTransportation
                equipment
            
            
            3-5
                years





Construction
      in progress represents the costs incurred in connection with the construction
      of
      buildings or new additions to the Company’s plant facilities. No depreciation is
      provided for construction in progress until such time as the assets are
      completed and are placed into service. The Company added production equipment
      during 2008 and the interest capitalized for the three months ended September
      30, 2008 and 2007 amounted $5,164 and $42,946, respectively, and for the nine
      months ended September 30, 2008 and 2007 amounted to $67,976 and $200,474,
      respectively.


-
          11 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





The
      Company evaluates the carrying value of long-lived assets in accordance with
      SFAS 144 each reporting period. 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
      September 30, 2008, there were no impairments of its long-lived
      assets.





Intangible
      assets





Land
      use
      rights – 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.





Patents
–
      Patents are stated at cost (estimated fair value upon acquisition), less
      accumulated amortization and impairment. The Company amortizes patents on a
      straight line basis over 7-15 years.





The
      Company evaluates intangible assets for impairment, at least annually and more
      often 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 September 30, 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 general and administrative expenses.
      Research and development costs were $116,890 and $48,798 for the three months
      ended September 30, 2008 and 2007, respectively and $271,930 and $105,810 for
      the nine months ended September 30, 2008 and 2007, respectively.


-
          12 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





Earning
      per share




The
      Company reports earnings per share in accordance with the provisions of SFAS
      128, "Earnings Per Share." SFAS 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 SFAS 109, “Accounting for
      Income Taxes”. SFAS 109 requires the recognition of deferred income tax
      liabilities and assets for the expected future tax consequences of temporary
      differences between income tax basis and financial reporting basis of assets
      and
      liabilities. Provision for income taxes consist of taxes currently due plus
      deferred taxes.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), on January 1, 2007. Under FIN 48, the evaluation of a tax
      position is a two-step process. The first step is to determine whether it is
      more-likely-than-not that a tax position will be sustained upon examination,
      including the resolution of any related appeals or litigation based on the
      technical merits of that position. The second step is to measure a tax position
      that meets the more-likely-than-not threshold to determine the amount of benefit
      to be recognized in the financial statements. A tax position is measured at
      the
      largest amount of benefit that is greater than 50 percent likely of being
      realized upon ultimate settlement. Tax positions that previously failed to
      meet
      the more-likely-than-not recognition threshold should be recognized in the
      first
      subsequent period in which the threshold is met. Previously recognized tax
      positions that no longer meet the more-likely-than-not criteria should be
      de-recognized in the first subsequent financial reporting period in which the
      threshold is no longer met. FIN 48 also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosures, and transition. The adoption had no affect 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
      is
      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 September 30, 2008, the deferred tax assets
      amounted to $4,147,286 generated from the accumulated net operating loss of
      US
      operations, all of which is non-current.


-
          13 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





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.





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.


-
          14 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





In
      December 2007, Statement of Financial Accounting Standards No. 141(R), *Business
      Combinations* ,
      was
      issued. SFAS 141R replaces SFAS 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.




In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” This Statement identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      the United States (the GAAP hierarchy). This Statement will not have an impact
      on the Company’s financial statements.




In
      June
      2008, the FASB issued EITF 07-5 “Determining whether an Instrument (or Embedded
      Feature) is indexed to an Entity’s Own Stock”. This Issue is effective for
      financial statements issued for fiscal years beginning after December 15, 2008,
      and interim periods within those fiscal years. Early application is not
      permitted. Paragraph 11(a) of SFAS specifies that a contract that would
      otherwise meet the definition of a derivative but is both (a) indexed to
      the Company’s own stock and (b) classified in stockholders’ equity in the
      statement of financial position would not be considered a derivative financial
      instrument. EITF 07-5 provides a new two-step model to be applied in determining
      whether a financial instrument or an embedded feature is indexed to an issuer’s
      own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope
      exception.  The
      Company believes adopting this statement will have a material impact on the
      financial statements because among other things, any option or warrant
      previously issued and all new issuances denominated in US dollars will be
      required to be carried as a liability and marked to market each reporting
      period.





In
      June
      2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
      Issue No. 98-5.”  The objective of EITF 08-4 is to provide transition
      guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios”, that result from EITF 00-27 “Application of Issue No. 98-5
      to Certain Convertible Instruments”, and SFAS 150, “Accounting for Certain
      Financial Instruments with Characteristics of both Liabilities and Equity”. This
      Issue is effective for financial statements issued for fiscal years ending
      after
      December 15, 2008. Early application is permitted. Management is currently
      evaluating the impact of adoption of EITF 08-4 on the accounting for the
      convertible notes and related warrants transactions.


-
          15 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





On
      October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
      Financial Asset When the Market for That Asset Is Not Active,” which clarifies
      the application of SFAS 157 in a market that is not active and provides an
      example to illustrate key considerations in determining the fair value of a
      financial asset when the market for that financial asset is not active. FSP
      157-3 became effective on October 10, 2008, and its adoption did not have a
      material impact on our financial position or results for the quarter ended
      September 30, 2008.





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 consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)Trade
                accounts receivable
            
            $
            50,516,664
            
            $
            23,746,604Allowance
                for bad debts
            
            
            (498,205
            )
            
            (135,418
            )Trade
                accounts receivable, net
            
            $
            50,018,459
            
            $
            23,611,186





The
      following table consists of allowance for doubtful accounts.





Allowance
                  for doubtful accounts at December 31, 2007
            
            $
            135,418Additional
                reserves
            
            
            355,293Accounts
                receivable write off
            
            
            (9,426
            )Effect
                of foreign currency translation
            
            
            16,920Allowance
                for doubtful accounts at September 30, 2008
            
            $
            498,205





**Note
      4 - Inventories**





Inventories
      consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)Raw
                materials
            
            $
            13,487,483
            
            $
            5,965,306Work
                in process
            
            
            3,309,765
            
            
            2,260,015Finished
                goods
            
            
            4,083,362
            
            
            4,120,559Packaging
                materials
            
            
            29,339
            
            
            7,984Low
                cost consumables
            
            
            -
            
            
            18,025Totals
            
            
            20,909,949
            
            
            12,371,889Less
                allowance for obsolete inventory
            
            
            (465,240
            )
            
            (63,594
            )Totals
            
            $
            20,444,709
            
            $
            12,308,295




-
          16 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





The
      following table consists of allowance for obsolete inventory.





Allowance
                for obsolete inventory at December 31, 2007
            
            $
            63,594Additional
                reserves
            
            
            401,646Allowance
                for obsolete inventory at September 30, 2008
            
            $
            465,240





**Note
      5 - Plant and equipment**





Plant
      and
      equipment consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)Land
            
            $
            100,726
            
            $
            100,726Buildings
                and improvements
            
            
            43,616,824
            
            
            32,846,156Transportation
                equipment
            
            
            4,158,860
            
            
            3,193,995Machinery
                and equipment
            
            
            51,857,663
            
            
            24,111,971Office
                furniture
            
            
            1,078,817
            
            
            833,474Construction
                in progress
            
            
            23,004,390
            
            
            36,880,809Totals
            
            
            123,817,280
            
            
            97,967,131Less
                accumulated depreciation
            
            
            (16,000,382
            )
            
            (10,738,531
            )Totals
            
            $
            107,816,898
            
            $
            87,228,600





Depreciation
      expense for the three months ended September 30, 2008 and 2007 amounted to
      $1,701,814 and $1,092,690, respectively and for the nine months ended September
      30, 2008 and 2007 amounted to $4,728,235 and $2,029,646,
      respectively.





Capitalized
      interest for construction projects for the three months ended September 30,
      2008
      and 2007 amounted to $5,164 and $42,946, respectively, and for the nine months
      ended September 30, 2008 and 2007, amounted to $67,976 and $200,474,
      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 consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)Advances
                for inventories - current
            
            $
            25,046,960
            
            $
            2,341,839Advances
                for equipment - non current
            
            
            17,946,939
            
            
            18,204,775Total
                advances to suppliers
            
            $
            42,993,899
            
            $
            20,546,614




-
          17 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**Note
      7 - Intangible assets**





Intangible
      assets consist of land use rights and patents. In June 2008, the Company
      obtained additional land use rights that had were prepaid in previous periods
      and reclassified it to intangible assets-land use rights where it began to
      be
      amortized. Intangible assets consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)Patents
            
            $
            1,762,678
            
            $
            1,652,938Land
                use rights
            
            
            12,527,490
            
            
            5,492,089Total:
            
            
            14,290,168
            
            
            7,145,027Less:
                accumulated amortization
            
            
            (1,672,895
            )
            
            (1,312,306
            )Intangible
                assets, net
            
            $
            12,617,273
            
            $
            5,832,721





Amortization
      expense for the three months ended September 30, 2008 and 2007 amounted to
      $98,071 and $59,037, and for the nine months ended September 30, 2008 and 2007
      amounted to $256,722 and $174,627.





**Note
      8 - Taxes Payable and Deferred Tax Asset**





Taxes
      payable consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)Income
                Tax
            
            $
            1,605,331
            
            $
            -VAT
                Benefit or Payable
            
            
            335,328
            
            
            856,482Others
            
            
            143,027
            
            
            148,777Total
                taxes payable
            
            $
            2,083,686
            
            $
            1,005,259





Income
      Tax





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.


-
          18 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





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%. The provision
      for income tax for the nine months ended September 30, 2008 and 2007 was
      $4,446,247 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.





Copperweld
      UK is organized as a United Kingdom private company and subject to 20% to 28%
      statutory taxes on its taxable income. The provision for income tax for the
      nine
      months ended September 30, 2008 and 2007 was $0 and $0,
      respectively.





The
      Provision for income taxes consisted of the following:





September 30, 2008
            
            September 30, 2007(Unaudited)
            
            (Unaudited)Provision
                for China income taxes
            
            $
            4,446,247
            
            $
            -Provision
                for UK income taxes
            
            
            -
            
            
            -Benefit
                for US income taxes
            
            
            (1,295,285
            )
            
            -Provision
                for income taxes
            
            $
            3,150,962
            
            $
            -




-
          19 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the three and nine months ended September 30, 2008:





September 30,2008
            
            September 30,2007(Unaudited)
            
            (Unaudited)U.S.
                Statutory rates on foreign income
            
            
            34.0
            %
            
            34.0
            %NOL
                and foreign income not recognized in U.S.
            
            
            (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
      September 30, 2008 and 2007, amounted to $1,735,572 and $3,537,439. The net
      effect on earnings per share had the income tax been applied would decrease
      basic earnings per share from $0.33 to $0.27 and diluted earnings per share
      from
      $0.31 to $0.25 for the three months ended September 30, 2008. The net effect
      on
      earnings per share had the income tax been applied would decrease basic earnings
      per share from $0.37 to $0.21 and diluted earning per share from $0.33 to $0.19
      for the three months ended September 30, 2007.





The
      estimated tax savings from the tax exemptions for the nine months ended
      September 30, 2008 and 2007, amounted to $4,816,767 and $9,015,557. The net
      effect on earnings per share had the income tax been applied would decrease
      basic earnings per share from $0.88 to $0.70 and diluted earnings per share
      from
      $0.83 to $0.66 for the nine months ended September 30, 2008. The net effect
      on
      earnings per share had the income tax been applied would decrease basic earnings
      per share from $0.94 to $0.52 and diluted earning per share from $0.85 to $0.48
      for the nince months ended September 30, 2007.





Deferred
      Tax Asset





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 nine months ended September 30, 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 2028. The deferred
      tax
      asset amounted to $4,147,286 as of September 30, 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
            
            
            1,295,286Deferred
                tax asset at September 30,2008
            
            $
            4,147,286




-
          20 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





Value
      Added Tax





VAT
      on
      sales and VAT on purchases in Dalian China amounted to $7,902,925, $4,650,031,
      $21,908,398 and $15,084,494 for the three and nine months ended September 30,
      2008, and $5,449,312, $3,697,324, $13,291,003 and $8,995,172 for the three
      and
      nine months ended September 30, 2007, respectively.





