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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K/AAmendment No. 2 to

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2001,

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

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AMERICAN MEDICAL TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)

DELAWARE

38-2905258(State or other jurisdiction of
incorporation or organization)

(I.R.S. employer
identification number)5555 Bear Lane,
 Corpus Christi, TX

78405(Address of principal executive offices)

Zip Code)


(361) 289-1145(Registrants telephone number, including area code)

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

Title of Each Class

Name of Exchange on which registeredNone

Not Applicable


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

Common Stock, $.04 par value per share(Title of Class)

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Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

The
aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $2,623,924 as of March 20, 2002, based upon the
last sales price reported on The Nasdaq National Market on that date. For purposes of this calculation only, all directors, executive officers and owners of more than ten percent of the registrant's
Common Stock are assumed to be affiliates. There were 6,862,348 shares of the registrant's Common Stock issued and outstanding on March 20, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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Forward Looking Statements

The Company makes forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission. The
Company may also make forward-looking statements in its press releases or other public shareholder communications. The Company's forward-looking statements are subject to risks and uncertainties and
include information about its expectations and possible or assumed future results of operations. When the Company uses any of the words "believes", "expects", "anticipates", "estimates" or similar
expressions, it is making forward-looking statements.

The
Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of its forward-looking
statements. While the Company believes that its forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date
made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the
Company's control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the following: the possible failure to
maintain the Company's ability to borrow under its line of credit, the potential inability of the Company to refinance the line of credit indebtedness currently in default prior to the expiration of
the bank's forbearance agreement and the other line of credit due in October of 2002, the Company's potential inability to hire and retain qualified sales and service personnel, the potential for an
extended decline in sales, the possible failure of revenues to offset additional costs associated with its new business model, the potential lack of product acceptance, the Company's potential
inability to introduce new products to the market, the potential failure of customers to meet purchase commitments, the potential loss of customer relationships, the potential failure to receive or
maintain necessary regulatory approvals, the extent to which competition may negatively affect prices and sales volumes or necessitate increased sales expenses, the failure of negotiations to conclude
OEM agreements or strategic alliances and the other risks and uncertainties set forth in this report.

Other
factors not currently anticipated by management may also materially and adversely affect the Company's results of operations. Except as required by applicable law, the Company does
not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

1

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PART II

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this
report. The discussion contains certain forward-looking statements relating to the Company's anticipated future financial condition and operating results and its current business plans. In the future,
the Company's financial condition and operating results could differ materially from those discussed herein and its current business plans could be altered in response to market conditions and other
factors beyond its control. Important factors that could cause or contribute to such differences or changes include those discussed elsewhere in this report. See the disclosures under "Item
1BusinessForward-Looking Statements."

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates
and assumptions that affect amounts reported in the accompanying consolidated financial statements and related footnotes. These estimates and assumptions are evaluated on an on-going basis
based on historical developments, market conditions, industry trends and other information the Company believes to be reasonable under the circumstances. There can be no assurance that actual results
will conform to the Company's estimates and assumptions, and that reported results of operations will not be materially adversely affected by the need to make accounting adjustments to reflect changes
in these estimates and assumptions from time to time. The following policies are those the Company believes to be the most sensitive to estimates and judgments. The Company's significant accounting
policies are more fully described in Note 1 to our consolidated financial statements.

Revenue Recognition

The
Company recognizes revenue when each of the following four criteria are met: 1) a contract or sales arrangement exists; 2) products have been shipped, and if necessary
installed, and title has been transferred or services have been rendered; 3) the price of the products or services is fixed or determinable; 4) no further obligation exists on the part
of the Company; and 5) collectibility is reasonably assured. The Company recognizes the related estimated warranty expense when title is transferred to the customer, generally upon shipment.
The Company recognizes revenue on certain sales to two of its international distributors under terms that require shipment to a local independent warehouse. The Company's policy is to include shipping
and handling costs, net of the related revenues, in costs of goods sold. Only the Company's Anthos dental chairs and its networked camera systems require installation and revenue is not recorded until
the installation is complete. There are no significant estimates or assumptions involved in determining the appropriate recognition of revenues.

Allowance for Doubtful Accounts

The Company evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific
customer's inability to meet its financial obligations (e.g., bankruptcy filings, substantial down-grading of credit scores), the Company records a specific reserve for bad debts against
amounts due to reduce the net recognized receivable to the amount reasonably believed to be collectible. For all accounts not specifically analyzed, the Company recognizes reserves for 80% of all
accounts over 90 days past due and 2% for all remaining accounts. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer's
ability to meet its financial obligations), the estimates of the recoverability of amounts due could be reduced by a material amount.

2

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InventoriesSlow Moving

The Company's reserve for slow moving inventory is evaluated periodically based on its current and projected sales and usage. The Company's inventory reserve is
calculated by comparing on hand quantities as of the measurement date to the prior twelve months' sales. The reserve calculation assumes that sales for each unit or part will not be less than sales
for the prior twelve months. If sales are significantly different than prior year's sales for the unit or part, the reserve could be materially impacted.    Changes to the reserves are
included in costs of goods sold and have a direct impact on the Company's financial position and results of operations. The reserve is calculated differently for finished units than it is for parts.
For finished units, in instances where the on hand quantity exceeds the prior twelve months' sales, the number of units by which the on hand quantity exceeds the prior twelve months' sales is 100%
reserved. For parts, when the on hand quantity exceeds the prior twelve months' sales and usage, the excess inventory is calculated by subtracting the greater of the prior twelve months' sales and
usage or a base quantity of 50 from the quantity on hand. This excess is then 100% reserved. The base quantity of 50 represents management's determination of the minimum quantity of parts
needed to fulfill its service, repair, and warranty obligations. All parts or units with less than twelve months of sales or usage history are excluded from the calculation.

Long Lived AssetsImpairment Testing

The Company evaluates its property, plant, and equipment for impairment whenever indicators of impairment exist. The Company follows the guidance of FASB
Statement No. 121Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
Statement No. 142Goodwill and Other Intangible Assets, and projects future cash flows for the related products and operating segments based on
management's best estimates of likely future sales, less costs of goods sold and selling expenses based on historical data and perceived trends in the industry. These results are then compared to the
recorded value of the related assets and intangibles and if less than the recorded value, am impairment charge is recognized. If actual results are significantly worse than management's estimates, the
Company could be required to recognize an impairment, which could have a material adverse effect on its financial position and results of operations.

Results of Operations

For the year ended December 31, 2001, the Company's revenues decreased 26% compared to 2000. This decrease in revenues was primarily due to a 59% decrease
in international revenues due to the expiration of a sales agreement with the Company's Japanese distributor. Our Japanese distributor opted not to renew this agreement indicating that it had too much
product in stock. The Company is currently seeking new distributor partners in Japan, however, due to adverse economic conditions in Japan, we have been unable to engage a new distributor. In 2000 and
1999, sales to this distributor represented 21% and 19% of total revenues, respectively. If the Company is unable to engage a new Japanese distributor, it could lose sales of approximately
$1 million in fiscal year 2002. The decrease in revenues is also attributable to a decline in attendance at dental trade shows subsequent to the September 11th terrorist attacks. The
overall decline in revenues in 2001 is attributable to all product lines, with the largest revenue decreases in the dental laser, intra-oral camera and plasma arc curing lines. These three
product lines posted revenue declines in 2001 of approximately $2.5 million, $1.3 million, and $1.1 million, respectively. The Company's parts and service revenues continued to
increase in 2001, growing by approximately $500,000. The introduction of the Anthos Systems dental chairs added approximately $250,000 to revenues in 2001. As of March 25, 2002, the Company had
backlog orders of more than $320,652 for the Anthos System dental chairs and more than $726,295 for the Cavilase laser. The Cavilase is in its final stages of development and the Company cannot
predict when it will begin filling these orders.

