**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-KSB**

 
| **ý** | ** ** | **Annual  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                                  |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | **For the fiscal year ended December 31, 2004, or**                                                                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                       |
| **o**      | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | **For the transition period  from                      to                      .** |

 

**CommissionFile No. 0-19195**

 

**AMERICAN MEDICAL TECHNOLOGIES, INC.**

(Exact name of smallbusiness issuer in its charter)

 
| **DELAWARE**                                                     | ** ** | **38-2905258**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of incorporation  or organization) |       | (I.R.S. employer  identification number) |

 

**5655 BearLane, Corpus Christi, TX 78405**

(Address of principalexecutive offices)(Zip Code)

 

**(361)289-1145**

(Issuer’s telephone number)

 

Securities registeredpursuant to Section 12(b) of the Exchange Act: **None**

 

Securities registeredpursuant to Section 12(g) of the Act:

 

**CommonStock, $.04 par value per share**

(Title of Class)

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.               Yes ý      No o

 

Checkif there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B contained in this form, and no disclosure will be contained, tothe best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.  ý

 

Stateissuer’s revenues for its most recent fiscal year: $2,237,741

 

Theaggregate market value of the registrant’s Common Stock held by non-affiliatesof the registrant was approximately $2,015,915 as of March 28, 2005 based uponthe closing price of $.41 reported on the OTC Bulletin Board on that date. Forpurposes of this calculation only, all directors, executive officers and ownersof more than ten percent of the registrant’s Common Stock are assumed to beaffiliates.

 

Therewere 8,189,306 shares of the issuer’s Common Stock issued and outstanding onMarch 31, 2005.

 

Theproxy statement of the registrant will contain information incorporated byreference into Part III, Items 9-12 and 14 of this Form 10-KSB and will befiled with the Securities and Exchange Commission by April 30, 2005.

 

TransitionalSmall Business Disclosure Format:  (checkone):  Yes   o     No ý

 

 

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**PART I**

 

ITEM 1.                             DESCRIPTION OF BUSINESS

 

**Introduction**

 

American Medical Technologies, Inc. (“AMT” or “Company”)develops, manufactures and markets high technology products designed primarilyfor general dentistry.  AMT’s primary products are high speed curinglights; air abrasive kinetic cavity preparation systems (“KCP”), and intra oralcameras marketed under the name “Ultracam**Ò**”,which are developed and manufactured at its manufacturing facility in CorpusChristi, Texas.  AMT also develops, manufactures and markets precision airabrasive jet machining (“AJM”) systems for industrial applications.  AMT,incorporated in Delaware in November 1989, completed its initial publicoffering in June 1991.  AMT changed its name from American DentalTechnologies, Inc. on July 13, 2000.

 

AMT continued in 2004 the restructuring andrecovery programs that were implemented in late 2002 and 2003 as a result ofthe aggregate losses of $28 million incurred in 2000, 2001 and 2002.  The Company sold its dental laser productline (the “Dental Laser Assets”) to Biolase Technology, Inc. (“Biolase”) in May2003. Biolase paid $5.5 million for the Dental Laser Assets, of which $1.825million was paid in cash directly to the Company’s primary lender, and theremainder was paid with 307,500 shares of Biolase common stock.  Through early 2004, the Company continued toreduce costs and expenses as the Biolase Shares were restricted from sale untilregistered; which had been expected to occur soon after the sale. The Companywas finally able to sell the Biolase Shares for $18.50 per share for a total of$5,688,750 in March 2004.  The netproceeds to the Company were $5,335,125. The Company used a portion of the net proceeds for operational expenses,to satisfy vendor liabilities and to settle existing lawsuits and new lawsuitsthat arose during 2004.  The Companyinvested a total of $3 million in U.S. Treasury-backed securities, of which $1million was used to invest in notes with staggered maturities, and theremaining $2 million was invested in a managed account.

 

Significant time and efforts were expended in2004 to protect the Company’s assets from excessive claims from outsideclaimants and lawsuits, as reported throughout the year.  The Company believes it was important toresolve these “negative” issues in preparation for formulating and implementinga “positive” growth strategy in 2005. The Company today is very lean andintends to acquire new dental products and dental companies to increase itspresence in the dental market and increase revenues and profits in 2005.

 

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**Products**

 

Described below are theCompany’s current principal product lines.

 

*KCP Cavity Preparation Systems*

 

AMT has patented the method whereby dentists canremove tooth decay by means of a narrow stream of minute particles of alphaalumina propelled at a high velocity by compressed air and delivered to thetooth via a lightweight dental handpiece. In many cases the KCP lessens thepatient sensitivity and may be used to treat a patient without anesthesia.

 

AMT currently offers several KCP models that vary insize, power and features, from the KCP 5 counter top model to the deluxe KCP1000PAC model.  AMT’s KCP products remove tooth decay and tooth structure,including enamel, by means of a narrow stream of minute particles of alphaalumina propelled at high velocity by compressed air and delivered to the toothvia a lightweight handpiece.  The KCP shapes restoration sites, removesold composites and modifies underlying hard tissue, often helping to increasebond strength.  It is also used for sealant preparations; stain removaland intraoral porcelain removal and repair.  The KCP can often be used inplace of a drill.  The dentist controls the cutting speed by selectingparticle size (27 or 50 micron) and air pressure (40 psi to 160 psi) with touchpads on a control panel.  The air abrasive stream is activated by a footpedal.   The KCP floor models (KCP 100 and KCP 1000) are contained ina movable cabinet the size of a medium suitcase and plug into a standardelectrical outlet.

 

In 2003 and 2004, the Company introduced “HydrobrasionTM”technology.  Hydrobrasion is the patenteduse of air, water and microparticles combined to form an effective cuttingslurry that safely removes dental tooth structure and tooth decay utilizingminimally invasive dentistry.  TheCompany introduced this technology in the “KCP Flexijet®”, an air abrasion unitwith an integrated water system that dramatically diminishes overspray, lessonspatient sensitivity and produces faster, more precise cutting.

 

The KCP is best used in conjunction with moderntooth-colored composite restoration materials.  It is not recommended forremoving large amalgam fillings.  The precision of the KCP, and the mannerin which it prepares surfaces for restorations, allow for earlier treatment ofdecay and less destruction of the tooth while restoring it.  In manycases, the KCP may be used without anesthesia, allowing a dentist to treatteeth in different quadrants of the mouth during a single visit.  This isgenerally not possible when conventional instruments and anesthesia are used.

 

AMT also markets its Plasma Arc Curing System (“PAC”)as an accessory to its KCP.  The KCP1000 PAC combines an air abrasivecavity preparation system together with a composite curing light in a singleinstrument.  This allows dentists to efficiently switch from cavitypreparation to curing.

 

The KCP is sold primarily in North America andEurope.  The KCP represented approximately 23% and 5% of AMT’s totalrevenues in 2004 and 2003, respectively.

 

*Plasma Arc Curing Systems*

 

AMT markets a PAC that utilizes a high intensitylight source to rapidly cure composite tooth fillings.  Curing occurs infive to ten seconds, or at least twice as fast as most conventional curinglights.

 

AMT’s PAC products, components and accessories aresold primarily in North America and Europe.  PAC products representedapproximately 6% and 9% of AMT’s total revenues during 2004 and 2003,  respectively.

 

*Intra Oral Camera Products*

 

The Ultracam is a sophisticated camera system thatallows the dentist to take pictures of a patient’s teeth during anexamination.  The pictures can be projected on a video monitor in theexamination room for immediate viewing by the dentist and the patient, andprinted or stored on a computer disk.  The Ultracam

 

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systems offered vary in sizefrom the basic cart system, which is a portable camera and printer housed in amobile cart, to a networked system that can be utilized in several examinationrooms.  The networked systems combine the cart system with centralprinting stations, digital docking stations and examination room monitors.

 

The Ultracam is utilized in the dental practice forpresentation, education and as a means of communicating services throughmulti-media.  The Digital Docking Station, introduced in 1999, greatlyenhances the value of an intra oral camera by allowing the storage of up to 40images on a 3-1⁄2 inch computer floppy disk.

 

Ultracam products are sold primarily in NorthAmerica and Europe.  The Ultracam products represented approximately 7%and 8% of AMT’s total revenue in 2004 and 2003, respectively.

 

*Industrial Products*

 

AMT also develops, manufactures and markets precisionAJM systems for industrial applications.  The AJM system has a wide rangeof applications, including drilling, cutting, abrading, deburring, dressing,beveling, etching, shaping and polishing.  Its principal advantage overconventional machining is that the AJM process, which accomplishes its workthrough kinetic particle displacement (an erosion process), produces no heat,shock or vibration.  This enables precise work to be done on fragilematerials without deburring or further processing.  Generally, the same isnot true of drills, saws, laser or other types of conventional machiningequipment because all of these systems rely on heat and/or friction to performthe work.  These machining techniques generally require furtherprocessing, and in many instances do not provide the precision available withAJM, particularly with fragile materials.  AJM systems are often used toremove the slag, burrs and flash resulting from conventional machiningprocesses.  Some examples include deburring needles, beveling siliconwafers and cutting fiber optics.

 

Industrial products accounted for 17% and 12% of AMT’stotal revenues in 2004 and 2003, respectively.

 

Parts and consumable sales represented 45% and 50%of revenues in 2004 and 2003, respectively.. The remaining percentage of revenues not itemized representsdiscontinued product lines.

 

**Marketing, Sales and Training**

 

AMT markets its dental products through dentaldealers and independent distributors to general dental practitioners andcertain other dental specialists in the United States.The Company relies heavily on sales made attrade shows, dental exhibitions, and dental society meetings.

 

AMT presently has several industrial productdistributors for its AJM product.  Such distributors have been and are anticipatedto be the primary source of sales for AMT’s industrial products in thefuture.  Industrial product distributorsare supported by AMT primarily through advertising in the Thomas Register andtrade journals, and by participation in trade shows.

 

AMT also sells some industrial products directly tocustomers through advertisements or customer referrals and through originalequipment manufacturers of grinding equipment who purchase AJM systems toincorporate into their equipment.

 

**Training and Service**

 

Because AMT’s dental products represent newapproaches to dentistry training is a significant aspect of its marketingefforts.  AMT offers complementary training on all of its products. AMT encourages each purchaser to participate in ongoing continuing educationregarding the use of AMT’s dental products and endeavors to share newdevelopments as soon as reliable scientific support has been established.

 

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AMT provides warranty and repair service for AMT’sproducts in the United States.  To service its dental products, AMT has aservice department in Corpus Christi and has service arrangements withindependent distributors for products in other markets.  To date, AMT hasnot experienced significant service problems.  AMT generally provides aone-year warranty on all of its products.

 

**Competition**

 

AMT has patents in the basic technologies, which theCompany believes provide a competitive advantage.  AMT believes there areapproximately 3 companies that presently sell competing dental air abrasiveproducts and approximately 13 companies that presently sell competing intraoral camera systems.  AMT’s PAC and KCP products must also compete withconventional treatment methods using dental instruments or equipment that aregenerally less expensive and with which dentists are more familiar.

 

Many of these competing companies, particularlythose which manufacture traditional dental equipment, have been in businesslonger, have greater resources and have a larger distribution network thanAMT.  AMT’s competitive position is dependent upon its pricing andmarketing practices, its ability to make ongoing improvements in its existingproducts, to develop new products, and to successfully promote the capabilitiesand treatment benefits of its products.  While AMT believes its productsare competitive in terms of capabilities, quality and price, competition hasadversely affected, and may in the future adversely affect, AMT’s business.

 

**Patents**

 

AMT believes its patents provide a competitiveadvantage in those countries where they have been issued.  AMT believesits technology patents and other patent rights provide a proprietary means toutilize that technology in dentistry.  In the United States, AMT haspatents related to dental air abrasive systems and methods for using an airabrasive stream for dentistry that do not begin expiring until 2011, technologypatents for air abrasive cavity preparation systems that will begin expiring in2012, and industrial air abrasive patents that have expiration dates rangingfrom 2011 to 2017.  AMT also holds several industrial air abrasive patentsin various other countries.  The Companyhas recently notified other companies that are selling air abrasion products inthe dental industry of possible patent infringement.  As a result, two companies have signedlicense agreements with the Company to market air abrasion products.

