SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-Q








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





For the quarterly period ended June 30, 2010





or





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





For the transition period from _____________ to ___________





Commission File Number 33-19048-NY





AMERICAN METAL & TECHNOLOGY, INC.


(Exact Name of Small Business Issuer as specified in its charter)





Delaware
22-2856171(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification no.)





633 W. 5th Street, 28th Floor

Los Angeles, CA 90071(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (213) 223-2321





Indicate by check mark whether the Issuer:





(1) Has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports):





Yes  oNo x





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).





Yes oNo o





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





Large Accelerated Filer
o
Accelerated Filer
oNon-Accelerated Filer
o
Smaller Reporting Company
x





(2) Has been subject to such filing requirements for the past 90 days.





Yes xNo o





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  o Yes     x No





As of August 16, 2010, there were 12,012,230 shares of Common Stock, $0.0001 par value per share issued and outstanding.





1







AMERICAN METAL & TECHNOLOGY, INC.TABLE OF CONTENTSFORM 10-QPART I FINANCIAL INFORMATIONItem Number

PageItem 1.
Financial Statements
3Consolidated Balance Sheet as of June 30, 2010 (Unaudited)  and December 31, 2009 (Audited)Consolidated Statements of Income and Other Comprehensive Income for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)Notes to Financial StatementsItem 2.
Management’s Discussion and Analysis of Financial Condition or Plan of Operation
17Item 3.
Qualitative and Quantitative Disclosures About Market Risk
21Item 4T.
Controls and Procedures
22PART II OTHER INFORMATION
22Item 1.
Legal Proceedings
22Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22Item 3.
Defaults upon Senior Securities
22Item 4.
Submission of Matters to a Vote of Security Holders
22Item 5.
Other Information
22Item 6.
Exhibits and Reports on Form 8-K
22Signatures
23












2


PART I. FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS




AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJune 30, 2010


December 31, 2009(Unaudited)


(Audited)ASSETSCurrent AssetsCash and cash equivalents

$
5,533,296


$
6,380,208Accounts receivable, net


701,082



205,988Investment in marketable securities


91,774



135,078Other receivables


828,098



611,936Due from related parties


1,079,332



369,174Advances to suppliers


1,770



31,201Inventories


2,193,897



1,907,925Prepaid expense


133,210



215,146Interest receivable


52,809



73,293Deferred tax assets-current


-



64,971Total Current Assets


10,615,268



9,994,921Property, Plant And Equipment, net


7,503,544



7,771,406Intangible Assets, net


592,962



595,762Total Assets

$
18,711,774


$
18,362,089LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable

$
1,114,671


$
996,556Accrued expenses and other payables


496,041



624,944Income tax payable


61,769



-Due to related parties


600



600Unearned revenue


35,205



60,104Total Current Liabilities


1,708,286



1,682,204Commitments


-



-Stockholders' EquityCommon stocks; $0.0001 par value, 30,000,000 shares authorized, 12,012,230 and 10,720,268 shares issued and outstanding, respectively


1,201



1,201Additional paid-in capital


8,359,444



8,359,444Statutory reserve


1,520,465



1,450,771Accumulated other comprehensive income


2,086,158



1,960,066Retained earnings


5,072,099



4,930,570Less:  Treasury stock, 44,334 shares at cost


(35,879
)


(22,167
)Total Stockholders' Equity


17,003,488



16,679,885Total Liabilities and Stockholders' Equity

$
18,711,774


$
18,362,089The accompanying notes are an integral part of the consolidated financial statements.





3




AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor The Three Months


For The Six MonthsEnded June 30,


Ended June 30,2010


2009


2010


2009Net sales

$
2,180,509


$
1,437,804


$
3,688,339


$
2,722,027Cost of goods sold


(1,597,740
)


(1,139,482
)


(2,465,355
)


(2,028,330
)Gross profit


582,769



298,322



1,222,984



693,697Operating expensesSelling expenses


(9,273
)


(4,232
)


(10,162
)


(8,038
)Operating and administrative expenses


(133,213
)


(194,824
)


(847,839
)


(826,139
)Total operating expenses


(142,486
)


(199,056
)


(858,001
)


(834,177
)Income (Loss) from operations


440,283



99,266



364,983



(140,480
)Other income (expense)Interest income, net


12,076



2,227



26,820



112,926Unrealized loss on marketable securities


(53,335
)


3,972



(48,641
)


3,972Gain (Loss) on sale of marketable securities


10,519



6,959



3,276



(22,618
)Other income (expense)


(8,868
)


(319,928
)


(8,868
)


(321,054
)Total other income


(39,607
)


(306,770
)


(27,412
)


(226,774
)Income (Loss) from continuing operations before income tax


400,676



(207,504
)


337,571



(367,254
)Income tax benefit


(84,470
)


-



(126,348
)


-Income (Loss) from continuing operations


316,206



(207,504
)


211,223



(367,254
)Loss from entity held for disposal


-



(68,831
)


-



(68,831
)Net income (loss)

$
316,206


$
(276,335
)

$
211,223


$
(436,085
)Earnings per share - basic and diluted:Loss from continuing operations

$
0.03


$
(0.02
)

$
0.02


$
(0.04
)Loss from entity held for disposal


-



(0.01
)


-



(0.01
)Net loss

$
0.03


$
(0.03
)

$
0.02


$
(0.04
)Weighted average shares outstanding, basic and diluted


11,940,472



10,402,687



11,950,985



10,402,687The accompanying notes are an integral part of the consolidated financial statements.
 
     4




AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)For The Six MonthsEnded June 30,2010


2009Cash flows from operating activities:Net (Loss) Income

$
211,223


$
(436,085
)Adjustments to reconcile net (loss) income tonet cash provided by operating activities:Depreciation and amortization


347,889



254,527Unrealized loss on marketable securities


48,641



(3,972
)Amortization of deferred expense-warrants


-



20,435Loss on disposal of marketable securities


-



22,618Bad debt expenses


-



94,148(Increase)/decrease in assets:Accounts receivable


(490,572
)


1,000,618Notes receivable


8,791



105,377Other receivables


(219,587
)


131,247Due from related parties


(531,082
)


(149,802
)Interest receivable


20,829



-Inventory


(261,831
)


(556,307
)Advance to suppliers


29,446



151,789Prepaid expenses


82,107



(5,257
)Deferred tax assets


64,976



-Increase/(decrease) in liabilities:Accounts payable


110,873



(568,110
)Income tax payable


61,372



-Other payable and accrued expenses


(129,574
)


339,471Due to related parties


(172,109
)


-Unearned revenue


(25,130
)


450,059Net cash (used in) provided by operating activities from continuing operations


(843,739
)


850,756Net cash provided by operating activities of entity held for disposal


-



68,831Net cash (used in) provided by operating activities


(843,738
)


919,587Cash flows from investing activities:Purchase of equipment and leasehold improvements


(24,537
)


(171,542
)Net purchase of marketable securities


(4,737
)


(40,807
)Net cash used in investing activities


(29,274
)


(212,349
)Cash flows from financing activities:Purchase of treasury stock


(13,712
)


-Net proceeds from loans


-



7,124Net cash (used in) provided by financing activities


(13,712
)


7,124Net (decrease) increase in Cash and Cash Equivalents


(886,724
)


714,362Effect of Exchange Rate Change on Cash and Cash Equivalents


39,813



(8,707
)Cash and Cash Equivalents-Beginning Balance


6,380,208



7,569,046Cash and Cash Equivalents-Ending Balance

$
5,533,296


$
8,274,701Supplement disclosure of cash flow information:Income taxes paid

$
-


$
-Interest expenses paid

$
-


$
-The accompanying notes are an integral part of the consolidated financial statements.