For
the year ended December 31, 2000, the Company's revenues decreased 18% compared to 1999. This decrease in revenues was primarily due to a 38% decrease in revenues in the
United States. The decrease in domestic revenues was primarily due to lower revenues during the transition to the new business model. The new business model attempted to address declining sales and
the sale of competitive products by our distributors. The general decline in revenues in 2000 is the result of significant revenue declines in the Company's plasma arc curing, intra-oral
camera and air abrasion product lines. These three product lines generated revenue declines in 2000 of approximately

3

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$3.9 million, $2.5 million, and $2.2 million, respectively. The decline in air abrasion revenues is due to the continued decline in the air abrasion market and the declines in
plasma arc curing and intra-oral cameras are a result of the change in business model as these items are more commodity-like items,
which dealers sold well. These declines were partially offset by increases in dental laser and parts and service revenues. Dental laser revenues increased by approximately $3.5 million as the
market acceptance and popularity of these products continue to increase. Parts and service revenues increased approximately $500,000 due to the establishment of the sales and service centers
throughout the U.S.

Gross
profit as a percentage of revenues was 42% for the year ended December 31, 2001, compared to 45% in 2000 and 48% in 1999. The decrease in gross margin in 2001 compared to
2000 is the result of the decline in sales, which resulted in an increase in the reserve for slow moving inventory of approximately $588,000 in 2001, and increased discounting domestically subsequent
to the September 11th terrorist attacks. The decrease in gross profit as a percentage of revenues in 2000 was due to the Company increasing its reserve for slow-moving
inventory in response to the decline in the air abrasion and camera markets.

Selling,
general and administrative expenses were $9,195,306 in 2001, $21,226,253 in 2000 and $10,772,746 in 1999. The amount of expenses in 2000 reflects non-cash impairment
charges and charges related to demonstration inventory units. In 2000, the continued decline in sales of the Company's KCP and camera units, and the underperformance of the dental probe units, served
as indicators of impairment for certain intangible assets associated with the previous acquisitions of Texas Airsonics, Inc., Dental Vision Direct, Inc., and Dental Probe, Inc.
Texas Airsonics, Inc. was the inventor and manufacturer of the Company's KCP units prior to the merger of the two companies in 1996 and certain of our officers and directors were officers and
directors of Texas Airsonics, Inc. Following the guidance of FASB Statement No. 121Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company projected future cash flows for these products based on management's best estimates of likely future sales, less
costs of goods sold and selling expenses. The undiscounted future cash flows were less than the recorded value of the assets related to these product lines, indicating impairment existed. To determine
the amount of the impairment, the fair value of the related assets was determined by comparing the future cash flows discounted at a rate of 8% to the fair value of the related long-lived
assets based on current market selling prices of similar equipment. The Company recorded an impairment of approximately $9.2 million, of which approximately $4.4 milllion related to the Texas
Airsonics, Inc. merger, to reduce the carrying value of the long-lived assets associated with the aforementioned acquisitions to the fair value of those assets. This impairment
expense is included in selling, general and administrative expenses on the statement of operations in 2000.

In
addition, as part of the transition in its business model in 2000, the Company decided to discontinue its demonstration unit sales initiative. This change resulted in the Company
disposing of approximately $1.2 million in demonstration units that had been on loan to sales personnel, universities, and prospective customers that were no longer deemed salable. This charge
was included in selling, general and administrative expenses in 2000.

The
decrease in 2001 compared to 2000 reflects the non-recurring nature of the items described above and reduced expenses resulting from the reorganization of the sales and
service centers, which resulted in 2001 selling, general and administrative expenses declining 15% compared to 2000, after elimination of the effects of the non-recurring items described
above. The increase in 2000 compared to 1999 was almost entirely attributable to the non-recurring items.

Research
and development expenses were $796,424 in 2001, $966,382 in 2000, and $931,189 in 1999. The expenditures related primarily to the development of new products and enhancements to
current products. The decrease in 2001 reflects the substantial completion of two major projects in 2001, the
Cavilase and the Anthos System dental chairs and units. Historically, research and development expenses have been higher in the earlier stages of product development than in the finishing stages.

Non-recurring
license transfer fees of $665,000 were received in 1999. These related to the licensing agreement with ESC Medical Systems, Ltd. for $300,000, a
licensing agreement with Chart-It for $65,000 and the $300,000 Kreativ patent litigation settlement.

4

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Other
income was $118,237 in 2001, $83,773 in 2000, and $857,116 in 1999. The decrease in 2000 from 1999 is primarily due to non-recurring items in 1999 such as the receipt
of the Kreativ lawsuit settlement payment of $580,000 and a gain on the sale of the Michigan building of $180,000.

Interest
expense was $158,909 in 2001, $322,475 in 2000, and $401,438 in 1999. The steady decrease in interest expense is due to the reduction of the outstanding debt and, in 2001
declining interest rates.

In
2001, the Company had no income tax expense. In 2000, the Company recorded a $4,744,000 charge for income tax. The Company's income taxes at U.S. statutory rates, differs from its
recorded income tax expense primarily due to nondeductible goodwill amortization. With the loss incurred in 2000 and the continued downturn in the dental products industry, uncertainties exist as to
the future realization of the deferred tax asset under the criteria set forth under FASB Statement No. 109. Therefore, the Company re-established the tax asset valuation allowance,
which resulted in a non-cash tax expense of approximately $5.7 million in 2000. At December 31, 2001, the Company had approximately $15.4 million of net operating loss
carryforwards. These net operating loss carryforwards expire in various amounts in the years 2006 through 2021.

Liquidity and Capital Resources

The Company's operating activities used $130,332 in cash resources in 2001. Cash used by operating activities in 2001 was due largely to the net loss of
$3,978,259 and the increase in inventory of $988,914. This increase was due to the Company building inventory to prepare for the fall trade shows, as the fourth quarter is typically the Company's
highest sales volume quarter. After the September 11, 2001 terrorist attacks, several trade shows were canceled and those that were not canceled had significant declines in attendance. As a
result, the Company has more inventory on hand that it would have normally anticipated. Operating cash flows were reduced by the decrease in accounts receivable of $2,095,015, the increase in accounts
payable of $1,119,524, and non-cash expenses such as depreciation and amortization. Accounts receivable has steadily decreased due to the change to selling direct rather than through
dealers and the decline in international sales. The direct sales are often paid for using cash, credit cards, or through outside financing rather than the open account terms offered to the dealers.
The increase in payables is due to the Company's decreased cash flows in the fourth quarter.

The
Company's investing activities provided $35,100 in cash resources in 2001. The cash provided by investing activities in 2001 related primarily to collections on notes receivable,
reduced by purchases of property and equipment.