 

**Manufacturing and Suppliers**

 

AMT manufactures, assembles and services itsproducts at its ISO 9001:2000 and EN13485****certifiedfacility in Corpus Christi, Texas.  AMT’s products are manufactured fromparts, components and subassemblies obtained from a number of unaffiliatedsuppliers or fabricated internally at its manufacturing facility. AMT hasmodern machining capability allowing it to control the production of certainnon-standard parts.  AMT uses numerous suppliers for standard parts andfor fabrication of certain parts.  Although most of the parts andcomponents used in its products are available from multiple sources, AMTpresently obtains several parts and components from single sources.  Lackof availability of certain parts and components could result in productiondelays.  Management has identified alternate suppliers and believes anydelays would be minimal and would not materially affect AMT’s business.

 

**Research and Development**

 

Most research and development, prototype productionand testing activities take place at the Company’s Texas facility, althoughsome research and development work is performed for AMT by consultants. Although AMT expects to continue to conduct most of its own research anddevelopment activities, AMT will continue to work with various domestic andinternational dental schools, consultants and researchers to analyze dentalapplications and to develop product enhancements and complementary products.

 

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AMT’s research and development expenditures for 2004and 2003 were $152,252 and $233,898, respectively.  AMT’s current researchand development efforts are focused on new complementary products for thedental market.

 

**Governmental Regulation**

 

AMT’s dental products are subject to significantgovernmental regulation in the United States and certain other countries. In order to conduct clinical tests and to market products for therapeutic use,AMT must comply with procedures and standards established by the FDA andcomparable foreign regulatory agencies.  Changes in existing regulationsor adoption of additional regulations may adversely affect AMT’s ability tomarket its existing products or to market enhanced or new dental products.

 

*United States Regulatory Requirements*

 

The Federal Food, Drug and Cosmetic Act (“FDCAct”) regulates medical devices in the United States by classifying them into oneof three classes based on the extent of regulation believed necessary to ensuresafety and effectiveness. Class I devices are those devices for which safetyand effectiveness can reasonably be ensured through general controls,such as device listing, adequate labeling, pre-market notification andadherence to the Quality System Regulation (“QSR”) as well as medical devicereporting (“MDR”), labeling and other regulatory requirements.  Some Class I medical devices are exempt fromthe requirement of pre-market approval or clearance.  Class II devices are those devices for whichsafety and effectiveness can reasonably be ensured through the use of specialcontrols, such as performance standards, post-market surveillance and patientregistries, as well as adherence to the general controls provisions applicableto Class I devices.  Class III devicesare devices that generally must receive pre-market approval by the FDA pursuantto a pre-market approval (“PMA”) application to ensure their safety andeffectiveness.  Generally, Class IIIdevices are limited to life sustaining, life supporting or implantable devices;however, this classification can also apply to novel technology or new intendeduses or applications for existing devices.

 

Before they can be marketed, most medical devicesintroduced to the United States market are required by the FDA to secure eitherclearance of a pre-market notification pursuant to Section 510(k) of the FDCAct (a “510(k) Clearance”) or approval of a PMA. Obtaining approval of a PMAapplication can take several years. In contrast, the process of obtaining510(k) Clearance generally requires a submission of substantially less data andgenerally involves a shorter review period. Most Class I and Class II devicesenter the market via the 510(k) Clearance procedure, while new Class IIIdevices ordinarily enter the market via the more rigorous PMA procedure.  In general, approval of a 510(k) Clearancemay be obtained if a manufacturer or seller of medical devices can establishthat a new device is “substantially equivalent” to a predicate device otherthan one that has an approved PMA.  Theclaim for substantial equivalence may have to be supported by various types ofinformation, including clinical data, indicating that the device is as safe andeffective for its intended use as its legally marketed equivalent device.  The 510(k) Clearance is required to be filedand cleared by the FDA prior to introducing a device into commercialdistribution. Market clearance for a 510(k) notification submission may take 3to 12 months or longer.  If the FDA findsthat the device is not substantially equivalent to a predicate device, thedevice is deemed a Class III device, and a manufacturer or seller is requiredto file a PMA application. Approval of a PMA application for a new medicaldevice usually requires, among other things, extensive clinical data on thesafety and effectiveness of the device. PMA applications may take years to be approved after they are filed. Inaddition to requiring clearance or approval for new medical devices, FDA rulesalso require a new 510(k) filing and review period, prior to marketing achanged or modified version of an existing legally marketed device, if suchchanges or modifications could significantly affect the safety or effectivenessof that device.  FDA prohibits theadvertisement or promotion of any approved or cleared device for uses otherthan those that are stated in the device’s approved or cleared application.

 

The FDA granted 510(k) Clearance to market the KCPfor hard-tissue applications in late 1992.  510(k) Clearance to market thePAC was granted by the FDA in mid-1995.

 

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Pursuant to FDC Act requirements, the Company hasregistered its manufacturing facility with the FDA as a medical devicemanufacturer, and listed the medical devices it manufactures.  The Company also is subject to inspection ona routine basis for compliance with FDA regulations.  These regulations include those covering theQSR, which, unless the device is a Class I exempt device, require that theCompany manufacture its products and maintain its documents in a prescribedmanner with respect to issues such as design controls, manufacturing, testingand validation activities.  Further, theCompany is required to comply with other FDA requirements with respect tolabeling, and the MDR regulations which require that the Company provideinformation to the FDA on deaths or serious injuries alleged to have beenassociated with the use of its products, as well as product malfunctions thatare likely to cause or contribute to death or serious injury if the malfunctionwere to recur.  The Company believes thatit is currently in material compliance with all relevant QSR and MDRrequirements.

 

In addition, our products are subject toregulatory requirements covering third-party reimbursement.   Our products are generally purchased bydental or medical professionals who then bill various third party payors, suchas government programs or private insurance plans, for the procedures conductedusing these products.  In the UnitedStates third party payors review and frequently challenge the prices chargedfor medical services. In many foreign countries, the prices are predeterminedthrough government regulation.  Payorsmay deny coverage and reimbursement if they determine that the procedure wasnot medically necessary (for example, cosmetic) or that the device used in the procedurewas investigational.  We believe thatmost of the procedures being performed with our current products generally havebeen reimbursed. The inability to obtain reimbursement for services using ourproducts could deter dentists and physicians from purchasing or using ourproducts.  We cannot predict the effectof future healthcare reforms or changes in financing for health and dentalplans.  Any such changes could have anadverse effect on the ability of a dental or medical professional to generate areturn on investment using our current or future products.  Such changes would act as disincentives forcapital investments by dental and medical professionals and could have anadverse effect on our business, financial condition and results of operations.

 

*Foreign Regulatory Requirements*

 

International sales of medical devices are also subjectto the regulatory requirements of each country. Regulation of medical devices in foreign countries varies betweencountries.  The Company, in general, willrely upon its distributors and sales representatives in the foreign countriesin which it markets its products to ensure that the Company complies with theregulatory laws of such countries.  In Europe, the regulations of theEuropean Union require that a device have a CE mark before it can be sold inthat market.  The KCP, PAC, intraoralcameras and lasers have been granted CE mark approvals which are recognized bymost European countries, and may be sold in Germany and many other Europeanmarkets.   Additional foreignauthorizations to market its dental products are being sought by the Companywhere needed.

 

Regulation of medical devices in other countries issubject to change and there can be no assurance AMT will continue to be able tocomply with such requirements.  The Company believes that itsinternational sales to date have been in compliance with the laws of theforeign countries in which it has made sales. Failure to comply with the lawsof such country could have a material adverse effect on the Company’soperations and, at the very least, could prevent the Company from continuing tosell products in such countries.  Exports of most medical devices are alsosubject to certain limited FDA regulatory controls.

 

**Product Liability Exposure**

 

AMT’s business involves the inherent risk of productliability claims.  If such claims arise, they could have an adverse effecton AMT.  AMT currently maintains product liability insurance with coverageper occurrence and in the aggregate of $5,000,000.  There is no assurancethat such coverage will be sufficient to protect AMT from all risks to which itmay be subject or that product liability insurance will be available at areasonable cost, if at all, in the future.

 

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**Foreign Operations and Segment Information**

 

For information regarding the Company’s foreignoperations and business segments, see Note 6 of the Notes to ConsolidatedFinancial Statements.  Such information is incorporated herein byreference.

 

**Employees**

 

On March 10, 2005, AMT had 23 full-time employeesand 1 part-time employee.  Of these employees, 4 were engaged in directsales and marketing activities in addition to the 6 non-employee salesrepresentatives.  Eleven employees are engaged in manufacturingactivities, and the remaining 9 employees are in finance, administration,customer service, and research and development.  AMT has no collectivebargaining agreements with any unions and believes that its overall relationswith its employees are good.

 

**Forward Looking Statements**

 

The Company makes forward-looking statements in thisreport and may make such statements in future filings with the Securities andExchange Commission.  The Company may also make forward-looking statementsin its press releases or other public shareholder communications.  TheCompany’s forward-looking statements are subject to risks and uncertainties andinclude information about its expectations and possible or assumed futureresults of operations.  When the Company uses any of the words “believes”,“expects”, “anticipates”, “estimates” or similar expressions, it is makingforward-looking statements.

 

The Company claims the protection of the safe harborfor forward-looking statements contained in the Private Securities LitigationReform Act of 1995 for all of its forward-looking statements.  While theCompany believes that its forward-looking statements are reasonable, you shouldnot place undue reliance on any such forward-looking statements, which speakonly as of the date made.  Because these forward-looking statements arebased on estimates and assumptions that are subject to significant business,economic and competitive uncertainties, many of which are beyond the Company’scontrol or are subject to change, actual results could be materiallydifferent.  Factors that might cause such a difference include, withoutlimitation, the following:  the Company’s inability to generate sufficientcash flow to meet its current liabilities, the inability of the Company to findsuitable new acquisitions or the expense or difficulty of integrating suchacquisitions with current Company operations, adverse results in any of theCompany’s material lawsuits, the possible failure of revenues to offsetadditional costs associated with its new business model, the potential lack ofproduct acceptance, the Company’s potential inability to introduce new productsto the market, the potential failure of customers to meet purchase commitments,the potential loss of customer relationships, the potential failure to receiveor maintain necessary regulatory approvals, the extent to which competition maynegatively affect prices and sales volumes or necessitate increased salesexpenses, the failure of negotiations to conclude original equipmentmanufacturer agreements or strategic alliances and the other risks anduncertainties set forth in this report.

 

Other factors not currently anticipated bymanagement may also materially and adversely affect the Company’s results ofoperations.  Except as required by applicable law, the Company does notundertake any obligation to publicly release any revisions which may be made toany forward-looking statements to reflect events or circumstances occurringafter the date of this report.

 

ITEM 2.                             DESCRIPTION OF PROPERTY

 

AMT owns an approximately 45,000 square footmanufacturing facility on 5.2 acres located at 5655 Bear Lane, Corpus Christi,Texas 78405, which houses its manufacturing and administrationfacilities.  A mortgage on this property was held by Aimee Maroney tosecure the Company’s short term loan from Ms. Maroney.   In February 2005,Aimee Maroney assigned the mortgage and related security instruments to TexasState Bank.

 

AMTleases approximately 600 square feet of office space in Keltern, Germany.

 

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ITEM 3.                             LEGAL PROCEEDINGS

 

In September of 2003, Big Sky LaserTechnologies, Inc. (“Big Sky”) suedAMT in the U.S. District Court, Southern District of Texas, Houston Division,for breach of contract, fraud, misrepresentation and violation of the RacketeerInfluenced and Corrupt Organizations Act (“RICO”) arising out of an allegedwillful and fraudulent breach of contract by AMT to purchase equipment known asresonator assemblies and optic sets.  Big Sky sought $285,000 in actualdamages, along with attorney’s fees and interest, and $500,000 in punitivedamages or alternatively treble damages under RICO in the amount of $850,000based upon its assertion thatAMT fraudulently misrepresented its intentions of paying amounts owed under thecontract. AMT filed a motion to strike the RICO claims and a counterclaimfor breach of contract and delivery of defective goods in the amount of $22million. After extensivenegotiations between the parties, AMT and Big Sky verbally agreed to enter intoa “walk away” settlement, in which each side would dismiss and release each otherand take nothing for their respective claims. After this settlement was verbally agreed to, Mr. Stewart, whorepresented AMT in the negotiation of the settlement, encouraged the Company torenege on the settlement agreement, which resulted in Big Sky petitioning thecourt for an order enforcing the settlement agreement.  On August 23, 2004, the Companyand Big Sky signed a mutual release, and a court ordered dismissal of thatlawsuit was entered.

