Unassociated Document

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

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

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

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

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

Overview

Since our founding in 2002, we have grown to be the leading manufacturer of bimetallic products in the world. We serve approximately 300 customers in 30 countries from our facilities in Dalian, PRC, Fayetteville, Tennessee and Telford, U.K. Historically, our principal product produced in Dalian has been Copper-Clad Aluminum, or CCA, which combines the conductivity and corrosion resistance of copper with the light weight and relatively low cost of aluminum. On October 29, 2007, we acquired Copperweld with manufacturing operations in Fayetteville, Tennessee and Telford, U.K. During the second quarter of 2008, Fayetteville shipped our products to 108 customers in 14 countries on four continents, Telford shipped to 47 customers in 12 countries and Dalian shipped to 252 customers in seven countries. The Fayetteville facility produces both CCA and Copper-Clad Steel, or CCS which combines the conductivity of copper with the strength of steel. The Telford facility further processes material produced in Fayetteville. We now produce both CCA and CCS and have a worldwide presence that combines Fushi’s recognition in China with the worldwide recognition of the Copperweld brand.

During the second quarter 2008, in Dalian, we continued development of our bimetallic projects and continued to grow sales of bimetallic wire products to further expand our sales in the utility industry. CCA flat wire is one of our projects that continues under development and offers greater value than copper wire because of its reduced cost and weight while it maintains conductivity standards required by utility companies. We believe that the successful installation of equipment (KM line) using Copperweld’s cladding technology to make copper-clad aluminum, which was completed at the onset of second quarter of 2008 will allow us to improve the quality of our bimetallic flat wire and enable us to produce larger diameter flat wire products for the PRC markets.

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

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

In Fayetteville, we should have added capacity to deliver stranded ground wire utility products by the end of the third quarter. The sales focus has been directed towards increasing our penetration of the utility market with grounding products that have superior tensile strength, greater resistance to impulses created by lightening strikes and offers reduced costs to the utility companies. Our sales initiatives include joint sales with the agents of major utility suppliers where for the first time, our sales staff will interface directly with the end user utilities providing both a more directed sales opportunity and sales training with the agents.

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

Our products are effectively “engineered composite conductors”. We do not produce commodity products and are not subject to the same pricing effects of pure commodity metals. Our customers purchase and use our products for their physical and/or conductive qualities, which have their respective application advantages, with cost savings being an added incentive. However, the high price of copper over recent years has shifted demand to higher value products such as CCA and CCS. While the pricing volatility of copper is a primary cause of cost variations in our products, changes in raw material costs do not materially affect our earnings per share. Although an increase in the price of copper may serve to reduce our gross margins as a percentage of net sales, a decline in copper prices will increase our gross margin as a percentage of net sales. As is typical in the industry, we pass the cost of price changes in our raw materials to our customers rather than the percentage changes; therefore, the impact on earnings per share from volatile raw material prices is minimal.

The price of copper impacts our operations in two significant ways. First, copper is one of the principal raw materials used in manufacturing our products. Beginning in mid-2005, copper prices began trending upward. The upward trend continued during the first quarter of 2006 until a slight downturn during November and December. The trend for 2007 was similar to the previous year although with an average Comex price of $7,103 per metric ton compared to $6,811 during 2006. During the second quarter of 2008, Comex copper prices averaged $8,380 per ton and remained at high levels compared to the same quarter last year when the average Comex copper price was $7,626 per ton. When the prices of raw materials increase, we pass those increases through to our customers. Conversely, when raw material prices decline, we pass those savings through to our customers as well. The practice of passing changes in raw material costs to our customers is not a perfect hedge against fluctuating prices, but it allows us to protect our net margin as measured by net income or by earnings per share since our sales prices are determined at the time the sales order is received. In Dalian we regularly make advance payments to our suppliers to lock in copper supplies with the side benefit of locking in prices when copper prices are increasing. At June 30, 2008, we had outstanding advances to raw material suppliers of $5.5 million. In Fayetteville, some suppliers of copper cathode require us to pay for the shipments at the cathode stage even though the copper must be further processed which locks in the cost of our future supply. In neither location are we attempting to forecast the cost of copper or other raw materials, nor are we attempting to hedge the changing costs of raw materials.

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

The preceding chart reflects the trend in copper based on the Comex Monthly Average Spot Price. The chart shows the general trend to higher copper prices over the prior three years and during the first half of 2008. The 2008 year began at the highest level of the four comparative years and trended higher through April when the average price moved lower. Even though the monthly average spot price declined during May and June, the price of copper remained at historically high levels. For the quarter ended June 30, 2008, the average Comex spot price for copper increased over the same quarter in 2007 by $753 per ton. As a measure of the increasing trend in the price of copper over time, the Comex average price per ton for the second quarter of 2008 increased over the second quarter of 2005 Comex average by $4,559 per ton, an increase of 127.5%. The average price per ton paid for copper including processing costs during the second quarter of 2008 was $8,877 in Dalian and $9,577 in Fayetteville compared to $8,241 and $8,492 for the same quarter in 2007. As discussed previously, we do not attempt to hedge the costs of copper, but rather pass the changes in price through to our customers.

The two other major components in our products are aluminum and steel. The monthly average cost of aluminum for the second quarter of 2008 increased over second quarter 2007 levels by approximately $214.07 per ton but compared to copper, aluminum has been stable. The following chart, based on Comex aluminum spot price, monthly average, shows that the average Comex price for aluminum remained above levels for previous periods included in the chart. During the quarter ended June 30, 2008, the average cost for aluminum purchased by the Dalian facility was $2,350 per ton and $3,725 per ton by Fayetteville. As with copper, we do not attempt to predict future prices for aluminum, but rather cover our risk by passing changes in the costs of aluminum to our customers.

The cost of steel varies by the type steel that is used for the various applications. The average price of Benchmarker Hot Rolled, East US index remained relatively stable over the three years prior to 2008 as shown in the following chart. Steel continues to be the lowest price raw material by weight of our principal metals; however, during 2008 and especially during the second quarter, the average price of steel has increased significantly. Steel used by the Fayetteville facility over the past three years was less than one-half the cost of aluminum and was between one-eighth and one-fifth the cost of copper. The average price paid by Fayetteville for steel increased $369 per ton, from $3,444 per ton paid during the second quarter of 2007 to $3,725 per ton during the second quarter of 2008, a 38.5% increase. We do not project the cost of raw materials but our suppliers believe that steel will remain at higher levels throughout 2008. Our Dalian facility purchased an insignificant amount of steel because we primarily produce CCA in Dalian.

Outlook for the remainder of 2008

With respect to the overall business trend for the remainder of 2008 and forward, we anticipate sales growth to continue to be aggressive and broadly based, principally due to consolidating our marketing and sales operations, the continuing demand for our products in the PRC and the influence of the Copperweld name throughout the world. Demand for our products is affected by both local and global economic conditions. The explosive sales growth in the PRC has slowed as has the housing market in the US. To compensate for changes in demand in market segments our sales and marketing focus is on broadening our customer base. Our research and development and production divisions are improving and developing our products beyond telecom enabling our sales group to broaden its focus to more sectors. We have the resources, technology, working capital and capacity to meet growing market demands. We are now strategically located so that we can serve the world’s demand for bimetallic products.