5
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS


1. Organization and description of business





On June 1, 2007, American Metal & Technology, Inc. (AMTI, "We, "Us, "Our"or the "Company") formally changed its name from Murray United Development Corporation to American Metal & Technology, Inc.





The Company entered into a Stock Purchase Agreement on November 6, 2006 (the "Agreement") with American Metal Technology Group, a Nevada corporation (“AMTG"), pursuant to which the Company acquired one hundred (100%) percent of AMTG's outstanding common stock from the AMTG Stockholders and AMTG became a wholly-owned subsidiary of the company in a two step reverse takeover transaction on May 22, 2007.  In connection with this transaction, and in addition to the 173,253,434 shares of common stock outstanding immediately prior to closing, the Company issued 1,213,295,563 shares to the stockholders and consultants of AMTG (1,142,388,273 shares to AMTG's former shareholders, including 20,000,000 shares of common stock issues to AMTG as investment upon completion of the due diligence period to the Agreement, and redistributed proportionally to AMTG's shareholders as of May 22, 2007, and 70,907,300 shares to AMTG's consultants).  These shares represent more than eighty five (85%) of the Company's issued and outstanding shares of voting capital stock on a fully diluted basis, and therefore the former shareholders of AMTG and its consultants effectively have control of the Company.  In addition, as a condition of the closing of the Agreement, the Company issued an additional 10,000,000 shares of common stock to a former officer and director of the Company in connection with the cancellation of all indebtedness to him, and his assumption of all liabilities and the assignment all assets of the Company immediately prior to closing.   AMTG is now a wholly owned subsidiary of the Company.





The exchange of shares with AMTG has been accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of AMTG obtained control of the consolidated entity. Accordingly, the merger of the two companies has been recorded as a recapitalization of AMTG, with AMTG being treated as the continuing entity.  The historical financial statements presented herein are those of AMTG. The continuing company has retained December 31 as its fiscal year end.





Reflecting the change of ownership, the Company filed a Certificate of Amendment to its Certificate of Incorporation to change its name to American Metal & Technology, Inc., which became effective June 1, 2007.





The Company through its wholly owned subsidiary AMTG and through AMTG’s wholly owned subsidiaries, Beijing Tong Yuan Heng Feng Technology Co., Ltd. and American Metal Technology (Lang Fang) Co., Ltd., is mainly in the business of manufacturing and sales of high-precision investment casting and metal fabrication products in the People's Republic of China (“China”). The Company's production involves high-precision investment casting and machined products, including valves, pipe fittings, etc.





AMTG was incorporated on January 13, 2004 under the laws of the state of Nevada. On June 1, 2004, AMTG entered into an equity purchase agreement with Beijing Sande Technology (Holding) Co., Ltd. (“BST”) to acquire 80% ownership of Beijing Tong Yuan Heng Feng Technology Co., Ltd. (“BJTY”). As a result, AMTG issued 7,200 shares of his pre-split common stock to BST in exchange for 80% ownership of BJTY. On August 2, 2004, AMTG incorporated American Metal Technology (Lang Fang) Co., Ltd. (“AMLF”) in Hebei, China, for the purpose of expanding the production facility of BJTY. On August   8, 2004, AMTG and AMLF together entered into an equity purchase agreement with Beijing Sande Shang Mao Co., Ltd. (BSS)for the remaining 20% of BJTY. As a result, AMTG which issued 1,800 shares of pre-split common stock to BSS and AMLF becomes the owner of 20% shareholder of BJTY. AMTG later acquired the 20% ownership of BJTY from AMLF and owns 100% of BJTY. On November 12, 2004, AMTG effectuated a forward split of all the outstanding shares of common stock on a 1,000 for 1 basis. On November 2005, AMTG sold 5% of BJTY to an unrelated party for $240,000. As set forth below, the Company repurchased such shares pursuant to an Equity Purchase Agreement Executed on September 22, 2008.





In February 2008, we announced that we were planning to invest an estimated $3 million to build additional facilities at our Lang Fang manufacturing center. The new facilities marked the second phase of a multiphase plan to transform the Company’s capacity and capabilities for the foreseeable future. This second phase of our multiphase expansion plan added two buildings totaling approximately 10,916 square meters, increasing annual capacity for casting products by 50% to 3,600 tons from 2,400 tons.  During the first quarter of fiscal year 2009, we completed construction of the first building, which is a factory with a workspace of 6,654.84 square meters.  The factory entails  a 4,500 square meter metal casting shop, a 1,000 square meter electronic shop, a 500 square meter mould shop, and a 600 square meter inventory and assorted sets shop.  The second building, which was completed during the second quarter of fiscal year 2009, is a 4,260.84 square meter four level staff dormitory which accommodates 600 staff members.





On July 11, 2008, the Company acquired from the Chairman and President of Company, fifty thousand (50,000) shares of common stock, representing 100% of the issued and outstanding shares, of Lighting Power Global Limited, a British Virgin Island company, incorporated on May 29, 2008, pursuant to the BVI Business Company Act, 2004, resulting in the Company becoming the sole shareholder of Lighting Power Global Limited.  The Company agreed to reimburse the Chairman and the President for any loans made and/or expenses incurred with respect to the acquisition and ownership of the shares of common stock of Lighting Power Global Limited, which amounted to $50,000.  The Company recorded deemed dividend and related party payable in the amount of $50,000 at December 31, 2008.









