UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB





(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, 2006





o  
TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE TRANSITION PERIOD FROM _________ TO __________





COMMISSION
      FILE NUMBER: 0-19276





_______________





**Fushi International,
      Inc.**





(EXACT
      NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)





**NEVADA**
            
            **13-3140715**(STATE
                OR OTHER JURISDICTION OF
            
            (I.R.S.
                EMPLOYER IDENFIFICATION NO.)INCORPORATION
                OR ORGANIZATION




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


**________________________________________________________________**


(ADDRESS
      OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)





ISSUER
      'S
      TELEPHONE NUMBER, INCLUDING AREA CODE: **011-86-411-8770-3333**





_______________





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 x No 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 x .





The
      number of shares of Common Stock of the Registrant, par value $.006 per share,
      outstanding at September 30, 2006 was 19,987,224





Transitional
      Small business Disclosure Format (Check one): Yes o ;
      No x .





1


**FUSHI
      INTERNATIONAL INC.**


**INDEX
      TO SEPTEMBER 30, 2006 FORM 10-QSB**





Page**Part
                I - Financial Information**Item
                1 - Financial Statements
            
            3Condensed
                Consolidated Balance Sheet as of September 30, 2006
                (unaudited)
            
            3Condensed
                Consolidated Statements of Income and Other Comprehensive Income
                (Loss) for the three months and nine months ended September 30, 2006
                and
                September 30, 2005 (unaudited)
            
            4Condensed
                Consolidated Statements of Cash Flows for the nine months ended
                September 30, 2006 and September 30, 2005 (unaudited)
            
            5Condensed 
                Notes to the Consolidated Financial Statements (unaudited)
            
            6Item
                2 - Management's Discussion and Analysis of Results of Operations
                and
                Financial Condition
            
            13Item
                3 - Controls and Procedures
            
            29**Part
                II - Other Information**Item 5
                - Other Events
            
            29Item 6
                - Exhibits
            
            29Signature
                Page
            
            30


2


**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





FUSHI
                INTERNATIONAL, INC AND SUBSIDIARIESCONSOLIDATED
                BALANCE SHEETAS
                OF SEPTEMBER 30, 2006(Unaudited)ASSETSSeptember
                30,CURRENT
                ASSETS:
            
            2006Cash
            
            $
            14,948,599Accounts
                receivable, trade, net of allowance for doubtful
            
            
            7,673,974accounts
                of $0 as of September 30, 2006Inventories
            
            
            9,696,468Other
                receivables and prepaid expenses
            
            
            1,699,122Advance
                to suppliers
            
            
            5,481,586Total
                current assets
            
            
            39,499,749PLANT
                AND EQUIPMENT, net
            
            
            47,584,260OTHER
                ASSETS:Intangible
                asset, net
            
            
            5,506,461Total
                assets
            
            $
            92,590,470LIABILITIES
                AND SHAREHOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable, trade
            
            $
            1,630,590Notes
                payable
            
            
            379,800Short
                term bank loans
            
            
            12,229,560Other
                payables and accrued liabilities
            
            
            191,704Customer
                deposits
            
            
            544,836Other
                taxes payable
            
            
            2,904,005Loan
                from shareholder
            
            
            4,451,328Liquidated
                damage payable
            
            
            1,466,250Total
                current liabilities
            
            
            23,798,073LONG
                TERM LIABILITIES:Long
                term debt
            
            
            10,128,000Total
                liabilities
            
            
            33,926,073SHAREHOLDERS'
                EQUITY:Common
                stock,$0.006 par value, 100,000,000 shares authorized,
              19,987,224
                shares issued and outstanding
            
            
            119,923Additional
                paid in capital
            
            
            29,127,134Statutory
                reserves
            
            
            2,428,310Retained
                earnings
            
            
            25,097,912Accumulated
                other comprehensive income
            
            
            1,891,118Total
                shareholders' equity
            
            
            58,664,397Total
                liabilities and shareholders' equity
            
            $
            92,590,470





The
      accompanying notes are an integral part of these
      statements.





3





FUSHI
                INTERNATIONAL, INC AND SUBSIDIARIESCONSOLIDATED
                STATEMENTS OF INCOME ANDOTHER
                COMPREHENSIVE INCOME (LOSS)FOR
                THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
                2005(Unaudited)Three
                months ended
            
            Nine
                months endedSeptember
                30
            
            September
                302006
            
            2005
            
            2006
            
            2005(Restated)
            
            
            
            (Restated)REVENUES
            
            $
            12,956,092
            
            $
            8,521,006
            
            $
            45,881,256
            
            $
            18,072,468COST
                OF GOODS SOLD
            
            
            8,955,882
            
            
            4,626,276
            
            
            28,477,095
            
            
            10,219,442GROSS
                PROFIT
            
            
            4,000,210
            
            
            3,894,730
            
            
            17,404,161
            
            
            7,853,026OPERATING
                EXPENSESelling
                expenses
            
            
            152,045
            
            
            77,112
            
            
            401,294
            
            
            168,910General
                and administrative expenses
            
            
            532,516
            
            
            456,245
            
            
            1,573,232
            
            
            815,133Depreciation
                expense
            
            
            187,273
            
            
            316,695
            
            
            521,866
            
            
            518,095Amortization
                expense
            
            
            55,670
            
            
            53,890
            
            
            167,062
            
            
            161,672Total
                operating expense
            
            
            927,504
            
            
            903,942
            
            
            2,663,454
            
            
            1,663,810INCOME
                FROM OPERATIONS
            
            
            3,072,706
            
            
            2,990,788
            
            
            14,740,707
            
            
            6,189,216OTHER
                INCOME (EXPENSE)Provision
                for doubtful debts on other receivables
            
            
            
            
            
            (70,000
            )
            
            
            
            
            (70,000
            )Interest
                income
            
            
            30,344
            
            
            44,509
            
            
            42,775
            
            
            58,044Interest
                expense
            
            
            (318,608
            )
            
            (191,436
            )
            
            (832,172
            )
            
            (425,752
            )Other
                income
            
            
            236,002
            
            
            89
            
            
            556,724
            
            
            89Other
                expense
            
            
            (119,302
            )
            
            (4,105
            )
            
            (258,152
            )
            
            (4,105
            )Registration
                rights penalty
            
            
            (1,466,250
            )
            
            
            
            
            (1,466,250
            )Total
                other income (expense)
            
            
            (1,637,814
            )
            
            (220,943
            )
            
            (1,957,075
            )
            
            (441,724
            )INCOME
                BEFORE INCOME TAXES
            
            
            1,434,892
            
            
            2,769,845
            
            
            12,783,632
            
            
            5,747,492PROVISION
                FOR INCOME TAXES
            
            
            
            
            
            406,256
            
            
            396,553
            
            
            852,904NET
                INCOME
            
            $
            1,434,892
            
            $
            2,363,589
            
            $
            12,387,079
            
            $
            4,894,588OTHER
                COMPREHENSIVE INCOME (LOSS):Foreign
                currency translation adjustment
            
            
            629,327
            
            
            575,885
            
            
            1,107,923
            
            
            575,885COMPREHENSIVE
                INCOME
            
            
            2,064,219
            
            
            2,939,474
            
            
            13,495,002
            
            
            5,470,473Net
                income per share-basic
            
            $
            0.07
            
            $
            0.15
            
            $
            0.62
            
            $
            0.32Weighted
                average number of shares outstanding during the period -
                basic
            
            
            19,932,129
            
            
            15,475,595
            
            
            19,907,105
            
            
            15,475,595Net
                income per share-diluted
            
            $
            0.06
            
            $
            0.15
            
            $
            0.55
            
            $
            0.32Weighted
                average number of shares outstanding during the period
                -diluted
            
            
            22,761,228
            
            
            15,475,595
            
            
            22,612,369
            
            
            15,475,595




The
        accompanying notes are an integral part of these
        statements.





