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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-KSB (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2004o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from  to .Commission File Number 0-27689
 AMDL, Inc. 
  Delaware
    
    33-0413161(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 2492 Walnut Avenue, Suite 100, Tustin, California 92780 
  (714) 505-4460 
  Securities registered under Section 12(b) of the Exchange Act: Title of each class
    
    Name of each exchange on whichto be so registered
    
    registeredCommon Stock, $.001 par value
    
    AMEX
 Securities to be registered under Section 12(g) of the Act: Common Stock, $.001 par value




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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) As been subject to such filing requirements for the past 90
days. Yes þ No o Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
contained in this form, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. þ The issuers revenue for the fiscal year ended December 31, 2004 was $186,182. The market value of the voting stock held by non-affiliates of the issuer as of March 22, 2005 was
approximately $18,700,000. The number of shares of the common stock outstanding as of March 22, 2005 was 23,499,489. DOCUMENTS INCORPORATED BY REFERENCE Inapplicable. Transitional Small Business Disclosure Format (check one) Yes o
    
    No þ




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TABLE OF CONTENTS  Part 1Item 1. Description of BusinessItem 2. Description of PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPart IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7. Financial StatementsItem 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresPart IIIItem 9. Directors and Executive Officers of the Registrant.Item 10. Executive Compensation.Item 11. Security Ownership of Certain Beneficial Owners and ManagementItem 12. Certain Relationships and Related TransactionsItem 13. ExhibitsItem 14. Principal Accountant Fees and ServicesSIGNATURESExhibit IndexEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    Table of Contents  
 Part 1 
 Item 1. Description of Business We are a theranostics (therapy and diagnosis) company, involved in both the detection and
treatment of cancer. Hospital, clinical, research and forensic laboratories and doctors offices
may use our products to obtain precise and rapid identification of certain types of cancer and
other diseases. We develop, manufacture, market and offer for sale various immunodiagnostic kits
for the detection of cancer and other diseases. Our DR-70®test kit is used to assist
in the detection of at least 13 different types of cancer, including: lung (small and non-small
cell); stomach; breast; rectal; colon and liver. DR-70®is not cleared for sale and is
not available in the United States. Prior to May 2002, our focus was on obtaining foreign
distributors for our DR-70®kit. In May 2002, we decided to begin the FDA process under
Section 510(k) of the Food, Drug and Cosmetic Act for approval of our intent to market
DR-70® as an aid in monitoring patients with colorectal cancer. We conducted clinical
trials comparing our DR-70® to the currently accepted assay, CEA (carcinoembryonic
antigen), and we submitted the results to the FDA in September 2003. The FDA responded to our
submission and identified deficiencies in our application and advised our consultant, Diagnostic
Oncology CRO, Inc. (DOCRO) that based upon the data submitted to date, the FDA determined that the
DR-70® kit was not substantially equivalent to any other device which has gone through
the 510(k) approval process. The FDA further advised that if we had data which we believe shows
that the DR-70® kit has substantial equivalence, we could submit such additional
information for the FDAs consideration. We have submitted additional data and a new application
to the FDA proposing that DR-70® be used in tandem with CEA in monitoring colorectal
cancer patients. Specifically, data was submitted showing that by using DR-70® in
conjunction with the CEA test, which is the standard test for this disease, there is a 24 percent
gain in positive concordance in monitoring the progression of the clinical disease status in
previously diagnosed colorectal cancer patients as compared to using the CEA test by itself. The
CEA test has sensitivity that varies from 40 to 70 percent, according to published literature. The
additional data supports the new 510(k) adjunctive claim that DR-70®, when used in
tandem with the CEA test, provides more accurate information in monitoring colorectal cancer
patients. We are awaiting a response from the FDA. We cannot predict the length of time it will
take for the FDA to review our submission or whether approval will ultimately be obtained. Studies completed at the University of Frankfurt have shown DR-70® to be a reliable screening
test for cancer of the gastrointestinal tract. Other studies of DR-70® as an aid in monitoring and
screening for lung cancer and ovarian cancer in Germany are ongoing. We have received approvals to
import and market DR-70® in Canada (for lung cancer), Australia and the UK. We have also received
certification for EN ISO 13485, a key global standard to ensure quality within the medical and
diagnostic device industry. We have complied with the regulations allowing us to affix the CE
(Conformite Europeenne) Mark to our DR-70® kit. The CE Mark is required to be displayed on
regulated products placed for sale in the European Union and allows us to market DR-70® in the
European Union, subject to any additional specific country regulatory requirements or limitations.
We currently sell DR-70® primarily in Asia. Our other proprietary product, Pylori-Probe, is cleared for sale in the United States;
however, we do not intend to market Pylori-Probe because we believe that the Pylori-Probe cannot
be competitively marketed. In August 2001, we acquired a combination immunogene therapy technology that may be effective
in building a cancer patients immune system and could eventually lead to a vaccine to protect
patients known to be at risk because of a family history for certain types of cancer. The
combination immunogene therapy is intended to both build the bodys immune system and destroy cancer cells.
This technology involves injecting the cancer patients tumor with a vector carrying both a
granulocyte-macrophage colony stimulating factor and a t-cell co-stimulating factor, thereby
activating an immune response against the cancer cells. We are actively seeking a pharmaceutical
or biotechnology strategic partner with whom to form a joint venture or otherwise license our
combination immunogene therapy technology. Preliminary tests in Canada conducted on mice injected
with human skin and brain cancers indicated that the combination therapy can be effective.
Additionally, Phase 1 clinical trials have been completed in Canada. We funded a study conducted
by Dr. Lung-Ji Chang at the University of Florida to target breast cancer with a goal of ultimately
developing a vaccine using the combination immunogene therapy technology. We believe the
technology may have potential for fighting several types of cancer by enhancing ones immune system
and thereby increasing the number of cells that naturally destroy cancer. We also acquired from
Dr. Chang other technology relating to a humanized mouse model for the evaluation of anti-human
tumor immunity and the identification of immunomodulating genes. However, no assurances can be
given that any of these activities will lead to the 1