6
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS


1. Organization and description of business - continued
  On September 22, 2008, the Company entered in an Equity Purchase Agreement ("the Agreement") with Wen Ge Ren (the "Seller"), a shareholder owning a 5% stock interest in Beijing Tong Yuan Heng Feng Technology Co., Ltd ("BJTY"), which is 95% owned through the Company's wholly owned subsidiary American Metal Technology Group. Pursuant to the Agreement, the Company shall pay to the Seller US $390,299. The Seller has agreed to accept from the Company the equivalent of US $92,566.46 or RMB 629,451.91 and balance of US $297,732.57 pursuant to the issuance of such number of shares of restricted Common Stock based upon the amount equal to 75% of the average of the closing bid price of the Company's Common Stock for the five-day trading period commencing on September 18, 2008. The Company agreed to deliver to the Seller the cash consideration and duly executed share certificates representing the underlying shares registered in the name of the Seller within 60 days from the date of signature. The Company delivered the cash consideration and issued 317,581 shares to the Seller prior to March 31, 2009.
 
 On March 18, 2009, the Board of Directors authorized the Company to transfer and sell back the Company’s ownership of fifty thousand (50,000) shares of common stock, representing 100% of the issued and outstanding shares of Lighting Power Global Limited, a British Virgin Island company, to the Chairman and the President of Company, resulting in the President becoming the sole shareholder of Lighting Power Global Limited.  The Board of Directors also authorized the Company to cancel any funds due to the President for any loans made and /or expenses incurred with respect to the original acquisition and ownership of the shares of common stock of Lighting Power Global Limited.
  On April 29, 2009, the Board of Directors of AMTG adopted a resolution authorizing the creation of a new Hong Kong corporation.  A Certificate of Incorporation was filed in Hong Kong on April 30, 2009 organizing American Metal Technology Group Limited (“AMTL”). In June 2009, the Board of Directors of AMTG adopted a resolution which authorized AMTG’s utilization of AMTL as the operating entity with respect to overseeing AMTG’s operations in Asia and authorized AMTG’s wholly owned subsidiaries in the People’s Republic of China to become wholly owned subsidiaries of AMTL effective immediately.





2. Summary of significant accounting policies





The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the interim periods are not necessarily indicative of the results for any future period.  These statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 2009.  The results of the six-month period ended June 30, 2010 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2010.





Principal of consolidation





The consolidated financial statements of American Metal & Technology, Inc. reflect the activities of the following subsidiaries:





Subsidiaries
Percentage

Of OwnershipAmerican Metal Technology Group, (“AMTG")  Co., Ltd.
U.S.
100
%American Metal Technology Group Limited (holding company of Lang Fang and Tong Yuan)
H.K.
100
%American Metal Technology (Lang Fang) Co., Ltd. (“Lang Fang”)
P.R.C.
100
%Beijing Tong Yuan Heng Feng (Technology) Co., Ltd. (“Tong Yuan”)
P.R.C.
100
%





The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All significant inter-company transactions and accounts have been eliminated in the consolidation.





Use of estimates





The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.





7
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS




2. Summary of significant accounting policies - continued




Cash and cash equivalents





For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. As of June 30, 2010 and December 31, 2009, cash and cash equivalent amounted to $5,533,296 and $6,380,208, respectively.  Cash in bank deposited with banks in China is not insured.





Accounts receivable





The Company's policy is to maintain reserves for potential credit losses for accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2010 and December 31, 2009, the Company had accounts receivable of $701,082 and $205,988, net of allowance of $41,563 and $41,292, respectively.





Inventory valuation




Inventories are valued at the lower of cost or market value using weighted average method.  Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower.  The Company recorded $107,677 and $106,901 of inventory valuation reserve for obsolete or slow-moving items for the periods ended June 30, 2010 and December 31, 2009, respectively.


Impairment of long-lived assets




FASB ASC Topic 360, “Property, Plant, and Equipment” (formerly SFAS No. 144) requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.


The Company tests long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value.  Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets.  The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset.  If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value.  The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments.  The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary.  There was no impairment of long-lived assets for the period ended June 30, 2010 and December 31, 2009.





Advances to suppliers





The company advances to certain vendors for the purchase of material. As of June 30, 2010 and December 31, 2009, the advances to suppliers amounted to $1,770 and $31,201 respectively.





Revenue recognition





The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition (ASC Topic 605).  Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue as of June 30, 2010 and December 31, 2009 amounted to $35,205 and $60,104 respectively.





The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.




8
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS




2. Summary of significant accounting policies - continued




Foreign currency translation





The reporting currency of the Company is the US dollar. The Company uses their local currency, Renminbi (RMB), as their functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.





Accumulated other comprehensive income amounted to $2,086,158 and $1,960,066 as of June 30, 2010 and December 31, 2009, respectively.  Accumulated other comprehensive income was mainly foreign currency translation adjustments as of June 30, 2010 and December 31, 2009.





Income taxes





The Company utilizes FASB ASC Topic 740, “Income Taxes” (formerly SFAS No. 109), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.





Segment reporting





FASB ASC Topic 280, “Segment Reporting” (formerly SFAS No. 131) requires the use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.





ASC Topic 280 has no effect on the Company's consolidated financial statements as the Company operates in one reportable business segment - manufacture and marketing high-precision investment casting and metal fabrication products in China.





Recent accounting pronouncements





The Company has adopted all recently issued accounting pronouncements.  The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.





3. Marketable Securities




The Company’s securities are classified as trading and, as such, are carried at fair value. The securities comprised of shares of common stock of third party customers and securities purchased. Securities classified as trading are bought and held principally for the purpose of selling them in the near term.  Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.  As of June 30, 2010, the Company does not have any available-for-sale or held-to-maturity securities.





Unrealized holding gains and losses for trading securities shall be included in earnings.  Marketable securities classified as available for sale consisted of the following as of June 30, 2010 and December 31, 2009:





As of6/30/2010


12/31/2009Marketable Securities

Various


VariousCost

$
140,415


$
137,123Market Value


91,774



135,078Unrealized Gain (Loss)


(48,641
)


2,045





The Company adopted ASC Topic 820, “Fair Value Measurements” effective January 1, 2008 and applied to marketable securities.






9
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS




3. Marketable Securities - continued




ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value of certificates of deposit, the Company uses the market approach.  ASC Topic 820 establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value.  This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available.  Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:





·
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.  Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.  The Company’s marketable securities are subject to fair value measurments utilizing Level 1 inputs.





·
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  These financial instruments are valued by quoted prices that are less frequent than those in active markets or by models that use various assumptions that are derived from or supported by data that is generally observable in the marketplace.  Valuations in this category are inherently less reliable than quoted market prices due to the degree of subjectivity involved in determining appropriate methodologies and the applicable underlying assumptions.  The Company does not currently have financial instruments utilizing Level 2 inputs.





·
Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data.  The Company does not currently have any financial instruments utilizing Level 3 inputs.  These financial instruments have significant inputs that cannot be validated by readily determinable data and generally involve considerable judgment by management.