 

After the court ordered dismissal of the BigSky lawsuit was entered, Mr. Stewart claimed he could have recovered acontingency fee of between $2 and $8 million had AMT not elected to enter intothe settlement agreement and advised the Company that he would seek arbitrationof his contingency fee agreement in pursuit of this claim.  On October 25, 2004, the Company filed alawsuit in the 125th Judicial District, of Harris County, Texas,styled *American Medical Technologies, Inc. v. Michael D.Stewart, Individually*, *and Michael D. Stewart,P.C*., Cause no. 2004-60209, seeking a declaratory judgment tointerpret the provisions of the contingency fee agreement with Mr. Stewart, andalso requesting an award of attorney’s fees and costs.  The Company has been advised that, under theRules of Professional Conduct and supporting case law, an attorney feeagreement may not contain a provision that infringes on a client’s right toaccept a settlement offer.  Mr.Stewart’s Motion to Compel the case to arbitration was granted on February 11,2005, and the Company has filed a request for reconsideration.  The Company filed a grievance against Mr.Stewart with the State Bar of Texas.

 

The Company is currently in arbitration for breachof employment contract claims filed by two former employees totaling $250,000.

 

As a result of the Company restructuring and movingout of 12 leased sales offices, the Company received notice of 3 lawsuits orjudgments from landlords.  One judgmentin the amount of $40,000 remains unsettled as of December 31, 2004.

 

The Company is vigorously defending these claims;however, it is premature to judge the potential liability or outcome of theseclaims.

 

ITEM4.                             SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

 

Not applicable.

 

**PART II**

 

ITEM5.                             MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND SMALL BUSINESSISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s common stock trades in theover-the-counter market under symbol ADLI.OB on the OTC Electronic BulletinBoard.  The following table shows thequarterly high and low bid prices for the last two fiscal years.  Thequotations reflect inter-dealer prices, without retail mark-up, mark-down orcommission, and may not necessarily represent actual transactions.

 

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| ** **     | ** ** | **High**   | ** ** | **Low**    | ** ** |
|----------------|------------|------------|------------|------------|------------|
| **2004**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter  |       | $          | 1.05       |       | $          | 0.47 |   |
| Second Quarter |       | 0.85       |       | 0.42       |       |
| Third Quarter  |       | 0.51       |       | 0.28       |       |
| Fourth Quarter |       | 0.51       |       | 0.26       |       |
|           |       |       |       |       |       |
| **2003**       |       |       |       |       |       |
| First Quarter  |       | 0.27       |       | 0.11       |       |
| Second Quarter |       | 0.37       |       | 0.15       |       |
| Third Quarter  |       | 0.43       |       | 0.30       |       |
| Fourth Quarter |       | 0.60       |       | 0.35       |       |
|                |            |            |            |            |            |  |  |

 

As of December 31, 2004 there were approximately 364holders of record of AMT common stock based upon the records of the Company’sstock transfer agent and security position listings.

 

The Board of Directors presently intends to retainall earnings to finance operations and does not expect to authorize cashdividends in the foreseeable future.  Any payment of cash dividends in thefuture will depend upon earnings, capital requirements, any restrictivecovenants in future loan agreements and other factors considered relevant bythe Board of Directors.

 

ITEM6.                             MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATIONS

 

The following discussion and analysis should be readin conjunction with the consolidated financial statements and the notes theretoincluded elsewhere in this report.  The discussion contains certainforward-looking statements relating to the Company’s anticipated futurefinancial condition and operating results and its current businessplans.  In the future, the Company’s financial condition and operatingresults could differ materially from those discussed herein and its currentbusiness plans could be altered in response to market conditions and otherfactors beyond its control.  Important factors that could cause orcontribute to such differences or changes include those discussed elsewhere inthis report.  See the disclosures under “Item 1-Description of Business.”

 

**Critical Accounting Policies**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires the Company to make estimates and assumptions that affectamounts reported in the accompanying consolidated financial statements andrelated footnotes.  These estimates and assumptions are evaluated on anon-going basis based on historical developments, market conditions, industrytrends and other information the Company believes to be reasonable under thecircumstances.  There can be no assurance that actual results will conformto the Company’s estimates and assumptions, and that reported results ofoperations will not be materially adversely affected by the need to makeaccounting adjustments to reflect changes in these estimates and assumptionsfrom time to time.  The following policies are those the Company believesto be the most sensitive to estimates and judgments.  The Company’ssignificant accounting policies are more fully described in Note 1 to ourconsolidated financial statements.

 

*Revenue Recognition*

 

The Company recognizes revenue when all of thefollowing criteria are met:  1) a contract or sales arrangementexists; 2) products have been shipped, and if necessary installed, andtitle has been transferred or services have been rendered; 3) the price ofthe products or services is fixed or determinable; 4) no furtherobligation exists on the part of the Company (other than warranty obligations);and 5) collectibility is reasonably assured.  The Company recognizesthe related estimated warranty expense when title is transferred to thecustomer, generally upon shipment.  The Company recognizes revenue oncertain sales to two of its international distributors under terms that requireshipment to a local independent warehouse.  The Company’s policy is toinclude shipping and handling costs, net of the related revenues, in costs of

 

9

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goods sold. Only the Company’sAnthos dental chairs and its networked camera systems required installation andrevenue is not recorded until the installation is complete. There are nosignificant estimates or assumptions involved in determining the appropriaterecognition of revenues.

 

*Allowance for Doubtful Accounts*

 

The Company evaluates the collectibility of accountsreceivable based on a combination of factors.   In circumstanceswhere the Company is aware of a specific customer’s inability to meet itsfinancial obligations (e.g., bankruptcy filings, substantial down-grading ofcredit scores), the Company records a specific reserve for bad debts againstamounts due to reduce the net recognized receivable to the amount reasonablybelieved to be collectible.  For all accounts not specifically analyzed,the Company recognizes reserves of 100% of all accounts over 90 days pastdue and 5% for all remaining accounts.  If circumstances change (i.e.,higher than expected defaults or an unexpected material adverse change in amajor customer’s ability to meet its financial obligations), the estimates ofthe recoverability of amounts due could be reduced by a material amount.

 

*Inventories—Slow Moving*

 

The Company’s reserve for slow moving inventory isevaluated periodically based on its current and projected sales andusage.  The inventory reserve calculation assumes that any parts onhand exceeding three years of projected usage are subject to complete valuationallowance.  For purposes of computing the valuation allowance at December31, 2004, part usage was projected at 50% of 2004 part usage.  Thevaluation allowance could change materially, either up or down, if actual partusage in future years is materially different than the usage projected atDecember 31, 2004.

 

**Results of Operations**

 

For the year ended December 31, 2004, the Company’srevenues decreased approximately 19% compared to 2003.  This decrease inrevenues was primarily due to the sale of the Company’s laser division in May2003.   Additionally, the Company wasunable to attract additional dealers and independent salesrepresentatives until they were convinced that the negative financialconditions of the Company had been corrected. As a result of the Company’s negative financial conditions prior to thesale of the laser division, the Company’s relationship with its vendors wasstrained and hindered its ability to purchase parts to manufacture and repairits products, and prohibited the Company’s participation in major dental shows,a primary source of sales and exposure to customers.

 

Gross profit as a percentage of revenues wasapproximately 47% for the year ended December 31, 2004 compared to 40% for theyear ended December 31, 2003. The reason for this improvement was theelimination of the need to increase inventory reserves and an increase inselling prices.

 

Gross profit as a percentage of revenues wasapproximately 47% for the year ended December 31, 2004 compared to 37% for theyear ended December 31, 2003. The reason for this improvement was theelimination of the need to increase inventory reserves and an increase inselling prices.

 

Selling, general and administrative expenses were$2,693,427 and 2,644,729 in 2004 and 2003. In 2004, the Company’s selling, general and administrative expensescontinued to remain low as a result of restructuring efforts implemented in2002.

 

Other income was $1,932,369 in 2004 and $4,123,763in 2003.  Of the amount for 2004, $1.6 million is related to the sale ofthe Biolase shares.   Of the amount for2003, $3.9 million is related to a gain on the sale of the Dental Laser Assetsto Biolase.

 

Interest expense declined from $136,518 in 2003 to$115,944 in 2004.  This reduction is due to the pay off of the Bank Oneloan in May 2003 with a portion of the proceeds from the sale of the DentalLaser Assets.

 

Research and development activities were $152,252 in2004 and $233,898 in 2003.  Research and development in 2004 wereprimarily for final development of the Company’s KCP FlexiJet® product.

 

The Company had no income tax expense in2004.   The Company had no income tax expense in 2003.  At December 31, 2004, the Company hadapproximately $22 million of net operating loss carry forwards. These netoperating loss carry forwards expire in various amounts in the years 2008through 2023.

 

10

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**Liquidity and Capital Resources**

 

The Company’s operating activities used $3,399,701in cash resources in 2004.  Cash used by operating activities in 2004 wasdue largely to payments of existing accounts payable, legal settlements,accrued employee compensation and other accrued liabilities.  These itemswere partially offset by the sale of the 307,500 shares of Biolase stock inMarch 2004 which resulted in approximately $5.3 million of net proceeds, asreported in investing activities.

 

The Company’s investing activities provided$3,398,432 in cash in 2004.  The cash provided by investing activities in2004 related primarily to the net proceeds from the sale of Biolase shares.

 

On February 9, 2005 the Company entered into asecured loan with Texas State Bank for the amount of $682,000. The loan issecured by a primary lien on the Company’s building and other realproperty.  Interest on the loan is set atthe prime rate plus 1%.  The principal onthe loan is payable in 35 monthly installments of $3,789 with the finalprincipal payment due in full in February 2008. The funds received from this loan were used to pay the note on the realproperty previously held by Aimee Maroney.

 

On June17, 2003 Aimee Maroney assumed the positionof the prior holder of the note on the real property, Value Bank, for $682,056,which was the outstanding principal balance under the Value Bank note. Mrs. Maroney then entered into an amendment of the note to provide for aninterest rate of 5% per annum, with all principal and accrued interest payablein a single payment on December 31, 2004.  As consideration for thepurchase of the note by Mrs. Maroney and the amendment of the terms of thenote, the Company issued to Mrs. Maroney 100,000 shares of its Series BPreferred Stock on July 29, 2003.  Mrs. Maroney is the wife of Mr. WilliamMaroney, a director of the Company.

 

The Company’s Biolase Shares were sold in March of2004 for gross proceeds of $18.50 per share, or a total of $5,688,750. The net proceeds of the Company were $5,335,125.  The net proceeds wereused for operational expenses, and to satisfy vendor liabilities and settle existinglawsuits and new lawsuits that arose in 2004. The remaining funds were invested in U.S. Treasury-backed securities.

 

The Company believes that its present cash positionand reduced debt level will enable it to concentrate on growth opportunities asit goes forward. In 2005 the Company intends to expand with additional productsrelated to cosmetic and minimally invasive dentistry.  The Company holds a unique patent position onair abrasion and will continue to augment its KCP product line which concentrateson its patented process of hydrobrasion technology for dental caries extractionin a pain free manner.  The Company alsointends to continue to increase the number of independent representatives andmajor dealers marketing its products. Finally, the Company plans to focus on expanding its industrial marketthrough additional dealer representation.

 

The following table summarizes AMT’s contractualobligations as of December 31, 2004:

 
| ** **                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008 and  thereafter** | ** ** | **Total** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|--------------------------|------------|-----------|------------|
| Short term  debt                   |       | $        | 682,056    |     | $          | —   |       | $                        | —     |      | $          | — |   | $ | 682,056 |   |
| Operating leases                   |       | 3,714    |       | 1,287    |       | —   |       | —                   |       | 5,001     |       |
| Total contractual cash obligations |       | $        | 685,770    |     | $          | 1,287    |       | $                        | —     |      | $          | — |   | $ | 687,057 |   |

 

**New Accounting Standards and Disclosures**

 

In January 2003, the Financial Accounting StandardsBoard (FASB) issued Interpretation No. 46, “Consolidation of Variable InterestEntities” (“FIN 46”).  Under FIN 46, a variable interest entity (“VIE”) isdefined as a corporation, trust, partnership or other entity where the equityinvestment holders have not contributed sufficient capital to finance theactivities of the VIE or the equity investment holders do not have definedrights and obligations normally associated with an equity investment.  FIN46 requires consolidation of a VIE by the enterprise that has the majority ofthe risks and rewards of ownership, referred to as the primarybeneficiary.  FIN 46 did not have a significant impact on our results ofoperations and financial position.