The
Company's financing activities used $868,944 in cash resources in 2001, representing amounts used to reduce borrowings on the Company's lines of credit by a net amount of $540,925
and to repurchase the Company's common stock.

In
2000 and 2001, after comparing the book value of the Company's shares of its common stock to the trading price, the Company's Board of Directors authorized and implemented a stock
repurchase program pursuant to which it would repurchase up to $1 million of its common stock. At the time of authorization, the Company was generating cash flows and the Board of Directors
perceived the repurchase program to be in the best interests of the Company. During 2001, the Company repurchased 219,749 shares of its common stock, representing approximately $328,000 of the
$1 million repurchase authorized by the Board of Directors. The repurchased shares constitute approximately 3% of the total number of shares of common stock currently outstanding. As sales
continued to decline and cash flow became a concern, the Board of Directors decided to cease repurchasing shares. The last date shares of common stock were repurchased by the Company was
July 17, 2001.

During
2001, the Company had a $7,500,000 revolving line of credit from a bank which was to expire in September 2002. The Company's borrowings under that line are secured by a
pledge of the Company's accounts receivable, inventory, equipment, instruments, patents, copyrights and trademarks.

The
Company was not in compliance with one of the financial covenants in the agreement as of September 30, 2001, and was in default. The covenant required the Company to maintain
a ratio of EBITDA, as defined in the agreement, to debt service, as defined in the agreement, of not less than 2 to 1 for the most recent twelve months. Due to the net loss sustained over the previous
twelve months,

5

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the Company did not meet this covenant. On November 6, 2001, the Company and the bank signed a Forbearance Agreement that increases the interest rate on the outstanding borrowings to the prime
rate plus 4%, forbids additional borrowings, grants the bank a second mortgage on the Company's real property, and requires the bank to forego the exercise of its legal remedies until
December 20, 2001. The Forbearance Agreement was amended to extend the termination date to September 15, 2002, in order to give the Company additional time to secure a suitable
replacement for the credit facility. Under the terms of the Forbearance Agreement, the Company will make principal payments of $30,000 per month beginning on April 15, 2002. Starting on
July 15, 2002, the monthly principal payment will increase to $40,000. Monthly interest payments are also required. The Company is currently working with Mr. Stephen Fisher, an
independent consultant, to acquire a new credit facility to refinance the existing debt. Mr. Fisher is paid as he incurs time and expenses on the Company's behalf, and is further entitled to a
success fee once the Company is able to refinance the existing debt. The Forbearance Agreement also requires the Company to submit monthly financial statements to the Bank and that the Company
maintain a minimum tangible net worth, defined as net assets less intangibles, of at least $4.5 million. Should the new credit facility not be in place by September 15, 2002, the Company
will be forced to pay a $50,000 penalty and the bank will have the right to accelerate the outstanding indebtedness and exercise its remedies under the related legal documents. As of
December 31, 2001, the outstanding principal on this line of credit is $1,745,656 and the Company was in compliance with all terms of the forbearance agreement.

On
October 3, 2001, in order to obtain working capital, the Company entered into a $750,000 line of credit with ValueBank Texas and the U.S. Small Business Administration. The
loan is secured by a primary lien on the Company's building and real property and is personally guaranteed by Ben Gallant, the Company's Chairman and Chief Executive Officer. The loan expires on
October 3, 2002 and bears
interest at the prime rate plus 2%. As of December 31, 2001, the outstanding principal on this line of credit is $213,419.

The
Company's independent auditors have expressed substantial doubt about the Company's ability to continue as a going concern. While the Company believes that it will be successful in
refinancing the defaulted line of credit, there can be no assurance that the Company will be able to accomplish this. If the Company is unable to refinance the line of credit it intends to explore
other sources of financing which may include the sale of equity or debt securities to private investors. The Company's ability to continue operations is dependent on its ability to successfully
refinance the defaulted line of credit or obtain a sufficient amount of additional financing to repay the outstanding indebtedness and provide additional working capital. While the Company expects to
be able to refinance the defaulted line of credit or otherwise obtain such additional financing, there is no assurance that the Company will be successful in doing so. The Company anticipates that it
can continue operations only through the current fiscal year if it is unable to refinance the defaulted line of credit or obtain additional financing. If the Company is not able to repay the
outstanding indebtedness on the lines of credit and the banks enforce their security interest in the Company assets securing the debt, the Company may be forced to cease operations.

New Accounting Standards and Disclosures

In July 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations" ("FASB 141"), and Statement No. 142,
"Goodwill and Other Intangible Assets" ("FASB 142"). FASB 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FASB 142,
goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment applying a fair-value based test.
Additionally, any acquired intangible assets should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. Amortization expense related to goodwill was approximately $368,000, $476,000 and $1,077,000 in
2001, 2000 and 1999, respectively. The Company adopted both statements on January 1, 2002.

The
FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001. FASB 144 supersedes FASB 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and other related accounting guidance. FASB 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this statement generally are to be
applied prospectively. The adoption of this pronouncement is not expected to have a material effect on earnings or the consolidated financial position of the Company.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Auditors

Stockholders
and Board of Directors
American Medical Technologies, Inc.

We
have audited the accompanying consolidated balance sheets of American Medical Technologies, Inc. as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Medical
Technologies, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects the information set forth therein.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company was in technical default on certain financial covenants in connection with its line of credit. The Company and its bank have entered into a forbearance agreement,
under which the bank has agreed not to exercise its remedies under the defaulted line of credit until September 15, 2002. Accordingly, the entire amount outstanding under the line of credit of
approximately $1,750,000 has been classified as a current liability in the accompanying consolidated financial statements. Management's plans in regard to these matters are described in Note 1
to the consolidated financial statements. These matters raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any
adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this
uncertainty.



San
Antonio, Texas
March 1, 2002

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American Medical Technologies, Inc.  Consolidated Statements of Operations

|                                              |                       | Year Ended December 31 |           
|--------------------------------------------- | --------------------- | ---------------------- | ----------
|
|Revenues                                      |                       | $                      | 14,473,051
|Royalties                                     |                       |                        | 215,635   
|                                              |                       |                        |           
|                                              |                       |                        | 14,688,686
|Cost of sales                                 |                       |                        | 8,634,543 
|                                              |                       |                        |           
|Gross profit                                  |                       |                        | 6,054,143 
|Selling, general and administrative           |                       |                        | 9,195,306 
|Research and development                      |                       |                        | 796,424   
|                                              |                       |                        |           
|Income (loss) from operations                 |                       |                        | (3,937,587
|Other income (expense)                        |                       |                        |           
|                                              | License transfer fees |                        |           
|                                              | Other income          |                        |           
|                                              | Interest expense      |                        |           
|                                              |                       |                        |           
|Income (loss) before income taxes             |                       |                        | (3,978,259
|Income tax (benefit) expense                  |                       |                        |          
|                                              |                       |                        |           
|Net income (loss)                             |                       | $                      | (3,978,259
|                                              |                       |                        |           
|Net income (loss) per share                   |                       | $                      | (0.57     
|                                              |                       |                        |           
|Net income (loss) per share assuming dilution |                       | $                      | (0.57     
|                                              |                       |                        |           

See
accompanying notes.