The following table summarizes by level within the fair value hierarchy of marketable securities as of June 30, 2010 and December 31, 2009:





June 30, 2010Level 1


TotalMarketable SecuritiesTrading securities

$
91,774


$
91,774$
91,774


$
91,774





December 31, 2009Level 1


TotalMarketable SecuritiesTrading securities

$
135,078


$
135,078$
135,078


$
135,078





4. Other receivables





Other receivables consisted of the followings at June 30, 2010 and December 31, 2009.  The receivables are due from unrelated parties, interest free, unsecured, and due on demand.





As of6/30/2010


12/31/2009Loan to unaffiliated company

$
442,380


$
-Prepaid VAT tax


39,829



156,385Note receivable


-



8,790Others


345,889



446,761Totals

$
828,098


$
611,936






10
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS





5. Inventories




Inventories consisted of the following at June 30, 2010 and December 31, 2009:





As of6/30/2010


12/31/2009Supplies and raw materials

$
1,351,201


$
1,075,206Work in process


700,684



218,651Finished goods


249,689



721,045Less:  Allowance for inventory valuation


(107,677
)


(106,977
)Totals

$
2,193,897


$
1,907,925





6. Property, Plant and Equipment





Property, Plant and Equipment consist of the following at June 30, 2010 and December 31, 2009:





As of6/30/2010


12/31/2009Building and improvements

$
4,159,630


$
4,137,396Vehicle


128,181



127,348Machinery and equipments


5,160,930



5,098,001Totals


9,448,741



9,362,745Less: accumulated depreciation


(1,945,197
)


(1,591,339
)$
7,503,544


$
7,771,406





Depreciation expenses for the six month periods ended June 30, 2010 and 2009 were $341,231 and $227,787, respectively.





7. Intangible assets





The intangible assets comprised of following at June 30, 2010 and December 31, 2009:





Land use right





Per the People's Republic of China's governmental regulations, the Government owns all land. However, the government grants the user a “land use right” (the Right) to use the land. The Company has recognized the amounts paid for the acquisition of rights to use land as intangible asset and amortizing over a period of fifty years.





American Metal Technology (Lang Fang) Co., Ltd. acquired land use rights during the year ended 2004 for a total amount of $663,740. The land use right is for fifty years. The intangible assets consist of the following as of June 30, 2010 and December 31, 2009:





As of6/30/2010


12/31/2009Land use right

$
670,014


$
665,656Less: accumulated amortization


(77,052
)


(69,894
)$
592,962


$
595,762





Intangible assets of the Company are reviewed annually as to whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of June 30, 2010 the Company expects these assets to be fully recoverable.




Amortization expense of intangible assets for the six month periods ended June 30, 2010 and 2009 amounted to $6,700 and $6,640 respectively. Amortization expenses for next five years after June 30, 2010 are as follows:




1 year after June 30, 2010

$
13,3142 years after June 30, 2010


13,3143 years after June 30, 2010


13,3144 years after June 30, 2010


13,3145 years after June 30, 2010


13,314Thereafter


526,392Total

$
592,962




11
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS





8. Accrued expenses and other payables





Accrued expenses and other payables consisted of the following at June 30, 2010 and December 31, 2009:





As of6/30/2010


12/31/2009Deferred compensation

$
351,913


$
351,913Accrued payroll


-



118,420Accrued other expenses


53,989



58,408Payable to others


47,639



53,703Accrued professional expenses


42,500



42,500Totals

$
496,041


$
624,944





9. Related party transactions





Due from related parties





Due from related parties amounted to $1,079,332 and $369,174 as of June 30, 2010 and December 31, 2009, respectively, consisting of the following:





As of6/30/2010


12/31/2009Net trade receivable from –Beijing Micro

$
112,947


$
270,996QingHuangDao Anye


234,460



98,178Beijing Sande


731,925



-Total

$
1,079,332


$
369,174





Our President, Chief Executive Officer and Director, and the Secretary of the Company and Director each owns 35% and 21.6%, respectively, of Beijing Sande Technology (Holding) Co., Ltd. (“Beijing Sande”) which is a Chinese Corporation that, in turn, owns approximately 20% of Beijing Micro Matic Machinery, Ltd (“Beijing Sande”).  The controlling interest of approximately 80% of Beijing Micro Matic Machinery, Ltd. is owned by Denmark Micro Matic International SA, (“Denmark Micro”) an entity registered in Denmark.  Beijing Sande also owns 50% of QingHuangDao Anye Precision Casting Co., Ltd. (“QingHuangDao Anye”), a company registered in China.





Due to related parties





Due to related parties amounted to $600 and $600 as of June 30, 2010 and December 31, 2009.  The balance as of June 30, 2010 and December 31, 2009 included $600 due to the President and CEO of the Company. Due to related parties are due on demand, interest free, and unsecured.





Net sales





For the six month periods ended June 30, 2010 and 2009, net sales to related parties consisted of the following:





6/30/2010


As a % of total net sales

6/30/2009


As a % of total net salesBeijing Micro

$
2,021,609


55%

$
1,475,650


54%Beijing Sande


104,979


3%


277,806


10%Beijing Anye


125,410


3%


123,760


5%Totals

$
2,251,998


61%

$
1,877,216


69%








12
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS





10. Stockholders’ equity




Additional paid in capital





The local government in Lang Fang required the Company’s subsidiary American Metal Technology (Lang Fang) Co., Ltd, to increase its investments in Lang Fang with respect to its 2nd phase construction. On May 8, 2008, the Board of Directors authorized the transfer of $2,245,981 from the Company’s Retained Earnings to Paid in Capital.





Statutory reserve





As stipulated by the Company Law of the People's Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following:





i) Making up cumulative prior years' losses, if any;





ii) Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;





iii) Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and Statutory common welfare fund is no longer required per the new cooperation law executed in 2006.





iv) Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.





In accordance with the Chinese Company Law, the Company has allocated 10% of its net income to surplus. The amount allocated to the statutory reserve amounted to $69,694 and $13,277 for the six month periods ended June 30, 2010 and 2009, respectively.





The total statutory reserve, as of June 30, 2010 and December 31, 2009, amounted to $1,520,465 and $1,450,771 respectively.





Incentive compensation





On October 31, 2008, the Board of Directors adopted resolutions, authorizing incentive compensation to key members of its management if the Company had four million ($4,000,000) dollars or more in net income for the fiscal year of 2008 excluding expenses relating to the incentive compensation, as reflected in the audited Financial Statements of the Company as filed with the Securities and Exchange Commission. The incentive compensation was to be paid by the issuance of shares of common stock by the Company as follows: (A) 533,333 shares of common stock determined by multiplying the initial four million ($4,000,000) dollars of net income by ten (10%) percent and dividing the product by an agreed value of $0.75 per share and (B) such number of additional shares of common stock determined by multiplying the amount of net profit in excess of four million ($4,000,000) dollars by twenty (20%) percent and dividing such product by an agreed value of $0.75 per share.
 