 

11

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In December 2004, the FASB issued Statement ofFinancial Accounting Standards No. 123R “Shared Based Payment” (“SFAS123R”)  This statement is a revision of SFASStatement No. 123; Accounting for Stock-Based Compensation” and supersedes APBOpinion No. 25, “Accounting for Stock Issued to Employees,” and its relatedimplementation guidance.  SFAS 123Raddresses all forms of shared based compensation (“SBP”) awards, includingshares issued under employee stock purchase plans, stock options, restrictedstock and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that will be measured atfair value on the awards’ grant date, based on the estimated number of awardsthat are expected to vest and will be reflected as compensation cost in the historicalfinancial statements.  This statement iseffective for public entities that file as small business issuers as of thebeginning of the first interim or annual reporting period that begins afterDecember 15, 2005.  The Company is in theprocess of evaluating whether SFAS No. 123R will have a significant impact onthe Company’s overall results of operations or financial position.

 

ITEM7.                             FINANCIAL STATEMENTS

 

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

ToThe Stockholders and Board of DirectorsAmerican Medical Technologies, Inc.

 

Wehave audited the accompanying consolidated balance sheets of American MedicalTechnologies, Inc. as of December 31, 2004 and 2003 and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows forthe years ended December 31, 2004 and 2003.  These financial statementsare the responsibility of the Company’s management.  Our responsibility isto express an opinion on these financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  The Company has determined that it is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no suchopinion.  An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements.  Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe that our audits provide a reasonablebasis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofAmerican Medical Technologies, Inc. as of December 31, 2004 and 2003 and theconsolidated results of its operations and its cash flows for the years thenended, in conformity with U.S. generally accepted accounting principles.

 

 
| /s/  Hein & Associates LLP |   |
|--------------------------------|--------|
| HEIN  & ASSOCIATES LLP     |
| Houston,  Texas                |   |
| March  2, 2005                 |   |
|                                |        |  |

 

12

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#### **Consolidated Balance Sheets**

 

**DECEMBER31, 2004 AND 2003**

 
| ** **                                                                                                        | ** ** | **2004**    | ** ** | **2003**    | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| *ASSETS*                                                                                                          | ** ** | ** **  | ** ** | ** **  | ** ** |
| **CURRENT ASSETS:**                                                                                               |       |        |       |        |       |
| Cash and cash equivalents                                                                                         |       | $           | 222,683    |        | $          | 217,581 |   |
| Investments                                                                                                       |       | 1,804,713   |       | —      |       |
| Accounts receivable, less allowance  of  $188,308 in 2004 and $170,682 in 2003                               |       | 209,259     |       | 210,442     |       |
| Inventories                                                                                                       |       | 908,537     |       | 914,935     |       |
| Prepaid expenses and other current assets                                                                         |       | 134,733     |       | 137,381     |       |
| Total current assets                                                                                              |       | 3,279,925   |       | 1,480,339   |       |
|                                                                                                              |       |        |       |        |       |
| **DEFERRED FINANCING COST**                                                                                       |       | —      |       | 66,667      |       |
|                                                                                                              |       |        |       |        |       |
| **SECURITIES AVAILABLE FOR SALE**                                                                                 |       | —      |       | 5,104,500   |       |
|                                                                                                              |       |        |       |        |       |
| **PROPERTY AND EQUIPMENT,**  net                                                                                  |       | 1,321,354   |       | 1,389,546   |       |
|                                                                                                              |       |        |       |        |       |
| **INTANGIBLE ASSETS,**net                                                                                         |       | 7,411       |       | 10,381      |       |
|                                                                                                              |       |        |       |        |       |
| Total assets                                                                                                      |       | $           | 4,608,690  |        | $          | 8,051,433 |   |
|                                                                                                              |       |        |       |        |       |
| *LIABILITIES  AND STOCKHOLDERS’ EQUITY*                                                                      |       |        |       |        |       |
| ***Current Liabilities:***                                                                                        |       |        |       |        |       |
|                                                                                                              |       |        |       |        |       |
| Accounts payable                                                                                                  |       | $           | 895,301    |        | $          | 1,892,215 |   |
| Compensation and employee benefits                                                                                |       | 46,856      |       | 600,540     |       |
| Accrued restructuring costs                                                                                       |       | 311,183     |       | 355,831     |       |
| Other accrued liabilities                                                                                         |       | 178,178     |       | 650,097     |       |
| Total current liabilities                                                                                         |       | 1,431,518   |       | 3,498,683   |       |
|                                                                                                              |       |        |       |        |       |
| Note payable to related party                                                                                     |       | 682,056     |       | 682,056     |       |
|                                                                                                              |       |        |       |        |       |
| Total liabilities                                                                                                 |       | $           | 2,113,574  |        | 4,180,739  |   |
|                                                                                                              |       |        |       |        |       |
| **COMMITMENTS AND CONTINGENCIES (Notes 2 and  8)**                                                                |       |        |       |        |       |
|                                                                                                              |       |        |       |        |       |
| **SERIES B PREFERRED STOCK,**  $.01 par value, authorized 575,000 shares; 400,000 shares issued and  outstanding  |       | 400,000     |       | 400,000     |       |
| **STOCKHOLDERS’ EQUITY:**                                                                                    |       |        |       |        |       |
| Series A Preferred stock, $.01 par value,  authorized 10,000,000 shares; none outstanding                         |       | —      |       | —      |       |
| Common stock, $.04 par value, authorized  12,500,000 shares; Outstanding: 8,189,306 in 2004 and 7,939,306 in 2003 |       | 327,572     |       | 317,572     |       |
| Additional paid-in capital                                                                                        |       | 42,708,648  |       | 42,636,148  |       |
| Accumulated deficit                                                                                               |       | (40,551,387 | )          | (40,493,192 | )          |
| Unrealized gain on available for sale  securities                                                                 |       | —      |       | 1,411,425   |       |
| Foreign currency translation                                                                                      |       | (389,717    | )          | (401,259    | )          |
| Total stockholders’ equity                                                                                   |       | 2,095,116   |       | 3,470,694   |       |
| Total liabilities and stockholders’ equity                                                                   |       | $           | 4,608,690  |        | $          | 8,051,433 |   |

 

13

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# **CONSOLIDATED STATEMENTS OFOPERATIONS**

 

**FOR YEARSENDED DECEMBER 31, 2004 AND 2003**

 
| ** **                                          | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|
| **REVENUES**                                        |       | $          | 2,237,741  |       | $          | 2,779,795 |   |
|                                                |       |       |       |       |       |
| **ROYALTIES**                                       |       | 18,684     |       | 218,721    |       |
|                                                |       | 2,256,425  |       | 2,998,516  |       |
| **COST OF SALES**                                   |       | 1,197,695  |       | 1,880,535  |       |
| Gross profit                                        |       | 1,058,730  |       | 1,117,981  |       |
|                                                |       |       |       |       |       |
| **COST AND EXPENSES:**                              |       |       |       |       |       |
| Selling, general and administration                 |       | 2,693,427  |       | 2,644,729  |       |
| Goodwill impairment                                 |       | —     |       | 1,971,427  |       |
| Accrued losses on vendor settlements                |       | —     |       | 207,222    |       |
| Research and development                            |       | 152,252    |       | 233,898    |       |
| Restructuring costs                                 |       | —     |       | (5,723     | )          |
| Loss from operations                                |       | (1,786,949 | )          | (3,933,572 | )          |
|                                                |       |       |       |       |       |
| **OTHER INCOME (EXPENSES):**                        |       |       |       |       |       |
| Gain on sale of available for sale  securities      |       | 1,642,050  |       | —     |       |
| Net realized and unrealized losses on  investments  |       | (94,102    | )          | —     |       |
| Gain on sale of dental laser assets                 |       | —     |       | 3,909,936  |       |
| Other income                                        |       | 384,421    |       | 213,827    |       |
| Interest expense                                    |       | (115,944   | )          | (136,518   | )          |
| Net income                                          |       | 29,476     |       | 53,673     |       |
|                                                |       |       |       |       |       |
| Preferred dividends                                 |       | (87,671    | )          | —     |       |
|                                                |       |       |       |       |       |
| Net income (loss) available to common  shareholders |       | $          | (58,195    | )          | $          | 53,673 |   |
|                                                |       |       |       |       |       |
| Basic earnings per common share                     |       | $          | (0.01      | )          | $          | 0.01 |   |
|                                                |       |       |       |       |       |
| Diluted earnings per common share                   |       | $          | (0.01      | )          | $          | 0.01 |   |

 

14

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# **CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

 

**FOR YEARSENDED DECEMBER 31 2004 AND 2003**

 
| ** **                                                       | ** ** | **COMMON  STOCK** | ** ** | **ADDITIONAL  PAID-IN** | ** ** | **ACCUMULATED** | ** ** | **FOREIGN  CURRENCY** | ** ** | **UNREALIZED  GAIN ON  AVAILABLE  FOR SALE** | ** ** | ** **     | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|-------------------------|------------|-----------------|------------|-----------------------|------------|----------------------------------------------|------------|----------------|------------|
| ** **                                                       | ** ** | **SHARES**        | ** ** | **AMOUNT**              | ** ** | **CAPITAL**     | ** ** | **DEFICIT**           | ** ** | **TRANSLATION**                              | ** ** | **SECURITIES** | ** ** | **TOTAL** | ** ** |
| Balance at  December 31, 2002                                    |       | 7,362,348         |       | 294,497                 |       | 42,644,224      |       | (40,546,865           | )          | (457,940                                     | )          | —         |       | 1,933,916 |   |
| Net income for  2003                                             |       | —            |       | —                  |       | —          |       | 53,673                |       | —                                       |       | —         |       | 53,673 |   |
| Unrealized gain  on available for sale securities                |       | —            |       | —                  |       | —          |       | —                |       | —                                       |       | 1,411,425      |       | 1,411,425 |   |
| Foreign currency  translation                                    |       | —            |       | —                  |       | —          |       | —                |       | 56,681                                       |       | —         |       | 56,681 |   |
| Comprehensive  income                                            |       | —            |       | —                  |       | —          |       | —                |       | —                                       |       | —         |       | 1,521,779 |   |
| Issuance of  common stock                                        |       | 576,958           |       | 23,075                  |       | (8,076          | )          | —                |       | —                                       |       | —         |       | 14,999 |   |
|                                                             |       |              |       |                    |       |            |       |                  |       |                                         |       |           |       |   |   |
| Balance at  December 31, 2003                                    |       | 7,939,306         |       | 317,572                 |       | 42,636,148      |       | (40,493,192           | )          | (401,259                                     | )          | 1,411,425      |       | 3,470,694 |   |
|                                                             |       |              |       |                    |       |            |       |                  |       |                                         |       |           |       |   |   |
| Net income for  2004                                             |       | —            |       | —                  |       | —          |       | 29,476                |       | —                                       |       | —         |       | 29,476 |   |
| Foreign currency  translation                                    |       | —            |       | —                  |       | —          |       | —                |       | 11,542                                       |       | —         |       | 11,542 |   |
| Realization of  unrealized gain on available for sale securities |       | —            |       | —                  |       | —          |       | —                |       | —                                       |       | (1,411,425     | )          | (1,411,425 | ) |
| Comprehensive  Income                                            |       |              |       |                    |       |            |       |                  |       |                                         |       |           |       | (1,370,407 | )  |
| Preferred  Dividends                                             |       |              |       |                    |       |            |       | (87,671               | )          |                                         |       |           |       | (87,671 | ) |
| Issuance of  common stock                                        |       | 250,000           |       | 10,000                  |       | 72,500          |       | —                |       | —                                       |       | —         |       | 82,500 |   |
|                                                             |       |              |       |                    |       |            |       |                  |       |                                         |       |           |       |   |   |
| Balance at  December 31, 2004                                    |       | 8,189,306         |       | 327,572                 |       | 42,708,648      |       | (40,551,387           | )          | (389,717                                     | )          | —         |       | 2,095,116 |   |

 