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development of any commercial products or vaccines or that FDA approval will be obtained for
any use of these technologies. On February 22, 2002, AcuVector Group, Inc. (AcuVector) filed a Statement of Claim in the
Court of Queens Bench of Alberta, Judicial District of Edmonton relating to the Companys
combination immunogene therapy technology acquired from Dr. Chang in August 2001. The claim
alleges damages of $CDN 20 million and seeks injunctive relief against Dr. Chang for, among other
things, breach of contract and breach of fiduciary duty, and against us for interference with the
alleged relationship between Dr. Chang and AcuVector. The claim for injunctive relief seeks to
establish that the AcuVector license agreement with Dr. Chang is still in effect. The Company has
performed extensive due diligence to determine that AcuVector had no interest in the technology,
when the Company acquired it. The Company is confident that AcuVectors claims are without merit
and that the Company will receive a favorable judgment. We are also defending a companion case filed in the same court by the Governors of the
University of Alberta filed against us and Dr. Chang. The University of Alberta claims, among
other things, that Dr. Chang failed to remit the payment of the Universitys portion of the monies
paid by us to Dr. Chang for the combination immunogene technology purchased by us from Dr. Chang in
2001. In addition to other claims against Dr. Chang relating to other technologies developed by
him while at the University, the University also claims that we conspired with Dr. Chang and
interfered with the Universitys contractual relations under certain agreements with Dr. Chang,
thereby damaging the University in an amount which is unknown to the University at this time. The
University has not claimed that AMDL is not the owner of the combination immunogene therapy
technology, just that the University has an equitable interest therein or the revenues therefrom. Accordingly, if either AcuVector or the University is successful in their claims, we may be
liable for substantial damages, our rights to the technology will be adversely affected, and our
future prospects for exploiting or licensing the combination immunogene therapy technology will be
significantly impaired. However, since the final outcome of either case is not determinable, no
accrual or loss relating to either action is reflected in the accompanying financial statements. We also offer a line of non-proprietary blood tests that are designed to help diagnose a
particular kind of cancer and kits which we purchase from other manufacturers and resell under our
label. Our primary OEM product is a ketone strip which is a urine test used by diabetics and those
on high protein diets to monitor ketones, which if elevated, can cause kidney damage in patients. In September 2001 we registered our common stock under the Securities Exchange Act of 1934 and
listed on the American Stock Exchange under the symbol ADL. You may review any of our public
reports or information on file with the SEC at the SECs Public Reference Room at 450 Fifth Street,
N.W. Washington, D.C., 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330 or review our reports at http://www.sec.gov or review our
public reports at http://www.amdlcorporate.com. Our executive offices are located at 2492 Walnut Avenue, Suite 100, Tustin, California 92780,
telephone number (714) 505-4460. Our Products DR-70â is our proprietary diagnostic test kit which has been shown to detect
at least 13 different common cancers, including, but not limited to, lung (small and non-small
cell), stomach, breast, rectal, colon and liver cancer. DR-70â is a tumor-marker,
which is a biochemical substance indicative of neoplasia, ideally specific, sensitive, and
proportional to tumor load, used to screen, diagnose, assess prognosis, follow response to
treatment, and monitor for recurrence. As DR-70® is a non-invasive blood test, there
are no side effects to our test. In 1993, the Cross Cancer Institute, located in Edmonton, Alberta, Canada, approved a clinical
trial protocol for DR-70â for lung cancer under the auspices of the Alberta Cancer
Board. The objective of the clinical trial at the Cross Cancer Institute was to evaluate the
sensitivity and specificity of the DR-70â lung cancer tumor-marker and to
determine if the level of the tumor-marker correlates with the stage of lung cancer development.
In the Cross Cancer Institute clinical trial, 233 patients with newly diagnosed lung cancer and 238
volunteers with no 2