 On September 29, 2009, the Board of Directors adopted resolutions which broadened the scope of the Board of Directors’ resolution dated October 31, 2008 to authorize the Company to provide incentive compensation to key members of its management and also key employees as well as outside consultants who provided services to the Company, as selected and determined by the Board of Directors.  As set forth in the Board of Directors’ resolution dated September 29, 2009, the incentive compensation shall be paid by the issuance of an aggregate of 596,462 shares of common stock of the Company to the individuals and in the amounts as selected and determined by the Board of Directors.  Compensation cost of $316,125 was recorded at $0.53 per share, the market price of the Company’s common stock on September 29, 2009, the grant date.  On December 7, 2009, those shares were issued.
  Protocol of Cooperation





On September 29, 2009, the Board of Directors adopted resolutions approving the Company entering into the Protocol of Cooperation dated April 21, 2009 (the “Protocol”) with Kova Cabride Tools Co. Ltd (“Kova”) and Shih Kung Ho, who introduced Kova to the Company, pursuant to which the Company intends to issue 567,100 shares and 128,400 shares of the Company’s common stock to Kova and Shih Kung Ho, respectively.  According to the Protocol, AMLF has engaged Kevin Kao, general manager of Kova, as Chief Technical Director with decision-making authority to take charge of production, technology, and quality control of AMLF.  Kova will be responsible for training technicians and inspectors of AMLF, and assist AMLF in obtaining the certificate of aeronautic products.  Kova will also assist AMLF in finding new customers.  Shares will be issued as restricted shares for which sale or transfer is contractually prohibited and subject to being returned to the Company based upon performance condition, 40% of which will become unrestricted two years after issuance, and 20% for each year thereafter.  The term of the Protocol is two years which will extend every two years until both AMLF and Kova agree to cease the Protocol.  Deferred service expense of $257,335 was recorded as prepaid expense at $0.37 per share, the market price of the Company’s common stock on April 21, 2009, the measurement date, and amortized throughout the two-year service period.  For the six months ended June 30, 2010, $64,334 was amortized and recorded as consulting expenses.  As of December 31, 2009, these shares have been issued.




13
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS




10. Stockholders’ equity - continued




Treasury stock





On December 16, 2009, the Company repurchased 44,334 shares of common stocks from its employees at an aggregate cost of $160,000, pursuant to the Board resolution dated May 5, 2007 that authorizes the Company to offer its common stocks at $0.02 per share to employees and commit to repurchase from them, provided that the Company does not complete uplisting from the OTC Bulletin Board to one of the national exchanges in two years.  The repurchase price was determined by taking into account the effect of the 1-for-150 reverse stock split effective December 3, 2007, plus accrued interest.  The offering to repurchase shares was only to a specific group of employees and the repurchase price was significantly in excess of the price obtainable in transactions in the open market.  The 44,334 shares were valued at $22,167, or $0.50 per share, the closing price of the Company’s stock traded at the OTC Bulletin Board on December 16, 2009, the repurchase date, and recorded as treasury stock as of December 31, 2009.  The amount of $137,833 in excess of the price obtainable in the open market on the repurchase date was deemed compensatory to employees and recorded as compensation expense for the year ended December 31, 2009.





On March 11, 2010, the Company repurchased additional 27,424 shares of common stocks from its employees at an aggregate cost of $99,542 pursuant to the same Board resolution and other conditions as described above.  The 27,424 shares were valued at $13,712, or $0.50 per share, the closing price of the Company’s stock traded at the OTC Bulletin Board on March 11, 2010, the repurchase date, and recorded as treasury stock in the first quarter of 2010.  The amount of $85,830 in excess of the price obtainable in the open market on the repurchase date was deemed compensatory to employees and recorded as compensation expense during the first quarter of 2010.





11. Options and warrants





Warrants





On March 15, 2008, the Company issued to CCG Investor Relations Partners LLC warrants to purchase 50,000 shares to assist the Company in the execution of its investor relations strategy.





The assumptions used in calculating the fair value of warrants granted using the Black-Scholes option pricing model are as follows:





Risk-free interest rate


4.12
%Expected life of the warrants

4 yearExpected volatility


70
%Expected dividend yield


0
%





These warrants were recorded at the fair value of $100,796.  The Company has been expensing the fair value of these warrants over the term of the agreement.





The following table summarizes the warrants outstanding as of June 30, 2010:




Warrants

outstanding


Weighted Average Exercise Price


Average Remaining Contractual Life (years)Outstanding, December 31, 2008


50,000


$
5



2.29Granted


-


$
-



-Forfeited/Canceled


-


$
-



-Exercised


-



-



-Outstanding, June 30, 2010


50,000


$
5



1.79





14
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS


12. Income taxes





The Company is registered in the State of Delaware and has operations in primarily two tax jurisdictions - the PRC and the United States.  For operations in the U.S., the Company has incurred net operating losses.  The Company believes it is more likely than not that these net operating losses will not be utilized in the future.  Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of June 30, 2010 and December 31, 2009.  Accordingly, the Company has no net deferred tax assets on the U.S. operations.





United States





The Company has significant income tax net operating losses (“NOL”) carried forward from prior years.  Due to the change in ownership of more than fifty percent, the amount of NOL which may be used in any one year will be subject to a restriction under section 382 of the Internal Revenue Code.  Due to the uncertainty of the realizability of the related deferred tax assets, a reserve equal to the amount of deferred income taxes has been established at June 30, 2010 and December 31, 2009. The Company has provided 100% valuation allowance to the deferred tax assets as of June 30, 2010 and December 31, 2009.





People’s Republic of China (PRC)





The Company is governed by the Income Tax Law of the PRC concerning subsidiaries located in PRC.  Prior to 2007, under the Income Tax Laws of the PRC, Chinese enterprises are generally subject to an income tax at an effective rate of 33% (30% state income taxes plus 3% local income taxes) on income reported in the statutory financial statements after appropriate tax adjustments.





Beginning January 1, 2008, the new Enterprise Income Tax (EIT) law replaced the existing laws for Domestic Enterprises (DES) and Foreign Invested Enterprises (FIEs). The new standard EIT rate of 25% replaced the 33% rate previously applicable to both DES and FIEs.  The Company evaluated the effect of the new EIT law on its financial position, and the two years tax exemption, three years 50% tax reduction tax holiday for production-oriented FIEs will be continued.  AMLF was exempt from EIT taxes for the year 2007 and 2008, and entitled to the 50% reduction in EIT tax rate for the years 2009 to 2011.  BJTY was exempt from EIT taxes for the years 2005 and 2006, and entitled to the 50% reduction in EIT tax rate for the years 2007 to 2009.  Therefore, BJTY is subject to the standard EIT rate of 25% commencing the year 2010.