VAT
      on
      sales and VAT on purchases in Copperweld UK amounted to $41,821 and $62,426
      for
      the three months ended September 30, 2008 and $175,543 and $288,398 for the
      nine
      months ended September 30, 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.





**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 consisted of the following:





Name of lender
            
            September 30, 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, 2008 annual interest at 7.029%, secured by the Company’s land 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’s land use right and
                building.
            
            
            8,836,800
            
            
            -Guangdong
                Development bank, Dalian Stadium branch, due March 9, 2009, annual
                interest at 8.96%, secured by the Company’s land use right and
                building.
            
            
            2,945,600
            
            
            -Guangdong
                Development bank, Dalian Stadium branch, due March 19, 2009, annual
                interest at 8.96%, secured by the Company’s land use right and
                building.
            
            
            1,472,800
            
            
            -Guangdong
                Development bank, Dalian Stadium branch, due March 26, 2009, annual
                interest at 8.96%, secured by the Company’s land use right and
                building.
            
            
            4,418,400
            
            
            -Total
                Short Term Bank Loan
            
            
            17,673,600
            
            
            5,703,360Wells
                Fargo Bank revolving credit line, annual interest at 6.25%, mature
                in
                2010, secured by all present and future account receivables, equipment,
                inventory and other goods, documents of title, general intangibles,
                investment property, and real estate of Copperweld.
            
            
            9,410,373
            
            
            7,168,524Total
            
            $
            27,083,973
            
            $
            12,871,884




-
          21 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 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 $17,673,600 at September 30, 2008 at annual interest rate
      of
      8.96% which are due in February and March 2009.





Copperweld
      maintains a revolving line of credit through Wells Fargo Bank with a limit
      of
      $12.8 million and an outstanding balance of $9,410,373 at September 30, 2008,
      the Company deposits the cash collections from its customers against the
      outstanding account balance of the line of credit 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 September 30, 2008. Both lines
      of credit expire in 2010.





Current
      portion of long term debt, which represents the loan that was originated 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, were all paid off on April 29, 2008,
      total outstanding as of September 30, 2008 and December 31, 2007 amounted to
      $0
      and $10,968,000.





Name of Lender
            
            September 30, 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
            
            $
            -
            
            $
            5,484,000ICBC,
                Dalian JinZhou BranchDue
                April 10, 2008, annual interest at 5.58%, secured by the Company’s land
                use right and building
            
            
            -
            
            
            5,484,000Total
                current portion of long term debts
            
            
            -
            
            $
            10,968,000





Total
      interest expense on the revolving credit line, short term and long term loans
      for the three months ended September 30, 2008 and 2007 was $529,507 and
      $496,775, of which $5,164 and $42,946 respectively was capitalized. Total
      interest expense for the nine months ended September 30, 2008 and 2007 amounted
      to $1,651,946 and $1,552,575, of which capitalized interest for construction
      projects amounted to $67,976 and $200,474, respectively.


-
          22 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**Note
      10 – Notes payable**





Notes
      payable consisted of the following:





September 30, 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 between July 24,
                2009 to January 24, 2012
            
            
            40,000,000
            
            
            40,000,000Notes
                payable total
            
            $
            45,000,000
            
            $
            60,000,000





$5,000,000
      HY notes will mature on July 24, 2009 and is reclassified to current portion
      of
      notes payable on the Balance Sheet as of September 30, 2008.





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 between July 2009 to January 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 3.98% at September 30, 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 concluded 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.


-
          23 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 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 was 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
      and therefore, no penalties were incurred.





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):


-
          24 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)




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




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




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




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




Upon
      the
      aforementioned S-3 registration statement being declared effective, Management
      concluded that the Company had met all the requirements for a Qualifying IPO
      and
      therefore notified the HY Notes holders of the 140 basis points step-down and
      subsequently paid interest per the stepped down rate in January
      2008.





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 September 30, 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 of 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 September 30, 2008, the Company had $5 million
      Convertible Notes and $40 million HY notes, for a total of $45,000,000 long
      term
      notes outstanding, of which, $5 million HY Notes will be due on July 24, 2009
      and become current liability as of September 30, 2008. Deferred commissions
      on
      long term notes amounted to $3,450,842 (of which $1,462,500 was due to Kuhn's
      verdict as explained in Note 19) as of September 30, 2008 and $2,946,740 as
      of
      December 31, 2007. Amortized commission for the three months ended September
      30,
      2008 amounted to $262,497 (of which, $112,500 was due to Kuhn's verdict as
      explained in Note 19) and $ 162,082 for the three months ended September 30,
      2007, respectively. Amortized commission for the nine months ended September
      30,
      2008 and 2007 amounted to $2,495,898 (of which $1,537,500 was due to Kuhn's
      verdict as explained in Note 19) and $ 491,178 for the nine months ended
      September 30, 2007, respectively. Interest for the three months ended September
      30, 2008 and 2007 was $995,071 and $1,227,345, respectively. Interest on long
      term notes for the nine months ended September 30, 2008 and 2007 amounted to
      $2,504,659 and $3,423,252 respectively. Both amortized commission and interest
      on long term notes are recorded as interest expense.


-
          25 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





The
      Company cannot estimate the possibility of the conversion of the $5 million
      Convertible Notes outstanding as of September 30, 2008. If the $5 million
      Convertible Notes outstanding are not converted at maturity, January 24, 2012,
      the Company will have to repay the principal of $5 million and an additional
      redemption cost of $5,305,158.





**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 on the 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. In July, 2008, the Company placed the
      $1,000,000 deposit with MLCS to secure the agreement.





Since
      its
      effective date, the fair value of this Swap agreement changed to a payable
      of
      $5,305,993 on September 30, 2008, and a payable of $8,515,396 on December 31,
      2007, respectively. For
      the
      three and nine months ended September 30, 2008, changes in fair value of the
      Swap resulted in an decrease in the liability and a gain to other comprehensive
      income of $3,940,908 and $3,209,403, respectively; For the three and nine months
      ended September 30, 2007, changes in fair value of the Swap resulted in an
      increase in the liability and a loss to other comprehensive income of $3,738,571
      and $4,610,090, respectively, net of taxes.


-
          26 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





The
      Company had cross currency hedge receivable amounting to $55,322 as of September
      30, 2008 and $706,170 as of December 31, 2007. The total loss from derivative
      transactions for the three months ended September 30, 2008 was $32,482 and
      the
      gain for the three months ended September 30, 2007 was $286,245. The total
      gain
      from derivative transactions for the nine months of year 2008 and 2007 was
      $322,707 and $1,088,768, respectively. For the nine months ended September
      30,
      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 nine months ended September 30, 2008 and September 30,
      2007 amounted to $ 5,895,129 and $ 3,860,845, respectively.





Total
      income tax paid for the nine months ended September 30, 2008 and September
      30,
      2007 amounted to $2,907,756 and $0, respectively.





Convertible
      notes totaling $15,000,000 were converted into 2,142,857 shares of common stock
      at $7.00 per share, on January 8, 2008.





**Note
      13 – Accumulated other comprehensive income**





The
      components of accumulated other comprehensive income are as
      follows.





Accumulated
                other comprehensive income:
            
            AmountBalance,
                December 31, 2007
            
            $
            4,015,930Unrealized
                loss on marketable securities
            
            
            22,301Foreign
                currency translation gain
            
            
            14,062,515Change
                in fair value of derivative instrument
            
            
            3,209,403Balance,
                September 30, 2008
            
            $
            21,310,149




-
          27 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**Note
      14 - Earnings per share**





The
      following is information of net income per share:





Three
                months ended
              September
                30,
            
            Nine
                months ended
              September
                30,2008
            
            2007
            
            2008
            
            2007(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Net
                income for basic earnings per share
            
            $
            9,046,950
            
            $
            8,233,326
            
            $
            23,898,292
            
            $
            20,190,717Add:
                Interest expense for convertible note
            
            
            24,750
            
            
            150,000
            
            
            77,399
            
            
            400,000Deduct:
                Loan issuance cost
            
            
            (194,742
            )
            
            -
            
            
            (194,742
            )
            
            -Net
                income for diluted earnings per share
            
            $
            8,876,958
            
            $
            8,383,326
            
            $
            23,780,949
            
            $
            20,590,717Weighted
                average shares used in basic computation
            
            
            27,387,302
            
            
            22,263,618
            
            
            27,263,638
            
            
            21,422,610Diluted
                effect of warrants, option and convertible note
            
            
            1,059,484
            
            
            3,191,253
            
            
            1,337,599
            
            
            2,912,816Weighted
                average shares used in diluted computation
            
            
            28,446,786
            
            
            25,454,871
            
            
            28,601,237
            
            
            24,335,426Earnings
                per shareBasic
            
            $
            0.33
            
            $
            0.37
            
            $
            0.88
            
            $
            0.94Diluted
            
            $
            0.31
            
            $
            0.33
            
            $
            0.83
            
            $
            0.85





Shares
      excluded from the calculation of diluted earnings per share:





Date
                issued/
              granted
            
            Nature
            
            Excise
                price
            
            Shares
                excluded for three months diluted EPS calculation
            
            Shares
                excluded for nine months diluted EPS calculation
            
            Reason
                for exclusion10/23/2007
            
            Commonstock
              held
                inescrow
            
            
            
            100,000
            
            100,000
            
            Common
                stock
              issuedunder
                the
              Company'sname11/30/2007
            
            Warrants
            
            16.80
            
            100,000
            
            
            
            Anti-diluted10/29/2007
            
            Options
            
            17.94-20.94
            
            148,750
            
            148,750
            
            Anti-diluted10/29/2007
            
            Options
            
            16.44
            
            81,250
            
            
            
            Anti-diluted11/13/2007
            
            Options
            
            16.36
            
            10,000
            
            
            
            Anti-diluted4/10/2008
            
            Options
            
            15.04
            
            17,000
            
            
            
            Anti-diluted5/21/2008
            
            Options
            
            20.04
            
            50,000
            
            50,000
            
            Anti-diluted6/25/2008
            
            Options
            
            23.25
            
            84,000
            
            84,000
            
            Anti-diluted





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.


-
          28 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





Warrants
      representing 100,000 shares issued on November 30, 2007 at an excise price
      of
      $16.80 were excluded from the diluted earnings per share calculation due to
      the
      anti-diluted effect for the three months ended September 30, 2008.





Options
      representing 148,750 shares granted on October 29, 2007 at an excise price
      of
      $17.94 to $20.94 were excluded from the diluted earnings per share calculation
      due to the anti-diluted effect for the three months and nine months ended
      September 30, 2008.





Options
      representing 81,250 shares granted on October 29, 2007 at an excise price of
      $16.44 were excluded from the diluted earnings per share calculation due to
      the
      anti-diluted effect for the three months ended September 30, 2008.





Options
      representing 10,000 shares granted on November 13, 2007 at an excise price
      of
      $16.36 were excluded from the diluted earnings per share calculation due to
      the
      anti-diluted effect for the three months ended September 30, 2008.





Options
      representing 17,000 shares granted on April 10, 2008 at an excise price of
      $15.04 were excluded from the diluted earnings per share calculation due to
      the
      anti-diluted effect for the three months ended September 30, 2008.





Options
      representing 50,000 shares granted on May 21, 2008 at an excise price of $20.04
      were excluded from the diluted earnings per share calculation due to the
      anti-diluted effect for the three months and nine months ended September 30,
      2008.





Options
      representing 84,000 shares granted on June 25, 2008 at an excise price of $23.25
      were excluded from the diluted earnings per share calculation due to the
      anti-diluted effect for the three months and nine months ended September 30,
      2008.





**Note
      15 - Stockholders' Equity**





(A)
            Series
                A and Series B Convertible Preferred
                Stock




The
      Series A and Series B Convertible Preferred Stock (“Series A and B Stock”) 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.




(B)
            As
                of September 30, 2008, the Company had
                outstanding:




(1)
            27,503,885
                shares of common stock, including 100,000 shares in escrow, par value
                $0.006.(2)
            Warrants
                purchasing 332,124 shares of common stock with exercise prices of
                $3.11
                per share, expiring December
                2011.