Results of Operations

Quarter Ended June 30, 2008

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of Sales		73.2	%		63.0	%		73.0	%		63.3	%
Gross Profit		26.8	%		37.0	%		27.0	%		36.7	%

Operating Expenses:
Selling expenses		2.0	%		0.7	%		1.8	%		0.8	%
General and administrative expenses		5.6	%		7.1	%		6.8	%		6.7	%
Total operating expense		7.6	%		7.8	%		8.6	%		7.4	%

Operating Income		19.1	%		29.2	%		18.5	%		29.3	%

Interest income		0.3	%		1.2	%		0.3	%		1.1	%
Interest expense		(6.1	%)		(7.1	%)		(4.8	%)		(6.9	%)
Gain on derivative instrument		0.3	%		3.1	%		0.3	%		1.7	%
Other income		0.0	%		0.4	%		0.0	%		0.4	%
Other expense		(0.1	%)		(0.1	%)		(0.1	%)		(0.2	%)

Total other expense, net		(5.6	%)		(2.4	%)		(4.3	%)		(4.0	%)
		0.0	%		0.0	%		0.0	%		0.0	%
Income before taxes		13.6	%		26.8	%		14.2	%		25.3	%

Provision for income taxes		1.9	%		0.0	%		1.4	%		0.0	%

Net Income		11.6	%		26.8	%		12.7	%		25.3	%

Other comprehensive income:
Foreign currency translation adjustment		6.9	%		8.1	%		10.4	%		6.4	%
Change in fair value of derivative instrument		7.0	%		(3.3	%)		(0.6	%)		(1.8	%)

Comprehensive Income		25.5	%		31.5	%		22.6	%		29.9	%

Comparison of the Three Months Ended June 30, 2008 and 2007

	Three Months Ended
	June 30,
000s omitted	2008		2007		Change
Sales	$	62.5	$	26.1	$	36.5	139.7	%

Sales increased 139.7% over the same quarter one year earlier because of an increase in volume of 2,350 tons sold during the second quarter of 2008 compared to the second quarter of 2007. The increase in volume was driven by internal growth and from the addition of Copperweld during the fourth quarter of 2007. Additionally, the average sales price for CCA increased by $433 per ton and CCS increased by $941 per ton during the second quarter 2008 compared the second quarter 2007.

Gross Margin

	Three Months Ended
	June 30,
	2008			2007			Change
Gross Margin (in millions)	$	16.7		$	9.7		$	7.0		73.5	%
As a percent of sales		26.8	%		37.0	%		(10.2	%)	(27.6	%)

Gross margin increased $7.0 million or 73.5% quarter over quarter. The gross margin for the second quarter 2008, as a percentage of net sales declined from 37.0% to 26.8% compared to the second quarter of 2007 due primarily to lower margins contributed by the Fayetteville and Telford facilities as well as a decline in gross margin in Dalian. When the cost of raw materials is passed to the customer, gross margin as a percentage of net sales declines.

Selling Expenses

	Three Months Ended
	2008			2007			Change
Selling Expenses (in Millions)	$	1.3		$	0.2		$	1.1		548.8	%
Selling Expenses as a % of Net Sales		2.0	%		0.7	%		1.3	%

Selling expense increased by $1.1 million or 548.8% for the quarter ended June 30, 2008 compared to the same quarter of 2007 because of the addition of Copperweld and due to substantially increased shipping costs. Selling expenses increased from 0.7% of net sales for the 2007 quarter to 2.0% of net sales during the second quarter of 2008. During the second quarter of 2008, Dalian accounted for 54.2% of selling costs.

General and Administrative Expenses

	Three Months Ended
	2008			2007			Change
General & Administrative Expense (in millions)	$	3.5		$	1.8		$	1.7		90.4	%
G&A as a percentage of Net Sales		5.6	%		7.1	%		(1.5	%)

General and administrative expenses increased by approximately $1.7 million or 90.4% during the second quarter of 2008 compared to the second quarter 2007. As a percentage of net sales, general and administrative expenses declined form 7.1% to 5.6%. The addition of Copperweld and an increase in general and administrative expenses in Dalian to accommodate increased sales account for the increase in the amount of general and administrative expenses. During the quarter, included in general and administrative expenses were non-factory depreciation and amortization of $440,028 and amortization of intangible assets was $158,651.

Interest Expense

	Three Months Ended
	2008			2007			Change
Other income and expense (in millions)
Interest income	$	0.19		$	0.32		$	(0.13	)	(39.5	%)
Interest expense	$	(3.81	)	$	(1.85	)	$	1.96		106.2	%
Net interest expense	$	(3.62	)	$	(1.53	)	$	2.09		136.5	%
Net Interest expense as a % of Net Sales		5.8	%		5.9	%

Net interest expense increased substantially during the second quarter of 2008 compared to the second quarter of 2007 largely the result of interest accrued and amortization of costs relating to commission on debt issues resulting from the Kuhns’ verdict (See Part II, Item 1) in the amount of $2.1 million. Net interest expense increased $2.09 million or 136.5% over the same three month period in the previous year. As a percentage of net sales, net interest expense decreased from 5.9% for the second quarter of 2007 to 5.8% during the second quarter of 2008. The Kuhns charges allocated to interest expense amounted to 3.4% of net sales for the second quarter of 2008. In future periods, the quarterly amortization of costs relating to commissions on debt issues awarded to Kuhns will be $112,500 until maturity of the debt.

Net Income

	Three months ended June 30,
	2008			2007			Change
(in millions)		Unaudited			Unaudited			Amount	Percentage
Net income before taxes	$	8.49		$	6.98		$	1.50	21.6	%
Provision for income taxes	$	1.21		$	-		$	1.21	100.0	%
Net income	$	7.28		$	6.98		$	0.30	4.3	%
Net Income as a % of Net Sales		11.6	%		26.8	%

Net income for the three month period ending June 30, 2008 was $7.28 million compared to $7.0 million for the comparable period in 2007, an increase of approximately $300,000 or 4.3%. Net income as a percentage of net sales declined from 26.8% for the prior period to 11.6% because of interest and amortization expenses of approximately $2.1 million related to the Kuhns’ verdict and, as in more fully described in the section “Taxation” below, we became liable for PRC income taxes on our Dalian operation during 2008 and because of the lower gross margins from Fayetteville, Telford and Dalian operations during the period.

	Three months ended June 30,
	2008		2007
	Unaudited		Unaudited
Net Income	$	7.28	$	6.98
Basic Weighted Average Number of Shares		27,354,215		21,487,056
Net Income per Share–Basic	$	0.27	$	0.32
Diluted Weigheted Average Number		28,732,109		25,192,643
Net Income per Share–Diluted	$	0.25	$	0.28
Pro Forma without Kuhns Verdict:
Net Income per Share–Basic	$	0.34
Net Income per Share–Diluted	$	0.33

Basic and diluted earnings per share (EPS) for the quarter ended June 30, 2008 were $0.27 and $0.25, compared to $0.32 and $0.28 for the second quarter last year. On a pro forma basis, excluding the Kuhns verdict, net income would amount to $9.4 million and the diluted EPS would increase to $0.33.

Six Months Ended June 30, 2008 and 2007

Net Sales

	Six Months Ended
	June 30,
(in millions)	2008		2007		Change
Sales	$	116.5	$	47.2	$	69.3	146.8	%

Net sales increased for the first six months of 2008 by $69.3 million or 146.8% over the level of net sales for the first six months of 2007. The increase in sales resulted from the acquisition of Copperweld and from continuing growth in the Chinese market. Approximately 69.5% of sales for the first six months were generated through Dalian with the remainder coming from Fayetteville and Telford.

Gross Margin

	Six Months Ended
	June 30,
	2008			2007			Change
Gross Margin (in millions)	$	31.5		$	17.3		$	14.1		81.6	%
As a percent of sales		27.0	%		36.7	%		(9.7	%)

The gross margin increased by $14.1 million or 81.6% during the first six months of 2008 compared to the same period in 2007 largely due to the increase in sales. The net margin as a percentage of sales declined largely because of lower margins in all three locations largely as a result of increases in raw material costs.

