**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-KSB**
| x          | ** ** | **Annual report pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934**                                                                                                                                                                                                  |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | **For the fiscal year ended December 31, 2006, or**                                                                                                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                                                                                       |
| **o**      | ** ** | **Transition report pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | **For the transition period  from                      to                      .** |

 

**Commission File No. 0-19195**

**AMERICAN MEDICAL TECHNOLOGIES, INC.**

(Exact name of small business issuer in its charter)

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

**5655Bear Lane, Corpus Christi, TX 78405**

(Address of principal executive offices)(Zip Code)

**(361)289-1145**

(Issuer’s telephone number)

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

Securities registered pursuant to Section 12(g) of theAct:

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

(Title of Class)

Checkwhether the issuer is not required to file reports pursuant to Section 13 or15(d) of the Exchange Act. o

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

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

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).Yes oNo x

Stateissuer’s revenues for its most recent fiscal year: $2,712,355

Theaggregate market value of the registrant’s Common Stock held by non-affiliatesof the registrant was approximately $3,275,722 as of April 2, 2007 based uponthe closing price of $0.40 reported on the OTC Bulletin Board on that date. Forpurposes of this calculation only, all directors, executive officers and ownersof more than ten percent of the registrant’s Common Stock are assumed to beaffiliates.

Therewere 8,189,306 shares of the issuer’s Common Stock issued and outstanding onApril 3, 2007.

DOCUMENTSINCORPORATED BY REFERENCE - None

TransitionalSmall Business Disclosure Format:  (check one):  Yes  o  No x

 

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

 

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**PART I**

ITEM 1.               DESCRIPTIONOF BUSINESS

**Introduction**

American Medical Technologies, Inc. (“AMT” or “Company”)develops, manufactures and markets high technology products designed primarilyfor the global general and cosmetic dental industries and distributors of toothwhitening products.  AMT’s primary product offering includes:  high power curing lights, air abrasivekinetic cavity preparation systems (“KCP”), and professional tooth whiteningsystems sold under the brand name “Contrast.” With the exception of the tooth whitening, all other AMT products aredeveloped and produced at its manufacturing facility located in Corpus Christi,Texas.  Outside of the dental field, AMT also develops, manufactures andmarkets precision air abrasive jet machining (“AJM”) systems for industrialapplications.  AMT, incorporated in Delaware in November 1989, completedits initial public offering in June 1991.  AMT changed its name fromAmerican Dental Technologies, Inc. on July 13, 2000.

In 2006 AMT continued the restructuring and recoveryprograms that were implemented in late 2002 and 2003 as a result of theaggregate losses of $28 million incurred in 2000, 2001 and 2002.   Significant time and efforts were expended in2005 to protect the Company’s assets from excessive claims from outsideclaimants and lawsuits, as reported throughout the year.  The Companybelieves it was necessary to resolve these “negative” issues in preparation forformulating and implementing a “positive” growth strategy.  In 2006, the Company also added the SpectrumDental product line and by doing so began formulating a new phase of corporatedevelopment.

**Products**

Described below are the Company’s current principalproduct lines.

*KCP Cavity Preparation Systems*

AMT has patented the method whereby a dentist canremove tooth decay by means of a narrow, high velocity stream of minuteparticles delivered by compressed air to the tooth through a lightweight dentalhand piece.  In many cases the KCPlessens the patient sensitivity and, as such, may be used to treat a patientwithout anesthesia.  . The KCPshapes restoration sites, removes old composite materials and modifies theunderlying hard tissue, often helping to increase bond strength in restorativeprocedures.  It is also used for sealant preparations; surface stainremoval and intra-oral porcelain removal and repair.  The KCP is oftenused in place of a traditional dental drill.  The dentist controls thecutting speed by selecting the particle size, (27 or 50 micron), and airpressure, (40 psi to 160 psi), with touch pads on a control panel.  Theair abrasive particle stream is activated and controlled by a footpedal.   The KCP floor models: KCP 100 and KCP 1000 are contained ina movable cabinet the size of a medium suitcase and are powered by plugging into a standard electrical outlet.

In 2003 and 2004, the Company introduced “Hydrobrasion”technology.  Hydrobrasion is the patented use of air, water and microparticles which are combined to form an effective cutting slurry that safelyremoves dental tooth structure and tooth decay in a minimally invasivemanner..  In 2004, the Company introduced this technology in the KCP “Flexijet®”,an air abrasion unit with an integrated water system that dramaticallydiminishes overspray, lessons patient sensitivity and produces faster, moreprecise cutting.

In 2005, the Company developed and introduced the “HydroJet®” product which utilizes the Company’s patented “Hydrobrasion” technology.

The Flexijet and Hydro Jet are best used inconjunction with modern tooth-colored composite restoration materials.  Itis not recommended for removing large amalgam fillings.  The precision ofthe KCP, and the manner in which it prepares surfaces for restorations, allowsfor precise treatment of decay and less destruction of the tooth structurewhile restoring it.  In many cases, the KCP may be used withoutanesthesia, allowing a dentist to treat teeth in different quadrants of themouth during a single visit.  This is generally not possible whenconventional instruments and anesthesia are used.

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AMT also markets its Plasma Arc Curing System (“PAC”)as an accessory to its KCP.  The KCP1000 PAC combines the air abrasivecavity preparation system together with a powerful composite curing light, allin a single instrument.  This allows dentists to efficiently switchbetween cavity preparations to curing.

The KCP is sold primarily in North America.** **The KCPrepresented approximately 12% and 22% of AMT’s total revenues in each of 2006and 2005, respectively.

*Plasma Arc Curing Systems*

AMT markets a Plasma Arc Curing (PAC) system thatutilizes a high-intensity light source to rapidly cure composite-based toothfillings and gingival isolation resins.  Curing occurs in five to tenseconds, or at least twice as fast as most other conventional curing lights.

AMT’s PAC lights, components, and accessories are soldprimarily in North America and Europe.  PAC products represented approximately 1% and 6% of AMT’s total revenuesin  2006 and 2005 respectively.

*Industrial Products*

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

Industrial productsaccounted for 19% and 27% of AMT’s total revenues in 2006 and2005, respectively.

*Contrast Tooth Whitening*

In April 2006, the Company entered into a 5 yearlicensing agreement with Discus Dental and its wholly owned subsidiary,Spectrum Dental, a leading provider of professional tooth whitening products,under which AMT was granted the exclusive worldwide distribution rights of theSpectrum Dental product line. The products, sold under the brand namesContrastAM, ContrastPM and ContrastPM Plus, utilize carbamide peroxide gels indifferent concentrations to safely and effectively whiten discoloredteeth.  Due to the strength of thematerials, Contrast tooth whitening products are only available from dentalprofessionals.

**License Agreement**

As previously initially reported in the Company’s Form8-K, filed with the Securities and Exchange Commission (“SEC”) on April 17,2006, the Company, on April 11, 2006, entered into an Exclusive LicenseAgreement (the “License Agreement”) with Discus Dental Holdings, Inc., aCalifornia corporation (“Discus”), under which the Company became theexclusive, worldwide distributor of the proprietary dental productsmanufactured and sold by Discus’ wholly owned subsidiary, SpectrumDental, Inc. (“Spectrum”). The License Agreement is for a term of fiveyears, contains minimum requirements for sale of the products by the Company,and may be terminated (i) for cause upon 30 days notice, (ii) atcertain times during the term of the License Agreement if the Company fails tomaintain positive net income for a specified period, (iii) upon theCompany’s failure to comply with applicable securities laws, (iv) if anyjudgment is rendered against the Company, or it defaults on any debt, in excessof $50,000, (v) upon any change in the Company’s results of operation orcondition which in the sole opinion of Discus has or could have a materialadverse effect on the Company’s condition, business, properties or prospects,and (vi) upon the occurrence of certain other customary events of default.As full consideration, the Company granted to Discus a ten year warrant (the “Warrant”)to purchase up to 2,500,000 shares of its common stock at $0.20 per share. The sharessubject to the Warrant vest 500,000 after the first year and an additional41,667 shares on each successive full one-

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monthperiod thereafter until the fifth anniversary of the date of grant; howevervesting ceases upon the sale of Spectrum to the Company as contemplated by theOption Agreement described below. The shares subject to the Warrant areadjusted upon the occurrence of certain events including a stock dividend,reclassification, merger and stock split, and upon the issuance of shares for aconsideration per share less than the applicable conversion price of theWarrant, with certain exceptions for compensation paid in stock.

**Manufacturing Agreement**

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

**Standstill Agreement**

As of January 16, 2007, Discus, Spectrum and Westside,on the one hand, and the Company, on the other hand, entered into a StandstillAgreement, in which each of the parties agreed that there are pending disputesamong them concerning the existence and/or extent of any performance issuesunder the License Agreement and Manufacturing Agreement (collectively, the “Agreements”).  It is the Company’s position that theAgreements are in effect.  Discus hasagreed not to dispute the Company’s position, but has reserved, together withthe Company, all rights, claims and/or defenses relating to theAgreements.  The parties to theStandstill Agreement have agreed to discuss potential resolution of anydisputes arising out of the Agreements. Further, the parties have agreed that any party may terminate theStandstill Agreement by providing the other party with 10 days’ writtennotice.  The parties further agreed thatno party to the Standstill Agreement may commence any legal action against theother party prior to termination of the Standstill Agreement.  The Standstill Agreement is dated February 1,2007.

**Option Agreement**

On April 11, 2006, the Company and Discus also enteredinto a Put and Call Option Agreement (the “Option Agreement”) whereby Discushas a put option to compel the Company to purchase all the outstanding sharesof capital stock of Spectrum, and the Company has a call option to compelDiscus to sell such shares, at any time after April 11, 2007 and beforethe earlier to occur of the termination or expiration of the License Agreementor five years. Notwithstanding the foregoing, the Company may not exerciseits call option if the price at which its shares of common stock are trading,or the average trading price of its shares during the preceding 30 day period,is less than $0.60 per share. The exercise price of the option will be between$2,300,000 and $2,662,537.50, depending on the date of exercise. The purchaseprice will be paid with a combination of cash and 3,000,000 shares of Companycommon stock (subject to adjustment); provided that if that aggregate value ofthe specified amount of cash and the value of the stock based on the averagetrading value of the Company’s stock for the 30 days preceding the closing ofthe Option Agreement is less than the applicable exercise price, then theCompany must issue additional shares to equal the value of the exercise price.At the option of the parties, the exercise price can be paid in all cash;however, if the Company first elects to exercise its call option, the method ofpayment of the exercise price will be at the election of Discus. Upon theexercise of the option, the parties shall enter into a Stock Purchase Agreementsubstantially in the form agreed to in the Option Agreement for thepurchase and sale of the Spectrum shares.

**Registration Rights Agreement**

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

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The Registration Rights Agreement between the Companyand Discus provides that the Company shall file a shelf registration relatingto the offer and resale of shares issuable upon exercise of the warrant notlater than an unspecified date in April 2007. As of the date of the filing of this form 10-KSB, the Company has notfiled such registration statement.

The Spectrum Dental line represented approximately 34%of revenues in 2006.

Parts and consumable salesrepresented  approximately 31% and 45% ofrevenues in  2006 and 2005respectively.  The remaining percentage of revenues not itemizedrepresents discontinued product lines.

**Marketing, Sales and Training**

In the North American dental market, AMT primarilyuses a network of independent sales representatives and major dental dealersand distributors to sell its products.

For AMT’s international markets, AMT has set up a “huband spoke” system with key third party sales and distribution partners locatedin Asia, Europe and the Middle East. These third-party “master distributors” are contractually bound to AMTand are responsible for: directing individual country dealer sales in theirrespective territories, providing sales and technical support, and holding andmanaging local inventory and logistics. AMT is currently searching for a company in Latin America to assume thisimportant role in the region.  Until thisis accomplished, the Company markets and sells directly to the dental dealersin this region.

AMT presently has several industrial productdistributors for its AJM product.  Such distributors have been and areanticipated to be the primary source of sales for AMT’s industrial products inthe future.  Industrial product distributors are supported by AMTprimarily through advertising in the Thomas Register and trade journals, and byparticipation in trade shows.

**Training and Service**

Training and the dissemination of industry informationis an important factor in the successful sale of AMT products.  The Company offers its dealers anddistributors free training on all products and supports them on an “as needed”basis with dentist training, technical seminars and lectures.  Under the international “hub and spoke”model, the regional master distributors are trained in such a manner that theyare qualified to provide supplemental training for their individual countrydealers.

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

**Competition**

There is directcompetition to AMT’s in-house manufactured products; however, it is the new andemerging technologies that represent the biggest commercial threat to the Company’smanufacturing business.  Hydroabrasiontechnology is being supplanted by high technology dental lasers which, althoughconsiderably higher in price, can perform certain additional functions.  On the lower end, this technology competeswith conventional treatment methods that include standard drills and basicdental instruments.  Even so, a smallmarket still exists which justifies the continuance of the product line for theforeseeable future.

For all in-house manufactured products, AMT has patentsin the basic technologies which the Company believes provide a competitiveadvantage.  AMT believes there are approximately three companies thatpresently sell competing dental air abrasive products and approximately 13companies that presently sell competing intra oral

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camerasystems.  AMT’s PAC and KCP products must also compete with conventionaltreatment methods using dental instruments or equipment that are generally lessexpensive and with which dentists are more familiar.

AMT faces several competitors in the tooth whiteningindustry.  AMT’s Contrast tooth whiteningproducts face competition from a variety of companies utilizing similartechnologies.

Many of these competing companies, particularly thosethat manufacture traditional dental equipment, have been in business longer,have greater resources and have a larger distribution network than AMT. AMT’s competitive position is dependent upon its pricing and marketingpractices, its ability to make ongoing improvements in its existing products,to develop new products, and to successfully promote the capabilities andtreatment benefits of its products.  While AMT believes its products arecompetitive in terms of capabilities, quality and price, competition hasadversely affected, and may in the future adversely affect, AMT’s business.

**Patents**

AMT believes its patents provide some competitiveadvantage in those countries where they have been issued.  AMT believesits technology patents and other patent rights provide a proprietary means toutilize that technology in dentistry.  In the United States, AMT haspatents related to dental air abrasive systems and methods for using an airabrasive stream for dentistry that do not begin expiring until 2011, technologypatents for air abrasive cavity preparation systems which will begin expiringin 2012, and industrial air abrasive patents which have expiration datesranging from 2011 to 2017.  AMT also holds several industrial air abrasivepatents in various other countries.   As a result, in 2005, twocompanies signed license agreements with the Company to market air abrasionproducts and in 2006 a settlement agreement was reached with a third company.

The Contrast tooth whitening products are notprotected by patent.

**Manufacturing and Suppliers**

To the extent that AMT continues to manufacture, themanufacturing operations are conducted at its ISO 9001:2000 and EN13485****certified facility in Corpus Christi,Texas.  AMT’s products are manufactured from parts, components andsubassemblies obtained from a number of unaffiliated suppliers or fabricatedinternally at its manufacturing facility. AMT has modern machining capabilityallowing it to control the production of certain non-standard parts.  AMTuses numerous suppliers for standard parts and for fabrication of certainparts.  Although most of the parts and components used in its products areavailable from multiple sources, AMT presently obtains several parts andcomponents from single sources.  Lack of availability of certain parts andcomponents could result in production delays.  Management has identifiedalternate suppliers and believes any delays would be minimal and would notmaterially affect AMT’s business.

AMT has a contractual relationship with the manufacturer of the Spectrum toothwhitening products. The manufacturer is stable and product is delivered perpre-established, mutually agreed order quantities and ship dates.  The Company believes that delivery delayswould be  unlikely and would have aminimal material affect AMT’s business.

**Research and Development**

Historically, most research and development, prototypeproduction and testing activities for the products manufactured by AMT havetaken place at the Company’s Texas facility, although some research anddevelopment work was performed for AMT by consultants.  No further majornew product development is anticipated by the Company.

AMT’s research anddevelopment expenditures for 2006 and 2005 were $67,783 and $182,074respectively.  AMT’s research and development in 2006 focused primarily onHydro Jet revisions.  The Companybelieves that its research and development activities for 2007 willsubstantially decrease.

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**Governmental Regulation**

The dental products manufactured by AMT are subject tosignificant governmental regulation in the United States and in certain othercountries.  In order to conduct clinical tests and to market products fortherapeutic use, AMT must comply with procedures and standards established bythe FDA and comparable foreign regulatory agencies.  Changes in existing regulationsor adoption of additional regulations may adversely affect AMT’s ability tomarket its existing products or to market enhanced or new dental products.

At this time, AMT’s tooth whitening product line isnot subject to regulation inside the USA. A change in this status could adversely affect AMT’s ability to marketthese products in the USA.