The income tax consisted of the following for the six months ended June 30, 2010 and 2009:





2010


2009Income tax expense – current

$
126,348


$
-Income tax expense – deferred


-



-Total income tax expense

$
126,348


$
-





The following is a reconciliation of the statutory tax rate to the effective tax rate for the six month periods ended June 30, 2010 and 2009:





2010


2009U.S. Federal tax at statutory rate


34.0
%


34.0
%Effects of PRC tax rate difference


(12.4
%)


-Adjustments to valuation allowance


7.9
%


-Valuation allowance additions


-



(42.7
%)Effective tax rate


29.5
%


-





Deferred taxes





The tax effect of temporary differences that give rise to the Company’s deferred tax asset as of June 30, 2010 and December 31, 2009 are as follows:





6/30/2010


12/31/2009Deferred tax assets – currentNOL carryforward

$
508,577


$
409,838Valuation allowance


(508,577
)


(344,866
)Net deferred tax asset

$
-


$
64,971




15
 AMERICAN METAL & TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
  12. Income taxes - continued
  Income tax payable





Income tax payable amounted to $61,769 and $0 as of June 30, 2010 and December 31, 2009, respectively.





13. Current vulnerability due to certain concentrations





BJTY and AMLF’s operations are all carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.





The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.





Major customers





Three major customers, one of which is also a related party to the Company, accounted for 61% of the net revenue for the six month periods ended June 30, 2010. The Company had $1,079,332 net trade receivable from these customers as of June 30, 2010. Two major customers accounted for 65% of the net revenue for the six month period ended June 30, 2009. The company had $151,460 accounts receivable from one customer and $444,972 unearned revenue with the other as of June 30, 2009.





A majority of our customers ultimately sell our products to users in Europe which subjects us to a substantial risk of an economic downturn to Europe.





The Company extends credit to its customers based upon its assessment of their credit worthiness and generally does not require collateral. Credit losses have not been significant.





14. Commitments





Consulting agreements





On March 15, 2008, the Company signed a letter of engagement with CCG Investor Relations Partners LLC.  According to the terms of the agreement, CCG agreed to assist the company in the execution of its investor relations strategy. The agreement was for a twelve-month period and the Company agreed to pay $7,000 per month to CCG and issue warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $5 per share. These warrants were recorded at the fair value of $100,796 based on 70% volatility, 4.12% discount rate and 0% annual rate of quarterly dividends.  The Company has been expensing the fair value of these warrants over the term of the agreement.  As of September 1, 2008, we terminated our agreement with CCG Investor Relations Partners LLC. The Company has fully expensed the fair value of these warrants over the term of the agreement.












































16


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION.





The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q.





Statements in this Form 10-Q which are not statements of historical or current fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "intends," "anticipates" or "plans" to be uncertain and forward-looking.  The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in our reports filed with the Securities and Exchange Commission.





Critical Accounting Policies and Estimates





The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes.  Note 2 "Summary of Significant Accounting Policies" of Notes to Consolidated Financial Statements in this Form 10-Q describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements.  Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Actual results may differ from these estimates and such differences may be material.





Management believes the Company's critical accounting policies and estimates are those related to revenue recognition, allowance for doubtful accounts, inventory valuation, impairment of long-lived assets, foreign currency translation and income taxes. Management considers these critical policies because they are both important to the portrayal of the Company's financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company's senior management has reviewed these critical accounting policies and related disclosures with the Company's Board of Directors.





Revenue recognition





The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition (ASC Topic 605).  Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.  Unearned revenue as of June 30, 2010 and December 31, 2009 amounted to $35,205 and $60,104 respectively.





The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.





Accounts receivable





The Company's policy is to maintain reserves for potential credit losses for accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2010 and December 31, 2009, the Company had accounts receivable of $701,082 and $205,988, net of allowance of $41,563 and $41,292, respectively.





Inventory valuation





Inventories are valued at the lower of cost or market value using weighted average method.  Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower.  The Company recorded $107,677 and $106,901 of inventory valuation reserve for obsolete or slow-moving items for the periods ended June 30, 2010 and December 31, 2009, respectively.






17


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION. - continued




Impairment of long-lived assets





FASB ASC Topic 360, “Property, Plant, and Equipment” (formerly SFAS No. 144) requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.





The Company tests long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value.  Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets.  The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset.  If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value.  The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments.  The Company estimates fair value based upon the information available in making whatever estimates, judgments and projections are considered necessary.  There was no impairment of long-lived assets for the three months ended June 30, 2010 and 2009.





Foreign currency translation





The reporting currency of the Company is the US dollar.  The Company uses its local currency, Renminbi (RMB), as its functional currency.  Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period.  Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity.  Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.





Accumulated other comprehensive income amounted to $2,086,158 and $1,960,066 as of June 30, 2010 and December 31, 2009, respectively.  Accumulated other comprehensive income was mainly foreign currency translation adjustments as of June 30, 2010 and December 31, 2009.





Income taxes





The Company utilizes FASB ASC Topic 740, “Income Taxes” (formerly SFAS No. 109), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based upon enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.





RESULTS OF OPERATIONS





We design and manufacture high-precision casting and machined parts based on blueprints supplied by our customers. To set us apart from competition, we streamlined production cycle by providing a one stop solution to include all three integral processes in making high precision parts, which are molding design and fabrication, high precision investment casting and CNC machining process. Our products are almost exclusively component parts for use in final products, which are either assembled or manufactured outside China or are manufactured and assembled in China and exported to foreign markets.   Our primary focus during 2010 and 2009 has been to increase demand for our castings and machined parts outside China.  During the six months ended June 30, 2010, as further set forth below, due to the slow recovery of the worldwide economic slowdown, we expect conservative growth in revenue and will continue to monitor our operating expenditures.





To capitalize on the increased demand for our products prior to 2008, we commenced significant capital expansion and capital improvement efforts, utilizing most of the net proceeds received from our equity financing in 2007 to expand and enhance our manufacturing capabilities. By the end of first quarter ended March 31, 2008, we completed the first phase of the expansion plan. Phase one entails a 53,819 square foot manufacturing space, 5 turning centers and 60 CNC Mazak Lathes, 19 of which were delivered and became operational in the three months ended December 31, 2007 and the three months ended March 31, 2008 and the last of which became operational on or about April 7, 2008.  All of the new high-precision lathe machines are equal in size and capacity to the Company's existing machines.





In February 2008, we announced that we were planning to invest $3 million to build additional facilities at our Langfang manufacturing center. The new facilities marked the second phase of a multiphase plan to transform the Company’s capacity and capabilities for the foreseeable future. This second phase of our multiphase expansion plan will add two buildings totaling approximately 10,916 square meters, increasing annual capacity for casting products by 50% to 3,600 tons from 2,400 tons.