-
          29 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





(3)
            Warrants
                purchasing 100,000 shares of common stock with exercise prices of
                $16.80
                per share, expiring November 2011.




(C)
            During
                the nine months of 2008, the following activities were
                recorded:





(1)
              
              
              (2)
            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.
              
              Warrants
                representing 44,873 shares initially issued on January 30, 2006 were
                exercised at a price of $3.11 per share of common stock during the
                quarter
                ended September 30, 2008.





The
      Company has 332,124 warrants exercisable at $3.11 and 100,000 warrants
      exercisable at $16.80 outstanding as of September 30, 2008.


Outstanding
                  Warrants
              
              Exercisable
                  WarrantsExercise
                  Price
              
              Number
              
              Average
                Remaining
                  Life
                (years)
              
              Average
                Exercise
                Price
              
              Number
              
              Average
                Remaining
                Life
                (years)$3.11
              
              
              332,124
              
              
              3.25
              
              $
              3.11
              
              
              332,124
              
              
              3.25$16.80
              
              
              100,000
              
              
              3.17
              
              $
              16.80
              
              
              100,000
              
              
              3.17





The
      following is a summary of the warrant activities:





Number of
              Warrants
              Outstanding
            
            Number of
              Warrants
              Exercisable
            
            Weighted
              -Average
              Exercise
              Price
            
            Average
              Remaining
              Contractual
              LifeBalance,
                January 1, 2007
            
            
            2,480,944
            
            
            2,480,944
            
            $
            3.57
            
            
            5.00
                yearsGranted
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Exercised
            
            
            (2,056,015
            )
            
            (2,056,015
            )
            $
            3.67Balance,
                at September 30, 2007
            
            
            424,929
            
            
            424,929
            
            $
            3.11
            
            
            4.25
                yearsGranted
            
            
            100,000
            
            
            100,000
            
            $
            16.80Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            (47,877
            )
            
            (47,877
            )
            $
            3.11Balance,
                at December 31, 2007
            
            
            477,052
            
            
            477,052
            
            $
            5.98
            
            
            4.00
                yearsRounding
                adjustments
            
            
            (55
            )
            
            (55
            )Granted
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            (44,873
            )
            
            (44,873
            )
            $
            3.11Balance,
                at September 30, 2008
            
            
            432,124
            
            
            432,124
            
            $
            6.28
            
            
            3.25
                years


-
          30 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**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 was 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. John Christopher Finley’s employment as
      Chief Operating Officer and Mr. James A. 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.





On
      April
      10, 2008, the Company issued 17,000 options to Mr. Nathan J. Anderson, the
      Director of Investor Relations. The vesting period is one year.





On
      May
      21, 2008, the Company issued 50,000 options to Mr. John Francis Perkowski,
      the
      Director of Board. The vesting period is two years.





On
      May
      29, 2008, we executed a Separation Agreement accepting the resignation of Mr.
      John Christopher Finley as our chief operating officer. Under the terms of
      the
      Separation Agreement, Mr. Finley’s options will continue to vest for six months
      following the execution of the agreement. Further, Mr. Finley will have 15
      months from the date of execution to exercise his vested options. As a result,
      total of 95,000 unvested options were forfeited.


-
          31 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)








In
      the
      second quarter of 2008, one other executive resigned, resulting in 41,667
      unvested options forfeited.





On
      June
      25, 2008, the Company issued 84,000 options to Copperweld employees. The vesting
      period is half year.





As
      of
      September 30, 2008, options held by executives, directors and employees
      representing 1,074,333 shares were outstanding, of which, 795,154 were
      vested.





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





Expected
            
            Expected
            
            Dividend
            
            Risk
                Free
            
            Grant
                DateLife
            
            Volatility
            
            Yield
            
            Interest
                Rate
            
            Fair
                ValueExecutives
            
            
            2.0
                yrs
            
            
            50
            %
            
            0
            %
            
            1.84%
                - 4.57
            %
            $
            3.08
                - $5.33Independent
                Directors
            
            
            2.0
                yrs
            
            
            50
            %
            
            0
            %
            
            2.41%
                - 4.57
            %
            $
            3.64
                - $5.84Employees
            
            
            0.5
                yrs
            
            
            50
            %
            
            0
            %
            
            2.82
            %
            $
            4.11





-
            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 1.84% 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 granted to the executives was $3.08 - $5.33 per share
      on the date of grant.  The fair value of the stock option granted to the
      independent directors was $3.64- $5.84 per share on the date of grant. The
      fair value of the stock option granted to the employees was $4.11 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 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.


-
          32 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)








As
      of
      September 30, 2008, the 790,333 executive options, 200,000 director options
      and
      84,000 employee options issued had fair values of approximately $3,336,171,
      $838,729 and $345,151 respectively. The Company recognized $1,437,557 of
      compensation expenses in general and administrative expenses for the nine months
      ended September 30, 2008.





As
      of
      September 30, 2008, the total compensation cost related to stock options not
      yet
      recognized was $1,126,707 and will be recognized over the weighted average
      life
      of 2 years.





The
      following is a summary of the stock option activity:





Number
                ofOptions
              Outstanding
            
            Weighted-Average
              ExercisePrice
            
            Aggregate
              IntrinsicValueBalance,
                January 1, 2007
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            775,000
            
            
            12.4
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Balance,
                at September 30, 2007
            
            
            775,000
            
            
            12.4
            
            $
            1,201,250Granted
            
            
            335,000
            
            $
            18.6
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2007
            
            
            1,110,000
            
            $
            14.3
            
            $
            12,075,850Granted
            
            
            151,000
            
            
            21.3
            
            
            -Forfeited
            
            
            (186,667
            )
            $
            16.3
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Balance,
                September 30, 2008
            
            
            1,074,333
            
            $
            14.9
            
            
            -





Following
      is a summary of the status of options outstanding at September 30, 2008:





Outstanding
                Option
            
            Exercisable
                OptionsExercise
                Price
            
            Number
            
            Average
              Remaining
              Contractual
              Life
            
            Average
              Exercise
              Price
            
            Number
            
            Weighted
              Average
              Exercise
              Price$12.30
            
            
            408,333
            
            
            0.64
                years
            
            $
            12.30
            
            
            333,333
            
            $
            12.30$11.75
            
            
            150,000
            
            
            0.68
                years
            
            $
            11.75
            
            
            107,805
            
            $
            11.75$13.70
            
            
            125,000
            
            
            0.99
                years
            
            $
            13.70
            
            
            125,000
            
            $
            13.70$16.44
                - $20.94
            
            
            230,000
            
            
            1.08
                years
            
            $
            18.69
            
            
            149,253
            
            $
            16.40$16.36
            
            
            10,000
            
            
            1.12
                years
            
            $
            16.36
            
            
            9,372
            
            $
            16.36$23.25
            
            
            84,000
            
            
            0.25
                years
            
            $
            23.25
            
            
            43,111
            
            $
            23.25$15.04
            
            
            17,000
            
            
            0.53
                years
            
            $
            15.04
            
            
            8,033
            
            $
            15.04$20.04
            
            
            50,000
            
            
            1.64
                years
            
            $
            20.04
            
            
            19,247
            
            $
            20.04Total
            
            
            1,074,333
            
            
            
            
            
            
            
            
            795,154


-
          33 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**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.





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 $111,087 and $21,473 in contributions of employment benefits
      for China employees in the nine months period ended September 30, 2008 and
      September 30, 2007, respectively.





US
      employees are provided a 401(k) plan where in the nine months period ended
      September 30, 2008, employer contributions totaled $105,286.





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 $24,941 in
      contributions of employment benefits in the nine months period ended September
      30, 2008.


-
          34 -


FUSHI
      COPPERWELD, INC. AND SUBSIDIARIES


(Formerly
      Fushi International, Inc.)


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
      30, 2008


(Unaudited)





**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. In
      July
      2008 ,
      the
      Company deposited the $1,000,000 with MLCS to secure the agreement. .





On
      December 11, 2007, 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 for private placement services, 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. On August 5, 2008, the Company received verdict from
      the
      United States District Court that Kuhns is entitled to recover a total of
      $7,197,793.97. The court ruling was recorded as a contingent liability of
      $7,197,794 and was allocated to the following: (a) $710,544 was expensed
      immediately in second quarter of 2008; (b) $3,000,000 was recorded as Deferred
      commissions on long term notes (also explained in Note 10) and is being
      amortized over the remainder of the long term note’s life, $112,500 and
      $1,537,500 was amortized for the three and nine months ended September 30,
      2008,
      $1,462,500 was outstanding as Deferred commissions on long term notes as of
      September 20, 2008; (c) $3,487,250 was allocated to Additional Paid in Capital.
      The Company is in the process of appealing the case.




-
          35 -


**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 Bimetallic, LLC and (vi) Copperweld
        Bimetallics UK, LLC*
 
 **Overview**
  We
        are a
        leading manufacturer of bimetallic products in the world. Our principal
        bimetallic products include Copper-Clad Aluminum, or CCA, which combines
        the
        conductivity and corrosion resistance of copper with the light weight and
        relatively low cost of aluminum, and Copper-Clad Steel, or CCS, which combines
        the conductivity of copper with the strength of steel. We have served
        approximately 300 customers in 30 countries from our facilities in Dalian,
        PRC,
        Fayetteville, Tennessee and Telford, U.K and we enjoy a worldwide presence
        that
        combines the Fushi brand recognition in China with the worldwide recognition
        of
        the Copperweld brand.
 
 Bimetallic
        wire is used in 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. In
        many
        applications, the value of bimetallic wire is based on advantages other than
        the
        economies of bimetallics versus solid copper. Weight considerations strongly
        favor CCA because the end user can expect approximately 2.6 times the length
        with the same weight as solid copper. Wire is sold by weight but is typically
        used by length. The additional length increases the value of CCA. Other
        advantages include the resistance factor. Signals travel over the surface
        of the
        wire. With bimetallic wire, the resistance characteristics of the inner core
        and
        the exterior of copper differ so that feed back that causes “ghosting” and
        interference experienced with solid copper can virtually be eliminated with
        bimetallic wire.
  -
            36 -
  Weight
        is
        a major concern in some applications where the end product is portable, such
        as
        cell phones, music players, etc. and in automotive applications. We believe
        that
        the use of much lighter bimetallics will continue to offer opportunities
        for
        these applications. The size of the potential markets is difficult to measure.
        However, as an example, according to the International Organization of Vehicle
        Manufacturers estimates that 73 million cars and commercial vehicles were
        produced in 2007. If five pounds of CCA was installed in ten percent of the
        2007
        production, over 16,500 tons of CCA would be needed on an annual
        basis.
  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 our
        bimetallic products; however, the utility, automotive and consumer goods
        market
        sectors are 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 specified by our customers.
 
 Our
        products are effectively “engineered composite conductors”. We do not produce
        commodity products and are not subject to the same pricing effects of pure
        commodity metals. Our customers purchase and use our products for their physical
        and/or conductive qualities, which have their respective application advantages,
        with cost savings being an added incentive. While the pricing volatility
        of our
        raw materials, especially copper, is a primary cause of cost variations in
        our
        products, changes in raw material costs do not materially affect our earnings
        per share. Although an increase in the price of raw materials may serve to
        reduce our gross margins as a percentage of net sales, a decline in raw material
        prices will increase our gross margin as a percentage of net sales. As is
        typical in the industry, we pass the cost of price changes in our raw materials
        to our customers rather than the percentage changes; therefore, the impact
        on
        earnings per share from volatile raw material prices is minimal.
 
 Factors
        driving and affecting operations results include raw material prices, product
        and price competition, economic conditions in various geographic regions,
        foreign currency exchange rates, interest rates, changes in technology,
        fluctuations in customer demand, variations in the mix of products, production
        capacity and utilization, working capital sufficiency, availability of credit
        and general market liquidity, patent and intellectual property issues,
        litigation results and legal and regulatory developments, and our ability
        to
        accurately forecast sales demand and calibrate manufacturing to such demand,
        manage volatile raw material costs, develop, manufacture and successfully
        market
        new and enhanced products and product lines, control operating costs, and
        attract, motivate and retain key personnel to manage our operational, financial
        and management information systems.
 