*United States Regulatory Requirements*

The Federal Food, Drug and Cosmetic Act (“FDC Act”)regulates medical devices in the United States by classifying them into one ofthree classes based on the extent of regulation believed necessary to ensuresafety and effectiveness. Class I devices are those devices for which safetyand effectiveness can reasonably be ensured through general controls, such asdevice listing, adequate labeling, pre-market notification and adherence to theQuality System Regulation (“QSR”) as well as medical device reporting (“MDR”),labeling and other regulatory requirements.  Some Class I medical devicesare exempt from the requirement of pre-market approval or clearance. Class II devices are those devices for which safety and effectiveness canreasonably be ensured through the use of special controls, such as performancestandards, post-market surveillance and patient registries, as well as adherenceto the general controls provisions applicable to Class I devices.  ClassIII devices are devices that generally must receive pre-market approval by theFDA pursuant to a pre-market approval (“PMA”) application to ensure theirsafety and effectiveness.  Generally, Class III devices are limited tolife sustaining, life supporting or implantable devices; however, thisclassification can also apply to novel technology or new intended uses orapplications for existing devices.

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

The FDA granted 510(k) Clearance to market the KCP forhard-tissue applications in late 1992.  510(k) Clearance to market the PACwas granted by the FDA in mid-1995.

Pursuant to FDC Act requirements, the Company hasregistered its manufacturing facility with the FDA as a medical devicemanufacturer, and listed the medical devices it manufactures.  The Companyalso is subject to inspection on a routine basis for compliance with FDAregulations.  These regulations include those covering the QSR, which,unless the device is a Class I exempt device, require that the Companymanufacture its products and maintain its documents in a prescribed manner withrespect to issues such as design controls, manufacturing, testing andvalidation activities.  Further, the Company is required to comply withother FDA requirements with respect to labeling, and the MDR regulations whichrequire that the Company provide information to the FDA on deaths or

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seriousinjuries alleged to have been associated with the use of its products, as wellas product malfunctions that are likely to cause or contribute to death orserious injury if the malfunction were to recur.  The Company believesthat it is currently in material compliance with all relevant QSR and MDRrequirements.

In addition, our manufactured products are subject toregulatory requirements covering third-party reimbursement.   Ourproducts are generally purchased by dental or medical professionals who thenbill various third party payors, such as government programs or privateinsurance plans, for the procedures conducted using these products.  Inthe United States third party payors review and frequently challenge the pricescharged for medical services. In many foreign countries, the prices arepredetermined through government regulation.  Payors may deny coverage andreimbursement if they determine that the procedure was not medically necessary(for example, cosmetic) or that the device used in the procedure wasinvestigational.  We believe that most of the procedures being performedwith our current products generally have been reimbursed. The inability toobtain reimbursement for services using our products could deter dentists andphysicians from purchasing or using our products.  We cannot predict theeffect of future healthcare reforms or changes in financing for health and dentalplans.  Any such changes could have an adverse effect on the ability of adental or medical professional to generate a return on investment using ourcurrent or future products.  Such changes would act as disincentives forcapital investments by dental and medical professionals and could have anadverse effect on our business, financial condition and results of operations.

*Foreign Regulatory Requirements*

International sales of medical devices are alsosubject to the regulatory requirements of each country.  Regulation ofmedical devices in foreign countries varies between countries.  TheCompany, in general, will rely upon its distributors and sales representativesin the foreign countries in which it markets its products to ensure that theCompany complies with the regulatory laws of such countries.  In Europe,the regulations of the European Union require that a device have a CE markbefore it can be sold in that market.  The KCP, PAC, Intraoral cameras andtooth whitening products have all been granted CE mark approvals and may besold in European Union countries and markets.   Additional foreignauthorizations to market its dental products are sought by the Company whereneeded.

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

**Product Liability Exposure**

AMT’s business involves the inherent risk of productliability claims.  If such claims arise, they could have an adverse effecton AMT.  AMT currently maintains product liability insurance with coverageper occurrence and in the aggregate of $10 million.  There is no assurancethat such coverage will be sufficient to protect AMT from all risks to which itmay be subject or that product liability insurance will be available at areasonable cost, if at all, in the future.

**Foreign Operations and Segment Information**

For information regarding the Company’s foreignoperations and business segments, see Note 7 of the Notes to ConsolidatedFinancial Statements.  Such information is incorporated herein byreference.

**Employees**

On March 13, 2007, AMT had17 full-time employees.  Of these employees, two were engaged in directsales and marketing activities.  Seven employees were engaged inmanufacturing activities, and the remaining eight employees were in finance,administration, customer service, and research and development.  AMT hasno collective bargaining agreements with any unions and believes that itsoverall relations with its employees are good.

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**STATUS OF PAST AND FUTURE BUSINESS STRATEGIES:**

***KCP CavityPreparation Systems:***

In the past AMT’spatented KCP tooth decay removal and restorative preparation systemsrepresented significant sales and profit to the Company.  The brand names: “KCP”, “Flexijet”, and “HydroJet” were the market products in North America and Europe during the dentalindustry’s active use of hydrobrasion technology.  Now, with the advent of dental lasers andother non-invasive technologies, AMT now finds that product sales for thismature technology have softened.

At its peak, AMTmade a significant investment in equipment to support the hydrobrasionbusiness, some of which is not now utilized. The cost of holding and maintaining this equipment as well as retainingemployees during this phase in the product cycle has become a drain onresources.  In 2007, AMT plans toliquidate the equipment and contractually assign the manufacturing of the HydroJet.  The result of this outsourcing ofmanufacturing will be a reduction in overhead costs to the Company.  A third-party company to engage in suchmanufacturing has been identified and material advances have been made towardthis end plan.

In 2007 AMT willcontinue to include the Hydro Jet in its product offering, selling through itsexisting international network of dealers; however no significant investment isplanned to upgrade the product technology or to market the products.

***EquipmentService and Maintenance:***

There areapproximately 8,000 KCP, Flexijet, Hydro Jet and PAC Light systems installed indentist offices primarily in North America and Europe, most of which have gonepast their original manufacturer’s warranty period.  As an adjunct to the Company’s traditionalsales activity, AMT also offers “for-fee” repair services, generating revenueand profit by performing repairs and maintenance on past sold equipment.  With more and more dentists retiring theirolder AMT equipment, the Company revenue from repairs and service has flattenedout.

In order to reduce the overhead costs, AMT plans tocontractually sub-let this function to a third party company or companies whowill perform the repairs and services on AMT’s behalf, with AMT taking acommission for each repair that is completed. One third party company has beenidentified and material advances have been made toward this end plan.

The Company can provide no assurances that the plansdescribed above will materialize or result in any revenue or earnings for theCompany.

***IndustrialProducts:***

In the past, sales of theCompany’s AJM systems and their associated parts and consumable products haverepresented a significant portion of the Company’s revenues even though theywere outside of the Company’s primary dental market.  Today, industrial product sales have leveledoff and are forecasted to remain flat unless significant technology andmarketing investment is made.  TheCompany is exploring ways to capitalize on this product line.

***DiscontinuedProducts:***

Given the Company’sassessment of the current state of technology, and an influx of competitionfrom foreign manufacturers offering similar products, AMT has decided todiscontinue selling the Ultracam, Intra-oral Camera system and the PAC, plasmaarc curing light system.  Repairs for theexisting units will be referred to a qualified third party company.  AMT plans to liquidate the stock andcomponent inventories related to these discontinued products.  Material advances have been made toward thisend goal.

***NewProducts:***

The Company believes thatthe key to its on-going growth and profitability is in the acquisition and saleof new products.  Currently AMT is indiscussions with reputable dental manufacturers to increase the number andrange

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of productsoffered.  AMT believes that thesediscussions may lead to license agreements in 2007, but can provide noassurances that any licensing agreements will materialize or be profitable forthe Company.

**SALES, MARKETING AND TRAINING:**

For the North Americandental market, AMT primarily uses a network of independent salesrepresentatives and major dental dealers and distributors to sell its products.  The Company’s non-dental, AJM industrialproducts are sold through independent distributors and are supported by AMTprimarily through advertising in the Thomas Register, other trade publications,limited in-house sales and participation in select trade shows.

For AMT’s internationalmarkets, in order to adequately sell and to facilitate the rapid globalintroduction of new products, AMT has set up a “hub and spoke” system with keythird party sales and distribution partners located in Asia, Europe, and theMiddle East.  These third-party “masterdistributors” are contractually bound to AMT and are responsible for: directingindividual country dealer sales in their respective territories, providingsales and technical support, and holding and managing local inventory andlogistics.  AMT is currently searchingfor a company in Latin America to assume this important role in the region.

Currently AMT’s dentalproducts are actively sold through distribution in 82 countries.  The company participates in approximately 10major international trade exhibitions under the name of AMT, and is representedby dealers and distributors at approximately 40 other high profile shows andexhibitions. In our new and emerging markets, advertising costs are usuallyassumed in full or part by the local distributor.

Training and thedissemination of industry information is an important factor in the successfulsale of AMT products.  The Company offersits dealers and distributors free training on all products and supports them onan “as needed” basis with dentist training, technical seminars andlectures.  Under the international “huband spoke” model, the regional master distributors are trained in such a mannerthat they are qualified to provide supplemental training for their individualcountry dealers.

**Forward Looking Statements**

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

To the extent available, the Company claims theprotection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995 for all of its forward-lookingstatements.  While the Company believes that its forward-lookingstatements are reasonable, you should not place undue reliance on any suchforward-looking statements, which speak only as of the date made.  Becausethese forward-looking statements are based on estimates and assumptions thatare subject to significant business, economic and competitive uncertainties,many of which are beyond the Company’s control or are subject to change, actualresults could be materially different.  Factors that might cause such adifference include, without limitation, the following:  the Company’sinability to generate sufficient cash flow to meet its current liabilities, theinability of the Company to find suitable new acquisitions or the expense ordifficulty of integrating such acquisitions with current Company operations,adverse results in any of the Company’s material lawsuits, the possible failureof revenues to offset additional costs associated with its new business model,the potential lack of product acceptance, the Company’s potential inability tointroduce new products to the market, the potential failure of customers tomeet purchase commitments, the potential loss of customer relationships, thepotential failure to receive or maintain necessary regulatory approvals, theextent to which competition may negatively affect prices and sales volumes ornecessitate increased sales expenses, the failure of negotiations to establishoriginal equipment manufacturer agreements or strategic alliances and the otherrisks and uncertainties set forth in this report.

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

ITEM 2.               DESCRIPTIONOF PROPERTY

As previously reported in the Company’s Form 8-K,filed with the SEC on April 17, 2006, the Company, on April 11, 2006, soldto and leased back from the Sepulveda Group, LLC, a California limitedliability company affiliated with Discus, its former 45,000 square footbuilding and property located at 5655 Bear Lane, Corpus Christi, Texas. Thegross sale proceeds were $1.9 million, and the Company’s monthly lease backrent for the facility is $20,385 for a five year term, commencing April 11,2006, with a 3% yearly increase and an option to extend the lease term for anadditional five years.

ITEM 3.               LEGALPROCEEDINGS

On February 7, 2005, the Company signed a mutualrelease and settlement agreement with Cefla, S.C.R.L.  Accruals for thissettlement were made in the period ended December 31, 2003 and are included inthe accompanying balance sheet.  The settlement amount of $215,000 waspaid in the first quarter of 2005.

On October 25, 2004, the Company filed a lawsuitagainst Michael D. Stewart, an attorney who represented the Company on acontingency fee basis in litigation against Big Sky Laser Technologies,Inc.  After a “walk away” settlement with Big Sky was verbally agreed toby both parties, Mr. Stewart encouraged the Company to renege on the settlementagreement, which resulted in Big Sky petitioning the court for an orderenforcing the settlement agreement.  After the court ordered dismissal ofthe lawsuit, Mr. Stewart claimed he could have recovered a contingency fee ofbetween $2 and $8 million had the Company not elected to enter into thesettlement agreement and advised the Company that he would seek arbitration ofhis contingency fee agreement in pursuit of this claim.  On October 19,2005, the arbitrator granted the Company’s motion for summary judgment as toall the claims, and on December 13, 2005, the arbitrator, denied Mr. Stewart’sclaim for unpaid fees and the Company’s request for attorney’s fees.

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

On November 20, 2006 a demand for arbitration andstatement of claim was filed against the Company, alleging that the Company hadbreached agreements to pay the claimant in the action royalties and consultingfees.  The original demand sought damagesof $47,800.  The demand for arbitrationseeks an award of $125,000.  The originaldemand of $47,800 is included in “other accrued liabilities” in the Company’sDecember 2006 balance sheet.  The Companyis vigorously defending this claim.

ITEM 4.               SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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**PART II**

ITEM 5.                                          MARKETFOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUERPURCHASES OF EQUITY SECURITIES

The Company’s common stock trades in theover-the-counter market under symbol ADLI.OB on the OTC Electronic BulletinBoard.  The following table shows the quarterly high and low bid pricesfor the last two fiscal years.  The quotations reflect inter-dealerprices, without retail mark-up, mark-down or commission, and may notnecessarily represent actual transactions.

|                | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| **2006**       |       |     |       |    |       |
| First Quarter  |       | $        | 0.29       |    | $          | 0.16 |   |
| Second Quarter |       | 0.30     |       | 0.20    |       |
| Third Quarter  |       | 0.28     |       | 0.20    |       |
| Fourth Quarter |       | 0.24     |       | 0.16    |       |
|           |       |     |       |    |       |
| **2005**       |       |     |       |    |       |
| First Quarter  |       | 0.51     |       | 0.34    |       |
| Second Quarter |       | 0.50     |       | 0.31    |       |
| Third Quarter  |       | 0.38     |       | 0.28    |       |
| Fourth Quarter |       | 0.32     |       | 0.13    |       |
|                |            |          |            |         |            |  |  |

 

As of December 31, 2006 there were approximately 347holders of record of AMT common stock based upon the records of the Company’sstock transfer agent and security position listings.

The Board of Directors presently intends to retain allearnings to finance operations and does not expect to authorize cash dividendsin the foreseeable future.  Any payment of cash dividends in the futurewill depend upon earnings, capital requirements, any restrictive covenants infuture loan agreements and other factors considered relevant by the Board ofDirectors.

ITEM 6.               MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

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

**Critical Accounting Policies**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires the Company to make estimates and assumptions that affect amountsreported in the accompanying consolidated financial statements and relatedfootnotes.  These estimates and assumptions are evaluated on an on-goingbasis based on historical developments, market conditions, industry trends andother information the Company believes to be reasonable under thecircumstances.  There can be no assurance that actual results will conformto the Company’s estimates and assumptions, and that reported results of operationswill not be materially adversely affected by the need to make accountingadjustments to reflect changes in these estimates and

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assumptionsfrom time to time.  The following policies are those the Company believesto be the most sensitive to estimates and judgments.  The Company’ssignificant accounting policies are more fully described in Note 1 to ourconsolidated financial statements.

*Revenue Recognition*

The Company recognizes revenue when all of thefollowing criteria are met:  1) a contract or sales arrangementexists, the buyer is obligated to pay and such obligation would not be changedin the event of theft or physical destruction or damage of the product;2) products have been shipped, and if necessary installed, and title hasbeen transferred or services have been rendered; 3) the price of theproducts or services is fixed or determinable; 4) no further obligationexists on the part of the Company (other than warranty obligations); and5) collectibility is reasonably assured.  The Company grants a thirtyday unconditional money-back guarantee on selected products and a warranty forone year on parts and labor on defective products. The Company accrues itsestimated exposure to returns and warranty claims based on historical averagereturns and claims paid.  None of theCompany’s current product lines requires installation. The Company’s policy isto include shipping and handling costs, net of related revenues, in costs ofgoods sold.

*Receivables and Credit Policies*

Trade receivables are uncollateralized customerobligations due under normal trade terms requiring payment within 30 days fromthe invoice date. Payments on trade receivables are allocated to the specificinvoices identified on the customer’s remittance advice or, if unspecified, areapplied to the earliest unpaid invoices. The carrying amount of tradereceivables is reduced by a valuation allowance for any invoices over 90 dayspast due and 5% of the remaining balance. Additionally, management addressessignificant individual accounts for collectibility and provides an additionalallowance if necessary.  In December2006, the Company wrote off approximately $117,000 of receivables previouslyincluded in the allowance for bad debt.

*Inventories—Slow Moving*

The Company’s reserve for slow moving inventory isevaluated periodically based on its current and projected sales andusage.  The inventory reserve calculation assumes that any parts onhand exceeding three years of projected usage are subject to complete valuationallowance.  For purposes of computing the valuation allowance at December31, 2006, part usage was projected at 50% of 2006 part usage.  Thevaluation allowance could change materially, either up or down, if actual partusage in future years is materially different than the usage projected atDecember 31, 2006; however, the new cost basis cannot subsequently be marked upbased on changes in underlying facts and circumstances.

*Issuance of Warrants*

The Company periodically issues warrants to purchasestock at a price which may be higher or lower than the strike price of thestock on the grant date.  The fair valueof the warrants issued is estimated at the date of the grant using the BlackScholes pricing model.  The Companyrecognizes the expense over the vesting period of the warrant.  The Company has a policy of issuing newshares for the exercise of  warrants.