Selling Expenses

	Six Months Ended
	2008			2007			Change
Selling Expenses (in Millions)	$	2.1		$	0.4		$	1.7		455.7	%
Selling Expenses as a % of Net Sales		1.8	%		0.8	%		1.0	%

Selling costs increased by approximately $1.4 million or 455.7% for the first six months of 2008 compared to the first six months of 2007 because of the addition of Copperweld and because of increases in shipping and sales costs in Dalian to accommodate greater sales volumes in the PRC. As a percentage of net sales, selling expenses were 1.8% of the first six months of 2008 compared to 0.8% in 2007.

General and Administrative Expenses

	Six Months Ended
	2008			2007			Change
General & Administrative Expense (in millions)	$	7.9		$	3.1		$	4.8		152.1	%
G&A as a percentage of Net Sales		6.8	%		6.7	%		0.1	%

General and administrative expenses increased during the first six months of 2008 by approximately $4.8 million or 152.2% compared to the same period in 2007. As a percentage of net sales, G&A increased from 6.7% of net sales in the first six months of 2007 to 6.8% of net sales for 2008. Non factory depreciation of $842,480 and amortization of intangible assets of $178,073 were included in general and administrative expenses for the six months ended June 30, 2008 compared to $460,116 and $353,118 respectively for the same period during 2007.

Interest Expense

	Six Months Ended
	2008			2007			Change
Other income and expense (in millions)
Interest income	$	0.35		$	0.51		$	(0.16	)	(30.7	%)
Interest expense	$	(5.59	)	$	(3.28	)	$	2.31		70.4	%
Net interest expense	$	(5.23	)	$	(2.77	)	$	2.46		89.1	%
Net Interest expense as a % of Net Sales		4.5	%		5.9	%

Net interest expense increased substantially during the six month period ended June 30, 2008 compared to the similar period during 2007 largely the result of interest accrued and amortization of costs relating to commission on debt issues resulting from the Kuhns’ verdict (See Part II, Item 1) in the amount of $2.1 million. Net interest expense increased $2.46 million or 89.1% over the same six month period in the previous year. As a percentage of net sales, interest expense decreased from 5.9% for the second quarter of 2007 to 4.5% during the second quarter of 2008. The Kuhns charges of $2.1 million represent 2.0% of net sales.

Selected Balance Sheet Data at June 30, 2008 (unaudited) and the year ended December 31, 2007:

	Selected Balance Sheet Accounts As of:
	30-Jun-08		31-Dec-07
	Unaudited				Change			% Change
Cash	$	66.9	$	79.9		(13.05	)		(16.3	%)
Accounts Receivable, net	$	43.9	$	23.6		20.29			85.9	%
PP&E	$	105.5	$	87.2		18.24			20.9	%
Total Assets	$	289.5	$	246.5		43.05			17.5	%
Short Term Debt	$	26.4	$	23.8		2.61			10.9	%
Lont Term Debt	$	54.2	$	68.5		(14.27	)		(20.8	%)
Shareholders' Equity	$	183.0	$	144.3		38.73			26.8	%

Our financial condition continues to improve as shown by an increase of 26.8% in shareholders’ equity during the first half of 2008. Cash decreased 16.3% during the quarter and our accounts receivable increased by 85.9% as a result of increased sales volume. Property, plant and equipment increased by 20.9% during the six month ended June 30, 2008 compared to the prior year end. Short term debt increased by 10.9% as a result of an increase in short term borrowings. Long term debt declined by 20.8% because the holder of $20.0 million in our convertible notes converted $15.0 million of such notes during the first quarter of 2008.

Net Sales by Product

Net sales were $116.6 million during the first six months of 2008 compared to $83.4, on a pro forma basis, during the first six months of 2007. Of the 39.8% in sales growth in the year to date period ended June 30, 2008, CCA contributed 58.7% of the growth while CCS declined by 8.2%. All of the CCS sales during the 2007 period and the majority of CCS sales for the 2008 period are from Fayetteville and Telford. Dalian increased sales for the six month period ended June 30, 2008 by 73.5% over the same period in 2007 while Fayetteville sales declined by 4.9% and Telford’s by 36.0% over the comparable period in 2007. The increase in Dalian’s net revenue was based primarily on increased volumes. The following chart below includes Copperweld and Copperweld UK’s net sales for the first six months of 2007 for comparison purpose.

Six Months Ended
June 30,
(in millions)	2008		2007		Change
CCA	$	92.8	$	58.8	$	34.0		57.8	%
CCS	$	21.6	$	23.3	$	(1.7	)	(7.2	%)
Other	$	2.2	$	1.4	$	0.8		61.6	%
	$	116.6	$	83.4	$	33.2		39.8	%

Note: Copperweld companies included in 2007 on pro forma basis for comparative purposes

Net Sales by Industry

	Six Months Ended
	June 30,
	2008		2007		Change
Telcom	$	62.1	$	45.7	$	16.5		36.0	%
Utility	$	48.0	$	31.2	$	16.8		54.0	%
Other	$	4.7	$	1.7	$	2.9		167.3	%
Automotive	$	1.6	$	2.1	$	(0.5	)	(-25.5	%)

Note: Copperweld companies included in 2007 on pro forma basis for comparative purposes

We are continuing to expand our markets beyond telecom, which historically has been the major user of our products, both in Dalian and Fayetteville. Telecom represented 53.3% of sales for the six month period that ended June 30, 2008 compared to approximately 56.6% for the first six months of 2007. Notwithstanding the decline as a percentage of net sales, sales to the telecom industry actually increased by 36.0% during the first half of 2008. We anticipate that telecom will continue to maintain current or expanded volumes but our goal is to expand into other markets as well. We successfully increased sales to the utility market by $16.8 million or by 54.0% during the first half of 2008 compared to the prior year, on a pro forma basis. We believe that automotive, while comparatively small at present, joins the utility market as a potential market for future growth.

	Quarters Ended
	31-Mar-08		30-Jun-08		Change			% Change
Telecom	$	29.5	$	32.6	$	3.1			10.4	%
Utility	$	21.3	$	26.7	$	5.4			25.4	%
Auto	$	0.5	$	1.1	$	0.6			135.6	%
Other	$	2.7	$	2.0	$	(0.7	)		(-26.5	%)
Total	$	54.0	$	62.6	$	8.7			16.0	%

The above chart compares sales to market segments for the first two quarters of 2008. The chart shows a 25.4% gain in the utility sector compared to a10.4% sales growth in the telecom sector. Fayetteville and Telford both experienced declines in sales to the telecom sector during the first half of 2008 The automotive sales come from Fayetteville and Telford where the third quarter has historically been a stronger quarter than either the first or second.

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

	Six Months Ended June 30, 2008
	Dalian					Fayetteville					Telford
	Tons Shipped		% of Tonnage			Tons Shipped		% of Tonnage			Tons Shipped		% of Tonnage
Telecom		7,075.3		35.8	%		2,849.7		14.4	%		71.3		0.4	%
Utility		5,748.2		29.1	%		2,626.2		13.3	%		89.9		0.5	%
Auto		-		0.0	%		107.9		0.5	%		156.9		0.8	%
Other		342.3		1.7	%		686.8		3.5	%		-		0.0	%
Total		13,165.8		66.6	%		6,270.6		31.7	%		318.1		1.6	%

Dalian shipped 66.6% of total tonnage produced during the first half of 2008 with sales to the telecom market contributing 35.8% and sales to the utility market contributing 29.1% of total volume indicating a further diversification of sales from Dalian beyond the telecom market. Fayetteville shipped 31.7% of total tonnage split between telecom at 14.4% and utility with 13.3%. Auto was 0.5% for the first six months of 2008; however, historically, the majority of sales to this segment have been made during the last six months of the year. Telford shipped 1.6% of total tonnage split between telecom, utility and auto.

Capacity

The following table summarizes installed capacities and outputs for the six month period ended June 30, 2008. Capacity is stated on an annual basis while output is the amount of product shipped during the first half of 2008. Telford’s production does not include cladding and the numbers reflect CCS that was further processed by Telford during the period.