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clinical evidence of disease were selected. The DR-70â tumor-marker was
measured in blood serum samples collected from both cancer patients and volunteers. The control
group was composed of smokers and non-smokers. The results showed sensitivity of the lung cancer
test was 67% and specificity was 91%. We believe these results, coupled with data reported in
continued studies at the Cross Cancer Institute, demonstrate the value of the
DR-70â lung cancer tumor-marker as a diagnostic test for detecting lung cancer.
These tests also helped determine the usefulness of DR-70â for monitoring response
to treatment and for predicting the recurrence of lung cancer. The test is currently available and
approved for lung cancer detection and monitoring by Health Canada. In 1997, the DR-70®test kit was modified to be more user friendly. Clinical
studies with the modified kit were conducted in Wuhan, China, the results of which have been
published in the peer-reviewed Journal of Immunoassay. As compared to earlier studies, these
studies determined that the DR-70â immunoassay kit detected a number of different
cancers with a higher degree of specificity and sensitivity. Although, as in all such tests, false
readings as to the existence of cancer are experienced, due to other conditions affecting the
patient, e.g. pregnancy or recent trauma. In these tests, DR-70â was found to
have an overall specificity of 95% and an overall sensitivity of 83.8%. Thirteen different types of
cancer were found in the screening process, indicating that DR-70â has significant
usefulness as a cancer-screening tool. In late 2001, the study was expanded to include more than
700 patients and the results of this expanded study confirmed the previously published results
while providing a broader statistical base. In May 2003 at a meeting of the American Gastroenterology Society in Orlando, Florida,
clinical studies were presented using DR-70® at the University of Frankfurt to detect
colorectal cancer. Samples were taken from 85 gastrointestinal patients, including 29 patients
with hepatocellular cancer, 13 with pancreatic cancer, 30 with colorectal cancer, 10 with stomach
cancer and 3 with esophageal cancer. In these tests, DR-70â was found to have an
overall specificity of 93% and an overall sensitivity of 91%. In November 2004, the results of the
study were published in the gastroenterology journal, Alimentary Pharmacology & Therapeutics. The
data indicated that patients with advanced tumor spread exhibited significantly higher
DR-70® values than those with early-stage tumors. The authors concluded that the
DR-70® immunoassay reliably differs between patients and healthy controls. Our primary OEM product is a ketone strip which is used by diabetics and those on high protein
diets to monitor ketones, which if elevated, can cause kidney damage in patients. Of total OEM
sales of $316,278 in 2003, ketone strips accounted for $307,398, or 97.2%, of these sales. We also
offer a line of diagnostic test kits for allergy, autoimmune, cancer markers, clinical chemistry,
drugs of abuse, fertility, gastrointestinal disease, serology, serum proteins, thyroid, urine
chemistry and others that accounted for $8,880, or 2.8%, of our total OEM sales in 2003. We
provide our OEM products on a limited basis and do not actively market them. These tests are
non-invasive and non-therapeutic diagnostic blood and urine tests performed by a registered
technician. The technician takes the patients sample and performs the test according to the
tests instructions included in the package to determine whether or not the specific condition
being tested exists. Our OEM product test kits are similar, if not substantially the same as,
those offered by others. All of our OEM products for commercial use have been registered with and
approved by the FDA, for sale to us and others, by the respective manufacturers. We purchase these
products from the manufacturer and resell them under our label. We do not have any exclusive or
nonexclusive rights to the technology relating to the OEM products. As these tests are
administered in vitro, there are no side effects associated with our OEM products. The package