**Resultsof Operations**

For the year endedDecember 31, 2006 revenue was $2,712,335 compared to $2,059,448 in 2005, anincrease of approximately 32%.  Theincrease in revenue resulted primarily from the addition of the Spectrumproduct line in April 2006 which generated approximately $933,000 inrevenue.  These additional revenues werepartially offset by a decrease of $120,000 in KCP sales, a decrease of $79,000in PacLight sales and a decrease of $80,000 in repairs and parts sales in2006.  The Company anticipates thecontinued growth of the Spectrum product line.

Additionally,royalties decreased approximately $51,000 in 2006 due to payments received in2005 from the licensing agreements related to the Company’s air abrasionpatents signed and back payments received in 2005 with Danville Engineering andKaVo GmbH.

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Gross profit as apercentage of revenues was approximately 50% for the year ended December 31,2006 compared to 31% for the year ended December 31, 2005.  The increase in gross profit was primarilyattributable to the addition of the Spectrum product line in 2006 which has asignificantly higher gross margin than the other product lines and none of theassociated manufacturing costs. Additionally  $132,900 ofinventory was added to the inventory valuation allowance in 2006 compared to$267,200 of inventory added to the inventory valuation allowance in 2005.  Revenues in the KCP product line in 2006 wereprimarily from the sale of the Company’s Hydro Jet with a higher gross marginthan the upgrades sold in 2005.

Selling, generaland administrative expenses were $2,963,919 and $2,203,286 for the years endingDecember 31, 2006 and December 31, 2005 respectively constituting an increaseof approximately 34%.  The increase wasprimarily attributable to an additional $173,000 in rental expense due to thesale/leaseback of the building, an increase of $206,000 in other professionalfees of which approximately $150,000 was for the services of an outside salesgroup to represent the Spectrum and KCP product lines, $78,000 of licensingfees relating to the Spectrum product license and a $410,000 legalsettlement.  These increases were partiallyoffset by a decrease of $87,000 in legal fees in 2006.

Other income was$67,231 and $173,200 for the years ending December 31, 2006 and December 31,2005 respectively.  Of the amount in2006, $27,000 is related to the sub-lease of part of the building, $10,000 isrelated to the recovery of accounts receivable invoices that were previouslyreserved and $9,000 for consulting fees. Of the amount in 2005, $86,000 is related to the gain on the sale ofmachinery and $53,000 is related to recovery of accounts receivable invoicesthat were previously reserved.

Research anddevelopment expenses were $67,783 and $182,074 for December 31, 2006 andDecember 31, 2005 respectively.  Thedecrease was primarily due to the completion of the development of the HydroJet in 2005.

**Liquidity and Capital Resources**

The Company’s operating activities used $1,483,103 incash resources in 2006. Cash used in operating activities in 2006 includedpayments of a legal settlement $410,000, increase in inventory of $195,945 andreduction in accounts payable of $64,543.

The Company’s investing activities in 2006 provided$2,617,220. The cash provided by investing activities in 2006 included $1.9million in proceeds from the sale of the building.

The Company’s financing activities in 2006 used$1,106,401. The cash provided by financing activities in 2006 consistedprimarily of margin loans net of repayments.

On February 9, 2005 the Company entered into a securedloan agreement with Texas State Bank in the amount of $682,000. The loan wassecured by a primary lien on the Company’s building and other real property.Interest on the loan was set at the prime rate plus 1%.  The principal on the loan was payablein 35 monthly installments of $3,789 plus interest with the finalprincipal payment due in full in February 2008.  The funds received fromthis loan were used to retire the note held by Aimee Maroney which matured onDecember 31, 2004.  In April 2006, theCompany invested $632,744 in a Certificate of Deposit with a term of one year ascollateral for the outstanding principal remaining on the loan. The originalterms of the loan remained the same.  InDecember 2006, the Company redeemed the Certificate of Deposit and used theproceeds to pay the balance on the note.

On December 21, 2006, the Company entered into asecured line of credit agreement with Texas State Bank.  The funds available under the line of creditwere $600,000.  The Company invested$300,000 with funds drawn against the line of credit in a Certificate ofDeposit with a term of one year as collateral for the loan.  Interest on the line of credit is set at theprime rate plus 1%.  The interest rate onthe line of credit was 9.25% as of December 31, 2006.  The principal on the loan is payable in onepayment on December 20, 2007, with interest on the outstanding amount payablemonthly.  The Company borrowed anadditional $100,000 against the line of credit in December 2006.  In February 2007, Texas State Bank increasedthe line of credit to $800,000 using the Company’s accounts receivable andinventory as collateral.  The terms ofthe original line of credit remained the same with the exception of the paymentdate which was extended to February 2008.

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On April 11, 2006 the Company sold its 45,000 squarefoot Corpus Christi facility for $1.9 million to the Sepulveda Group, aCalifornia limited liability company. The Company entered into a five yearlease back of the facility with a monthly rent of $20,385. The lease providesfor a 3% yearly rent increase and an option to extend the lease for anadditional five years. The Company invested $632,744 of the sale proceeds in aCertificate of Deposit with Texas State Bank which will be used as replacementcollateral for the loan entered into in February 2005. Of the proceeds, $54,858was used for a security deposit and rent for the facility, $88,671 was used topay the 2005 property taxes and $14,088 was used as real estate and closingfees. The remaining $1.1 million in net proceeds were used to reduceliabilities and for operational expenses as needed.

On April 11, 2006, the Company entered into alicensing agreement with Discus Dental Holdings, Inc. (“Discus”) and its whollyowned subsidiary, Spectrum Dental, Inc. (“Spectrum Dental”), a leading providerof professional tooth whitening products under the brand names of “Contrastpm”,“Contrastpmplus” and “Contrastam”, under which AMT became the exclusivedistributor of the Spectrum Dental product line, which provided  approximately $933,000 in additional revenuein 2006. The Sepulveda Group, LLC is affiliated with Discus. In full paymentfor the license, the Company issued Discus a warrant to purchase 2,500,000shares of common stock at $0.20 per share.

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

In 2006, the Company entered into a new phase of itscorporate development.  The first step inthe transition was to infuse the existing executive and sales management teamswith fresh talent.  The second step inthe transition was to review the status of AMT’s existing core products and asa result of this review, the Company is exploring the discontinuation of someof its mature product lines in order to reduce spending and to outsource someof the Company’s equipment service and maintenance in order to take advantageof lower overhead costs.

In 2007, the Company plans to continue to include theHydro Jet in its product offering, selling through its existing internationalnetwork of dealers; however, no significant investment is planned to upgradethe product technology or to market the products.

As a final step in the transition, the Company isanticipating the alteration of its basic business model from that oftraditional manufacturing to one of a product-brokering organization, directingthe sales of products from contractually bound manufacturers to theinternational dental market.  Under thenew business model, AMT would position itself as the premier “outsourced salesorganization” for companies seeking the international sale and distribution oftheir unique dental products.  TheCompany believes it can continually grow contractually protected revenue byincreasing the sales of existing products and by the sales of new productlines, while minimizing overhead costs and inventory liabilities.

The Company’s ability to generate positive operationalcash flow is dependent upon increasing revenues through the sales of existingproduct lines and the expansion related to the representation of additionallines of dental products.  While theCompany has identified additional product lines and has a letter of intent todistribute products for a major dental manufacturer, there can be no assurancethat the Company will be successful in finalizing the contract forrepresentation of these products or that the Company will be successful ingenerating a positive operational cash flow.

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The following table summarizes AMT’s contractualobligations as of December 31, 2006:
|                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Total** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| Line of credit * |       | $        | 437,000    |     | $          | —   |       | $        | —     |     | $          | —    |       | $ | — |   | $ | 400,000 |   |
|             |       |     |       |     |       |     |       |     |       |     |       |      |       |
| Building lease   |       | 249,512  |       | 256,998  |       | 264,708  |       | 272,649  |       | 91,775   |       | 1,135,642 |       |
|             |       |     |       |     |       |     |       |     |       |     |       |      |       |
|             |       | $        | 649,512    |     | $          | 256,998  |       | $        | 264,708    |     | $          | 272,649   |       | $ | 91,775 |   | $ | 1,535,642 |   |

 

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* Variable interest rate on note. Interest rate usedwas as of December 31, 2006.

**New Accounting Standards and Disclosures**

In September 2006,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “FairValue Measurements.”  This statement establishes a framework for measuringfair value in generally accepted accounting principles and expands disclosuresabout fair value measurements.  SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007, andinterim periods within those fiscal years.

The provisions ofSFAS No. 157 should be applied prospectively as of the beginning of the fiscalyear in which SFAS No. 157 is initially applied, except in limitedcircumstances. The Company expects to adopt SFAS No. 157 beginning January 1,2008.  The Company is currently evaluating the impact that thisinterpretation may have on our consolidated financial statements.

In September 2006,the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements” (SAB No. 108), which provides interpretive guidance onhow the effects of the carryover or reversal of prior year misstatements shouldbe considered in quantifying a current year misstatement. The SEC staffbelieves that registrants should quantify errors using both a balance sheet andan income statement approach and evaluate whether either approach results inquantifying a misstatement that, when all relevant quantitative and qualitativefactors are considered, is material. The provisions of SAB No. 108 areeffective for the Company beginning in the first quarter of 2007. The Companydoes not expect any impact to our consolidated financial statements up adoptionof SAB No. 108.

In June 2006, FASBInterpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretationof FASB Statement 109 Accounting for Income Taxes, was issued.  FIN No. 48describes accounting for uncertainty in income taxes, and includes arecognition threshold and measurement attribute for recognizing the effect of atax position taken or expected to be taken in a tax return.  FIN No. 48 iseffective for fiscal years beginning after December 15, 2006.  The Companyadopted FIN No. 48 on January 1, 2007, but is not expected to have a materialeffect on the Company’s financial condition, results of operations, or cashflows.

In December 2004,SFAS No. 123 “Accounting for Stock-Based Compensation” was revised (“SFAS No.123R”). SFAS No. 123R focuses primarily on accounting for transactions in whichan entity obtains employee services in share-based payment transactions andrequires that companies record compensation expense for employee stock optionawards. SFAS No. 123R is effective for annual periods beginning after June 15,2005. There was no effect on the Company of adoption of SFAS No. 123R.

In February 2006,the FASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments - an amendment of FASB Statements No. 133 and 140”. SFAS No. 155amends SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities”, and SFAS No. 140, “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities”. This Statement alsoresolves issues addressed in Statement No. 133 Implementation Issue No. D1, “Applicationof Statement 133 to Beneficial Interests in Securitized Financial Assets. SFASNo. 155 permits fair value remeasurement for any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcationand clarifies which interest-only strips and principal-only

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strips are not subject tothe requirements of SFAS No. 133. SFAS No. 140 is amended to eliminate theprohibition on a qualifying special-purpose entity from holding a derivativefinancial instrument that pertains to a beneficial interest other than anotherderivative financial instrument. SFAS No. 155 is effective for all financialinstruments acquired or issued during fiscal years beginning after September15, 2006. The Company does not expect this statement to have a material impacton its consolidated financial statements.

**Off Balance Sheet Arrangements**

As of December 31, 2006, The Company has no offbalance sheet arrangements.

ITEM 7.               FINANCIALSTATEMENTS

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To TheStockholders and Board of DirectorsAmerican Medical Technologies, Inc.

We haveaudited the accompanying consolidated balance sheets of American MedicalTechnologies, Inc. as of December 31, 2006 and 2005 and the relatedconsolidated statements of operations, stockholders’ equity(deficit) and cashflows for the years then ended.  Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Company hasdetermined that it is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit porcedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofAmerican Medical Technologies, Inc. as of December 31, 2006 and 2005 and theconsolidated results of their operations and their cash flows for the yearsthen ended, in conformity with United States generally accepted accountingprinciples.

Also asdiscussed in note 1 to the accompanying consolidated financial statements,effective January 1, 2006, the Company adopted Statement of FinancialAccounting Standards No. 123(R), *Share-BasedPayment*.
| /s/ Hein & Associates  LLP |   |
|--------------------------------|--------|
| HEIN &  ASSOCIATES LLP     |
| Houston, Texas                 |
| April 13, 2007                 |

 

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

**DECEMBER 31, 2006 AND 2005**
| ** **                                                                                                                           | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| *ASSETS*                                                                                                                             |       |        |       |        |       |
| **CURRENT ASSETS:**                                                                                                                  |       |        |       |        |       |
| Cash and cash  equivalents                                                                                                           |       | $           | 65,821     |        | $          | 34,217 |   |
| Investments                                                                                                                          |       | 184,076     |       | 1,237,718   |       |
| Restricted  certificate of deposit                                                                                                   |       | 300,000     |       | —      |       |
| Accounts  receivable, less allowance of approximately $18,000 in 2006 and $139,000 in  2005                                          |       | 273,235     |       | 100,158     |       |
| Inventories, net                                                                                                                     |       | 505,578     |       | 709,559     |       |
| Prepaid expenses  and other current assets                                                                                           |       | 151,509     |       | 105,407     |       |
| Total current  assets                                                                                                                |       | 1,480,219   |       | 2,187,059   |       |
|                                                                                                                                 |       |        |       |        |       |
| **PROPERTY AND EQUIPMENT, net**                                                                                                      |       | 109,913     |       | 1,267,660   |       |
|                                                                                                                                 |       |        |       |        |       |
| **INTANGIBLE ASSETS, net**                                                                                                           |       | 473,165     |       | 4,441       |       |
|                                                                                                                                 |       |        |       |        |       |
| Total assets                                                                                                                         |       | $           | 2,063,297  |        | $          | 3,459,160 |   |
|                                                                                                                                 |       |        |       |        |       |
| *LIABILITIES  AND STOCKHOLDERS’ EQUITY(DEFICIT)*                                                                                |       |        |       |        |       |
| ***CURRENT  LIABILITIES:***                                                                                                          |       |        |       |        |       |
|                                                                                                                                 |       |        |       |        |       |
| Line of credit                                                                                                                       |       | $           | 400,000    |        | $          | — |   |
| Margin loan on  investment account                                                                                                   |       | —      |       | 822,290     |       |
| Note payable,  current portion                                                                                                       |       | —      |       | 45,467      |       |
| Series B  Preferred Stock, $.01 par value, manditorily redeemable, authorized 575,000  shares, 400,000 shares issued and outstanding |       | 400,000     |       | 400,000     |       |
| Accounts payable                                                                                                                     |       | 672,776     |       | 737,319     |       |
| Compensation and  employee benefits                                                                                                  |       | 95,039      |       | 88,916      |       |
| Accrued  restructuring costs                                                                                                         |       | 65,892      |       | 65,892      |       |
| Warrants subject  to registration rights                                                                                             |       | 399,926     |       | —      |       |
| Other accrued  liabilities                                                                                                           |       | 228,105     |       | 182,028     |       |
| Total current  liabilities                                                                                                           |       | 2,261,738   |       | 2,341,912   |       |
|                                                                                                                                 |       |        |       |        |       |
| ***LONG  TERM LIABILITIES:***                                                                                                        |       |        |       |        |       |
| Note payable,  net of current portion                                                                                                |       |        |       | 598,644     |       |
|                                                                                                                                 |       |        |       |        |       |
|   Deferred  gain on sale of building                                                                                       |       | 656,075     |       | —      |       |
| Total long term  liabilities                                                                                                         |       | 656,075     |       | 598,644     |       |
|                                                                                                                                 |       |        |       |        |       |
| **COMMITMENTS AND CONTINGENCIES  (Notes 2 and 8)**                                                                                   |       |        |       |        |       |
|                                                                                                                                 |       |        |       |        |       |
| **STOCKHOLDERS’ EQUITY(DEFICIT):**                                                                                              |       |        |       |        |       |
| Preferred Stock,  authorized 9,425,000 shares, none outstanding                                                                      |       |        |       |        |       |
| Common stock,  $.04 par value, authorized 100,000,000 shares; issued and outstanding  8,189,306                                      |       | 327,572     |       | 327,572     |       |
| Additional  paid-in capital                                                                                                          |       | 42,604,651  |       | 42,599,667  |       |
| Accumulated  deficit                                                                                                                 |       | (43,786,739 | )          | (42,408,635 | )          |
| Total  stockholders’ equity(deficit)                                                                                            |       | (854,516    | )          | 518,604     |       |
| Total liabilities and  stockholders’ equity(deficit)                                                                            |       | $           | 2,063,297  |        | $          | 3,459,160 |   |

 

See accompanying notes to consolidated financialstatements.