	Six Months ended June 30, 2008
	Dalian				Fayetteville				Telford
	Installed Capacity		Output		Installed Capacity		Output		Installed Capacity		Output
Product Line	Metric Tons		Metric Tons		Metric Tons		Metric Tons		Metric Tons		Metric Tons
CCA		33,600		13,157.9		12,400		1,899.9
CCS		-		7.9		16,300		4,366.4		900		246.3
Other								4.3				71.8
Total		33,600		13,165.8		28,700		6,270.6		900		318.1

At June 30 2008, we had combined annual production capacity for CCA of 46,000 metric tons and CCS capacity of 16,300 metric tons on an annual basis based on our product mix at June 30, 2008. Installed capacity can increase or decrease based on the size of the rod used in the cladding operation for CCA and on the conductivity engineered into the CCS production. We installed a remanufactured Copperweld CCA clad line in Dalian and began CCA production on the new line at the end of the first quarter 2008. We ordered a new CCA cladding line from Nexans in April and expect to have the new, additional CCA capacity installed in Dalian during the first quarter of 2009. The decision to purchase a new clad line versus refurbishing an existing line was made on the basis of costs. The estimated cost to refurbish a line from Fayetteville was approximately the same as purchasing a new machine. We plan to have CCS cladding capacity installed in Dalian by the end of 2008. Two CCS clad lines, two additional drawing machines from Fayetteville have been refurbished and will be shipped to and installed in Dalian with production expected early in 2009. Two CCS drawing machines are installed in Dalian and are ready for the clad lines to begin production.

	Six Months Ended June 30,
	Dalian				Fayetteville				Telford
	Average Price/Ton		Average Price/Ton		Average Price/Ton		Average Price/Ton		Average Price/Ton		Average Price/Ton
	2008		2007		2008		2007		2008		2007
CCA	$	6,462	$	6,330		7,017		6,283		0		0
CCS	$	4,264	$	3,207		5,054		4,142	$	9,720	$	8,865

Our products are engineered products rather than commodities; therefore, the selling prices of our products are dependent upon diameter, tensile strength, conductivity and other factors specified by each customer. For example, Dalian’s prices are lower than Fayetteville’s for CCA because our products sold for telecom may require less engineering and fewer manufacturing processes than for products sold in Fayetteville. Our Dalian facility sold small introductory quantities of CCS at the end of 2007 and during the first half to 2008 at introductory prices. For the first half of 2008, the average price of CCA produced in Dalian and sold primarily in the PRC was $6,462 per ton compared to $6,330 for the same period during 2007. The average price of CCA produced in Fayetteville during the first half of 2008 was $7,017 compared to $6,283 per ton for 2007. Telford further manufacturers CCS material produced in Fayetteville and therefore extracts additional value added charges based on the level of additional production that is required to meet the customer’s demand. The average price of CCS sold by Telford during the first half of 2008 was $9,720 versus $8,865 for the comparable period of 2007. Both Dalian and Fayetteville sell a variety of CCA products and the price for each variety may vary based on the amount of manufacturing required and the ratio of copper to aluminum. As with CCA, the average selling price of CCS varies by product type primarily based on the amount of copper in the product and the amount of manufacturing required.

	Quarters Ended
	Mar-08			Mar-08			Mar-07			Jun-07
CCA		73.9	%		77.3	%		59.5	%		65.7	%
CCS		24.1	%		20.5	%		39.2	%		31.5	%
Other		2.0	%		2.2	%		1.2	%		2.8	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Note: Copperweld companies included in 2007 on pro forma basis for comparative purposes

The chart above illustrates the growth of CCA as a percentage of tons sold comparing the first two quarters of 2008 to the first two quarters of 2007, on a pro forma basis. The decline in the percentage of sales to the CATV market from the Copperweld locations is a major cause for the decline.

Customers

During the first half of 2008, our largest five customers accounted for 20.5% of our sales. The largest two customers, one a customer of Fayetteville and the other a customer of Dalian each represented 5.1% of net sales. Our ten largest customers represented 32.6% of sales for the first half of 2008. The acquisition of Copperweld resulted in both locations reducing exposure to our largest customers. Our strategy is to continue to expand and diversify our customer base in future periods. We believe this increased diversification significantly limits our market risk and gives us a stronger base on which to expand. We further believe our overall customer composition and the concentration of our top customers will continue to change as we expand our business and seek to shift our product sales portfolio to higher margin products. However, the loss of, or significant reduction in orders from any of our largest customers may have a material adverse impact on our financial condition and operating results. We are continuing to expand and consolidate the direction of our combined sales and marketing group in order to focus our resources on diversification of our customer base, product mix and geographic presence to mitigate customer concentration risk. Our objective is to focus on expanding our existing business relationships by offering a wider range of products and building new sales relationships throughout the world with our expanded sales organization.

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

	Top Ten Customers
	Six Months ended June 30, 2008
Sales Office	Tons Sold		Amount of Sale		% of Sales
Fayetteville		1,131	$	5,944,411		5.1	%
Dalian		1,167	$	5,891,008		5.1	%
Fayetteville		713	$	4,441,759		3.8	%
Dalian		590	$	3,931,448		3.4	%
Dalian		612	$	3,722,774		3.2	%
Dalian		499	$	3,365,009		2.9	%
Fayetteville		547	$	3,210,375		2.8	%
Dalian		452	$	2,792,360		2.4	%
Dalian		407	$	2,680,943		2.3	%
Dalian		334	$	2,067,341		1.8	%

Manufacturing

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

Geography

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

Cost of Goods Sold

	Six Months Ended
	June 30,								Pro Forma
Combined:	2008 % COGS				2007 % COGS				2007 % COGS
Primary Material Cost	$	73.0	85.8	%	$	27.8	93.0	%	$	53.0	84.1	%
Accessorial material cost	$	1.3	1.5	%	$	0.6	2.1	%	$	0.7	1.1	%
Labor	$	3.8	4.5	%	$	0.4	1.2	%	$	4.7	7.4	%
Manufacturing Overhead	$	7.0	8.2	%	$	1.1	3.7	%	$	4.6	7.4	%
Cost of Goods Sold	$	85.1	100.0	%	$	29.9	100.0	%	$	63.1	100.0	%
COGS/Net Revenue			73.0	%			63.3	%			71.8	%

The cost of goods sold increased to $85.1 million during the first six months of 2008, from $27.8 million first six months of 2007 the result of the Copperweld acquisition, Dalian organic growth and increases in the cost of raw materials. As measured as a percentage of net revenue, cost of goods sold for the first six month of 2008 was 73.0% compared to 63.3% for the same period of 2007. Higher labor and manufacturing overhead costs represent increases to the cost of goods sold during the current six month period compared to the first six months of 2007 largely because of the Copperweld acquisition. The pro forma columns in the chart show the first six months of 2007 on a combined basis for comparative purposes. The pro forma columns show the impact of higher non-material cost in Fayetteville and Telford which have historically had higher labor and overhead costs. Labor and overhead costs have been reduced since the first six months of 2007 in Fayetteville through a reduction in salaries and benefits. Labor costs in both Fayetteville and Telford have been reduced over 2007 levels by reductions in the work force. Cost of goods sold principally consists of the cost of raw materials, labor, utilities, manufacturing costs, manufacturing related depreciation, machinery maintenance costs, purchasing and receiving costs, inspection costs, shipping and handling costs, and other fixed costs associated with the manufacturing process.