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American Medical Technologies, Inc.  Consolidated Balance Sheets

|                                           |                                                                                                                                 | December 31 |           
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------
|
|ASSETS                                     |                                                                                                                                 |             |           
|Current assets:                            |                                                                                                                                 |             |           
|                                           | Cash                                                                                                                            |             | $         
|                                           | Accounts receivable, less allowance of $176,000 in 2001 and $230,000 in 2000                                                    |             |           
|                                           | Inventories                                                                                                                     |             |           
|                                           | Prepaid expenses and other current assets                                                                                       |             |           
|                                           | Notes receivable                                                                                                                |             |           
|                                           |                                                                                                                                 |             |           
|Total current assets                       |                                                                                                                                 |             | 9,345,819 
|Property and equipment, net                |                                                                                                                                 |             | 2,090,970 
|Intangible assets, net:                    |                                                                                                                                 |             |           
|                                           | Goodwill                                                                                                                        |             |           
|                                           | Other                                                                                                                           |             |           
|                                           |                                                                                                                                 |             |           
|                                           |                                                                                                                                 |             | 2,759,641 
|Total assets                               |                                                                                                                                 | $           | 14,196,430
|                                           |                                                                                                                                 |             |           
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                 |             |           
|Current liabilities:                       |                                                                                                                                 |             |           
|                                           | Accounts payable                                                                                                                |             | $         
|                                           | Compensation and employee benefits                                                                                              |             |           
|                                           | Other accrued liabilities                                                                                                       |             |           
|                                           | Current notes payable                                                                                                           |             |           
|                                           |                                                                                                                                 |             |           
|Total current liabilities                  |                                                                                                                                 |             | 5,491,964 
|Other non-current liabilities              |                                                                                                                                 |             | 78,048    
|Notes payable                              |                                                                                                                                 |             |          
|Stockholders' equity:                      |                                                                                                                                 |             |           
|                                           | Preferred stock, $.01 par value, authorized 10,000,000 shares; none outstanding                                                 |             |           
|                                           | Common stock, $.04 par value, authorized 12,500,000 shares; outstanding: 6,862,348 shares in 2001; and 7,081,097 shares in 2000 |             |           
|                                           | Additional paid-in capital                                                                                                      |             |           
|                                           | Warrants and options                                                                                                            |             |           
|                                           | Accumulated deficit                                                                                                             |             |           
|                                           | Foreign currency translation                                                                                                    |             |           
|                                           |                                                                                                                                 |             |           
|Total stockholders' equity                 |                                                                                                                                 |             | 8,626,418 
|                                           |                                                                                                                                 |             |           
|Total liabilities and stockholders' equity |                                                                                                                                 | $           | 14,196,430
|                                           |                                                                                                                                 |             |           

See
accompanying notes.

9

---



American Medical Technologies, Inc.  Consolidated Statements of Cash Flows

|                                                    |                                                                                                    | Year ended December 31                    |           
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------- | ----------
|
|OPERATING ACTIVITIES                                |                                                                                                    |                                           |           
|Net income (loss)                                   |                                                                                                    | $                                         | (3,978,259
|                                                    | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                           |           
|                                                    |                                                                                                    | Depreciation                              |           
|                                                    |                                                                                                    | Amortization                              |           
|                                                    |                                                                                                    | Impairment of intangible assets           |           
|                                                    |                                                                                                    | Deferred taxes                            |           
|                                                    |                                                                                                    | Provision for slow-moving inventory       |           
|                                                    |                                                                                                    | Provision for doubtful accounts           |           
|                                                    |                                                                                                    | Net (gain) loss on disposal of assets     |           
|                                                    | Changes in operating assets and liabilities:                                                       |                                           |           
|                                                    |                                                                                                    | Accounts receivable                       |           
|                                                    |                                                                                                    | Inventories                               |           
|                                                    |                                                                                                    | Prepaid expenses and other current assets |           
|                                                    |                                                                                                    | Accounts payable                          |           
|                                                    |                                                                                                    | Compensation and employee benefits        |           
|                                                    |                                                                                                    | Other accrued liabilities                 |           
|                                                    |                                                                                                    | Other non-current liabilities             |           
|                                                    |                                                                                                    |                                           |           
|Net cash provided by (used in) operating activities |                                                                                                    |                                           | (130,332  
|INVESTING ACTIVITIES                                |                                                                                                    |                                           |           
|Purchases of property, plant & equipment            |                                                                                                    |                                           | (130,821  
|Proceeds from sales of assets                       |                                                                                                    |                                           | 1,300     
|Collections on notes receivable                     |                                                                                                    |                                           | 224,785   
|Increase in intangible assets                       |                                                                                                    |                                           | (60,164   
|                                                    |                                                                                                    |                                           |           
|Net cash provided by (used in) investing activities |                                                                                                    |                                           | 35,100    
|FINANCING ACTIVITIES                                |                                                                                                    |                                           |           
|Payments on note payable                            |                                                                                                    |                                           | (754,344  
|Proceeds from note payable                          |                                                                                                    |                                           | 213,419   
|Repurchase of common stock                          |                                                                                                    |                                           | (328,019  
|Proceeds from exercise of stock options             |                                                                                                    |                                           |          
|                                                    |                                                                                                    |                                           |           
|Net cash used in financing activities               |                                                                                                    |                                           | (868,944  
|                                                    |                                                                                                    |                                           |           
|Increase (decrease) in cash                         |                                                                                                    |                                           | (964,176  
|Effect of exchange rates on cash                    |                                                                                                    |                                           | (5,904    
|                                                    |                                                                                                    |                                           |           
|Increase (decrease) in cash                         |                                                                                                    |                                           | (970,080  
|Cash at beginning of year                           |                                                                                                    |                                           | 1,549,747 
|                                                    |                                                                                                    |                                           |           
|Cash at end of year                                 |                                                                                                    | $                                         | 579,667   
|                                                    |                                                                                                    |                                           |           

See
accompanying notes.

10

---



American Medical Technologies, Inc  Consolidated Statements of Stockholders' Equity

|                             |                                                | Common Stock         |          |   |         |         |   |            |          |   |         |        |  
|---------------------------- | ---------------------------------------------- | -------------------- | -------- | - | ------- | ------- | - | ---------- | -------- | - | ------- | ------ | -
|
|
|Balance at December 31, 1998 |                                                | 7,419,259            |          | $ | 296,773 |         | $ | 42,359,016 |          | $ | 772,500 |        | $
|                             | Net income for 1999                            |                      |          |   |         |         |   |            |          |   |         |        |  
|                             | Foreign currency translation                   |                      |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                | Comprehensive income |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|                             | Exercise of stock options                      |                      | 12,788   |   |         | 512     |   |            | 42,391   |   |         |        |  
|                             | Issuance of common stock for intangible assets |                      |          |   |         |         |   |            |          |   |         | 28,500 |  
|                             | Repurchase of common stock                     |                      | (64,200  | ) |         | (2,568  | ) |            | (88,771  | ) |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|Balance at December 31, 1999 |                                                | 7,367,847            |          |   | 294,717 |         |   | 42,312,636 |          |   | 801,000 |        |  
|                             | Net loss for 2000                              |                      |          |   |         |         |   |            |          |   |         |        |  
|                             | Foreign currency translation                   |                      |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                | Comprehensive loss   |          |   |         |         |   |            |          |   |         |        |  
|                             | Repurchase of common stock                     |                      | (286,750 | ) |         | (11,470 | ) |            | (378,028 | ) |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|Balance at December 31, 2000 |                                                | 7,081,097            |          |   | 283,247 |         |   | 41,934,608 |          |   | 801,000 |        |  
|                             | Net loss for 2001                              |                      |          |   |         |         |   |            |          |   |         |        |  
|                             | Foreign currency translation                   |                      |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|                             |                                                | Comprehensive loss   |          |   |         |         |   |            |          |   |         |        |  
|                             | Repurchase of common stock                     |                      | (218,749 | ) |         | (8,750  | ) |            | (319,266 | ) |         |        |  
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  
|Balance at December 31, 2001 |                                                | 6,862,348            |          | $ | 274,497 |         | $ | 41,615,342 |          | $ | 801,000 |        | $
|                             |                                                |                      |          |   |         |         |   |            |          |   |         |        |  

See accompanying notes.