19

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**AMERICAN MEDICAL TECHNOLOGIES, INC.****CONSOLIDATED STATEMENTS OFOPERATIONS**

**YEARS ENDED DECEMBER 31, 2006 AND2005**
| ** **                                                     | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|----------------------------------------------------------------|------------|------------|------------|------------|------------|
| **REVENUES**                                                   |       | $          | 2,712,355  |       | $          | 2,059,448 |   |
|                                                           |       |       |       |       |       |
| **ROYALTIES**                                                  |       | 51,019     |       | 101,886    |       |
|                                                           |       | 2,763,374  |       | 2,161,334  |       |
| **COST OF  SALES**                                             |       | 1,402,904  |       | 1,424,109  |       |
| Gross profit                                                   |       | 1,360,470  |       | 737,225    |       |
|                                                           |       |       |       |       |       |
| **COST  AND EXPENSES:**                                        |       |       |       |       |       |
| Selling, general and administration                            |       | 2,963,919  |       | 2,203,286  |       |
| Research and development                                       |       | 67,783     |       | 182,074    |       |
| Loss from operations                                           |       | (1,671,232 | )          | (1,648,135 | )          |
|                                                           |       |       |       |       |       |
| **OTHER  INCOME (EXPENSES):**                                  |       |       |       |       |       |
| Net realized and unrealized gains and (losses) on  investments |       | 10,225     |       | (7,086     | )          |
| Gain on sale of building                                       |       | 122,372    |       | —     |       |
| Other income                                                   |       | 67,231     |       | 173,200    |       |
| Interest income                                                |       | 46,993     |       | 42,430     |       |
| Change in fair value of warrant                                |       | 149,604    |       | —     |       |
| Interest expense                                               |       | (107,185   | )          | (105,183   | )          |
| Total other income(expenses)                                   |       | 289,240    |       | 103,361    |       |
|                                                           |       |       |       |       |       |
| Net loss                                                       |       | (1,381,992 | )          | (1,544,774 | )          |
|                                                           |       |       |       |       |       |
| Preferred  dividends                                           |       | (40,000    | )          | (40,000    | )          |
|                                                           |       |       |       |       |       |
| Net loss available  to common shareholders                     |       | $          | (1,421,992 | )          | $          | (1,584,774 | ) |
|                                                           |       |       |       |       |       |
| Basic and  diluted loss per common share                       |       | $          | (0.17      | )          | $          | (0.19 | ) |
|                                                           |       |       |       |       |       |
| Weighted number of  shares issued                              |       | 8,189,306  |       | 8,189,306  |       |

 

See accompanying notes to consolidated financialstatements.

20

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**AMERICANMEDICAL TECHNOLOGIES, INC.**

# **CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIT)**

**YEARS ENDED DECEMBER 31, 2006 AND2005**
| ** **                    | ** ** | **COMMON STOCK** | ** ** | **ADDITIONAL  PAID-IN** | ** ** | **ACCUMULATED** | ** ** | ** **  | ** ** |
|-------------------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|-------------|------------|
| ** **                    | ** ** | **SHARES**            | ** ** | **AMOUNT**              | ** ** | **CAPITAL**     | ** ** | **DEFICIT** | ** ** | **TOTAL** | ** ** |
| Balance at  December 31, 2004 |       | 8,189,306             |       | 327,572                 |       | 42,620,977      |       | (40,853,433 | )          | $ | 2,095,116 |   |
| Net loss                      |       | —                |       | —                  |       | —          |       | (1,544,774  | )          | (1,544,774 | ) |
| Foreign currency  translation |       | —                |       | —                  |       | —          |       | (10,428     | )          | (10,425 | ) |
|                          |       |                  |       |                    |       |            |       |        |       |   |   |
| Comprehensive  loss           |       | —                |       | —                  |       | —          |       | —      |       | (1,555,202 | ) |
| Preferred  dividends          |       | —                |       | —                  |       | (40,000         | )          |        |       | (40,000 | ) |
| Issuance of  common stock     |       | —                |       | —                  |       | 18,690          |       | —      |       | 18,690 |   |
|                          |       |                  |       |                    |       |            |       |        |       |   |   |
| Balance at  December 31, 2005 |       | 8,189,306             |       | 327,572                 |       | 42,599,667      |       | (42,408,635 | )          | 518,604 |   |
|                          |       |                  |       |                    |       |            |       |        |       |   |   |
| Net loss                      |       | —                |       | —                  |       | —          |       | (1,421,992  | )          | (1,421,992 | ) |
| Foreign currency  translation |       | —                |       | —                  |       | —          |       | 3,888       |       | 3,888 |   |
| Comprehensive  loss           |       | —                |       | —                  |       | —          |       | —      |       | (1,418,104 | ) |
| Preferred  dividends          |       | —                |       | —                  |       | (40,000         | )          |        |       | (40,000 | ) |
| Option grants                 |       | —                |       | —                  |       | 44,984          |       | —      |       | 44,984 |   |
|                          |       |                  |       |                    |       |            |       |        |       |   |   |
| Balance at  December 31, 2006 |       | 8,189,306             |       | 327,572                 |       | 42,604,651      |       | (43,786,739 | )          | $ | (854,516 | ) |

 

See accompanying notes to consolidated financialstatements.

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**AMERICAN MEDICAL TECHNOLOGIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2006 AND 2005**
| ** **                                                                   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **OPERATING  ACTIVITIES:**                                                   |       |       |       |       |       |
| Net loss                                                                     |       | $          | (1,381,992 | )          | $          | (1,544,774 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |       |       |       |       |
| Depreciation                                                                 |       | 61,523     |       | 100,995    |       |
| Amortization                                                                 |       | 80,806     |       | 2,970      |       |
| Provision for slow-moving inventory                                          |       | 8,036      |       | 267,199    |       |
| Provision of doubtful accounts                                               |       | 5,436      |       | 4,597      |       |
| Gain on sale of machinery                                                    |       | —     |       | (86,062    | )          |
| Gain recognized on sale of building                                          |       | (122,372   | )          | —     |       |
| Loss on disposal of asset                                                    |       | 868        |       | —     |       |
| Net losses on investments                                                    |       | 10,225     |       | 7,086      |       |
| Expense related to option grants                                             |       | 44,984     |       | 18,690     |       |
| Change in fair value of warrant                                              |       | (149,604   | )          | —     |       |
| Other                                                                        |       | —     |       | 56         |       |
| Total other operating activities                                             |       | (60,098    | )          | 315,531    |       |
|                                                                         |       |       |       |       |       |
| Changes in operating assets and liabilities:                                 |       |       |       |       |       |
| Accounts receivable                                                          |       | (178,513   | )          | 104,504    |       |
| Inventories                                                                  |       | 195,945    |       | (68,221    | )          |
| Prepaid expenses and other current assets                                    |       | (46,102    | )          | 29,326     |       |
| Accounts payable                                                             |       | (64,543    | )          | (157,982   | )          |
| Compensation and employee benefits                                           |       | 6,123      |       | 42,060     |       |
| Accrued restructuring costs                                                  |       | —     |       | (245,291   | )          |
| Other accrued liabilities                                                    |       | 46,077     |       | 3,850      |       |
| Net cash used in operating activities                                        |       | (1,483,103 | )          | (1,520,997 | )          |
|                                                                         |       |       |       |       |       |
| **INVESTING  ACTIVITIES:**                                                   |       |       |       |       |       |
| Purchases of property, plant and equipment                                   |       | (26,197    | )          | (55,998    | )          |
| Proceeds on sale of building                                                 |       | 1,900,000  |       | —     |       |
| Proceeds from sale of machinery                                              |       | —     |       | 94,759     |       |
| Sales and maturities of government securities                                |       | 1,043,417  |       | —     |       |
| Purchase of certificate of deposit                                           |       | (632,744   | )          | —     |       |
| Redemption of certificate of deposit                                         |       | 632,744    |       | —     |       |
| Purchase of certificate of deposit                                           |       | (300,000   | )          | —     |       |
| Sales and maturities of government securities                                |       | —     |       | 559,909    |       |
| Net cash provided by investing activities                                    |       | 2,617,220  |       | 598,670    |       |
|                                                                         |       |       |       |       |       |
| **FINANCING  ACTIVITIES:**                                                   |       |       |       |       |       |
| Series B preferred dividends                                                 |       | (40,000    | )          | (40,000    | )          |
| Margin loans on investments                                                  |       | 206,000    |       | 1,350,000  |       |
| Payments on margin loans                                                     |       | (1,028,290 | )          | (527,710   | )          |
| Repayment of related party note payable                                      |       | —     |       | (682,056   | )          |
| Proceeds from note payable                                                   |       | —     |       | 682,000    |       |
| Proceeds from line of credit                                                 |       | 400,000    |       | —     |       |
| Payments on note payable                                                     |       | (644,111   | )          | (37,945    | )          |
| Net cash provided by (used in) financing activities                          |       | (1,106,401 | )          | 744,289    |       |
|                                                                         |       |       |       |       |       |
| Net increase/(decrease) in cash and cash equivalents                         |       | 27,716     |       | (178,038   | )          |
| Effect of exchange rates on cash                                             |       | 3,888      |       | (10,428    | )          |
| Increase(decrease) in cash and cash equivalents                              |       | 31,604     |       | (188,466   | )          |
|                                                                         |       |       |       |       |       |
| **CASH  and cash equivalents, at beginning of year**                    |       | 34,217     |       | 222,683    |       |
|                                                                         |       |       |       |       |       |
| **CASH  and cash equivalents, at end of year**                               |       | $          | 65,821     |       | $          | 34,217 |   |
| ** **                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **SUPPLEMENTAL  DISCLOSURE OF NON-CASH ACTIVITIES**                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Issuance of  warrants for license fee                                        |       | $          | 549,530    |       | —     |   |

 

See accompanying notes to consolidated financialstatements.

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American MedicalTechnologies, Inc.

**Notes to Financial Statements**

**1.     ORGANIZATIONAND SIGNIFICANT ACCOUNTING POLICIES**

*Operations and Principles of Consolidation*— American Medical Technologies, Inc. (“AMT” or the “Company”) develops,manufactures, markets and sells high technology products primarily fordentistry; and distributes tooth whitening products.  The consolidatedfinancial statements include the accounts and operations of the Company andAmerican Medical Technologies GmbH, its German subsidiary.  Allintercompany transactions and balances have been eliminated.

*Going Concern* — The Company’sfinancial statements are prepared using accounting principals generallyaccepted in the United States of America applicable to a going concern, whichcontemplates the realization of assets and the satisfaction of liabilities inthe normal course of business.  TheCompany incurred a net loss of $1,381,992 for the year ended December 31,2006.  The Company’s management expectsthe outstanding Series B Preferred Stock will be converted before the September30, 2007 redemption date.  The Companybelieves that the increase in revenue and gross margin due to the addition ofthe Spectrum product line, additional funds available from the line of creditand the additional representation of a new product line alleviate the doubtabout the Company’s ability to continue as a going concern; however, noassurances can be made..

*Restructuring Costs* — In the secondquarter of 2002 the Company adopted a restructuring plan that called for theclosure of its remaining sales and service branches and significant reductionsin the number of employees in mid-June.  As part of the restructuring, atotal of 49 employees were terminated, comprised of field sales and servicepersonnel, manufacturing employees and administrative personnel.  As ofSeptember 30, 2002 the Company had vacated all of its former sales and servicecenters.  Costs such as employee severance, lease termination costs andother exit costs have been recorded as of the date the restructuring plan wasfinalized.  Other restructuring costs include approximately $5,000 inaccrued attorney’s fees related to the termination of several of the Company’sGerman employees, approximately $34,000 in non-cash expenses associated withthe write-off of abandoned leasehold improvements and property due to theclosure of the branch offices, and approximately $18,500 of forfeited securitydeposits related to the abandoned offices.  None of the expenses accruedas part of the restructuring has any benefit for future operations.

Thebreakdown of the Company’s restructuring costs through December 31, 2006 is asfollows:

|                                 | ** ** | **Employee  Severance** | ** ** | **Office Lease  Terminations** | ** ** | **Vehicle  Lease  Terminations** | ** ** | **Other** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------------|------------|-------------------------------------|------------|----------------------------------|------------|-----------|------------|-----------|------------|
| Adoption of  restructuring plan |       | $                       | 402,363    |                                | $          | 218,056                          |       | $         | 136,366    |      | $          | 70,894 |   | $ | 827,679 |   |
| Additions  (Reductions)         |       | (16,167                 | )          | (49,896                             | )          | (66,109                          | )          | 2,190     |       | (129,982  | )          |
| Non-cash  expenses              |       | —                  |       | (27,802                             | )          | —                           |       | —    |       | (27,802   | )          |
| Payments                        |       | (386,196                | )          | (74,466                             | )          | (70,257                          | )          | (73,084   | )          | (604,003  | )          |
| Balance at December 31,  2006   |       | $                       | —     |                                | $          | 65,892                           |       | $         | —     |      | $          | — |   | $ | 65,892 |   |

 

*Inventories* — Inventories are statedat the lower of cost, determined by the first-in first-out method, ormarket.  At December 31, 2006 and 2005, inventories consisted of thefollowing:

|                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Finished goods                     |       | $        | 213,182    |     | $          | 225,065 |   |
| Raw materials,  parts and supplies |       | 292,396  |       | 484,494  |       |
|                               |       | $        | 505,578    |     | $          | 709,559 |   |

 

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Inventoriesat December 31, 2006 and 2005 are net of valuation allowances of approximately$1,700,000. In the fourth quarter of 2006, the Company wrote off approximately$107,000 of inventory that was previously reserved.

TheCompany’s reserve for slow moving inventory is evaluated periodically based onits current and projected sales and usage. The inventory reserve calculationassumes that any parts on hand exceeding three years of projected usage aresubject to complete valuation allowance. For purposes of computing thevaluation allowance at December 31, 2006, part usage was projected at 50% of2006 part usage. The valuation allowance could change materially, either up ordown, if actual part usage in future years is materially different than theusage projected at December 31, 2006; however, the new cost basis cannotsubsequently be marked up based on changes in underlying facts andcircumstances.

*Property and Equipment* — Property andequipment are stated at cost less accumulated depreciation.  Depreciationis computed by the straight-line method over the estimated useful lives of therelated assets, which range from three to ten years.  Depreciation is notincluded in cost of sales.  At December 31, 2006 and 2005 property andequipment consisted of the following (see Note 3 for discussion regarding saleof building in 2006):
|                                 | ** ** | **2006** | ** ** | **2005**   | ** ** |
|---------------------------------|------------|----------|------------|------------|------------|
| Building and  improvements      |       | $        | 17,391     |       | $          | 1,556,824 |   |
| Machinery and equipment         |       | 477,727  |       | 470,110    |       |
| Office furniture and  computers |       | 457,341  |       | 445,468    |       |
|                            |       | 952,459  |       | 2,472,402  |       |
| Accumulated  depreciation       |       | (842,546 | )          | (1,204,742 | )          |
|                            |       | $        | 109,913    |       | $          | 1,267,660 |   |

 

*Investments —*During 2005, the Companyborrowed $1.35 million in margin loans from its investment brokerage house.Interest received and matured securities were used as payments on these loans,with additional borrowing as needed for cash requirements. The balance on themargin loans as of December 31, 2005 was $822,290.  The margin loans were set up with a variableinterest rate. The interest rate as of December 31, 2005 was 8.375%.  During 2006, the Company borrowed anadditional $206,000 in margin loans from its investment brokerage house.  Interest received and matured securities wereused to pay the balance on the margin loans in the third quarter of 2006.

InApril 2006, the Company sold to and leased back from the Sepulveda Group, LLC,the 45,000 square foot building and property located at 5655 Bear Lane, CorpusChristi, Texas.  The gross sale proceedswere $1.9 million.  A gain of $778,447was recognized, $656,075 of which was deferred at December 31, 2006 and will beamortized over the term of the lease.

InApril 2006, the Company invested $632,744 in a Certificate of Deposit withTexas State Bank which was used as replacement collateral for the loan enteredinto in February 2005.  This Certificateof Deposit was redeemed in December 2006.

InDecember 2006 the Company invested $300,000 in a Certificate of Deposit withTexas State Bank which was used as collateral for a line of credit extended tothe Company by Texas State Bank.

*Revenue Recognition —* The Companyrecognizes revenue when all of the following criteria are met:  1) acontract or sales arrangement exists, the buyer is obligated to pay and suchobligation would not be changed in the event of theft or physical destructionor damage of the product; 2) products have been shipped, and if necessaryinstalled, 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 (other thanwarranty obligations); and 5) collectibility is reasonably assured. The Company grants a thirty day unconditional money-back guarantee on selectedproducts and a warranty for one year on parts and labor on defective products.The Company accrues its estimated exposure to returns and warranty claims basedon historical average returns and claims paid. None of the Company’s current product lines require installation. TheCompany’s policy is to include shipping and handling costs, net of relatedrevenues, in costs of goods sold.

24

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*Receivables and Credit Policies* -Tradereceivables are uncollateralized customer obligations due under normal tradeterms requiring payment within 30 days from the invoice date. Payments on tradereceivables are allocated to the specific invoices identified on the customer’sremittance advice or, if unspecified, are applied to the earliest unpaidinvoices. The carrying amount of trade receivables is reduced by a valuationallowance for any invoices over 90 days past due and 5% of the remainingbalance. Additionally, management addresses significant individual accounts forcollectibility and provides an additional allowance if necessary.  In December 2006, the Company wrote offapproximately $117,000 of receivables previously included in the allowance forbad debt.

*Intangible Assets* — Intangible assetsconsist of patents, and are stated at cost less accumulated amortization.

Goodwilland intangible assets that have indefinite useful lives are tested at leastannually for impairment.  Intangible assets with finite useful lives willcontinue to be amortized over their useful lives.