insert describes the possibility that there may be false positives or false negatives associated
with the administration of the specific test. The incidence of false positives or negatives from
our OEM test kits is similar to that experienced with other comparable test kits. In 2004 the FDA inspected our facilities and found no deficiencies. Six observations were
made and these suggestions have been implemented. We were found to be compliant with FDA
Regulation Part 820 CFR. All of our OEM products are Class I (Good Manufacturing Practices not
required) or Class II (Good Manufacturing Practices required, as defined by the FDA guidelines)
devices and our facilities meet the Good Manufacturing Practices requirements for each of our OEM
products. We are licensed to manufacture our proprietary products and to repackage our OEM
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Our Strategy We develop, manufacture and offer for sale non-invasive diagnostic kits to hospitals, doctors,
clinics, and laboratories, giving them the ability to detect certain types of cancer and H. pylori
in their patients. Our kits are designed to provide accuracy, reproducibility and a high degree of
specificity and sensitivity. We continue to conduct quality assurance and quality control testing on our DR-70®product as part of our commitment to quality and to meet government regulations. We are
seeking to create alliances with reference laboratories to make DR-70â testing
available to physicians and patients. With just a small amount of blood serum drawn from a
patient, DR-70â uses a common microtiter format familiar to most laboratories in
the diagnostic industry to test for the presence of tumors. We believe that our
DR-70â product is capable of detecting different types of cancer with a superior
degree of specificity and sensitivity. DR-70â test levels are found to increase
with the progression and stage of the disease. We are currently conducting a cancer study for our DR-70® in detecting lung cancer
in Berlin, Germany. A study completed at the University of Frankfurt has shown DR-70®
to be a reliable screening test for cancer of the gastrointestinal tract. A study at the
University of Mainz has shown DR-70® to be a reliable screening test for ovarian cancer
and has recently been expanded. The purpose of the studies is to verify specificity and
sensitivity. We funded a continuing study being conducted by Dr. Chang at the University of
Florida to target certain breast cancer specific antigens with the goal of ultimately developing a
vaccine using the combination immunogene therapy technology. No assurances can be given that the
study will lead to the development of any commercial products or vaccines. Our objective is to be a leading provider of cancer-detecting immunodiagnostic kits. In order
to meet our objective, we plan to do the following:  
    obtain U.S. FDA clearance and international approvals for our DR-70® product;
    distribute DR-70® kits in approved markets;
    develop DR-70® distribution channels in new markets; and
    contract with one or more strategic partners to license and develop our combination
immunogene therapy technology. Successful cancer detection and treatment product development is highly uncertain, and very
few research and development projects produce a commercial product. Product candidates like
DR-70® or the combination immunogene therapy technology that appear promising in the
early phases of development, such as in early animal or human clinical trials, may fail to reach
the market for any one of a number of reasons, such as:  
    the product candidate did not demonstrate acceptable clinical trial results even
though it demonstrated positive preclinical trial results;
    the product candidate was not effective in treating a specified condition or illness;
    the product candidate had harmful side effects on humans;
    the necessary regulatory bodies, such as the U.S. FDA, did not approve the product
candidate for an intended use;
    the product candidate was not economical for us to manufacture and commercialize; and
    the product candidate is not cost effective in light of existing therapeutics. 4