4





FUSHI
                INTERNATIONAL, INC AND SUBSIDIARIESCONSOLIDATED
                STATEMENTS OF CASH FLOWSFOR
                THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005(Unaudited)2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            12,387,079
            
            $
            4,894,588Adjustments
                to reconcile net income to cashprovided
                by (used in) operating activities:Depreciation-cost
                of sales
            
            
            1,023,654
            
            
            372,970Depreciation-operating
                expense
            
            
            521,866
            
            
            518,095Amortization
                of land use right
            
            
            75,099
            
            
            88,997Amortization
                of intangible asset
            
            
            91,963
            
            
            72,676Provision
                for doubtful debts on other receivables
            
            
            
            
            
            70,000Change
                in operating assets and liabilities:(Increase)
                decrease in assets:Accounts
                receivable
            
            
            (1,323,834
            )
            
            (3,572,132
            )Inventories
            
            
            (1,879,011
            )
            
            (252,154
            )Other
                receivables
            
            
            426,237Other
                current assets
            
            
            (3,726,900
            )
            
            (1,820,879
            )Due
                from related parties
            
            
            3,352,072
            
            
            (2,256,060
            )Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            (783,559
            )
            
            (249,066
            )Other
                payables and accrued liabilities
            
            
            (481,156
            )
            
            57,726Customer
                deposits
            
            
            423,141Taxes
                payable
            
            
            (3,158,993
            )
            
            106,697Due
                to related parties
            
            
            
            
            
            175,092Liquidated
                damage payable
            
            
            1,466,250Net
                cash provided by (used in) operating activities
            
            
            8,413,908
            
            
            (1,793,450
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of equipment/fixed assets
            
            
            (9,286,833
            )
            
            (3,029,881
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Loan
                from shareholder
            
            
            4,450,000Exercise
                of stock warrants
            
            
            15,800Proceeds
                from bank loans
            
            
            18,259,578
            
            
            21,281,795Payments
                on bank loans
            
            
            (13,747,800
            )
            
            (16,086,115
            )Net
                cash provided by financing activities
            
            
            8,977,578
            
            
            5,195,680EFFECT
                OF EXCHANGE RATE ON CASH
            
            
            680,277
            
            
            (139,727
            )INCREASE
                IN CASH
            
            
            8,784,929
            
            
            232,622CASH,
                beginning of period
            
            
            6,163,670
            
            
            2,612,282CASH,
                end of period
            
            $
            14,948,599
            
            $
            2,844,904SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid for interest expense
            
            $
            1,049,037
            
            $
            848,536Cash
                paid for income taxes
            
            $
            4,044,883
            
            $




The
        accompanying notes are an integral part of these
        statements.


5


FUSHI
      INTERNATIONAL, INC. AND SUBSIDIARIES





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006





**Note
      1 - Basis of presentation**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and pursuant to
      the
      rules and regulations of the Securities and Exchange Commission. Accordingly,
      they do not include all of the information and footnotes required by generally
      accepted accounting principles for complete financial statements.





In
      the
      opinion of management, the unaudited condensed consolidated financial statements
      contain all adjustments consisting only of normal recurring accruals considered
      necessary to present fairly the Company's financial position at September 30,
      2006, the results of operations for the three and nine months ended September
      30, 2006 and 2005, and cash flows for the nine months ended September 30, 2006
      and 2005. The results for the nine months ended September 30, 2006 are not
      necessarily indicative of the results to be expected for the entire fiscal
      year
      ending December 31, 2006.





These
      financial statements should be read in conjunction with the Company's annual
      report on Form 10-KSB as filed with the Securities and Exchange
      Commission.




The
      consolidated statement of income and other
      comprehensive income for the three and nine months ending September 30, 2005
      were restated due to an error with respect to foreign exchange rate in the
      calculation of foreign exchange translation gain (loss) as part of other
      comprehensive income (loss). Please refer to Note 12 for details.








**Note
      2 - Organization**





Fushi
      International, Inc. (formerly Parallel Technologies, Inc.) was incorporated
      under the name of M, Inc. in the state of Nevada on October 6, 1982. The name
      was changed to Parallel Technologies, Inc. (“Parallel”) on June 3, 1991 and
      changed to Fushi International, Inc. (“Fushi International”) on January 30, 2006
      on consummation of a business combination transaction. During 1995, Parallel
      ceased all business operations and disposed of all assets, liabilities and
      operating activities. Since the fiscal year ended December 31, 1995, Parallel
      had no business operations, assets or liabilities, until December 13, 2005,
      when
      it acquired Diversified Product Inspections, Inc. (“DPI”) and its wholly owned
      subsidiary, Dalian Diversified Product Inspections Bimetallic Cable Co., Ltd.
      (“Dalian DPI”).





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





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


6


FUSHI
        INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 September
        30, 2006







**Note
      2 - Organization, (continued)**





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





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





Accordingly,
      the financial statements include the following:





(1)
            The
                balance sheet consists of the net assets of the acquirer at historical
                cost and the net assets of the acquiree at historical
                cost.





(2)
            The
                statement of operations includes the operations of the acquirer for
                the
                periods presented and the operations of the acquiree from the date
                of the
                merger.





On
      the
      same date, Dalian DPI entered into a series of agreements (collectively known
      as
      the Restructuring Agreements) with Dalian Fushi and the shareholders of Dalian
      Fushi in which Dalian DPI will take over the management of the business
      activities of Dalian Fushi and will hold a 100% variable interest in Dalian
      Fushi. As both companies are under common control, this has been accounted
      for
      as a reorganization of entities and the financial statements have been prepared
      as if the reorganization had occurred retroactively.





Fushi
      International (formerly Parallel), DPI, Dalian DPI and Dalian Fushi are
      hereinafter referred to as (“the Company”).








**Note
      3 - Principles of Consolidation**




The
      accompanying unaudited condensed consolidated financial statements for 2006
      include the financial statements of Fushi International and its wholly owned
      subsidiaries, DPI, Dalian DPI and its
      100% variable interest entity Dalian Fushi.





The
      accompanying unaudited condensed financial statements for 2005 include the
      financial statements of Dalian Fushi.





All
      significant inter-company transactions and balances have been eliminated in
      consolidation.


7


FUSHI
      INTERNATIONAL, INC. AND SUBSIDIARIES





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006








**Note
      4 - Segments**





The
      Company adopted Statement of Financial Accounting Standards No. 131, Disclosures
      about Segments of an Enterprise and Related Information (“SFAS 131”). SFAS 131
      establishes standards for operating information regarding operating segments
      in
      annual financial statements and requires selected information for those segments
      to be presented in interim financial reports issued to stockholders. SFAS 131
      also establishes standards for related disclosures about products and services
      and geographic areas. Operating segments are identified as components of an
      enterprise about which separate discrete financial information is available
      for
      evaluation by the chief operating decision maker, or decision making group,
      in
      making decision how to allocate resources and assess performance.





1.  The
      Company operates in a single segment.





2.  The
      following is geographic information of the Company’s revenue:





For
                  the three months ended September 30,
              
              For
                  the nine months ended
                September
                  30,2006
              
              2005
              
              2006
              
              2005unaudited
              
              unaudited
              
              unaudited
              
              unauditedDomestic
                  China
              
              $
              1,361,267
              
              $
              8,368,752
              
              $
              44,388,962
              
              $
              17,842,147Other
                  foreign countries
              
              
              594,825
              
              
              152,254
              
              
              1,492,294
              
              
              230,321$
              1,956,092
              
              $
              8,521,006
              
              $
              45,881,256
              
              $
              18,072,468








**Note
      5 - Inventories**





Inventories
      at September 30, 2006 consisted of the following:


UnauditedRaw
                  material
              
              $
              5,150,320Work-in-progress
              
              
              1,221,680Finished
                  goods
              
              
              3,324,4689,696,468




For
      the
      nine months ended September 30, 2006, the Company has not recorded a provision
      for obsolete inventories.











8


FUSHI
      INTERNATIONAL, INC. AND SUBSIDIARIES





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006





**Note
      6 - Notes payable** ****





Notes
      payable at September 30, 2006 consisted of the following:




Note
                  payable to a bank, interest rate of 5.58% per annum,
              
              $
              5,064,000collateralized
                  by buildings, plant and machinery ofthe
                  Company and related parties, due April 2008Note
                  payable to a bank, interest rate of 5.58% per annum,
              
              
              5,064,000guaranteed
                  by a related company, due April 2008Note
                  payable to a bank, interest rate of 6.73 % per annum,
              
              
              2,785,200collateralized
                  by buildings of the Company, due April 2007Note
                  payable to a bank, interest rate of 5.94 % per annum,
              
              
              2,532,000collateralized
                  by buildings of the Company, due November 2006Note
                  payable to a bank, interest rate of 5.94 % per annum,
              
              
              2,152,200collateralized
                  by buildings of the Company, due November 2006Note
                  payable to a bank, interest rate of 6.338 % per annum,
              
              
              962,160collateralized
                  by buildings of the Company, due May 2007Note
                  payable to a bank, interest rate of 5.94 % per annum,collateralized
                  by buildings of the Company, due September 2006
              
              
              3,798,000$
              22,357,560Less:
                  current maturities
              
              
              12,229,560$
              10,128,000











Maturities
      are as follows:




For
                  the period ending September 30,
              
              Amount2007
              
              $
              12,229,5602008
              
              
              10,128,000





Interest
      expense for the nine months ended September 30, 2006 was $1,049,037, of which
      $216,865 was capitalized in construction in progress.


9


FUSHI
      INTERNATIONAL, INC. AND SUBSIDIARIES





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006














**Note
      7 - Liquidated damage payable** ****





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





The
      Company has accrued $1,466,250 as liquidated damages payable and expensed that
      amount in the nine months ended September 30, 2006. This amount is based on
      the
      shares accrued from May 14, 2006 through August 2, 2006 and it is valued at
      the
      highest bid on August 2, 2006, the date of the registration statement to be
      declared effective , which is at $5.75 per common stock share.