11

---



Notes to Consolidated Financial Statements  December 31, 2001

1.    Organization and Significant Accounting Policies

Principles of Consolidation

American Medical Technologies, Inc. (the "Company") develops, manufactures, markets and sells high technology products primarily for dentistry. The
consolidated financial statements include the accounts and operations of the Company and its subsidiary. All intercompany transactions and balances have been eliminated.

Going Concern

The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. As discussed in Note 3, the Company has a line of credit with Bank One (the "Bank"). The line of credit agreement
contains covenants that, among other things, require maintenance of certain financial ratios. The covenants are required to be calculated at the end of each quarter.

The
Company was not in compliance with some of the financial covenants in the agreement as of September 30, 2001, and was in default. On November 6, 2001, the Company and
the bank signed a Forbearance Agreement that increases the interest rate on the outstanding borrowings to the prime rate plus 4%, forbids additional borrowings, grants the bank a second mortgage on
the Company's real property, and requires the bank to forego the exercise of its legal remedies until December 20, 2001. The Forbearance Agreement was amended to extend the termination date to
September 15, 2002, in order to give the Company additional time to secure a suitable replacement for the credit facility.
Under the terms of the Forbearance Agreement, the Company will make principal payments of $30,000 per month beginning on April 15, 2002. Starting on July 15, 2002, the monthly principal
payment will increase to $40,000. Monthly interest payments are also required. The Company is currently working with an independent consultant to acquire a new credit facility to refinance the
existing debt. The Forbearance Agreement also requires the Company to submit monthly financial statements to the Bank and that the Company maintain a minimum tangible net worth, defined as net assets
less intangibles, of at least $4.5 million. Should the new credit facility not be in place by September 15, 2002, the Company will be forced to pay a $50,000 penalty and the bank will
have the right to accelerate the outstanding indebtedness and exercise its remedies under the related legal documents. As of December 31, 2001, the outstanding principal on this line of credit
is $1,745,656.

While
the Company believes that it will be successful in refinancing the defaulted line of credit, there can be no assurance that the Company will able accomplish this. If the Company is
unable to refinance the line of credit it intends to explore other sources of financing which may include the sale of equity or debt securities to private investors. While the Company expects to be
able to refinance the defaulted line of credit or otherwise obtain additional financing, there is no assurance that management will be successful in its efforts. The Company's ability to operate as a
going concern is dependent on its ability to successfully negotiate a new credit facility or find other sources of financing. (See Note 3)

12

---

Inventories

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

2001

2000Finished goods

$
2,719,012

$
1,277,189Raw materials, parts and supplies


4,463,768


5,619,968$
7,182,780

$
6,897,157


Inventories at December 31, 2001 and 2000 are net of valuation allowances of $2,273,039 and $1,685,013, respectively. The increase in the
valuation allowance for 2002 is attributable to the recent decline in sales which resulted in uncertainty as to whether or not significant portions of the Company's inventory costs will be
recoverable.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated
useful lives of the related assets, which range from three to thirty-nine years. At December 31, property and equipment consisted of the following:

2001

2000Building and improvements

$
1,567,939

$
1,561,219Machinery and equipment


1,446,614


1,357,287Office furniture and computers


864,522


843,140Vehicles


119,316


118,1443,998,391


3,879,790Accumulated depreciation


(1,907,421
)

(1,489,839
)$
2,090,970

$
2,389,951


Revenue Recognition

The Company recognizes revenue when each of the following four criteria are met: 1) a contract or sales arrangement exists; 2) products have been
shipped, and if necessary installed, and title has been transferred or services have been rendered; 3) the price of the products or services is fixed or determinable; 4) no further
obligation exists on the part of the Company; and 5) collectibility is reasonably assured. The Company recognizes the related estimated warranty expense when title is transferred to the
customer, generally upon shipment. The Company recognizes revenue on certain
sales to two of its international distributors under terms that require shipment to a local independent warehouse. The Company's policy is to include shipping and handling costs, net of the related
revenues, in costs of goods sold. Only the Company's Anthos dental chairs and its networked camera systems require installation and revenue is not recorded until the installation is complete. There
are no significant estimates or assumptions involved in determining the appropriate recognition of revenues.

Intangible Assets

Intangible assets consist of goodwill, patents, distribution rights and other intangibles and are stated at cost less accumulated amortization. The Company
amortized goodwill over periods ranging from 15 to 25 years, patents and distribution agreements over their respective lives, and other intangible assets over lives ranging from 5 to
17 years. Accumulated amortization was $3,544,828 and $3,097,675 at December 31, 2001 and 2000, respectively.

The
Company periodically evaluates intangible assets for indicators of impairment in value. When impairment is indicated, the Company revalues the assets based on their estimated fair
value. In 2000,

13

---

the continued decline in sales of the Company's KCP and camera units, and the underperformance of the dental probe units, served as indicators of impairment for certain intangible assets associated
with the previous acquisitions of Texas Airsonics, Inc., Dental Vision Direct, Inc., and Dental Probe, Inc. Following the guidance of FASB Statement No. 121 Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, the Company projected future
cash flows for these products based on management's best estimates of likely future sales, less costs of goods sold and selling expenses. The undiscounted future cash flows were less than the recorded
value of the assets related to these product lines, indicating impairment existed. To determine the amount of the impairment, the fair value of the related assets was determined by comparing the
future cash flows discounted at a rate of 8% to the fair value of the related long-lived assets based on current market selling prices of similar equipment. The Company recorded an
impairment of approximately $9.2 million to reduce the carrying value of the long-lived assets associated with the aforementioned acquisitions to the fair value of those assets.
This impairment expense is included in Selling General and Administrative Expenses on the Statement of Operations. In the fourth quarter of 2001, the Company decided not to enter the digital dental
x-ray market. The Company had previously purchased the rights to a digital dental x-ray technology for $252,500. With the decision not to enter the digital dental
x-ray market at this time, the unamortized balance of $213,181 related to this asset was determined to be impaired.

