**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 
| **x**      | ** ** | **Annual  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**                                                                                                                                                                                        |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                        |
| ** ** | ** ** | **For  the fiscal year ended December 31, 2007, or**                                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                        |
| **o**      | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**                                                                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                        |
| ** ** | ** ** | **For  the transition period  from                      to                      .** |

 

**Commission File No. 0-19195**

 

**AMERICAN MEDICAL TECHNOLOGIES, INC.**

(Exact name of small business issuer in its charter)

 

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

 

**5655 Bear Lane, Corpus Christi, TX78405**

(Address of principal executive offices)(Zip Code)

 

**(361) 289-1145**

(Issuer’s telephone number)

 

Securities registered pursuant to Section 12(b) of theExchange Act: **None**

 

Securities registered pursuant to Section 12(g) of the Act:

 

**Common Stock, $.04 par value pershare**

(Title of Class)

 

Check whether the issueris not required to file reports pursuant to Section 13 or 15(d) ofthe Exchange Act. o

 

Check whether the issuer (1) filedall reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.               Yes x      No o

 

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-Bcontained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.  o

 

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

 

State issuer’s revenuesfor its most recent fiscal year: $3,165,399

 

The aggregate marketvalue of the registrant’s Common Stock held by non-affiliates of the registrantwas approximately $1,214,073 as of April 9, 2008 based upon the closingprice of $0.12 reported on the OTC Bulletin Board on that date. For purposes ofthis calculation only, all directors, executive officers and owners of morethan ten percent of the registrant’s Common Stock are assumed to be affiliates.

 

There were 10,117,274shares of the issuer’s Common Stock issued and outstanding on April 9, 2008.

 

DOCUMENTS INCORPORATED BYREFERENCE - None

 

Transitional SmallBusiness Disclosure Format:  (check one):  Yes  o   No x

 

 

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TABLE OF CONTENTS

 
| ** **    | ** **                                                                                                                       | ** ** | ** ** | **Page** |
|---------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------|----------|
| PART I   |                                                                                                                             |       |       |     |
|          |                                                                                                                             |       |       |     |
| Item 1.       | Description of Business                                                                                                          |       |       | 3        |
|          |                                                                                                                             |       |       |     |
| Item 2.       | Description  of Property                                                                                                    |       |       | 14       |
|          |                                                                                                                             |       |       |     |
| Item 3.       | Legal Proceedings                                                                                                                |       |       | 14       |
|          |                                                                                                                             |       |       |     |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                                             |       |       | 14       |
|          |                                                                                                                             |       |       |     |
| PART II  |                                                                                                                             |       |       |     |
|          |                                                                                                                             |       |       |     |
| Item 5.       | Market for  Common Equity, Related Stockholder Matters and Small Business Issuer  Purchases of Equity Securities                 | 14         |
|          |                                                                                                                             |       |       |     |
| Item 6.       | Management’s  Discussion and Analysis or Plan of Operations                                                                 |       |       | 16       |
|          |                                                                                                                             |       |       |     |
| Item 7.       | Financial Statements                                                                                                             |       |       | 21       |
|          |                                                                                                                             |       |       |     |
| Item 8.       | Changes In  and Disagreements With Accountants on Accounting and Financial Disclosure                                            |       |       | 41       |
|          |                                                                                                                             |       |       |     |
| Item 8A.      | Controls and  Procedures                                                                                                         |       |       | 41       |
|          |                                                                                                                             |       |       |     |
| Item 8B.      | Other Information                                                                                                                |       |       | 42       |
|          |                                                                                                                             |       |       |     |
| PART III |                                                                                                                             |       |       |     |
|          |                                                                                                                             |       |       |     |
| Item 9.       | Directors,  Executive Officers, Promoters and Control Persons; Compliance with  Section 16(a) of the Exchange Act | 42         |
|          |                                                                                                                             |       |       |     |
| Item 10.      | Executive  Compensation                                                                                                          |       |       | 44       |
|          |                                                                                                                             |       |       |     |
| Item 11.      | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                                 |       |       | 46       |
|          |                                                                                                                             |       |       |     |
| Item 12.      | Certain  Relationships and Related Transactions                                                                                  |       |       | 47       |
|          |                                                                                                                             |       |       |     |
| Item  13.     | Exhibits                                                                                                                         |       |       | 47       |
|          |                                                                                                                             |       |       |     |
| Item 14.      | Principal  Accountant Fees and Services                                                                                          |       |       | 47       |
|          |                                                                                                                             |       |       |     |
| SIGNATURES    |                                                                                                                             |       |       | 48       |
|          |                                                                                                                             |       |       |     |
| EXHIBITS      |                                                                                                                             |       |       | 49       |

 

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**Special Note Regarding ForwardLooking Statements**

 

The Company makesforward-looking statements in this report and may make such statements infuture filings with the Securities and Exchange Commission.  The Companymay also make forward-looking statements in its press releases or other publicshareholder communications.  The Company’s forward-looking statements aresubject to risks and uncertainties and include information about itsexpectations and possible or assumed future results of operations.  Whenthe Company uses any of the words “believes”, “expects”, “anticipates”, “estimates”or similar expressions, it is making forward-looking statements.

 

To the extentavailable, the Company claims the protection of the safe harbor forforward-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 establish original equipmentmanufacturer agreements or strategic alliances and the other risks anduncertainties set forth in this report.

 

Other factors notcurrently anticipated by management may also materially and adversely affectthe Company’s results of operations.  Except as required by applicablelaw, the Company does not undertake any obligation to publicly release anyrevisions which may be made to any forward-looking statements to reflect eventsor circumstances occurring after the date of this report.

 

**PART I**

 

ITEM1.              DESCRIPTION OF BUSINESS

 

**Introduction**

 

American MedicalTechnologies, Inc., (“AMT” or “Company”) “distributes”, “manufactures” and“brokers” high technology products designed primarily for the global generaland cosmetic dental industries.  In thedistributor function, AMT acts as the manufacturer licensee and global salesrepresentative of a premium brand of professional tooth whitening.  As a manufacturer, AMT continues to designand produce air and water abrasive kinetic preparation systems in the Company’sCorpus Christi, Texas manufacturing facility. As a broker, AMT acts as the sales and technical “detailer” of severalpremium and renowned dental product brands. Outside of dental product sales AMT also develops, manufactures andmarkets precision air abrasive jet machining, (“AJM”) systems for industrialapplications and operates a successful parts and maintenance business for pastAMT dental and industrial products. AMT incorporated in Delaware in November 1989and completed its initial public offering in June 1991.  AMT changed its name for American DentalTechnologies, Inc. on July 13, 2000.

 

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Over the past few yearsAMT successfully implemented a restructuring and recovery program whichprotected the company’s assets from excessive claims and creating a solidfoundation from which the company was to plan and execute its current, positivegrowth strategy.  In 2006, the Companyadded the Spectrum Dental product line and by doing, began a new era in thelife of AMT which lead to the production of a business model for the sound andon-going development of shareholder value. In 2007, AMT became the contractual broker of the BriteSmile, BreathRx,DirectCrown and SheerVision brands of reputable and high quality dentalproducts.

 

**Products**

 

Described beloware the Company’s current principal product lines.

 

*ContrastTooth Whitening*

 

In April 2007, theCompany entered into a 5 year licensing agreement with Discus Dental and itswholly owned subsidiary, Spectrum Dental, a leading provider of professionaltooth whitening systems, under which AMT was granted the exclusive worldwidedistribution rights of the Spectrum Dental product line.  The products purchased from Discus Dental andresold under the brand names: Contrast AM, Contrast PM, Contrast PM Plus, FastDam,FastTrack and other ancillary products, utilize hydrogen peroxide or carbamideperoxide in various concentrations to safely and effectively whiten discoloredteeth.  Although the safety and efficacyof these technologies are well tested, due to the relative strength of thematerials, Contrast tooth whitening products are only available as administeredby dental professionals.

 

Spectrum Dental productsaccounted for 53% and 34% of AMT’s total revenues in 2007 and2006, respectively

 

*Detailsof the Discus Dental / Spectrum Dental License Agreement:*

 

As previously initially reported in the Company’s Form 8-K,filed with the Securities and Exchange Commission (“SEC”) on April 17,2006, the Company, on April 11, 2006, entered into an Exclusive LicenseAgreement (the “License Agreement”) with Discus Dental Holdings, Inc., aCalifornia corporation (“Discus”), under which the Company became theexclusive, worldwide distributor of the proprietary dental productsmanufactured and sold by Discus’ wholly owned subsidiary, Spectrum Dental, Inc.(“Spectrum”). The License Agreement is for a term of five years, containsminimum requirements for sale of the products by the Company, and may beterminated (i) for cause upon 30 days notice, (ii) at certain timesduring the term of the License Agreement if the Company fails to maintainpositive net income for a specified period, (iii) upon the Company’sfailure to comply with applicable securities laws, (iv) if any judgment isrendered against the Company, or it defaults on any debt, in excess of $50,000,(v) upon any change in the Company’s results of operation or conditionwhich in the sole opinion of Discus has or could have a material adverse effecton the Company’s condition, business, properties or prospects, and (vi) uponthe occurrence of certain other customary events of default. As fullconsideration, the Company granted to Discus a ten year warrant (the “Warrant”)to purchase up to 2,500,000 shares of its common stock at $0.20 per share. Theshares subject to the Warrant vest 500,000 after the first year and anadditional 41,667 shares on each successive full one-month period thereafteruntil the fifth anniversary of the date of grant; however vesting ceases uponthe sale of Spectrum to the Company as contemplated by the Option Agreementdescribed below. The shares subject to the Warrant are adjusted upon theoccurrence of certain events including a stock dividend, reclassification,merger and stock split, and upon the issuance of shares for a consideration pershare less than the applicable conversion price of the Warrant, with certainexceptions for compensation paid in stock.

 

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*ManufacturingAgreement*

 

Also, on April 11, 2006, the Company entered intoa Manufacturing Agreement with Westside Packaging, Inc., a wholly ownedsubsidiary of Discus and the current manufacturer, for the manufacture of theproducts and sale to the Company for distribution under the License Agreement.The products manufactured are sold under the marks Contrastpm®, Contrastam®,FastDam® and FastTrak®. The Manufacturing Agreement is for a term of threeyears with automatic one year renewal terms unless either party gives notice ofnon-renewal.

 

*StandstillAgreement*

 

As of January 16, 2007, Discus, Spectrum andWestside, on the one hand, and the Company, on the other hand, entered into aStandstill Agreement, in which each of the parties agreed that there arepending disputes among them concerning the existence and/or extent of anyperformance issues under the License Agreement and Manufacturing Agreement(collectively, the “Agreements”).  It is the Company’s position that theAgreements are in effect.  Discus has agreed not to dispute the Company’sposition, but has reserved, together with the Company, all rights, claimsand/or defenses relating to the Agreements.  The parties to the StandstillAgreement have agreed to discuss potential resolution of any disputes arisingout of the Agreements.  Further, the parties have agreed that any partymay terminate the Standstill Agreement by providing the other party with 10days’ written notice.  The parties further agreed that no party to theStandstill Agreement may commence any legal action against the other partyprior to termination of the Standstill Agreement.  The StandstillAgreement is dated February 1, 2007.

 

*OptionAgreement*

 

On April 11, 2006, the Company and Discus alsoentered into a Put and Call Option Agreement (the “Option Agreement”) wherebyDiscus has a put option to compel the Company to purchase all the outstandingshares of capital stock of Spectrum, and the Company has a call option tocompel Discus to sell such shares, at any time after April 11, 2007 andbefore the earlier to occur of the termination or expiration of the LicenseAgreement or five years. Notwithstanding the foregoing, the Companymay not exercise its call option if the price at which its shares ofcommon stock are trading, or the average trading price of its shares during thepreceding 30 day period, is less than $0.60 per share. The exercise price of theoption will be between $2,300,000 and $2,662,537.50, depending on the date ofexercise. The purchase price will be paid with a combination of cash and3,000,000 shares of Company common stock (subject to adjustment); provided thatif that aggregate value of the specified amount of cash and the value of thestock based on the average trading value of the Company’s stock for the 30 dayspreceding the closing of the Option Agreement is less than the applicableexercise price, then the Company must issue additional shares to equal thevalue of the exercise price. At the option of the parties, the exercise pricecan be paid in all cash; however, if the Company first elects to exercise itscall option, the method of payment of the exercise price will be at the electionof Discus. Upon the exercise of the option, the parties shall enter into aStock Purchase Agreement substantially in the form agreed to in the OptionAgreement for the purchase and sale of the Spectrum shares.

 

*RegistrationRights Agreement*

 

Also, on April 11, 2006, the Company entered intoa Registration Rights Agreement with Discus pursuant to which it agreed, at itsown expense, to register the offer and resale of shares issuable upon exerciseof the Warrant not later than April 11, 2007, and to register sharesacquired by Discus under the Option Agreement within 120 days after theexercise of an option under the Option Agreement and to use its reasonable bestefforts to cause the registration statement to be declared effective by the SECas soon as practicable thereafter. The Company must, subject to certainspecified circumstances, maintain the effectiveness of the registrationstatement for a 

 

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specified period of time. The Company also granted toDiscus piggyback rights for other registration statements filed by it with theSEC for the sale of its shares.  As ofthe date of this filing of this form 10-KSB, the Company has not filed such aregistration statement.  The RegistrationRights Agreement requires physical or net-share settlement by delivery ofregistered shares and does not specify any circumstances under which net-cashsettlement will be permitted or required and the contract does not specify howthe contract will be settled in the event that the Company is unable to deliverregistered shares.  Therefore,  net-cash settlement is assumed if the Companyis unable to deliver registered shares and the warrants are classified as aliability.

 

*KCP Cavity Preparation Systems*

 

AMT has patentedthe method whereby a dentist can remove tooth decay by means of a narrow, highvelocity stream of minute particles delivered by compressed air to the tooththrough a lightweight dental hand piece.  In many cases the KCP lessensthe patient sensitivity and, as such, may be used to treat a patient withoutanesthesia.  .The KCP shapes restorations, removes old compositematerials, and modifies the underlying hard tissue, often helping to increasebond strength in restorative procedures.  It is also used for sealant preparations;surface stain removal and intra-oral porcelain removal and repair.  TheKCP can often be used in place of a traditional dental drill.

 

In 2003 and 2004,the Company introduced “Hydrobrasion” technology.  Hydrobrasion is thepatented use of air, water and micro particles which are combined to form aneffective cutting slurry that safely removes dental tooth structure and toothdecay in a minimally invasive manner..  In 2004, the Company introducedthis technology in the KCP “Flexijet®”, an air abrasion unit with an integratedwater system that dramatically diminishes overspray, minimizes patientsensitivity, and produces faster, more precise cutting.  In 2005, the Company developed and introduced the “HydroJet®” product which utilizes the Company’s patented “Hydrobrasion” technology.

 

KCP productsaccounted for 3% and 12% of AMT’s total revenues in 2007 and2006, respectively

 

*Industrial Products*

 

AMT develops,manufactures and markets its precision AJM systems for industrialapplications.  The AJM system has a wide range of applications, includingdrilling, cutting, abrading, deburring, dressing, beveling, etching, shapingand polishing.  Its principal advantage over conventional machining isthat the AJM process, which accomplishes its work through kinetic particledisplacement (an erosion process), produces no heat, shock or vibration. This enables precise work to be done on fragile materials without deburring orfurther processing.  AJM systems are often used to remove the slag, burrsand flash resulting from conventional machining processes.  Some examplesinclude deburring needles, beveling silicon wafers and cutting fiber optics.

 

Industrialproducts accounted for 18% and 20% of AMT’s total revenues in 2007 and2006, respectively.

 

*DirectCrown Temporary Crown and Bridge Materials:*

 

In April 2007,AMT entered into a license agreement with CrownBeav LLC to represent the uniqueDirectCrown brand of temporary crown and bridge shell materials.  DirectCrown, a low-cost alternative toconventional temporary crown and bridge materials, is a pre-formed shell madeof a high-impact, flexible, carbon polymer. When filled with the system’s resin and molded over the prepared teeth,the result is a hard and wear-resistant restoration that is easier and lessexpensive for the dentist that 

 

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traditional temporarymaterials and techniques. Because of the simplicity and low cost natures of theproduct, DirectCrown shells are ideal for patients of all ages.

 

*License Agreement*

 

On April 1, 2007, the Company entered into aLicense Agreement with CrownBeav LLC, an Oregon limited liability company,under which the Company became the nonexclusive distributor for the UnitedStates and Canada and the exclusive distributor for the rest of the world of it’sDirectCrown brand of temporary crown and bridge material.  The license agreement is for a term of tenyears with automatic renewals for additional five year terms, contains minimumrequirements for sale of the products by the Company, and may be terminated (i) forcause upon 60 days notice, (ii) upon the Company’s failure to comply withapplicable securities laws, (iii) upon the occurrence of certain othercustomary events of default.  In fullconsideration, the Company granted to CrownBeav a five year option to purchase(the “Option”) 1,000,000 shares of common stock at $0.20 per share.  The shares subject to the Option will vesttwo years from the Effective Date of the agreement.  The option agreement includes a guaranteedtrading price of $0.40 per share for the 30-day period prior to vesting.  Additional option shares will be granted forthe difference if the market price of the shares is below $0.40 during the30-day period.

 

The Black-Scholes option pricing model was used todetermine the fair value of the options issued to CrownBeav with the followingassumptions:  risk free interest rate of 4.54%; dividend yield of 0%;volatility factors of 139%, the expected market price of the Company’s commonshares over the estimated life of the option of 3.5 years.  The resultingfair value of the call option was $341,726. The option grant vests on April 1, 2009.  The option agreement includes a guaranteedtrading price of $0.40 per share for the 30-day period prior to vesting.  Additional option shares will be granted forthe difference if the market price is below $0.40 during the 30-dayperiod.  The Black-Scholes option pricingmodel was used to determine the fair value of the option guarantee issued toCrownBeav with the following assumptions: risk free interest rate of 4.60%; dividend yield of 0%; volatilityfactors of 100%, the expected market price of the Company’s common shares overthe guarantee period of 2 years.  Theresulting fair value of the put option was $185,000.  The $526,726 fair market value of the option(combination of call and put) was capitalized as an intangible asset and isbeing recognized as a licensing fee over the 10 year period of the license.