Raw Materials

	Six Months Ended June 30,
	2008						2007
	Tons		Costs		Average per Ton		Tons		Costs		Average per Ton		Cost Change
Copper		5,804	$	50,144,555	$	8,639		3,676	$	28,418,716		7,730		11.8	%
Aluminum		12,323	$	30,249,260	$	2,455		7,761.2	$	19,845,438		2,557		(-4.0	%)
Steel		3,741	$	4,332,782	$	1,158		3,969.4	$	3,717,365		936		23.7	%
Total		21,868	$	84,726,598				15,407	$	51,981,519

Note: Copperweld companies included in 2007 on pro forma basis for comparative purposes

Copper, aluminum and steel are the primary raw materials we use to manufacture our products. During the first half of 2008, we purchased over 5,804 tons of copper, 12,323 tons of aluminum and 3,741 tons of steel. Raw material costs accounted for 86.1% of total cost of goods sold during the first half of 2008 and 84.1% for the first half of 2007. The cost of copper increased 118% over the same period in 2007. The cost of aluminum actually was about 4.0% less during the first half of 2008 compared to the first half of 2007. We experienced a significant increase in the cost of steel which rose by 23.7% during the first half of 2008 compared to the first half of 2007. (Note: The cost of material purchased will not necessarily equal material cost in the Cost of Good Sold Chart because of inventory increases or declines.)

Suppliers

We also significantly diversified our sources of supply. In Dalian, we have historically relied on two key suppliers for the procurement of copper strip and aluminum. These two suppliers combined to account for approximately 58.8% of our total raw material purchases during the quarter ended June 30, 2007. Our two largest suppliers accounted for 34.3% of our raw material purchases during the first six months of 2008.

The following table sets forth our ten largest raw material suppliers for the six months ended June 30, 2008 and June 30, 2007.

	Six Months Ended June 30,
	2008							2007
Top Ten Raw Material Suppliers	Amount of Purchases		% of Total Purchases			Top Ten Raw Material Suppliers		Amount of Purchases		% of Total Purchases
Dalian—Copper	$	22,462,698		26.4	%		Dalian—Copper	$	9,179,349		16.91	%
Dalian—Copper	$	9,783,592		11.5	%		Dalian—Aluminum	$	5,102,030		9.40	%
Dalian—Aluminum	$	8,374,023		9.8	%		Dalian—Aluminum	$	4,772,410		8.79	%
Dalian—Aluminum	$	7,744,067		9.1	%		Fayetteville—Copper		4,143,375		7.63	%
Dalian—Aluminum	$	6,159,834		7.2	%		Dalian—Aluminum	$	4,091,310		7.54	%
Fayetteville—Copper		4,405,503		5.2	%		Fayetteville—Aluminum		3,910,860		7.21	%
Fayetteville—Copper		4,339,232		5.1	%		Dalian—Aluminum	$	3,779,474		6.96	%
Fayetteville—Copper		3,239,780		3.8	%		Fayetteville—Copper		2,643,234		4.87	%
Fayetteville—Aluminum		3,196,916		3.8	%		Fayetteville—Steel		2,319,782		4.27	%
Fayetteville—Steel		2,664,204		3.1	%		Fayetteville—Copper		1,939,440		3.57	%

Note: Copperweld companies included in 2007 on pro forma basis for comparative purposes

Taxation

U.S. income tax

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

P.R.C. enterprise income tax

During the first half of 2008, our PRC chartered subsidiaries continue to produce taxable income for PRC tax purposes. PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. In accordance with “Income Tax Law of China for Enterprises with Foreign Investment and Foreign Enterprises,” or the Income Tax Law, “Foreign Invested Enterprises”, or FIEs, established in the PRC were generally subject to an “Enterprise Income Tax”, or EIT, rate of 33% prior to January 1, 2008. PRC domestic companies are governed by the Enterprise Income Tax Laws of the PRC and are also generally subject to an EIT.

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

Fushi International (Dalian) (“FID”), a wholly owned subsidiary of Fushi Holdings, Inc., was incorporated in the PRC as an FIE and is subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. FID has located its factories in a special economic region in Dalian and is granted certain preferential treatments including a corporate income tax rate of 24%. In September 2005, FID was approved as a wholly foreign owned enterprise. This economic region allowed FID a two-year income tax exemption for the years ended December 31, 2006 and 2007, and a 50% income tax reduction for the following three years ended December 31, 2008, 2009, and 2010. Therefore, during the current fiscal year, our PRC operations are taxed at a rate of 12% subject to appropriate adjustments.

A provision for PRC income taxes was made during the six month period ended June 30, 2008 in the amount of $2,844,180. No provision was made for the six month ended June 30, 2007.

U.K. income tax

Copperweld UK is organized as a United Kingdom private company and subject to 20% to 28% statutory taxes on its taxable income. The provision for income tax for the six months ended June 30, 2008 and 2007 was $19,933 and 0, respectively.

Net Income

	Six months ended June 30,
	2008			2007			Change
(in millions)	Unaudited			Unaudited			Amount		% Change
Net income before taxes	$	16.53		$	11.96		$	4.57		38.2	%
Provision for income taxes	$	1.68		$	-		$	1.68		0.0	%
Net income	$	14.85		$	11.96		$	2.89		24.2	%
Net Income as a % of Net Sales		12.7	%		25.3	%

Net income for the six month period ended June 30, 2008 increased to approximately $14.9 million from approximately $12.0 million for the period ended June 30, 2007representing an increase of $2.9 million or 24.2%. Current period charges resulting from the Kuhns verdict (See Item 1, Part II) reduced net income by approximately $2.1 million or 1.8% of net sales. Net income for the current semi-annual period was 12.7% of net sales compared to 25.3% for the same period for the prior year. The decline in net margin quarter over quarter is the result primarily from charges related to the Kuhns’ verdict and lower gross margin because of higher raw material costs and because of the historically lower gross margins from Fayetteville and Telford.

	Six months ended June 30,
	2008		2007
	Unaudited		Unaudited
Net Income	$	14.85	$	11.96
Basic Weighted Average Number of Shares		27,201,127		21,116,447
Net Income per Share—Basic	$	0.55	$	0.57
Diluted Weigheted Average Number		28,690,851		24,667,346
Net Income per Share—Diluted	$	0.51	$	0.49

Pro Forma without Kuhns Verdict:
Net Income per Share—Basic	$	0.62
Net Income per Share—Diluted	$	0.59

Basic and diluted earnings per share for the six months ended June 30, 2008 were $0.55 and $0.51 compared to $0.57 and $0.49 for the same period in 2007. Pro forma basic and diluted earnings per share were $0.62 and $0.59 respectively absent the affect of the Kuhns verdict. The weighted average number of shares outstanding to calculate basic EPS was 27.2 million and 21.1 million for the six months ended June 30, 2008 and June 30, 2007, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 28.7 million and 24.7 million for the same periods.

Foreign Currency Translation Gains

The value of the USD versus the RMB continued to decline during the first half of 2008. As a result of the appreciation of the RMB, we recognized a foreign currency translation gain of $12.1 million for the first six months of 2008 compared to a gain of $3.0 million for the same quarter last year. Given the uncertainty of exchange rate fluctuations, we cannot estimate the effect of these fluctuations on our future business, product pricing, and results of operations or financial condition.

Prior to acquiring Copperweld, materially all of our revenues and a majority of our expenses were denominated in RMB Yuan. For our operations in the PRC, the income statement accounts were translated at 1 RMB Yuan to 0.14372 USD in second quarter of 2008 and 0.13977 in first quarter of 2008and balance sheet amounts with the exception of equity at June 30, 2008 were translated at 1 RMB Yuan to 0.14579 USD.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations and capital expenditures principally through private placements of debt and equity offerings, bank loans, and cash provided by operations. At June 30, 2008, the majority of our liquid assets were held in RMB denominations deposited in banks within the PRC. The PRC has strict rules for converting RMB to other currencies and for movement of funds from the PRC to other countries. Consequently, in the future, we may face difficulties in moving funds deposited within the PRC to fund working capital or capital expenditure requirements for our locations outside the PRC. To mitigate the difficulties of moving funds, we plan to maintain and expand our working capital lines for Fayetteville and Telford as necessary as our sales increase and our working capital needs grow.