**Note
      8 - Net income per share**





The
      following is information of net income per share at September 30:





2006
              
              2005Unaudited
              
              UnauditedNet
                  income
              
              $
              12,387,079
              
              $
              4,894,588Basic
                  weighted-average common stock outstanding
              
              
              19,907,105
              
              
              15,475,595Effect
                  of dilutive securitiesWarrants
              
              
              2,617,139
              
              
              -Penalty
                  shares due to liquidated damage
              
              
              88,125Diluted
                  weighted-average common stock outstanding
              
              
              22,612,369
              
              
              15,475,595Net
                  income per share - basic
              
              $
              0.62
              
              $
              0.32Net
                  income per share - diluted
              
              $
              0.55
              
              $
              0.32







10


FUSHI
      INTERNATIONAL, INC. AND SUBSIDIARIES





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006




**Note
        9 - Stockholders’ Equity**
 
 (A)
              Reverse
                  stock split





On
      January 30, 2006, the Company effected a 245.27:1 reverse stock split.  All
      share and per share amounts have been retroactively restated to reflect
      the





(B)
            Series
                A and Series B Convertible Preferred
                Stocks





The
      Series A and Series B Convertible Preferred Stocks (“Series A and B Stocks”)
      were automatically converted into common stock upon the effectiveness of the
      reverse split on January 30, 2006 under the certificates of designation for
      Series A and B Stock





(C)
            Following
                the reverse stock split and as of September 2006, the Company had
                outstanding:





(1)
      19,987,224 shares of common stock, par value $.006.





(2)
      Warrants purchasing 2,112,091 shares of common stock at an initial exercise
      price of $3.67 per share, expires December 2010.





(3)
      Warrants purchasing 424,929 shares of common stock with exercise prices of
      $3.11
      per share, expires December 2011.





(D)
            Exercise
                of stock warrants





During
      the third quarter of 2006, the following warrants were exercised.





(1)
            Warrants
                were exercised for 12,909 shares of common stock. The warrants were
                initially issued on January 30, 2006, and were each exercisable for
                one
                share of the Company’s common stock at $3.67 per
                share.





(2)
            Warrants
                were exercised for 80,000 shares of common stock. The warrants were
                initially issued on January 30, 2006, and were each exercisable for
                one
                share of the Company’s common stock at $0.01 per share.








**Note
      10 - Loan from shareholder**





In
      September 2006, one of the Company’s shareholders advanced $ 4,451,328 to the
      Company. This amount is non-interest bearing, unsecured and will be paid on
      demand.











11


FUSHI
      INTERNATIONAL, INC. AND SUBSIDIARIES





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006














**Note
      11 - Capital Commitments**





According
      to the amended Articles of Association of Dalian DPI, the Company has to fulfill
      registered capital contributions of $29,800,000. As of September 30, 2006,
      the
      Company has fulfilled $9,132,500 of the registered capital requirement and
      has
      registered capital commitments of $20,667,500.




**Note
      12 - Restatements**




The
      consolidated statement of income and other
      comprehensive income for the three and nine months ending September 30, 2005
      were restated due to an error with respect to foreign exchange rates in the
      calculation of foreign exchange translation gain (loss) as part of other
      Comprehensive Income (Loss). The Company is in the process of reviewing the
      calculation of foreign exchange translation gain (loss) for the year ended
      December 31, 2005. Once the Company has completed the review
      process, the Company may need to restate the financial statements to
      the extent that it is necessary and material.














12





**Item
      2.** **** **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**


**RESULTS
      OF OPERATIONS**








**DISCLAIMER
      REGARDING FORWARD-LOOKING STATEMENTS**




Certain
      statements in this report, including statements in the following discussion,
      which are not statements of historical fact, may be deemed to be
“forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995 which are basically statements about the future.
      For that reason, these statements involve risk and uncertainty since no one
      can
      accurately predict the future. Words such as “plans,” “intends,” “will,”
“hopes,” “seeks,” “believes,” “anticipates,” “expects,” and the like, often
      identify such forward-looking statements, but are not the only indication that
      a
      statement is a forward-looking statement. Such forward-looking statements
      include statements concerning our plans and objectives with respect to the
      present and future operations of Fushi International, Inc. (the “Company,” “we”
or “us”), and statements which express or imply that such present and future
      operations will or may produce revenues, income or profits. Numerous factors
      and
      future events could cause the Company to change such plans and objectives,
      or
      fail to successfully implement such plans or achieve such objectives, or cause
      such present and future operations to fail to produce revenues, income or
      profits. Therefore, the reader is advised that the following discussion should
      be considered in light of the discussion of risks and other factors contained
      in
      this report on Form 10-QSB and in the Company’s other filings with the
      Securities and Exchange Commission. No statements contained in the following
      discussion should be construed as a guarantee or assurance of future performance
      or future results. These forward-looking statements are made as of November
      14,
      2006; the date of the filing of this Form 10-QSB and the Company undertakes
      no responsibility to update these forward-looking statements.





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the financial statements and
      accompanying notes and the other financial information appearing in Part I,
      Item 1 and elsewhere in this report.





We
      are
      engaged, through our indirectly wholly-owned operating subsidiary in China,
      Dalian Diversified Product Inspections Bimetallic Cable, Co., Ltd. (“Dalian
      DPI”), in the manufacture and sale of bimetallic composite wire products,
      principally copper clad aluminum wire ("CCA") and copper clad steel wire
      ("CCS"). CCA combines the conductivity and corrosion resistance of copper with
      the light weight and relatively low cost of aluminum. It is a cost effective
      substitute for single copper wire in a wide variety of applications such as
      coaxial cable for cable television, signal transmission lines for
      telecommunication networks, distribution lines for electricity, wire components
      for electronic instruments and devices. Similarly, CCS combines the properties
      of copper with the strength of steel and is used where strength greater than
      that of copper is required, such as for power system grounding lines,
      electricity distribution lines, conductor lines of electrified railroad tracks,
      and patch cords in electronic components.





Our
      bimetallic composite wire products are produced using our patented and
      proprietary "rolling bond welding" manufacturing technology, which was included
      as a research project under the National Torch Program of the Peoples Republic
      of China (“PRC”). Our proprietary technology allows us to produce high quality
      products that deliver stable conductivity performance. We maintain an internal
      Research and Development Department to improve our products and their features
      and develop and test new bimetallic composite materials. Because of our research
      and development initiatives, we are recognized by the Dalian Municipal
      Government as a “new- and high-technology” enterprise and have been receiving
      governmental funding or subsidies for our operations and research and
      development activities.








We
      currently derive revenues from three principal product groups by size of
      diameter of the wire:




1. Sales
      of
      CCA, co-axial cable and wire. With an aluminum core wrapped with T2 pure copper
      external cladding, diameters ranging from 5.08 to 2.05mm, CCA is utilized in
      a
      variety of applications including cable television, signal transmission lines
      for wireless
      telecommunications, and base station sub systems .
      The CCA
      coaxial accounted for approximately 27% and 85% of our total net revenues and
      28% and 85% of our total sales volume in the third quarter of 2006 and 2005,
      respectively. Average selling prices increased from $4,684 per ton to $5,609
      per
      ton, or by 21.5%; however real average selling prices dropped 18.3% after
      adjusting for raw material cost inflation. Higher raw material costs and lower
      adjusted average selling prices significantly decreased gross margins from
      45.7
      to 29.7%.


13





2. Sales
      of
      CCA and Copper-clad Aluminum and Magnesium alloy (“CCA-M”), regular size “mother
      wire”, sold to downstream manufacturers for further processing to be drawn and
      pulled into enameled “thin wire”. With an aluminum core wrapped with T2 pure
      copper external cladding, diameters range from 3.00 to 2.05mm. The CCA regular,
      and CCA-M, regular combined to account for approximately 61% and 15% of our
      total net revenues and 62% and 15% of our total sales volume in the third
      quarter of fiscal 2006 and 2005, respectively. Average selling prices for CCA
      regular increased from $4,684 per ton to $5,593 per ton, or by 19.4% while
      real
      average selling prices dropped 18.6% after adjusting for raw material cost
      inflation. Average selling prices for CCA-M regular increased from $4,684 to
      $5,817, or by 24.2% while real average selling prices dropped 15.3% after
      adjusting for raw material cost inflation. Gross margin decreased from 45.7%
      to
      33.1% and 32.0% respectively.





3. Sales
      of
      CCA and CCA-M, thin size. Instead of being sold to outside manufacturers, a
      portion of regular sized CCA and CCA-M was processed in house to yield enameled
      “thin wire”. With diameters ranging from 5.08 to 2.05mm, these thin wires are
      utilized in distribution lines
      for
      electricity and wire components for electronic instruments and
      devices .
      We did
      not offer any thin wire products in fiscal 2005 and we only began scale
      production of thin wires in the first quarter of 2006. The thin wires accounted
      for approximately 12% of our total net revenues and 10% of our total sales
      volume in the three months ended September 30, 2006. Average selling price
      was
      $6,787 and $7,271 per ton, respectively, for CCA thin CCA-M thin. Gross margins
      were 39.5% and 30.7% respectively.