 ***Highlights
        for the quarter ended September 30, 2008 include*** :
 
 -
              Continued
                  expansion of sales in the utility industry from both Dalian
                  and Fayetteville.  Utility shipments during the third quarter of
                  2008 increased 3,653 tons over the same quarter in 2007. Dalian
                  accounted
                  for 473 tons of the increase and the remainder was as a result
                  of the Copperweld acquisition.****We
                  have strengthened our relationship with a major supplier to the
                  utility
                  market in the US and added personnel with contacts in Eastern Europe,
                  the
                  Middle East and in North Africa that we expect to continue to increase
                  our
                  sales of ground wire applications within the utility market beginning
                  with
                  the first quarter of 2009.
  -
            37 -
  -
              Our
                  CCA flat wire project continues to produce sales in the PRC while
                  we
                  continue to enhance its potential uses through additional development
                  in
                  our R&D department. The use of CCA in flat wire applications offers
                  greater value than copper wire because of its reduced weight and
                  lower
                  cost while it maintains conductivity standards required by utility
                  companies.  We believe that the CCA KM line that began operation in
                  Dalian during the second quarter of this year, using Copperweld’s cladding
                  technology, will allow us to improve the quality of our bimetallic
                  flat
                  wire and enable us to produce larger diameter flat wire products
                  for the
                  PRC markets.
  ***Current
        global economic environment***
 
 The
        current global economic environment has created uncertainty for most commercial
        enterprises, including Fushi Copperweld, Inc.  We are assessing the current
        financial environment on a daily basis from our study of financial data
        published in the market place, discussions with our customers regarding their
        current and future purchasing plans and through discussions with our suppliers
        and others with some insight within the financial realm in order to develop
        a
        better perspective of the future opportunities for our company. At this time,
        we
        believe that our sales will continue to grow because of the infrastructure
        development in the PRC and throughout Asia albeit at a slower rate than
        anticipated in prior periods. Notwithstanding the current lower cost of copper,
        bimetallic products continue to offer price breaks for our targeted applications
        when compared to solid copper.
 
 ***Effects
        of copper prices***
 
 Copper
        prices have fallen to 2005 levels since the close of the third quarter of
        this
        year. The Shanghai copper price for one month delivery was $4,880 on November
        3,
        2008. Bimetallic products appear more attractive when copper prices are higher
        in relation to the cost of the core material; however, we began successfully
        selling CCA in Dalian in 2002 when copper prices were well below $1,650 per
        ton.
        Comparatively, copper prices are much more favorable than when we began
        producing bimetallic products in Dalian. Additionally, our Copperweld subsidiary
        has been producing and selling bimetallic wire since 1915. We believe that
        we
        can successfully sell bimetallic products primarily because:
 
 -
              CCA
                  contains 85-90% less copper, depending on the application, while
                  CCS
                  averages70%
                  less copper than conventional copper wire.
 -
              Bimetallics
                  uses less copper but offers materially the same utility and functionality
                  as solid copper wire; therefore, we believe that our CCA and CCS
                  products
                  provide a superior value compared to solid copper wire in a wide
                  variety
                  of applications.
 
 Copper
        prices have varied significantly and may vary significantly in the future
        because the copper industry is highly volatile and cyclical in nature. This
        affects our business both positively and negatively. As our products are
        a
        substitute for pure copper wire, higher copper prices increase demand for
        our
        products, while lower copper prices can decrease demand. We cannot predict
        copper prices in the future or the effect of fluctuations in the costs of
        copper
        on our future operating results. Typically, we mitigate the impact of changing
        raw material prices by passing changes in prices to our customers by adjusting
        prices at least monthly to reflect changes in raw material prices, as is
        customary in the industry. We may not be able to adjust our product prices
        rapidly enough in the short-term to recover the costs of increases in raw
        materials. Our future profitability may be adversely affected to the extent
        we
        are unable to pass on higher raw material costs to our customers.
  -
            38 -
  The
        prices of raw materials fluctuate because of general economic conditions,
        global
        supply and demand and other factors causing monthly variations in the costs
        of
        our raw materials purchases. The macro-economic factors, together with labor
        and
        other business interruptions experienced by certain suppliers, have contributed
        to periodic shortages in the supply of raw materials, and such shortages
        may
        increase in the future. If we are unable to procure adequate supplies of
        raw
        material to meet our future production needs and customer demand, shortages
        could result in a material loss of customers and revenues and adversely impact
        our results of operations. In addition, supply shortages or disruptions or
        the
        loss of suppliers may cause us to procure our raw materials from less cost
        effective sources and may have a material adverse affect on our business,
        revenues and results of operations.
  
 
 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. The trend
        for
        copper prices during the first nine months of 2008 was generally increasing
        before taking a significant downturn in October 2008. The majority of our
        sales
        occur in the PRC where the Shanghai market is a better measure of our copper
        costs. During the period beginning with October 6 through November 3, 2008
        the
        one month delivery price for Shanghai copper averaged $5,871 per ton. For
        comparative purposes, the monthly average for Shanghai copper with one month
        delivery during 2003, our first full year of operations, was $1,316 per ton.
        We
        successfully sold bimetallics at prices much lower than the market prices
        on
        November 3, 2008. The trend for the average price on the Shanghai market
        reflected an increase in price during the first nine months of 2007 compared
        with a generally flat price over the first nine months of 2008. The segment
        of
        the market that views bimetallics from a pure economic advantage sees
        bimetallics as more advantageous when copper prices are higher but, we have
        successfully sold copper at lower copper prices than we have in the current
        environment.
  -
            39 -
  
  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 September 30, 2008, we had outstanding
        advances to raw material suppliers of $25 million, primarily in Dalian. 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 solid 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 have advantages over copper as discussed in earlier
        paragraphs. So, while price is a factor, price alone does not drive our
        business.
  -
            40 -
  The
        two
        other major components in our products are aluminum and steel. The monthly
        average cost of aluminum for the third quarter of 2008 increased over third
        quarter 2007 levels by approximately $367 per ton but compared to copper,
        aluminum has been stable. The following chart, based on the Comex aluminum
        spot
        price, monthly average, shows that the average Comex price for aluminum remained
        above levels for previous periods included in the chart. During the quarter
        ended September 30, 2008, the average cost for aluminum purchased by the
        Dalian
        facility was $2,373 per ton and $3,769 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.
  
 
 The
        cost
        of steel varies by the type of steel that is used for the various applications.
        The average price of Benchmarker Hot Rolled, East US index remained relatively
        stable over the three years prior to 2008 as shown in the following chart.
        Steel
        continues to be the lowest price raw material by weight of our principal
        metals;
        however, during 2008 and especially through August, the average price of
        steel
        has increased significantly. Steel prices began to decline in September.
        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. Our Dalian facility purchased an insignificant amount of steel
        because we primarily produce CCA in Dalian.
  -
            41 -
  
 
 ***Outlook
        for the remainder of 2008***
 
 We
        have a
        fundamentally positive long-term view for our industry despite the current
        financial turmoil.  With respect to the overall business trend for the
        remainder of 2008, the explosive sales growth in the PRC has slowed and we
        believe the global liquidity crisis will impact all businesses. However,
        our
        strong balance sheet and liquidity position should allow us to not only weather
        the current economic environment but potentially benefit and continue to
        execute
        growth strategies and pursue the numerous global opportunities. Specifically,
        to
        address the slowdown:
 
 ·
              We
                  are talking with customers, suppliers and pursuing other resources
                  on a
                  daily basis to determine the exact extent of the impact on our
                  business.
 ·
              We
                  continue to believe that the economic benefits of our bimetallic
                  products
                  as well as their superior performance characteristics in our target
                  markets will sustain the attractiveness of our products versus
                  solid
                  copper
 ·
              Our
                  sales and marketing focus is on broadening our customer based in
                  order to
                  compensate for changes in demand in market
                  segments
 ·
              Our
                  research and development and production divisions are improving
                  and
                  developing our products beyond telecom, enabling our sales group
                  to
                  broaden its focus to more sectors.
 ·
              We
                  have strengthened our sales force dedicated to Europe, the Middle
                  East and
                  Northern Africa to levels similar to what we have had in Asia and
                  the
                  Americas.
 ·
              We
                  are continuing to build the level of product knowledge and skill
                  levels of
                  our sales groups in Dalian and in Fayetteville.
 ·
              Our
                  sales group, with its new leadership, additional experienced personnel
                  and
                  expanding agent network, is now prepared to increase our penetration
                  in
                  geographic areas where we were making limited contact in the past. ·
              We
                  are reducing costs in all three locations during the fourth quarter.
                  The
                  work force in Dalian will be cut by approximately 20% and through
                  a
                  reduction in salaried employees and a reduction to a 32 hour work
                  week in
                  Fayetteville, we expect to realize a costs savings in excess of
                  20%. We
                  have negotiated a reduction in occupancy expense in at our Telford
                  location.
  -
            42 -
  Additionally,
        in Fayetteville, we will have added capacity to deliver stranded ground wire
        utility products during the fourth quarter. This additional capacity was
        originally expected in the third quarter but was delayed to the fourth quarter
        due to a delay in delivery of critical bearings for an additional strander.
        The
        sales focus has been directed towards increasing our penetration of the utility
        market with grounding products in North America, Europe, North Africa and
        the
        Middle East. The declining trend in copper prices that gained momentum after
        the
        close of the third quarter is a factor that may affect our sales growth;
        however, the superior tensile strength, greater resistance to impulses created
        by lightening strikes and resistance to theft offers both cost benefits as
        well
        as superior performance benefits to utility companies worldwide. Our
        Fayetteville sales initiatives include joint sales with the agents of major
        utility suppliers where for the first time, our sales staff have direct
        interface with the end user utilities providing both a more directed sales
        opportunity and sales training for the agents. We expect to have CCS production
        capacity installed in our Dalian plant by the second quarter of 2009. We
        have
        begun training our sales staff for selling CCS produced in Dalian.
 
 **Results
        of Operations**
 
 We
        acquired Copperweld with manufacturing operations in Fayetteville, Tennessee
        and
        Telford, U.K. on October 29, 2007. As a result, our results of operations
        for
        the quarter ended, and nine-month period ended, September 30, 2007 do not
        reflect any results of operations from Copperweld. The presence of the
        Copperweld operations during the comparable periods in 2008 made a meaningful
        contribution to the 2008 results of operations and should be considered in
        reviewing results for comparable periods.
 