 

Commissions received byAMT for DirectCrown products accounted for 3% of AMT’s total revenues in2007.  DirectCrown products were not soldby AMT in 2006.

 

*BriteSmile Professional Tooth Whitening*

 

In December 2007,AMT entered into a partnership with Discus Dental, Inc. to represent thehighly acclaimed and world renowned BriteSmile professional tooth whiteningsystems in select international markets. BriteSmile, one of the world’s most highly recognized tooth whiteningbrand names, is a tooth whitening procedure which is performed by a dentalprofessional in a dentist office.  Byapplying light technology to a proprietary gel and activator system, thepatient experiences dramatic whitening results in approximately one hour.  To supplement the procedure, the BriteSmilebrand also includes professional take home whitening gels, a whiteningtoothpaste, a refreshing mouth rinse and a unique “Whitening to Go” paint onwhitening stick.  AMT’s key role is toact as the sales and technical service detailer for the existing globalBriteSmile business as well as to prospect for new distributors and newcountries.

 

No revenue was recognizedfor the representation of BriteSmile products in 2007.

 

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*BreathRx Professional Oral Care Products*

 

In conjunctionwith the above mentioned BriteSmile agreement, in December 2007 AMT alsoentered into a partnership with Discus Dental, Inc. to represent theunique BreathRx line of professional oral care products in select internationalmarkets.  The BreathRx brand, soldprimarily in the USA through major retail drug and supermarket outlets, is acomprehensive system used to eliminate oral malodor.  Through the three step *process of rinsing, scraping and brushing, a patientwill experience a clinically proven reduction in* bad breath.  The proprietary active ingredients in thesystem help to kill odor causing bacteria while delivering a fresh minty flavorto the mouth.  Ancillary products such aswhitening toothpaste, chewing gum, breath mints and breath spray help to fillout the product offering.  AMT’s role isto offer BreathRx to it’s established distribution network who then sell theproduct to dental professionals.

 

No revenue was recognizedfor the representation of BreathRx products in 2007.

 

*SheerVisiondental headlights and loupes*

 

In December 2007,AMT entered into a partnership agreement with the company SheerVision, Inc.(“SheerVision”) (OTC: BB: SVSO:OB) to represent the highly acclaimed family of advanced proprietary surgical loupes and LED head light systemsfor the dental, medical and veterinary markets.  Under the terms of theagreement, AMT acts as the sales and technical service representative, sellingSheerVision products through its international federation of internationaldistributors.  AMT is compensated on a commission basis for all productssold into the international territory.

 

At the time of theagreement, SheerVision announced they were making some engineering upgrades totheir existing “Infinity” Firefly dental headlight.  The upgrade processhas taken longer than SheerVision expected and, as such, commissionable saleswill not be realized by AMT until at least the second quarter of 2008

 

*Parts, Maintenance and Consumable Sales*

 

In support of the8,000+ Flexijet, Hydrojet and Plasma Arc Curing (“PAC”) lights that have beeninstalled in the field, primarily in the USA and in Europe, AMT offers a “forfee” repair and part service for the units which have gone past their originalmanufacturer’s warranty period.  AMTgenerates revenue and profit by performing repairs and maintenance on past soldunits.

 

Parts, Maintenance andConsumable Sales accounted for 19% and 31% of AMT’s total revenues in 2007 and2006, respectively.

 

**Marketing,Sales and Training**

 

In the NorthAmerican dental market, AMT uses a network of independent sales representativesand major dental dealers and distributors to sell its products.

 

For AMT’sinternational markets, AMT has set up an international distribution networkwith key distribution partners located in Latin America, Asia, Europe and theMiddle East.  These third-party distributors are responsible for directingindividual country sales, providing sales and technical support, and in somecases, holding and managing local inventory and logistics.

 

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AMT presently hasseveral industrial product distributors for its AJM product.  Suchdistributors have been and are anticipated to be the primary source of salesfor AMT’s industrial products in the future.  Industrial productdistributors are supported by AMT primarily through advertising in the ThomasRegister and trade journals, and by participation in trade shows.

 

**Trainingand Service**

 

Training and thedissemination of industry information is an important factor in the successfulsale of AMT products.  The Company offers its dealers and distributorsfree training on all products and supports them on an “as needed” basis withdentist training, technical seminars and lectures.

 

AMT provideswarranty and repair service for AMT’s products in the United States.  Toservice its dental equipment, AMT has a service department in Corpus Christiand has service arrangements with independent distributors for products inother markets.  To date, AMT has not experienced significant serviceproblems.  AMT generally provides a one-year warranty on all of itsproducts, except for Contrast tooth whitening and BreathRx oral care products,where no warranty or service is required.

 

**Competition**

 

There is directcompetition to AMT’s in-house manufactured products; however, it is the new andemerging technologies that represent the biggest commercial threat to theCompany’s manufacturing business.  Hydrobrasion technology is beingsupplanted by high technology dental lasers which, although considerably higherin price, can perform certain additional functions.  On the lower end,this technology competes with conventional treatment methods that includestandard drills and basic dental instruments.  Even so, a small marketstill exists which justifies the continuance of the product line for theforeseeable future.

 

For all in-housemanufactured products, AMT has patents in the basic technologies which theCompany believes provide a competitive advantage.  AMT believes there areapproximately three companies that presently sell competing dental air abrasiveproducts. AMT’s PAC and KCP products must also compete with conventionaltreatment methods using dental instruments or equipment that are generally lessexpensive and with which dentists are more familiar.

 

AMT faces severalcompetitors in the tooth whitening industry.  AMT’s Contrast toothwhitening products face competition from a variety of companies utilizingsimilar hydrogen peroxide and carbamide peroxide technologies.  The BriteSmile products face competition fromDiscus Dental’s own ZOOM in-office tooth whitening system as well as fromChinese and European light manufacturers. Even so, the global tooth whitening market continues to grow withpatient demand at an all time high.

 

Many of thecompanies that compete against the total AMT product offering, particularlythose that 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.

 

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**Patents**

 

AMT believes itspatents provide some competitive advantage in those countries where they havebeen issued.  AMT believes its technology patents and other patent rightsprovide a proprietary means to utilize that technology in dentistry.  Inthe United States, AMT has patents related to dental air abrasive systems andmethods for using an air abrasive stream for dentistry that do not beginexpiring until 2011, technology patents for air abrasive cavity preparationsystems which will begin expiring in 2012, and industrial air abrasive patentswhich have expiration dates ranging from 2011 to 2017.  AMT also holdsseveral industrial air abrasive patents in various other countries.  As a result, in 2005, two companies signed license agreements with the Companyto market air abrasion products and in 2006 a settlement agreement was reachedwith a third company.

 

CrownBeav LLC andDiscus Dental both hold strategic technology patents for their respectiveproducts, providing AMT with some market protection and creating certainbarriers to entry for new manufacturers. The Contrast tooth whitening products are not protected by patent.

 

**Manufacturingand Suppliers**

 

To the extent thatAMT continues to manufacture, the manufacturing operations are conducted at itsISO 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.

 

AMT hascontractual relationships with the manufacturer of the Spectrum tooth whiteningproducts, BreathRx oral care products, BriteSmile professional tooth whiteningsystems and DirectCrown temporary crown and bridge products. The manufacturersof all these products are stable and product is delivered per pre-established,mutually agreed order quantities and ship dates.  The Company believesthat delivery delays would be highly unlikely and would have a minimalmaterial effect on AMT’s business.

 

**Researchand Development**

 

Historically, mostresearch and development, prototype production and testing activities for theproducts manufactured by AMT have taken place at the Company’s Corpus Christi,Texas facility, although some research and development work was performed forAMT by consultants.  No further major new product development isanticipated by the Company.

 

AMT’s research anddevelopment expenditures for 2007 and 2006 were $17,596 and $67,783,respectively.

 

**GovernmentalRegulation**

 

The dental productsmanufactured by AMT are subject to significant governmental regulation in theUnited States and in certain other countries.  In order to conductclinical tests and to market products

 

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for therapeutic use, AMTmust comply with procedures and standards established by the FDA and comparableforeign regulatory agencies.  Changes in existing regulations or adoptionof additional regulations may adversely affect AMT’s ability to market its existingproducts or to market enhanced or new dental products.

 

At this time, AMT’sContrast and DirectCrown product lines are not subject to regulation inside theUSA.  A change in this status could adversely affect AMT’s ability tomarket these products in the USA.

 

*UnitedStates Regulatory Requirements*

 

The Federal Food,Drug and Cosmetic Act (“FDC Act”) regulates medical devices in the UnitedStates by classifying them into one of three classes based on the extent ofregulation believed necessary to ensure safety and effectiveness. Class Idevices are those devices for which safety and effectiveness can reasonably beensured through general controls, such as device listing, adequate labeling,pre-market notification and adherence to the Quality System Regulation (“QSR”)as well as medical device reporting (“MDR”), labeling and other regulatoryrequirements.  Some Class I medical devices are exempt from therequirement of pre-market approval or clearance.  Class II devicesare those devices for which safety and effectiveness can reasonably be ensuredthrough the use of special controls, such as performance standards, post-marketsurveillance and patient registries, as well as adherence to the generalcontrols provisions applicable to Class I devices.  Class IIIdevices are devices that generally must receive pre-market approval by the FDApursuant to a pre-market approval (“PMA”) application to ensure their safetyand effectiveness.  Generally, Class III devices are limited to lifesustaining, life supporting or implantable devices; however, thisclassification can also apply to novel technology or new intended uses orapplications for existing devices.

 

Before they can bemarketed, most medical devices introduced to the United States market arerequired by the FDA to secure either clearance of a pre-market notificationpursuant to Section 510(k) of the FDC Act (a “510(k) Clearance”)or approval of a PMA. Obtaining approval of a PMA application can take severalyears. In contrast, the process of obtaining 510(k) Clearance generallyrequires a submission of substantially less data and usually involves a shorterreview period. Most Class I and Class II devices enter the market viathe 510(k) Clearance procedure, while new Class III devicesordinarily enter the market via the more rigorous PMA procedure.  Ingeneral, approval of a 510(k) Clearance may be obtained if a manufactureror seller of medical devices can establish that a new device is “substantiallyequivalent” to a predicate device other than one that has an approvedPMA.  The claim for substantial equivalence may have to be supported byvarious types of information, including clinical data, indicating that thedevice is as safe and effective for its intended use as its legally marketedequivalent device.  The 510(k) Clearance is required to be filed andcleared by the FDA prior to introducing a device into commercial distribution.Market clearance for a 510(k) notification submission may take three to 12months or longer.  If the FDA finds that the device is not substantiallyequivalent to a predicate device, the device is deemed a Class III device,and a manufacturer or seller is required to file a PMA application. Approval ofa PMA application for a new medical device usually requires, among otherthings, extensive clinical data on the safety and effectiveness of thedevice.  PMA applications may take years to be approved after they arefiled. In addition to requiring clearance or approval for new medical devices,FDA rules also require a new 510(k) filing and review period, priorto marketing a changed or modified version of an existing legally marketeddevice, if such changes or modifications could significantly affect the safetyor effectiveness of that device.  FDA prohibits the advertisement or promotionof any approved or cleared device for uses other than those that are stated inthe device’s approved or cleared application.

 

The FDA granted510(k) Clearance to market the KCP for hard-tissue applications in late1992.  510(k) Clearance to market the PAC was granted by the FDA inmid-1995.

 

Pursuant to FDCAct requirements, the Company has registered its manufacturing facility withthe FDA as a medical device manufacturer, and listed the medical devices itmanufactures.  The Company also is subject to inspection on a routinebasis for compliance with FDA regulations.  These regulations includethose covering the QSR, which, unless the device is a Class I exemptdevice, require that the Company 

 

11

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manufacture its productsand maintain its documents in a prescribed manner with respect to issues suchas design controls, manufacturing, testing and validation activities. Further, the Company is required to comply with other FDA requirements with respectto labeling, 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 that it is currently in materialcompliance with all relevant QSR and MDR requirements.

 

In addition, ourmanufactured products are subject to regulatory requirements coveringthird-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 United States third party payors review andfrequently challenge the prices charged for medical services. In many foreigncountries, the prices are predetermined through government regulation. Payors may deny coverage and reimbursement if they determine that the procedurewas not medically necessary (for example, cosmetic) or that the device used inthe procedure was investigational.  We believe that most of the proceduresbeing performed with our current products generally have been reimbursed. Theinability to obtain reimbursement for services using our products could deterdentists and physicians from purchasing or using our products.  We cannotpredict the effect of future healthcare reforms or changes in financing forhealth and dental plans.  Any such changes could have an adverse effect onthe ability of a dental or medical professional to generate a return oninvestment using our current or future products.  Such changes would actas disincentives for capital investments by dental and medical professionalsand could have an adverse effect on our business, financial condition andresults of operations.

 

*ForeignRegulatory Requirements*

 

Internationalsales of medical devices are also subject to the regulatory requirements ofeach country.  Regulation of medical devices in foreign countries variesbetween countries.  The Company, in general, will rely upon itsdistributors and sales representatives in the foreign countries in which itmarkets its products to ensure that the Company complies with the regulatorylaws of such countries.  In Europe, the regulations of the European Unionrequire that a device have a CE mark before it can be sold in thatmarket.  The KCP, PAC, tooth whitening, oral care and DirectCrown productshave all been granted CE mark approvals and may be sold in European Unioncountries and markets.   Additional foreign authorizations to marketits dental products are sought by the Company where needed.

 

Regulation ofmedical devices in other countries is subject to change and there can be noassurance AMT will continue to be able to comply with such requirements. The Company believes that its international sales to date have been incompliance with the laws of the foreign countries in which it has made sales.Failure to comply with the laws of such country could have a material adverseeffect on the Company’s operations and, at the very least, could prevent theCompany from continuing to sell products in such countries.  Exports ofmost medical devices are also subject to certain limited FDA regulatorycontrols.

 

**ProductLiability Exposure**

 

AMT’s businessinvolves the inherent risk of product liability claims.  If such claimsarise, they could have an adverse effect on AMT.  AMT currently maintainsproduct liability insurance with coverage per occurrence and in the aggregateof $7 million.  There is no assurance that such coverage will besufficient to protect AMT from all risks to which it may be subject or thatproduct liability insurance will be available at a reasonable cost, if at all,in the future.

 

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**ForeignOperations and Segment Information**

 

For informationregarding the Company’s foreign operations and business segments, see Note 8 ofthe Notes to Consolidated Financial Statements.  Such information isincorporated herein by reference.

 

**Employees**

 

On April 9,2008, AMT had 14 full-time employees.  Of these employees, three wereengaged in direct sales and marketing activities.  Five employees wereengaged in manufacturing activities, and the remaining six employees were infinance, administration and customer service.  AMT has no collectivebargaining agreements with any unions and believes that its overall relationswith its employees are good.

 

**STATUSOF PAST AND FUTURE BUSINESS STRATEGIES****:**

 

***KCP Cavity Preparation Systems:***

 

In the past AMT’spatented KCP tooth decay removal and restorative preparation systemsrepresented significant sales and profit to the Company.  The brand names:“KCP”, “Flexijet”, and “Hydro Jet” were the market products in North Americaand Europe during the dental industry’s active use of hydrobrasiontechnology.  Now, with the advent of dental lasers and other non-invasivetechnologies, AMT now finds that product sales for this mature technology have softened.

 

In 2008 AMT willcontinue to include the Hydro Jet in its product offering, selling through itsexisting international network of dealers; however no significant investment isplanned to upgrade the product technology or to market the products.

 

***Equipment Service and Maintenance:***

 

There areapproximately 8,000 KCP, Flexijet and HydroJet systems installed in dentistoffices primarily in North America and Europe, most of which have gone pasttheir original manufacturer’s warranty period.  As an adjunct to theCompany’s traditional sales activity, AMT also offers “for-fee” repairservices, generating revenue and profit by performing repairs and maintenanceon past sold equipment.  With more and more dentists retiring their olderAMT equipment, the Company revenue from repairs and service has flattenedout.  In 2008 AMT plans to continue theparts, equipment and maintenance functions.

 

***Industrial Products:***

 

In the past, salesof the Company’s AJM systems and their associated parts and consumable productshave represented a significant portion of the Company’s revenues even thoughthey were outside of the Company’s primary dental market.  Today,industrial product sales have leveled off and are forecasted to remain flatunless significant technology and marketing investment is made.  TheCompany is exploring ways to capitalize on this product line.

 

***Discontinued Products:***

 

Given the Company’sassessment of the current state of technology, and an influx of competitionfrom foreign manufacturers offering similar products, AMT discontinued sellingthe Ultracam, Intra-oral Camera system in 2007.  Repairs for the existingunits are referred to a qualified third party company.  AMT liquidated thestock and component inventories related to this discontinued product line.

 

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***New Products:***

 

The Companybelieves that the key to its on-going growth and profitability is in theacquisition and sale of new products.  Currently AMT is in discussionswith reputable dental manufacturers to increase the number and rangeof products offered.  AMT believesthat these discussions may lead to license or brokerage agreements in 2008, butcan provide no assurances that any licensing or brokerage agreements willmaterialize or be profitable for the Company.

 

ITEM2.              DESCRIPTION OF PROPERTY

 

Aspreviously reported in the Company’s Form 8-K, filed with the SEC on April 17,2006, the Company, on April 11, 2006, sold to and leased back from theSepulveda Group, LLC, a California limited liability company affiliated withDiscus, its former 45,000 square foot building and property located at 5655Bear Lane, Corpus Christi, Texas. The gross sale proceeds were $1.9 million,and the Company’s monthly lease back rent for the facility is $20,385 for afive year term, commencing April 11, 2006, with a 3% yearly increase andan option to extend the lease term for an additional five years.

 

ITEM3.              LEGAL PROCEEDINGS

 

In the normalcourse of business, we may become involved in various legal proceedings.  Except as stated below, we know of no pendingor threatened legal proceeding to which we are or will be a party which, ifsuccessful, might result in material adverse change in our business propertiesor financial condition.  However, as withmost businesses, we are occasionally parties to lawsuits incidental to ourbusiness, none of which are anticipated to have a material adverse impact onour financial position, results of operations, liquidity or cash flows.  We estimate the amount of potential exposureit may have with respect to litigation claims and assessments.