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There may be other factors that prevent us from marketing a product. Our products compete
with other products or treatments for diseases for which our product may be intended. We cannot
guarantee we will be able to produce commercially successful products, and to date
DR-70® has not been approved for sale in the United States by the FDA. Further,
clinical trial results are frequently susceptible to varying interpretations by scientists, medical
personnel, regulatory personnel, statisticians and others, which may delay, limit or prevent
further clinical development or regulatory approvals of a product candidate. Also, the length of
time that it would take for us to complete clinical trials and obtain regulatory approval for
product marketing may vary by product and by the intended use of a product. We cannot predict the
length of time it would take to complete necessary clinical trials and obtain regulatory approval.
Moreover, without additional financing, our activities will likely be limited to licensing our
products to others, although there can be no assurances that our products can be successfully
licensed. Sales and Marketing In exchange for JGT Management Services Ltd. (JGT), an unrelated third party, relinquishing
all of its exclusive Canadian and limited worldwide marketing rights for DR-70®, we made
eighteen monthly payments of $750 to JGT commencing October 1998. In addition, we are required to
pay to JGT a royalty fee equal to 2.5% of gross sales of DR-70® on a quarterly basis.
During the year ended December 31, 2004 we paid $1,471 to JGT. The agreement expires in August
2008; however, the Company may elect to pay a $25,000 buy-out fee after October 1, 2003, subject to
acceptance by JGT. On January 30, 2002, we granted Guangzhou A-Share Technology Co. Ltd., a Peoples Republic of
China corporation (GAST), the exclusive right to sell DR-70â kits in Taiwan and
Hong Kong during the one-year period ending January 31, 2003, when the agreement expired. GAST may
not manufacture, sell or distribute competitive products for a three-year period after the
termination of the agreement. All sales of DR-70â kits made to GAST are on our
standard terms applicable to all distributors. An oral distribution arrangement for Taiwan and
Hong Kong continues with Mercy Bio-Technology, Co., Ltd, a company related to GAST, based in
Taiwan. On November 13, 2002, we granted MyGene Inc., a South Korean corporation (MyGene), an
unrelated third party, the exclusive right to sell DR-70â kits in South Korea.
MyGenes contractual rights expired on December 31, 2004. Prior to commercial introduction, MyGene
has been conducting clinical trials required to secure Korean regulatory approval to market our
DR-70â kits in South Korea. Regulatory approval in South Korea has not yet been
obtained. Through December 31, 2004, all kits sold to MyGene have been for use in clinical trials.
Pending Korean regulatory approval, the arrangements with MyGene are being continued on the same
terms and conditions on an informal basis. On June 11, 2003, we granted AMDL Australia Pty. Ltd., an Australian corporation, an unrelated
third party, the exclusive right to sell DR-70â kits in Australia and New Zealand
through December 31, 2007. The agreement generally provides for certain minimum purchases, but
based upon current U.S. sales, there are no minimum purchase obligations. In January 2003, the
Therapeutic Goods Administration, Commonwealth Department of Health and Ageing, Australia, issued
to AMDL Australia Pty. Ltd, our Australian distributor, a Certificate of Device Listing. Currently, our licensing efforts are focused on seeking additional exclusive and non-exclusive
distribution agreements with distributors in countries where we have obtained, or believe we can
obtain, regulatory approval. In January 2004, we received EN ISO 13485 certification demonstrating
safety and efficacy, a further standard of quality now required for export to Canada. Health
Canada has issued a Medical Device License to the Company. This license permits the Company to
market DR-70Ò for the detection of lung cancer and monitoring changes in the level
of the marker DR-70âin response to treatment. The Canadian license was renewed
in August 2004 and is renewable annually. We intend to enter into agreements with distributors who
will market DR-70â throughout Canada, but have no Canadian distributors as of
March 22, 2005. We offer OEM or private label test kits to under-served international markets through
distributor relationships and to domestic markets through strategic partnerships and relationships
with larger diagnostic companies. 5