Pricing
      of our products is principally affected by raw material costs. We price our
      products based on the prevailing copper prices and aluminum prices at the time
      we enter into sales contracts with our customers, with payment terms taking
      into
      account the size of the contract, the strength and history of our relationship
      with each customer. Fluctuations in the prevailing market prices of copper
      have
      historically affected the prices of our products and are likely to continue
      to
      have a material effect on the prices of products in the future.





RECENT
      DEVELOPMENTS





During
      the quarter ended September 30, 2006,


-
            we
                established our first sales and services center outside Dalian and
                Beijing
                in the city of Humen in Guangdong province. Sales to Guangdong currently
                account for more than 30% of our total sales, making it one of our
                most
                strategically significant sales territory in the PRC. In addition,
                we are
                in the process of setting up sales offices and branch offices in
                the
                provinces of Jiangsu, Zhejiang, Hubei while establishing sales presence
                in
                North America, Europe and South East Asia to build a comprehensive
                international sales footprint. The countries we have received orders
                or
                indications from include the United States, Germany, France, Italy,
                Korea,
                Japan, and Turkey.


-
            We
                initiated projects with Tsinghua University, Northeast University,
                Dalian
                Institute of Technology , and Shanghai Research Institute of Wire
                and
                Cable on conducting bimetallic-related research and developments
                such as
                Weld Line Automatic Tracking and Control system, applications of
                CCA in
                voice and data transmission, high and medium power transmission cable.








14





**Summary
      of Operating Results**




**THREE
      MONTHS ENDED September 30, 2006 and September 30, 2005.**







For
                the three
            
            For
                the threemonths
                ended
            
            Months
                endedIncrease/(Decrease)
            
            September
                30, 2006
            
            September
                30, 2005Net
                sales
            
            
            52.05%
            
            $
            12,956,092
            
            $
            8,521,006Gross
                Profit
            
            
            2.71%
            
            $
            4,000,210
            
            $
            3,894,730Operating
                Income
            
            
            2.74%
            
            $
            3,072,706
            
            $
            2,990,788Net
                Income
            
            
            (39.0%)
            
            $
            1,434,892
            
            $
            2,363,589Comprehensive
                Income
            
            
            (29.0%)
            
            $
            2,064,219
            
            $
            2,939,474ESP-
                Basic
            
            
            (53.0%)
            
            $
            0.07
            
            $
            0.15EPS-
                Diluted
            
            
            (60.0%)
            
            $
            0.06
            
            $
            0.15Gross
                Margins
            
            
            (14.83%)
            
            
            30.88
            %
            
            45.71
            %Operating
                Margins
            
            
            (11.38%)
            
            
            23.72
            %
            
            35.10
            %Net
                Margins
            
            
            (16.67%)
            
            
            11.70
            %
            
            27.74
            %





**Overview**





During
      the third quarter of fiscal 2006, we experienced high volatility in growth
      and
      profitability due to increases and fluctuations in copper prices. Because our
      products, which utilize less copper, but provide the same performance as copper
      wire, provide a cost effective alternative to our customers, demand for our
      products has remained robust. In addition to strong demand from our traditional
      customers which utilize bimetallic products primarily in wire and cable for
      voice and data transmission in telecommunication networks, we have seen dynamic
      new applications in
      electric wire, shielding wire, and magnet wire/winding wire, motors, automobile
      applications, power distribution, enamel, transformers, electrical coils and
      controls as well as other specialized applications.





Highlights
      for the quarter include an increase of 22.4% in sales volume and margins
      increased by 24.2%, resulting in net revenue growth of 52.1%, comparing to
      the
      third quarter of fiscal 2005. Our net profit decreased by 39% to $1.4 million,
      representing a net margin of 11.0%, and earnings per share on diluted basis
      of
      $0.06. In addition, as set forth above, during the third quarter of fiscal
      2006,
      we established our first sales and services center outside Dalian and Beijing
      in
      the city of Humen in Guangdong province. Sales to Guangdong currently account
      for more than 30% of our total sales, making it one of our most strategically
      significant sales territory in the PRC.





As
      a
      result of the capital investment which we made during the fiscal year ended
      December 31, 2005, we increased production capacity to twenty production lines
      which can be utilized interchangeably with each other to manufacture bimetallic
      products.  In addition, during the second quarter of fiscal 2006, we
      increased the number of “thin” lines from five to ten. “Thin lines” are
      production lines which produce thinner wire for specialized applications which
      tend to have higher average selling prices and margins.





Going
      forward, while we expect copper prices to continue to be volatile, we remain
      optimistic about the market opportunity and potential for the bimetallic
      industry. We believe that high copper prices will keep demand strong. Our
      ability to meet increased customer demand for our products will depend on
      whether we have sufficient production capacity, among other factors.  In
      order to accommodate the rapidly increasing demand of our products, we plan
      to
      continue to expand our manufacturing capacity to capitalize on new and
      incremental market opportunities. In order to do so, we will seek to raise
      capital from outside sources, the availability of which, or availability on
      acceptable terms, cannot be assured.


15





In
      addition, we will continue to invest in our business to (i) expand on our core
      competencies in products; (ii) enhance research and development and our leading
      position in the industry in the PRC; (iii) grow our salesforce and pursue growth
      in the international market; (iv) vertically integrate to secure raw material
      supply and increase value-add elements in finished products. With the PRC
      economy expanding at a brisk pace, we believe that we are well-positioned to
      capture further market share as a leading low cost supplier and that we can
      deliver long term growth and profitability.




As
      explained below, for the quarter ended September
      30, 2006, we incurred a penalty of 255,000 shares of Common Stock which resulted
      in a charge to income of $1.5 million. This is a one-time charge relating to
      our
      December, 2005 financing.




**Net
      Sales**





For
      the
      three-month period ended September 30, 2006, our net sales were $13.0 million,
      representing an increase of $4.4 million or 52.1% compared to the three months
      ended September 30, 2005. Our net revenues are net of value-added tax. Our
      revenue increase during the period relative to the third quarter of 2005 was
      primarily attributable to increases in average selling prices and sales volume
      growth. The average selling price increase is primarily due to higher raw
      material costs and is also reflective of strong market demand. The volume growth
      is primarily the result of increased demand from new markets such as
      electromagnet wire, winding wire, shielding wire, distribution and coils,
      partially offset by a stabilized traditional co-axial market. CCA and CCA-M
      continued to comprise significantly all of our total product sales in both
      comparable periods.




The
      following tables break down the revenues and sales volumes by product
      categories, comparing the two indicated periods.





Revenues
            
            Q3
                '06
            
            %
            
            Q3
                '05
            
            %CCA
                Coaxial
            
            $
            3,498,145
            
            
            27%
            
            $
            7,242,855
            
            
            85%CCA
                Regular
            
            $
            3,239,023
            
            
            25%
            
            $
            852,101
            
            
            10%CCA-M
                Regular
            
            $
            4,664,193
            
            
            36%
            
            $
            426,050
            
            
            5%CCA
                Thin
            
            $
            906,926
            
            
            7%
            
            
            N/A
            
            
            N/ACCA-M
                Thin
            
            $
            647,805
            
            
            5%
            
            
            N/A
            
            
            N/ATotal
            
            $
            12,956,092
            
            
            100%
            
            $
            8,521,006
            
            
            100%





Volume
            
            Q3
                '06 (tons)
            
            %
            
            Q3
                '05(tons)%
            
            %CCA
                Coaxial
            
            
            624
            
            
            28%
            
            
            1,546
            
            
            85%CCA
                Regular
            
            
            579
            
            
            26%
            
            
            182
            
            
            10%CCA-M
                Regular
            
            
            802
            
            
            36%
            
            
            91
            
            
            5%CCA
                Thin
            
            
            134
            
            
            6%
            
            
            N/A
            
            
            N/ACCA-M
                Thin
            
            
            89
            
            
            4%
            
            
            N/A
            
            
            N/ATotal
            
            
            2,227
            
            
            100%
            
            
            1,819
            
            
            100%





The
      following table sets forth the Average Selling Prices, Average Unit Costs,
      and
      Gross Margins of each product categories, for the indicated
      periods:








ASP
            
            Average
                Unit Cost
            
            Gross
                MarginQ3
                06
            
            Q3
                05
            
            Q3
                06
            
            Q3
                05
            
            Q3
                06
            
            Q3
                05Overall
            
            $
            5,817
            
            $
            4,684
            
            $
            4,021
            
            $
            2,543
            
            
            30.9
            %
            
            45.7
            %CCA
                Coaxial
            
            $
            5,609
            
            $
            4,684
            
            $
            3,943
            
            $
            2,543
            
            
            29.7
            %
            
            45.7
            %CCA
                Regular
            
            $
            5,593
            
            $
            4,684
            
            $
            3,740
            
            $
            2,543
            
            
            33.1
            %
            
            45.7
            %CCA-M
                Regular
            
            $
            5,817
            
            $
            4,684
            
            $
            3,955
            
            $
            2,543
            
            
            32.0
            %
            
            45.7
            %CCA
                Thin
            
            $
            6,787
            
            
            N/A
            
            $
            4,106
            
            
            N/A
            
            
            39.5
            %
            
            N/ACCA-M
                Thin
            
            $
            7,271
            
            
            N/A
            
            $
            5,040
            
            
            N/A
            
            
            30.7
            %
            
            N/A





16





The
      following table breaks down number of our customers and sales to application
      categories by province, for the first nine months of fiscal 2006.