18
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION. - continued
  RESULTS OF OPERATIONS - continued
  During the first quarter of fiscal year 2009, we substantially completed construction of the first building, which is a factory with a workspace of 6,655 square meters.  The factory entails  a 4,500 square meter metal casting shop, a 1,000 square meter electronic shop, a 500 square meter mould shop, and a 600 square meter inventory and assorted sets shop.  The second building is a 4,261 square meter four level staff dormitory which will accommodate 600 staff members.  We substantially completed the construction of the second building during the second quarter of fiscal year 2009.  Both buildings were put in service close to the end of 2009.





As of June 30, 2010, we had 327 full-time employees.  Prior to December 2008, the Company operated with three shifts per day at the factories for seven days each week.  Due to the global economic downturn, in December 2008, the Company reduced shifts to one shift per day.  Starting from the fourth quarter of 2009, the Company has resumed the three-shift working schedule, but reduced the number of machines operated due to a lower headcount.





For the six months ended June 30, 2010, the Company’s net sales increased approximately 35% as compared to the six months ended June 30, 2009.





On October 31, 2008, the Board of Directors adopted resolutions, authorizing incentive compensation to key members of its management if the Company had four million ($4,000,000) dollars or more in net income for the fiscal year of 2008 excluding expenses relating to the incentive compensation, as reflected in the audited Financial Statements of the Company as filed with the Securities and Exchange Commission. The incentive compensation shall be paid by the issuance of shares of common stock by the Company as follows: (A) 533,333 shares of common stock determined by multiplying the initial four million ($4,000,000) dollars of net income by ten (10%) percent and dividing the product by an agreed value of $0.75 per share and (B) such number of additional shares of common stock determined by multiplying the amount of net profit in excess of four million ($4,000,000) dollars by twenty (20%) percent and dividing such product by an agreed value of $0.75 per share.





On September 29, 2009, the Board of Directors adopted resolutions which broadened the scope of the Board of Directors’ resolution dated October 31, 2008 to authorize the Company to provide incentive compensation to key members of its management and also key employees as well as outside consultants who have provided services to the Company, selected and determined by the Board of Directors.  As set forth in the Board of Directors’ resolution dated September 29, 2009, the incentive compensation shall be paid by the issuance of an aggregate of 596,462 shares of common stock of the Company to the individuals and in the amounts as selected and determined by the Board of Directors.  Compensation cost of $316,125 was recognized for the year ended December 31, 2009 at $0.53 per share, the market price of the Company’s common stock on September 29, 2009, the grant date.  As of December 31, 2009, such shares have been issued.





On September 29, 2009, the Board of Directors adopted resolutions approving the Company entering into the Protocol of Cooperation dated April 21, 2009 (the “Protocol”) with Kova Cabride Tools Co. Ltd (“Kova”) and Shih Kung Ho, who introduced Kova to the Company, pursuant to which the Company intends to issue 567,100 shares and 128,400 shares of the Company’s common stock to Kova and Shih Kung Ho, respectively.  According to the Protocol, AMLF have engaged Kevin Kao, general manager of Kova, as Chief Technical Director with decision-making authority to take charge of production, technology, and quality control of AMLF.  Kova will be responsible for training technicians and inspectors of AMLF, and assist AMLF in obtaining the certificate of aeronautic products.  Kova will also assist AMLF in finding new customers.  Shares will be issued as restricted shares for which sale or transfer is contractually prohibited and subject to being returned to the Company based on the performance condition of Kova under the Protocol, 40% of which will become unrestricted two years after issuance, and 20% for each year thereafter.  The term of the Protocol is two years which will extend every two years until both AMLF and Kova agree to cease the Protocol.  Deferred service expense of $257,335 was recorded as prepaid expense at $0.37 per share, the market price of the Company’s common stock on April 21, 2009, the measurement date, and amortized throughout the two-year service period.  As of December 31, 2009, such shares have been issued.  For the six months ended June 30, 2010, $64,334 was amortized and recorded as consulting expenses.





On December 16, 2009, the Company repurchased 44,334 shares of common stocks from its employees at an aggregate cost of $160,000, pursuant to the Board resolution dated May 5, 2007 that authorizes the Company to offer its common stocks at $0.02 per share to employees and commit to repurchase from them, provided that the Company does not complete uplisting from the OTC Bulletin Board to one of the national exchanges in two years.  The repurchase price was determined by taking into account the effect of the 1-for-150 reverse stock split effective December 3, 2007, plus accrued interest.  The offering to repurchase shares was only to a specific group of employees and the repurchase price was significantly in excess of the price obtainable in transactions in the open market.  The 44,334 shares were valued at $22,167, or $0.50 per share, the closing price of the Company’s stock traded at the OTC Bulletin Board on December 16, 2009, the repurchase date, and recorded as treasury stock as of December 31, 2009.  The amount of $137,833 in excess of the price obtainable in the open market on the repurchase date was deemed compensatory to employees and recorded as compensation expense for the year ended December 31, 2009.





On March 11, 2010, the Company repurchased additional 27,424 shares of common stocks from its employees at an aggregate cost of $99,542 pursuant to the same Board resolution and other conditions as described above.  The 27,424 shares were valued at $13,712, or $0.50 per share, the closing price of the Company’s stock traded at the OTC Bulletin Board on March 11, 2010, the repurchase date, and recorded as treasury stock in the first quarter of 2010.  The amount of $85,830 in excess of the price obtainable in the open market on the repurchase date was deemed compensatory to employees and recorded as compensation expense during the first quarter of 2010.





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  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION. - continued
  Revenue





Net sales for the six months ended June 30, 2010 was $3,688,339, an increase of 35% as compared to $2,722,027 for the six months ended June 30, 2009.  Gross profit for the six months ended June 30, 2010, was $1,222,984, or approximately 33% of revenues, compared to $693,697, or 25% of revenues, for the same period in 2009.





Net sales for the three months ended June 30, 2010 was $2,180,509, an increase of 52% as compared to $1,437,804 for the six months ended June 30, 2009.  Gross profit for the six months ended June 30, 2010, was $582,769, or approximately 27% of revenues, compared to $298,322, or 21% of revenues, for the same period in 2009.





The increase was primarily due to the the increase in customer orders during the second quarter of 2010.  The increase in gross margin was resulted from lower fixed costs per unit allocated to cost of goods sold due to increase in sale orders during the current period as compared to the prior period.





Expenses from Operations





Total expenses, comprised mostly of general and administrative expenses were $858,001 for the six months ended June 30, 2010, an increase of $23,824 or 3% as compared to $834,177 for the six months ended June 30, 2009.





