ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 herein.

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 Form10KSB 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 (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue as of December 31, 2008 amounted to $8,645.

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.

Allowance for doubtful accounts

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 December 31, 2008, the Company had net accounts receivable of $2,470,732, net of an allowance of $62,716.

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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. - continued

Critical Accounting Policies and Estimates - continued

Impairment of long-lived assets

The Company applies the provisions of Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), issued by the Financial Accounting Standards Board ("FASB"). FAS 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 years ended December 31, 2008 and December 31, 2007.

Critical Accounting Policies and Estimates

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.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to $1,865,844 as of December 31, 2008.

Income taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," 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. At December 31, 2008 and 2007, there was no significant book to tax differences.

RESULTS OF OPERATIONS

Overview

Our products are almost exclusively components parts for use in final products, which are either assembled or manufactured outside China or are manufactured and assembled in China exported to foreign markets. We estimate that, in 2008, approximately 20% of our products were exported for assembly outside China and 80% were assembled in China then exported to foreign markets. Our primary focus during 2007 and 2008 has been to increase demand for our castings and machined parts outside China, and we experienced significant growth in existing and new markets with existing and new customers. We believe there is substantial additional demand for our products and services.

To capitalize on the increased demand for our products, 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 Lathe, 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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. - continued

RESULTS OF OPERATIONS - continued

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 four-phase plan to transform the Company's capacity and capabilities for the foreseeable future. This second phase of our four-phase 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.

During the first quarter of the fiscal year ends on December 31, 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 will be a 4,260.84 square meter four level staff dormitory which will accommodate 600 staff members. We have not completed the construction of the second building.

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 shall 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.

As of December 31, 2008, we had 323 employees working at our factories compared to 256 at the same time in the prior year. Prior to December 2008, the Company operated with three shifts per day for seven days each week. Due to the global economic downturn, in December 2008, the Company shifts were reduced to one shift per day. From January 2009 through the date of this Annual Report, the Company has been operating one shift per day.

As of March 2009, the Company's sales dropped approximately 80% as compared to December 2008. We experienced a 70% decline in our orders from our European customers. We anticipate that during 2009 we will achieve 40% of the sales which we received during the fiscal year ended December 31, 2008. Depending upon the condition of the economy, we may experience a net loss for 2009.

Year ended December 31, 2008 compared with the year ended December 31, 2007

Revenue

Revenue for the year ended December 31, 2008, was $18,539,583 an increase of 73.97% as compared to $10,656,958 for the year ended December 31, 2007. Revenue increased for the year ended December 31, 2008, as compared with year ended December 31, 2007, largely as a result of an increase from 40 CNC MAZAK lathes in 2007 and an additional turning center, which resulted in an operating capacity increase of 37.5%, to 60 CNC MAZAK lathes for the year ended December 31, 2007. Gross profit margin for the year ended December 31, 2008, was $5,724,006, or 30.87% of revenues, compared to $3,090,013, or 28.99% of revenues for the same period in 2007. The increase was mainly due to greater throughput as a result of increased capacity during the fourth quarter.

Expenses from Operations

Total expenses, comprised mostly of general and administrative expenses and one-time expenses with respect to the upgrade of the equipment at the manufacturing facility owned by our subsidiary AMLF, were approximately $2,044,607 for the year ended December 31, 2008, a net increase of $1,017,931compared to $1,026,676 for the full year ended December 31, 2007.

The increase in operating expenses for the year ended December 31, 2008, was mainly due to our increased business volume.

Interest Income and Expense

Net interest income for the year ended December 31, 2008 was $235,118 as compared to net interest income of $24,666 for the year ended December 31, 2007. The increase was mainly due to our investment in a year- long CD at an interest rate of 7.65% which matured on March 28, 2009. In August 2008, we invested $2.94 million, or 20 million RMB, in another CD with an interest rate of 4.14% which matures in August 2009.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. - continued

RESULTS OF OPERATIONS - continued

Other Income (Expense)

Other income (expense) for the year ended December 31, 2008 was (31,121) as compared to other expense of $71,401 for the year ended December 31, 2007.

Net Income

We had net income of $3,884,822 for the year ended December 31, 2008 an increase of 79.48% as compared to net income of $2,164,503 for the year ended December 31, 2007. The increase was mainly due to an increase in revenue which increased 73.97% compared with the year ended 2007, and an increase in gross profit margin which increased 30.87% compared with the year ended 2007.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resources

Due to the market demand for our products, we plan to maintain a higher-than-average debt to equity ratio to better position ourselves in this fast growing market. 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, and the issuance of shares of our common stock for cash. Cash balance amounted to $7,591,947 and $6,037,193 as of December 31, 2008 and December 31, 2007, respectively. The increase in our cash balance is a result of $1,554,454 of net cash raised from the sale of our shares of common stock for cash, as well as additional revenue derived from new customers in the United States and Europe and effective management to lower product defects.

Operating activities

Net cash provided by operating activities for the year ended December 31, 2008 was $4,534,369compared to $2,359,781 provided in the year ended December 31, 2007. This change was mainly due to the new customers in the United States and Europe.

Our net income for the year ended December 31, 2008 was $3,884,822, an increase of 55.72% compared to $2,164,503 for the year ended December 31, 2007. Net accounts receivable for the year ended December 31, 2008 was $2,470,732 compared to $1,332,664 for the year ended December 31, 2007. The increases in both net income and net accounts receivable were mainly due to the increased revenues from the new customers in the United States and Europe.

Investing activities

Net cash used by investing activities was $(3,891,245) for the year ended December 31, 2008 compared to $(480,298) used in the same period of 2007. The change in net cash used by investing activities is mainly a result of $(1,288,773) cash used in the purchase of equipment in 2008, a decrease of $(1,251,672) compared to $(37,101) in 2007 and $(2,436,369) with respect to our 2nd phase construction, and $(73,537) cash used in short-term investment we made in the fiscal year 2008, and $(92,566) cash used for the acquisition of a minority interest in a subsidiary.

Financing activities

Net cash provided by financing activities was $473,489 for the year ended December 31, 2008 compared to $3,091,415 in the same period of 2007. The increase was primarily a result of the sale of 163,825,350 (1,092,169 after reverse split) shares of common stock pursuant to a private offering conducted in accordance with Regulation S of the Securities Act of 1934 at $.02 per share. The proceeds of the offering were $3,275,543. The proceeds of the offering were distributed as follows: (i) $2,500,000 was distributed to the Company's subsidiary company AMLF to engage in second phase of construction to upgrade manufacturing equipment; (ii) $600,000 was distributed to our creditors in partial repayment of indebtedness; and (iii) the balance of $175,543 for general working capital.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. - continued

LIQUIDITY AND CAPITAL RESOURCES - continued

Material Commitments

We have no material commitments during the next twelve (12) months.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment during the next twelve
(12) months.