Province
            
            #
                of Customers
            
            Co-axial
                Cable (tons)
            
            Electromagnetic
                Wire (tons)
            
            Shielding
                Wire (tons)
            
            Total
                Tonage
            
            As
                % of TotalGuangdong
            
            
            23
            
            
            1,606
            
            
            658
            
            
            988
            
            
            3,252
            
            
            40
            %Jiangsu
            
            
            13
            
            
            638
            
            
            254
            
            
            342
            
            
            1,235
            
            
            15
            %Zhejiang
            
            
            14
            
            
            617
            
            
            247
            
            
            377
            
            
            1,242
            
            
            15
            %Hubei
            
            
            8
            
            
            230
            
            
            16
            
            
            82
            
            
            329
            
            
            4
            %Jiangxi
            
            
            9
            
            
            421
            
            
            29
            
            
            86
            
            
            536
            
            
            7
            %Sichuan
            
            
            7
            
            
            395
            
            
            25
            
            
            74
            
            
            494
            
            
            6
            %Shandong
            
            
            13
            
            
            638
            
            
            82
            
            
            82
            
            
            803
            
            
            10
            %Others
            
            
            6
            
            
            123
            
            
            62
            
            
            62
            
            
            247
            
            
            3
            %Total
            
            
            93
            
            
            4,768
            
            
            1,373
            
            
            2,095
            
            
            8,137
            
            
            100.00
            %











The
      following table sets forth our five largest customers as of September 30, 2006
      and the accounts receivables from our top five customers as a percentage of
      our
      total accounts receivable:





Five
                Largest Customers
            %
                of sales for the three months ended September 30, 2006
            %
                of Accounts Receivables as of September 30, 2006Jiangxi
                Lianchuang Photoelectricity Science Co.
            6.73%
            7.62%Zhuhai
                Hansheng Industrial Co., Ltd.
            6.19%
            11.48%Taizhou
                Yihua Specialty Electric Co., Ltd.
            6.20%
            6.74%Shantou
                Jinqiao Cable Co., Ltd.
            5.83%
            14.66%ACOME
                Xintai Cable Co., Ltd.
            5.32%
            14.88%Five
                Largest Customers as % of Total:
            30.27%
            55.38%








During
      the three months ended September 30, 2006, we continued to diversify our
      customer base. Our five largest customers accounted for only 30.27% of total
      sales, down significantly from a year ago when a small concentrated number
      of
      customers collectively accounted for a majority of our sales. As of September
      30, 2006, the receivable balance due from these five customers represented
      55.38% of total accounts receivables. As we expand our business and seek to
      further diversify our customer base, product mix and geographic presence, we
      anticipate that our overall customer composition and our largest customers
      will
      change from time to time. Our objective is to focus on retaining existing
      business and winning new business to capture more market share, both inside
      the
      PRC and overseas.





Our
      ability to increase sales, maintain and potentially expand operating and net
      margins largely depends on whether we are able to pass raw material price
      increases along to our customers, among other factors. Over the long term,
      we
      anticipate sales growth to continue to be aggressive and broadly based
      principally due to increased conversion market visibility, expanding market
      sizes, product profitability, and momentum to gain additional market
      shares.  Our ability to meet increased customer demand for our products
      will depend on whether we have sufficient production capacity, among other
      factors.




Accounts
      Receivable





Accounts
      receivable was $7.7 million at September 30, 2006. Accounts receivable related
      to our five largest customers totaled $4.3 million, accounting for 55.38% of
      all
      accounts receivable as of September 30, 2006.





We
      extend
      unsecured credit to large or regular customers with good credit history.
      Management reviews its accounts receivable on a regular basis to determine
      if
      the allowance for doubtful accounts is adequate at each quarter-end. We only
      extend 30 to 90 day trade credit to our largest customers, which tend to be
      well-established and large businesses, and we have not seen any accounts
      receivable go uncollected beyond 90 days or experienced any write-off of
      accounts receivable in the past. Thus, we elected not to make any provision
      for
      doubtful accounts and consider all accounts receivable
      collectable.


17




**Cost
      of Sales**





****  Cost
      of
      sales was $9.0 million for the three months ended September 30, 2006, compared
      to $4.6 million for the three months ended September 30, 2005, representing
      an
      increase of $4.3 million or 93.6%. Cost of sales measured by percentage of
      net
      sales was 69.1%, up significantly from 54.3% for the same period last year.
      Average cost of sales per ton increased by $1,478 to $4,021, from $2,543, or
      58.1%, comparing the two corresponding periods. Expanded sales volume
      contributed 22.4% and increased purchasing costs of raw materials contributed
      58.1% to the increase in Cost of Sales. Total raw material costs amounted to
      $8.4 million, accounting for 93.5% of Cost of Sales during the third quarter
      of
      2006. By comparison, raw material costs totaled $4.1 million, accounting for
      87.6% of Cost of Sales during the third quarter of 2005. Raw material costs
      by
      percentage of Cost of Sales increased principally due to rising copper prices
      and strong overhead leverage.





Copper
      is
      one of the primary raw materials we use in the manufacture of our products.
      Macro-economic and other factors have contributed to extremely high and volatile
      prices and periodic shortages of supply of copper over the past two and a half
      years. The following chart shows Grade A Copper official cash price per ton
      on
      the London Metal Exchange (LME) from January 1, 2006 to the date of this filing:









Source:
      London Metal Exchange




The
      following table sets forth, for the periods indicated, the cash prices for
      copper and aluminum, two most important raw material inputs to our production.
      The Shanghai Futures Exchange price and Yangtze price are combined to constitute
      the basis for the purchase prices we receive when making orders in
      China:







Copper
                Price/ Ton
            
            Aluminum
                Price/ TonSHFE
            
            Yangtze
                Cash
            
            SHFE
            
            Yangtze
                Cash
            
            RMB/USD9/29/2006
            
            $
            8,984
            
            $
            8,991
            
            $
            2,654
            
            $
            2,738
            
            
            7.90598/31/2006
            
            $
            8,487
            
            $
            8,558
            
            $
            2,457
            
            $
            2,512
            
            
            7.96917/31/2006
            
            $
            8,429
            
            $
            8,493
            
            $
            2,329
            
            $
            2,321
            
            
            7.98106/30/2006
            
            $
            7,674
            
            $
            7,694
            
            $
            2,453
            
            $
            2,451
            
            
            8.00655/31/2006
            
            $
            9,125
            
            $
            9,154
            
            $
            2,630
            
            $
            2,634
            
            
            8.04065/15/2006
            
            $
            10,158
            
            $
            10,216
            
            $
            2,950
            
            $
            2,931
            
            
            8.01654/28/2006
            
            $
            8,493
            
            $
            8,412
            
            $
            2,627
            
            $
            2,565
            
            
            8.0239





18





3/31/2006
            
            $
            6,264
            
            $
            6,262
            
            $
            2,497
            
            $
            2,490
            
            
            8.01672/28/2006
            
            $
            5,708
            
            $
            5,764
            
            $
            2,339
            
            $
            2,325
            
            
            8.04151/26/2006
            
            $
            5,738
            
            $
            5,613
            
            $
            2,552
            
            $
            2,515
            
            
            8.070212/30/2005
            
            $
            5,189
            
            $
            5,278
            
            $
            2,365
            
            $
            2,366
            
            
            8.080811/30/2005
            
            $
            4,687
            
            $
            4,779
            
            $
            2,155
            
            $
            2,154
            
            
            8.087710/31/2005
            
            $
            4,603
            
            $
            4,692
            
            $
            2,107
            
            $
            2,116
            
            
            8.09249/30/2005
            
            $
            4,517
            
            $
            4,552
            
            $
            2,049
            
            $
            2,060
            
            
            8.0956




Source: www.ometal.com .







*
      The
      currency exchange rates were the noon buying rates in New York City on the
      dates
      indicated for cable transfers as certified for customs purposes by the Federal
      Reserve Bank of New York.




