AMGY American Metal and Technology Inc (CE)

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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, 2008. The results of the nine month period ended September 30, 2009 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2009.

Principal of consolidation

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

2. Summary of significant accounting policies - continued

 

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 September 30, 2009 and December 31, 2008, the Company had accounts receivable of $427,171 and $2,424,157, net of allowance of $55,062 and $62,716 respectively.

Advances to suppliers

The company advances to certain vendors for the purchase of material. As of September 30, 2009 and December 31, 2008, the advances to suppliers amounted to $45,997 and $390,368 respectively.

Revenue recognition

 

The Company recognizes sales revenue 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 September 30, 2009 and December 31, 2008 amounted to $17,847 and $8,645 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.

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 $1,964,987 and $1,865,844 as of September 30, 2009 and December 31, 2008, respectively.  Accumulated other comprehensive income was mainly foreign currency translation gain as of September 30, 2009. 

Income taxes

Recognition of deferred tax assets and liabilities is required 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. At September 30, 2009 and December 31, 2008, there was no significant book to tax differences.

Local PRC Income Tax

The Company is governed by the Income Tax Law of the PRC concerning subsidiaries located in PRC. 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.

 

2. Summary of significant accounting policies - continued

The Company does not have any significant deferred tax asset or liabilities in the PRC tax jurisdiction.

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.  The Company is exempted from income tax in Peoples Republic of China, for the nine month ended September 30, 2009 and 2008.

Segment reporting

 

The use of the "management approach" model for segment reporting is required.  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.

There was 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

In June 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification) became the single source of authoritative US GAAP.  The Codification did not create any new GAAP standards but incorporated existing accounting and reporting standards into a new topical structure with a new referencing system to identify authoritative accounting standards, replacing the prior references to Statement of Financial Accounting Standards (SFAS), Emerging Issues Task Force (EITF), FASB Staff Position (FSP), etc.  Authoritative standards included in the Codification are designated by their Accounting Standards Codification (ASC) topical reference, and new standards will be designated as Accounting Standards Updates (ASU), with a year and assigned sequence number.  Beginning with this interim report for the third quarter of 2009, references to prior standards have been removed.

3. Marketable Securities

 

The Company’s securities are classified as available-for-sale 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 available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes. The Company does not currently have any held-to-maturity or trading securities.

Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder’s equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings based upon the adjusted cost of the specific security sold.

Marketable securities classified as available for sale consisted of the following as of September 30, 2009 and December 31, 2008:

3. Marketable Securities - continued

 

The Company adopted new accounting guidance on fair value measurements effective January 1, 2008 and applied to marketable securities.

The new accounting guidance 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.  The new accounting guidance 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 does not currently have any financial instruments 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.  The certificates of deposit, which were the only component of long-term investments, utilized Level 2 inputs.  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.

·

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 September 30, 2009 and December 31, 2008:

 

4. Other receivables

 

Other receivables consisted of the following at September 30, 2009 and December 31, 2008.  The receivables are due from unrelated parties, interest free, unsecured, and due on demand.

		September 30, 2009				December 31, 2008
Note receivable		$	8,790			$	117,259
Tax receivable			70,399				194,638
Interest receivable			37,787
Others			546,703				40,353
Less: allowance for doubtful accounts			-				-
Totals		$	663,679			$	352,250

5. Inventories

Inventories consisted of the following at September 30, 2009 and December 31, 2008:

8. Intangible assets -  continued

 

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 land use rights consist of the followings as of September 30, 2009 and December 31, 2008:

9. Accrued liabilities and other payables

 

Accrued liabilities and other payables consisted of the following at September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
Accrued expenses		$	102,527			$	82,308
Others			11,080				12,731
Totals		$	113,607			$	95,039

10. Related party transactions

Our President and Chief Executive Officer and a Director, and the Secretary of the Company and a Director own 35% and 21.6%, respectively of a company now known as Beijing Sande Technology (Holding) Co., Ltd. (“Beijing Sande”) which is a Chinese Corporation which, in turn, owns approximately 20% of Beijing Micro Matic Machinery, Ltd (“Beijing Micro”).  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.

Net revenue from Beijing Micro amounted to $2,038,186 for the nine months period ended September 30, 2009.  At September 30, 2009 and December 31, 2008, accounts receivable from Beijing Micro were $28,242 and $1,947,738, respectively.

Net revenue from Beijing Sande amounted to $295,919 for the nine months ended September 30, 2009.  At September 30, 2009 and December 31, 2008, accounts receivable from Beijing Sande were $0 and $34,181, respectively.  Net long-term loan payable to Beijing Sande was $0 and $762,482 as of September 30, 2009 and December 31, 2008, respectively.

Due to the President and CEO of the Company amounted to $600 and $50,600 as of September 30, 2009 and December 31, 2008, respectively, which were due on demand, interest free, and unsecured.

11. 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 2 nd 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 $12,700 and $368,529 for the nine month ended September 30, 2009 and 2008, respectively.

 

The total statutory reserve, as of September 30, 2009 and December 31, 2008, amounted to $1,425,287 and $1,412,586 respectively.

11. Stockholders’ equity - continued

 

Deemed dividend

On July 11, 2008, the Company acquired from the Chairman and the 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.

Incentive compensation

On October 31, 2008, the Board of Directors adopted resolutions, authorizing incentive compensation to key members of its management if the Company has 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.  As of September 30, 2009, such shares have not been issued.

 

On September 29, 2009, the Board of Directors adopted resolutions which broaden 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 three months and nine months ended September 30, 2009 at $0.53 per share, the market price of the Company’s common stock on September 29, 2009, the grant date.  As of September 30, 2009, such shares had not been 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 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 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.  As of September 30, 2009 such shares had not been issued.

 

12. Options and warrants

Stock Options

In April 2002 the Company issued options to purchase 40,000 shares of common stock at $3.00 per share. The options were issued to an employee under a non qualified option plan. As of April, 2007, all options have expired. No options were issued during the nine month ended September 30, 2009.

Warrants

As a result of the exercises and expiration of warrants, the Company has no Class A and Class B warrants as of December 31, 2007.  99,320 Class B warrants, and 3,333 underwriter's B warrants expired on March 12, 2007.  

 

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:

14. Minority interest

 

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 was at such time 95% owned through the Company's wholly owned subsidiary American Metal Technology Group. Pursuant to the Agreement, the Company agreed to pay to the Seller US $390,299. The Seller 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 was 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 September 30, 2008.

15. Entity held for Disposal

On March 18, 2009, the Board of Directors authorized the Company to transfer and resell 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.

As a result, Lighting Power Global Limited is reported as an entity held for disposal in the accompanying financials.

The components of loss from operations related to the entity held for disposal for the nine months ended September 30, 2009 is shown below:

15. Entity held for Disposal - continued

 

Assets and liabilities for the entity held for disposal as of September 30, 2009 and December 31, 2008 are as follows:

		September 30, 2009				December 31, 2008
Assets
Cash and cash equivalents		$	-			$	22,901
Account receivable, net			-				46,575
Total Current assets			-				69,476
Liabilities
Other payable			-				645
Total Liabilities			-				645
Net Asset Held for Disposal		$	-			$	68,831