 

The Company was inarbitration for breach of employment contract claims filed by two formeremployees totaling $250,000.  In April 2006, the parties amended theirclaims to a total amount between $385,000 and $1,035,000.  In April 2006,the Company settled with both parties for an aggregate payment of$410,000.  The settlement was included in “other accrued liabilities” inthe Company’s March 2006 balance sheet and was paid in April 2006.

 

On November 20,2006, a demand for arbitration and statement of claim was filed against theCompany, alleging that the Company had breached agreements to pay the claimantroyalties and consulting fees.  The original demand sought damages of$47,800.  The demand for arbitration seeks an award of $125,000.  Theoriginal demand of $47,800 is included in “other accrued liabilities” in theCompany’s December 2006 balance sheet.   In October 2007, a preliminarysettlement was reached through arbitration in the amount of $32,500.  The settlement and release were finalized andthe settlement paid in the first quarter of 2008.

 

ITEM4.              SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

**PART II**

 

ITEM5.              MARKET FOR COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’scommon stock trades in the over-the-counter market under symbol ADLI.OB on theOTC Electronic Bulletin Board.  The following table shows the quarterlyhigh and low bid prices for the last two fiscal years.  The quotationsreflect inter-dealer prices, without retail mark-up, mark-down or commission,and may not necessarily represent actual transactions.

 

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| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| **2007**       |       |     |       |    |       |
| First Quarter  |       | $        | 0.46       |    | $          | 0.15 |   |
| Second Quarter |       | 0.41     |       | 0.21    |       |
| Third Quarter  |       | 0.42     |       | 0.30    |       |
| Fourth Quarter |       | 0.32     |       | 0.18    |       |
|           |       |     |       |    |       |
| **2006**       |       |     |       |    |       |
| First Quarter  |       | 0.29     |       | 0.16    |       |
| Second Quarter |       | 0.30     |       | 0.20    |       |
| Third Quarter  |       | 0.28     |       | 0.20    |       |
| Fourth Quarter |       | 0.24     |       | 0.16    |       |
|                |            |          |            |         |            |  |  |

 

Holders

 

As of December 31,2007 there were approximately 346 holders of record of AMT common stock basedupon the records of the Company’s stock transfer agent and security positionlistings.

 

Dividends

 

The Board ofDirectors presently intends to retain all earnings to finance operations anddoes not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon earnings, capitalrequirements, any restrictive covenants in future loan agreements and otherfactors considered relevant by the Board of Directors.

 

EquityCompensation Plans

 

The followingtable reflects the information described as of December 31, 2007 withrespect to compensation plans under which the Company’s stock is authorized forissuance.

 
| **Plan Category**    | ** ** | **No. of Shares to be issued upon  exercise of outstanding options,  warrants and rights** | ** ** | **Weighted average exercise  price of outstanding  options, warrants and  rights** | ** ** | **No. of Shares available  for future issuance  under equity  compensation plans** | ** ** |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans |       | 1,142,680                                                                                                                                         |       | $                                                                                                                | 0.22       |                                                                                                                  | 1,134,032  |   |
|                           |            |                                                                                                                                                   |            |                                                                                                                  |            |                                                                                                                       |            |  |

 

In July 2007,the Company adopted the 2007 Equity Incentive Plan (“Equity Plan”).  The Equity Plan provides for the granting ofNonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights(or SARs), Restricted Stock, Performance Units and Performance Shares toemployees, consultants and directors. The purpose of the Equity Plan is to promote the success and to enhancethe value of the Company by aligning the interest of Participants with those ofthe Company’s shareholders, to provide flexibility to the Company in itsability to motivate, attract, and retain the services of outstandingindividuals, upon whose judgment, interest, and special effort the success ofthe Company is largely dependent.   Whenthe Equity Plan was implemented there were 1,000,000 common shares available tobe granted under the Equity Plan.  In theyear ended December 31, 2007, a total of 100,000 performance shares and627,968 performance unit shares had been granted under the Equity Plan to legaland outside consultants of the Company. The $212,862 expense is included in other professional fees.

 

Recent Issuance ofUnregistered Securities

 

                        The Company issued 200,000 restricted shares of commonstock to Mr. Roger Dartt in August 2007 in consideration for workperformed in the first quarter of 2008.

 

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ITEM6.              MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

 

The followingdiscussion and analysis should be read in conjunction with the consolidatedfinancial statements and the notes thereto included elsewhere in thisreport.  The discussion contains certain forward-looking statementsrelating to the Company’s anticipated future financial condition and operatingresults and its current business plans.  In the future, the Company’sfinancial condition and operating results could differ materially from thosediscussed herein and its current business plans could be altered in response tomarket conditions and other factors beyond its control.  Important factorsthat could cause or contribute to such differences or changes include thosediscussed elsewhere in this report.  See the disclosures under “Item1-Description of Business.”

 

**CriticalAccounting Policies**

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires the Company to make estimatesand assumptions that affect amounts reported in the accompanying consolidatedfinancial statements and related footnotes.  These estimates andassumptions are evaluated on an on-going basis based on historicaldevelopments, market conditions, industry trends and other information theCompany believes to be reasonable under the circumstances.  There can beno assurance that actual results will conform to the Company’s estimates andassumptions, and that reported results of operations will not be materiallyadversely affected by the need to make accounting adjustments to reflectchanges in these estimates andassumptions from time to time.  The followingpolicies are those the Company believes to be the most sensitive to estimatesand judgments.  The Company’s significant accounting policies are morefully described in Note 1 to our consolidated financial statements.

 

*RevenueRecognition*

 

The Companyrecognizes revenue net of sales tax when all of the following criteria aremet:  1) a contract or sales arrangement exists, the buyer isobligated to pay and such obligation would not be changed in the event of theftor physical destruction or damage of the product; 2) products have beenshipped, and if necessary installed, and title has been transferred or serviceshave been rendered; 3) the price of the products or services is fixed ordeterminable; 4) no further obligation exists on the part of the Company(other than warranty obligations); and 5) collectibility is reasonablyassured.  The Company grants a thirty day unconditional money-backguarantee on selected products and a warranty for one year on parts and laboron defective products. The Company accrues its estimated exposure to returnsand warranty claims based on historical average returns and claims paid. None of the Company’s current product lines requires installation. The Company’spolicy is to include shipping and handling costs, net of related revenues, incosts of goods sold.

 

*Receivablesand Credit Policies*

 

Trade receivablesare uncollateralized customer obligations due under normal trade termsrequiring payment 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 trade receivables is reduced by a valuationallowance for any invoices over 90 days past due and 5% of the remainingbalance. Additionally, management addresses significant individual accounts forcollectibility and provides an additional allowance if necessary.

 

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*Inventories—SlowMoving*

 

The Company’sreserve for slow moving inventory is evaluated periodically based on itscurrent and projected sales and usage.  The inventory reservecalculation assumes that any parts on hand exceeding three years of projectedusage are subject to complete valuation allowance.  For purposes ofcomputing the valuation allowance at December 31, 2007, part usage wasprojected at 50% of 2007 part usage.  The valuation allowance could changematerially, either up or down, if actual part usage in future years ismaterially different than the usage projected at December 31, 2007;however, the new cost basis cannot subsequently be marked up based on changesin underlying facts and circumstances.

 

*Issuanceof Options and Warrants*

 

The Companyperiodically issues options and warrants to purchase stock at a price which maybe higher or lower than the strike price of the stock on the grant date. The fair value of the options and warrants issued is estimated at the date ofthe grant using the Black Scholes pricing model.  The Company recognizesthe expense over the vesting period of the options and warrants.  TheCompany has a policy of issuing new shares for the exercise of options andwarrants.

 

**Resultsof Operations**

 

**YearsEnded December 31, 2007 and December 31, 2006**

 

For the year ended December 31, 2007 revenue was $3,165,399 comparedto $2,712,335 for the year ended December 31, 2006, an increase ofapproximately 17%.   The increase inrevenue resulted primarily from the addition of the Spectrum product line in April 2006.   The Spectrum product line addedapproximately $745,000 in revenue for the year ended December 31, 2007compared to the year ended December 31, 2006.   Commissions earned from the DirectCrownproduct line added in April 2007 increased revenues by approximately$83,000.  The sale of inventory fromdiscontinued product line resulted in approximately $133,000 in additionalrevenues for the year ended December 31, 2007.  These increases were partially offset by a$241,000 decrease in KCP product line sales and a decrease of $222,000 in thesales of parts and repairs.  The Companyanticipates continued growth in the new product lines add, the addition of newproduct lines in the future and a continued decrease in KCP product line salesand the sales of parts and repairs.

 

Additionally, royalties decreased approximately $25,000 due to decreasedsales by licensees, and the Company expects the decreases in royalties tocontinue.

 

Gross profit as a percentage of revenues was approximately 53% for theyear ended December 31, 2007 compared to 50% for the year ended December 30,2006.  The increase in gross profit isprimarily attributable to the addition of the Spectrum product line in April 2006which has a higher gross margin line than other product lines.  Additionally, a portion of the increase ingross profit is related to the addition of the DirectCrown product linerevenues which is received as commissions. The higher gross profit was partially offset by $228,000 of inventoryadded to the inventory valuation allowance in the year ended December 31,2007 compared to $133,000 of inventory added to the inventory valuationallowance in the year ended December 31, 2006.

 

Selling, general and administrative expenses were $2,845,731 and$2,841,547 for the years ended December 31, 2007 and December 31,2006 respectively, constituting an increase of less than 1%.  For the year ended December 31, 2007compared to the year ended December 31, 2006; payroll increasedapproximately $118,000, primarily due to employee stock option expense; generaloffice expense increased approximately $154,000, primarily due to the licensefees related to the Spectrum and DirectCrown agreements and an increase ofapproximately $57,000 in expenses related to new business development; otherprofessional fees increased approximately $201,000 primarily due to an increasein legal and 

 

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accountingfees related to new product contract negotiations and accounting fees relatedto the cost of complying with the Sarbanes-Oxley Act.  These increases were partially offset by adecrease of approximately $130,000 in show expenses as a result of AMT’s masterdistributors representing the Company’s product lines on the Company’sbehalf.  Additionally, the year ended December 31,2006 included $410,000 for the settlement of breach of employment and otherclaims with former employees.

 

Other income (expense) was $242,918 and $67,231 for the years ended December 31,2007 and December 31, 2006, respectively. Of the amount in 2007, approximately $94,000 is related to compensationfor consulting services, $46,000 is related to the write off of unused customercredits from prior years and $15,300 is for the adjustment to a legalsettlement accrued in 2006.  Of theamount in 2006, $10,000 is related to the recovery of accounts receivableinvoices that were previously reserved and $9,000 is related to compensationfor consulting services.

 

Research and development expenses were $17,596 and $67,783 for the yearsended December 31, 2007 and December 31, 2006, respectively.  The expenses in 2006, included work on theCompany’s Hydrojet handpieces.  Theexpenses in 2007 were related to new product research for the Company’s toothwhitening product line.  The Companyexpects the decrease in research and development expenses to continue.

 

**Liquidityand Capital Resources**

 

The Company’soperating activities used $357,386 in cash resources in 2007.

 

The Company’sinvesting activities in 2007 provided $231,279. The cash provided by investing activities in 2007 included $185,190 fromthe sales and maturities of government securities.

 

The Company’sfinancing activities in 2007 provided $74,037. The cash provided by financing activities in 2007 included $100,000borrowed against the Company’s line of credit.

 

On February 9,2005 the Company entered into a secured loan agreement with Texas State Bank inthe amount of $682,000. The loan was secured by a primary lien on the Company’sbuilding and other real property. Interest on the loan was set at the primerate plus 1%.  The principal on the loan was payable in 35 monthlyinstallments of $3,789 plus interest with the final principal payment due infull in February 2008.  The funds received from this loan were usedto retire the note held by Aimee Maroney which matured on December 31,2004.  In April 2006, the Company invested $632,744 in a Certificateof Deposit with a term of one year as collateral for the outstanding principalremaining on the loan. The original terms of the loan remained the same. In December 2006, the Company redeemed the Certificate of Deposit and usedthe proceeds to pay the balance on the note.

 

On December 21,2006, the Company entered into a secured line of credit agreement with TexasState Bank.  The funds available under the line of credit were$600,000.  The Company invested $300,000 with funds drawn against the lineof credit in a Certificate of Deposit with a term of one year as collateral forthe loan.  Interest on the line of credit is set at the prime rate plus1%.  The interest rate on the line of credit was 9.25% as of December 31,2006.  The principal on the loan is payable in one payment on December 20,2007, with interest on the outstanding amount payable monthly.  TheCompany borrowed an additional $100,000 against the line of credit in December 2006. In February 2007, Texas State Bank increased the line of credit to$800,000 using the Company’s accounts receivable and inventory ascollateral.  In January 2008, the Company renewed  the secured line of credit agreement. Theterms of the original line of credit remained the same with the exception of thepayment date which was extended to January 2009.

 

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On April 11,2006 the Company sold its 45,000 square foot Corpus Christi facility for $1.9million to the Sepulveda Group, a California limited liability company. TheCompany entered into a five year lease back of the facility with a monthly rentof $20,385. The lease provides for a 3% yearly rent increase and an option toextend the lease for an additional five years. The Company invested $632,744 ofthe sale proceeds in a Certificate of Deposit with Texas State Bank which willbe used as replacement collateral for the loan entered into in February 2005.Of the proceeds, $54,858 was used for a security deposit and rent for thefacility, $88,671 was used to pay the 2005 property taxes and $14,088 was usedas real estate and closing fees. The remaining $1.1 million in net proceedswere used to reduce liabilities and for operational expenses as needed.

 

On April 11,2006, the Company entered into a licensing agreement with Discus DentalHoldings, Inc. (“Discus”) and its wholly owned subsidiary, Spectrum Dental, Inc.(“Spectrum Dental”), a leading provider of professional tooth whiteningproducts under the brand names of “Contrastpm”, “Contrastpmplus” and “Contrastam”,under which AMT became the exclusive distributor of the Spectrum Dental productline, which provided  approximately $933,000 in additional revenue in2006. The Sepulveda Group, LLC is affiliated with Discus. In full payment forthe license, the Company issued Discus a warrant to purchase 2,500,000 sharesof common stock at $0.20 per share.

 

The fair value ofthe warrants issued to Discus is estimated at the end of each period using theBlack-Scholes option pricing model with the following assumptions used on December 31,2007:  risk free interest rate of 3.52%; dividend yield of 0%; volatilityfactors of the expected market price of the Company’s common shares over theestimated life of the warrant of 6.42 years. The calculated fair value of the warrant as of December 31, 2007was $449,412.  The calculated fair value of the warrant on the grant datewas $549,530 which the Company capitalized as an intangible asset and isrecognizing as a licensing fee over the vesting period of five years.

 

In 2006, theCompany entered into a new phase of its corporate development.  The firststep in the transition was to infuse the existing executive and salesmanagement teams with fresh talent.  The second step in the transition wasto review the status of AMT’s existing core products and as a result of thisreview, the Company is exploring the discontinuation of some of its matureproduct lines in order to reduce spending and to outsource some of the Company’sequipment service and maintenance in order to take advantage of lower overheadcosts.

 

In 2007, theCompany continued to include the Hydro Jet in its product offering, sellingthrough its existing international network of dealers; however, no significantinvestment was made  to upgrade theproduct technology or to market the products.

 

In 2008, theCompany continued the alteration of its basic business model from that oftraditional manufacturing to one of a product-brokering organization, directingthe sales of products from contractually bound manufacturers to theinternational dental market.  Under the new business model, AMT is in theprocess of  positioning itself as thepremier “outsourced sales organization” for companies seeking the internationalsale and distribution of their unique dental products.  In 2007, theCompany added DirectCrown , temporary crown and bridge materials; SheerVisionheadlamps and loupes; BriteSmile professional tooth whitening and BreathRxprofessional oral care products to the list of products being distributed orrepresented by the Company.   The Companybelieves it can continually grow contractually protected revenue by increasingthe sales of existing products and by the sales of new product lines, whileminimizing overhead costs and inventory liabilities with the addition of brokeredproduct lines.

 

The Company hassuffered recurring losses from operations, and its total liabilities exceedsits total assets. This raises substantial doubt about the Company’s ability tocontinue as a going concern. The Company’s ability to generate positiveoperational cash flow is dependent upon increasing revenues through the salesof existing product lines and the expansion related to the representation ofadditional lines of dental products.  While the Company has identifiedadditional product lines and has ongoing dialogs with dental productmanufacturers, there can be no assurance that the Company will be successful infinalizing the contract for representation of these products or that theCompany will be successful in generating a positive operational cash flow.

 

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The followingtable summarizes AMT’s contractual obligations as of December 31, 2007:

 
| ** **            | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Total** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| Line of credit *      |       | $        | —     |     | $          | 541,250  |       | $        | —     |     | $          | —    |       | $ | — |   | $ | 541,250 |   |
|                  |       |     |       |     |       |     |       |     |       |     |       |      |       |
| Building lease        |       | 257,628  |       | 265,357  |       | 273,317  |       | 68,831   |       | —   |       | 865,133   |       |
|                  |       |     |       |     |       |     |       |     |       |     |       |      |       |
| CA office suite lease |       | 19,600   |       | —   |       | —   |       | —   |       | —   |       | 19,600    |       |
|                  |       |     |       |     |       |     |       |     |       |     |       |      |       |
|                  |       | $        | 277,228    |     | $          | 806,607  |       | $        | 273,317    |     | $          | 68,831    |       | $ | — |   | $ | 1,425,983 |   |

 

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* Variableinterest rate on note. Interest rate used was as of December 31, 2007.

 

**NewAccounting Standards and Disclosures**

 

In June 2006,FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in IncomeTaxes”, an interpretation of FASB Statement 109 Accounting for Income Taxes,was issued.  FIN No. 48 describes accounting for uncertainty inincome taxes, and includes a recognition threshold and measurement attributefor recognizing the effect of a tax position taken or expected to be taken in atax return.  FIN No. 48 is effective for fiscal years beginning afterDecember 15, 2006.  The Company’s adoption of  FIN No. 48 on January 1, 2007, hadno material effect on the Company’s financial condition, results of operations,or cash flows.