Copper
      price is a critical factor affecting the results of our operations for the
      following reasons: (i) it is the most important raw material that we use to
      make
      our products and its acquisition cost directly affects our cost of goods sold,
      gross profit, and net income; (ii) our bimetallic products target existing
      customers of pure copper products as we provide a viable, cost effective
      substitute to pure copper; thus increases in copper prices prompt more potential
      customers to switch to our products. For example, CCA coaxial wire normally
      is
      composed of 33.3% copper and 66.7% aluminum in terms of weight. When of the
      same
      weight, CCA wire yields three times the length of pure copper wire while
      offering virtually the same conductivity and anti-corrosion properties. Further,
      CCA, on a per-ton basis, has been selling consistently at a 30% or more discount
      to pure copper wire per ton; (iii) rising or volatile copper prices can have
      negative impact and adverse effects on our business including:




·
            Fluctuating
                gross margins and profitability due to potential mismatch related
                to the
                timing of product pricing and the shipments of inventory accounted
                for on
                a FIFO basis;




·
            Increasing
                our need for working capital to finance inventory and
                receivables;




·
            Disruption
                of production due to supply shortage.




The
      magnitude of copper price changes, dramatic increases and decreases, exposed
      us
      to high volatility of gross and net margins. In order to secure adequate and
      timely supplies of cost effective copper, we enter into various supply
      agreements with our principal suppliers from time to time under which we advance
      cash to secure supplies of copper and locked in prices determined at signing
      of
      the contract. However, during the third quarter of fiscal 2006, principally
      due
      to insufficient working capital, we experienced disruption of raw material
      supply, which subsequently caused a stoppage of operations. While we
      have taken steps to correct the situation by seeking to raise capital, no
      assurance can be given that we will be able to have sufficient working capital
      to procure adequate supplies of copper strips to meet our future production
      needs. As we continue to grow to address market opportunities, raw material
      supplies, to a large extent, determine our capability to utilize capacity.
      Failure to obtain sufficient quantities of copper raw materials could decrease
      our revenues and limit our ability to expand our manufacturing capacity as
      planned.




During
      the quarter ended September 30, 2006, we did not engage in derivative financial
      instrument related hedging activities to manage our exposure to market risks
      associated with commodity price movements, although in the future we may
      consider entering into such programs or instruments to manage these risks to
      help ameliorate the effects of unanticipated commodity price increases and
      protect our primary business activities.







19




The
      following table sets forth the percentage of raw material purchases from our
      five largest suppliers:




Five
                Largest Suppliers
            %
                of Purchase for the
              Nine
                Months Ended
              September
                30, 2006
            %
                of Purchase for the
              Nine
                Months Ended
              September
                30, 2005Baotou
                Aluminum Co., Ltd.
            24.12%
            N/AHarbin
                Electric Wire Co.
            16.85%
            54.88%Shanghai
                Jutai Copper Co.
            17.52%
            45.12%Beijing
                Golden Eagle Huichuang Copper Co.
            23.34%
            N/ADalian
                Zhonghe
            11.67%
            N/AFive
                largest suppliers as % of total purchase:
            93.51%
            100.00%Two
                largest suppliers as % of total purchase:
            47.46%
            100.00%








Five
                Largest Suppliers
            %
                of Total Advance to Suppliers as of
              September
                30, 2006Baotou
                Aluminum Co., Ltd.
            26.1%Harbin
                Electric Wire Co.
            21.3%Shanghai
                Jutai Copper Co.
            3.8%Beijing
                Golden Eagle Huichuang Copper Co.
            19.5%Dalian
                Zhonghe
            11.8%Total:
            82.5%




The
      five
      largest raw material suppliers provided 93.5% of the Company’s purchase of raw
      materials for the three-month period ended September 30, 2006. The Company’s
      advance to these suppliers was 82.5% as of September 30, 2006. The two largest
      suppliers provided materially all of the Company's raw materials for the
      three-month period ended September 30, 2005.




**Gross
      Profit**




Gross
      profit for the three months ended September 30, 2006 was $4.0 million, up 2.7%
      from gross profit of approximately $3.9 million for the corresponding period
      in
      the prior year. As a percentage of net sales (gross margin), gross profit
      decreased sharply from 45.7.0% to 30.9% year over year. The sharp drop in gross
      margin was primarily attributable to lower adjusted average selling prices
      and higher raw material costs, partially offset by improved product
      mix.





Our
      gross
      profit margins have historically fluctuated between 36% and 44% and we
      anticipate that the gross margins for future quarters will return to the normal
      range level although they will continue to fluctuate due to several factors,
      including, changes in the relative mix of our products, the per-unit costs
      for
      our products and the average selling prices for our products. We will continue
      to focus on enhancing profitability, optimizing cost structure and expanding
      margins.




**Operating
      Expenses**







Selling
      Expenses




Selling
      expenses increased to $152,045 for the three months ended September 30, 2006
      as
      compared to $77,112 or the same period of the prior year, an increase of $74,933
      or 97.2%. As a percentage of revenues, selling expenses have increased slightly
      to 1.2% this year, from 0.9% last year. Selling expenses consist principally
      of
      salaries and costs related to selling efforts. There was no share-based
      compensation awarded during the period.




20






General
      and Administrative Expenses




General
      and administrative expenses decreased to $775,460 for the three months ended
      September 30, 2006 as compared to $826,830 for the same period of the prior
      year, a decrease of $51,370 or 6.21%. As a percentage of revenues, general
      and
      administrative expenses were 6.0% and 9.7% as of September 30, 2006 and
      September 30, 2005, respectively. General and administrative expenses remain
      at
      low level relative to revenues. Professional fees and expenses were $159,198,
      reflecting the additional costs of operating as a public company. Also included
      in general and administrative expense for the quarter ended September 30, 2006
      was depreciation of $187,273 and amortization of $55,670.




Operating
      expenses increased slightly to $927,505 in the third quarter of fiscal 2006
      from
      $903,942 in the third quarter of fiscal 2005, or by 2.6%. The increase was
      primarily due to the increase in set sales. As a percentage of net sales,
      operating expenses were 7.16% in the third quarter of 2006 compared to 10.61%
      during the same period last year. During
      the third quarter of fiscal 2006, we took advantage of economies of scale,
      improved efficiency and leverage of operating expenses. But, as we prepare
      to
      ramp up production capacity and more aggressively address market opportunities,
      we anticipate an expansion of our sales force to better respond to the market.
      In addition, we expect that general and administrative expenses will increase
      for the foreseeable future as a result of our expected continued growth and
      the
      costs of complying with our reporting and other requirements as a public
      company.




**Income
      from Operations**




Operating
      income grew slightly to approximately $3.1 million for the three months ended
      September 30, 2006 compared to operating income of approximately $3.0 million
      for the three months ended September 30, 2005, up 2.7%. As a percentage of
      net
      sales, operating income was 23.7% for the third quarter of 2006 as compared
      to
      35.1% for the corresponding period of the prior year. The operating margin
      decline was principally due to significantly decreased gross margin partially
      offset by lower operating costs.


**Registration
        Rights Penalty**
 
 In
        December 2005, we entered into stock purchase agreements (the “Stock Purchase
        Agreements”) pursuant to which we raised gross proceeds of $12 million. The
        Stock Purchase Agreements required that we file a registration statement
        registering the resale of the securities sold pursuant thereto, and that
        the
        registration statement be effective within 120 days of filing. In the event
        the
        registration statement was not declared effective within that time period,
        each
        investor was entitled to liquidated damages equal to 3% of each investor’s
        shares for each 30 day period after 120 days that the registration statement
        was
        not declared effective.
 
 As
        a
        result of the foregoing provisions, we incurred a penalty of 255,000 shares
        as
        of August 2, 2006, the date our registration statement on Form SB-2 was declared
        effective, which resulted in a charge to income of $1.5
        million.


21


**Income
      Taxes**




We
      are a
      company incorporated in the State of Nevada and conduct substantially all our
      operations through our PRC operating subsidiaries. Although we are subject
      to
      United States taxation, we do not anticipate incurring significant United States
      income tax liability for the foreseeable future because:




o  we
      did
      not conduct any material business or maintain any branch office in the United
      States during the three months ended September 30, 2006,




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






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




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




PRC
      Enterprise income tax




In
      the
      three months ended September 30, 2006, our business operations were solely
      conducted by our subsidiaries incorporated in the PRC. PRC enterprise income
      tax
      is calculated based on taxable income determined under PRC accounting
      principles. In accordance with “Income Tax Law of China for Enterprises with
      Foreign Investment and Foreign Enterprises,” or the Income Tax Law, foreign
      invested enterprises, or FIEs, established in the PRC are generally subject
      to
      an enterprise income tax rate of 33%. PRC domestic companies are governed by
      the
      Enterprise Income Tax Laws of the PRC and are also generally subject to an
      enterprise income tax rate of 33%. However, the Income Tax Laws provide certain
      favorable tax treatment to a company that qualifies as a "new or high-technology
      enterprise". Additionally, the governments at the provincial, municipal and
      local levels can provide many tax incentives and abatements based on a number
      of
      programs at each level.




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





Dalian
      Fushi was incorporated in the PRC and is subject to PRC income tax which is
      computed according to the relevant laws and regulations in the PRC. Dalian
      Fushi's bimetallic composite conductor wire product was approved by Dalian
      City
      as a "high-tech" project. As a result, Dalian Fushi is a business entity that
      is
      qualified as a "new or high-technology enterprise," and is entitled to a
      two-year full exemption from the PRC enterprise income tax starting from its
      first year of operation (which expired on December 31, 2003) followed by a
      50%
      reduction and other favorable tax treatment for the succeeding three years
      (which will expire on December 31, 2006).