 ***Quarter
        Ended September 30, 2008***
 
 The
        following table shows, for the periods indicated, information derived from
        our
        consolidated statement of income.
  Three
                  Months Ended
              
              Nine
                  Months EndedSeptember
              
              September2008
              
              2007
              
              2008
              
              2007Net
                  Sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of Good Sold
              
              
              73.5
              %
              
              67.1
              %
              
              73.2
              %
              
              64.8
              %Gross
                  Profit
              
              
              26.5
              %
              
              32.9
              %
              
              26.8
              %
              
              35.2
              %Operating
                  Expenses:Selling
                  Expenses
              
              
              1.9
              %
              
              0.6
              %
              
              1.8
              %
              
              0.7
              %General
                  and Administrative Expenses
              
              
              5.4
              %
              
              4.5
              %
              
              6.3
              %
              
              5.8
              %Total
                  Operating Expense
              
              
              7.3
              %
              
              5.1
              %
              
              8.1
              %
              
              6.5
              %Operating
                  Income
              
              
              19.2
              %
              
              27.8
              %
              
              18.7
              %
              
              28.7
              %Interest
                  Income
              
              
              0.3
              %
              
              1.8
              %
              
              0.3
              %
              
              1.4
              %Interest
                  Expense
              
              
              -2.8
              %
              
              -4.8
              %
              
              -4.1
              %
              
              -6.1
              %Gain
                  on Derivative Instrument
              
              
              -0.1
              %
              
              0.9
              %
              
              0.2
              %
              
              1.4
              %Other
                  Income
              
              
              -0.1
              %
              
              0.0
              %
              
              0.0
              %
              
              0.2
              %Other
                  Expense
              
              
              0.0
              %
              
              0.0
              %
              
              -0.1
              %
              
              -0.1
              %Total
                  Other Expense
              
              
              -2.7
              %
              
              -2.1
              %
              
              -3.7
              %
              
              -3.2
              %Income
                  Before Taxes
              
              
              16.5
              %
              
              25.7
              %
              
              15.0
              %
              
              25.5
              %Provision
                  for Income Taxes
              
              
              2.3
              %
              
              0.0
              %
              
              1.7
              %
              
              0.0
              %Net
                  Income
              
              
              14.2
              %
              
              25.7
              %
              
              13.2
              %
              
              25.5
              %Other
                  Comprehensive Income:Foreign
                  Currency Transactions Adjustment
              
              
              3.0
              %
              
              7.0
              %
              
              7.8
              %
              
              6.6
              %Change
                  in Fair Value of Derivative Instrument
              
              
              6.2
              %
              
              -11.7
              %
              
              1.8
              %
              
              -5.8
              %Comprehensive
                  Income
              
              
              23.3
              %
              
              21.1
              %
              
              22.8
              %
              
              26.3
              %
 
 -
            43 -
  **Comparison
        of the Three Months Ended September 30, 2008 and 2007**
 Three
                      Months Ended September 30,In
                    Millions
                
                2008
                
                2007
                
                ChangeSales
                
                $
                63.82
                
                $
                32.01
                
                $
                31.81
                
                
                99.4
                %
  Sales
        increased 99.4% over the same quarter one year earlier. 27.2% of this increase
        was due to the acquisition of Copperweld in October of 2007. The remainder
        was
        due to an increase in volume of 2,155 tons sold during the third quarter
        of 2008
        compared to the third quarter of 2007. The increase in volume was driven
        by
        internal growth.
 
 **Gross
        Margin**
 Three
                      Months EndedSeptember 30,2008
                  
                  2007
                  
                  ChangeGross
                      Margin (in millions)
                  
                  $
                  16.9
                  
                  $
                  10.5
                  
                  $
                  6.4
                  
                  
                  60.4
                  %As
                      a Percentage of Sales
                  
                  
                  26.5
                  %
                  
                  32.9
                  %
                  
                  -6.4
                  %
  Gross
          margin increased $6.4 million or 60.4% quarter over quarter. The gross
          margin
          for the third quarter 2008, as a percentage of net sales declined from
          32.9% to
          26.5% compared to the third quarter of 2007 due primarily to lower margins
          contributed by the Fayetteville and Telford facilities acquired in October
          2007
          as well as a decline in gross margin in Dalian. The cost of good sold increased
          from 67.1% of net sales for the three months ended September 30, 2007 to
          73.5%
          at September 30, 2008. When the increasing cost of raw materials is passed
          to
          the customer in the form of higher prices, gross margin as a percentage
          of net
          sales declines.
  -
            44 -
  **Selling
        Expenses**
 Three
                      Months Ended September 30,(in
                    millions)
                
                2008
                
                2007
                
                ChangeSelling
                    Expenses
                
                $
                1.2
                
                $
                0.2
                
                $
                1.0
                
                
                545.0
                %As
                    a Percentage of Sales
                
                
                1.9
                %
                
                0.6
                %
                
                1.3
                %
 Selling
        expense increased by $1.0 million or 545.0% for the quarter ended September
        30,
        2008 compared to the same quarter of 2007 because of the acquisition of
        Copperweld in October 2007 and an increase in our selling expenses in Dalian
        associated with the increase in sales at that location. Selling expenses
        increase primarily because of increases in transportation and travel costs,
        which include shipping costs, in Dalian resulting from increased sales volume.
        Selling expenses increased in total, but as a percentage of net sales, increased
        from 0.6% of net sales for the 2007 quarter to 1.9% of net sales during the
        third quarter of 2008.
 
 **General
        and Administrative Expenses**
  Three
                      Months Ended September 30,(in
                    millions)
                
                2008
                
                2007
                
                ChangeGeneral
                    and Administrative Costs
                
                $
                3.4
                
                $
                1.4
                
                $
                2.0
                
                
                136.2
                %As
                    a Percentage of Sales
                
                
                5.4
                %
                
                4.5
                %
                
                0.8
                %
  General
        and administrative expenses increased by $2.0 million or 136.2% during the
        third
        quarter of 2008 compared to the third quarter 2007. As a percentage of net
        sales, general and administrative expenses increased 0.8% to 5.4% from 4.5%
        for
        the third quarter of 2007. Professional expense increased over the comparable
        quarters because general and administrative costs for Copperweld are included
        in
        the 2008 quarter but not in the 2007 quarter. Additionally, salaries expense
        was
        higher due to an increase in personnel in our Dalian plant required to produce
        and deliver the increased sales volume at that location. During the third
        quarter of 2008, non-factory depreciation and amortization of $440,548 and
        amortization of intangible assets of $98,071 were included in general and
        administrative expenses, compared with $337,543 during the third quarter
        of
        2007.
 
 **Interest
        Expense**
  Three
                      Months Ended September 30,(in
                    millions)
                
                2008
                
                2007
                
                ChangeInterest
                    Income
                
                $
                0.2
                
                $
                0.6
                
                $
                (0.4
                )
                
                -68.7
                %Interest
                    Expense
                
                $
                (1.8
                )
                $
                (1.5
                )
                $
                0.3
                
                
                18.2
                %Net
                    Interest Expense
                
                $
                (1.6
                )
                $
                (1.0
                )
                $
                0.7
                
                
                69.5
                %Net
                    Interest Expense as a % of Net Sales
                
                
                2.5
                %
                
                3.0
                %
                
                -0.4
                %
  Net
        interest expense increased by approximately $700,000 or 69.5% during the
        third
        quarter of 2008 compared to the third quarter of 2007 largely as a result
        of a
        reduction in interest bearing cash account balances, inclusion of Fayetteville’s
        working capital line in the 2008 period but not for 2007 and an increase
        in
        short term bank loans in Dalian.
  -
            45 -
  **Net
        Income**
  Three
                    Months Ended September 30,(in
                  millions)
              
              2008
              
              2007
              
              ChangeNet
                  Income Before Taxes
              
              $
              10.5
              
              $
              8.2
              
              $
              2.3
              
              
              27.8
              %Provision
                  for Income Taxes
              
              $
              1.5
              
              $
              -
              
              $
              1.5
              
              
              1.0
              %Net
                  Income
              
              $
              9.0
              
              $
              8.2
              
              $
              0.8
              
              
              9.9
              %Net
                  Income as a % of Net Sales
              
              
              14.2
              %
              
              25.7
              %
              
              
              
              
              -11.5
              %
 
 Net
        income for the three month period ending September 30, 2008 was $9.0 million
        compared to $8.2 million for the comparable period in 2007, an increase of
        approximately $800,000 or 9.9%. Net income as a percentage of net sales declined
        from 25.7% for the prior period to 14.2% because of increases in selling,
        and,
        the provision for income taxes of $1.5 million and because of historically
        lower
        gross margins from Fayetteville, Telford and Dalian operations during the
        period. As is more fully described in the section “Taxation” below, we became
        liable for PRC income taxes on our Dalian operation during 2008.
 
 **Earnings
        Per Share**
  Three
                  Months Ended September2008
              
              2007Unaudited
              
              UnauditedNet
                  Income for Basic Earnings Per Share
              
              
              9,046,950
              
              
              8,233,326Basic
                  Weighted Average Number of Shares
              
              
              27,387,302
              
              
              22,263,618Net
                  Income per Share—Basic
              
              $
              0.33
              
              $
              0.37Net
                  Income for Diluted Earnings Per Share
              
              
              8,876,958
              
              
              8,383,326Diluted
                  Weighted Average Number of Shares
              
              
              28,446,786
              
              
              25,454,871Net
                  Income per Share—Diluted
              
              $
              0.31
              
              $
              0.33
 
 Basic
        and
        diluted earnings per share (EPS) for the quarter ended September 30, 2008
        were
        $0.33 and $0.31, compared to $0.37 and $0.33 for the third quarter last year.
 
 **Shipments
        by Product**
 
 Three
                    Months Ended September 30,Tons
                  in Thousands
              
              2008
              
              2007
              
              ChangeCCA
              
              
              7.7
              
              
              5.1
              
              
              2.6
              
              
              51.8
              %CCS
              
              
              2.2
              
              
              0.0
              
              
              2.2
              
              
              100.0
              %Other
              
              
              0.2
              
              
              0.1
              
              
              0.1
              
              
              126.6
              %Total
              
              
              10.1
              
              
              5.2
              
              
              4.9
              
              
              95.1
              %
 
 For
        the
        three month period ended September 30, 2008, we shipped just under 10,100
        tons,
        an increase of 95.1% over the three month period ended September 30, 2007
        as a
        result of internal growth in shipments from Dalian and from the acquisition
        of
        Copperweld.
 
 -
            46 -
  **Shipments
        by Industry**
 
 Three
                    Months EndedSeptember
                    30,
                
                Percentage
                    of Total(Tonsin thousands)
                
                2008
                
                2007
                
                Change
                
                
                
                2008
                
                2007Telco
                
                
                4.5
                
                
                3.5
                
                
                1.0
                
                
                27.6
                %
                
                44.8
                %
                
                68.5
                %Utility
                
                
                4.7
                
                
                1.5
                
                
                3.1
                
                
                202.4
                %
                
                46.3
                %
                
                29.9
                %Auto
                
                
                0.2
                
                
                -
                
                
                0.2
                
                
                100.0
                %
                
                2.0
                %
                
                0.0
                %Other
                
                
                0.7
                
                
                0.1
                
                
                0.6
                
                
                729.6
                %
                
                6.8
                %
                
                1.6
                %Total
                
                
                10.1
                
                
                5.2
                
                
                4.9
                
                
                95.0
                %
                
                100.0
                %
                
                100.0
                %
  Shipments
          to telco declined to 44.8% of total shipments for the three months ended
          September 30, 2008 compared to 68.5% of total shipments for the quarter
          ended
          September 30, 2007. However, shipments to telco increased by 27.6% or
          approximately 1,000 tons during the third quarter of 2008 compared to the
          third
          quarter of 2007. Shipments to the utility industry increased to 46.3% of
          total
          shipments for the quarter ended September 30, 2008 from 29.9% of total
          shipments
          for the quarter ended September 30, 2007. The increase in shipments was
          a result
          of increased shipments from Dalian and from the acquisition of
          Copperweld.
 
 Three
                    Months Ended September 30, 2008Dalian
                
                Fayetteville
                
                TelfordTons
                    Shipped
                
                %
                    of Tonnage
                
                Tons
                    Shipped
                
                %
                    of Tonnage
                
                Tons
                    Shipped
                
                %
                    of TonnageTelco
                
                
                3.4
                
                
                33.4
                %
                
                1.1
                
                
                11.2
                %
                
                0.03
                
                
                0.3
                %Utility
                
                
                3.8
                
                
                37.7
                %
                
                0.8
                
                
                7.8
                %
                
                0.08
                
                
                0.8
                %Auto
                
                
                -
                
                
                0.0
                %
                
                0.2
                
                
                1.8
                %
                
                0.02
                
                
                0.2
                %Other
                
                
                0.2
                
                
                1.6
                %
                
                0.5
                
                
                5.2
                %
                
                -
                
                
                0.0
                %Total
                
                
                7.3
                
                
                72.7
                %
                
                2.6
                
                
                26.1
                %
                
                0.12
                
                
                1.2
                %
 
 During
        the third quarter of 2008, Dalian shipped 72.7% of total shipments, Fayetteville
        26.1% and Telford 1.2%. Utility
        became the largest industry segment for Dalian and the company as a whole
        accounting for 46.3% of total tons shipped. Telco accounted for 44.9% of
        total
        tons shipped. (Slight difference may result from rounding)
  **Nine
        Months Ended September 30, 2008 and 2007**
 
 **Net
        Sales**
  Nine
                    Months Ended September 30,(in
                  millions)
              
              2008
              
              2007
              
              ChangeNet
                  Sales
              
              $
              180.4
              
              $
              79.2
              
              $
              101.2
              
              
              127.6
              %
 
 Net
        sales
        increased for the first nine months of 2008 by $101.2 million or 127.6% over
        the
        level of net sales for the first nine months of 2007. The increase in sales
        resulted from the acquisition of Copperweld in October 2007 and from continuing
        growth in the Chinese market. Approximately 72.5% of sales for the first
        nine
        months were generated through Dalian with the remainder coming from Fayetteville
        and Telford.
  -
            47 -
  **Gross
        Margin**
  Nine
                  Months EndedSeptember
                  30,(in
                  millions)
              
              2008
              
              2007
              
              ChangeGross
                  Margin
              
              $
              48.4
              
              $
              27.9
              
              $
              20.5
              
              
              73.6
              %Gross
                  Margin as a % of Net Sales
              
              
              26.8
              %
              
              35.2
              %
              
              
              
              
              -8.4
              %
 
 Our
        gross
        margin increased by $20.5 million or 73.6% during the first nine months of
        2008
        compared to the same period in 2007 due to the increase in sales. Dalian’s gross
        margin as a percentage of sales declined from 36.0% for the nine months ended
        September 30, 2007 to 32.5% of the nine month period ended September 30,
        2008.
        Historically lower margins in Fayetteville are a factor in the reduction
        of
        gross margin.
 