The increase was mainly a result of the commencement of depreciation of the two buildings completed and put in at the end of 2009.  Depreciation of the two buildings was $29,741 during the first two quarters of 2010.  Additionally, $85,830 was charged to compensation expense for the excess of the repurchase price of the 27,424 shares of treasury stock over the price obtainable from the open market.





Total operating expenses decreased $56,570 or 28% to $142,486 for the three months ended June 30, 2010 from $199,056 for the same period prior year.  The decrease was mainly due to collection of $173,884 of accounts receivable that had been charged to bad debt expense in the first quarter of 2010.





Interest Income and Expense





Interest income for the six months ended June 30, 2010 was $26,820 as compared to $112,926 for the six months ended June 30, 2009, a 76% decrease.  This decrease in interest income was primarily driven by the decreased balance of time deposits during the six months ended June 30, 2010.





Interest income for the three months ended June 30, 2010 was $12,076 as compared to $2,227 for the three months ended June 30, 2009, a 442% increase.  This increase in interest income was primarily driven by the higher average balance of time deposits during the three months ended June 30, 2010 as compared to the same period prior year.





Net Loss





We had net income of $211,223 for the six months ended June 30, 2010 as compared to net loss of 436,085 for the six months ended June 30, 2009, a 148% increase.  Net income for the three months ended June 30, 2010 was 316,206 as compared to net loss of $276,335 for the three months ended June 30, 2009, a 214% increase.  The increases in net income during 2010 were mainly driven by the recovery of demand for the company’s products and higher sales orders from customers.





LIQUIDITY AND CAPITAL RESOURCES





Our cash and cash equivalents were $5,533,296 at June 30, 2010 as compared to $6,380,208 at December 31, 2009, a 13% decrease.  We experienced increases in net cash used with respect to operating activities and financing activities, and decrease in net cash used in investing activities during the current period.  Throughout the six months ended June 30, 2010, we met our liquidity needs through the revenue derived pursuant to the sale of our precision metal castings and electronic circuit boards manufactured at facilities controlled by our subsidiary corporations in the People’s Republic of China.




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  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION. - continued





Operating activities




Net cash used in operating activities for the six months ended June 30, 2010 was $843,739 as compared to $919,587 of net cash provided for the six months ended June 30, 2009.  The increase in net cash used was mainly due to net increase of $490,572 in accounts receivable for the six months ended June 30, 2010 as compared to net decrease of $1,000,618 for the six months ended June 30, 2009.  Net increase of $219,587 in other receivable for the current period as compared to net decrease of $131,247 for the same period prior year, and net increase of $531,082 in trade receivables from related parties as compared to $149,802 for the same period prior year also contributed to the higher balance of net cash used.  Such effect was partially offset by net cash used in inventory with net increase of $261,831 for the current period as compared to $556,307 for the same period prior year, as well as net increase of $110,873 in accounts payable for the current period as compared to net decrease of $568,110 for the same period prior year.





Investing activities





Net cash used in investing activities was $29,274 for the six months ended June 30, 2010 as compared to $212,349 for the six months ended June 30, 2009.  The decrease in net cash used was mainly due to decrease in net cash paid for purchase of fixed assets.





Financing activities





Net cash used in financing activities was $13,712 for the six months ended June 30, 2010 as compared to $7,124 of net cash provided for the six months ended June 30, 2010.  The higher balance of net cash used was due to purchase of treasury stocks during the current period.





Ultimately, our success is dependent upon our ability to generate revenues from the sale of precision metal casting and electronic circuit boards manufactured in facilities located in the People’s Republic of China.





Off-Balance Sheet Arrangements





We have no off-balance sheet arrangements.





Material Commitments





None.





Purchase of Significant Equipment





None.








ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





As of June 30, 2010 we have investments of $91,774 in marketable securities.  During the six months ended June 30, 2010, and 2009, we recorded a net gain of $3,276 and a net loss of ($22,618) from the disposal of such securities, respectively.  Although these investments represent less than one (1%) percent of our total assets, and, accordingly, do not represent a significant component of our assets, there can be no assurance that there will not be significant fluctuations in the equity markets that reduce the value of these investments including, but not limited to, a total loss of the value of these investments.





We require substantial amounts of raw materials in our operations, including metals and energy. We purchase all of our raw materials from outside sources, and our metals purchases are from a select group of suppliers.  As a result, our purchases of metals are concentrated with a few suppliers and any interruptions in their ability to supply these materials could have a material adverse effect on our financial position, results of operations and/or cash flows. The availability and price of raw materials may also be subject to shortages in supply, suppliers’ allocations to other purchasers, and interruptions in production by suppliers (including by reason of labor strikes or work stoppages at our suppliers’ plants).  In addition, although we are subject to changes in exchange rates and worldwide price levels of raw materials, our contracts with our suppliers provide that we are not responsible for any 3-5% increase in commodity prices, including price increases resulting from currency fluctuations.  Our management has in the past and intends in the future to pass any additional increases in price to our customers.





Our subsidiary corporations in the People’s Republic of China conduct business in the local currency and therefore, we are exposed to foreign currency exchange risk resulting from fluctuations in foreign currencies. This risk could adversely impact our results and financial condition. We believe our current exposure to fluctuations in foreign currency exchange rates is immaterial, based upon the aforementioned provisions with respect to price increases found in our contracts with our suppliers. We have not entered into any foreign currency exchange and option contracts to reduce our exposure to foreign currency exchange risk and the corresponding variability in operating results as a result of fluctuations in foreign currency exchange rates.





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ITEM 4T. CONTROLS AND PROCEDURES





Our principal executive and financial officer, has evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) and concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure and (ii) is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.





There have been no changes in our internal controls or in other factors that could materially affect, or were reasonable likely to materially affect these controls during or subsequent to the six months ended June 30, 2010.














PART II - OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS.





We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.








ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.





None.








ITEM 3. DEFAULTS UPON SENIOR SECURITIES





None.








ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.








ITEM 5. OTHER INFORMATION





None.








ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.





(A) Exhibits





Exhibit Number
Description





31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002








(B) Reports on Form 8-K





1
Filed 8-K on May 26, 2010, the Company announced that its predecessor auditor had withdrawn its previously issued audit opinion with respect to fiscal years 2008 and 20072
Filed 8-K/A on June 10, 2010, the Company attaching a letter from its predecessor auditor agreeing with the statements made in the Form 8-K filed on May 26, 2010 with respect to the Company’s predecessor auditor withdrawing its previously issued audit opinion with respect to fiscal years 2008 and 2007











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SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





AMERICAN METAL & TECHNOLOGY, INC.(Registrant)Date: August 16, 2010
By:
/s/ Chen GaoChen GaoTitle: President and Chief Executive Officer
















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