 

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS157), “Fair Value Measurements,” which defines fair value, establishesguidelines for measuring fair value and expands disclosures regarding fairvalue measurements. SFAS 157 does not require any new fair value measurementsbut rather eliminates inconsistencies in guidance found in various prioraccounting pronouncements. SFAS 157 is effective for fiscal years beginningafter November 15, 2007. In February 2008, the FASB issued FASB StaffPosition (FSP) 157-2, “Effective Date of FASB Statement No. 157,” whichdefers the effective date of Statement 157 for nonfinancial assets andnonfinancial liabilities, except for items that are recognized or disclosed atfair value in an entity’s financial statements on a recurring basis (at leastannually), to fiscal years beginning after November 15, 2008, and interimperiods within those fiscal years. Earlier adoption is permitted, provided thecompany has not yet issued financial statements, including for interim periods,for that fiscal year. As of January 1, 2008, the Company does not have anyrecurring fair value measurements and has opted for the deferral. Accordingly,the Company has not implemented and is currently evaluating the impact of SFAS157, but does not expect the adoption of SFAS 157 to have a material impact onits results from operations or financial position.

 

In February 2007,the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159),“The Fair Value Option for Financial Assets and Financial Liabilities —Including an amendment of FASB Statement No. 115.” SFAS 159 permitsentities to measure eligible assets and liabilities at fair value. Unrealizedgains and losses on items for which the fair value option has been elected arereported in earnings. SFAS 159 is effective for fiscal years beginning after November 15,2007. As of January 1, 2008, the Company did not elect the fair valueoption on any financial instruments or certain other items as permitted by SFAS159.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 141(revised 2007) (SFAS 141R), “Business Combinations,” which replaces SFAS 141.SFAS 141R establishes principles and requirements for how an acquirerrecognizes and measures in its financial statements the identifiable assetsacquired, the liabilities assumed, any non-controlling interest in the acquireeand the goodwill acquired. The Statement also establishes disclosurerequirements that will enable users to evaluate the nature and financialeffects of the business combination. SFAS 141R is effective for fiscal years 

 

20

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beginning after December 15,2008. The adoption of SFAS 141R is not expected to have a material impact onthe Company’s results from operations or financial position.

 

In December 2007,the FASB also issued Statement of Financial Accounting Standards No. 160(SFAS 160), “Non-controlling Interests in Consolidated Financial Statements —an amendment of ARB No. 51.” SFAS 160 requires that accounting andreporting for minority interests be re-characterized as non-controllinginterests and classified as a component of equity. SFAS 160 also establishesreporting requirements that provide sufficient disclosures that clearlyidentify and distinguish between the interests of the parent and the interestsof the non-controlling owners. SFAS 160 applies to all entities that prepareconsolidated financial statements, except not-for-profit organizations, butwill affect only those entities that have an outstanding non-controllinginterest in one or more subsidiaries or that deconsolidate a subsidiary. Thisstatement is effective for fiscal years beginning after December 15, 2008.The adoption of SFAS 160 is not expected to have a material impact on ourresults from operations or financial position.

 

**OffBalance Sheet Arrangements**

 

As of December 31,2007, The Company has no off balance sheet arrangements.

 

ITEM7.              FINANCIAL STATEMENTS

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

 To The Stockholders and Board ofDirectors

American MedicalTechnologies, Inc.

 

We have audited theaccompanying consolidated balance sheets of American Medical Technologies, Inc.as of December 31, 2007 and 2006 and the related consolidated statementsof operations, stockholders’ deficit, and cash flows for the years thenended.  These financial statements are the responsibility of the Company’smanagement.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standards require that we plan and performthe audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement.   An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of American MedicalTechnologies, Inc. as of December 31, 2007 and 2006 and theconsolidated results of their operations and their cash flows for the yearsthen ended, in conformity with United States generally accepted accountingprinciples.

 

We were not engaged toexamine management’s assertion about the effectiveness of American MedicalTechnologies, Inc.’s internal control over financial reporting as of December 31,2007 included in the accompanying *ManagementEvaluation of Internal Controls* and, accordingly, we do not expressan opinion thereon.

 

The accompanying consolidated financial statementshave been prepared assuming that the Company will continue as a going concern.As discussed in Note 1 to the annual financial statements for the year ended December 31,2007, the Company has suffered recurring losses from operations, and its totalliabilities exceeds its total assets. This raises substantial doubt about theCompany’s ability to continue as a going concern. Management’s plans in regardto these matters are also described in Note 1 to the financial 

 

21

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statements. The financial statements do not includeany adjustments that might result from the outcome of this uncertainty.

 

Also as discussed in note1 to the accompanying consolidated financial statements, effective January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment*.

 

 

Hein &Associates LLP

Houston, Texas

 

April 9, 2008

 

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** **

**AMERICAN MEDICAL TECHNOLOGIES, INC.CONSOLIDATED BALANCE SHEETS**

 

**DECEMBER 31, 2007 AND 2006**

 
| ** **                                                                                                                                     | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| *ASSETS*                                                                                                                                       |       |        |       |        |       |
| **CURRENT ASSETS:**                                                                                                                            |       |        |       |        |       |
| Cash and cash equivalents                                                                                                                      |       | $           | 20,369     |        | $          | 65,821 |   |
| Investments                                                                                                                                    |       | —      |       | 184,076     |       |
| Restricted certificate of deposit                                                                                                              |       | 313,950     |       | 300,000     |       |
| Accounts receivable, less allowance of approximately $16,500 in 2007  and $18,000 in 2006.                                                     |       | 272,113     |       | 273,235     |       |
| Inventories, net                                                                                                                               |       | 133,829     |       | 505,578     |       |
| Prepaid expenses and other current assets                                                                                                      |       | 158,857     |       | 151,509     |       |
| Total current assets                                                                                                                           |       | 899,118     |       | 1,480,219   |       |
|                                                                                                                                           |       |        |       |        |       |
| **PROPERTY AND EQUIPMENT, net**                                                                                                                |       | 89,912      |       | 109,913     |       |
|                                                                                                                                           |       |        |       |        |       |
| **INTANGIBLE ASSETS, net**                                                                                                                     |       | 849,030     |       | 473,165     |       |
|                                                                                                                                           |       |        |       |        |       |
| Total assets                                                                                                                                   |       | $           | 1,838,060  |        | $          | 2,063,297 |   |
|                                                                                                                                           |       |        |       |        |       |
| *LIABILITIES AND STOCKHOLDERS’  DEFICIT*                                                                                                  |       |        |       |        |       |
| ***CURRENT LIABILITIES:***                                                                                                                     |       |        |       |        |       |
|                                                                                                                                           |       |        |       |        |       |
| Line of credit                                                                                                                                 |       | $           | 500,000    |        | $          | 400,000 |   |
| Series B Preferred Stock, $.01 par value, manditorily  redeemable, authorized 575,000; issued and outstanding 0 and 400,000  respectively |       | —      |       | 400,000     |       |
| Accounts payable                                                                                                                               |       | 672,712     |       | 672,776     |       |
| Compensation and employee benefits                                                                                                             |       | 48,236      |       | 95,039      |       |
| Accrued restructuring costs                                                                                                                    |       | 65,892      |       | 65,892      |       |
| Warrants subject to registration rights                                                                                                        |       | 449,410     |       | 399,926     |       |
| Other accrued liabilities                                                                                                                      |       | 110,392     |       | 228,105     |       |
| Total current liabilities                                                                                                                      |       | 1,846,642   |       | 2,261,738   |       |
|                                                                                                                                           |       |        |       |        |       |
| ***LONG-TERM LIABILITIES:***                                                                                                                   |       |        |       |        |       |
| Deferred gain on sale of building                                                                                                              |       | 503,202     |       | 656,075     |       |
| Total long-term liabilities                                                                                                                    |       | 503,202     |       | 656,075     |       |
|                                                                                                                                           |       |        |       |        |       |
| **COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 9)**                                                                                           |       |        |       |        |       |
|                                                                                                                                           |       |        |       |        |       |
| **STOCKHOLDERS’ DEFICIT**                                                                                                                 |       |        |       |        |       |
| Preferred Stock, authorized 9,425,000 shares, none outstanding                                                                                 |       | —      |       | —      |       |
| Common stock, $.04 par value, authorized 100,000,000 shares; issued  and outstanding 10,117,274 and 8,139,306 respectively                     |       | 404,691     |       | 327,572     |       |
| Additional paid-in capital                                                                                                                     |       | 43,790,539  |       | 42,604,651  |       |
| Accumulated deficit                                                                                                                            |       | (44,707,014 | )          | (43,786,739 | )          |
| Total stockholders’ deficit                                                                                                               |       | (511,784    | )          | (854,516    | )          |
| Total liabilities and stockholders’ deficit                                                                                               |       | $           | 1,838,060  |        | $          | 2,063,297 |   |

 

See accompanying notes to consolidated financial statements.

 

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**AMERICAN MEDICAL TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS**

 

**YEARS ENDED DECEMBER 31, 2007 AND2006**

 
| ** **                                       | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| **REVENUES**                                     |       | $          | 3,165,399  |       | $          | 2,712,355 |   |
|                                             |       |       |       |       |       |
| **ROYALTIES**                                    |       | 26,075     |       | 51,019     |       |
|                                             |       | 3,191,474  |       | 2,763,374  |       |
| **COST OF SALES**                                |       | 1,492,367  |       | 1,402,904  |       |
| Gross profit                                     |       | 1,699,107  |       | 1,360,470  |       |
|                                             |       |       |       |       |       |
| **COST AND EXPENSES:**                           |       |       |       |       |       |
| Selling, general and administration              |       | 2,845,731  |       | 2,841,547  |       |
| Research and development                         |       | 17,596     |       | 67,783     |       |
| Loss from operations                             |       | (1,164,220 | )          | (1,548,860 | )          |
|                                             |       |       |       |       |       |
| **OTHER INCOME (EXPENSES):**                     |       |       |       |       |       |
| Net realized and unrealized gains on investments |       | 15,064     |       | 10,225     |       |
| Gain on sale of machinery                        |       | 76,101     |       | —     |       |
| Other income                                     |       | 242,918    |       | 67,231     |       |
| Interest income                                  |       | 5,299      |       | 46,993     |       |
| Change in fair value of warrant                  |       | (49,484    | )          | 149,604    |       |
| Interest expense                                 |       | (52,571    | )          | (107,185   | )          |
| Total other income(expenses)                     |       | 237,327    |       | 166,868    |       |
|                                             |       |       |       |       |       |
| Net loss                                         |       | (926,893   | )          | (1,381,992 | )          |
|                                             |       |       |       |       |       |
| Preferred dividends                              |       | (25,963    | )          | (40,000    | )          |
|                                             |       |       |       |       |       |
| Net loss attributable to common shareholders     |       | $          | (952,856   | )          | $          | (1,421,992 | ) |
|                                             |       |       |       |       |       |
| Basic and diluted loss per common share          |       | $          | (0.11      | )          | $          | (0.17 | ) |
|                                             |       |       |       |       |       |
| Weighted number of shares issued                 |       | 8,679,741  |       | 8,189,306  |       |

 

See accompanying notes to consolidated financial statements.

 

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**AMERICAN MEDICAL TECHNOLOGIES, INC.**

# **CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT**

# ** **

**YEARS ENDED DECEMBER 31, 2007 AND2006**

 
| ** **                        | ** ** | **COMMON STOCK** | ** ** | **ADDITIONAL  PAID-IN** | ** ** | **ACCUMULATED** | ** ** | ** **  | ** ** |
|-----------------------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|-------------|------------|
| ** **                        | ** ** | **SHARES**            | ** ** | **AMOUNT**              | ** ** | **CAPITAL**     | ** ** | **DEFICIT** | ** ** | **TOTAL** | ** ** |
| Balance at December 31, 2005 |       | 8,189,306             |       | $                       | 327,572    |            | $          | 42,599,667  |       | $ | (42,408,635 | ) | $ | 518,604 |   |
| Net loss                          |       | —                |       | —                  |       | —          |       | (1,381,992  | )          | 1,381,992 | ) |
| Foreign currency translation      |       | —                |       | —                  |       | —          |       | 3,888       |       | 3,888 |   |
|                              |       |                  |       |                    |       |            |       |        |       |   |   |
| Comprehensive loss                |       | —                |       | —                  |       | —          |       | —      |       | (1,418,104 | ) |
| Preferred dividends               |       | —                |       | —                  |       | (40,000         | )          |        |       | (40,000 | ) |
| Issuance of common stock          |       | —                |       | —                  |       | 44,984          |       | —      |       | 44,984 |   |
|                              |       |                  |       |                    |       |            |       |        |       |   |   |
| Balance at December 31, 2006 |       | 8,189,306             |       | 327,572                 |       | 42,604,651      |       | (43,786,739 | )          | (854,516 | ) |
|                              |       |                  |       |                    |       |            |       |        |       |   |   |
| Net loss                          |       | —                |       | —                  |       | —          |       | (926,893    | )          | (926,893 | ) |
| Foreign currency translation      |       | —                |       | —                  |       | —          |       | 6,618       |       | 6,618 |   |
|                              |       |                  |       |                    |       |            |       |        |       |   |   |
| Comprehensive loss                |       | —                |       | —                  |       | —          |       | —      |       | (920,275 | ) |
| Preferred dividends               |       | —                |       | —                  |       | (25,963         | )          | —      |       | (25,963 | ) |
| Preferred shares conversion       |       | 1,000,000             |       | 40,000                  |       | 360,000         |       | —      |       | 400,000 |   |
| Employee option grants            |       | —                |       | —                  |       | 89,383          |       | —      |       | 89,383 |   |
| Option grants for license         |       | —                |       | —                  |       | 526,726         |       | —      |       | 526,726 |   |
| Stock compensation                |       | 927,968               |       | 37,119                  |       | 235,742         |       | —      |       | 272,861 |   |
|                              |       |                  |       |                    |       |            |       |        |       |   |   |
| Balance at December 31, 2007 |       | 10,117,274            |       | $                       | 404,691    |            | $          | 43,790,539  |       | $ | (44,707,014 | ) | $ | (511,784 | ) |

 

See accompanying notes to consolidated financial statements.

 

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**AMERICAN MEDICAL TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2007 AND 2006**

 
| ** **                                                                   | ** ** | **2007** | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
| **OPERATING ACTIVITIES:**                                                    |       |     |       |       |       |
| Net loss                                                                     |       | $        | (926,893   | )          | $          | (1,381,992 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |       |     |       |       |       |
| Depreciation                                                                 |       | 49,405   |       | 61,523     |       |
| Amortization                                                                 |       | 150,861  |       | 80,806     |       |
| Provision for slow-moving inventory                                          |       | 227,868  |       | 8,036      |       |
| Provision of doubtful accounts                                               |       | 22,680   |       | 5,436      |       |
| Gain on sale of machinery                                                    |       | (76,101  | )          | —     |       |
| Gain recognized on sale of building                                          |       | (152,873 | )          | (122,372   | )          |
| Loss on disposal of asset                                                    |       | 609      |       | 868        |       |
| Net realized and unrealized gains on investments                             |       | (15,064  | )          | (10,225    | )          |
| Expense related to option grants                                             |       | 89,383   |       | 44,984     |       |
| Change in fair value of warrant                                              |       | 49,484   |       | (149,604   | )          |
| Expense related to stock compensation                                        |       | 272,861  |       | —     |       |
| Total other operating activities                                             |       | 619,113  |       | (80,548    | )          |
|                                                                         |       |     |       |       |       |
| Changes in operating assets and liabilities:                                 |       |     |       |       |       |
| Accounts receivable                                                          |       | (21,558  | )          | (178,513   | )          |
| Inventories                                                                  |       | 143,881  |       | 195,945    |       |
| Prepaid expenses and other current assets                                    |       | (7,348   | )          | (46,102    | )          |
| Accounts payable                                                             |       | (65      | )          | (64,543    | )          |
| Compensation and employee benefits                                           |       | (46,803  | )          | 6,123      |       |
| Other accrued liabilities                                                    |       | (117,713 | )          | 46,077     |       |
| Net cash used in operating activities                                        |       | (357,386 | )          | (1,503,553 | )          |
|                                                                         |       |     |       |       |       |
| **INVESTING ACTIVITIES:**                                                    |       |     |       |       |       |
| Purchases of property, plant and equipment                                   |       | (30,211  | )          | (26,197    | )          |
| Proceeds on sale of building                                                 |       | —   |       | 1,900,000  |       |
| Proceeds from sale of machinery                                              |       | 76,300   |       | —     |       |
| Sales and maturities of government securities                                |       | 185,190  |       | 1,063,867  |       |
| Purchase of certificate of deposit                                           |       | —   |       | (932,744   | )          |
| Redemption of certificate of deposit                                         |       | —   |       | 632,744    |       |
| Net cash provided by investing activities                                    |       | 231,279  |       | 2,637,670  |       |
|                                                                         |       |     |       |       |       |
| **FINANCING ACTIVITIES:**                                                    |       |     |       |       |       |
| Series B preferred dividends                                            |       | (25,963  | )          | (40,000    | )          |
| Margin loans on investments                                                  |       | —   |       | 206,000    |       |
| Payments on margin loans                                                     |       | —   |       | (1,028,290 | )          |
| Proceeds from line of credit                                                 |       | 100,000  |       | 400,000    |       |
| Payments on note payable                                                     |       | —   |       | (644,111   | )          |
| Net cash provided by (used in) financing activities                          |       | 74,037   |       | (1,106,401 | )          |
|                                                                         |       |     |       |       |       |
| Net increase/(decrease) in cash and cash equivalents                         |       | (52,070  | )          | 27,716     |       |
| Effect of exchange rates on cash                                             |       | 6,618    |       | 3,888      |       |
| Increase(decrease) in cash and cash equivalents                              |       | (45,452  | )          | 31,604     |       |
|                                                                         |       |     |       |       |       |
| **CASH and cash equivalents, at beginning of  year**                    |       | 65,821   |       | 34,217     |       |
|                                                                         |       |     |       |       |       |
| **CASH and cash equivalents, at end of year**                                |       | $        | 20,369     |       | $          | 65,821 |   |
|                                                                         |       |     |       |       |       |
| **SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES**                           |       |     |       |       |       |
| Issuance of warrants for license fee                                         |       | $        | —     |       | 549,530    |   |
| Issuance of options for license fee                                          |       | $        | 526,726    |       | —     |   |
| Conversion of preferred shares to common shares                              |       | 400,000  |       | —     |       |

 

See accompanying notes to consolidated financial statements.