 **Selling
        Expenses**
 
 Nine
                  Months Ended September
                  30,(in
                  millions)
              
              2008
              
              2007
              
              ChangeSelling
                  Expenses
              
              $
              3.3
              
              $
              0.6
              
              $
              2.7
              
              
              486.0
              %Selling
                  Expenses % Net Sales
              
              
              1.8
              %
              
              0.7
              %
              
              
              
              
              1.1
              %
 
 Selling
        costs increased by approximately $2.7 million or 486.0% for the first nine
        months of 2008 compared to the first nine months of 2007 because of including
        selling expenses for Copperweld in the most recent nine month period and
        from
        increases in shipping and sales costs in Dalian to accommodate greater sales
        volumes in the PRC. As a percentage of net sales, selling expenses were 1.8%
        of
        the first nine months of 2008 compared to 0.7% in 2007.
 
 **General
        and Administrative Expenses**
 
 Nine
                  Months EndedSeptember
                  30,(in
                  millions)
              
              2008
              
              2007
              
              ChangeGeneral
                  & Administrative Expenses
              
              $
              11.3
              
              $
              4.6
              
              $
              6.7
              
              
              147.1
              %G&A
                  Expense % of Net Sales
              
              
              6.3
              %
              
              5.8
              %
              
              
              
              
              0.1
              %
 
 General
        and administrative expenses increased during the first nine months of 2008
        by
        $6.7 million or 147.1% compared to the same period in 2007. The major factor
        in
        the increase during the current period is the acquisition of Copperweld in
        October 2007 followed by increases in compensation expenses associated with
        sales growth in Dalian. As a percentage of net sales, general and administrative
        expenses increased from 5.8% of net sales in the first nine months of 2007
        to
        6.3% of net sales for 2008. Non factory depreciation of $1.3 million and
        amortization of intangible assets of $256,722 were included in general and
        administrative expenses for the nine months ended September 30, 2008, compared
        to $756,487 and $174,627, respectively, for the same period during
        2007.
  -
            48 -
  **Interest
        Expense**
  Nine
                  Months EndedSeptember
                  30,(in
                  millions)
              
              2008
              
              2007
              
              ChangeInterest
                  Income
              
              $
              0.5
              
              $
              1.1
              
              $
              (0.5
              )
              
              50.7
              %Interest
                  Expense
              
              $
              (7.4
              )
              $
              (4.8
              )
              $
              2.6
              
              
              53.9
              %Net
                  Interest Expense
              
              $
              (6.9
              )
              $
              (3.7
              )
              $
              3.1
              
              
              84.0
              %Net
                  Interest Expense as a % of Net Sales
              
              
              -3.8
              %
              
              -4.7
              %
              
              0.9
              %
  Net
          interest expense increased by $3.1 million or 84% during the nine month
          period
          ended September 30, 2008 compared to the similar period during 2007. $2.2
          million was the result of accruing for the contingent loss under the Kuhns
          Brothers’ verdict as described in Note 19 to the financial statements The
          remainder was the result of a decrease in interest bearing deposits and
          an
          increase in short term bank borrowings in Dalian and inclusion of Fayetteville’s
          working capital line of credit in the 2008 but not in the 2007 period.
          The
          increases in borrowings resulted from an increase in accounts receivable,
          inventories and receivables. As a percentage of net sales, interest expense
          decreased from 4.7% for the first nine months of 2007 to 3.8% during the
          comparable period of 2008.
 
 **Selected
        Balance Sheet Data at September 30, 2008 (unaudited) and the year ended December
        31, 2007:**
 Selected
                    Balance Sheet Data30-Sep-08
                
                31-Dec-07(in
                    millions)
                
                Unaudited
                
                
                
                ChangeCash
                
                $
                50.0
                
                $
                79.9
                
                $
                (29.9
                )
                
                -37.4
                %Accounts
                    Receivable, net
                
                $
                50.0
                
                $
                23.6
                
                $
                26.4
                
                
                111.8
                %PP&E
                
                $
                107.8
                
                $
                87.2
                
                $
                20.6
                
                
                23.6
                %Total
                    Assets
                
                $
                294.6
                
                $
                246.5
                
                $
                48.1
                
                
                19.5
                %Short
                    Term Debt
                
                $
                32.1
                
                $
                12.9
                
                $
                19.2
                
                
                149.3
                %Long
                    Term Debt
                
                $
                40.0
                
                $
                60.0
                
                $
                (20.0
                )
                
                -33.3
                %Shareholders'
                    Equity
                
                $
                198.6
                
                $
                144.3
                
                $
                54.3
                
                
                37.6
                %
  Our
        financial condition continues to improve as measured by an increase of 37.6%
        in
        shareholders’ equity during the first nine months of 2008. Cash decreased 37.4%
        during the quarter and our accounts receivable increased by 111.8% as a result
        of increased sales volume. Property, plant and equipment increased by 23.6%
        during the nine months ended September 30, 2008 compared to the prior year
        end.
        Short term debt increased by 149.3% as a result of an increase in short term
        borrowings and the movement of $5.0 million in long term debt due in July
        2009
        from long term debt to short term. Long
        term
        debt declined by 33.3% because $5.0 million of the $40.0 million in high
        yield
        notes becomes due in July 2009, less than one year from the period ended
        September 30, 2008.
 
 **Net
        Sales by Product**
 
 Net
        sales
        were $180.4 million during the first nine months of 2008 compared to $79.2
        during the first nine months of 2007. Sales growth came primarily from the
        acquisition of Copperweld as well as from sales growth in Dalian. Tons delivered
        increased 60.2% in Dalian period over period. Total shipments increased by
        16,400 tons or 127.1% during the nine months ended September 30, 2008 compared
        to the same period of 2007. The majority of CCS shipments are from the
        Fayetteville and Telford locations.
  -
            49 -
 Nine
                      Months Ended September 30,Tons
                    in thousands
                
                2008
                
                2007
                
                ChangeCCA
                
                
                22.3
                
                
                12.6
                
                
                9.7
                
                
                77.0
                %CCS
                
                
                6.0
                
                
                0.0
                
                
                6.0
                
                
                100.0
                %Other
                
                
                0.9
                
                
                0.3
                
                
                0.6
                
                
                200.0
                %Total
                
                
                29.2
                
                
                12.9
                
                
                16.3
                
                
                126.4
                %
  **Net
        Sales by Industry**
 
 Nine
                    Months EndedSeptember
                    30,
                
                Percentage
                    of Total(Tonsin thousands)
                
                2008
                
                2007
                
                Change
                
                
                
                2008
                
                2007Telco
                
                
                14.3
                
                
                8.2
                
                
                6.1
                
                
                75.0
                %
                
                49.1
                %
                
                63.6
                %Utility
                
                
                13.0
                
                
                4.4
                
                
                8.6
                
                
                194.4
                %
                
                44.3
                %
                
                34.2
                %Auto
                
                
                0.4
                
                
                -
                
                
                0.4
                
                
                100.0
                %
                
                1.4
                %
                
                0.0
                %Other
                
                
                1.6
                
                
                0.3
                
                
                1.3
                
                
                441.0
                %
                
                5.3
                %
                
                2.2
                %Total
                
                
                29.3
                
                
                12.9
                
                
                16.4
                
                
                127.0
                %
                
                100.0
                %
                
                100.0
                %
 
 We
        are
        expanding our sales to the utility market. During
        the nine month period ended September 30, 2008, our sales to the utility
        segment
        increased by 8,600 tons. Shipment to the utility segment increased from 34.2%
        of
        total shipments for the nine months ended September 30, 2007 to 44.3% of
        total
        shipments for the same period in 2008. Shipments to the telecom segment
        increased by 75.0% or by 6,100 tons and declined from 63.6% of total shipments
        to 49.1% when comparing the first nine months of 2007 to
        2008.
 
 The
        following table presents shipments by categories among our
        facilities:
 Nine
                      Months Ended September 30, 2008Dalian
                  
                  Fayetteville
                  
                  TelfordTons
                        inthousands
                  
                  Tons
                      Shipped
                  
                  %
                      of Tonnage
                  
                  Tons
                      Shipped
                  
                  %
                      of Tonnage
                  
                  Tons
                      Shipped
                  
                  %
                      of TonnageTelco
                  
                  
                  10.4
                  
                  
                  35.7
                  %
                  
                  3.8
                  
                  
                  13.0
                  %
                  
                  0.10
                  
                  
                  0.3
                  %Utility
                  
                  
                  9.5
                  
                  
                  32.6
                  %
                  
                  3.2
                  
                  
                  10.9
                  %
                  
                  0.23
                  
                  
                  0.8
                  %Auto
                  
                  
                  -
                  
                  
                  0.0
                  %
                  
                  0.3
                  
                  
                  1.0
                  %
                  
                  0.11
                  
                  
                  0.4
                  %Other
                  
                  
                  0.5
                  
                  
                  1.7
                  %
                  
                  1.1
                  
                  
                  3.6
                  %
                  
                  0
                  
                  
                  0.0
                  %Total
                  
                  
                  20.5
                  
                  
                  70.0
                  %
                  
                  8.3
                  
                  
                  28.5
                  %
                  
                  0.44
                  
                  
                  1.5
                  %
 
 Dalian
        shipped 70.0% of total tonnage produced during the first nine months of 2008
        with shipments to the telecom market contributing 35.7% and sales to the
        utility
        market contributing 32.6% of total volume. Fayetteville shipped 28.5% of
        total
        tonnage split between telecom at 13.0% and utility with 10.9%. Auto was 1.4%
        for
        the first nine months of 2008; however, historically, the majority of sales
        to
        this segment have been made during the last quarter of the year. Telford
        shipped
        1.5% of total tonnage split between telecom, utility and auto.
 