TheCompany has amortizable intangible assets as of December 31, 2006 and 2005 asfollows:
|                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Spectrum license               |       | 549,530  |       | —   |       |
| Patents,  trademarks and other |       | $        | 59,376     |     | $          | 59,376 |   |
| Accumulated  amortization      |       | (135,741 | )          | (54,935  | )          |
|                           |       |     |       |     |       |
|                           |       | $        | 473,165    |     | $          | 4,441 |   |

 

Amortizationexpense related to finite lived intangibles was $80,806 and $2,970 for theyears ending December 31, 2006 and December 31, 2005 respectively.  Thefollowing table shows the estimated amortization expense in total for allfinite lived intangible assets to be incurred over the next five years.
| Years Ending December 31, | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|
| 2007                                     |       | $          | 111,359    |   |
| 2008                                     |       | 109,888    |       |
| 2009                                     |       | 109,888    |       |
| 2010                                     |       | 109,888    |       |
| 2011                                     |       | 32,142     |       |
|                                     |       | $          | 473,165    |   |

 

*Earnings Per Share* — The followingtable sets forth the computation for basic and diluted earnings per share:
|                                                                                                        | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Net loss available to  common shareholders                                                             |       | $          | (1,421,992 | )          | $          | (1,584,774 | ) |
|                                                                                                   |       |       |       |       |       |
| Numerator for basic and  diluted earnings per share                                                    |       | (1,421,992 | )          | (1,584,774 | )          |
|                                                                                                   |       |       |       |       |       |
| Denominator for basic  earnings per share — weighted average share                                |       | 8,189,306  |       | 8,189,306  |       |
| Dilutive potential  common shares                                                                      |       | —     |       | —     |       |
|                                                                                                   |       |       |       |       |       |
| Denominator for diluted  earnings per share- adjusted weighted average shares after assumed conversion |       | 8,189,306  |       | 8,189,306  |       |
| Basic and diluted earnings per common share                                                            |       | $          | (0.17      | )          | $          | (0.19 | ) |

 

Thecomputation of diluted earnings per share for 2005 and 2006 excludes the effectof assuming the conversion of the 400,000 shares of Preferred Stock which areconvertible for two and one-half shares of common stock.

25

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*Comprehensive Loss*— The FinancialAccounting Standards Board’s Statement No. 130, *Reporting Comprehensive Income* requires foreign currencytranslation adjustments and unrealized income (loss) on available for salesecurities to be included, along with net loss, in comprehensive loss.

*Stock Based Compensation* — EffectiveJanuary 1, 2006, the Company adopted the provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 123 (Revised), “Share-BasedPayment.”  Under the fair recognition provisions of SFAS No. 123(R),stock based compensation is measured at the grant date based on the value ofthe awards and is recognized as expense over the requisite service period(usually the vesting period). The Company selected the modified prospectivemethod of adoption described in SFAS No. 123(R); as such, no prior periodshave been restated. The Company has a policy of issuing new shares for stockoption exercises.

*Advertising*— The Company expensesadvertising costs as incurred.  Advertising expense approximated $19,000and $35,000 in 2006 and 2005, respectively.

*Use of Estimates*— Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes.  Actual results could differ from theseestimates.  The determination of the Company’s valuation allowance forinventory is a significant estimate that could change materially over the nextyear should circumstances affecting the Company’s current sales volumes change.

*Fair Value of Financial Instruments*—The fair value of the Company’s cash, accounts receivable, line of credit andaccounts payable approximates their carrying value due to their short-termnature.  The fair value of the Company’s preferred stock approximates fairvalue as its terms and yield approximates current market conditions.

**2.     AGREEMENTSWITH RELATED PARTIES**

*Roger Dartt*—The Company renewed itsemployment agreement with Mr. Dartt effective June 1, 2004 and extended theterm to end December 31, 2006.  Under the renewed employment agreement,Mr. Dartt’s base salary was $250,000 per year, and he received a signing bonusof $166,000, which he used to purchase 250,000 shares of Company common stockat $0.33 per share pursuant to options previously granted.  Mr. Darttagreed not to compete with the Company for one year after termination. The employment agreement was not renewed on December 31, 2006. Mr. Dartt  continues as Chairman of the Board for theCompany.

*Judd D. Hoffman -*The Company enteredinto an employment agreement with Mr. Hoffman effective January 1, 2007, naminghim as the Company’s President and Chief Executive Officer for a term endingDecember 31, 2009.  The employmentagreement provides for an annual base salary of $210,000, an increase of not lessthan 5% on each anniversary date, an incentive bonus in 2007 based on profitand the option grant to purchase 850,000 shares of stock at a price of $.20 pershare.  The options vest as follows:  100,000 immediately and 250,000 vesting onthe last day of the first, second and third years of the employment term.  Additionally, in June 2006 Mr. Hoffman wasgranted the option to purchase 100,000 shares of stock at a price of $0.27 pershare.  This option grant vested onSeptember 16, 2006.  The employment agreementcan be terminated for cause if Mr. Hoffman fails to perform his duties with theCompany, engages in gross misconduct in connection with his work for theCompany, commits a breach of this agreement or commits a felonious orfraudulent act against the Company.  Ifhis employment is terminated without cause, Mr. Hoffman is entitled to 12 month’ssalary and any portion of stock options will immediately vest and beexercisable for a period of 90 days.

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**3.     OTHEREVENTS**

*License Agreement.*On April 11,2006, the Company entered into an Exclusive License Agreement (the “LicenseAgreement”) with Discus Dental Holdings, Inc., under which the Companybecame the exclusive, worldwide distributor of the proprietary dental productsmanufactured and sold by Discus’ wholly owned subsidiary, SpectrumDental, Inc. (“Spectrum”). The License Agreement is for a term of fiveyears, contains minimum requirements for sale of the products by the Company,and may be terminated (i) for cause upon 30 days notice, (ii) atcertain times during the term of the License Agreement if the Company fails tomaintain positive net income for a specified period, (iii) upon theCompany’s failure to comply with applicable securities laws, (iv) if anyjudgment is rendered against the Company, or it defaults on any debt, in excessof $50,000, (v) upon any change in the Company’s results of operation orcondition which in the sole opinion of Discus has or could have a materialadverse effect on the Company’s condition, business, properties or prospects,and (vi) upon the occurrence of certain other customary events of default.As full consideration, the Company granted to Discus a ten year warrant (the “Warrant”)to purchase up to 2,500,000 shares of its common stock at $0.20 per share. Theshares subject to the Warrant vest 500,000 after the first year and anadditional 41,667 shares on each successive full one-month period thereafteruntil the fifth anniversary of the date of grant; however vesting ceases uponthe sale of Spectrum Dental to the Company as contemplated by the OptionAgreement described below. The shares subject to the Warrant are adjusted uponthe occurrence of certain events including a stock dividend, reclassification,merger and stock split, and upon the issuance of shares for a consideration pershare less than the applicable conversion price of the Warrant, with certainexceptions for compensation paid in stock.

Thefair value of the warrants issued to Discus is estimated at the end of eachperiod using the Black-Scholes option pricing model with the followingassumptions used on December 31, 2006:  risk free interest rate of 4.59%;dividend yield of 0%; volatility factors of the expected market price of theCompany’s common shares over the estimated life of the warrant of 6.42 years. The calculated fair value of the warrant was $549,530 which the Companycapitalized as an intangible asset and is recognizing as a licensing fee overthe vesting period of five years.

*Option Agreement*. On the same date asthe Company entered into the Licensing Agreement, the Company and Discusentered into a Put and Call Option Agreement (the “Option Agreement”) wherebyDiscus has a put option to compel the Company to purchase all the outstandingshares of capital stock of Spectrum , and the Company has a call option tocompel Discus to sell such shares, at any time after April 11, 2007 andbefore the earlier to occur of the termination or expiration of the LicenseAgreement or five years. Notwithstanding the foregoing, the Companymay not exercise its call option if the price at which its shares ofcommon stock are trading, or the average trading price of its shares during thepreceding 30 day period, is less than $0.60 per share. The exercise price ofthe option will be between $2,300,000 and $2,662,537, depending on the date ofexercise. The purchase price will be paid with a combination of cash and3,000,000 shares of Company common stock (subject to adjustment); provided thatif that aggregate value of the specified amount of cash and the value of thestock based on the average trading value of the Company’s stock for the 30 dayspreceding the closing of the Option Agreement is less than the applicableexercise price, then the Company must issue additional shares to equal thevalue of the exercise price. At the option of the parties, the exercise pricecan be paid in all cash; however, if the Company first elects to exercise itscall option, the method of payment of the exercise price will be at theelection of Discus. Upon the exercise of the option, the parties are requiredto enter into a Stock Purchase Agreement substantially in the form agreedto in the Option Agreement for the purchase and sale of the Spectrum shares.

*Manufacturing Agreement*  TheCompany also entered into a Manufacturing Agreement with WestsidePackaging, Inc. (“Westside”) a wholly owned subsidiary of Discus and thecurrent manufacturer, for the manufacture of the products and sale to theCompany for distribution under the License Agreement. The products manufacturedare sold under the trademarks Contrastpm, Contrastam, FastDam and FastTrak. TheManufacturing Agreement is for a term of three years with automatic one yearrenewal terms unless either party gives notice of non-renewal.

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*Standstill Agreement*  Effective January 16, 2007, Discus, Spectrumand Westside, on the one hand, and the Company, on the other hand, entered intoa Standstill Agreement, in which each of the parties agreed that there arepending disputes among them concerning the existence and/or extent of anyperformance issues under agreements among them, including, without limitation,the License Agreement and Manufacturing Agreement (collectively, the “Agreements”).  It is the Company’s position that theAgreements are in effect.  Discus hasagreed not to dispute the Company’s position, but has reserved, together withthe Company, all rights, claims and/or defenses relating to theAgreements.  The parties to theStandstill Agreement have agreed to discuss potential resolution of any disputesarising out of the Agreements.  Further,the parties have agreed that any party may terminate the Standstill Agreementby providing the other party with 10 days written notice.  The parties further agreed that no party tothe Standstill Agreement may commence any legal action against the other partyprior to termination of the Standstill Agreement.  The Standstill Agreement is dated February 1,2007.

*Registration Rights Agreement*.Also on April 11, 2006, the Company entered into a Registration RightsAgreement with Discus pursuant to which it agreed, at its own expense, toregister the shares acquired by Discus under the Warrant or the OptionAgreement with the SEC not later than April 11, 2007, and to use itsreasonable best efforts to cause the registration statement to be declaredeffective by the SEC as soon as practicable thereafter. The Company must,subject to certain specified circumstances, maintain the effectiveness of theregistration statement for a specified period of time. The Company also grantedto Discus piggyback rights for other registration statements filed by it withthe SEC for the sale of its shares.

TheRegistration Rights Agreement between the Company and Discus provides that theCompany shall file a shelf registration relating to the offer and resale ofshares issuable upon exercise of the warrant not later than an unspecified datein April 2007.  As of the date of thefiling of this form 10-KSB, the Company has not filed such registrationstatement.

*Sale and Leaseback Arrangement.*OnApril 11, 2006, the Company sold to and leased back from the SepulvedaGroup, LLC, a California company affiliated with Discus (“Sepulveda”), the45,000 square foot building and property located at 5655 Bear Lane, CorpusChristi, Texas. The gross sale proceeds were $1.9 million, and the monthly rentfor the facility is $20,385 for the five year term, with a 3% yearly increaseand an option to extend the lease term for an additional five years.

TheCompany invested $632,744 of the sale proceeds in a Certificate of Deposit withTexas State Bank which will be used as replacement collateral for the loanentered into in February 2005. Of the proceeds, $54,858 was used for asecurity deposit and rent for the facility, $88,671 was used to pay the 2005property taxes and $14,088 was used as real estate and closing fees. Theremaining $1.1 million in net proceeds were used to reduce liabilities and foroperational expenses as needed.   The gain of $778,447 on the sale ofthe building was recorded on the Company’s balance sheet as deferred gain onsale of building and is being recognized over the term of the lease as otherincome.  The Company recorded $122,372 in other income during the yearended December 31, 2006.

*Amendment to Loan Agreement.*As aresult of the sale and leaseback arrangement described above, the Company,under its loan agreement with Texas State Bank dated February 9, 2005 inthe original principal amount of $682,000, executed a change of collateralagreement. The loan was originally secured by a primary lien on the Company’sbuilding and other real property, and the final principal payment was due infull in February 2008. The Company invested $632,744 in a Certificate ofDeposit with a term of one year as collateral for the outstanding principalremaining on the loan. The original terms of the loan remained the same.  In December 2006, the Company redeemed theCertificate of Deposit and used proceeds as full payment of loan.

**4.     NOTEPAYABLE & LINE OF CREDIT**

OnFebruary 9, 2005 the Company entered into a secured loan agreement with TexasState Bank in the amount of $682,000. The loan was secured by a primary lien onthe Company’s building and other real property.  Interest on the loan wasat the prime rate plus 1%.  The principalon the loan was payable in 35 monthly installments of $3,789 plus interestwith the final principal payment due in full in February 2008.  The fundsreceived from this loan were used to retire the note held by Aimee Maroneywhich matured on December 31, 2004.  InApril 2006,

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theCompany invested $632,744 in a Certificate of Deposit with a term of one yearas collateral for the outstanding principal remaining on the loan. The originalterms of the loan remained the same.  InDecember 2006, the Company redeemed the Certificate of Deposit and used theproceeds to pay the balance on the note.

OnDecember 21, 2006, the Company entered into a secured line of credit agreementwith Texas State Bank.  The fundsavailable under the line of credit were $600,000.  The Company invested $300,000 with fundsdrawn against the line of credit in a Certificate of Deposit with a term of oneyear as collateral for the loan. Interest on the line of credit is set at the prime rate plus 1%.  The interest rate on the line of credit was9.25% as of December 31, 2006.  Theprincipal on the loan is payable in one payment on December 20, 2007, withinterest on the outstanding amount payable monthly.  The Company borrowed an additional $100,000against the line of credit in December 2006. In February 2007, Texas State Bank increased the line of credit to$800,000 using the Company’s accounts receivable and inventory as additionalcollateral.  The terms of the originalline of credit remained the same with the exception of the payment date of theline being extended to February 2008.

TheCompany paid interest of approximately $107,200 and $105,100 in 2006 and 2005,respectively.

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

*Preferred Stock*

TheCompany has authorized up to 575,000 shares of Series B Preferred Stock at aper share price of $1 per share.  The holders of Series B Preferred Stockare entitled to (i) receive an annual cumulative dividend at the rate of 10%,payable prior to dividends on any shares of common stock, (ii) two and one-halftimes the number of votes to which a holder of the same number of common sharesis entitled, (iii) receive two and one-half shares of common stock for eachshare of Series B Preferred Stock tendered for conversion after September 30,2005, (iv) require the Company to redeem shares of Series B Preferred Stock atthe original sale price, plus accrued cumulative dividends, upon prior noticeafter September 30, 2005, or in the event of a merger, sale of a majority ofthe stock or sale of substantially all the assets of the Company, and (v)receive a liquidation preference equal to the original sale price plus accruedcumulative dividends, prior to the rights of holders of the Series A PreferredStock and the common stock.  On September 30, 2007, all outstanding sharesof Series B Preferred Stock are automatically redeemable at the original saleprice plus accrued cumulative dividends. The Series B Preferred Stock arepresented as a current liability  due tothe automatic redemption feature.

Asof December 31, 2006, the Company had 400,000 shares of Series B PreferredStock outstanding. The Company declared $40,000 of Series B Preferreddividends in the year ended December 31, 2006 which are reflected in otheraccrued liabilities. The Company declared $87,671 of Series B Preferred dividendsin the year ended December 31, 2004 and $40,000 in the year ended December 31,2005. The Company paid $47,671 of the dividends by December 31, 2004 and anadditional $40,000 was paid in 2005.  Nopayments were made in 2006.  The Company’smanagement believes the outstanding Series B Preferred Stock will be convertedprior to the September 30, 2007 redemption date.

*Employee Stock Option Plan*

TheCompany currently sponsors a stock based compensation plan as described below.Effective January 1, 2006, the Company adopted the provisions of Statementof Financial Accounting Standards (“SFAS”) No. 123 (Revised), “Share-BasedPayment.”  Under the fair recognition provisions of SFAS No. 123(R),stock based compensation is measured at the grant date based on the value ofthe awards and is recognized as expense over the requisite service period(usually the vesting period). The Company selected the modified prospectivemethod of adoption described in SFAS No. 123(R); as such, no prior periodshave been restated. The fair values of the stock awards recognized under SFASNo. 123(R) are determined based on each separately vesting portion of theawards, however, the total compensation expense is recognized on astraight-line basis over the vesting period. The Company has a policy ofissuing new shares for stock option exercises.

Inaccordance with the provisions of SFAS No. 123(R), there was $26,294 instock based compensation expense recorded in the twelve month period endedDecember 31, 2006.