15

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                                                                    | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **OPERATING  ACTIVITIES:**                                                                                                    |       |       |       |       |       |
| Net income                                                                                                                    |       | $          | 29,476     |       | $          | 53,673 |   |
| Adjustments to reconcile net income to net  cash used in operating activities:                                                |       |       |       |       |       |
| Depreciation                                                                                                                  |       | 105,297    |       | 204,920    |       |
| Amortization                                                                                                                  |       | 2,970      |       | 4,360      |       |
| Impairment of intangible assets                                                                                               |       | —     |       | 1,971,427  |       |
| Amortization of deferred financing charges                                                                                    |       | 66,667     |       | 33,333     |       |
| Provision for slow-moving inventory                                                                                           |       | (83,221    | )          | (148,316   | )          |
| Provision of doubtful accounts                                                                                                |       | 17,626     |       | 110,774    |       |
| Net loss on disposal of assets                                                                                                |       | —     |       | 147,013    |       |
| Gain on sale of available for sale  securities                                                                                |       | (1,642,050 | )          | —     |       |
| Net losses on investments                                                                                                     |       | 94,102     |       | —     |       |
| Gain on sale of dental laser assets                                                                                           |       | —     |       | (3,909,936 | )          |
| Other                                                                                                                         |       | 773        |       | 3,423      |       |
|                                                                                                                          |       |       |       |       |       |
| Changes in operating assets and  liabilities; net of assets and liabilities associated with the sale of dental  laser assets: |       |       |       |       |       |
| Accounts receivable                                                                                                           |       | (16,443    | )          | 60,245     |       |
| Inventories                                                                                                                   |       | 89,619     |       | 1,447,031  |       |
| Prepaid expenses and other current assets                                                                                     |       | 2,648      |       | 60,196     |       |
| Accounts payable                                                                                                              |       | (996,914   | )          | (858,535   | )          |
| Compensation and employee benefits                                                                                            |       | (553,684   | )          | (34,963    | )          |
| Accrued restructuring costs                                                                                                   |       | (44,648    | )          | (62,504    | )          |
| Other accrued liabilities                                                                                                     |       | (471,919   | )          | 331,369    |       |
| Other non-current liabilities                                                                                                 |       | —     |       | (4,103     | )          |
| Net cash used in operating activities                                                                                         |       | (3,399,701 | )          | (590,593   | )          |
|                                                                                                                          |       |       |       |       |       |
| **INVESTING ACTIVITIES:**                                                                                                     |       |       |       |       |       |
| Purchases of property, plant and equipment                                                                                    |       | (37,878    | )          | (14,924    | )          |
| Proceeds from sales of assets                                                                                                 |       | —     |       | 1,850,000  |       |
| Proceeds on sale of available for sale  securities                                                                            |       | 5,335,125  |       | —     |       |
| Investments in government securities                                                                                          |       | (2,901,799 | )          | —     |       |
| Sales and maturities of government  securities                                                                                |       | 1,002,984  |       | —     |       |
| Net cash provided by investing activities                                                                                     |       | 3,398,432  |       | 1,835,076  |       |
|                                                                                                                          |       |       |       |       |       |
| **FINANCING ACTIVITIES:**                                                                                                     |       |       |       |       |       |
| Payments on note payable                                                                                                      |       | —     |       | (1,650,019 | )          |
| Issuance of common stock                                                                                                      |       | 82,500     |       | —     |       |
| Series B preferred dividends                                                                                                  |       | (87,671    | )          | —     |       |
|                                                                                                                          |       |       |       |       |       |
| Net cash used in financing activities                                                                                         |       | (5,171     | )          | (1,650,019 | )          |
|                                                                                                                          |       |       |       |       |       |
| Decrease in cash                                                                                                              |       | (6,440     | )          | (405,536   | )          |
| Effect of exchange rates on cash                                                                                              |       | 11,542     |       | 56,681     |       |
| Increase(decrease) in cash                                                                                                    |       | 5,102      |       | (348,855   | )          |
|                                                                                                                          |       |       |       |       |       |
| **CASH,**** **at beginning of year                                                                                       |       | 217,581    |       | 566,436    |       |
|                                                                                                                          |       |       |       |       |       |
| **CASH,** at end of  year                                                                                                     |       | $          | 222,683    |       | $          | 217,581 |   |

 

16

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**Notes toFinancial Statements**

 

**1.****                                     ****ORGANIZATION AND SIGNIFICANTACCOUNTING POLICIES**

 

*Principles of Consolidation* — American Medical Technologies, Inc. (“AMT”or the “Company”) develops, manufactures, markets and sells high technologyproducts primarily for dentistry.  The consolidated financial statementsinclude the accounts and operations of the Company and American MedicalTechnologies GmbH, its German subsidiary.  All intercompany transactionsand balances have been eliminated.

 

*Going Concern*— The Company’s financial statements are prepared using accountingprinciples generally accepted in the United States of America applicable to agoing concern, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business.

 

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In 2003, the cash receivedfrom the sale of the Dental Laser Assets to Biolase allowed the Company tosettle its outstanding long term debt, and the sale of the Biolase Shares inMarch 2004 is allowing the Company to pay off all remaining liabilities. Because of the current available assets, the Company feels the doubt about itsability to continue as a going concern has been removed.

 

*Restructuring Costs* — In the second quarter of 2002 the Companyadopted a restructuring plan that called for the closure of its remaining salesand service branches and significant reductions in the number of employees inmid-June.  As part of the restructuring, a total of 49 employees wereterminated, comprised of field sales and service personnel, manufacturing employeesand administrative personnel.  As of September 30, 2002 the Company hadvacated all of its former sales and service centers.  Costs such asemployee severance, lease termination costs and other exit costs have beenrecorded as of the date the restructuring plan was finalized.  Otherrestructuring costs include approximately $5,000 in accrued attorney’s feesrelated to the termination of several of the Company’s German employees,approximately $34,000 in non-cash expenses associated with the write-off ofabandoned leasehold improvements and property due to the closure of the branchoffices and approximately $18,500 of forfeited security deposits related to theabandoned offices.  None of the expenses accrued as part of therestructuring have any benefit for future operations.

 

In the first quarter of2005, the $245,291 accrued as employee severance was paid reducing the totalaccrual to $65,892.  Certain costs wereestimated based on the latest available information.  The breakdown of theCompany’s restructuring costs as of December 31, 2004 is as follows:

 
| ** **                      | ** ** | **Employee  Severance** | ** ** | **Office Lease  Terminations** | ** ** | **Vehicle  Lease  Terminations** | ** ** | **Other** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------------|------------|--------------------------------|------------|----------------------------------|------------|-----------|------------|-----------|------------|
| Adoption of  restructuring plan |       | $                       | 402,363    |                           | $          | 218,056                          |       | $         | 136,366    |      | $          | 70,894 |   | $ | 827,679 |   |
| Additions (Reductions)          |       | (16,167                 | )          | (49,896                        | )          | (66,109                          | )          | 2,190     |       | (129,982  | )          |
| Non-cash expenses               |       | —                  |       | (27,802                        | )          | —                           |       | —    |       | (27,802   | )          |
| Payments                        |       | (140,905                | )          | (74,466                        | )          | (70,257                          | )          | (73,084   | )          | (358,712  | )          |
| Balance at December 31, 2004    |       | $                       | 245,291    |                           | $          | 65,892                           |       | $         | —     |      | $          | — |   | $ | 311,183 |   |

 

*Inventories* — Inventories are stated at the lower of cost, determined by thefirst-in first-out method, or market.  At December 31, 2004 and 2003,  inventories consisted of the following:

 
| ** **                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Finished  goods                   |       | $        | 134,428    |     | $          | 169,650 |   |
| Raw materials, parts and supplies |       | 774,109  |       | 745,285  |       |
|                              |       | $        | 908,537    |     | $          | 914,935 |   |

 

Inventories at December 31,2004 and 2003 are net of valuation allowances of $2,527,924 and $2,611,145respectively.

 

The inventory valuationallowance uses the assumption that three years of projected part usage of anygiven part will not be subject to a valuation allowance.  Any parts onhand exceeding three years of projected usage are subject to a 100% valuationallowance.

 

*Property and Equipment* — Property and equipment are stated at costless accumulated depreciation.  Depreciation is computed by thestraight-line method over the estimated useful lives of the related assets,which range from three to thirty-nine years.  Depreciation is not includedin cost of sales.  At December 31, 2004 and 2003 property and equipmentconsisted of the following:

 
| ** **                     | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------|------------|------------|------------|------------|------------|
| Building and  improvements     |       | $          | 1,547,532  |       | $          | 1,547,532 |   |
| Machinery and equipment        |       | 644,158    |       | 636,944    |       |
| Office furniture and computers |       | 418,886    |       | 388,995    |       |
|                           |       | 2,610,576  |       | 2,573,471  |       |
| Accumulated depreciation       |       | (1,289,222 | )          | (1,183,925 | )          |
|                           |       | $          | 1,321,354  |       | $          | 1,389,546 |   |

 

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*Investments**—*In March 2004, theCompany sold 307,500 shares of stock in Biolase Technology, Inc. (the “BiolaseShares”) received in the sale of the Company’s laser assets in May 2003 forgross proceeds of $18.50 per share, or a total of $5,699,750.  The net proceeds of the sale wereapproximately $5.3 million.  The Companyinvested a total of $3 million in U.S. Treasury backed securities, of which $1million was used to invest in notes with varying maturities and the remaining$2 million was invested in a managed account. The Biolase Shares were initially classified as available for sale securitiesthat have readily determinable fair value based upon the closing price of thesesecurities on the publicly traded market. Unrealized holding gains and losses arising during the period net ofrelated tax effect, are excluded from earnings and are included in othercomprehensive income.

 

During the third quarter of2004, the Company consolidated its investments into one account. The Companyclassified the investments as trading securities, and unrealized holding gainsand losses were included in net earnings.

 

*Revenue Recognition**—* The Company recognizes revenue when all ofthe following criteria are met:  1) a contract or sales arrangementexists; 2) products have been shipped, and if necessary installed, andtitle has been transferred or services have been rendered; 3) the price ofthe products or services is fixed or determinable; 4) no furtherobligation exists on the part of the Company (other than warranty obligations);and 5) collectibility is reasonably assured.  The Company recognizesthe related estimated warranty expense when title is transferred to thecustomer, generally upon shipment.  The Company recognizes revenue oncertain sales to two of its international distributors under terms that requireshipment to a local independent warehouse.  Only the Company’s Anthosdental chairs and its networked camera systems required installation, andrevenue is not recorded until the installation is complete.  The Company’spolicy is to include shipping and handling costs, net of the related revenues,in costs of goods sold.

 

*Receivables and Credit Policies*

 

Trade receivables areuncollateralized customer obligations due under normal trade terms requiringpayment within 30 days from the invoice date.

 

Payments on tradereceivables are allocated to the specific invoices identified on the customer’sremittance advice or, if unspecified, are applied to the earliest unpaidinvoices.

 

The carrying amount of tradereceivables is reduced by a valuation allowance for any invoices over 90 dayspast due and 5% of the remaining balance.

 

*Intangible Assets* — Intangible assets consist of  patents, and are stated at cost lessaccumulated amortization.

 

Goodwill and intangibleassets that have indefinite useful lives are tested at least annually forimpairment.  Intangible assets withfinite useful lives will continue to be amortized over their useful lives.

 

As the Company had decidednot to continue in the dental laser market, goodwill with a carrying value of$1,971,427 related to the purchase of Incisive, a dental laser business, wasconsidered impaired and was charged-off in the fourth quarter of 2003.  This impairment expense is included as aseparate line item in the Statements of Operations.