 **Capacity**
 
 The
        following table summarizes installed capacities and outputs for the nine
        month
        period ended September 30, 2008. Capacity is stated on an annual basis while
        output is the amount of product shipped during the first nine months of 2008.
        Telford’s production does not include cladding and the numbers reflect CCS that
        was further processed by Telford during the period.
  -
            50 -
 Nine
                    Months Ended September 30, 2008Dalian
                
                Fayetteville
                
                TelfordCapacity
                
                Output
                
                Capacity
                
                Output
                
                Capacity
                
                OutputCCA
                
                
                34,000
                
                
                19,975
                
                
                12,400
                
                
                2,356
                
                
                
                
                
                -CCS
                
                
                800
                
                
                12
                
                
                16,300
                
                
                5,682
                
                
                900
                
                
                341Other
                
                
                
                
                
                500
                
                
                
                
                
                3
                
                
                
                
                
                101Total
                
                
                34,800
                
                
                20,487
                
                
                28,700
                
                
                8,041
                
                
                900
                
                
                442
  At
        September 30 2008, we had combined annual production capacity for CCA of
        46,400
        metric tons and CCS cladding capacity of 17,100 metric tons on an annual
        basis
        based on our product mix at September 30, 2008. Installed capacity can increase
        or decrease based on the size of the rod used in the cladding operation for
        CCA
        and on the conductivity engineered into the CCS production. We installed
        a
        remanufactured Copperweld CCA clad line in Dalian and began CCA production
        on
        the new line at the end of the first quarter 2008. We ordered a new CCA cladding
        line in April and expect to have the new, additional CCA capacity installed
        in
        Dalian during the first quarter of 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 CCS cladding capacity installed
        in
        Dalian by the end of 2008. One CCS clad line and two additional drawing machines
        from Fayetteville have been refurbished and will be shipped to and installed
        in
        Dalian with production expected early in 2009. Two CCS drawing machines are
        installed in Dalian and are ready for the clad lines to begin production.
        We
        modified our plan to move two CCS clad lines to Dalian and now plan to retain
        one CCS clad line in Fayetteville and ship one to Dalian for installation
        during
        the first quarter of 2009. The decision to retain one CCS clad line in
        Fayetteville was based on projected increases in sales to the utility industry
        based on an agreement with a major supplier to the utility industry and the
        addition of persons experienced with the utility industry in Europe, the
        Middle
        East and North Africa.
  Our
        products are engineered products rather than commodities; therefore, the
        selling
        prices of our products are dependent upon diameter, tensile strength,
        conductivity and other factors specified by each customer. For example, Dalian’s
        prices may be lower than Fayetteville’s for CCA because our products sold for
        telecom may require less engineering and fewer manufacturing processes than
        for
        products sold in Fayetteville, based on application. Both Dalian and
        Fayetteville sell a variety of CCA products and the price for each variety
        varies based on the composition of the product and the amount of manufacturing
        required and the ratio of copper to aluminum. 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.
 
 ***Product
        Mix***
  Percentage
                  of SalesPeriod
                  Ended September 30,2008
              
              2008
              
              2007
              
              2007Based
                  on Tons
              
              Quarter
              
              Nine
                  Months
              
              Quarter
              
              Nine
                  MonthsCCA
              
              
              76.5
              %
              
              77.1
              %
              
              98.3
              %
              
              98.4
              %CCS
              
              
              21.5
              %
              
              20.8
              %
              
              0.0
              %
              
              0.0
              %Other
              
              
              2.0
              %
              
              2.1
              %
              
              1.7
              %
              
              1.6
              %Total
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
  -
            51 -
  The
        chart
        above illustrates the growth of CCA as a percentage of tons sold comparing
        the
        quarters and nine month periods ended September 30 2008 for the combined
        facilities and 2007 for Dalian only. The demand for our CCA products in the
        PRC
        continued to grow during the third quarter and nine months ended September
        30,
        2008 compared to the same periods in 2007. Our acquisition of Copperweld
        added
        CCS production and some additional contribution to CCA shipments during the
        2008
        period.
 
 ***Customers***
 
 For
        the
        nine months ended September 30, 2008, no customer accounted for ten percent
        (10.0%) or more of sales. During the first nine months of 2008, our largest
        five
        customers together accounted for 19.8% of our sales based on tons and 19.0%
        based on net sales compared to 40.2% based on tons and 27.8% based on net
        sales
        during the same period in 2007. Only one customer exceeded 5.0% of sales
        during
        the nine months ended September 30, 2008. Our ten largest customers represented
        32.0% of tons sold and 30.9% of net sales for the first nine months of 2008.
        The
        top ten customers represent 73.5% of net accounts receivable at September
        31
        2008. Our strategy is to continue to expand and diversify our customer base
        in
        future periods. 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.
 
 ***Manufacturing***
 
 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 and
        to
        the processes required to produce our engineered products. 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.
  ***Geography***
 
 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
        most of
        our Asian customers to our PRC based sales group in order to provide more
        efficient customer service. As a result, we anticipate that most of our net
        sales will continue to be derived from sales to our Asian customers. 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.
  -
            52 -
  September
                  30, 2008
              
              September
                  30, 2007(Unaudited)
              
              (Unaudited)China
              
              $
              125,585,203
              
              $
              77,769,677USA
              
              
              38,650,665
              
              
              -Europe
              
              
              8,177,409
              
              
              -Other
                  countries
              
              
              7,955,806
              
              
              1,468,740Total
                  sales
              
              $
              180,369,083
              
              $
              79,238,417
  ***Cost
        of Goods Sold***
 
 Components
                  of Cost of Goods SoldNine
                  Months Ended September 30,2008
              
              2007Cost
                  of Goods Sold
              
              
              100.0
              %
              
              100.0
              %Primary
                  Material Cost
              
              
              86.4
              %
              
              91.7
              %Accessorial
                  material cost
              
              
              1.5
              %
              
              2.1
              %Labor
              
              
              4.3
              %
              
              1.2
              %Manufacturing
                  Overhead
              
              
              7.8
              %
              
              5.0
              %
 
 The
        cost
        structure changed for the 2008 period compared to the 2007 period with the
        addition of the Copperweld facilities in the 2008 period. The increase in
        labor
        and overhead associated with the historically higher costs in Copperweld
        reduced
        the cost of raw materials as a percentage of total cost of goods
        sold.
 
 COGS
                  as a % of Net Sales ForNine
                  Months Ended September 30,2008
              
              2007Cost
                  of Goods Sold
              
              
              73.2
              %
              
              64.8
              %Primary
                  Material Cost
              
              
              64.5
              %
              
              59.5
              %Accessorial
                  material cost
              
              
              1.1
              %
              
              1.3
              %Labor
              
              
              3.2
              %
              
              0.8
              %Manufacturing
                  Overhead
              
              
              5.8
              %
              
              3.3
              %
 
 Cost
        of
        goods sold as a percentage of net sales increased almost 10% between the
        nine
        month period ended September 30, 2007 and the nine month period ended September
        30, 2008, reflecting the increase in raw material costs and higher labor
        and
        overhead costs resulting from the acquisition of Copperweld in October 2007.
        In
        addition to higher raw material costs, another major change between the two
        periods is in labor costs.
  -
            53 -
  ***Suppliers***
 
 Our
        top
        five suppliers provided 63.1% of our raw materials for the nine months ended
        September 30, 2008. Two suppliers each provided more than 10.0% of our
        purchases. During the nine months ended September 30, 2007, our top five
        suppliers provided 96.0% of raw materials and two suppliers provided 48.3%
        or
        more of our supplies. As of September 30, 2008, our advances to these suppliers
        were $25,012,572, all of which was current. As of September 30, 2007, our
        advances to the major five suppliers were $9,877,729. We have numerous suppliers
        and continually review our purchase practices to assure that we are not relying
        on too few suppliers. The same review also assures that we are purchasing
        our
        raw materials at competitive market prices.
 
 **Taxation**
 
 *U.S.
        income tax*
 
 Fushi
        Copperweld, Inc. (formerly Fushi International, Inc.) is incorporated in
        the
        State of Nevada, Fushi Holdings is 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 to 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 nine months of 2008 because
        we have
        sufficient tax loss carry forwards to offset any taxable income earned during
        the period. 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.
 
 *P.R.C.
        enterprise income tax*
  During
        the nine month period ended September 30, 2008, our PRC chartered subsidiaries
        continued 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 were generally subject to
        an “Enterprise Income Tax”, or EIT, rate of 33% prior to January 1, 2008. 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
  -
            54 -
  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. Therefore, during the
        current fiscal year, our PRC operations are taxed at a rate of 12% subject
        to
        appropriate adjustments.
 
 A
        provision for PRC income taxes was made during the nine month period ended
        September 30, 2008 in the amount of $4,446,247. No provision was made for
        the
        nine month ended September 30, 2007.
 
 *U.K.
        income tax*
 
 Copperweld
        UK is organized as a United Kingdom private company and subject to 20% to
        28%
        statutory taxes on its taxable income. The provision for income tax for the
        nine
        months ended September 30, 2008 and 2007 was $0 for both periods.
 
 **Net
        Income**
 Nine
                    Months Ended September 30,(in
                    millions)
                
                2008
                
                2007
                
                Amount
                
                %
                    ChangeNet
                    Income Before Taxes
                
                $
                27.1
                
                $
                20.2
                
                $
                6.9
                
                
                34.0
                %Provision
                    for Income Taxes
                
                $
                3.2
                
                $
                -
                
                $
                3.2
                
                
                100.0
                %Net
                    Income Before Taxes
                
                $
                23.9
                
                $
                20.2
                
                $
                3.7
                
                
                18.4
                %Net
                    Income as a % of Net Sales
                
                
                13.2
                %
                
                25.5
                %
                
                -12.2
                %
  Net
        income for the nine month period ended September 30, 2008 increased
        approximately $6.9 million from approximately $20.2 million for the period
        ended
        September 30, 2007 representing an increase of 34.0%. Net income for the
        current
        nine month period was 13.2% of net sales compared to 25.5% for the same period
        for the prior year. The decline in net margin quarter over quarter results
        primarily from the provision for income taxes and from the historically lower
        margins from Fayetteville and Telford.
 
 ***Earnings
        Per Share***
  Nine
                    Months Ended September2008
                
                2007Unaudited
                
                UnauditedNet
                    Income for Basic Earnings Per Share
                
                $
                23.9
                
                $
                20.2Basic
                    Weighted Average Number of Shares
                
                
                27,263,638
                
                
                21,422,610Net
                    Income per Share--Basic
                
                $
                0.88
                
                $
                0.94Net
                    Income for Diluted Earnings Per Share
                
                $
                23.78
                
                $
                20.59Diluted
                    Weighted Average Number of Shares
                
                
                28,601,237
                
                
                24,335,426Net
                    Income per Share--Diluted
                
                $
                0.83
                
                $
                0.85
  -
            55 -
  Basic
        and
        diluted earnings per share for the nine months ended September 30, 2008 were
        $0.88 and $0.83 compared to $0.94 and $0.85 for the same period in 2007.
        The
        weighted average number of shares outstanding to calculate basic EPS was
        27.3
        million and 21.4 million for the nine months ended September 30, 2008 and
        September 30, 2007, respectively. The weighted average number of shares
        outstanding to calculate diluted EPS was 28.6 million and 24.3 million for
        the
        same periods.
 
 **Foreign
        Currency Translation Gains**
  
 
 The
        value
        of the USD versus the RMB continued to decline during the first nine months
        of
        2008. As a result of the appreciation of the RMB, we recognized a foreign
        currency translation gain of $14.1 million for the first nine months of 2008
        compared to a gain of $5.3 million for the first nine months of 2007. the
        same
        period 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 0.14625 USD in third
        quarter, 0.14372 in the second quarter and 0.13977 in first quarter of 2008
        and
        balance sheet amounts with the exception of equity at September 30, 2008
        were
        translated at 1 RMB Yuan to 0.14728 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 September 30, 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. To mitigate
        the difficulties of moving funds, we plan to maintain and expand our working
        capital lines for Fayetteville and Telford as necessary as our sales increase
        and our working capital needs grow, subject to conditions in the lending
        markets. Further, we
        believe our sources of liquidity are sufficient to fund current working capital
        requirements, planned capital expenditures, and other short-term operating
        and
        corporate strategies in PRC. Customer demand, competitive market forces,
        commodities pricing, customer acceptance of our product mix and economic
        conditions worldwide could affect our ability to continue to fund our future
        needs from business operations.
 