Dalian
      DPI 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. Dalian
      DPI located its factories in a special economic region in Dalian. This economic
      region allows foreign enterprises a two-year income tax exemption beginning
      in
      the first year after they become profitable (2006 and 2007), and a 50% income
      tax reduction for the following three years (2008 to 2010). Dalian DPI was
      approved as a wholly owned foreign enterprise in September 2005.





Because
      substantially all operations of Dalian Fushi have been transferred to Dalian
      DPI
      pursuant to a the series of agreements between Dalian Fushi and Dalian DPI
      as
      more fully described in our Form 10-KSB for the fiscal year ended December
      31,
      2005, Dalian Fushi experienced pretax operating loss mainly due to loan interest
      payment obligations for the three months ended September 30, 2006. Since Dalian
      DPI is entitled to tax exemption and Dalian Fushi is making operating loss,
      no
      tax provision is made on a consolidated basis for the quarter of fiscal 2006.


22








**Net
      Income**




Net
      income decreased to approximately $1.43 million or 11.0% of net sales for the
      three months ended September 30, 2006 from approximately $2.4 million or 27.7%
      of net sales for the three months ended September 30, 2005, representing an
      decrease of $0.93 million or 39.2% and a decline in net margin by 16.7%. The
      decrease is primarily due to the one time change resulting from the
      issuance of the registration rights penalty shares valued
      at $1,466,250, and somewhat offset by increase in sales volumes and selling
      prices driven by expanded capacity. The significant net margin decrease is
      principally a result of eroded gross margin driven by higher raw material costs
      and lower adjusted average selling price, and penalty shares incurred.




Earnings
      per share on a diluted basis was $0.06 for the three months ended September
      30,
      2006. As of September 30, 2006, we have outstanding:









-
      approximately 20,242,224 shares of our common stock.




-
      warrants to purchase 2,112,091 shares of common stock at an initial exercise
      price of $3.67 per share, expire December 2010.




-
      warrants to purchase 424,929 shares of common stock with exercise prices of
      $3.11 per share, expire December 2011.









Basic
      and
      diluted earnings per share are calculated as follows:












For
                the three months endedSeptember
                30, 2006
            
            September
                30, 2005Earnings:Net
                income
            
            $
            1,434,892
            
            $
            2,363,590Income
                applicable to common shareholders
            
            $
            1,434,892
            
            $
            2,363,590Basic:Income
                applicable to common shareholders
            
            $
            1,434,892
            
            $
            2,363,590Weighted-average
                common stock outstanding
            
            
            19,907,105
            
            
            15,475,595Basic
                earnings per share
            
            $
            0.06
            
            $
            0.15Diluted:Income
                applicable to common shareholders
            
            $
            1,434,892
            
            $
            2,363,590Weighted-average
                common stock outstanding
            
            
            19,907,105
            
            
            15,475,595Effect
                of dilutive securities (assuming FSIN.OB 30-day average of $8.38/share
                as
                of September 30, 2006):
            
            
            2,705,264
            
            
            -Diluted
                weighted-average common stocks outstanding
            
            
            22,761,228
            
            
            15,474,595Diluted
                earnings per share
            
            $
            0.06
            
            $
            0.15





23










**NINE
      MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005.**







For
                the nine
            
            For
                the ninemonths
                ended
            
            months
                endedIncrease/(Decrease)
            
            September
                30, 2006
            
            September
                30, 2005Net
                sales
            
            
            153.9%
            
            $
            45,881,256
            
            $
            18,072,468Gross
                Profit
            
            
            121.6%
            
            $
            17,404,161
            
            $
            7,853,026Operating
                Income
            
            
            138.2%
            
            $
            14,740,707
            
            $
            6,189,216Net
                Income
            
            
            153.0%
            
            $
            12,387,079
            
            $
            4,894,588ESP-
                Basic
            
            
            93.7%
            
            $
            0.62
            
            $
            0.32EPS-
                Diluted
            
            
            71.9%
            
            $
            0.55
            
            $
            0.32Gross
                Margins
            
            
            (5.6%)
            
            
            37.9%
            
            
            43.5%Operating
                Margins
            
            
            (2.2%)
            
            
            32.1%
            
            
            34.3%Net
                Margins
            
            
            (0.1%)
            
            
            27.0%
            
            
            27.1%








**Revenue**





For
      the
      nine-month period ended September 30, 2006, we generated net revenues of $45.9
      million as compared to $18.1 million for the nine months ended September 30,
      2006. The increase was principally driven by higher selling prices and increased
      sales volume due to significantly expanded manufacturing capacity. Compared
      to
      the same period in 2005, sales volume grew by 88.9% to 8101 tons and the average
      selling price (ASP) grew by 34.4% to $5,664 per ton, resulting in a revenue
      increase of $27.9 million or 153.9%. During the first nine months of fiscal
      2006, we benefited from: (i) the trend of higher commodity prices, particularly
      copper, as our pricing is largely raw material cost driven; and (ii) the growing
      demand for our products as they offer attractively priced alternatives to single
      copper wires with the same or better functionality.







**Gross
      Profit**




We
      achieved a gross profit of $17.4 million for the nine months ended September
      30,
      2006 compared to $7.9 million for the nine months ended September 30, 2005,
      an
      increase of $9.6 million, or 121.6%. The increase is the result of increased
      net
      sales. Gross profit as a percentage of revenues (gross margin), was 37.9% for
      the nine months ended September 30, 2006 compared to 43.5% for the nine months
      ended September 30, 2005. The decline was primarily due to change in overall
      gross margin structure as a result of fluctuating gross margins of individual
      products relating mostly to movement of raw material prices. Specifically,
      the
      gross margins increase from 36.1% to 44.4% from the first to the second quarter
      of 2006 was largely balanced out by a sharp decrease in gross margin to 30.9%
      during the third quarter, resulting in the overall gross margin for the nine
      months of fiscal 2006 at 37.9%.





**Operating
      Expenses**





We
      incurred total operating expenses of $2.7 million, or 5.8% of net sales, for
      the
      nine months ended September 30, 2006. This represents an increase of $1.0
      million, or 60.1%, compared to $1.7 million, or 9.2% of net sales for the nine
      months ended September 30, 2005. As a percentage of net sales, selling expenses
      were down slightly from 0.93% to 0.87%, general and administrative expenses
      was
      down from 8.3% to 4.9%. Except for professional fees which were incurred
      relating to going public and operating as a public company since December,
      2005,
      we experienced a decease in operating expenses as a percentage of net sales
      across. The fact that operating expenses increased at a slower pace than revenue
      growth reflects that we achieved and benefited from improved operational
      efficiency, economies of scale, and leverage of operating expenses.


24










**Foreign
      Currency Translation Gains**





In
      the
      first nine months of 2006, the RMB rose against the US dollar. As a result
      of
      the appreciation of the RMB, we recognized a foreign currency translation gain
      of $1.1 million during the nine months ended September 30, 2006. Given the
      uncertainty of exchange rate fluctuations, we cannot estimate the effect of
      these fluctuations on our future business, product pricing, results of
      operations or financial condition.




All
      of
      our revenues and a majority of our expenses in the first nine months of 2006
      were denominated in RMB. The income statement accounts and balance sheet amounts
      with the exception of equity at September 30, 2006 were translated at 8.00
      RMB
      to $1.00 USD as compared to 8.09 RMB at September 30, 2005. The equity accounts
      were stated at their historical rate.





**Net
      Income**





Our
      net
      income was $12.4 million or 27.0% of net sales for the nine months ended
      September 30, 2006, compared to $4.9 million or 27.1% of net sales for the
      nine
      months ended September 30, 2005. The increase was principally the result of
      continued increases in sales levels and capacity expansion as well as economics
      of scale in operations.





Earnings
      per share on a diluted basis was $0.55 for the nine months ended September
      30,
      2006.








**LIQUIDITY
      AND CAPITAL RESOURCES**







We
      have
      historically financed our operations and capital expenditures through cash
      flows
      from operations and bank loans. However, neither our cash flows from operations
      nor our bank loans had been sufficient to keep pace with the growth of our
      business and provide sufficient working capital to meet increased new orders
      and
      purchase necessary new equipment to expand production.




On
      December 13, 2005, we entered into the Restructuring Agreements and consummated
      the transactions resulting in the acquisition and/or lease of substantially
      all
      of our assets to Dalian DPI, and raised $12 million in gross proceeds through
      a
      private placement offering. We received $9,930,412 in net proceeds after
      deducting placement agent discounts and commissions and payment of professional
      and other related expenses. We intend to use a substantial portion of the net
      proceeds from the offering for corporate expansion and general corporate
      purposes, including but limited to, funding of working capital needs, purchase
      of new equipment to meet existing orders and to provide additional capacity
      for
      further expansion, investor relations and Executive Search, and other general
      corporate purposes.