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

In summary, our cash flows were:

	Six Months Ended June 30,
	2008			2007
Net cash provided by operating activities		(4,579,390	)		6,331,245
Net cash used in investing activities		(14,715,051	)		(12,152,046	)
Net cash provided by financing activities		1,403,740			58,665,167
Effect of exchange rate on cash		4,837,022			1,867,519
Cash and cash equivalents at beginning of period		79,914,758			20,493,551
Cash and cash equivalents at end of period		66,861,079			75,204,436

For the six months ended June 30, 2008, net cash provided by operating activities was a deficit of $4.6 million compared to cash provided of $6.3 during the same period in 2007. The difference in net cash provided was primarily attributable to increases of $16.9 million in accounts receivable, $10.9 million in inventories and $3.5 million in other payables. These reductions were offset to some degree by earnings of $2.9 million and an increase in accounts payable of $7.7 million.

For the six months ended June 30, 2008, net cash used in investing activities was $14.7 million, and was primarily attributable to $13.6 million in property and equipment purchases, $3.1 million used as advances for purchase of equipment and $1.7 million used to purchase land use rights. The reduction was partially offset by the sale of marketable securities.

For the six months ended June 30, 2008, net cash provided by financing activities was $1.4 million, which was primarily attributable to $16.9 million in bank loans and an increase in our revolving line of credit of $1.8 million mostly offset by repayments on bank loans of $17.2 million.

At June 30, 2008, our cash balance was $66.9 million compared to $75.2 million at June 30, 2007.

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

On August 5, 2008, a judgment was entered in the Kuhns matter (See Part II, Item 1 Litigation) awarding the plaintiffs $7.2 million and accordingly, we have adjusted our financial statements for the three month and six month periods ended June 30, 2008 accordingly. We have taken the necessary steps to appeal the decision, and will continue to vigorously defend against these claims which we believe to be without merit; however, we have no assurance that we will prevail in our appeal. Should we ultimately be required to pay the plaintiffs the amount of the judgment, the payment will have an impact upon our liquidity and working capital. We believe that the payment, should it be required, will not adversely affect our ability to fund our working capital needs or to fund our capital expenditure needs.

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

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

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

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

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

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

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

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

On June 1, 2008, John Christopher “Chris” Finley’s resignation as Chief Operating Officer was accepted and an agreement was reached where Mr. Finley will consult with the Company for a period of twelve months. Mr. Finley’s duties included oversight of manufacturing operations, global sales and research and development. As of June 30, 2008, no one had been named to replace Mr. Finley as Chief Operating Officer. General and production managers of our manufacturing facilities have assumed responsibility for manufacturing operations and Dwight Berry was employed as Vice President for Commercial Development where he oversees global sales and research and development. Other duties have been assumed by President Wenbing Chris Wang. We may choose to name a Chief Operating Officer at some future date; however, presently all responsibilities are effectively assumed by other managers within the company.

Critical Accounting Policies

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Commodity Price Risk

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

We are primarily exposed to price risk related to our purchase of copper and other raw materials used in the manufacture of our products. Our raw material price management strategy involves the use of natural techniques, where possible, such as purchasing copper for future delivery at fixed prices. We did not have any commodity price derivatives or hedging arrangements outstanding at June 30, 2008 and did not employ any commodity price derivatives during the six month period ended June 30, 2008.

Foreign Exchange Risk

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

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

To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. We recognized a foreign currency translation adjustment of approximately $12.2 million for the six month period ended June 30, 2008.

Interest Rate Risk

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

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

The fair value of the Swap is determined on an annual basis with the assistance of third party provided calculations which reflect the present values of the difference between estimated future variable-rate receipts in USD and future fixed-rate payments in RMB. For the fiscal year ended December 31, 2007, changes in fair value of the Swap designated and effective as cash flow hedge resulted in an increase in the liability and a loss to other comprehensive income of $8.5 million, net of taxes. For the period ended June 30, 2008, the Swap resulted in a liability of $9,246,901 and a loss to other comprehensive income of $731,505, net of taxes. On January 24, 2008, the most recent interest payment date, the Company received cash in the amount of $738,376 from MLCS. The gain from derivative transactions for the six months ended June 30, 2008 was $355,189. As of June 30 2008, the Company had cross currency hedge receivable amounting to $322,983. For the six month period ended June 30, 2008, there were no amounts recorded in the consolidated statement of income in relation to this interest rate swap related to ineffectiveness.

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

The Company also has outstanding senior convertible notes that may be converted into the Company’s common stock. On January 8, 2008, the convertible notes holder elected to convert $15.0 million of the $20 million convertible notes into common shares. The Company cannot estimate the possibility of the conversion of the $5 million Convertible Notes outstanding as of June 30, 2008. If the $5 million Convertible Notes outstanding as of June 30, 2008 are not converted at maturity, January 24, 2012, the Company will have to repay the principal of $5 million and an additional redemption cost of $5,305,158.

Under SFAS 157, the Company used Level 2 inputs for its valuation methodology for the $40 million HY note and $5 million convertible notes payable and outstanding, and their fair values are determined using cash flows discounted at relevant market interest rates in effect at the period close. The estimated fair value of the Company’s outstanding HY notes and convertible notes was $39.6 million at June 30, 2008.

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

Credit Risk

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

Inflation Risk

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

Item 4: Other Information

Controls and Procedures

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

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

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

PART II

Item 1. Litigation.

On December 11, 2006 we received service of a complaint filed by Kuhns Brothers, Inc., Kuhns Brothers Securities Corp., and Kuhns Brothers & Co., Inc. (collectively the “Kuhns Brothers”) in the United States District Court, District of Connecticut (the “District Court”) on November 27, 2006. Kuhns Brothers revised their complaint three times, and sought damages well in excess of $7.0 million, primarily stemming from an alleged breach of an engagement letter agreement, dated May 27, 2005, by and between Kuhns Brothers, Inc. and Dalian Fushi Bimetallic Manufacturing Company Ltd., which was terminated in September 2006. This matter was tried before the District Court, which awarded Kuhns Brothers damages in excess of $7.2 million in its decision issued on August 5, 2008. We have taken the necessary steps to appeal the decision, and will continue to vigorously defend against these claims which we believe to be without merit.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders (the Meeting) on June 9, 2008. Proxies for the Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. A total of 27,433,515 shares of Common Stock with one vote each were entitled to vote at the Meeting and holders of 13,540,181 shares voted in person or by proxy, constituting a quorum. At the meeting, the Company’s directors were re-elected for terms ending at the 2009 Annual Meeting of Shareholders by the vote set forth below:

Director	Votes For		Votes Withheld
Li Fu		13,750,555		17,563
Wenbing Christopher Wang		13,540,181		227,937
Barry Raeburn		13,751,195		16,923
Feng Bai		13,540,181		227,937
Jiping Hua		13,540,206		227,912
John Francis Perkowski		13,751,195		16,923

A proposal to ratify the appointment of Moore Stephens Wurth Frazer and Torbet, LLP as the Company’s independent registered public accounting firm for the 2008 fiscal year by the Audit Committee of the Board of Directors of the Company was approved by 13,754,910 cast in favor, 546,683 votes cast against and 200 votes abstaining.

Item 6. Exhibits

(a) Exhibits

10.1- Settlement Agreement among Fushi Copperweld, Inc. and John Christopher Finley

10.2 - Employment Agreement of Dwight Berry

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.

SIGNATURES

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

	FUSHI COPPERWELD, INC.