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Priorto 2006, the Company accounted for stock based compensation using the intrinsicvalue method prescribed in Accounting Principals Board (“APB) OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations. Under APB Opinion No. 25, no compensation expense wasrecognized for stock options issued to employees because the grant priceequaled or was above the market price on the date of grant for options issuedby the Company.

TheCompany had three stock option plans for employees, officers, directors,consultants and other key personnel which expired prior to December 31,2004.    As of December 31, 2006, the Nonqualified Stock Option Planhas no options outstanding; the Long-Term Incentive Plan had optionsoutstanding to acquire 5,928 shares; and the Stock Option Plan for Employeeshas no remaining options outstanding.

InMay 2005, the Company adopted the 2005 Stock Option Plan (the “Plan”) foremployees, officers, directors, consultants and other key personnel. Options topurchase 1,000,000 common shares may be granted under the Plan.

TheCompany granted 400,000 share options in June 2006 under the Plan.  The share options became exercisable at arate of 100,000 per year beginning in September 2006.  The fair value ofthe options issued was estimated at the date of the grant using the BlackScholes option pricing model with the following assumptions:  risk freeinterest rate of 5.14%; dividend yield of 0%; volatility factors of theexpected market price over the estimated life of the option of 6.25 years.  The calculated fair value of the option grant was $106,612.  The Companyrecognized $26,294 in  compensationexpense in 2006.  In January 2007, thenonvested portion of 300,000 remaining shares was cancelled.

Asof December 31, 2006, there was $80,318 in unrecognized compensation costrelated to nonvested share based compensation arrangements granted under thePlan.

TheCompany’s nonvested shares as of December 31, 2006 and changes during theperiod ended December 31, 2006, is summarized as follows:
| Nonvested Shares                                      | ** ** | **Shares** | ** ** | **Weighted-Average  Grant-Date  Fair Value** | ** ** |
|------------------------------------------------------------|------------|------------|------------|---------------------------------------------------|------------|
| Nonvested at December  31, 2005                            |       | —     |       | $                                                 | —     |   |
| Granted                                                    |       | 400,000    |       | $                                                 | 0.27       |   |
| Vested                                                     |       | 100,000    |       | $                                                 | 0.27       |   |
| Forfeited                                                  |       | —     |       | —                                            |       |
| Nonvested at December 31, 2006 (cancelled in January 2007) |       | 300,000    |       | $                                                 | 0.27       |   |

 

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Employeestock option activity is summarized as follows:
| ** **                             | ** ** | **Number  of shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** | **Weighted  Average  Remaining  Contractual  Term (Years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|----------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  December 31, 2003 |       | 724,229                    |       | $                                       | 1.65       |                                                    |       |                                                             |       |                            |       |   |
| Exercisable at  December 31, 2003 |       | 660,949                    |       | 1.78                                    |       |                                                    |       |                                                             |       |                            |       |
|                                   |       |                       |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Options granted                        |       | —                     |       | —                                  |       |                                                    |       |                                                             |       |                            |       |
| Options exercised                      |       | (250,000                   | )          | 0.33                                    |       |                                                    |       |                                                             |       |                            |       |
| Options canceled                       |       | (464,127                   | )          | 2.38                                    |       |                                                    |       |                                                             |       |                            |       |
|                                   |       |                       |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Outstanding at  December 31, 2004 |       | 10,102                     |       | 3.25                                    |       |                                                    |       |                                                             |       |                            |       |
| Exercisable at  December 31, 2004 |       | 10,102                     |       | 3.25                                    |       |                                                    |       |                                                             |       |                            |       |
|                                   |       |                       |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Options granted                        |       | —                     |       | —                                  |       |                                                    |       |                                                             |       |                            |       |
| Options exercised                      |       | —                     |       | —                                  |       |                                                    |       |                                                             |       |                            |       |
| Options canceled                       |       | (937                       | )          | 2.42                                    |       |                                                    |       |                                                             |       |                            |       |
|                                   |       |                       |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Outstanding at December 31,  2005 |       | 9,165                      |       | 3.33                                    |       |                                                    |       |                                                             |       |                            |       |
| Exercisable at  December 31, 2005 |       | 9,165                      |       | 3.33                                    |       |                                                    |       |                                                             |       |                            |       |
|                                   |       |                       |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Options granted                        |       | 400,000                    |       | 0.27                                    |       | 106,612                                                 |       |                                                             |       |                            |       |
| Options exercised                      |       | —                     |       | —                                  |       |                                                    |       |                                                             |       |                            |       |
| Options canceled                       |       | 3,237                      |       | 3.45                                    |       |                                                    |       |                                                             |       |                            |       |
|                                   |       |                       |       |                                    |       |                                                    |       |                                                             |       |                            |       |
| Outstanding at December  31, 2006      |       | 405,928                    |       | 0.30                                    |       |                                                    |       | 9.39                                                             |       | —                          |       |
| Exercisable at December 31, 2006       |       | 105,928                    |       | 0.40                                    |       |                                                    |       | 9.12                                                             |       | —                          |       |
|                                        |            |                            |            |                                         |            |                                                         |            |                                                                  |            |                                 |            |  |

 

Therewere 400,000 stock options granted and no options exercised during the yearended December 31, 2006.
| **Range of Exercise  Prices** | ** ** | **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| $0.27                                   |       | 400,000                                  |       | 100,000                                  |       | $                                          | 0.27       |                                                    | 9.38       |   |
| $0.86 - $1.38                           |       | 3,744                                    |       | 3,744                                    |       | $                                          | 1.21       |                                                    | 3.97       |   |
| $3.88 - $5.88                           |       | 2,184                                    |       | 2,184                                    |       | $                                          | 4.74       |                                                    | 1.39       |   |

 

*Pro Forma Effects*

Hadcompensation expense for our stock option grants been recognized based upon theestimated fair value on the grant date under the fair value methodologyprescribed by SFAS No. 123, as amended by SFAS No. 148 and SFASNo. 123(R), our net loss and loss per share for year December 31, 2005would not have changed materially.

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*Non-Employee Stock Options*

TheCompany granted 150,000 share options in October 2005 to non-employees. Ofthe options issued, 75,000 were exercisable on the date of the grant, with theremaining 75,000 vesting one year from the grant date. The fair value of theoptions issued was estimated at the date of the grant using a Black Scholesoption pricing model with the following assumptions:  risk-free interestrate of 4.27%; dividend yield of 0%; volatility factors of the expected marketprice over the estimated life of the option of 3.25 years. The calculated fairvalue of the option was $37,380**.**TheCompany recognized the expense over the vesting period of the options.

Non-employee stock option activity is summarized asfollows:
|                                   | ** ** | **Number  of shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|-----------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| Outstanding at  December 31, 2004 |       | —                     |       | $                                       | —     |   |
| Exercisable at  December 31, 2004 |       |                       |       | —                                  |       |
|                              |       |                       |       |                                    |       |
| Options granted                   |       | 150,000                    |       | 0.27                                    |       |
| Options  exercised                |       | —                     |       | —                                  |       |
| Options canceled                  |       | —                     |       | —                                  |       |
|                              |       |                       |       |                                    |       |
| Outstanding at  December 31, 2005 |       | 150,000                    |       | 0.27                                    |       |
| Exercisable at  December 31, 2005 |       | 75,000                     |       | 0.27                                    |       |
|                              |       |                       |       |                                    |       |
| Options granted                   |       | —                     |       | —                                  |       |
| Options  exercised                |       | —                     |       | —                                  |       |
| Options canceled                  |       | —                     |       | —                                  |       |
|                              |       |                       |       |                                    |       |
| Outstanding at December  31, 2006 |       | 150,000                    |       | 0.27                                    |       |
| Exercisable at  December 31, 2006 |       | 150,000                    |       | 0.27                                    |       |
|                                   |            |                            |            |                                         |            |  |

 

Asummary of all non-employee options outstanding as of December 31, 2006 is asfollows:
| **Range of Exercise  Prices** | ** ** | **Number of  Options  Outstanding** | ** ** | **Number of  Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| $0.27                                   |       | 150,000                                  |       | 150,000                                  |       | $                                          | 0.27       |                                                    | 3.79       |   |
|                                         |            |                                          |            |                                          |            |                                            |            |                                                         |            |  |

 

TheCompany has a policy of issuing new shares for stock option exercises.

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Warrantactivity is summarized as follows:
|                                   | ** ** | **Number of  shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|-----------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| Outstanding at December  31, 2004 |       | 98,250                     |       | $                                       | 4.00       |   |
| Exercisable at December  31, 2004 |       | 98,250                     |       | 4.00                                    |       |
|                              |       |                       |       |                                    |       |
| Warrants issued                   |       | —                     |       | —                                  |       |
| Warrants exercised                |       |                       |       |                                    |       |
| Warrants canceled                 |       | (98,250                    | )          | 4.00                                    |       |
|                              |       |                       |       |                                    |       |
| Outstanding at December  31, 2005 |       | —                     |       | —                                  |       |
| Exercisable at December  31, 2005 |       | —                     |       | —                                  |       |
|                              |       |                       |       |                                    |       |
| Warrants issued                   |       | 2,500,000                  |       | 0.20                                    |       |
| Warrants exercised                |       | —                     |       | —                                  |       |
| Warrants canceled                 |       | —                     |       | —                                  |       |
|                              |       |                       |       |                                    |       |
| Outstanding at December  31, 2006 |       | 2,500,000                  |       | 0.20                                    |       |
| Exercisable at December  31, 2006 |       | —                     |       | 0.20                                    |       |
|                                   |            |                            |            |                                         |            |  |

 

**6.     INCOMETAXES**

AtDecember 31, 2006 the Company had approximately $23,000,000 of net operatingloss carry forwards (“NOL’s”) for federal income tax purposes, which expire invarious amounts in the years 2008 through 2024.

Deferredtaxes represent the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andamounts used for income tax purposes.  Significant components of theCompany’s deferred tax assets are as follows:
|                                     | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|
| Allowance for doubtful  accounts    |       | $          | 6,000      |       | $          | 47,000 |   |
| Inventory valuation  reserves       |       | 1,018,000  |       | 569,000    |       |
| Compensation and  employee benefits |       | 11,000     |       | 30,000     |       |
| Warranty reserve                    |       | 12,000     |       | 15,000     |       |
| Sale/leaseback of  building         |       | 238,000    |       | 7,879,000  |       |
| NOL’s                          |       | 7,770,000  |       |       |       |
| Other                               |       | 39,000     |       | 396,000    |       |
| Deferred tax  asset                 |       | 9,094,000  |       | 8,936,000  |       |
| Deferred tax  liabilities           |       | (50,000    | )          | (51,000    | )          |
| Net deferred tax  asset             |       | 9,044,000  |       | 8,885,000  |       |
| Valuation allowance                 |       | (9,044,000 | )          | (8,885,000 | )          |
| Net deferred tax asset              |       | $          | —     |       | $          | — |   |

 

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TheCompany’s income tax provision included the following:
|                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Current expense  (benefit) |       | $        | —     |     | $          | — |   |
| Deferred expense           |       | —   |       | —   |       |
|                       |       | $        | —     |     | $          | — |   |

 

Thefollowing is a reconciliation of the Company’s expected income tax expense(benefit) based on statutory rates to the actual expense (benefit):
|                                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|
| Income taxes  (benefit) at US statutory rate       |       | $        | (469,877   | )        | $          | (525,223 | ) |
| Non-deductible  amortization and expenses          |       | 1,053    |       | 58,546   |       |
| Deferred tax  asset valuation allowance adjustment |       | 468,824  |       | 466,677  |       |
|                                               |       | $        | —     |     | $          | — |   |

 

Uncertaintiesexist as to the future realization of the deferred tax asset under the criteriaset forth under FASB Statement No. 109

TheCompany paid no federal income tax during 2005 or 2006.

TheCompany’s investment in its foreign subsidiary is considered to be permanentlyinvested, and no provision for U.S. federal and state income taxes on thesetranslation adjustments has been provided.

**7.****     OPERATIONSBY INDUSTRY SEGMENT, GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS**

SFASNo. 131, Disclosures about Segments of an Enterprise and Related Information,established standards for reporting information about operating segments inannual financial statements and required selected information about operatingsegments in interim financial reports issued to stockholders.  It alsoestablished standards for related disclosures about products and services, andgeographic areas.  Operating segments are defined as components of theenterprise about which separate financial information is available that isevaluated regularly by the chief operating decision maker, or decision makinggroup, in deciding how to allocate resources and in assessing performance.

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

Asof December 31, 2004, the Company ceased operations of its wholly ownedsubsidiary based in Keltern, Germany.  As required by German law, theCompany maintained an office there for a period of one year, but no salesactivities were generated from that location.  All activities afterDecember 31, 2004 were coordinated by AMT’s U.S. operations.

Theaccounting policies of the business segments are consistent with thosedescribed in Note 1.

34

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| ** **                                                       | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revenues:                                                        |       |       |       |       |       |
| Domestic                                                         |       | $          | 2,240,277  |       | $          | 1,698,379 |   |
| International                                                    |       | 472,078    |       | 361,069    |       |
|                                                             |       | $          | 2,712,355  |       | $          | 2,059,448 |   |
|                                                             |       |       |       |       |       |
| Reconciliation  of revenues:                                     |       |       |       |       |       |
| Total segment revenues                                           |       | $          | 2,712,355  |       | $          | 2,059,448 |   |
| Other                                                            |       | 51,019     |       | 101,886    |       |
| Total revenues                                                   |       | $          | 2,763,374  |       | $          | 2,161,334 |   |
|                                                             |       |       |       |       |       |
| Operational  earnings:                                           |       |       |       |       |       |
| Domestic                                                         |       | $          | 466,543    |       | $          | (137,993 | ) |
| International                                                    |       | 138,512    |       | 213,128    |       |
|                                                             |       | $          | 605,055    |       | $          | 75,135 |   |
|                                                             |       |       |       |       |       |
| Reconciliation  of operational earnings to loss from operations: |       |       |       |       |       |
| Total segment operational earnings                               |       | $          | 605,055    |       | $          | 75,135 |   |
| Other operational earnings                                       |       | 51,019     |       | 101,886    |       |
| Research and development expenses                                |       | (67,783    | )          | (182,074   | )          |
| Administrative expenses                                          |       | (2,259,523 | )          | (1,642,082 | )          |
| Loss from operations                                             |       | $          | (1,671,232 | )          | $          | (1,648,135 | ) |
|                                                             |       |       |       |       |       |
| International  revenues by country:                              |       |       |       |       |       |
| Japan                                                            |       | $          | 145,063    |       | $          | 147,980 |   |
| Germany                                                          |       | 47,460     |       | 99,914     |       |
| The Netherlands                                                  |       | 49,795     |       | —     |       |
| Canada                                                           |       | 77,954     |       | 51,274     |       |
| Taiwan                                                           |       | 10,157     |       | —     |       |
| South Korea                                                      |       | 9,950      |       | —     |       |
| Israel                                                           |       | 12,073     |       | —     |       |
| England                                                          |       | 20,194     |       | —     |       |
| Argentina                                                        |       | 12,130     |       | —     |       |
| Other                                                            |       | 87,302     |       | 61,901     |       |
|                                                             |       | $          | 472,078    |       | $          | 361,069 |   |
|                                                             |       |       |       |       |       |
| Long lived  assets (excluding deferred taxes):                   |       |       |       |       |       |
| Domestic                                                         |       | $          | 109,913    |       | $          | 1,267,660 |   |
| International                                                    |       | —     |       | —     |       |
|                                                             |       | $          | 109,913    |       | $          | 1,267,660 |   |
|                                                             |       |       |       |       |       |
| Current assets                                                   |       |       |       |       |       |
| Domestic                                                         |       | $          | 1,438,297  |       | $          | 2,145,011 |   |
| International                                                    |       | 41,922     |       | 42,048     |       |
|                                                             |       | $          | 1,480,219  |       | $          | 2,187,059 |   |

 

35

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**8.     COMMITMENTSAND CONTINGENCIES**

Rentalexpense for operating leases in 2006 and 2005 approximated $208,800 and $25,700**,**respectively.

OnApril 11, 2006, the Company sold to and leased back from the SepulvedaGroup, LLC, a California company affiliated with Discus (“Sepulveda”), the45,000 square foot building and property located at 5655 Bear Lane, CorpusChristi, Texas. The gross sale proceeds were $1.9 million, and the monthly rentfor the facility is $20,385 for the five year term, with a 3% yearly increaseand an option to extend the lease term for an additional five years.

OnFebruary 7, 2005, the Company signed a mutual release and settlement agreementwith Cefla, S.C.R.L.  Accruals for this settlement were made in the periodended December 31, 2003 and are included in the accompanying balancesheet.  The settlement amount of $215,000 was paid in the first quarter of2005.