We
      regularly review our cash funding requirements and attempt to meet those
      requirements through a combination of cash on hand, cash provided by operations
      and available borrowings under bank lines of credit. We believe that we can
      continue meeting our cash funding requirements for our existing business in
      this
      manner.


25









It
      is
      management's intention to expand our operations as quickly as reasonably
      practicable to capitalize on the demand opportunity for our products. Under
      these circumstances, we may need substantial additional capital to fund such
      expansion efforts. To that end, we are seeking to raise such additional funds
      through the sale of public or private equity or debt financing, as well as
      from
      other sources. However, there can be no assurance that the Company will be
      able
      to raise capital when desired, or on terms favorable to the Company. If we
      are
      unable to raise additional working capital, it would likely have a significant
      negative impact on the expansion of our business.




As
      of
      September 30, 2006, we had approximately $14.9 million in cash, up $8.7 million
      from $6.2 million at December 31, 2005.





Working
      capital (measured by current assets less current liabilities) at September
      30,
      2006, was $15.7 million compared to $10 million at December 31, 2005. The
      increase in working capital is primarily driven by (i) increased accounts
      receivable resulting from revenue growth; (ii) inventory increase to support
      production expansion and sales growth; (iii) advances for production facilities;
      (iv) advances to secure supply of raw materials; (v) VAT tax paid and income
      tax
      overpaid.




For
      the
      nine months ended September 30, 2006, cash generated from operating activities
      totaled $8.41 million. This principally resulted from a substantial increase
      in
      net earnings partially offset by (i) extended cash cycle between timing of
      inventory purchases and collection of accounts receivable, resulting in $1.3
      million increase in accounts receivable and a $1.9 million increase in
      inventory; the level of accounts receivable increase was in line with net sales
      growth while accounts receivable turnover was 55 days for the nine months ended
      September 30,2006; (ii) a $3.7 million increase in other receivables and prepaid
      expenses; and (iii) a decrease in accounts payable of $0.8 million.  Our
      Current Ratio was 1.66 and our Quick Ration was 0.63.




We
      paid a
      total of $5.1 million VAT in the nine months ended September 30, 2006. Value
      added tax payable in the PRC is charged on an aggregated basis at a rate of
      15%
      or 17% (depending on the type of goods involved) on the full price collected
      for
      the goods sold or, in the case of taxable services provided, at a rate of 17%
      on
      the charges for the taxable services provided, but excluding, in respect of
      both
      goods and services, any amount paid in respect of value added tax included
      in
      the price or charges, and less any deductible value added tax already paid
      by
      the taxpayer on purchases of goods and services in the same financial
      year.





**VAT**VAT
                payable balance - 12/31/2005
            
            $
            3,869,814+
                VAT accrued for H1, 06
            
            $
            2,564,187+
                VAT accrued for Q3, 06
            
            $
            1,561,231-
                VAT paid in Q1-Q3, 06
            
            $
            5,108,198+
                Effect of foreign exchange translation
            
            $
            16,971VAT
                Payable Balance- 9/30/2006
            
            $
            2,904,005





The
      income tax we paid amounted to $4 million. We overpaid approximately $1.5
      million. The following table breaks down income tax provision and payment for
      the first nine months of 2006:





**Income
                Tax Computation**Income
                tax payable balance - 12/31/2005
            
            $
            2,104,709+
                Q1 06 provision
            
            $
            456,680+
                Q2 06 provision (*carryback*benefit)
            
            $
            (60,064
            )-
                Income tax paid
            
            $
            (4,044,883
            )Income
                tax payable balance - 6/30/2006
            
            $
            (1,543,558
            )+
                Income Tax refunded
            
            $
            1,464,843+
                Effect of foreign exchange translation
            
            $
            18,661Income
                tax payable balance - 6/30/2006
            
            $
            (60,054
            )




26





Dalian
      Fushi overpaid income tax by $1.5 million during the three months ended June
      30,
      2006. Because all Dalian Fushi operations were transferred to Dalian DPI, we
      can
      not use the carryforwards from Dalian Fushi to offset future taxable income.
      We
      obtained approval from relevant government authority to receive a refund of
      the
      full overpayment. During the three months ended September 30, 2006, we received
      substantially all the tax refund from the government.





For
      the
      nine months ended September 30, 2006, cash used in investing activities was
      approximately $9.2 million, primarily as a result of capital investment on
      new
      equipment and machinery as well as decoration and improvement of the office
      building, all as part of our planned expansion.




Financing
      activities provided net cash inflow of $9.0 million during the nine months
      ended
      September 30, 2006. We rolled over approximately $7.6 million working capital
      loans and also drew down approximately $4.5 million from our existing credit
      line facilities to meet working capital needs. Maturities for the working
      capital financing range from three to six months. We intend to renew these
      loans
      over again when they become due.




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




As
      of
      September 30, 2006, we had the following long-term bank loans and short-term
      working capital financing outstanding with the following terms:








Name
                of lenders
            
            Date
                of borrowing
            
            Date
                of maturity
            
            Interest
                rate per annum
            
            Borrowed
                amount (RMB)
            
            Borrowed
                amount (USD)LONG
                TERM LOANSIndustrial
                and Commercial Bank of China
            
            
            2003.05.06
            
            
            2008.04.10
            
            
            5.580%
            
            
            40,000,000
            
            $
            5,064,000Industrial
                and Commercial Bank of China
            
            
            2003.05.17
            
            
            2008.04.10
            
            
            5.580%
            
            
            40,000,000
            
            $
            5,064,000Total
                long terms loans:
            
            
            
            
            
            
            80,000,000
            
            $
            10,128,000SHORT
                TERM LOANSRevolving
                credit line of RMB100MM for working capitalBank
                of China
            
            
            2006.09.22
            
            
            2007.04.21
            
            
            6.730%
            
            
            22,000,000
            
            $
            2,785,200Bank
                of China
            
            
            2006.06.20
            
            
            2006.11.19
            
            
            5.940%
            
            
            20,000,000
            
            $
            2,532,000Bank
                of China
            
            
            2006.06.28
            
            
            2006.12.27
            
            
            5.940%
            
            
            17,000,000
            
            $
            2,152,200Bank
                of China
            
            
            2006.06.12
            
            
            2006.09.11
            
            
            5.940%
            
            
            30,000,000
            
            $
            3,798,000Dalian
                Comercial Bank of China
            
            
            2006.05.16
            
            
            2007.05.15
            
            
            6.338%
            
            
            7,600,000
            
            $
            962,160Total
                short term loans:
            
            
            
            
            
            
            RMB
                96,600,000
            
            $
            12,229,560





*
      Translated using 1USD=7.8989RMB


We
      paid
      interest in the amount of $1,049,038 during
      the nine months ended September 30, 2006, of
      which
      $216,865 was
      capitalized to Construction in Progress, resulting in interest expense of
      $832,172.





27







Critical
      Accounting Policies





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








Revenue
      recognition





Product
      sales are recognized when the products are shipped and title has passed. Sales
      revenue represents the invoiced value of goods, net of a VAT. All of the
      Company's products that are sold in the PRC are subject to a Chinese value-added
      tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT
      paid by the Company on raw materials and other materials included


in
      the
      cost of producing its finished products.





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





Property,
      Plant and Equipment





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





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





Bad
      debts





The
      Company's business operations are conducted in the PRC. The Company extends
      unsecured credit to its relatively large customers with good credit history.
      Management reviews its accounts receivable on a regular basis to determine
      if
      the bad debt allowance is adequate at each year-end. Because we only extend
      trade credits to our largest customers, who tend to be well-established and
      large sized businesses, and we have not experienced any write-off of accounts
      receivable in the past. Thus, we elected not to provide for any bad debt
      allowance and considered all accounts receivable collectable.


28








Off-Balance
      Sheet Arrangements





Dalian
      Fushi has not engaged in any off-balance sheet transactions since its
      inception.




**Item
      3. 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.




**PART
      II**




**Item
        5. Other Information.**
  The
            Consolidated Statements of Income for the nine months ending September
            30, 2005
            were restated due to an error with respect to foreign exchange rates
            used in the
            calculation of foreign exchange translation gain (loss) as part of Other
            Comprehensive Income (Loss). The Company is in the process of reviewing
            the
            calculation of foreign exchange translation gain (loss) as disclosed
            in the
            audited financial statements for the year ended December 31, 2005. Once
            we have
            completed the review process, we may need to restate the financial statements
            to
            the extent that it is necessary and material.





**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.











29





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
                INTERNATIONAL, INC.Date:
                November 14, 2006
            BY:  /s/ Wenbing
                Chris
                WangWenbing
                Chris WangChief
                Financial Officer


























30


INDEX
      TO
      EXHIBITS








EXHIBIT
              NUMBER
            DESCRIPTION21.1
            List
                of Subsidiaries [WE NEED A LIST OF SUBS AND PERCENTAGE
                OWNERSHIP]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.





31