Date: August 11, 2008	BY:
		Wenbing Chris Wang
		Chief Financial Officer

INDEX TO EXHIBITS

EXHIBIT NUMBER		DESCRIPTION

10.1		Settlement Agreement among Fushi Copperweld, Inc. and John Christopher Finley

10.2		Employment Agreement of Dwight Berry

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.

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

	Page
Part I - Financial Information

Item 1 - Financial Statements

Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007	1

Consolidated Statements of Income and Other Comprehensive Income for the six months ended June 30, 2008 and 2007 (unaudited)	2

Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)	3

Notes to the Consolidated Financial Statements (unaudited)	4

Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition	31

Item 3 Quantitative and Qualitative Disclosure about Market Risk	54

Item 4 Controls and Procedures	58

Part II

Item 1 Litigation	58

Item 4 Submission of Matters fo a Vote of Security Holders	58

Item 6 Exhibits	59

Signature Page	60

	June 30,		December 31,
	2008		2007
	Unaudited
A S S E T S
CURRENT ASSETS:
Cash	$	66,861,079	$	79,914,758
Marketable Securities		-		2,977,699
Restricted cash		1,000,000		1,000,000
Accounts receivable, trade, net of allowance of bad debt $517,453 and $135,418 as of June 30, 2008 and December 31, 2007		43,896,897		23,611,186
Inventories		25,846,519		12,308,295
Notes receivables		533,220		816,905
Other receivables and prepaid expenses		592,207		997,979
Advances to suppliers		5,489,653		2,341,839
Cross currency hedge receivable		322,983		706,170
Total current assets		144,542,558		124,674,831

PLANT AND EQUIPMENT, net		105,470,718		87,228,600

OTHER ASSETS:
Advances to suppliers, noncurrent		19,016,466		18,204,775
Prepaid land use right		-		4,559,760
Intangible asset, net of accumulated amortization		12,589,160		5,832,721
Deferred loan expense, net		3,862,624		3,115,930
Deferred tax assets		4,040,895		2,852,000
Total other assets		39,509,145		34,565,186

Total assets	$	289,522,421	$	246,468,617

L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y

CURRENT LIABILITIES:
Accounts payable, trade	$	10,465,124	$	3,028,823
Notes payable, current		60,022		-
Revolver line		8,894,855		7,168,524
Short term bank loans		17,494,800		5,703,360
Current portion of long term debts		-		10,968,000
Other payables and accrued liabilities		4,612,821		5,791,597
Customer deposits		658,517		-
Taxes payable		2,871,605		1,005,259
Total current liabilities		45,057,744		33,665,563

LONG TERM LIABILITIES:
Notes payable, noncurrent		45,000,000		60,000,000
Fair value of derivative instrument		9,246,901		8,515,396

Total liabilities		99,304,645		102,180,959

COMMITMENTS AND CONTINGENCIES		7,197,794		-

SHAREHOLDERS' EQUITY:
Preferred stock,$0.001 par value, 5,000,000 shares authorized, none issued or outstanding		-		-
Common stock,$0.006 par value, 100,000,000 shares authorized, June 30, 2008: 27,459,012 shares issued and 27,359,012 outstanding December 31, 2007: 25,311,304 shares issued and 25,211,304 outstanding		164,154		151,268
Restricted common stock in escrow		600		600
Additional paid in capital		90,079,011		77,665,064
Statutory reserves		8,321,726		8,321,726
Retained earnings		68,984,413		54,133,070
Accumulated other comprehensive income		15,470,078		4,015,930
Total shareholders' equity		183,019,982		144,287,658

Total liabilities and shareholders' equity	$	289,522,421	$	246,468,617

	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007

REVENUES	$	62,536,129		$	26,085,908		$	116,545,156		$	47,223,825

COST OF GOODS SOLD		45,789,522			16,433,794			85,064,862			29,886,532

GROSS PROFIT		16,746,607			9,652,114			31,480,294			17,337,293

OPERATING EXPENSE
Selling expenses		1,258,050			193,916			2,050,961			369,110
General and administrative expenses		3,521,466			1,849,067			7,917,245			3,140,480
Total operating expense		4,779,516			2,042,983			9,968,206			3,509,590

INCOME FROM OPERATIONS		11,967,091			7,609,131			21,512,088			13,827,703

OTHER INCOME (EXPENSE)
Interest income		192,458			318,244			352,821			509,454
Interest expense		(3,805,067	)		(1,845,550	)		(5,585,536	)		(3,277,211	)
Gain on derivative instrument		186,022			802,523			355,190			802,523
Other income		(6,868	)		112,506			34,705			174,616
Other expense		(46,007	)		(14,195	)		(142,707	)		(79,694	)
Total other expense, net		(3,479,462	)		(626,472	)		(4,985,527	)		(1,870,312	)

INCOME BEFORE INCOME TAXES		8,487,629			6,982,659			16,526,561			11,957,391

PROVISION OF INCOME TAXES		1,206,783			-			1,675,218			-

NET INCOME		7,280,846			6,982,659			14,851,343			11,957,391

OTHER COMPREHENSIVE INCOME
Unrealized gain on marketable securities		-			-			22,301			-
Foreign currency translation adjustment		4,308,352			2,113,689			12,163,352			3,016,550
Change in fair value of derivative instrument		4,377,975			(872,519	)		(731,505	)		(871,519	)

COMPREHENSIVE INCOME	$	15,967,173		$	8,223,829		$	26,305,491		$	14,102,422

EARNINGS PER SHARE:
Basic	$	0.27		$	0.32		$	0.55		$	0.57
Diluted	$	0.25		$	0.28		$	0.51		$	0.49

WEIGHTED AVERAGE NUMBER OF SHARES
Basic		27,354,215			21,487,056			27,201,127			21,116,447
Diluted		28,732,109			25,192,643			28,690,851			24,667,346

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,851,343		$	11,957,391
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation		3,026,421			936,956
Amortization of intangibles		158,651			115,590
Amortization of loan commission		2,253,306			329,096
Amortization of stock option compensation		914,083			645,158
Interest penalty		710,544
Gain on derivative instrument		(355,189	)		(802,523	)
Investment loss on marketable securities		16,158			-
Bad debt expense		379,581			-
Reserve for obsolete inventory		185,749			-
Change in operating assets and liabilities:
Accounts receivable		(19,191,506	)		(2,242,709	)
Inventories		(13,000,865	)		(2,082,422	)
Other receivables and prepayments		549,790			(907,670	)
Notes receivables		320,603			(173,811	)
Advance to suppliers		(2,697,002	)		(2,002,283	)
Deferred tax assets		(1,188,895	)		-
Accounts payable		7,347,146			(335,966	)
Other payables and accrued liabilities		(1,260,185	)		2,246,676
Customer deposits		621,290			(537,320	)
Taxes payable		1,779,587			(814,918	)
Net cash (used in) provided by operating activities		(4,579,390	)		6,331,245

CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities		2,983,842			-
Proceeds from derivative instrument		738,376			-
Purchase of land use right		(1,687,468	)		-
Purchase of property and equipment		(13,600,999	)		(6,453,915	)
Advances for equipment purchases		(3,148,802	)		(5,698,131	)
Net cash used in investing activities		(14,715,051	)		(12,152,046	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from shareholder		-			557,520
Payments to shareholders		-			(4,004,253	)
Borrowings for revolver line		1,763,772			-
Proceeds from bank loans		16,908,000			11,546,600
Payments on bank loans		(17,268,032	)		(12,628,669	)
Net proceeds from convertible notes		-			56,400,000
Proceeds from exercise of stock warrants		-			6,793,969
Net cash provided by financing activities		1,403,740			58,665,167