OnOctober 25, 2004, the Company filed a lawsuit against Michael D. Stewart, anattorney who represented the Company on a contingency fee basis in litigationagainst Big Sky Laser Technologies, Inc.  After a “walk away” settlementwith Big Sky was verbally agreed to by both parties, Mr. Stewart encouraged theCompany to renege on the settlement agreement, which resulted in Big Sky petitioningthe court for an order enforcing the settlement agreement.  After thecourt ordered dismissal of the lawsuit, Mr. Stewart claimed he could haverecovered a contingency fee of between $2 and $8 million had the Company notelected to enter into the settlement agreement and advised the Company that hewould seek arbitration of his contingency fee agreement in pursuit of thisclaim.  On October 19, 2005, the arbitrator granted the Company’s motionfor summary judgment as to all the claims, and on December 13, 2005, thearbitrator, denied Mr. Stewart’s claim for unpaid fees and the Company’srequest for attorney’s fees.

TheCompany was in arbitration for breach of employment contract claims filed bytwo former employees totaling $250,000. In April 2006, the parties amended their claims to a total amountbetween $385,000 and $1,035,000.  InApril 2006, the Company settled with both parties for an aggregate of$410,000.  The settlement was included in“other accrued liabilities” in the Company’s March 2006 balance sheet and waspaid in April 2006.

OnNovember 20, 2006 a demand for arbitration and statement of claim was filedagainst the Company, alleging that the Company had breached agreements to paythe Claimant royalties and consulting fees. The original demand sought damages of $47,800.  The demand for arbitration seeks an award of$125,000.  The original demand of $47,800is included in “other accrued liabilities” in the Company’s December 2006balance sheet.  The Company is vigorouslydefending this claim.

TheCompany’s management believes that the results of any outstanding claims orlitigation singly or in the aggregate, will not have a material effect on theCompany’s consolidated financial position or results of operations**.**

**9.     ADJUSTMENTTO PRIOR PERIODS**

Inthe periods ending June 30, 2006 and September 30, 2006, the Company revaluedthe fair market value of the warrant issued to Discus.  The fair market value at each of thosedates  was  recognized as a licensing expense over thevesting period of the warrant.   TheCompany determined that the $549,530 fair market value of the warrant issued inconsideration for the license agreement should be classified as a liability andthe change in the fair value for the registration rights of the warrant shouldbe classified as other income(expense).

Pursuantto applicable accounting guidance, reporting the correction of an error inpreviously issued financial statements should be reported as a prior periodadjustment.  The nature of the error inpreviously issued financial statements and the effect of its correction onincome before extraordinary item, net income, and the related per share amountshould be disclosed in the period in which the error was discovered andcorrected.  Since the error wasdiscovered and corrected during the preparation of the 2006 10-KSB, thecorrections for the second and third quarter of 2006 are disclosed in the 200610-KSB.

36

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Theadjustments resulted in an increase in the net loss in the second quarter 2006and a decrease in the net loss for the third and fourth quarters of 2006.

Informationregarding the adjustments is provided below as it relates to changes in theStatement of Operations, specifically for loss from operations, otherincome(expenses), net loss available to common stockholders and net loss pershare for the three and year-to-date periods ending June 30, 2006 and September30, 2006.  Information is also providedbelow as it relates to changes in the Balance Sheet, specifically forintangible assets, net; current liabilities and accumulated deficit for theperiods ending June 30, 2006 and September 30, 2006.
| Three months ended June 30, 2006 | ** ** | **As Reported  Previously** | ** ** | **As Adjusted** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|
| Loss from  operations                                     |       | $                                | (278,234   | )                    | $          | (278,234 | ) |
|                                                      |       |                             |       |                 |       |
| Other income(expenses)                                    |       | $                                | 32,490     |                 | $          | (17,301 | ) |
|                                                      |       |                             |       |                 |       |
| Net loss  available to common stockholders                |       | $                                | (275,335   | )                    | $          | (325,126 | ) |
|                                                      |       |                             |       |                 |       |
| Basic and diluted  earnings per share                     |       | $                                | (0.03      | )                    | $          | (0.04 | ) |

 
| Six months ended June 30, 2006 | ** ** | **As Reported  Previously** | ** ** | **As Adjusted** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|
| Loss from  operations                                   |       | $                                | (1,196,811 | )                    | $          | (1,196,811 | ) |
|                                                    |       |                             |       |                 |       |
| Other  income(expenses)                                 |       | $                                | 42,326     |                 | $          | (7,465 | ) |
|                                                    |       |                             |       |                 |       |
| Net loss  available to common stockholders              |       | $                                | (1,211,644 | )                    | $          | (1,261,435 | ) |
|                                                    |       |                             |       |                 |       |
| Basic and diluted  earnings per share                   |       | $                                | (0.15      | )                    | $          | (0.15 | ) |

 
| June 30, 2006 | ** ** | **As Reported  Previously** | ** **  | **As Adjusted** | ** ** |
|-------------------------|------------|----------------------------------|-------------|----------------------|------------|
| Intangible  assets, net |       | $                                | 2,956       |                 | $          | 529,593 |   |
|                    |       |                             |        |                 |       |
| Current  liabilities    |       | $                                | 1,615,951   |                 | $          | 2,192,379 |   |
|                    |       |                             |        |                 |       |
| Accumulated deficit     |       | $                                | (43,617,712 | )                    | $          | (43,667,503 | ) |

 
| Three months ended September 30, 2006 | ** ** | **As Reported  Previously** | ** ** | **As Adjusted** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|
| Loss from  operations                                          |       | $                                | (226,752   | )                    | $          | (230,225 | ) |
|                                                           |       |                             |       |                 |       |
| Other  income(expenses)                                        |       | $                                | 42,202     |                 | $          | 117,276 |   |
|                                                           |       |                             |       |                 |       |
| Net loss  available to common stockholders                     |       | $                                | (176,343   | )                    | $          | (101,269 | ) |
|                                                           |       |                             |       |                 |       |
| Basic and diluted  earnings per share                          |       | $                                | (0.02      | )                    | $          | (0.01 | ) |

 
| Nine months ended September 30, 2006 | ** ** | **As Reported  Previously** | ** ** | **As Adjusted** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|
| Loss from  operations                                         |       | $                                | (1,423,565 | )                    | $          | (1,427,038 | ) |
|                                                          |       |                             |       |                 |       |
|  Other income(expenses)                                  |       | $                                | 84,527     |                 | $          | 109,810 |   |
|                                                          |       |                             |       |                 |       |
| Net loss  available to common stockholders                    |       | $                                | (1,387,988 | )                    | $          | (1,362,705 | ) |
|                                                          |       |                             |       |                 |       |
|  Basic and diluted  earnings per share                   |       | $                                | (0.17      | )                    | $          | (0.17 | ) |

 

37

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| September 30, 2006 | ** ** | **As Reported  Previously** | ** **  | **As Adjusted** | ** ** |
|------------------------------|------------|----------------------------------|-------------|----------------------|------------|
| Intangible  assets, net      |       | $                                | 2,214       |                 | $          | 501,379 |   |
|                         |       |                             |        |                 |       |
| Current  liabilities         |       | $                                | 1,300,316   |                 | $          | 1,774,199 |   |
|                         |       |                             |        |                 |       |
| Accumulated deficit          |       | $                                | (43,795,865 | )                    | $          | (43,770,583 | ) |

 

ITEM 8.               CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A.           CONTROLSAND PROCEDURES

The Company's management, with the participation ofthe chief executive officer and chief financial officer, evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) under the Exchange Act) as of December 31, 2006.

In connection with its audit of, and in the issuanceof its report on our financial statements for the year ended December 31, 2006,Hein & Associates LLP, included in their report to our audit committee andmanagement, a communication that identified certain items that it considersdeficient in our internal control over financial reporting.  Hein, pursuant to standards established bythe Public Company Accounting Oversight Board, identified, as a materialweakness, a deficiency in the design of our internal control over financialreporting.  A deficiency in design existswhen a control necessary to meet the control objective is missing, or when anexisting control is not properly designed so that even if the control operatesas designed, the control objective is not always met.  As a result of the deficiency in design ofinternal controls, certain intangible assets received and certain accruedliabilities incurred during fiscal 2006 were not recorded correctly as of December31, 2006 which deficiency resulted in an adjustment to our financialstatements.

Based on this evaluation of our internal controls, wehave taken all necessary steps to remedy this deficiency in design overinternal control by putting in place processes that would help us identify andrecord all our intangible assets and accrued liabilities.  While remediating this design deficiency is avery high priority for our management and our audit committee, we cannot assureyou that our independent registered public accounting firm will agree withmanagement's assessment that we have remediated it or that we will notencounter further instances of breakdowns in our internal control overfinancial reporting or disclosure controls and procedures.

Other than what was discussed above, no other changein our internal controls over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal yearended December 31, 2006 that has materially affected, or is reasonably likelyto affect, our internal controls over financial reporting.

ITEM 8B.            OTHERINFORMATION

None

**PART III**

ITEM 9.                                          DIRECTORS,EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION16(a) OF THE EXCHANGE ACT

The following sets forth information as to the currentdirectors and executive officers of the Company, including their ages,positions held, and the period of time each has served. The term of office ofeach director is three years, with the term of one-third of the directors expiringeach year. The term of the Class I directors expires at the annual meeting ofshareholders in 2006, the Class II directors in 2007 and the Class IIIdirectors in 2008, in each case subject to earlier resignation or removal anduntil their respective successors are elected and qualified
| **Name**              | ** ** | **Age** | ** ** | **Position with the Company** | ** ** | **Officer/Director Since** | ** ** |
|-----------------------|------------|---------|------------|----------------------------------------------|------------|---------------------------------|------------|
| Judd D. Hoffman       |       | 32      |       | Class II Director                            |       | 2007                            |       |
|                  |       |    |       |                                         |       |                            |       |
| Roger W. Dartt        |       | 65      |       | Class III Director                           |       | 2002                            |       |
|                  |       |    |       |                                         |       |                            |       |
| Gary A. Chatham       |       | 62      |       | Class I Director                             |       | 1999                            |       |
|                  |       |    |       |                                         |       |                            |       |
| William D.  Maroney   |       | 69      |       | Class III Director                           |       | 1997                            |       |
|                  |       |    |       |                                         |       |                            |       |
| Charles A.  Nichols   |       | 82      |       | Class I Director                             |       | 1984                            |       |
|                  |       |    |       |                                         |       |                            |       |
| Bertrand R.  Williams |       | 78      |       | Class II Director                            |       | 1990                            |       |
|                  |       |    |       |                                         |       |                            |       |
| Barbara D. Woody      |       | 45      |       | Controller                                   |       | 2002                            |       |

 

38

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**Biographical Information of Current Directors and Officers**

*Judd D. Hoffman*waselected by the Board to serve as the Company’s Chief Executive Officereffective January 1, 2007.  Mr. Hoffmanserved as a sales consultant to the Company beginning July 2006, until hisappointment as the Company’s Vice President of World Wide Sales and Operationsin September 2006 and he was elected as a director of the Company in November2006.  He served as Vice President ofWorld Wide Sales for Remedent, Inc., a manufacturer and distributor of cosmeticdentistry products, including a full line of professional and dental and retail“Over-The-Counter” tooth whitening products which are distributed in Europe,and recently in Asia and the United States, from September 1, 2005 until June1, 2006.  Prior to joining Remedent, Inc.and since March 2003, Mr. Hoffman served as Executive Director of InternationalSales and Operations for Discus Dental, Inc. (“Discus), a leading global directmanufacturer and marketer of professional and consumer dental products.  Prior to joining Discus, he served as anindependent consultant for international sales and operations for variousclients after his prior employer, Junroo Netcommunications, Inc. (“Junroo”) wasacquired in February 2002.  At Junroo,Mr. Hoffman served as Chief Operating Officer and Sr. Vice President of GlobalBusiness Development, since co-founding the company in 1998.

*Roger W. Dartt* wasselected by the Board to serve as the Company’s Chief Executive Officereffective on June 1, 2002 and served as such until December 31, 2006.  Mr. Dartt is still currently serving asChairman of the Board of Directors for the Company.   Prior to joining AMT,  Mr. Dartt served as the President ofMediatrix International, Inc., a management consulting company that specializedin providing and implementing business growth strategies, mergers andacquisitions, turnaround restructuring and financial support to companies. Inthe past five years, Mr. Dartt had several short-term assignments as aturnaround specialist in companies engaged in electronic circuit boardmanufacturing, specialty retail sales, commercial glass manufacturing and inthe supply of durable medical equipment to the home healthcare industry. Priorto forming Mediatrix, Mr. Dartt was president, chief executive officer or chiefoperating officer of eight companies in the medical, dental, electronic andspecialty retail markets, including subsidiaries of Bristol Meyers and PepsiCo.

*Gary A. Chatham*currently serves as Marketing Director for Combex Westhem, LLC, a manufacturerof structural insulated panels located in Robstown, Texas, a position he hasheld since February 2003. Mr. Chatham is also a principal in that firm. Hisprincipal responsibilities include product development, domestic andinternational market development for projects incorporating the company’sproducts, and the development of a franchise program for expanding the company’smanufacturing presence into other countries. He is also President of GaryChatham and Associates, Inc., a project planning and management consulting firmhe has operated since 1981. Mr. Chatham was a director of Texas Airsonics Inc.from 1988 until its merger with the Company in August 1996.

*William D. Maroney*is a private investor. From January 1987 to December 1996, Mr. Maroney had beenin private law practice in New York City, New York. Prior thereto, Mr. Maroneywas a senior tax counsel for ITT Corporation and an associate attorney with theinternational law firm of Coudert Brothers, New York City, New York. Mr. Maroneypreviously served as a director of the Company from May 1990 to May 1993.

*Charles* A. Nicholsis a pharmacist at Southside Pharmacy, Inc. in Corpus Christi, Texas, where hehas been the President since 1954. Mr. Nichols was one of the founders of TexasAirsonics, Inc. and served as a director from that company’s inception in 1982until its acquisition by the Company in July 1996. He also served as treasurerfor Texas Airsonics from 1989 to 1996.

*Bertrand R. Williams*has been the chief executive officer of Global Focus Marketing and Distribution(“GFMD”) since February 1995. GFMD sells specialized clinical laboratorysupplies and diagnostics, research and industrial equipment. Since 1981, he hasalso been chairman of the board and chief executive officer of Immuno Concepts,Inc., a manufacturer of immuno-diagnostic and virology products in Sacramento,California.

*Barbara D. Woody*was appointed Controller in December 2002. Prior to joining the Company, shehad served as Controller for Roy Smith Shoes, Inc. and as Business Manager forHenley Healthcare, Inc.

39

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**Stockholder Communication with Board Members**

Stockholders may communicate with directors by sendinga written communication to the Board to the attention of the Secretary at ouroffices located at 5655 Bear Road, Corpus Christi, Texas, 78405. Allcommunication will be forwarded directly to the intended recipients.

**Audit Committee**

The Audit Committee of the Board is comprised of threeindependent directors, Messrs. Chatham, Maroney and Nichols. Mr. Maroney, whoserves as Chairman of the Audit Committee, is qualified as an audit committeefinancial expert.

**Section 16(a) Beneficial OwnershipReporting Compliance**

Section 16(a) of the Securities Exchange Act of 1934requires the Company’s directors, officers and persons holding more than 10% ofa registered class of the Company’s equity securities to file with the SEC andany stock exchange or automated quotation system on which the Common Stock maythen be listed or quoted (i) initial reports of ownership, (ii) reports ofchanges in ownership and (iii) annual reports of ownership of Common Stock andother equity securities of the Company. Such directors, officers and 10%stockholders are also required to furnish the Company with copies of all suchfiled reports.

Based solely upon review of the copies of such reportsfurnished to the Company and written representations that no other reports wererequired during 2006, the Company believes that all of the Company’s executiveofficers and directors complied with Section 16(a) reporting requirementsduring 2006 except that in connection with Judd Hoffman’s election as adirector of the Company in November 2006, he inadvertently, at that time,failed to file with the SEC on a timely basis, Form 3.  He corrected his mistake by filing Form 3with the SEC on April 3, 2007..

**Code of Ethics**

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

ITEM 10.             EXECUTIVECOMPENSATION

**Compensation of Directors**

Directors who are not officers or employees of theCompany are entitled to a fee of $1,000 for each Board meeting attended and arereimbursed for expenses incurred in connection with their attendance atmeetings; however no directors’ fees were paid in 2006. These fees have beenwaived by the directors.

**Summary Compensation Table**

The following table provides a summary of compensationpaid or accrued by the Company and its subsidiaries during 2006, 2005 and 2004to or on behalf of the Company’s Chief Executive Officer who was the onlyexecutive officer who earned in excess of $100,000 in salary and bonus.
|                                                | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **All Other  Compensation** | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------|------------|----------------------------------|------------|
| **Name and Principal Position** | ** ** | **Year**   | ** ** | **Salary($)**                | ** ** | **Bonus($)**                     | ** ** | **($)(a)** | ** ** |
| Roger W. Dartt                                 |       | 2006       |       | 250,000                      |       | —                           |       | 7,200 |   |
| Chief Executive  Officer and                   |       | 2005       |       | 250,000                      |       | —                           |       | 7,200 |   |
| President                                      |       | 2004       |       | 250,000                      |       | 166,000                          |       | 7,200 |   |

 

----

(a)          Includesmedical insurance reimbursement for Mr. Dartt.