 

The Company has amortizableintangible assets as of December 31, 2004 and 2003 as follows:

 

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| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Patents,  trademarks and other |       | $        | 59,376     |     | $          | 59,376 |   |
| Accumulated amortization       |       | (51,965  | )          | (48,995  | )          |
|                           |       |     |       |     |       |
|                           |       | $        | 7,411      |     | $          | 10,381 |   |

 

Amortization expense relatedto finite lived intangibles was $2970 and $4,360 for the years ended December31, 2004 and 2003, respectively.  The following table shows the estimatedamortization expense in total for all finite lived intangible assets to beincurred over the next five years.

 
| **Years Ended December 31,** | ** ** | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|------------|
| 2005                         |       |       | $          | 2,970      |   |
| 2006                         |       |       | 2,970      |       |
| 2007                         |       |       | 1,471      |       |
| 2008                         |       |       | —     |       |
| 2009                         |       |       | —     |       |
|                         |       |       | $          | 7,411      |   |

 

*Earnings Per Share* — The following table sets forth thecomputation for basic and diluted earnings per share:

 
| ** **                                                                                             | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| Net  income(loss) available to common shareholders                                                     |       | $         | (58,195    | )         | $          | 53,673 |   |
|                                                                                                   |       |      |       |      |       |
| Numerator for basic and diluted earnings  per share                                                    |       | (58,195   | )          | 53,673    |       |
|                                                                                                   |       |      |       |      |       |
| Denominator for basic earnings per share –  weighted average share                                |       | 7,980,973 |       | 7,532,924 |       |
| Dilutive potential common shares                                                                       |       | —    |       | —    |       |
|                                                                                                   |       |      |       |      |       |
| Denominator for diluted earnings per share-  adjusted weighted average shares after assumed conversion |       | 7,980,973 |       | 7,532,924 |       |
| Basic earnings per common share                                                                        |       | $         | (0.01      | )         | $          | 0.01 |   |
| Diluted earnings per common share                                                                      |       | $         | (0.01      | )         | 0.01       |   |

 

*Comprehensive Income (Loss)***— The Financial Accounting Standards Board’sStatement No. 130, *Reporting ComprehensiveIncome* requires foreign currency translation adjustments andunrealized income(loss) on available for sale securities to be included, alongwith net income (loss), in comprehensive income (loss).  For 2004 and 2003the Company’s Comprehensive Income (Loss) was ($1,370,407) and $1,521,779,respectively.

 

*Translation of Non-U. S. Currency Amounts* — For non-U.S. subsidiaries that operate ina local currency environment, assets and liabilities are translated to U.S.dollars at the current exchange rates at the balance sheet date.  Incomeand expense items are translated at average rates of exchange prevailing duringthe year.  Translation adjustments are accumulated in a separate componentof stockholders’ equity.

 

*Stock Based Compensation* — The Company grants stock options for afixed number of shares to employees with an exercise price no less than thefair value of the shares at the date of grant.  The Company accounts forstock option grants in accordance with APB Opinion No. 25, Accounting for StockIssued to Employees, and, accordingly, recognizes no compensation expense forthe stock option grants.

 

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*Advertising*— The Company expenses advertising as costsare incurred.  Advertising expenseapproximated $23,800 and $22,500 in 2004 and 2003, respectively.

 

*Use of Estimates*— The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes.  Actual results coulddiffer from these estimates.  The determination of the Company’s valuationallowance for inventory is a significant estimate that could change materiallyover the next year should circumstances affecting the Company’s current salesvolumes change.

 

*Fair Value of Financial Instruments***— The fair value of the Company’s cash,accounts receivable, note payable and accounts payable approximates theircarrying value due to their short-term nature.  The fair value of theCompany’s notes payable and preferred stock approximate fair value as theirterms and yield approximate current market conditions.

 

*New Accounting Standards and Disclosures* - In January 2003, the Financial AccountingStandards Board (“FASB”) issued Interpretation No. 46,  “Consolidation ofVariable Interest Entities” (“FIN 46”).  Under FIN 46, a variable interestentity (“VIE”) is defined as a corporation, trust, partnership or other entitywhere the equity investment holders have not contributed sufficient capital tofinance the activities of the VIE or the equity investment holders do not havedefined rights and obligations normally associated with an equityinvestment.  FIN 46 requires consolidation of a VIE by the enterprise thathas the majority of the risks and rewards of ownership, referred to as theprimary beneficiary.  FIN 46 did not have a significant impact on ourresults of operations and financial position.

 

In December 2004, the FASBissued Statement of Financial Accounting Standards No. 123R “Shared  Based Payment.” (“SFAS 123R”).  This statement is a revision of SFASStatement No. 123 “Accounting for Stock-Based Compensation” and supersedes APBOpinion No. 25, “Accounting for Stock Issued to Employees,” and its relatedimplementation guidance.  SFAS 123Raddresses all forms of shared based compensation (“SBP”) awards, includingshares issued under employee stock purchase plans, stock options, restrictedstock and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that will be measured atfair value on the awards’ grant date, based on the estimated number of awardsthat are expected to vest and will be reflected as compensation cost in thehistorical financial statements.  Thisstatement is effective for public entities that file as small business issuersas of the beginning of the first interim or annual reporting period that beginsafter December 15, 2005.  The Company isin the process of evaluating whether SFAS No. 123R will have a significantimpact on the Company’s overall results of operations or financial position.

 

**2.             AGREEMENTSWITH RELATED PARTIES**

 

*Roger Dartt*—TheCompany renewed its employment agreement with Mr. Dartt effective June 1, 2004and extended the term to end December 31, 2006. Under the renewed employment agreement, Mr. Dartt’s base salary remains$250,000 per year, and he received a signing bonus of $166,000, which he agreedto use to purchase 250,000 shares of Company common stock pursuant to optionspreviously granted.  The employmentagreement can be terminated for cause if Mr. Dartt fails to follow the reasonableinstructions of the Board of Directors, commits acts that are felonious,dishonest, unethical or inconsistent with normal business standards, wrongfullydiscloses confidential information, competes with the Company in violation ofthe agreement or grossly neglects his duties. If his employment is terminated without cause, Mr. Dartt will beentitled to the lesser of twelve months’ salary or the amount due in basesalary for the remaining term of the agreement. If the Company experiences a change in control and Mr. Dartt is unableto negotiate a satisfactory employment arrangement with the new controllingparty, Mr. Dartt will be entitled to a change of

 

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control payment of thelesser of twelve months’ salary or the remaining compensation due to him forthe remaining term of the agreement. Mr. Dartt agreed not to compete withthe Company during his employment and for one year after termination.  The agreement includes a performance bonus of10% of the net operating profit if AMT’s net operating profit exceeds $500,000in the year ending December 31, 2005.  Inlieu of accepting payment of this bonus in cash, Mr. Dartt will have the optionto purchase 250,000 common shares of Company stock at a price of $0.31 pershare.  The Board awarded Mr. Dartt abonus of 10% of the difference between the value of consideration paid to AMT’sshareholders and the then current market capitalization in the event of themerger, or sale of more than 35% of the outstanding shares of stock, of theCompany.  Mr. Dartt was paid the $166,000signing bonus and exercised his option to purchase 250,000 shares of commonstock at $0.33 per share in the fourth quarter of 2004.

 

*Aimee Maroney*— Aimee Maroney, the wife of William Maroney who is a director of theCompany, is the holder of the Company’s $750,000 note with $682,056 principalbalance and all accrued interest that was due December 31, 2004 and related security instruments.  TheCompany issued Mrs. Maroney 100,000 shares of Series B Preferred Stock in 2003as consideration for her agreement to assume the note and amend its terms.  In February 2005 the Company refinanced thenote and paid all outstanding principal and interest to Mrs. Maroney.

 

**3.**                                      **SALE OF DENTAL LASER ASSETS**

 

On May 21,2003, the Company consummated the sale of its laser assets to BiolaseTechnology, Inc. for an aggregate purchase price of approximately$5,518,075.  Of that total, $1.825million was paid in cash directly to the Company’s principal lender, Bank One,to retire in full the Company’s debt to Bank One, which was in default.  The noncash portion of the purchase pricefrom the sale of assets was 307,500 restricted shares of Biolase common stockwith an aggregate value of $3,693,075, based on the closing price for Biolasestock of $12.01 on the closing date of the sale.  The Company classified the Biolase stock asavailable for sale securities.

 

The Companyrecognized a gain of $3,909,936 on the sale of the dental laser assets.  This gain is comprised of the $5,518,075aggregate purchase price less the following deductions associated with thesale:  fixed assets $1,519, patents$13,106, inventory $899,410, $550,000 bonus due Roger Dartt and other expensesof $144,104.  On March 3, 2004 theCompany’s Biolase Shares were sold for gross proceeds of $18.50 per share, or atotal of $5,688,750.  The net proceeds tothe Company were $5,335,125.

 

**4.             LINEOF CREDIT AND OTHER NON-CURRENT LIABILITIES**

 

On June17, 2003 AimeeMaroney assumed the position of the prior holder of the note on the Company’sbuilding and other real property, Value Bank, for $682,056, which was theoutstanding principal balance under the Value Bank note.  Mrs. Maroneythen entered into an amendment of the note to provide for an interest rate of5% per annum, with all principal and accrued interest payable in a singlepayment on December 31, 2004.  As consideration for the purchase of thenote by Mrs. Maroney and the amendment of the terms of the note, the Companyissued to Mrs. Maroney 100,000 shares of its Series B Preferred Stock on July 29,2003.  Mrs. Maroney is the wife of Mr. William Maroney, a director of theCompany.  The preferred shares were valued based on recently subscribedprice of $1.00 per share.  The charge was reflected as deferred financingcost and was amortized to interest expense over the remaining term of the note.

 

On February 9, 2005 theCompany entered into a secured loan agreement with Texas State Bank in theamount of $682,000. The loan is secured by a primary lien on the Company’sbuilding and other real property.  Interest on the loan is set at the prime rateplus 1%.  The principal on the loan ispayable in

 

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35 monthly installments of$3,789 with the final principal payment due in full in February 2008.  The funds received from this loan were usedto pay the note held by Aimee Maroney.

 

The Company paid interest ofapproximately $82,000 and 137,000 in 2004 and 2003, respectively.

 

**5.             PREFERREDSTOCK, STOCKHOLDERS’ EQUITY, STOCK OPTIONS AND WARRANTS**

 

In 2002 the Companyauthorized up to 575,000 shares of Series B Preferred Stock at a per shareprice of $1 per share.  The holders of Series B Preferred Stock areentitled to (i) receive an annual cumulative dividend at the rate of 10%,payable prior to dividends on any shares of common stock, (ii) two and one-halftimes the number of votes to which a holder of the same number of common sharesis entitled, (iii) receive two and one-half shares of common stock for eachshare of Series B Preferred Stock tendered for conversion after September 30,2005, (iv) require the Company to redeem shares of Series B Preferred Stock atthe original sale price, plus accrued cumulative dividends, upon prior noticebeginning after September 30, 2005, or in the event of a merger, sale of amajority of the stock or sale of substantially all the assets of the Company,and (v) receive a liquidation preference equal to the original sale price plusaccrued cumulative dividends, prior to the rights of holders of the Series APreferred Stock and the common stock.  On September 30, 2007, alloutstanding shares of Series B Preferred Stock are redeemable at the originalsale price plus accrued cumulative dividends.

 

As of December31, 2004, the Company has issued 400,000 shares of Series B Preferred Stock topersons who were officers, creditors, directors or accredited investors in aprivate placement.  No underwriter was used in the sale. The shareswere offered by management to a limited number of informed investors in atransaction exempt from registration as a private placement under Section 4(2)of the Securities Act of 1933 and Regulation D promulgated thereunder. The purchase price was $1.00 per share.

 

The Company had authorizedthree stock option plans for employees, officers, directors, consultants andother key personnel.  All three plansexpired prior to December 31, 2004.   As of December 31, 2004, the Nonqualified Stock Option Plan hasoptions outstanding to acquire 1,678 shares; the Long-Term Incentive Plan hasoptions outstanding to acquire 8,424 shares; and the Stock Option Plan forEmployees has no remaining options outstanding to acquire shares. On November1, 2004, Roger Dartt exercised his option to purchase 250,000 shares of commonstock at a price of $0.33 per share.

 

The Company issued a warrant to Bank One in 2002 for 721,510 shares ofthe Company’s common stock for 5 years at a price of $.11 per share, the marketprice on the date of the grant, as consideration for Bank One’s entering into aForbearance Agreement. The fair value of the warrants issued to Bank One wasestimated at the date of the grant using a Black Scholes option pricing modelwith the following assumptions: risk-free interest rate of 1.84%; dividend yield of 0%; volatilityfactors of the expected market price over the estimated life of the warrant ofthree years.  The calculated fair valueof the warrant was $54,629, which was recorded as interest expense over theterm of the forbearance period**.**

 

The Company has elected tofollow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees” (APB 25) and related Interpretations in accounting for itsemployee stock options because, as discussed below, the alternative fair valueaccounting provided for under FASB Statement No. 123, “Accounting forStock-Based Compensation,” requires use of option valuation models that werenot developed for use in valuing employee stock options.  Under APB 25,because the exercise price of the Company’s employee stock options equals themarket price of the underlying stock on the date of grant, no compensationexpense is recognized.