Net Income Per Share

The following table sets forth the computation for basic and diluted earnings per share:

2001

2000

1999Numerator:Net income (loss)

$
(3,978,258
)
$
(18,403,470
)
$
391,606Numerator for basic and diluted earnings per shareincome available to common stockholders after assumed conversions

$
(3,978,258
)
$
(18,403,470
)
$
391,606Denominator:Denominator for basic earnings per shareweighted-average shares


6,923,347


7,284,443


7,424,433Effect of dilutive securities:Employee stock options








21,736Warrants








Dilutive potential common sharesDenominator for diluted earnings per shareadjusted weighted-average shares after assumed conversions


6,923,347


7,284,443


7,446,169Net income (loss) per share

$
(.57
)
$
(2.53
)
$
0.05Net income (loss) per share assuming dilution

$
(.57
)
$
(2.53
)
$
0.05


Comprehensive Income (Loss)

The Financial Accounting Standards Board's Statement 130,Reporting Comprehensive Incomerequires foreign currency
translation adjustments to be included, along with net income, in comprehensive income. For 2001, 2000, and 1999 the Company's Comprehensive Income (Loss) was ($4,047,433), ($18,627,018), and
$229,017, respectively.

The
components of Accumulated Other Comprehensive Income (Loss) are as follows:

2001

2000

1999Foreign currency translation adjustments

$
(69,174
)
$
(223,548
)
$
(162,589
)Accumulated other comprehensive income

$
(561,068
)
$
(491,894
)
$
(268,346
)


14

---

Translation of non-U.S. currency amounts

For non-U.S. subsidiaries that operate in a local currency environment, assets and liabilities are translated to U.S. dollars at the current exchange
rates at the balance sheet date. Income and expense items are translated at average rates of exchange prevailing during the year. Translation adjustments are accumulated in a separate component of
stockholders' equity.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees with an exercise price no less than the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No. 25,Accounting for Stock Issued to Employees,and, accordingly,
recognizes no compensation expense for the stock option grants.

Advertising

The Company expenses advertising costs as incurred. Advertising expense approximated $417,000, $867,000, and $1,544,000 in 2001, 2000 and 1999, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The fair value of the Company's cash, accounts receivable, note receivable and accounts payable approximates their carrying value due to their short term nature.
The fair value of the Company's notes payable to the bank approximates its carrying value due to the variable interest rate and the excess of collateral security. The notes have a total outstanding
balance of $1.96 million and are secured by the Company's real property, inventory, equipment, accounts receivable, and other assets.

New Accounting Standards and Disclosures

In July 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations" ("FASB 141"), and Statement No. 142,
"Goodwill and Other Intangible Assets" ("FASB 142"). FASB 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FASB 142,
goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment applying a fair-value based test.
Additionally, any acquired intangible assets should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. Amortization expense related to goodwill was approximately $368,000, $476,000 and $1,077,000 in
2001, 2000 and 1999, respectively. The Company adopted both statements on January 1, 2002.

The
FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001. FASB 144 supersedes FASB 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and other related accounting guidance. FASB 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this statement generally are to be
applied prospectively. The adoption of this pronouncement is not expected to have a material effect on earnings or the consolidated financial position of the Company.

15

---

2.    Agreements with Related Parties

Denics Co., Ltd.

In December 1999, the Company agreed to convert $675,000 of outstanding accounts receivable from Denics to a note receivable, with interest payable at
8.5%, due February 2001. The note was paid in full in 2001.

Denics
previously owned 4.89% of the Company's common stock and had warrants to acquire an additional 1.43% of the Company's common stock. These warrants expired in 1999 without being
exercised and Denics is no longer considered a "related party." Accordingly, trade sales and accounts receivable balances with Denics are no longer presented as a "related party" on the face of the
financial statements for all periods presented to provide consistent disclosure.

3.    Line of Credit and Other Non-Current Liabilities

During
2001, the Company had a $7,500,000 revolving line of credit from a bank which was to expire in September 2002. The Company's borrowings under that line are secured by a
pledge of the Company's accounts receivable, inventory, equipment, instruments, patents, copyrights and trademarks.

The
Company was not in compliance with some of the financial covenants in the agreement as of September 30, 2001, and was in default. On November 6, 2001, the Company and
the bank signed a Forbearance Agreement that increases the interest rate on the outstanding borrowings to the prime rate plus 4%, forbids additional borrowings, grants the bank a second mortgage on
the Company's real property, and requires the bank to forego the exercise of its legal remedies until December 20, 2001. The Forbearance Agreement was amended to extend the termination date to
September 15, 2002, in order to give the Company additional time to secure a suitable replacement for the credit facility. Under the terms of the Forbearance Agreement, the Company will make
principal payments of $30,000 per month beginning on April 15, 2002. Starting on July 15, 2002, the monthly principal payment will increase to $40,000. Monthly interest payments are also
required. The Company is currently working with an independent consultant to acquire a new credit facility to refinance the existing debt. The Forbearance Agreement also requires the Company to submit
monthly financial statements to the Bank
and that the Company maintain a minimum tangible net worth, defined as net assets less intangibles, of at least $4.5 million. Should the new credit facility not be in place by
September 15, 2002, the Company will be forced to pay a $50,000 penalty and the bank will have the right to accelerate the outstanding indebtedness and exercise its remedies under the related
legal documents. As of December 31, 2001, the outstanding principal on this line of credit is $1,745,656.

On
October 3, 2001, in order to obtain working capital, the Company entered into a $750,000 line of credit with ValueBank Texas and the U.S. Small Business Administration. The
loan is secured by a primary lien on the Company's building and real property and is personally guaranteed by Ben Gallant, the Company's Chairman and Chief Executive Officer. The loan expires on
October 3, 2002 and bears interest at the prime rate plus 2%. As of December 31, 2001, the outstanding principal on this line of credit is $213,419.

The
Company leases certain manufacturing equipment under capital leases. Equipment related to capital leases had a total cost of $286,179 and $489,179 and accumulated depreciation of
$205,096 and $311,560 at December 31, 2001 and 2000, respectively. Amortization related to assets held under capital leases is included in depreciation expense. The Company leases office space,
vehicles, and office

16

---

machines under operating leases. Future minimum lease payments under capital and operating leases as of December 31, 2001 are as follows:

Year

Operating
Leases

Capital
Leases2002

$
351,687

$
79,0662003


122,334


47,7772004


23,908


$
497,929


126,843Less amount representing interest





(12,174
)$
114,669


Capital
lease obligations at December 31, 2001 consisted of the following:

Current portion

$
69,347Non-current portion


45,322Total capital lease obligations

$
114,669


Rental
expense for operating leases in 2001, 2000 and 1999 approximated $497,000, $344,000, and $94,000, respectively.

The
Company paid interest of approximately $170,000, $322,000 and $401,000 in 2001, 2000 and 1999, respectively.

4.    Stockholders' Equity, Stock Options and Warrants

The
Company has authorized three stock option plans for employees, officers, directors, consultants and other key personnel. As of December 31, 2001, the Nonqualified Stock Option
Plan has 287,500 shares reserved, 59,336 shares available for issuance and 189,127 shares outstanding; the Long-Term Incentive Plan has 625,000 shares reserved, 88,062 shares available for
issuance and 466,052 shares outstanding; and the Stock Option Plan for Employees has 17,405 shares reserved, 2,401 shares available and 13,536 shares outstanding.

The
Company also authorized and granted 81,392 stock options exclusive of the above described plans, none of which were ever exercised prior to their expiration in 2000.

The
Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting
for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

Pro
forma information regarding net income and earnings per share is required by Statement 123 and has been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 2000 and 2001, respectively: risk-free interest rate of 6.5%, 6.5%, and 4.4%; dividend yield of 0%; volatility factors of the expected market price of the Company's
common stock of 1.437, .771 and .913 and a weighted-average expected life of the option of five years.