EFFECT OF EXCHANGE RATE ON CASH		4,837,022			1,867,519

(DECREASE) INCREASE IN CASH		(13,053,679	)		54,711,885

CASH, beginning of period		79,914,758			20,493,551

CASH, end of period	$	66,861,079		$	75,205,436

	June 30, 2008		June 30, 2007
Country	(Unaudited)		(Unaudited)
China	$	79,859,350	$	45,938,181
USA		25,944,828		-
Europe		5,871,508		-
Other countries		4,869,470		1,285,644
Total sales	$	116,545,156	$	47,223,825

	Carrying As of June 30 2008		Fair Value Measurements at June 30, 2008 Using Fair Value Hierarchy
Liabilities			Level 1	Level 2		Level 3
Notes payable	$	45,000,000		$	39,643,633
Derivative Instrument	$	9,246,901				$	9,246,901

	Estimated Useful Life
Buildings		20-39.5 years
Machinery and equipment		7-15 years
Other equipment		3-5 years
Transportation equipment		3-5 years

	June 30, 2008			December 31, 2007
	(Unaudited)
Trade Accounts Receivable	$	44,414,350		$	23,746,604
Allowance for bad debts		(517,453	)		(135,418	)
Trade Accounts Receivable, Net	$	43,896,897		$	23,611,186

Allowance for doubtful accounts at December 31, 2007	$	135,418
Additional reserves		379,581
Accounts receivable write off		(9,426	)
Effect of foreign currency translation		11,880
Allowance for doubtful accounts at June 30, 2008	$	517,453

Allowance for obsolete inventory at December 31, 2007	$	63,594
Additional reserves		185,749
Allowance for obsolete inventory at June 30, 2008	$	249,343

Deferred tax asset at December 31,2007	$	2,852,000
Additions to deferred tax asset		1,188,895
Deferred tax asset at June 30,2008	$	4,040,895

Name of lender	June 30, 2008		December 31, 2007
	(Unaudited)
Bank of China, Xinghaiwan Branch, due March 28, 2008, annual interest at 7.227% secured by the Company’s land use right and building.	$	-	$	2,687,160

Bank of China, Xinghaiwan Branch, due February 15, 2008,and was renewed to May 15, 2008 annual interest at 7.029%, secured by the Company’s land use right and building.		-		3,016,200

Guangdong Development bank, Dalian Stadium branch, due February 25, 2009, annual interest at 8.96%,secured by the Company’s land use right and building.		8,747,400		-

Guangdong Development bank, Dalian Stadium branch, due March 9, 2009, annual interest at 8.96%, secured by the Company’s land use right and building.		2,915,800		-

Guangdong Development bank, Dalian Stadium branch, due March 19, 2009, annual interest at 8.96%, secured by the Company’s land use right and building.		1,457,900		-

Guangdong Development bank, Dalian Stadium branch, due March 26, 2009, annual interest at 8.96%, secured by the Company’s land use right and building.		4,373,700		-

Total Short Term Bank Loan		17,494,800		5,703,360

CIT revolving credit line, annual interest at 6.25%, mature in 2010, secured by all present and future account receivables, equipment, inventory and other goods, documents of title, general intangibles, investment property, and real estate.		8,894,855		7,168,524
Total	$	26,389,655	$	12,871,884

Name of Lender	June 30, 2008		December 31, 2007
	(Unaudited)
ICBC, Dalian JinZhou Branch
Due April 10, 2008, annual interest at 5.58%,
secured by the Company’s land use right and building	$	-	$	5,484,000

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

Accumulated other comprehensive income:	Amount
Balance, December 31, 2007	$	4,015,930
Unrealized loss on marketable securities		22,301
Foreign currency translation gain		12,163,352
Change in fair value of derivative instrument		(731,505	)
Balance, June 30, 2008	$	15,470,078

	June 30, 2008			December 31, 2007
	(Unaudited)
Raw materials	$	18,036,274		$	5,965,306
Work in process		3,154,471			2,260,015
Finished goods		4,892,075			4,120,559
Packaging materials		13,042			7,984
Low cost consumables		-			18,025
Totals		26,095,862			12,371,889
Less allowance for obsolete inventory		(249,343	)		(63,594	)
Totals	$	25,846,519		$	12,308,295

	June 30, 2008			December 31, 2007
	(Unaudited)
Land	$	100,726		$	100,726
Buildings and improvements		34,778,064			32,846,156
Transportation equipment		4,116,956			3,193,995
Machinery and equipment		36,973,783			24,111,971
Office Furniture		1,033,050			833,474
Construction in progress		42,787,396			36,880,809
Totals		119,789,975			97,967,131
Less accumulated depreciation		(14,319,257	)		(10,738,531	)
Totals	$	105,470,718		$	87,228,600

	June 30, 2008			December 31, 2007
	(Unaudited)
Patents	$	1,746,616		$	1,652,938
Land use rights		12,400,752			5,492,089
Total:		14,147,368			7,145,027
Less: accumulated amortization		(1,558,208	)		(1,312,306	)
Intangible assets, net	$	12,589,160		$	5,832,721

Outstanding Warrants						Exercisable Warrants
Exercise Price		Number		Average Remaining Life (years)		Average Exercise Price		Number		Average Remaining Life (years)

$	3.11		376,997		3.50	$	3.11		376,997		3.50
$	16.80		100,000		3.42	$	16.80		100,000		3.42

	Number of Warrants Outstanding			Number of Warrants Exercisable			Weighted- Average Exercise Price		Average Remaining Contractual Life
Balance, January 1, 2007		2,480,944			2,480,944		$	3.57		5.00 years
Granted		-			-
Forfeited		-			-
Exercised		(304,389	)		(304,389	)	$	3.67
Balance, at June 30, 2007		2,176,555			2,176,555		$	3.56		4.50 years
Granted		100,000			100,000		$	16.80		4.00 years
Forfeited		-			-			-
Exercised		(1,799,503	)		(1,799,503	)	$	3.66
Balance, at December 31, 2007		477,052			477,052		$	5.98		4.00 years
Rounding adjustments		(55	)		(55	)
Granted		-			-			-
Forfeited		-			-			-
Exercised		-			-			-
Balance, at June 30, 2008		476,997			476,997		$	5.98		3.50 years

	Expected		Expected			Dividend			Risk Free			Grant Date
	Life		Volatility			Yield			Interest Rate			Fair Value
Executives		2.0 yrs		50	%		0	%		1.84% - 4.57	%	$	2.59 - $5.93
Independent Directors		2.0 yrs		50	%		0	%		2.41% - 4.57	%	$	3.64 - $5.89
Employees		0.5 yrs		50	%		0	%		2.82	%	$	3.40

	Number of Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance, January 1, 2007		-			-		-
Granted		-			-		-
Forfeited		-			-		-
Exercised		-			-		-
Balance, at June 30, 2007		-			-		-
Granted		1,110,000		$	14.3		-
Forfeited		-			-		-
Exercised		-			-		-
Balance, December 31, 2007		1,110,000		$	14.3	$	12,075,850
Granted		151,000			21.2		-
Forfeited		(186,667	)	$	16.3		-
Exercised		-			-		-
Balance, June 30, 2008		1,074,333		$	15.1	$	9,271,494

Outstanding Option					Exercisable Options
Exercise Price	Number		Average Remaining Contractual Life		Average Exercise Price		Number		Weighted Average Exercise Price
$12.30		408,333		1.18 years	$	12.30		308,333	$	12.30
$11.75		150,000		1.14years	$	11.75		93,744	$	11.75
$13.70		125,000		1.45 years	$	13.70		125,000	$	13.70
$16.44 - $20.94		230,000		1.58 years	$	18.69		108,628	$	16.40
$16.36		10,000		0.62 years	$	16.36		8,115	$	16.36
$23.25		84,000		0.50 years	$	23.25		2,222	$	23.25
$15.04		17,000		0.78 years	$	15.04		3,879	$	15.04
$20.04		50,000		0.96 years	$	20.04		17,187	$	20.04
Total		1,074,333						667,108