 

Pro forma informationregarding net income and earnings per share is required by Statement 123 andSFAS 148 and has been determined as if the Company had accounted for itsemployee stock options under the fair value method of that Statement.  Thefair value for these options was estimated at the

 

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date of grant using aBlack-Scholes option pricing model with the following weighted-averageassumptions for 2001 and 2002, respectively: risk-free interest rate of 4.4%and 1.84%; dividend yield of 0%; volatility factors of the expected marketprice of the Company’s common stock of .913 and .999 and a weighted-averageexpected life of the options of three to five years.  There were no employee stock options grantedin 2004 and 2003.

 

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of tradedoptions that have no vesting restrictions and are fully transferable.  Inaddition, option valuation models require the input of highly subjectiveassumptions including the expected stock price volatility.  Because theCompany’s employee stock options have characteristics significantly differentfrom those of traded options, and because changes in the subjective inputassumptions can materially affect the fair value estimate, in management’sopinion, the existing models do not necessarily provide a reliable singlemeasure of the fair value of its employee stock options.

 

For purposes of pro formadisclosures, the estimated fair value of the option is amortized to expenseover the options’ vesting period.  The Company’s pro forma informationfollows:

 
| ** **                                                                                | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net  income(loss), as reported                                                            |       | $        | 29,476     |     | $          | 53,673 |   |
| Net income(loss) per share, primary and  dilutive, as reported                            |       | $        | (.01       | )        | $          | .01 |   |
|                                                                                      |       |     |       |     |       |
| Stock based employee compensation, net of  tax effects, included in net loss, as reported |       | $        | —     |     | $          | — |   |
|                                                                                      |       |     |       |     |       |
| Stock based compensation, net of tax  effects, under the fair value method                |       | $        | (16,569    | )        | $          | (33,138 | ) |
|                                                                                      |       |     |       |     |       |
| Pro forma net income(loss)                                                                |       | $        | 12,907     |     | $          | 20,535 |   |
| Pro forma net income(loss) per share,  primary and dilutive                               |       | $        | (.00       | )        | $          | (.00 | ) |

 

Stockoption activity is summarized as follows:

 
| ** **                        | ** ** | **Number  of shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-----------------------------------------|------------|
| Outstanding  at December 31, 2002 |       | 729,422               |       | $                                       | 1.28       |   |
| Exercisable at December 31, 2002  |       | 467,915               |       | 2.25                                    |       |
|                              |       |                  |       |                                    |       |
| Options granted                   |       | —                |       | —                                  |       |
| Options exercised                 |       | —                |       | —                                  |       |
| Options canceled                  |       | (5,193                | )          | 4.23                                    |       |
|                              |       |                  |       |                                    |       |
| Outstanding at December 31, 2003  |       | 724,229               |       | 1.65                                    |       |
| Exercisable at December 31, 2003  |       | 660,949               |       | 1.78                                    |       |
|                              |       |                  |       |                                    |       |
| Options granted                   |       | —                |       | —                                  |       |
| Options exercised                 |       | (250,000              | )          | .33                                     |       |
| Options canceled                  |       | (464,127              | )          | 2.38                                    |       |
|                              |       |                  |       |                                    |       |
| Outstanding at December 31, 2004  |       | 10,102                |       | 3.25                                    |       |
| Exercisable at December 31, 2004  |       | 10,102                |       | 3.25                                    |       |
|                                   |            |                       |            |                                         |            |  |

 

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A summary of optionsoutstanding as of December 31, 2004 is as follows:

 
| **Range of Exercise  Prices** | ** ** | **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** |
|-------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|----------------------------------------------------|------------|
| $5.38 —6.75              |       | 3,237                               |       | 3,237                               |       | $                                     | 6.19       |                                               | 9.75       |   |
| $2.00 —4.00              |       | 2,185                               |       | 2,185                               |       | 3.25                                  |       | 2.49                                               |       |
| $0.86 —1.38              |       | 4,680                               |       | 4,680                               |       | 1.21                                  |       | 5.97                                               |       |
|                               |            |                                     |            |                                     |            |                                       |            |                                                    |            |  |

 

Warrantactivity is summarized as follows:

 
| ** **                        | ** ** | **Number of  shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-----------------------------------------|------------|
| Outstanding  at December 31, 2002 |       | 1,494,760             |       | $                                       | 2.54       |   |
| Exercisable at December 31, 2002  |       | 1,494,760             |       | 2.54                                    |       |
|                              |       |                  |       |                                    |       |
| Warrants issued                   |       | —                |       | —                                  |       |
| Warrants exercised                |       | (721,510              | )          | .11                                     |       |
| Warrants canceled                 |       | (600,000              | )          | 5.50                                    |       |
|                              |       |                  |       |                                    |       |
| Outstanding at December 31, 2003  |       | 173,250               |       | 2.44                                    |       |
| Exercisable at December 31, 2003  |       | 173,250               |       | 2.44                                    |       |
|                              |       |                  |       |                                    |       |
| Warrants issued                   |       | —                |       | —                                  |       |
| Warrants exercised                |       | —                |       | —                                  |       |
| Warrants canceled                 |       | (75,000               | )          | .40                                     |       |
|                              |       |                  |       |                                    |       |
| Outstanding at December 31, 2004  |       | 98,250                |       | 4.00                                    |       |
| Exercisable at December 31, 2004  |       | 98,250                |       | 4.00                                    |       |
|                                   |            |                       |            |                                         |            |  |

 

There were no warrantsgranted in 2004.   Exercise prices for warrants outstanding as ofDecember 31, 2004 were all $4.00.  The weighted-average remainingcontractual life of those warrants is 3.88 years.

 

**6.             INCOMETAXES**

 

At December 31, 2004, theCompany had approximately $22,000,000 of net operating loss carry forwards (“NOL’s”)for federal income tax purposes, which expire in various amounts in the years2008 through 2023.

 

Deferred taxes represent thenet tax effects of temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and amounts used for incometax purposes.  Significant components of the Company’s deferred tax assetsare as follows:

 
| ** **                         | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|
| Allowance  for doubtful accounts   |       | $          | 64,000     |       | $          | 58,000 |   |
| Inventory valuation reserves       |       | 904,000    |       | 927,000    |       |
| Compensation and employee benefits |       | 16,000     |       | 200,000    |       |
| Warranty reserve                   |       | 25,000     |       | 34,000     |       |
| NOL’s                         |       | 7,400,000  |       | 7,136,000  |       |
| Other                              |       | 106,000    |       | 121,000    |       |
| Deferred tax asset                 |       | 8,515,000  |       | 8,476,000  |       |
| Deferred tax liabilities           |       | (47,000    | )          | (50,000    | )          |
| Net deferred tax asset             |       | 8,468,000  |       | 8,426,000  |       |
| Valuation allowance                |       | (8,468,000 | )          | (8,426,000 | )          |
| Net deferred tax asset             |       | $          | —     |       | $          | — |   |

 

25

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The Company’s income taxprovision included the following:

 
| ** **                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Current  expense (benefit) |       | $        | —     |     | $          | — |   |
| Deferred expense           |       | —   |       | —   |       |
|                       |       | $        | —     |     | $          | — |   |

 

The following is areconciliation of the Company’s expected income tax expense (benefit) based onstatutory rates to the actual expense (benefit):

 
| ** **                                         | ** ** | **2004** | ** ** | **2003**   | ** ** |
|----------------------------------------------------|------------|----------|------------|------------|------------|
| Income taxes  (benefit) at US statutory rate       |       | $        | 10,022     |       | $          | 18,249 |   |
| Non-deductible amortization and expenses           |       | 2,372    |       | 1,446,766  |       |
| Deferred tax asset valuation allowance  adjustment |       | 42,000   |       | (104,000   | )          |
| Net operating losses                               |       | (54,394  | )          | (1,361,015 | )          |
|                                               |       | $        | —     |       | $          | — |   |

 

Uncertainties exist as tothe future realization of the deferred tax asset under the criteria set forthunder FASB Statement No. 109.  The change in the valuation allowanceduring 2004 of $42,000 reflects the increase in NOLs during 2004.

 

The Company paid no federalincome tax during 2003 or 2004.

 

The Company’s investment inits foreign subsidiary is considered to be permanently invested, and noprovision for U.S. federal and state income taxes on these translationadjustments has been provided.

 

**7.****             ****OPERATIONS BY INDUSTRY SEGMENT, GEOGRAPHIC AREA ANDSIGNIFICANT CUSTOMERS**

 

SFAS No. 131, Disclosuresabout Segments of an Enterprise and Related Information, established standardsfor reporting information about operating segments in annual financialstatements and requires selected information about operating segments ininterim financial reports issued to stockholders.  It also establishedstandards for related disclosures about products and services, and geographicareas.  Operating segments are defined as components of the enterpriseabout which separate financial information is available that is evaluated regularlyby the chief operating decision maker, or decision making group, in decidinghow to allocate resources and in assessing performance.

 

The Company develops,manufactures, markets and sells high technology dental products, such as airabrasive equipment, curing lights and intra oral cameras.  AMT markets itsdental products through dealers and independent distributors to general dental practitioners and certainother dental specialists.   Internationally, the Company has notmaintained its own sales force and continues to sell its products throughinternational distributor networks.  AMT presently markets its industrialproducts through independent distributors. The reportable segments are reviewedand managed separately because selling techniques and market environmentsdiffer from selling domestically versus selling through internationaldistributor networks.  The remaining revenues of the Company, which arereported as “Other”, represent royalty income.

 

As of December 31, 2004, theCompany ceased operations of its wholly owned subsidiary  based in Keltern, Germany.  As required by German law, the Company willmaintain an office there for a period of one year, but no sales activities willbe generated from that location.  TheCompany has

 

26

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transferred all salesactivities from its German office  to anexclusive German distributor.  Allactivities will be coordinated by AMT’s U.S. office.  The Company does not believe the closure ofits German office will have a significant impact on revenues.

 

The accounting policies ofthe business segments are consistent with those described in Note 1.

 
| ** **                                                       |   | **2004**   |       | **2003**   |   |
|------------------------------------------------------------------|--------|------------|------------|------------|--------|
| Revenues:                                                        |   |       |       |       |   |
| Domestic                                                         |   | $          | 1,775,738  |       | $      | 1,981,838 |   |
| International                                                    |   | 462,003    |       | 797,957    |   |
|                                                             |   | $          | 2,237,741  |       | $      | 2,779,795 |   |
|                                                             |   |       |       |       |   |
| Reconciliation  of revenues:                                     |   |       |       |       |   |
| Total  segment revenues                                          |   | $          | 2,237,741  |       | $      | 2,779,795 |   |
| Other                                                            |   | 18,684     |       | 218,721    |   |
| Total  revenues                                                  |   | $          | 2,256,425  |       | $      | 2,998,516 |   |
|                                                             |   |       |       |       |   |
| Operational  earnings (loss):                                    |   |       |       |       |   |
| Domestic                                                         |   | $          | 381,945    |       | $      | 233,800 |   |
| International                                                    |   | 169,927    |       | 160,212    |   |
|                                                             |   | $          | 551,872    |       | $      | 394,012 |   |
|                                                             |   |       |       |       |   |
| Reconciliation  of operational earnings to loss from operations: |   |       |       |       |   |
| Total  segment operational earnings (loss)                       |   | $          | 551,872    |       | $      | 394,012 |   |
| Other  operational earnings                                      |   | 18,684     |       | 218,721    |   |
| Research  and development expenses                               |   | (152,252   | )          | (233,898   | )      |
| Administrative  expenses                                         |   | (2,205,253 | )          | (2,133,758 | )      |
| Goodwill  impairment                                             |   | —     |       | (1,971,427 | )      |
| Accrued  losses on vendor settlements                            |   | —     |       | (207,222   | )      |
| Loss  from operations                                            |   | $          | (1,786,949 | )          | $      | (3,933,572 | ) |
|                                                             |   |       |       |       |   |
| International  revenues by country:                              |   |       |       |       |   |
| Japan                                                            |   | $          | 114,754    |       | $      | 125,514 |   |
| Germany                                                          |   | 151,223    |       | 397,012    |   |
| Italy                                                            |   | 4,876      |       | 67,268     |   |
| Canada                                                           |   | 64,237     |       | 75,603     |   |
| Other                                                            |   | 126,913    |       | 132,560    |   |
|                                                             |   | $          | 462,003    |       | $      | 797,957 |   |
|                                                             |   |       |       |       |   |
| Long  lived assets (excluding deferred taxes):                   |   |       |       |       |   |
| Domestic                                                         |   | $          | 1,320,985  |       | $      | 1,388,404 |   |
| International                                                    |   | 369        |       | 1,142      |   |
|                                                             |   | $          | 1,321,354  |       | $      | 1,389,546 |   |
|                                                             |   |       |       |       |   |
| Current  assets                                                  |   |       |       |       |   |
| Domestic                                                         |   | $          | 3,173,718  |       | $      | 1,349,239 |   |
| International                                                    |   | 106,207    |       | 131,100    |   |
|                                                             |   | $          | 3,279,925  |       | $      | 1,480,339 |   |

 

27

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**8.     COMMITMENTSAND CONTINGENCIES**

 

Rental expense for operatingleases in 2004 and 2003 approximated $26,800 and $39,000**,**respectively.