 

26

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American Medical Technologies, Inc.

**Notes to Financial Statements**

 

**1.   ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES**

 

*Operationsand Principles of Consolidation* — American Medical Technologies, Inc. (“AMT” orthe “Company”) develops, manufactures, markets and sells high technologyproducts primarily for dentistry; and distributes tooth whiteningproducts.  The consolidated financial statements include the accounts andoperations of the Company and American Medical Technologies GmbH, its German subsidiary. All intercompany transactions and balances have been eliminated.

 

*GoingConcern* — TheCompany’s financial statements are prepared using accounting principlesgenerally accepted in the United States of America applicable to a goingconcern, which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business.  The Company incurred a netloss attributable to common shareholders of $952,856 and $1,421,992 for theyears ended December 31, 2007 and December 31, 2006,respectively.  The Company’s recurringlosses from operations and the Company’s total liabilities exceeding its totalassets raise substantial doubt as to the Company’s ability to continue as agoing concern.  The Company believes thatthe increases in revenue and gross margin due to the addition of new productline representations and additional funds available from the line of creditwill alleviate the doubt about the Company’s ability to continue as a goingconcern; however, no assurances can be made.

 

*Inventories* — Inventories are stated at the lower ofcost, determined by the first-in first-out method, or market.  At December 31,2007 and 2006, inventories consisted of the following:

 
| ** **                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Finished goods                    |       | $        | 55,273     |     | $          | 213,182 |   |
| Raw materials, parts and supplies |       | 78,556   |       | 292,396  |       |
|                              |       | $        | 133,829    |     | $          | 505,578 |   |

 

Inventories at December 31, 2007 and 2006 are netof valuation allowances of approximately $1,000,000 and $1,700,000,respectively.  During the year ended December 31,2007, the Company liquidated or disposed of approximately $850,000 of inventorythat was previously included in the Company’s inventory valuation allowance.

 

The Company’s reserve for slow moving inventory isevaluated periodically based on its current and projected sales and usage. Theinventory reserve calculation assumes that any parts on hand exceeding threeyears of projected usage are subject to complete valuation allowance. Forpurposes of computing the valuation allowance at December 31, 2007, partusage was projected at 50% of 2007 part usage. The valuation allowance couldchange materially, either up or down, if actual part usage in future years ismaterially different than the usage projected at December 31, 2007;however, the new cost basis cannot subsequently be marked up based on changesin underlying facts and circumstances.

 

*Propertyand Equipment*— Property and equipment are stated at cost less accumulateddepreciation.  Depreciation is computed by the straight-line method overthe estimated useful lives of the related assets, which range from three to tenyears.  Depreciation is not included in cost of sales.  At December 31,2007 and 2006 property and equipment consisted of the following:

 

27

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| ** **                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Building and improvements      |       | $        | 23,478     |     | $          | 17,391 |   |
| Machinery and equipment        |       | 44,189   |       | 477,727  |       |
| Automobile                     |       | 5,122    |       | —   |       |
| Office furniture and computers |       | 472,955  |       | 457,341  |       |
|                           |       | 545,744  |       | 952,459  |       |
| Accumulated depreciation       |       | (455,832 | )          | (842,546 | )          |
|                           |       | $        | 89,912     |     | $          | 109,913 |   |

 

*Investments**—*During 2005, the Company borrowed $1.35million in margin loans from its investment brokerage house. Interest receivedand matured securities were used as payments on these loans, with additionalborrowing as needed for cash requirements. The balance on the margin loans asof December 31, 2005 was $822,290.  The margin loans were set up witha variable interest rate. The interest rate as of December 31, 2005 was8.375%.  During 2006, the Company borrowed an additional $206,000 inmargin loans from its investment brokerage house.  Interest received andmatured securities were used to pay the balance on the margin loans in thethird quarter of 2006.

 

In April 2006, the Company sold to and leasedback from the Sepulveda Group, LLC, a building and property located in CorpusChristi, Texas.  The gross sale proceeds were $1.9 million.  A gainof $778,447 was recognized, $503,202 of which was deferred at December 31,2007 and is being amortized over the term of the lease.

 

In April 2006, the Company invested $632,744 in aCertificate of Deposit with Texas State Bank which was used as replacementcollateral for a loan entered into in February 2005.  ThisCertificate of Deposit was redeemed in December 2006.

 

In December 2006 the Company invested $300,000 ina Certificate of Deposit with Texas State Bank which was used as collateral fora line of credit extended to the Company by Texas State Bank.

 

*RevenueRecognition**—* The Company recognizes revenue when all of the following criteriaare met:  1) a contract or sales arrangement exists, the buyer isobligated to pay and such obligation would not be changed in the event of theftor physical destruction or damage of the product; 2) products have beenshipped, and if necessary installed, and title has been transferred or serviceshave been rendered; 3) the price of the products or services is fixed ordeterminable; 4) no further obligation exists on the part of the Company(other than warranty obligations); and 5) collectibility is reasonablyassured.  The Company grants a thirty day unconditional money-backguarantee on selected products and a warranty for one year on parts and laboron defective parts and equipment. The Company accrues its estimated exposure toreturns and warranty claims based on historical average returns and claimspaid.  None of the Company’s current product lines require installation.The Company’s policy is to include shipping and handling costs, net of relatedrevenues, in costs of goods sold.

 

*Receivablesand Credit Policies* -Trade receivables are uncollateralized customer obligations due undernormal trade terms requiring payment within 30 days from the invoice date.Payments on trade receivables are allocated to the specific invoices identifiedon the customer’s remittance advice or, if unspecified, are applied to theearliest unpaid invoices. The carrying amount of trade receivables is reducedby a valuation allowance for any invoices over 90 days past due and 5% of theremaining balance. Additionally, management addresses significant individualaccounts for collectibility and provides an additional allowance if necessary.

 

*IntangibleAssets* —Intangible assets consist of patents, and are stated at cost less accumulatedamortization.

 

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Goodwill and intangible assets that have indefiniteuseful lives are tested at least annually for impairment.  Intangibleassets with finite useful lives will continue to be amortized over their usefullives.

 

The Company has amortizable intangible assets as of December 31,2007 and 2006 as follows:

 
| ** **                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Spectrum license              |       | $        | 549,530    |     | $          | 549,530 |   |
| CrownBeav license             |       | 526,726  |       | —   |       |
| Patents, trademarks and other |       | 59,376   |       | 59,376   |       |
| Accumulated amortization      |       | $        | (286,602   | )        | $          | (135,741 | ) |
|                          |       |     |       |     |       |
|                          |       | $        | 849,030    |     | $          | 473,165 |   |

 

Amortization expense related to finite livedintangibles was $150,861 and $80,806 for the years ending December 31,2007 and December 31, 2006, respectively.  The following table showsthe estimated amortization expense in total for all finite lived intangibleassets to be incurred over the next five years.

 
| **Years Ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2008                                         |       | $          | 162,559    |   |
| 2009                                         |       | 162,559    |       |
| 2010                                         |       | 162,559    |       |
| 2011                                         |       | 84,822     |       |
| 2012                                         |       | 52,673     |       |
| Thereafter                                   |       | 223,858    |       |
|                                         |       | $          | 849,030    |   |

 

*EarningsPer Share* —The following table sets forth the computation for basic and diluted earningsper share:

 
| ** **                                                                                             | ** ** | **2007**  | ** ** | **2006**   | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------|------------|------------|------------|
| Net loss available to common shareholders                                                              |       | $         | (952,856   | )          | $          | (1,421,992 | ) |
|                                                                                                   |       |      |       |       |       |
| Numerator for basic and diluted earnings per share                                                     |       | (952,856  | )          | (1,421,992 | )          |
|                                                                                                   |       |      |       |       |       |
| Denominator for basic earnings per share — weighted average share                                 |       | 8,679,741 |       | 8,189,306  |       |
| Dilutive potential common shares                                                                       |       | —    |       | —     |       |
|                                                                                                   |       |      |       |       |       |
| Denominator for diluted earnings per share- adjusted weighted average  shares after assumed conversion |       | 8,679,741 |       | 8,189,306  |       |
| Basic and diluted earnings per common share                                                            |       | $         | (0.11      | )          | $          | (0.17 | ) |

 

Potentially dilutive securities include options andwarrants.  As of December 31, 2007and December 31, 2006 there were approximately 825,000 and 159,000 sharesissuable, respectively, in connection with these potentially dilutivesecurities.  These potentially dilutivesecurities were excluded from the computations of diluted net loss per sharefor both years because their effect would have been antidilutive.

 

*ComprehensiveLoss***—The Financial Accounting Standards Board’s Statement No. 130, *Reporting Comprehensive Income* requiresforeign currency translation adjustments and unrealized income (loss) onavailable for sale securities to be included, along with net loss, incomprehensive loss.

 

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*StockBased Compensation* — Effective January 1, 2006, the Company adopted the provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised),“Share-Based Payment.”  Under the fair value recognition provisions ofSFAS No. 123(R), stock based compensation is measured at the grant datebased on the value of the awards and is recognized as expense over therequisite service period (usually the vesting period). The Company selected themodified prospective method of adoption described in SFAS No. 123(R); assuch, no prior periods have been restated. The Company has a policy of issuingnew shares for stock option exercises.

 

*Advertising*— The Companyexpenses advertising costs as incurred.  Advertising expense approximated$27,000 and $19,000 in 2007 and 2006, respectively.

 

*Use ofEstimates*— The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanyingnotes.  Actual results could differ from these estimates.  Thedetermination of the Company’s valuation allowance for inventory is asignificant estimate that could change materially over the next year shouldcircumstances affecting the Company’s current sales volumes change.  The calculated fair value of the warrantsissued to Discus is a significant estimate that could change materially overthe next year should there be a significant change in the market value of theCompany’s common stock.

 

*FairValue of Financial Instruments***— The fair value of the Company’s cash, accountsreceivable, line of credit and accounts payable approximates their carryingvalue due to their short-term nature.  The fair value of the Company’spreferred stock which was outstanding at December 31, 2006 approximatesfair value as its terms and yield approximates current market conditions.

 

*Reclassifications**-*Certain amounts in the prior year havebeen reclassified to conform to the current year presentation. Suchreclassifications had no effect on previously reported net loss.

 

*Issuanceof Options and Warrants**-* The Company periodically issues options and warrantsto purchase stock at a price which may be higher or lower than the strike priceof the stock on the grant date.  The fair value of the options andwarrants issued is estimated at the date of the grant using the Black Scholespricing model.  The Company recognizes the expense over the vesting periodof the options and warrants.  The Company has a policy of issuing newshares for the exercise of options and warrants.

 

**2.   AGREEMENTS WITH RELATED PARTIES**

 

*RogerDartt*—TheCompany renewed its employment agreement with Mr. Dartt effective June 1,2004 and extended the term to end December 31, 2006.  Under therenewed employment agreement, Mr. Dartt’s base salary was $250,000 peryear, and he received a signing bonus of $166,000, which he used to purchase250,000 shares of Company common stock at $0.33 per share pursuant to optionspreviously granted.  Mr. Dartt agreed not to compete with the Companyfor one year after termination.  The employment agreement was not renewed onDecember 31, 2006. Mr. Dartt continued as Chairman of the Boardfor the Company until his resignation on October 31, 2007.  In consideration for his continued workduring the three month period ended March 31, 2007, the Company agreed toissue 200,000 shares of common stock to Mr. Dartt.  The Company issued 200,000 restricted sharesof common stock to Mr. Dartt in August 2007 and recorded an expenseof $60,000.

 

*Judd D.Hoffman -*TheCompany entered into an employment agreement with Mr. Hoffman effective January 1,2007, naming him as the Company’s President and Chief Executive Officer for aterm ending December 31, 2009.  The employment agreement provides foran annual base salary of $210,000, an increase of not less than 5% on eachanniversary date, an incentive bonus in 2007 based on profit and the optiongrant to purchase 850,000 shares of stock at a price of $.20 per share. The options vest as follows:  100,000 immediately and 250,000 vesting onthe last day of the first, second and third years of the employment term. Additionally, in June 2006 Mr. Hoffman was granted the 

 

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option to purchase 100,000 shares of stock at a priceof $0.27 per share.  This option grant vested on September 16,2006.  The employment agreement can be terminated for cause if Mr. Hoffmanfails to perform his duties with the Company, engages in gross misconduct inconnection with his work for the Company, commits a breach of this agreement orcommits a felonious or fraudulent act against the Company.  If hisemployment is terminated without cause, Mr. Hoffman is entitled to 12month’s salary and any portion of stock options will immediately vest and beexercisable for a period of 90 days.

 

**3.   OTHER EVENTS**

 

*LicenseAgreement CrownBeav LLC – DirectCrown product line*  On April 1, 2007, the Company entered into aLicense Agreement with CrownBeav LLC, an Oregon limited liability company,under which the Company became the nonexclusive distributor for the UnitedStates and Canada and the exclusive distributor for the rest of the world of it’sDirectCrown brand of temporary crown and bridge material.  The license agreement is for a term of tenyears with automatic renewals for additional five year terms, contains minimumrequirements for sale of the products by the Company, and may be terminated (i) forcause upon 60 days notice, (ii) upon the Company’s failure to comply withapplicable securities laws, (iii) upon the occurrence of certain othercustomary events of default.  In full consideration,the Company granted to CrownBeav a five year option to purchase (the “Option”)1,000,000 shares of common stock at $0.20 per share.  The shares subject to the Option will vesttwo years from the Effective Date of the agreement.  The option agreement includes a guaranteedtrading price of $0.40 per share for the 30-day period prior to vesting.  Additional option shares will be granted forthe difference if the market price of the shares is below $0.40 during the30-day period.

 

The Black-Scholes option pricing model was used todetermine the fair value of the options issued to CrownBeav with the followingassumptions:  risk free interest rate of 4.54%; dividend yield of 0%;volatility factors of 139%, the expected market price of the Company’s commonshares over the estimated life of the option of 3.5 years.  The resultingfair value of the call option was $341,726. The option grant vests on April 1, 2009.  The option agreement includes a guaranteedtrading price of $0.40 per share for the 30-day period prior to vesting.  Additional option shares will be granted forthe difference if the market price is below $0.40 during the 30-dayperiod.  The Black-Scholes option pricingmodel was used to determine the fair value of the option guarantee issued toCrownBeav with the following assumptions: risk free interest rate of 4.60%; dividend yield of 0%; volatilityfactors of 100%, the expected market price of the Company’s common shares overthe guarantee period of 2 years.  Theresulting fair value of the put option was $185,000.  The $526,726 fair market value of the option(combination of call and put) was capitalized as an intangible asset and isbeing recognized as a licensing fee over the 10 year period of the license.

 

*LicenseAgreement – Spectrum product line**.*On April 11, 2006, the Company entered into anExclusive License Agreement (the “License Agreement”) with Discus DentalHoldings, Inc., under which the Company became the exclusive, worldwidedistributor of the proprietary dental products manufactured and sold by Discus’wholly owned subsidiary, Spectrum Dental, Inc. (“Spectrum”). The LicenseAgreement is for a term of five years, contains minimum requirements for saleof the products by the Company, and may be terminated (i) for causeupon 30 days notice, (ii) at certain times during the term of the LicenseAgreement if the Company fails to maintain positive net income for a specifiedperiod, (iii) upon the Company’s failure to comply with applicablesecurities laws, (iv) if any judgment is rendered against the Company, orit defaults on any debt, in excess of $50,000, (v) upon any change in theCompany’s results of operation or condition which in the sole opinion of Discushas or could have a material adverse effect on the Company’s condition,business, properties or prospects, and (vi) upon the occurrence of certainother customary events of default. As full consideration, the Company grantedto Discus a ten year warrant (the “Warrant”) to purchase up to 2,500,000 sharesof its common stock at $0.20 per share. The shares subject to the Warrant vest500,000 after the first year and an additional 41,667 shares on each successivefull one-month period thereafter until the fifth anniversary of the date ofgrant; however vesting ceases upon the sale of Spectrum Dental to the Companyas contemplated by the Option Agreement described below. The shares subject tothe Warrant are adjusted upon the occurrence of certain events including astock dividend, reclassification, 

 

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merger and stock split, and upon the issuance ofshares for a consideration per share less than the applicable conversion priceof the Warrant, with certain exceptions for compensation paid in stock.

 

The fair value of the warrants issued to Discus isestimated at the end of each period using the Black-Scholes option pricingmodel with the following assumptions used on December 31, 2006:  riskfree interest rate of 4.59%; dividend yield of 0%; volatility factors of theexpected market price of the Company’s common shares over the estimated life ofthe warrant of 6.42 years.  The calculated fair value of the warrant was$549,530 which the Company capitalized as an intangible asset and isrecognizing as a licensing fee over the vesting period of five years.

 

*RegistrationRights Agreement*. Also onApril 11, 2006, the Company entered into a Registration Rights Agreementwith Discus pursuant to which it agreed, at its own expense, to register theshares acquired by Discus under the Warrant or the Option Agreement with theSEC not later than April 11, 2007, and to use its reasonable best effortsto cause the registration statement to be declared effective by the SEC as soonas practicable thereafter. The Company must, subject to certain specifiedcircumstances, maintain the effectiveness of the registration statement for aspecified period of time. The Company also granted to Discus piggyback rightsfor other registration statements filed by it with the SEC for the sale of itsshares.