17

---

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For
purposes of pro forma disclosures, the estimated fair value of the option is amortized to expense over the options' vesting period. The Company's pro forma information follows:

2001

2000

1999Pro forma net income (loss)

$
(3,994,931
)
$
(18,429,417
)
$
366,875Pro forma net income (loss) per share

$
(0.58
)
$
(2.53
)
$
0.05Pro forma net income (loss) per share assuming dilution

$
(0.58
)
$
(2.53
)
$
0.05


Stock
option activity is summarized as follows:

Number
of Shares

Weighted-Average
Exercise PriceOutstanding at January 1, 1999

739,108

5.57Exercisable at January 1, 1999

535,598

5.63Options granted

111,872

3.47Options exercised

(12,788
)
3.36Options canceled

(182,928
)
6.29Outstanding at December 31, 1999

655,264

5.06Exercisable at December 31, 1999

535,598

6.19Options granted

401,248

1.38Options exercised



Options canceled

(359,621
)
4.49Outstanding at December 31, 2000

696,891

3.24Exercisable at December 31, 2000

309,786

5.49Options granted

76,560

0.61Options exercised



Options canceled

(104,736
)
4.64Outstanding at December 31, 2001

668,715

2.12Exercisable at December 31, 2001

215,112

3.93


The
weighted-average fair value of options granted during the year was $.43, $.92 and $3.46 in 2001, 2000 and 1999, respectively.

18

---

A
summary of options outstanding as of December 31, 2001 is as follows:

Range of
Exercise Prices

Number of
Options
Outstanding

Number of
Options
Exercisable

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual Life$50.00 - $10.75

4,999

4,999

$26.34

.51 years$9.50 - $  5.38

181,792

51,792

$5.59

5.34 years$4.00 - $  2.00

25,693

25,303

$3.65

2.36 years$1.38 - $  0.60

456,231

133,018

$1.25

8.84 years


Warrant
activity is summarized as follows: Weighted-Average

Shares

Exercise PriceOutstanding at January 1, 1999

2,930,868

5.46Exercisable at January 1, 1999

2,930,868

5.46Warrants issued

50,000

4.13Warrants exercised



Warrants canceled

(2,232,618
)
5.50Outstanding at December 31, 1999

748,250

5.21Exercisable at December 31, 1999

748,250

5.21Warrants issued



Warrants exercised



Warrants canceled



Outstanding at December 31, 2000

748,250

5.21Exercisable at December 31, 2000

748,250

5.21Warrants issued



Warrants exercised



Warrants canceled



Outstanding at December 31, 2001

748,250

5.21Exercisable at December 31, 2001

748,250

5.21


There
were no warrants granted in 2000 or 2001. The weighted average fair value of warrants granted during 1999 was $4.13. Exercise prices for warrants outstanding as of
December 31, 2001 ranged from $4 to $5.50. The weighted-average remaining contractual life of those warrants is 2.2 years.

19

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5.    Transfer of License

In
June 1997, the Company agreed to the transfer of the licenses for the sales of dental lasers and air abrasive instruments from Sunrise Technologies, Inc. ("Sunrise") to
Lares Co. ("Lares") in connection with the sale of Sunrise's dental business to Lares. The Company received a payment of $275,000 and a note receivable for $100,000, due in June 2000. The
Company will also continue to receive royalties on air abrasive and dental lasers from Lares. The Company received Sunrise stock with a market value of $81,192 in 2001. This amount was applied against
the note and the remaining amount was deemed uncollectible.

In
1999, the Company sold a license to ESC Medical Systems, Ltd. for $300,000 for the use of certain patents. The Company delivered the license to ESC Medical Systems, Ltd.
in 1999 and recorded the income in 1999 as a license transfer fee since the Company has no additional requirements under this license.

6.    Income Taxes

At
December 31, 2001, the Company had approximately $15,359,000 million of net operating loss carryforwards for federal income tax purposes, which expire in various amounts
in the years 2006 through 2021.

Deferred
taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income
tax purposes. Significant components of the Company's deferred tax assets are as follows:

December 312001

2000Allowance for doubtful accounts

$
60,000

$
78,000Inventory valuation reserves


807,000


611,000Depreciation


326,000


322,000Compensation and employee benefits


50,000


72,000Alternative minimum tax credit carryforward


236,000


195,000Warranty reserve


54,000


88,000Other


250,000


266,000Net operating loss carryforwards


5,222,000


4,064,000Deferred tax asset


7,005,000


5,696,000Deferred tax liabilities


(54,000
)

(47,000
)Net deferred tax asset


6,951,000

$
5,649,000Valuation allowance


6,951,000


5,649,000Net deferred tax asset

$


$



20

---

The
Company's income tax provision included the following:

2001

2000

1999Current expense

$


$


$
58,000Deferred expense (benefit)





4,744,000


558,000$


$
4,744,000

$
616,000Income taxes (benefit) at US statutory rate

$
(1,353,000
)
$
(4,644,000
)
$
343,000State taxes








58,000Non-deductible amortization





3,248,000


251,000Deferred tax asset valuation allowance adjustment


1,302,000


5,649,000


Other


51,000


491,000


(36,000
)$


$
4,744,000

$
616,000


In
2000, uncertainties existed as to the future realization of the deferred tax asset under the criteria set forth under FASB Statement No. 109. Therefore, the Company established
a valuation allowance for the deferred tax asset of $6,951,000 at December 31, 2000.

The
Company paid no federal income tax during 2000 or 2001. Income taxes paid were approximately $134,000 in 1999.

The
Company's investment in its foreign subsidiary is considered to be permanently invested and no provision for U.S. federal and state income taxes on these translation adjustments have
been provided.

7.    Operations by Industry Segment, Geographic Area and Significant Customers

SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and
services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The
Company develops, manufactures, markets and sells high technology dental products, such as air abrasive equipment, lasers, curing lights and intra oral cameras. Domestically, prior
to the adoption of its new business model in February 2000, the Company maintained a nationwide sales force to generate sales and assist its dealer network. Subsequent to the adoption of the
new business model, the Company sells its products direct to the consumer through its nationwide network of sales and service branch offices. Internationally, with the exception of a small number of
personnel in Germany, the Company has not maintained its own sales force and continues to sell its products through regional dental distributors. The reportable segments are reviewed and managed
separately because selling techniques and market environments differ from selling domestically versus selling through international distributor networks. The remaining revenues of the Company, which
are reported as "Other", include industrial products and royalty income.