40

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**Option Holdings**

There were no unexercised options outstanding held byMr. Dartt as of December 31, 2006.

**Employment Agreements**

The Company entered into an employment agreement withMr. Dartt effective as of June 1, 2004, whereby he continued as the Company’sPresident and Chief Executive Officer for a term that ended December 31, 2006.The agreement provided for a signing bonus of $166,000, in consideration of thecompletion of the sale of the Company’s dental laser assets to Biolase and anannual base salary of $250,000.  Mr.Dartt agreed not to compete with the Company during his employment and for oneyear after termination.

*Judd D. Hoffman -*TheCompany entered into an employment agreement with Mr. Hoffman effective January1, 2007, naming him as the Company’s President and Chief Executive Officer fora term ending December 31, 2009.  Theemployment agreement provides for an annual base salary of $210,000, anincrease of not less than 5% on each anniversary date, an incentive bonus in2007 based on profit and an option grant to purchase 850,000 shares of stock ata price of $.20 per share.  The optionsvest as follows:  100,000 immediately and250,000 vesting on the last day of the first, second and third years of theemployment term.  Additionally, in June2006, Mr. Hoffman was granted an option to purchase 100,000 shares of stock ata price of $0.27/share. This option vested on September 16, 2006  The employment agreement can be terminatedfor cause if Mr. Hoffman fails to perform his duties with the Company, engagesin gross misconduct in connection with his work for the Company, commits abreach of this agreement or commits a felonious or fraudulent act against theCompany.  If his employment is terminatedwithout cause, Mr. Hoffman is entitled to 12 month’s salary and any portion ofstock options will immediately vest and be exercisable for a period of 90 days.

**Equity Compensation Plans**

The following table reflects the information describedas of December 31, 2006 with respect to compensation plans under which theCompany’s stock is authorized for issuance.
| Plan Category                                      | ** ** | **No. of Shares to be issued upon  exercise of outstanding options,  warrants and rights** | ** ** | **Weighted average exercise  price of outstanding  options, warrants and  rights** | ** ** | **No. of Shares available  for future issuance  under equity  compensation plans** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders |       | 405,928                                                                                                                                           |       | $                                                                                                                | 0.30       |                                                                                                                  | 1,000,000  |   |
|                                                         |            |                                                                                                                                                   |            |                                                                                                                  |            |                                                                                                                       |            |  |

 

ITEM 11.                                    SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

The following table sets forth certain informationregarding the ownership of the Common and Preferred Stock as of March 22, 2007,by each current director, all current directors and executive officers as agroup, and each person who is known by the Company to own beneficially 5% ormore of the Company’s outstanding shares of Stock. Shares issuable to suchperson upon conversion of Preferred Stock or under stock options or warrantsexercisable currently or within 60 days are considered outstanding and areadded to the shares of Common Stock actually outstanding. Each share of SeriesB Preferred Stock is convertible into two and one-half shares of Common Stock,and votes on that basis with the common shares. Holders of the outstandingCommon Stock and Preferred Stock are entitled to vote an aggregate of 9,189,306votes.

41

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| **Name and Address**                                         | ** ** | **Number of  Common  Shares** | ** ** | **Percent  of Class** | ** ** | **Number of Series  B  Preferred Shares** | ** ** | **Percent  of Class** | ** ** | **Percentage  of Aggregate  Votes** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|----------------------------|------------|----------------------------------------------------------|------------|----------------------------|------------|------------------------------------------|------------|------------|
| Irene M. Myers  29877 Telegraph  Road Southfield, MI 48034             |       | 945,337                            | (1)        | 11.5                       | %          |                                                     |       |                       |       | 10.3                                     | %          |       |
| Robert Hayman 8550  Higuera  Street Culver City, CA 90232              |       | 890,536                            |       | 10.9                       | %          |                                                     |       |                       |       | 9.7                                      | %          |       |
| Michael F.  Radner 16500 North  Park Dr., # 1507 Southfield,  MI 48075 |       | 532,601                            |       | 6.5                        | %          |                                                     |       |                       |       | 5.8                                      | %          |       |
| Charles A.  Nichols 5655 Bear  Lane Corpus Christi, TX 78405           |       | 752,022                            | (2)        | 9.2                        | %          | 100,000                                                  |       | 25                         | %          | 8.2                                      | %          |       |
| William D.  Maroney 5655 Bear  Lane Corpus Christi, Texas 78405        |       | 912,077                            | (3)        | 11.1                       | %          | 200,000                                                  |       | 50                         | %          | 9.9                                      | %          |       |
| Roger W. Dartt                                                         |       | 264,200                            |       | 3.2                        | %          |                                                     |       |                       |       | 2.9                                      | %          |       |
| Bertrand R.  Williams, Sr.                                             |       | 259,081                            | (4)        | 3.2                        | %          | 100,000                                                  | (6)        | 25                         | %          | 2.8                                      | %          |       |
| Gary Chatham                                                           |       | 6,937                              | (5)        |                       | *          |                                                     |       |                       |       |                                     | *          |       |
| Judd D. Hoffman                                                        |       | 200,000                            | (6)        | 2.4                        | %          |                                                     |       |                       |       | 2.2                                      | %          |       |
| All current executive  officers and  directors as a group (6 persons)  |       | 2,394,317                          | (7)        | 29.2                       | %          | 400,000                                                  |       | 100                        | %          | 26.1                                     | %          |       |

 

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* Lessthan one percent.

(1)                                  Includes459,047 shares owned by the Irene M. Myers Revocable Trust and 486,290 sharesowned by the William D. Myers Irrevocable Marital Trust. Mrs. Myers as trusteefor both of those trusts has voting and dispositive power with respect to allof those shares.

(2)                                  Includes1,560 shares of Common Stock purchasable within 60 days pursuant to theexercise of options or warrants, 2,000 shares of Common Stock owned by Mr.Nichols’ wife, and 100,000 shares of Preferred Stock (convertible into 250,000shares of Common Stock within 60 days) owned jointly with Mrs. Nichols, as toboth of which Mr. Nichols shares voting and dispositive power.

(3)                                  Includes1,560 shares of Common Stock purchasable within 60 days pursuant to theexercise of options or warrants, 308,666 shares of Common Stock and 200,000shares of Preferred Stock (convertible into 500,000 shares of Common Stockwithin 60 days) owned by Mr. Maroney’s wife, and 7,692 shares owned jointly byMr. and Mrs. Maroney, as to which Mr. Maroney shares voting and dispositivepower.

(4)                                  Includes1,560 shares of Common Stock purchasable within 60 days pursuant to theexercise of options or warrants, and 100,423 shares owned by a family trust forwhich Mr. Williams is the trustee.

(5)                                  Includes936 shares of Common Stock purchasable within 60 days pursuant to the exerciseof options or warrants.

(6)                                  Includes200,000 shares of Common Stock purchasable within 60 days pursuant to theexercise of options or warrants

(7)                                  Includes205,616 shares of Common Stock purchasable within 60 days pursuant to theexercise of options or warrants and 400,000 shares of Preferred Stock(convertible into 1,000,000 shares of Common Stock within 60 days).

ITEM 12.                CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

See “Item 10 – Executive Compensation – EmploymentAgreements” for a description of the employment agreements between the Companyand Messrs. Dartt and Hoffman.

Also, see Item 1 – Description of Business, above,under the sections labeled License Agreement, Manufacturing Agreement, OptionAgreement and Registration Rights Agreement. These agreements were entered into by the Company with affiliates ofDiscus Dental Holdings, Inc. (“Discus”). Robert Hayman is an officer, director and major shareholder of Discusand is also the owner of 10.9% of the common stock of the Company.  See also Item

42

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2 – Descriptionof Property, above, describing a transaction in which Sepulveda Group, LLC, anaffiliate of Discus, acquired the Company’s property, and in connectiontherewith leased back the property to the Company.

ITEM 13.                EXHIBITS

The exhibits included as part of this report arelisted in the attached Exhibit Index, which is incorporated herein byreference.

ITEM 14.                PRINCIPALACCOUNTANT FEES AND SERVICES

***Audit Fees.***TheCompany incurred aggregate professional fees to its auditor, Hein &Associates LLP (“Hein”) in the amount of $70,000 for the 2006 audit and $65,290for the 2005 audit.

***Audit-Related Fees.***The Company incurred $18,165 in fees to Hein during 2005for assurance and related services that are reasonably related to theperformance of the audit or review of the Company’s financial statements. Nofees were incurred in 2006 for these services.

***Tax Fees.***TheCompany incurred $10,259 in fees to Hein during 2006 and $10,284 in fees toHein during 2005, for tax compliance, tax advice and tax planning, composedprimarily of tax preparation services.

The Audit Committee considered whether the provisionof these services was compatible with maintaining its independence of Hein asthe Company’s principal independent accounting firm. All of the non-auditservices described above were approved by the Audit Committee in accordancewith its policies and procedures.

43

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Signatures

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this annualreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, in the City of Corpus Christi, State of Texas, on the 16th day ofApril, 2007.
|        |   | AMERICAN MEDICAL TECHNOLOGIES, INC. |
|--------|--------|-------------------------------------|
|   |   |                                |
|   |   | /s/ Judd D. Hoffman                 |   |
|   |   | Judd D. Hoffman, President and CEO  |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities indicated on the same date as above.
| /s/ Judd D. Hoffman           |   |                                             |
|-------------------------------|--------|--------------------------------------------------|
| Judd D. Hoffman               |   | President and Director (Chief Executive Officer) |
|                          |   |                                             |
| /s/ Barbara Woody             |   |                                             |
| Barbara Woody                 |   | Controller (Principal Accounting Officer)        |
|                          |   |                                             |
| /s/ Roger W. Dartt            |   |                                             |
| Roger W. Dartt                |   | Director                                         |
|                          |   |                                             |
| /s/ Gary A. Chatham           |   |                                             |
| Gary A. Chatham               |   | Director                                         |
|                          |   |                                             |
| /s/ William D. Maroney        |   |                                             |
| William D. Maroney            |   | Director                                         |
|                          |   |                                             |
| /s/ Charles A. Nichols        |   |                                             |
| Charles A. Nichols            |   | Director                                         |
|                          |   |                                             |
| /s/ Bertrand R. Williams, Sr. |   |                                             |
| Bertrand R. Williams, Sr.     |   | Director                                         |

 

44

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**ExhibitIndex**
| 3.1    |   | Second Restated  Certificate of Incorporation (Form 10-Q for the quarter ended  September 30, 2002)                                                                                    |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                        |   |
| 3.2    |   | Certificate of  Correction to the Second Restated Certificate of Incorporation (Form 10-K for  year ended December 31, 2002.)                                                          |   |
|   |   |                                                                                                                                                                                        |   |
| 3.3    |   | Certificate of Designation  of Series B Preferred Stock (Form 10-K for year ended December 31,  2002.)                                                                                 |   |
|   |   |                                                                                                                                                                                        |   |
| 3.4    |   | Certificate of  Amendment to the Second Amended and Restated Certificate of Incorporation  dated May 12, 2005 (Form 10-Q for the quarter ended June 30, 2005)                          |   |
|   |   |                                                                                                                                                                                        |   |
| 4.1    |   | Amendment Agreement  with Aimee Maroney effective as of June 17, 2003 (Form 10-Q for quarter ended  June 30, 2003)                                                                          |   |
|   |   |                                                                                                                                                                                        |   |
| 4.2    |   | Agreement to Assign  Lien and Release Claims with Aimee Maroney and Value Bank Texas dated as of  June 17, 2003 (Form 10-Q for quarter ended June 30, 2003)                                 |   |
|   |   |                                                                                                                                                                                        |   |
| 4.3    |   | Promissory Note issued  to Texas State Bank dated February 9, 2005 (Form 10-K for year ended  December 31, 2004)                                                                       |   |
|   |   |                                                                                                                                                                                        |   |
| 4.4    |   | Deed of Trust granted  to Paul S. Moxley, Trustee for Texas State Bank, dated February 9, 2005 (Form  10-K for year ended December 31, 2004)                                           |   |
|   |   |                                                                                                                                                                                        |   |
| 4.5    |   | Stock Purchase Warrant  dated April 11, 2006 for 2,300,000 shares issued to Discus Holdings, Inc.  (Form 10-KSB for year ended December 31, 2005)                                      |   |
|   |   |                                                                                                                                                                                        |   |
| 4.6    |   | Put and Call Option  Agreement dated April 11, 2006 between Discus Holdings, Inc. and American  Medical Technologies, Inc. (Form 10-KSB for year ended December 31,  2005)             |   |
|   |   |                                                                                                                                                                                        |   |
| 4.7    |   | Registration Rights  Agreement dated April 11, 2006 between American Medical Technologies, Inc.  and Discus Holdings, Inc. (Form 10-KSB for year ended December 31, 2005)              |   |
|   |   |                                                                                                                                                                                        |   |
| 10.1*  |   | Amended and Restated  Nonqualified Stock Option Plan (Registration No. 33-40140)                                                                                                            |   |
|   |   |                                                                                                                                                                                        |   |
| 10.2*  |   | Stock Option Plan for  Employees (Registration No. 33-40140)                                                                                                                                |   |
|   |   |                                                                                                                                                                                        |   |
| 10.3*  |   | Amended and Restated  Long-Term Incentive Plan (Form 10-Q for quarter ended September 30, 1996)                                                                                             |   |
|   |   |                                                                                                                                                                                        |   |
| 10.4*  |   | *  American  Medical Technologies, Inc. 2005 Stock Option Plan (Form 10-Q for the quarter  ended June 30, 2005)                                                                   |   |
|   |   |                                                                                                                                                                                        |   |
| 10.5   |   | License Agreement  between Texas Airsonics, Inc., a wholly owned subsidiary of American Medical  Technologies, Inc. and Texas Airsonics, L.P. (Form 10-K for year ended  December 31, 1996) |   |
|   |   |                                                                                                                                                                                        |   |
| 10.5   |   | Patent License  Agreement dated October 18, 1997 between Danville Engineering, Inc. and  American Medical Technologies, Inc. (Form 10-Q for quarter ended September  30, 1997)              |   |
|   |   |                                                                                                                                                                                        |   |
| 10.7   |   | Assignment from Sunrise  Technologies International, Inc. to Lares Research dated June 24, 1997 (Form  10-K for year ended December 31, 1997)                                               |   |
|   |   |                                                                                                                                                                                        |   |
| 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)             |   |

 

45

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| 10.10        |   | Patent licensing  Agreement dated June 10, 1999 between American Medical Technologies, Inc. and  Kreativ, Inc. (Form 10-Q for quarter ended June 30, 1999)                                           |   |
|--------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|         |   |                                                                                                                                                                                                 |   |
| 10.11 * |   | Employment Agreement  dated effective as of June 1, 2004, between American Medical Technologies,  Inc. and Roger W. Dartt (Form 10-Q for the quarter ended September 30, 2004)                       |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.12        |   | Exclusive License  Agreement dated April 11, 2006 between Discus Holdings, Inc., Spectrum  Dental, Inc. and American Medical Technologies, Inc. (Form 10-KSB for year  ended December 31, 2005) |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.13        |   | Manufacturing Agreement  dated April 11, 2006 between Westside Packaging, Inc. and American Medical  Technologies, Inc. (Form 10-KSB for year ended December 31, 2005)                          |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.14        |   | Commercial Contract —  Improved Realty dated April 11, 2006 between American Medical Technologies,  Inc. and The Sepulveda Group, LLC (Form 10-KSB for year ended December 31,  2005)      |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.15        |   | Lease dated April 11,  2006 between The Sepulveda Group, LLC and American Medical Technologies, Inc.  (Form 10-KSB for year ended December 31, 2005)                                            |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.16        |   | Standstill Agreement  dated February 1, 2007                                                                                                                                                         |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.17        |   | First Amendment to the  Put and Call Option Agreement dated April 10, 2007                                                                                                                           |   |
|         |   |                                                                                                                                                                                                 |   |
| 10.18*       |   | Employment Agreement  dated effective as of January 1, 2007, between American Medical Technologies,  Inc. and Judd D. Hoffman                                                                        |   |
|         |   |                                                                                                                                                                                                 |   |
| 21           |   | Subsidiaries of the  Registrant (Form 10-K for year ended December 31, 1999)                                                                                                                         |   |
|         |   |                                                                                                                                                                                                 |   |
| 23           |   | Consent of Hein &  Associates LLP                                                                                                                                                                |   |
|         |   |                                                                                                                                                                                                 |   |
| 31.1         |   | Certification of Judd  D. Hoffman, President and Chief Executive Officer of the Company, as required  by Rule 13a-14(a).                                                                             |   |
|         |   |                                                                                                                                                                                                 |   |
| 31.2         |   | Certification of Barbara  Woody, principal accounting officer of the Company, as required by Rule  13a-14(a).                                                                                        |   |
|         |   |                                                                                                                                                                                                 |   |
| 32           |   | Certification of Chief  Executive Officer and of principal accounting officer of the Company, as  required by 18 U.S.C. Section 1350.                                                           |   |

 

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*             Identifiescurrent management contracts or compensatory arrangement

46

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