 

The Registration Rights Agreement between the Companyand Discus provides that the Company shall file a shelf registration relatingto the offer and resale of shares issuable upon exercise of the warrant notlater than an unspecified date in April 2007.  As of the date of thefiling of this Form 10-KSB, the Company has not filed such registrationstatement.   The Registration RightsAgreement requires physical or net-share settlement by delivery of registeredshares and does not specify any circumstances under which net-cash settlementwill be permitted or required and the contract does not specify how thecontract will be settled in the event that the Company is unable to deliverregistered shares.  Therefore,  net-cash settlement is assumed if the Companyis unable to deliver registered shares and the warrants are classified as aliability.

 

*OptionAgreement – Spectrum product line*. On the same date as the Company entered into theLicensing Agreement, the Company and Discus entered into a Put and Call OptionAgreement (the “Option Agreement”) whereby Discus has a put option to compelthe Company to purchase all the outstanding shares of capital stock of Spectrum, and the Company has a call option to compel Discus to sell such shares, atany time after April 11, 2007 and before the earlier to occur of thetermination or expiration of the License Agreement or five years.Notwithstanding the foregoing, the Company may not exercise its calloption if the price at which its shares of common stock are trading, or theaverage trading price of its shares during the preceding 30 day period, is lessthan $0.60 per share. The exercise price of the option will be between$2,300,000 and $2,662,537, depending on the date of exercise. The purchaseprice will be paid with a combination of cash and 3,000,000 shares of Companycommon stock (subject to adjustment); provided that if that aggregate value ofthe specified amount of cash and the value of the stock based on the averagetrading value of the Company’s stock for the 30 days preceding the closing ofthe Option Agreement is less than the applicable exercise price, then theCompany must issue additional shares to equal the value of the exercise price.At the option of the parties, the exercise price can be paid in all cash;however, if the Company first elects to exercise its call option, the method ofpayment of the exercise price will be at the election of Discus. Upon theexercise of the option, the parties are required to enter into a Stock PurchaseAgreement substantially in the form agreed to in the Option Agreement forthe purchase and sale of the Spectrum shares.

 

*ManufacturingAgreement – Spectrum product line*  The Company also entered into a ManufacturingAgreement with Westside Packaging, Inc. (“Westside”) a wholly owned subsidiaryof Discus and the current manufacturer, for the manufacture of the products andsale to the Company for distribution under the License Agreement. The productsmanufactured are sold under the trademarks Contrastpm, Contrastam, FastDam andFastTrak. The Manufacturing Agreement is for a term of three years withautomatic one year renewal terms unless either party gives notice ofnon-renewal.

 

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*StandstillAgreement* Effective January 16, 2007, Discus, Spectrum and Westside, on the onehand, and the Company, on the other hand, entered into a Standstill Agreement,in which each of the parties agreed that there are pending disputes among themconcerning the existence and/or extent of any performance issues underagreements among them, including, without limitation, the License Agreement andManufacturing Agreement (collectively, the “Agreements”).  It is theCompany’s position that the Agreements are in effect.  Discus has agreednot to dispute the Company’s position, but has reserved, together with theCompany, all rights, claims and/or defenses relating to the Agreements. The parties to the Standstill Agreement have agreed to discuss potentialresolution of any disputes arising out of the Agreements.  Further, theparties have agreed that any party may terminate the Standstill Agreement byproviding the other party with 10 days written notice.  The partiesfurther agreed that no party to the Standstill Agreement may commence any legalaction against the other party prior to termination of the StandstillAgreement.  The Standstill Agreement is dated February 1, 2007.

 

*Saleand Leaseback Arrangement.***On April 11, 2006, the Company sold to and leasedback from the Sepulveda Group, LLC, a California company affiliated with Discus(“Sepulveda”), the 45,000 square foot building and property located in CorpusChristi, Texas. The gross sale proceeds were $1.9 million, and the monthly rentfor the facility is $20,385 for the five year term, with a 3% yearly increase andan option to extend the lease term for an additional five years.

 

The Company invested $632,744 of the sale proceeds ina Certificate of Deposit with Texas State Bank which will be used asreplacement collateral for the loan entered into in February 2005. Of theproceeds, $54,858 was used for a security deposit and rent for the facility,$88,671 was used to pay the 2005 property taxes and $14,088 was used as realestate and closing fees. The remaining $1.1 million in net proceeds were usedto reduce liabilities and for operational expenses as needed.   Thegain of $778,447 on the sale of the building was recorded on the Company’sbalance sheet as deferred gain on sale of building and is being recognized overthe term of the lease as a credit to rental expense.  The Company recordeda credit of $152,873 and  $122,372 inrental expense during the years ended December 31, 2007 and December 31,2006, respectively.

 

*Amendmentto Loan Agreement**.*As a result of the sale and leaseback arrangementdescribed above, the Company, under its loan agreement with Texas State Bankdated February 9, 2005 in the original principal amount of $682,000,executed a change of collateral agreement. The loan was originally secured by aprimary lien on the Company’s building and other real property, and the finalprincipal payment was due in full in February 2008. The Company invested$632,744 in a Certificate of Deposit with a term of one year as collateral forthe outstanding principal remaining on the loan. The original terms of the loanremained the same.  In December 2006, the Company redeemed theCertificate of Deposit and used proceeds as full payment of loan.

 

**4.   NOTE PAYABLE & LINE OF CREDIT**

 

On February 9, 2005 the Company entered into asecured loan agreement with Texas State Bank in the amount of $682,000. Theloan was secured by a primary lien on the Company’s building and other realproperty.  Interest on the loan was at the prime rate plus 1%.  Theprincipal on the loan was payable in 35 monthly installments of $3,789 plusinterest with the final principal payment due in full in February 2008. The funds received from this loan were used to retire the note held by AimeeMaroney which matured on December 31, 2004.  In April 2006,the Company invested $632,744 in a Certificateof Deposit with a term of one year as collateral for the outstanding principalremaining on the loan. The original terms of the loan remained the same. In December 2006, the Company redeemed the Certificate of Deposit and usedthe proceeds to pay the balance on the note.

 

On December 21, 2006, the Company entered into asecured line of credit agreement with Texas State Bank.  The fundsavailable under the line of credit were $600,000.  The Company invested$300,000 with funds drawn against the line of credit in a Certificate ofDeposit with a term of one year as collateral for the loan.  Interest onthe line of credit is set at the prime rate plus 1%.  The interest rate onthe line of credit was 9.25% as of December 31, 2006.  The principalon the loan was payable in 

 

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one payment on December 20, 2007, with intereston the outstanding amount payable monthly.  The Company borrowed anadditional $100,000 against the line of credit in December 2006.  In February 2007,Texas State Bank increased the line of credit to $800,000 using the Company’saccounts receivable and inventory as additional collateral.  The terms ofthe original line of credit remained the same with the exception of the paymentdate of the line being extended to February 2008.  The balance outstanding was $500,000 at December 31,2007.  In January 2008, the Companyrenewed  the secured line of creditagreement. The terms of the original line of credit remained the same with theexception of the payment date which was extended to January 2009.

 

The Company paid interest of approximately $52,600 and$107,200 in 2007 and 2006, respectively.

 

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

 

*PreferredStock*

 

The Company has authorized up to 575,000 shares of Series BPreferred Stock at a per share price of $1 per share.  The holders of the Series B PreferredStock are entitled to (i) receive an annual cumulative dividend at therate of 10%, payable prior to dividends of any shares of common stock, (ii) twoand one-half times the number of votes to which a holder of the same number ofcommon shares is entitled, (iii) receive two and one-half shares of commonstock for each share of Series B Preferred Stock tendered for conversionafter September 30, 2005, (iv) require the Company to redeem sharesof Series B Preferred Stock at the original sales price, plus accruedcumulative dividends, upon prior notice after September 30, 2005, or inthe event of a merger, sale of a majority of the stock or sale of substantiallyall of the assets of the Company, and (v) receive a liquidation preferenceequal to the original sales price plus accrued cumulative dividends, prior tothe rights of holders of the Series A Preferred Stock and commonstock.  On September 30, 2007, alloutstanding shares of Series B Preferred Stock were automaticallyredeemable at the original sales price plus accrued cumulative dividends andshares were recorded as a liability at December 31, 2006.  However, in September 2007, the holdersof the Series B Preferred Stock tendered the 400,000 shares outstandingfor conversion and the Company issued to the holders 1,000,000 shares of commonstock.  The Company declared and paid$25,963 of Series B Preferred dividends in the period ended September 30,2007.  Additionally, in the period ended September 2007,the Company paid $80,000 of Series B Preferred dividends declared andaccrued in 2005 and 2006.

 

*EmployeeStock Option Plan*

 

The Company currently sponsors a stock basedcompensation plan as described below. Effective January 1, 2006, theCompany adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123 (Revised), “Share-Based Payment.”  Under the fair recognitionprovisions of SFAS No. 123(R), stock based compensation is measured at thegrant date based on the value of the awards and is recognized as expense overthe requisite service period (usually the vesting period). The Company selectedthe modified prospective method of adoption described in SFAS No. 123(R);as such, no prior periods have been restated. The fair values of the stockawards recognized under SFAS No. 123(R) are determined based on eachseparately vesting portion of the awards, however, the total compensationexpense is recognized on a straight-line basis over the vesting period. TheCompany has a policy of issuing new shares for stock option exercises.

 

In accordance with the provisions of SFAS No. 123(R),there was $89,383 in stock based compensation expense recorded in the twelvemonth period ended December 31, 2007.

 

Prior to 2006, the Company accounted for stock basedcompensation using the intrinsic value method prescribed in AccountingPrincipals Board (“APB) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations. Under APB Opinion No. 25, nocompensation expense was recognized for stock options issued to employeesbecause the grant price equaled or was above the market price on the date ofgrant for options issued by the Company.

 

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The Company had three stock option plans foremployees, officers, directors, consultants and other key personnel whichexpired prior to December 31, 2004.    As of December 31,2007, the Nonqualified Stock Option Plan has no options outstanding; the Long-TermIncentive Plan had options outstanding to acquire 4,680 shares; and the StockOption Plan for Employees has no remaining options outstanding.

 

In May 2005, the Company adopted the 2005 StockOption Plan (the “Plan”) for employees, officers, directors, consultants andother key personnel.  When the Plan wasimplemented there were options to purchase 1,000,000 shares common stockavailable to be granted under the Plan. In the first quarter of 2007, the Company increased the number ofoptions to purchase to 2,000,000 shares of common stock.

 

The Company granted 400,000 share options in June 2006under the Plan.  The share options becameexercisable at a rate of 100,000 per year beginning in September 2006.  The fair value of the options issued wasestimated at the date of the grant using the Black-Scholes option pricing modelwith the following assumptions:  riskfree interest rate of 5.14%; dividend yield of 0%, volatility factors of 238%,the expected market price over the estimated life of the option of 6.25years.  In January 2007, theunvested portion of this grant was cancelled. The calculated fair value of the portion of the option grant thatremained was $26,813.  The Companyrecognized the full expense in 2006.

 

The Company granted 100,000 share options in January 2007under the Plan.  The share options becameexercisable upon the grant date.  Thefair value of the options issued was estimated at the date of the grant usingthe Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 4.68%; dividendyield of 0%, volatility factors of 241%, the expected market price over theestimated life of the option of 5.5 years.   The calculated fair value of the option grant was $19,916.  The Company recognized the expense in thefirst quarter 2007.

 

Additionally, the Company granted 870,000 shareoptions in January 2007 under the Plan. The share options will become exercisable at a rate of 250,000 per yearbeginning in December 2007.  Thefair value of the options issued was estimated at the date of the grant usingthe Black-Scholes pricing model with the following assumptions:  risk free interest rate of 4.68%, dividendyield of 0%, volatility factors of 243%, the expected market price over theestimated life of the option of 6 years. The calculated fair value of the option grants was $173,567.  The Company is recognizing the expense ofover the three year vesting period of the options.

 

The Company granted 11,000 share options in February 2007under the Plan.  The share options willbecome exercisable in February 2008. The fair value of the options issued was estimated at the date of thegrant using the Black-Scholes option pricing model with the followingassumptions:  risk free interest rate4.77%, dividend yield of 0%, volatility factors of 234% the expected marketprice over the estimated life of the option of 5.5 years.  The calculated fair value of the optiongrants was $2,188.  The Company isrecognizing the expense over the vesting period of the options.

 

The Company granted 60,000 share options in March 2007under the Plan.  The share options willbecome exercisable at a rate of 30,000 per year beginning in March 2008.  The fair value of the options issued wasestimated at the date of the grant using the Black-Scholes pricing model withthe following assumptions:  risk freeinterest rate of 4.5%, dividend yield 0%, volatility factors of 247%, theexpected market price over the estimated life of the options of 5.75 years.  The calculated fair value of the option grantswas $25,132.  The Company is recognizingthe expense over the two year vesting period of the options.

 

As of December 31, 2007, there was $131,416 inunrecognized compensation cost related to nonvested share based compensationarrangements granted under the Plan.

 

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The Company’s nonvested shares as of December 31,2007 and changes during the period ended December 31, 2007, is summarizedas follows:

 
| **Nonvested Shares**           | ** ** | **Shares** | ** ** | **Weighted-Average  Grant-Date  Fair Value** | ** ** |
|-------------------------------------|------------|------------|------------|---------------------------------------------------|------------|
| Nonvested at December 31, 2006 |       | 300,000    |       | $                                                 | 0.27       |   |
| Granted                             |       | 1,041,000  |       | $                                                 | 0.21       |   |
| Vested                              |       | (350,000   | )          |                                              |       |
| Cancelled                           |       | (300,000   | )          |                                              |       |
| Nonvested at December 31, 2007 |       | 691,000    |       | $                                                 | 0.22       |   |

 

Employee stock optionactivity is summarized as follows:

 
| ** **                            | ** ** | **Number  of shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** | **Weighted  Average  Remaining  Contractual  Term (Years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|-----------------------|------------|-----------------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at December 31, 2006 |       | 405,928               |       | $                                       | 0.30       |                                                    |       |                                                             |       |                            |       |   |
| Exercisable at December 31, 2006 |       | 105,928               |       | 0.40                                    |       |                                                    |       |                                                             |       |                            |       |
|                                  |       |                  |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Options granted                       |       | 1,041,000             |       | 0.21                                    |       | 221,400                                                 |       |                                                             |       |                            |       |
| Options exercised                     |       | —                |       | —                                  |       |                                                    |       |                                                             |       |                            |       |
| Options canceled                      |       | (304,248              | )          | 0.29                                    |       |                                                    |       |                                                             |       |                            |       |
|                                  |       |                  |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Outstanding at December 31, 2007 |       | 1,142,680             |       | 0.22                                    |       |                                                    |       | 8.95                                                             |       | —                          |       |
| Exercisable at December 31, 2007 |       | 454,680               |       | 0.23                                    |       |                                                    |       | 8.83                                                             |       | —                          |       |
|                                       |            |                       |            |                                         |            |                                                         |            |                                                                  |            |                                 |            |  |

 

There were 1,041,000 stock options granted and nooptions exercised during the year ended December 31, 2007.

 
| **Range of Exercise  Prices** | ** ** | **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| $0.20                                   |       | 978,000                                  |       | 350,000                                  |       | $                                          | 0.20       |                                                    | 9.01       |   |
| $0.27                                   |       | 100,000                                  |       | 100,000                                  |       | $                                          | 0.27       |                                                    | 8.48       |   |
| $0.42                                   |       | 60,000                                   |       | —                                   |       | $                                          | 0.42       |                                                    | 9.24       |   |
| $0.86                                   |       | 1,248                                    |       | 1,248                                    |       | $                                          | 0.86       |                                                    | 3.96       |   |
| $1.38                                   |       | 2,496                                    |       | 2,496                                    |       | $                                          | 1.38       |                                                    | 2.48       |   |
| $3.88                                   |       | 936                                      |       | 936                                      |       | $                                          | 3.88       |                                                    | 0.96       |   |

 

*Non-EmployeeStock Options*

 

See Note 3 of the Notesto the Consolidated Financial Statements of information regarding the optionissued to CrownBeav in 2007

 

36

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Non-employeestock option activity is summarized as follows:

 
| ** **                            | ** ** | **Number of  shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|---------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| Outstanding at December 31, 2006 |       | 150,000                    |       | $                                       | 0.27       |   |
| Exercisable at December 31, 2006 |       | 150,000                    |       | 0.27                                    |       |
|                                  |       |                       |       |                                    |       |
| Options granted                       |       | 1,000,000                  |       | 0.20                                    |       |
| Options exercised                     |       | —                     |       | —                                  |       |
| Options canceled                      |       | —                     |       | —                                  |       |
|                                  |       |                       |       |                                    |       |
| Outstanding at December 31, 2007 |       | 1,150,000                  |       | $                                       | 0.21       |   |
| Exercisable at December 31, 2007 |       | 150,000                    |       | $                                       | 0.27       |   |

 

A summary of all non-employee options outstanding asof December 31, 2007 is as follows:

 
| **Range of Exercise  Prices** | ** ** | **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| $0.27                                   |       | 150,000                                  |       | 150,000                                  |       | $                                          | 0.27       |                                                    | 2.79       |   |
| $0.20                                   |       | 1,000,000                                |       | —                                   |       | $                                          | 0.20       |                                                    | 4.25       |   |

 

The Company has a policyof issuing new shares for stock option exercises.

 

Warrant activity issummarized as follows:

 
| ** **                            | ** ** | **Number of  shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|---------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| Outstanding at December 31, 2006 |       | 2,500,000                  |       | $                                       | 0.20       |   |
| Exercisable at December 31, 2006 |       | —                     |       | —                                  |       |
|                                  |       |                       |       |                                    |       |
| Warrants issued                       |       | —                     |       | —                                  |       |
| Warrants exercised                    |       | —                     |       | —                                  |       |
| Warrants canceled                     |       | —                     |       | —                                  |       |
|                                  |       |                       |       |                                    |       |
| Outstanding at December 31, 2007 |       | 2,500,000                  |       | 0.20                                    |       |
| Exercisable at December 31, 2007 |       | 833,336                    |       | 0.20                                    |       |
|                                       |            |                            |            |                                         |            |  |

 

**6.     2007 EQUITY INCENTIVE PLAN**

 

In July 2007, the Company adopted the 2007 EquityIncentive Plan (“Equity Plan”).  TheEquity Plan provides for the granting of Nonqualified Stock Options, IncentiveStock Options, Stock Appreciation Rights (or SARs), Restricted Stock,Performance Units and Performance Shares to employees, consultants anddirectors.  The purpose of the EquityPlan is to promote the success and to enhance the value of the Company byaligning the interest of Participants with those of the Company’s shareholders,to provide flexibility to the Company in its ability to motivate, attract, andretain the services of outstanding individuals, upon whose judgment, interest,and special effort the success of the Company is largely dependent.   When the Equity Plan was implemented therewere 1,000,000 common shares available to be granted under the EquityPlan.  In the year ended December 31,2007, a 

 

37

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total of 100,000 performance shares and 627,968performance unit shares had been granted under the Equity Plan to legal andoutside consultants of the Company.  The$212,862 expense is included in other professional fees.