21

---

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

2001

2000

1999Revenues:Domestic

$
10,430,196

$
10,646,392

$
15,174,499International


3,459,628


8,339,465


8,309,990$
13,889,824

$
18,985,857

$
23,484,489Reconciliation of revenues:Total segment revenues

$
13,889,824

$
18,985,857

$
23,484,489Other


798,862


916,389


885,038Total revenues

$
14,688,686

$
19,902,246

$
24,369,527Operational earnings (loss):Domestic

$
(733,584
)
$
(2,085,460
)
$
1,295,036International


660,017


3,088,126


2,896,915$
(73,567
)
$
1,002,666

$
4,191,951Reconciliation of operational earnings (loss) to loss from operations:Total segment operational earnings

$
(73,567
)
$
1,002,666

$
4,191,951Other operational earnings (loss)


493,946


563,755


529,038Research & development expenses


(796,424
)

(966,382
)

(931,189
)Administrative expenses


(3,561,542
)

(14,024,076
)

(3,902,872
)Loss from operations

$
(3,937,587
)
$
(13,420,768
)
$
(113,072
)International revenues by country:Japan

$
1,260,492

$
3,890,017

$
4,496,398Germany


831,472


1,601,502


1,717,379Italy


909,520


1,269,305


717,502Canada


71,772


315,343


396,201Other


146,611


914,528


653,940$
3,219,867

$
7,990,695

$
7,981,420Long lived assets (excluding deferred taxes):Domestic

$
4,834,723

$
5,769,335

$
20,236,022International


15,888


19,747


11,784$
4,850,611

$
5,789,082

$
20,247,806


Sales
to Patterson Dental Company, a major domestic distributor of the Company's products, were approximately 2%, 3% and 16% of total revenues in 2001, 2000 and 1999, respectively. Sales
to Denics
for certain Asian and Pacific markets, primarily Japan, were approximately 9%, 21% and 19% of total revenues in 2001, 2000 and 1999, respectively.

8.    Litigation and Contingencies

In
July 2000, the Company filed a lawsuit in the District Court of Nueces County, Texas against Henry Schein, Inc. to recover approximately $293,000 of past due receivables
plus interest and cost of collection. In September 2001, the Company settled this lawsuit out of court. Under the provisions of the settlement agreement, the terms of the settlement cannot be
disclosed.

All
of the litigation involving Kreativ, Inc. was settled during 1999 as previously disclosed. The Company received a $580,000 settlement from Kreativ, Inc. in the false
advertising suit and received

22

---

$300,000 in exchange for a paid-up license in settlement of the two patent suits. The proceeds from the false advertising suit are included in other income in the Statement of Operations
and the proceeds from the patent suits are included in the license transfer fees in the Statement of Operations.

9.    Selected Quarterly Financial Data (unaudited)

|                                              |  | Three Months Ended |          
|--------------------------------------------- |  | ------------------ | ---------
|
|Revenues                                      |  | $                  | 4,495,770
|Gross profit                                  |  |                    | 2,512,819
|Net income (loss)                             |  |                    | 104,833  
|Net income (loss) per share assuming dilution |  | $                  | 0.01     



|                                              |  | Three Months Ended |          
|--------------------------------------------- |  | ------------------ | ---------
|
|Revenues                                      |  | $                  | 4,700,106
|Gross profit                                  |  |                    | 1,955,616
|Net income (loss)                             |  |                    | (745,980 
|Net income (loss) per share assuming dilution |  | $                  | (0.10    

---

23

---



PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)    1.  Financial
Statements:    The following financial statements of American Medical Technologies, Inc. are included in Item 8,
"Financial Statements and Supplementary Data":



All
other schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or the notes thereto.



(b)  Reports
on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 2001.

24

---



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  American Dental Technologies, Inc.

|Column A                     |                                             | Column B |           | Column C |           | Column D |        | Column E
|---------------------------- | ------------------------------------------- | -------- | --------- | -------- | --------- | -------- | ------ | --------
|
|Year Ended December 31, 1999 |                                             |          |           |          |           |          |        |         
|                             | Valuation allowance for accounts receivable |          | 175,000   |          | 13,000    | (1)      |       |         
|                             | Valuation allowance for inventories         |          | 555,000   |          | 257,000   | (2)      |       |         
|                             | Valuation allowance for deferred taxes      |          |          |          |          |          |       |         
|Year Ended December 31, 2000 |                                             |          |           |          |           |          |        |         
|                             | Valuation allowance for accounts receivable |          | 188,000   |          | 42,000    | (3)      |       |         
|                             | Valuation allowance for inventories         |          | 812,000   |          | 873,000   | (4)      |       |         
|                             | Valuation allowance for deferred taxes      |          |          |          | 5,649,000 | (5)      |       |         
|Year Ended December 31, 2001 |                                             |          |           |          |           |          |        |         
|                             | Valuation allowance for accounts receivable |          | 230,000   |          |          |          | 54,000 | (6)     
|                             | Valuation allowance for inventories         |          | 1,685,000 |          | 588,000   | (7)      |       |         
|                             | Valuation allowance for deferred taxes      |          | 5,649,000 |          | 1,302,000 | (8)      |       |         

---

25

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Corpus Christi, State of Texas, on the 12th day of September, 2002.

| |  | AMERICAN MEDICAL TECHNOLOGIES, INC.                              
| |  | -----------------------------------------------------------------
| |  |                                                                  
| |  | /s/JOHN E. VICKERS IIIJohn E. Vickers III
Chief Operating Officer
| |  |                                                                  

26

---



CERTIFICATIONS

I,
Roger W. Dartt, certify that:

|Date: September 12, 2002 |  | /s/ROGER W. DARTTRoger W. Dartt
Chief Executive Officer
|------------------------ |  | -------------------------------------------------------
|                         |  |                                                        

27

---

I, Justin W. Grubbs, certify that:

|Date: September 12, 2002 |  | /s/JUSTIN W. GRUBBSJustin W. Grubbs
Chief Financial Officer
|------------------------ |  | -----------------------------------------------------------
|                         |  |                                                            

28

---



EXHIBIT INDEX

Certain of the following exhibits have been previously filed with the Securities and Exchange Commission pursuant to the requirements of the Securities Act of
1933 and the Securities Exchange Act of 1934. Such exhibits are identified by the parenthetical references following the listing of each such exhibit and are incorporated herein by reference. The
Company's Commission file number is 0-19195.

|Exhibit Number |      | Description of Document
|-------------- | ---- | -----------------------
|               | 3.1  |                        
|               | 3.4  |                        
|               | 4.1  |                        
|               | 4.2  |                        
|               | 4.3  |                        
|               | 4.4  |                        
|               | 4.5  |                        
|               | 4.6  |                        
|               | 4.7  |                        
|               | 4.8  |                        
|               | 4.9  |                        
|               | 4.10 |                        
|               | 4.11 |                        
|               | 4.12 |                        
|               |      |                        

29

---

| | 4.13   |  | Second Amended and Restated Forbearance Agreement between Bank One and American Medical Technologies, Inc., effective February 18, 2002 (Form 10-K for the year ended December 31, 2002)
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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*  |  | Employment Agreement dated August 1, 1996 between American Medical Technologies, Inc. and Ben J. Gallant (Form 10-K for year ended December 31, 1996)                                   
| | 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)
| | 10.6** |  | 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)                                             
| | 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* |  | First Amendment, dated August 1, 1999 to Employment Agreement between American Medical Technologies, Inc. and Ben J. Gallant (Form 10-K for the year ended December 31, 1999)           
| | 10.12* |  | Second Amendment, effective August 1, 2001 to Employment Agreement between American Medical Technologies, Inc. and Ben J. Gallant (Form 10-K for the year ended December 31, 2000)      
| | 21.1   |  | Subsidiaries of the Registrant (Form 10-K for year ended December 31, 1999)                                                                                                             
| | 23.1   |  | Consent of Independent Auditors                                                                                                                                                         
| | 99.1   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger Dartt, Chief Executive Officer                          
| | 99.2   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Justin Grubbs, Chief Financial Officer                        

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30

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