 -
            56 -
 
 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.
  In
        summary, our cash flows were:
  Nine
                      Months Ended September 30,(in
                      millions)
                  
                  2008
                  
                  2007Net
                      cash provided by operating activities
                  
                  $
                  (20.8
                  )
                  $
                  5.2Net
                      cash used in investing activities
                  
                  $
                  (16.4
                  )
                  $
                  (40.6
                  )Net
                      cash provided by financing activities
                  
                  $
                  2.1
                  
                  $
                  59.0Effect
                      of exchange rate on cash
                  
                  $
                  5.3
                  
                  $
                  2.0Cash
                      and cash equivalents at beginning of period
                  
                  $
                  79.9
                  
                  $
                  20.5Cash
                      and cash equivalents at end of period
                  
                  $
                  50.0
                  
                  $
                  46.0
 
 For
        the
        nine months ended September 30, 2008, net cash provided by operating activities
        was a deficit of $20.8 million compared to cash provided of $5.2 during the
        same
        period in 2007. The difference in net cash provided was primarily attributable
        to increases of $25.0 million in accounts receivable, $22.1 in advances to
        suppliers, and $7.9 million in inventories. These reductions were offset
        to some
        degree by earnings of $23.9 million and an increase in accounts payable of
        $2.5
        million.
  For
        the
        nine months ended September 30, 2008, net cash used in investing activities
        was
        $16.4 million, and was primarily attributable to $15.5 million in property
        and
        equipment purchases, $3.1 million used as advances for purchase of equipment
        and
        $1.7 million used to purchase land use rights. The reduction was partially
        offset by the sale of marketable securities.
 
 For
        the
        nine months ended September 30, 2008, net cash provided by financing activities
        was $2.1 million, which was primarily attributable to $16.9 million in bank
        loans and an increase in our revolving line of credit of $2.3 million mostly
        offset by repayments on bank loans of $17.3 million.
  -
            57 -
  At
        September 30, 2008, our cash balance was $50.0 million compared to $79.9
        million
        at December 31, 2007.
  Our
        long-term financing strategy is principally to rely on internal sources of
        funds
        for investing in plant, equipment and acquisitions, although we may elect
        to
        leverage our strong balance sheet with debt financing. We believe that our
        liquidity and financial flexibility are adequate to support both current
        and
        future growth. Like
        all
        businesses, we are assessing the current financial environment on a daily
        basis
        from financial data published in the market place, discussions with our
        customers regarding their current and future purchasing plans and through
        discussions with our suppliers and others with some insight within the financial
        realm in order to develop a better perspective of the future opportunities
        for
        our company. At this time, we believe that our sales will continue to grow
        because of the infrastructure development in the PRC and throughout Asia
        albeit
        at a slower rate than anticipated in prior periods. In future periods, as
        a
        result of our acquisition of Copperweld, 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 and our other raw materials over the longer term, 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 to 18 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. Considering the current global liquidity shortage, 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
        August
        5, 2008, a judgment was entered in the Kuhns matter (See Part II, Item 1
        Litigation) awarding the plaintiffs $7.2 million and our financial statements
        were adjusted in the prior period and will be affected in future periods
        accordingly. We have appealed the decision, and will continue to vigorously
        defend against these claims which we believe to be without merit; however,
        we
        have no assurance that we will prevail in our appeal. Should we ultimately
        be
        required to pay the plaintiffs the amount of the judgment, the payment will
        have
        an impact upon our liquidity and working capital. We believe that the payment,
        should it be required, will not adversely affect our ability to fund our
        working
        capital needs or to fund our capital expenditure needs.
 
 On
        January 24, 2007, the Company 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 between July 2009 to January 2012 (the “HY Notes”), of which, $5
        million will due on July 24, 2009 and become current liability as of September
        30, 2008  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
        2,142,857 shares of our common stock.
  -
            58 -
  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.
 
 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.
  -
            59 -
  On
        June
        1, 2008, John Christopher “Chris” Finley’s resignation as Chief Operating
        Officer was accepted and an agreement was reached where Mr. Finley will consult
        with the Company for a period of twelve months. Mr. Finley’s duties included
        oversight of manufacturing operations, global sales and research and
        development. As of September 30, 2008, no one had been named to replace Mr.
        Finley as Chief Operating Officer. General and production managers of our
        manufacturing facilities have assumed responsibility for manufacturing
        operations and Dwight Berry was employed as Vice President for Commercial
        Development where he oversees global sales and research and development.
        Other
        duties have been assumed by President Wenbing Chris Wang. We may choose to
        name
        a Chief Operating Officer at some future date; however, presently all
        responsibilities are effectively assumed by other managers within the
        company.
 
 During
        the third quarter of 2008, Three
        of
        the companies acquired on October 29, 2007 were dissolved:
 
 1.
        Copperweld Holdings, LLC a North Carolina limited liability company.  This
        company had no liabilities and its only asset was the ownership of Copperweld
        Bimetallics, LLC, which the ownership rights were transferred to Fushi
        Copperweld, Inc. on October 29, 2007
  2.
        Copperweld Bimetallics International Holdings, LLC a Delaware limited liability
        company was established to hold the partnership interest in the Tongling
        joint
        venture which has been dissolved.  This company was a shell company with no
        assets or liabilities at the time the joint venture was dissolved.
 
 3.
        International Manufacturing Equipment Suppliers, LLC a North Carolina limited
        liability company.  This company was not an affiliate of the Copperweld
        companies. This company was formed by the prior owner of Copperweld
        Bimetallics to facilitate the transfer of equipment to the Tongling joint
        venture.  As noted above, the Tongling joint venture has been
        dissolved.  This company had no assets or liabilities at the time of the
        dissolution.
 
 **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.
 
 ***Recent
        Accounting Pronouncements***
 
 In
        June
        2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
        an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
        07-5”). This Issue is effective for financial statements issued for fiscal years
        beginning after December 15, 2008, and interim periods within those fiscal
        years. Early application is not permitted. Paragraph 11(a) of Statement of
        Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
        Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
        definition of a derivative but is both (a) indexed to the Company’s own
        stock and (b) classified in stockholders’ equity in the statement of
        financial position would not be considered a derivative financial instrument.
        EITF 07-5 provides a new two-step model to be applied in determining whether
        a
        financial instrument or an embedded feature is indexed to an issuer’s own stock
        and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
        The
        Company believes adopting this statement will have a material impact on the
        financial statements because among other things, any option or warrant
        previously issued and all new issuances denominated is US dollars will be
        required to be carried as a liability and marked to market each reporting
        period.
  -
            60 -
  On
        October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
        Financial Asset When the Market for That Asset Is Not Active,” which clarifies
        the application of SFAS 157 in a market that is not active and provides an
        example to illustrate key considerations in determining the fair value of
        a
        financial asset when the market for that financial asset is not active. FSP
        157-3 became effective on October 10, 2008, and its adoption did not have
        a
        material impact on our financial position or results for the quarter ended
        September 30, 2008.
  ***Off-balance
        sheet arrangement***
 
 None
  **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 September 30, 2008 and did not employ
        any
        commodity price derivatives during the quarter ended September 30,
        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 8.11 RMB 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.
  -
            61 -
  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 $1.9 million for the quarter and
        $14.1
        million for the nine months ended September 30, 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 the 6-month LIBOR interest rate, the
        net
        impact to earnings would be approximately $0.4 million on an 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 payments 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 quarter ended and the nine month period ended
        September 30, 2008, the Swap resulted in a liability of $5.3 million and
        a gain
        to other comprehensive income of $3.9 million and $3.2 million, respectively.
        On
        July 24, 2008, the most recent interest payment date, the Company received
        cash
        in the amount of $235,180 from MLCS, which was recorded as a gain from
        derivative transactions. As of September 30, 2008, the Company had a cross
        currency hedge receivable amounting to $55,322. For the quarter and nine
        month
        period ended September, 2008, there were no amounts recorded in the consolidated
        statement of income in relation to this interest rate swap related to
        ineffectiveness.
 
 The
        Company accounts for this interest rate swap in accordance with FAS No. 133,
        “Accounting for Derivatives Instruments and Hedging Activity,” which requires
        all derivatives to be carried on the balance sheet at fair value and to meet
        certain documentary and analytical requirements to qualify for hedge accounting
        treatment. The above derivative qualifies for hedge accounting under FAS
        133
        and, accordingly, changes in the fair value is reported in accumulated other
        comprehensive income, net of related income tax effects.
  -
            62 -
  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. The Company cannot estimate the possibility of the conversion
        of
        the $5 million convertible Notes outstanding as of September 30, 2008. If
        the $5
        million Convertible Notes outstanding as of September 30, 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 $39.3 million at
        September 30, 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***
 
 Prior
        to
        2007, China had not experienced significant inflation, and thus inflation
        did
        not have a material impact on our results of operations; however, the Consumer
        Price Index (CPI) in China has experienced significant growth in both 2007
        and
        2008. According to the National Bureau of Statistics of China (NBS)
        (www.stats.gov.cn), the change in CPI in China was 3.9%, 1.8%, 1.5%, and
        4.8% in
        2004, 2005, 2006 and 2007, respectively. In the first three quarters of 2008,
        according to NBS, CPI rose significantly by 7.0% (4.6% growth in September
        and
        its month-on-month change down by 0.3%), 2.9% higher than that in the same
        period last year, and was, however, 0.9% lower than that in the first half
        of
        this year. 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.
 
 -
            63 -
 
 **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
        1.** **Legal
        Proceedings**
 
 On
        August
        5, 2008, a judgment was entered in a matter filed by Kuhns Brothers, Inc.,
        Kuhns
        Brothers Securities Corp. and Kuhns Brothers & Co. Inc. in the United States
        District Court of the District of Connecticut awarding the plaintiffs $7.2
        million, and our financial statements were adjusted in the prior period
        accordingly. We have appealed the decision, and will continue to vigorously
        defend against these claims which we believe to be without merit; however,
        we
        have no assurance that we will prevail in our appeal. Should we ultimately
        be
        required to pay the plaintiffs the amount of the judgment, the payment will
        have
        an impact upon our liquidity and working capital. We believe that the payment,
        should it be required, will not adversely affect our ability to fund our
        working
        capital needs or to fund our capital expenditure needs.
 
 **Item
        1A.** **Risk
        Factors**
 
 **Political
        and economic factors may adversely affect our business and financial
        results**
  Trade,
        monetary and fiscal policies, and political and economic conditions may
        substantially change, and credit markets may experience periods of constriction
        and volatility. When there is a slowdown in the economy, construction spending
        and interest rates may decrease with a corresponding impact on our businesses.
        Customers may react to worsening conditions by reducing their spending on
        projects using our products. The availability of financing, even to borrowers
        with the highest credit ratings, may limit our flexibility to access short-term
        debt markets to meet liquidity needs. In addition, certain types of investments
        may not be available to us or become too risky for us to invest, which may
        reduce the interest we earn on company funds. If any of these circumstances
        remain in effect for an extended period of time, there could be a material
        adverse effect on our financial results and liquidity.
  -
            64 -
  ***Disruptions
        in world financial markets and the resulting governmental action of the United
        States and other countries could have a material adverse impact on our ability
        to obtain financing, our results of operations, financial condition and cash
        flows and could cause the market price of our common shares to
        decline.***
 
 The
        United States and other countries are experiencing deteriorating economic
        trends
        and may be entering into a recession. For example, the credit markets worldwide
        and in the United States have experienced significant contraction, de-leveraging
        and reduced liquidity, and the United States government and foreign governments
        have either implemented or are considering a broad variety of governmental
        action and/or new regulation of the financial markets. Securities and futures
        markets and the credit markets are subject to comprehensive statutes,
        regulations and other requirements.
 
 Recently,
        a number of financial institutions have experienced serious financial
        difficulties and, in some cases, have entered bankruptcy proceedings or are
        in
        regulatory enforcement actions. The uncertainty surrounding the future of
        the
        global credit markets has resulted in reduced access to credit worldwide
        and
        inability of many parties to obtain trade finance, including letters of credit.
        Major market disruptions and the current adverse changes in global market
        conditions, and the regulatory climate in the United States and worldwide,
        may
        adversely affect our business or impair our ability to borrow funds as needed.
        The current market conditions may last longer than we anticipate. These recent
        and developing economic and governmental factors may have a material adverse
        effect on our results of operations, financial condition or cash flows and
        could
        cause the price of our common stock to decline significantly.
  **Item
        6.** **Exhibits**
 
 (a)
        Exhibits
 
 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.
 
 -
            65 -
  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:
                  November,14, 2008
              BY:Wenbing
                  Chris WangChief
                  Financial Officer
 
 -
            66 -
  INDEX
        TO
        EXHIBITS
 
 EXHIBIT
                NUMBER
              
              DESCRIPTION31.1
              
              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.