 

**7.    INCOME TAXES**

 

At December 31, 2007 the Company hadapproximately $26,000,000 of net operating loss carry forwards (“NOL’s”) forfederal income tax purposes, which expire in various amounts in the years 2008through 2024.

 

Deferred taxes represent the net tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and amounts used for income taxpurposes.  Significant components of the Company’s deferred tax assets areas follows:

 
| ** **                         | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|
| Allowance for doubtful accounts    |       | $          | 5,600      |       | $          | 6,000 |   |
| Inventory valuation reserves       |       | 340,100    |       | 1,018,000  |       |
| Compensation and employee benefits |       | 12,200     |       | 11,000     |       |
| Warranty reserve                   |       | 5,700      |       | 12,000     |       |
| Sale/leaseback of building         |       | 171,100    |       | 238,000    |       |
| NOL’s                         |       | 8,727,200  |       | 7,770,000  |       |
| Other                              |       | 251,700    |       | 39,000     |       |
| Deferred tax asset                 |       | 9,513,600  |       | 9,094,000  |       |
| Deferred tax liabilities           |       | (350,900   | )          | (50,000    | )          |
| Net deferred tax asset             |       | 9,162,700  |       | 9,044,000  |       |
| Valuation allowance                |       | (9,162,700 | )          | (9,044,000 | )          |
| Net deferred tax asset             |       | $          | —     |       | $          | — |   |

 

The Company’s income tax provision included thefollowing:

 
| ** **                | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| Current expense (benefit) |       | $        | —     |     | $          | — |   |
| Deferred expense          |       | —   |       | —   |       |
|                      |       | $        | —     |     | $          | — |   |

 

The following is a reconciliation of the Company’sexpected income tax expense (benefit) based on statutory rates to the actualexpense (benefit):

 
| ** **                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Income taxes (benefit) at US statutory rate       |       | $        | (323,971   | )        | $          | (469,877 | ) |
| Non-deductible amortization and expenses          |       | 39,184   |       | 1,053    |       |
| Deferred tax asset valuation allowance adjustment |       | 284,787  |       | 468,824  |       |
|                                              |       | $        | —     |     | $          | — |   |

 

Uncertainties exist as to the future realization ofthe deferred tax asset under the criteria set forth under FASB Statement No. 109.

 

The Company paid no federal income tax during 2006 or2007.

 

38

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The Company’s investment in its foreign subsidiary isconsidered to be permanently invested, and no provision for U.S. federal andstate income taxes on these translation adjustments has been provided.

 

FIN 48 – In June 2006, FASB Interpretation (FIN) No. 48,“Accounting for Uncertainty in Income Taxes”, an interpretation of FASBStatement 109 Accounting for Income Taxes, was issued.  FIN No. 48 describes accounting foruncertainty in income taxes, and includes a recognition threshold and measurementattribute for recognizing the effect of a tax position taken or expected to betaken in a tax return.  FIN No. 48is effective for fiscal years beginning after December 15, 2006.  The Company adopted FIN No. 48 on January 1,2007, and the initial adoption of this Statement had no impact on the Company’sfinancial position, results of operations or cash flows.  The tax years still open for examination byFederal and major state agencies as of December 31, 2007 are 2003 – 2006.

 

**8.****   ****OPERATIONS BY INDUSTRYSEGMENT, GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS**

 

SFAS No. 131, Disclosures about Segments of anEnterprise and Related Information, established standards for reportinginformation about operating segments in annual financial statements and requiredselected information about operating segments in interim financial reportsissued to stockholders.  It also established standards for relateddisclosures about products and services, and geographic areas.  Operatingsegments are defined as components of the enterprise about which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker, or decision making group, in deciding how to allocateresources and in assessing performance.

 

The Company manufactures markets and sells hightechnology dental products such as air abrasive equipment and curing lights aswell as, tooth whitening products.  AMTmarkets its dental products through dealers and independent distributors togeneral dental practitioners and certain other dental specialists.  Internationally, the Company continues tosell its products through international distributor networks.  AMT presently markets its industrial productsthrough independent distributors.  Thereportable segments are reviewed and managed separately because sellingtechniques and market environments differ from selling domestically versusselling through international distributor networks.  The remaining revenues of the Company, whichare reported as “Other”; represent royalty income.

 

The accounting policies of the business segments areconsistent with those described in Note 1.

 
| ** **                  | ** ** | **2007**  | ** ** | **2006** | ** ** |
|-----------------------------|------------|-----------|------------|----------|------------|
| Revenues:                   |       |      |       |     |       |
| Domestic                    |       | $         | 2,034,116  |     | $          | 2,240,277 |   |
| International               |       | 1,131,283 |       | 472,078  |       |
|                        |       | $         | 3,165,399  |     | $          | 2,712,355 |   |
|                        |       |      |       |     |       |
| Reconciliation of revenues: |       |      |       |     |       |
| Total segment revenues      |       | $         | 3,165,399  |     | $          | 2,712,355 |   |
| Other                       |       | 26,075    |       | 51,019   |       |
| Total revenues              |       | $         | 3,191,474  |     | $          | 2,763,374 |   |
|                        |       |      |       |     |       |
| Operational earnings:       |       |      |       |     |       |
| Domestic                    |       | $         | 536,535    |     | $          | 466,543 |   |
| International               |       | 391,178   |       | 138,512  |       |
|                        |       | $         | 927,713    |     | $          | 605,055 |   |

 

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| Reconciliation of operational earnings to loss from operations: |   |       |       |       |   |
|-----------------------------------------------------------------|--------|------------|------------|------------|--------|
| Total segment operational earnings                              |   | $          | 927,713    |       | $      | 605,055 |   |
| Other operational earnings                                      |   | 26,075     |       | 51,019     |   |
| Research and development expenses                               |   | (17,596    | )          | (67,783    | )      |
| Administrative expenses                                         |   | (2,100,412 | )          | (2,137,151 | )      |
| Loss from operations                                            |   | $          | (1,164,220 | )          | $      | (1,548,860 | ) |
|                                                            |   |       |       |       |   |
| International revenues by country:                              |   |       |       |       |   |
| Japan                                                           |   | $          | 60,775     |       | $      | 145,063 |   |
| Germany                                                         |   | 145,488    |       | 47,460     |   |
| The Netherlands                                                 |   | 147,126    |       | 49,795     |   |
| Canada                                                          |   | 107,588    |       | 77,954     |   |
| Taiwan                                                          |   | —     |       | 10,157     |   |
| South Korea                                                     |   | 51,010     |       | 9,950      |   |
| Israel                                                          |   | 14,752     |       | 12,073     |   |
| England                                                         |   | 34,528     |       | 20,194     |   |
| Argentina                                                       |   | 24,826     |       | 12,130     |   |
| Singapore                                                       |   | 186,293    |       | —     |   |
| Switzerland                                                     |   | 16,900     |       | —     |   |
| Columbia                                                        |   | 30,481     |       | —     |   |
| Lebanon                                                         |   | 47,153     |       | —     |   |
| Costa Rica                                                      |   | 26,480     |       | —     |   |
| Peru                                                            |   | 33,536     |       | —     |   |
| Other                                                           |   | 204,347    |       | 87,302     |   |
|                                                            |   | $          | 1,131,283  |       | $      | 472,078 |   |
|                                                            |   |       |       |       |   |
| Long lived assets (excluding deferred taxes):                   |   |       |       |       |   |
| Domestic                                                        |   | $          | 89,912     |       | $      | 109,913 |   |
| International                                                   |   | —     |       | —     |   |
|                                                            |   | $          | 89,912     |       | $      | 109,913 |   |
|                                                            |   |       |       |       |   |
| Current assets                                                  |   |       |       |       |   |
| Domestic                                                        |   | $          | 851,998    |       | $      | 1,438,297 |   |
| International                                                   |   | 47,120     |       | 41,922     |   |
|                                                            |   | $          | 899,118    |       | $      | 1,480,219 |   |

 

**9.    COMMITMENTSAND CONTINGENCIES**

 

Rental expense for operating leases in 2007 and 2006approximated $119,048 and $86,428**.respectively,**which includes credits of $152,873 and $122,372 inrental expense for the recognition of the deferred gain on the sale of thebuilding.

 

On April 11, 2006, the Company sold to and leasedback from the Sepulveda Group, LLC, a California company affiliated with Discus(“Sepulveda”), the 45,000 square foot building and property located at 5655Bear Lane, Corpus Christi, Texas. The gross sale proceeds were $1.9 million,and the monthly rent for the facility is $20,385 for the five year term, with a3% yearly increase and an option to extend the lease term for an additionalfive years.

 

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On November 20, 2006, a demand for arbitrationand statement of claim was filed against the Company, alleging that the Companyhad breached agreements to pay the claimant royalties and consultingfees.  The original demand sought damages of $47,800.  The demand forarbitration seeks an award of $125,000.  The original demand of $47,800 isincluded in “other accrued expenses” in the Company’s December 2006balance sheet.   In October 2007,a preliminary settlement was reached through arbitration in the amount of$32,500.  The settlement and release werefinalized and the settlement was paid in the first quarter of 2008.

 

The followingtable summarizes AMT’s contractual lease obligations as of December 31,2007:

 
| ** **                     | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Total** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| Building lease, 5655 Bear Lane |       | 257,628  |       | 265,357  |       | 273,317  |       | 68,831   |       | —   |       | 865,133   |       |
|                           |       |     |       |     |       |     |       |     |       |     |       |      |       |
| CA office suite lease          |       | 19,600   |       | —   |       | —   |       | —   |       | —   |       | 19,600    |       |
|                           |       |     |       |     |       |     |       |     |       |     |       |      |       |
|                           |       | $        | 277,228    |     | $          | 265,357  |       | $        | 273,317    |     | $          | 68,831    |       | $ | — |   | $ | 884,733 |   |
|                                |            |          |            |          |            |          |            |          |            |          |            |           |            |  |  |  |  |  |  |

 

ITEM8.              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE

 

None.

 

ITEM8A.           CONTROLS ANDPROCEDURES

 

The Company’smanagement, with the participation of the chief executive officer and principalaccounting officer, evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) under the Exchange Act) asof December 31, 2007.  Based uponthis evaluation, the chief executive officer and principal accounting officerconcluded that the Company’s disclosure controls and procedures wereeffective.  Subsequent to the evaluationand through the date of this filing of Form 10-KSB for the year ended December 31,2007, there have been no significant changes in the Company’s internal controlsover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) or in other factors that could significantly affect thesecontrols.

 

Management’s AnnualReport on Internal Control Over Financial Reporting

 

AMT’s managementis responsible for establishing and maintaining adequate internal controls overfinancial reporting.  Internal controlover financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with accountingprincipals generally accepted in the United States of America.  Under the supervision and with theparticipation of the Company’s management, including the chief executiveofficer and principal accounting officer, an evaluation was conducted of theeffectiveness of the internal control over financial reporting based on theframework developed by the Committee of Sponsoring Organizations (“COSO”).  Based on this evaluation, managementconcluded that the Company’s internal control over financial reporting waseffective as of December 31, 2007.

 

This Annual Reportof Form 10-KSB does not include an attestation report of the Company’sindependent registered public accounting firm regarding internal control overfinancial reporting.  The management’sreport was not subject to attestation by the Company’s registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit the Company to provide only management’s report in thisAnnual Report of Form 10-KSB.

 

41

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ITEM8B.            OTHERINFORMATION

 

The Company was not required to disclose information on Form 8-Kthat it did not report on a Form 8-K during the fourth quarter of the yearcovered by this Form 10-KSB.

 

**PART III**

 

ITEM 9.             DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS ANDCONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The following sets forth information as to the current directors andexecutive officers of the Company, including their ages, positions held, andthe period of time each has served. The term of office of each director isthree years, with the term of one-third of the directors expiring each year.The term of the Class I directors expires at the annual meeting ofshareholders in 2006, the Class II directors in 2007 and the Class IIIdirectors in 2008, in each case subject to earlier resignation or removal anduntil their respective successors are elected and qualified

 
| **Name**             | ** ** | **Age** | ** ** | **Position with the Company** | ** ** | **Officer/Director Since** | ** ** |
|----------------------|------------|---------|------------|----------------------------------------------|------------|---------------------------------|------------|
| Judd D. Hoffman      |       | 33      |       | Class II  Director                      |       | 2007                            |       |
|                 |       |    |       |                                         |       |                            |       |
| Gary A. Chatham      |       | 63      |       | Class I  Director                       |       | 1999                            |       |
|                 |       |    |       |                                         |       |                            |       |
| William D. Maroney   |       | 70      |       | Class III  Director                     |       | 1997                            |       |
|                 |       |    |       |                                         |       |                            |       |
| Bertrand R. Williams |       | 79      |       | Class II  Director                      |       | 1990                            |       |
|                 |       |    |       |                                         |       |                            |       |
| Barbara D. Woody     |       | 46      |       | Vice  President, Administration and Finance  |       | 2002                            |       |

 

**Biographical Information of Current Directors and Officers**

 

*Judd D. Hoffman*was elected by the Board to serve as theCompany’s Chief Executive Officer effective January 1, 2007.  Mr. Hoffmanserved as a sales consultant to the Company beginning July 2006, until hisappointment as the Company’s Vice President of World Wide Sales and Operationsin September 2006 and he was elected as a director of the Company in November 2006. He served as Vice President of World Wide Sales for Remedent, Inc., amanufacturer and distributor of cosmetic dentistry products, including a fullline of professional and dental and retail “Over-The-Counter” tooth whiteningproducts which are distributed in Europe, and recently in Asia and the UnitedStates, from September 1, 2005 until June 1, 2006.  Prior tojoining Remedent, Inc. and since March 2003, Mr. Hoffman servedas Executive Director of International Sales and Operations for Discus Dental, Inc.(“Discus), a leading global direct manufacturer and marketer of professionaland consumer dental products.  Prior to joining Discus, he served as anindependent consultant for international sales and operations for variousclients after his prior employer, Junroo Netcommunications, Inc. (“Junroo”)was acquired in February 2002.  At Junroo, Mr. Hoffman served asChief Operating Officer and Sr. Vice President of Global Business Development,since co-founding the company in 1998.

 

*Gary A. Chatham* currently serves as Marketing Director forCombex Westhem, LLC, a manufacturer of structural insulated panels located inRobstown, Texas, a position he has held since February 2003. Mr. Chathamis also a principal in that firm. His principal responsibilities includeproduct development, domestic and international market development for projectsincorporating the company’s products, and the development of a franchiseprogram for expanding the company’s manufacturing presence into othercountries. He is also President of Gary Chatham and Associates, Inc., aproject planning and management consulting firm he has operated since 1981. Mr. Chathamwas a director of Texas Airsonics Inc. from 1988 until its merger with theCompany in August 1996.

 

*William D. Maroney* is a private investor. From January 1987to December 1996, Mr. Maroney had been in private law practice in NewYork City, New York. Prior thereto, Mr. Maroney was a senior tax counselfor ITT Corporation and an associate attorney with the international law firmof Coudert Brothers, 

 

42

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NewYork City, New York. Mr. Maroney previously served as a director of theCompany from May 1990 to May 1993.

 

*Bertrand R. Williams* has been the chief executive officer ofGlobal Focus Marketing and Distribution (“GFMD”) since February 1995. GFMDsells specialized clinical laboratory supplies and diagnostics, research andindustrial equipment. Since 1981, he has also been chairman of the board andchief executive officer of Immuno Concepts, Inc., a manufacturer ofimmuno-diagnostic and virology products in Sacramento, California.

 

*Barbara D. Woody* was appointed Controller in December 2002and promoted to Vice President of Administration and Finance in 2007. Prior tojoining the Company, she had served as Controller for Roy Smith Shoes, Inc.and as Business Manager for Henley Healthcare, Inc.

 

**Family Relationships**

 

There are no family relationships among the directors and executiveofficers.

 

**Involvement in Certain Legal Proceedings**

 

None of the directors or executive officers has, during the past fiveyears:

 

(a) Had any bankruptcy petition filed by or against any businessin which such person was a general partner or executive officer either at thetime of the bankruptcy or within two years prior to that time;

 

(b) Been convicted in a criminal proceeding or subject to apending criminal proceeding;

 

(c) Been subject to any order, judgment, or decree, notsubsequently reversed, suspended or vacated, of any court of competentjurisdiction, permanently or temporarily enjoining, barring, suspending orotherwise limiting his involvement in any type of business, securities,futures, commodities or banking activities; and

 

(d) Been found by a court of competent jurisdiction (in a civilaction), the Securities and Exchange Commission or the Commodity FuturesTrading Commission to have violated a federal or state securities orcommodities law, and the judgment has not been reversed, suspended or vacated.

 

**Stockholder Communication with Board Members**

 

Stockholders may communicate with directors by sending a writtencommunication to the Board to the attention of the Secretary at our officeslocated at 5655 Bear Lane, Corpus Christi, Texas, 78405. All communication willbe forwarded directly to the intended recipients.

 

**Audit Committee**

 

The Audit Committee of the Board is comprised of two independentdirectors, Messrs. Chatham and Maroney. Mr. Maroney, who serves as Chairman of the Audit Committee, is qualifiedas an audit committee financial expert.