 

In March 2004, the Companysettled a claim for $200,000 made by certain former employees and related   family matters against a portion of theproceeds from the Biolase transaction.  This settlement was paid in thequarter ended June 30, 2004.

 

On February 7, 2005, the Companysigned a mutual release and settlement agreement with Cefla, S.C.R.L.  Accruals for this settlement were made in theperiod ended December 31, 2003 and are included in the accompanying balancesheet.  The settlement amount of $215,000was paid in the first quarter of 2005.

 

On October 25, 2004, theCompany filed a lawsuit against Michael D. Stewart, an attorney who representedthe Company on a contingency fee basis in litigation against Big Sky LaserTechnologies, Inc.  After a “walk away”settlement with Big Sky was verbally agreed to by both parties, Mr. Stewartencouraged the Company to renege on the settlement agreement, which resulted inBig Sky petitioning the court for an order enforcing the settlementagreement.  After the court ordereddismissal of the lawsuit, Mr. Stewart claimed he could have recovered acontingency fee of between $2 and $8 million had the Company not elected toenter into the settlement agreement and advised the Company that he would seekarbitration of his contingency fee agreement in pursuit of this claim.  The Company filed a lawsuit seeking adeclaratory judgment to interpret the provisions of the contingency feeagreement with Mr. Stewart, and requesting an award of attorney’s fees andcosts.  The Company believes Mr. Stewart’sclaims are without merit.  Mr. Stewart’sMotion to Compel the case to arbitration was granted on February 11, 2005, andthe Company has filed a request for reconsideration.  The Company has filed a grievance against Mr.Stewart with the State Bar of Texas.

 

On August 23, 2004, theCompany and Big Sky Laser Technologies, Inc. signed a mutual release, and acourt ordered dismissal of that lawsuit was entered. The Company recorded$102,000 in other income in the period ended September 30, 2004, representingthe amount accrued in 2003 for the potential settlement of this lawsuit.

 

The Company is currently inarbitration for breach of employment contract claims filed by two formeremployees totaling $250,000. The Company is vigorously defending both of theseclaims; however it is premature to judge the potential liability or outcome ofthese claims.

 

The Company’s managementbelieves that the results of any outstanding claims or litigation singly or inthe aggregate, will not have a material effect on the Company’s consolidatedfinancial position or results of operations**.**

 

ITEM8.                             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM8A.                   CONTROLS AND PROCEDURES

 

Asof December 31, 2004, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Controller, of the effectiveness anddesign and operation of the Company’s disclosure controls and procedures pursuantto Exchange Act Rule 13a-14.  Based upon the evaluation, the ChiefExecutive Officer and Controller concluded that the Company’s disclosurecontrols and procedures are effective.  Subsequent to the evaluation andthrough the date of this filing of Form 10-KSB for the year ended December 31,2004, there have been no significant changes in the Company’s internal controlsor in other factors that could significantly affect these controls.

 

28

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ITEM8B.                     OTHER INFORMATION

 

None.

 

**PART III**

 

ITEM9.                            DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS ANDCONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

Informationwith respect to Item 9 is set forth in the Company’s Proxy Statement and isincorporated herein by reference.

 

ITEM10.                      EXECUTIVE COMPENSATION

 

Informationwith respect to Item 10 is set forth in the Company’s Proxy Statement and isincorporated herein by reference.

 

ITEM 11.                       SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Informationwith respect to Item 11 is set forth in the Company’s Proxy Statement and isincorporated herein by reference.

 

ITEM12.        CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS

 

Informationwith respect to Item 12 is set forth in the Company’s Proxy Statement and isincorporated herein by reference.

 

ITEM 13.                       EXHIBITS

 

Theexhibits included as part of this report are listed in theattached Exhibit Index, which is incorporated hereinby reference.

 

ITEM 14.        PRINCIPALACCOUNTANT FEES AND SERVICES

 

Informationwith respect to Item 14 is set forth in the Company’s Proxy Statement and isincorporated herein by reference.

 

 

Signatures

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this annual report to be signed on itsbehalf by the undersigned, thereunto duly authorized, in the City of CorpusChristi, State of Texas, on the 31st day of March, 2005.

 

 
|   | AMERICAN  MEDICAL TECHNOLOGIES, INC. |
|--------|--------------------------------------|
|   |                                 |
|   | /s/  Roger W. Dartt                  |   |
|   | Roger  W. Dartt, President and CEO   |

 

29

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Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities indicated on same asdate above.

 

 
| /s/  Roger W. Dartt            |   |                                              |
|--------------------------------|--------|---------------------------------------------------|
| Roger  W. Dartt                |   | President  and Director (Chief Executive Officer) |
|                           |   |                                              |
| /s/  Barbara Woody             |   |                                              |
| Barbara  Woody                 |   | Controller  (Principal Accounting Officer)        |
|                           |   |                                              |
| /s/  Gary A. Chatham           |   |                                              |
| Gary  A. Chatham               |   | Director                                          |
|                           |   |                                              |
| /s/  Wayne A. Johnson II       |   |                                              |
| Wayne  A. Johnson II           |   | Director                                          |
|                           |   |                                              |
| /s/  William D. Maroney        |   |                                              |
| William  D. Maroney            |   | Director                                          |
|                           |   |                                              |
| /s/  Charles A. Nichols        |   |                                              |
| Charles  A. Nichols            |   | Director                                          |
|                           |   |                                              |
| /s/  Bertrand R. Williams, Sr. |   |                                              |
| Bertrand  R. Williams, Sr.     |   | Director                                          |

 

30

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**EXHIBITINDEX**

 

Certainof the following exhibits have been previously filed with the Securities andExchange Commission pursuant to the requirements of the Securities Act of 1933and the Securities Exchange Act of 1934. Such exhibits are identified by theparenthetical references following the listing of each such exhibit and areincorporated herein by reference. The Company’s Commission file number is0-19195.

 
| **Exhibit  Number** | ** ** | **Description  of Document**                                                                                                                                                                |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                 |       | Asset  Purchase Agreement dated as of May 12, 2003 between Biolase Technology, Inc.  and the Company (Form 10-Q for quarter ended March 31, 2003)                                           |
|                |       |                                                                                                                                                                                        |
| 3.1                 |       | First  Restated Certificate of Incorporation, as amended (Form 10-Q for quarter ended  September 30, 2000)                                                                                  |
|                |       |                                                                                                                                                                                        |
| 3.2                 |       | Second  Restated Certificate of Incorporation (Form 10-Q for the quarter ended  September 30, 2002)                                                                                         |
|                |       |                                                                                                                                                                                        |
| 3.3                 |       | Certificate  of Correction to the Second Restated Certificate of Incorporation (Form 10-K  for year ended December 31, 2002)                                                                |
|                |       |                                                                                                                                                                                        |
| 3.4                 |       | Certificate  of Designation of Series B Preferred Stock (Form 10-K for year ended December  31, 2002)                                                                                       |
|                |       |                                                                                                                                                                                        |
| 3.5                 |       | Amended  and Restated Bylaws (Form 10-K for year ended December 31, 1998)                                                                                                                   |
|                |       |                                                                                                                                                                                        |
| 4.1                 |       | Amendment  Agreement with Aimee Maroney effective as of June 17, 2003 (Form 10-Q for  quarter ended June 30, 2003)                                                                          |
|                |       |                                                                                                                                                                                        |
| 4.2                 |       | Agreement  to Assign Lien and Release Claims with Aimee Maroney and Value Bank Texas  dated as of June 17, 2003 (Form 10-Q for quarter ended June 30, 2003)                                 |
|                |       |                                                                                                                                                                                        |
| 4.3                 |       | Non-Transferable  Common Stock Purchase Warrant issued to Ben J. Gallant, dated April 29, 2002.  (Form 10-Q/A for the quarter ended March 31, 2002)                                         |
|                |       |                                                                                                                                                                                        |
| 4.4                 |       | Promissory  Note issued to Texas State Bank dated February 9, 2005                                                                                                                          |
|                |       |                                                                                                                                                                                        |
| 4.5                 |       | Deed  of Trust granted to Paul S. Moxley, Trustee for Texas State Bank, dated  February 9, 2005.                                                                                            |
|                |       |                                                                                                                                                                                        |
| 10.1*               |       | Amended  and Restated Nonqualified Stock Option Plan (Registration No. 33-40140)                                                                                                            |
|                |       |                                                                                                                                                                                        |
| 10.2*               |       | Stock  Option Plan for Employees (Registration No. 33-40140)                                                                                                                                |
|                |       |                                                                                                                                                                                        |
| 10.3*               |       | Amended  and Restated Long-Term Incentive Plan (Form 10-Q for quarter ended September  30, 1996)                                                                                            |
|                |       |                                                                                                                                                                                        |
| 10.4                |       | License  Agreement between Texas Airsonics, Inc., a wholly owned subsidiary of  American Medical Technologies, Inc. and Texas Airsonics, L.P. (Form 10-K for  year ended December 31, 1996) |
|                |       |                                                                                                                                                                                        |
| 10.5**              |       | Patent  License Agreement dated October 18, 1997 between Danville Engineering, Inc.  and American Medical Technologies, Inc. (Form 10-Q for quarter ended  September 30, 1997)              |
|                |       |                                                                                                                                                                                        |
| 10.6                |       | Assignment  from Sunrise Technologies International, Inc. to Lares Research dated June                                                                                                      |

 

31

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|         |   | 24,  1997 (Form 10-K for year ended December 31, 1997)                                                                                                                                                            |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                                                                              |
| 10.7         |   | Patent  License Agreement dated June 29, 1998 Prep-Technology Corp. and American  Medical Technologies, Inc. (Form 10-Q for quarter ended June 30, 1998)                                                          |
|         |   |                                                                                                                                                                                                              |
| 10.8**       |   | Patent  License Agreement dated as of January 21, 1999 between ESC Medical Systems,  Ltd. and American Medical Technologies, Inc. (Form 10-Q for quarter ended  March 31, 1999)                                   |
|         |   |                                                                                                                                                                                                              |
| 10.9         |   | Patent  licensing Agreement dated June 10, 1999 between American Medical  Technologies, Inc. and Kreativ, Inc. (Form 10-Q for quarter ended June 30,  1999)                                                       |
|         |   |                                                                                                                                                                                                              |
| 10.10 * |   | Employment  Agreement dated effective as of June 1, 2004, between American Medical  Technologies, Inc. and Roger W. Dartt (Form 10-Q for the quarter ended  September 30, 2004)                                   |
|         |   |                                                                                                                                                                                                              |
| 21           |   | Subsidiaries  of the Registrant (Form 10-K for year ended December 31, 1999)                                                                                                                                      |
|         |   |                                                                                                                                                                                                              |
| 23           |   | Consent  of Hein & Associates LLP                                                                                                                                                                             |
|         |   |                                                                                                                                                                                                              |
| 31.1         |   | Certification  of Roger W. Dartt, President & Chief Executive Officer, as required  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                |
|         |   |                                                                                                                                                                                                              |
| 31.2         |   | Certification  of Barbara Woody, Controller and principal accounting officer, as required  pursuant Section 302 of the Sarbanes-Oxley Act of 2002.                                                                |
|         |   |                                                                                                                                                                                                              |
| 32           |   | Certification  of Roger W. Dartt, President and Chief Executive Officer, and Barbara Woody,  Controller and principal accounting officer, as required pursuant to Section  906 of the Sarbanes-Oxley Act of 2002. |

 

----

*            Identifies current management contracts orcompensatory plans or arrangements.

 

**     Portions of this agreement were filed separately with the Commissionpursuant to Rule 24b-2 of the Securities Act of 1934 governing requests forconfidential treatment of information.

 

32

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