 

**Section 16(a) Beneficial Ownership Reporting Compliance**

 

Section 16(a) of the Securities Exchange Act of 1934 requiresthe Company’s directors, officers and persons holding more than 10% of aregistered class of the Company’s equity securities to file with the SEC andany stock exchange or automated quotation system on which the Common Stock maythen be listed or quoted (i) initial reports of ownership, (ii) reportsof changes in ownership and (iii) annual reports 

 

43

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ofownership of Common Stock and other equity securities of the Company. Suchdirectors, officers and 10% stockholders are also required to furnish theCompany with copies of all such filed reports.

 

Based solely upon review of the copies of such reports furnished to theCompany and written representations that no other reports were required during2007, the Company believes that all of the Company’s executive officers anddirectors complied with Section 16(a) reporting requirements during2007 except that in connection with Judd Hoffman’s election as a director ofthe Company in November 2006, he inadvertently, at that time, failed tofile with the SEC on a timely basis, Form 3.  He corrected hismistake by filing Form 3 with the SEC on April 3, 2007.

 

**Code of Ethics**

 

Our Board of Directors has adopted a Code of Ethicsfor our senior officers or persons performing similar functions.

 

ITEM10.            EXECUTIVE COMPENSATION

 

**Compensation of Directors**

 

Directors who are not officers or employees of the Company are entitledto a fee of $1,000 for each Board meeting attended and are reimbursed forexpenses incurred in connection with their attendance at meetings; however nodirectors’ fees were paid in 2007. These fees have been waived by thedirectors.

 

**Summary Compensation Table**

 

**The following executive compensation disclosure reflectsall compensation awarded to, earned by or paid to the executive officers belowfor the fiscal year ended December 31, 2007. The following tablesummarizes all compensation for fiscal year 2007 received by our ChiefExecutive Officer who was the only executive officer who earned more than$100,000 in fiscal year 2007.**

** **

**Summary Compensation Table**

 
| **Name and  principal  position**                     | ** ** | **Year** | ** ** | **Salary (1)  $** | ** ** | **Bonus (1)  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-  Equity  Incentive  Plan  ($)** | ** ** | **Non-  qualified  Deferred  Compen-  sation  Earnings  ($)** | ** ** | **All  other  compen-  sation  ($)** | ** ** | **Total  ($)** | ** ** |
|------------------------------------------------------------|------------|----------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------|------------|----------------|------------|
| **(a)**                                                    | ** ** | **(b)**  | ** ** | **(c)**                | ** ** | **(d)**                 | ** ** | **(e)**                | ** ** | **(f)**                 | ** ** | **(g)**                                | ** ** | **(h)**                                                       | ** ** | **(i)**                              | ** ** | **(j)**        | ** ** |
| **Judd D. Hoffman**Chief Executive  Officer and  President |       | 2007     |       | $                      | 210,000    |                    | —     |                   | —     |                    | $          | 169,540                                |       | —                                                        |       | —                               |       | —         |       | $ | 379,540 |   |
|                                                       |       |     |       |                   |       |                    |       |                   |       |                    |       |                                   |       |                                                          |       |                                 |       |           |       |
| **Roger Dartt**Chief Executive  Officer and  President     |       | 2006     |       | $                      | 250,000    |                    | —     |                   | —     |                    | —     |                                   | —     |                                                          | —     |                                 | $          | 7,200          |       | $ | 257,200 |   |
|                                                            |            |          |            |                        |            |                         |            |                        |            |                         |            |                                        |            |                                                               |            |                                      |            |                |            |  |  |  |  |  |  |

 

44

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(i) Includesmedical insurance reimbursement for Mr. Dartt.

 

The following table setsforth certain information concerning unexercised stock options for each namedexecutive officer.  There were no stockawards outstanding as of end of fiscal year 2007.

 

**OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END**

** **
| **OPTION AWARDS** | ** ** | **STOCK AWARDS**                                                         | ** ** |
|------------------------|------------|-------------------------------------------------------------------------------|------------|
| **Name**               | ** ** | **Number  of  securities  underlying  unexercised  options (#)  Exercisable** | ** ** | **Number  of  securities  underlying  unexercised  options (#)  Unexercis-  able** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Securities  underlying  unexercised  unearned  options (#)** | ** ** | **Option  exercise  price ($)** | ** ** | **Option  expiration  date** | ** ** | **Number  of  shares  or units  of stock  that  have  not  vested  (#)** | ** ** | **Market  value of  shares or  units of  stock that  have not**

**vested  ($)** | ** ** | **Equity  incentive  plan  awards:  number  of  unearned  shares,  units or  other  rights  that have  not  vested  (#)** | ** ** | **Equity  incentive  plan  awards:  Market  or payout  value of  unearned  shares,  units or  other  rights  that have  not  vested  ($)** | ** ** |
| Judd D. Hoffman        |       | 100,000                                                                       |       | — |   | — |   | 0.27 |   | 06/21/2016 |   | — |   | — |   | — |   | — |   |
| Judd D. Hoffman        |       | 500,000                                                                       |       | 350,000 |   | — |   | 020 |   | 12/31/2017 |   | — |   | — |   | — |   | — |   |

 

**Option Holdings**

 

There were 950,000 unexercised outstanding options held by Mr. Hoffmanas of December 31, 2007.

 

**Employment Agreements**

 

*Judd D. Hoffman -*The Company entered into an employment agreementwith Mr. Hoffman effective January 1, 2007, naming him as the Company’sPresident and Chief Executive Officer for a term ending December 31,2009.  The employment agreement provides for an annual base salary of$210,000, an increase of not less than 5% on each anniversary date, anincentive bonus in 2007 based on profit and an option grant to purchase 850,000shares of stock at a price of $.20 per share.  The options vest asfollows:  100,000 immediately and 250,000 vesting on the last day of the first,second and third years of the employment term.  Additionally, in June 2006,Mr. Hoffman was granted an option to purchase 100,000 shares of stock at aprice of $0.27/share. This option vested on September 16, 2006  Theemployment agreement can be terminated for cause if Mr. Hoffman fails toperform his duties with the Company, engages in gross misconduct in connectionwith his work for the Company, commits a breach of this agreement or commits afelonious or fraudulent act against the Company.  If his employment isterminated 

 

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withoutcause, Mr. Hoffman is entitled to 12 month’s salary and any portion ofstock options will immediately vest and be exercisable for a period of 90 days.

 

ITEM 11.            SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information, as of April 9,2008, with respect to the holdings of (1) each person who is thebeneficial owner of more than five percent of our common stock, (2) eachof our directors, (3) each named executive officer, and (4) all ofour directors and executive officers as a group.

 

Beneficial ownership of the common stock is determined in accordancewith the rules of the Securities and Exchange Commission and includes anyshares of common stock over which a person exercises sole or shared voting orinvestment powers, or of which a person has a right to acquire ownership at anytime within 60 days of April 9, 2008. Except as otherwise indicated, and subject to applicable communityproperty laws, the persons named in this table have sole voting and investmentpower with respect to all shares of common stock held by them.  Applicable percentage ownership in thefollowing table is based on 10,117,274 shares of common stock outstanding as ofApril 9, 2008 plus, for each individual, any securities that individualhas the right to acquire within 60 days of April 9, 2008.

 
| **Name and Address**                                          | ** ** | **Number of  Common  Shares** | ** ** | **Percent  of Class** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------|------------|----------------------------|------------|
| Irene M. Myers 29877 Telegraph Road  Southfield, MI 48034               |       | 945,337                            | (1)        | 8.3                        | %          |
| Robert Hayman 8550 Higuera Street Culver  City, CA 90232                |       | 890,536                            |       | 7.8                        | %          |
| Michael F. Radner 16500 North Park Dr., #  1507 Southfield, MI 48075    |       | 532,601                            |       | 4.7                        | %          |
| Charles A. Nichols 5655 Bear Lane Corpus  Christi, TX 78405             |       | 751,710                            | (2)        | 6.6                        | %          |
| William D. Maroney 5655 Bear Lane Corpus  Christi, Texas 78405          |       | 911,765                            | (3)        | 8.0                        | %          |
| Bertrand R. Williams, Sr. 5655 Bear  Lane Corpus Christi, TX 78405 |       | 258,769                            | (4)        | 2.3                        | %          |
| Gary Chatham 5655 Bear Lane Corpus Christi,  TX                         |       | 6,937                              | (5)        |                       | *          |
| Judd D. Hoffman 5655 Bear Lane Corpus  Christi, TX                      |       | 455,000                            | (6)        | 4.0                        | %          |
| Discus Dental Holdings 8550 Higuera St.  Culver City, CA 90232          |       | 833,336                            | (7)        | 7.3                        | %          |
| All current executive officers and  directors as a group (6 persons)    |       | 1,627,471                          | (8)        | 14,3                       | %          |

 

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*Less than one percent.

 

(1)           Includes 459,047 shares owned by the Irene M. Myers Revocable Trust and486,290 shares owned by the William D. Myers Irrevocable Marital Trust. Mrs. Myersas trustee for both of those trusts has voting and dispositive power withrespect to all of those shares.

(2)           Includes 1,248 shares of Common Stock purchasable within 60 dayspursuant to the exercise of options or warrants, 2,000 shares of Common Stockowned by Mr. Nichols’ wife, and 350,000 shares of Common Stock ownedjointly with Mrs. Nichols, as to both of which Mr. Nichols sharesvoting and dispositive power.  Mr. Nicholsserved as a director of the Company until his passing in March 2008.

 

46

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(3)           Includes 1,248 shares of Common Stock purchasable within 60 dayspursuant to the exercise of options or warrants, 308,666 shares of Common Stockand 500,000 shares of Common Stock  ownedby Mr. Maroney’s wife, and 7,692 shares owned jointly by Mr. and Mrs. Maroney,as to which Mr. Maroney shares voting and dispositive power.

(4)           Includes 1,248 shares of Common Stockpurchasable within 60 days pursuant to the exercise of options or warrants, and100,423 shares owned by a family trust for which Mr. Williams is thetrustee.

(5)           Includes 936 shares of Common Stock purchasable within 60 days pursuantto the exercise of options or warrants.

(6)           Includes 450,000 shares of Common Stock purchasable within 60 dayspursuant to the exercise of options or warrants

(7)           Includes 833,336 shares of Common Stock purchasable within 60 dayspursuant to the exercise of options or warrants

(8)           Includes 453,432 shares of Common Stock purchasable within 60 dayspursuant to the exercise of options or warrants.

 

ITEM12.               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

See “Item 10 – Executive Compensation – Employment Agreements” for adescription of the employment agreements between the Company and Mr. Hoffman.

 

Also, see Item 1 – Description of Business, above, under the sectionslabeled License Agreement, Manufacturing Agreement, Option Agreement andRegistration Rights Agreement.  These agreements were entered into by theCompany with affiliates of Discus Dental Holdings, Inc. (“Discus”). Robert Hayman is an officer, director and major shareholder of Discus and isalso the owner of 7.8% of the common stock of the Company.  See also Item2– Description of Property, above, describing a transaction in which SepulvedaGroup, LLC, an affiliate of Discus, acquired the Company’s property, and inconnection therewith leased back the property to the Company.

 

ITEM13.               EXHIBITS

 

The exhibits included as part of this report are listed in theattached Exhibit Index, which is incorporated herein by reference.

 

ITEM14.               PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

***Audit Fees.***The Company incurred aggregate professionalfees to its auditor, Hein & Associates LLP (“Hein”) in the amount of$77,600 for the 2007 audit and $76,500 for the 2006 audit.

 

***Tax Fees.***The Company incurred $19,881 in fees to Heinduring 2007 and $10,259 in fees to Hein during 2006, for tax compliance, taxadvice and tax planning, composed primarily of tax preparation services.

 

The Audit Committee considered whether the provision of these serviceswas compatible with maintaining its independence of Hein as the Company’sprincipal independent registered public accounting firm. All of the non-auditservices described above were approved by the Audit Committee in accordancewith its policies and procedures.

 

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Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this annualreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, in the City of Corpus Christi, State of Texas, on the 10th dayof April, 2008.

 
|   |   | AMERICAN  MEDICAL TECHNOLOGIES,  INC. |
|--------|--------|---------------------------------------|
|   |   |                                  |
|   |   | /s/  Judd D. Hoffman                  |
|   |   | Judd  D. Hoffman, President and CEO   |

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities indicated on the same date as above.

 
| /s/  Judd D. Hoffman                |   |                                                               |
|-------------------------------------|--------|--------------------------------------------------------------------|
| Judd  D. Hoffman                    |   | President  and Director (Chief Executive Officer)                  |
|                                |   |                                                               |
| /s/  Barbara Woody                  |   |                                                               |
| Barbara  Woody                      |   | Vice  President, Admin. and Finance (Principal Accounting Officer) |
|                                |   |                                                               |
| /s/  Gary A. Chatham                |   |                                                               |
| Gary  A. Chatham                    |   | Director                                                           |
|                                |   |                                                               |
| /s/  William D. Maroney             |   |                                                               |
| William  D. Maroney                 |   | Director                                                           |
|                                |   |                                                               |
| /s/  Bertrand R. Williams, Sr. |   |                                                               |
| Bertrand  R. Williams, Sr.     |   | Director                                                           |

 

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**Exhibit Index**

 
| 3.1    | Second  Restated Certificate of Incorporation (Form 10-Q for the quarter ended  September 30, 2002)                                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                            |
| 3.2    | Certificate  of Correction to the Second Restated Certificate of Incorporation  (Form 10-K for year ended December 31, 2002.)                                                                         |
|   |                                                                                                                                                                                                            |
| 3.3    | Certificate  of Designation of Series B Preferred Stock (Form 10-K for year  ended December 31, 2002.)                                                                                           |
|   |                                                                                                                                                                                                            |
| 3.4    | Certificate  of Amendment to the Second Amended and Restated Certificate of Incorporation  dated May 12, 2005 (Form 10-Q for the quarter ended June 30,  2005)                                   |
|   |                                                                                                                                                                                                            |
| 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    | Promissory  Note issued to Texas State Bank dated February 9, 2005 (Form 10-K  for year ended December 31, 2004)                                                                                 |
|   |                                                                                                                                                                                                            |
| 4.4    | Deed  of Trust granted to Paul S. Moxley, Trustee for Texas State Bank, dated  February 9, 2005 (Form 10-K for year ended December 31, 2004)                                                     |
|   |                                                                                                                                                                                                            |
| 4.5    | Stock  Purchase Warrant dated April 11, 2006 for 2,300,000 shares issued to  Discus Holdings, Inc. (Form 10-KSB for year ended December 31,  2005)                                          |
|   |                                                                                                                                                                                                            |
| 4.6    | Put  and Call Option Agreement dated April 11, 2006 between Discus  Holdings, Inc. and American Medical Technologies, Inc.  (Form 10-KSB for year ended December 31, 2005)             |
|   |                                                                                                                                                                                                            |
| 4.7    | Registration  Rights Agreement dated April 11, 2006 between American Medical  Technologies, Inc. and Discus Holdings, Inc. (Form 10-KSB for  year ended December 31, 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   | American  Medical Technologies, Inc. 2005 Stock Option Plan (Form 10-Q for  the quarter ended June 30, 2005)                                                                                     |
|   |                                                                                                                                                                                                            |
| 10.5   | 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)         |
|   |                                                                                                                                                                                                            |
| 10.7   | Assignment  from Sunrise Technologies International, Inc. to Lares Research dated  June 24, 1997 (Form 10-K for year ended December 31, 1997)                                               |

 

49

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| 10.8   | Patent  License Agreement dated June 29, 1998 Prep-Technology Corp. and American  Medical Technologies, Inc. (Form 10-Q for quarter ended  June 30, 1998)                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                           |
| 10.9   | 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)                            |
|   |                                                                                                                                                                                                                           |
| 10.10  | Patent  licensing Agreement dated June 10, 1999 between American Medical Technologies, Inc.  and Kreativ, Inc. (Form 10-Q for quarter ended June 30, 1999)                                            |
|   |                                                                                                                                                                                                                           |
| 10.11  | 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)                            |
|   |                                                                                                                                                                                                                           |
| 10.12  | Exclusive  License Agreement dated April 11, 2006 between Discus  Holdings, Inc., Spectrum Dental, Inc. and American Medical  Technologies, Inc. (Form 10-KSB for year ended December 31,  2005) |
|   |                                                                                                                                                                                                                           |
| 10.13  | Manufacturing  Agreement dated April 11, 2006 between Westside Packaging, Inc. and  American Medical Technologies, Inc. (Form 10-KSB for year ended  December 31, 2005)                               |
|   |                                                                                                                                                                                                                           |
| 10.14  | Commercial  Contract — Improved Realty dated April 11, 2006 between American Medical  Technologies, Inc. and The Sepulveda Group, LLC (Form 10-KSB for  year ended December 31, 2005)                 |
|   |                                                                                                                                                                                                                           |
| 10.15  | Lease  dated April 11, 2006 between The Sepulveda Group, LLC and American  Medical Technologies, Inc. (Form 10-KSB for year ended  December 31, 2005)                                                      |
|   |                                                                                                                                                                                                                           |
| 10.16  | Standstill  Agreement dated February 1, 2007                                                                                                                                                                              |
|   |                                                                                                                                                                                                                           |
| 10.17  | First  Amendment to the Put and Call Option Agreement dated April 10, 2007                                                                                                                                                |
|   |                                                                                                                                                                                                                           |
| 10.18  | Employment  Agreement dated effective as of January 1, 2007, between American  Medical Technologies, Inc. and Judd D. Hoffman                                                                                        |
|   |                                                                                                                                                                                                                           |
| 21     | Subsidiaries  of the Registrant (Form 10-K for year ended December 31, 1999)                                                                                                                                         |
|   |                                                                                                                                                                                                                           |
| 31.1*  | Certification  of Judd D. Hoffman, President and Chief Executive Officer of the Company, as  required by Rule 13a-14(a).                                                                                                  |
|   |                                                                                                                                                                                                                           |
| 31.2*  | Certification  of Barbara Woody, principal accounting officer of the Company, as required by  Rule 13a-14(a).                                                                                                             |
|   |                                                                                                                                                                                                                           |
| 32*    | Certification  of Chief Executive Officer and of principal accounting officer of the  Company, as required by 18 U.S.C. Section 1350.                                                                                     |

 

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*             Filedherewith

 

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