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The Company uses the internet, select journals, and industry trade shows for its marketing
activities, subject to the availability of working capital for such endeavors. Manufacturing We manufacture our DR-70â kits at our licensed manufacturing facility located
at 2492 Walnut Avenue, Suite 100, in Tustin, California. We are an FDA/GMP approved manufacturing
facility. We maintain a current Device Manufacturing License issued by the State of California,
Department of Health Services, Food and Drug Branch. Regulation Our products, to the extent they may be deemed medical devices or biologics, are governed by
the Federal Food, Drug and Cosmetics Act and by the regulations promulgated thereunder by the U.S.
FDA as well as the regulations of state agencies and various foreign governmental agencies in the
jurisdictions where our products are distributed. We (or our distributors) are required in the
U.S. and in foreign countries to obtain approval from those countries regulatory authorities
before we can market and sell our products in those countries. Obtaining regulatory approval is
costly and may take many years, and after it is obtained, it remains costly to maintain. The FDA
and foreign regulatory agencies have substantial discretion to terminate clinical trials, require
additional testing, delay or withhold registration and marketing approval and mandate product
withdrawals. In addition, later discovery of unknown problems with our products or manufacturing
processes could result in restrictions on such products and manufacturing processes, including
potential withdrawal of the products from the market. If regulatory authorities determine that we
have violated regulations or if they restrict, suspend or revoke our prior approvals, they could
prohibit us from manufacturing or selling our products until we comply, or indefinitely. We are subject to specific FDA rules applicable to in vitro diagnostic (IVD) products. Prior
to marketing DR-70® in the United States, we are required to make a pre-market
application as an immunology and microbiology device under the category Tumor Associated Antigens
Immunological Test System. We are required to prove safety and efficacy and comply with specified
labeling requirements for IVD products for human use. We must abide by the listing rules of the
FDA when and if DR-70â is approved for sale in the United States. We have
established our Quality System Regulation in accordance with applicable regulations and were
inspected in August 2002 with no deficiencies noted. Our Quality System Regulation program
contains applicable complaint provisions which meet the FDAs requirements for Medical Device
Reporting and we have experienced no incidents or complaints to date. We also have implemented
procedures for preventive and corrective action and changed our packing and shipping method once in
2002 to improve protection of our product. In September 2003, we submitted our application for the FDA under Section 510(k) of the Food,
Drug and Cosmetic Act for approval of our intent to market DR-70® as an aid in
monitoring patients with colorectal cancer. In January, 2004, the FDA responded to our submission.
The FDA identified deficiencies in our application and advised our consultant, Diagnostic Oncology
CRO, Inc. (DOCRO) that based upon the data submitted to date, the FDA determined that the
DR-70® kit was not substantially equivalent to any other device (e.g. CEA) which has
gone through the 510(k) approval process. The FDA further advised that if we had data which we
believe shows that the DR-70® kit has substantial equivalence, we could submit such
additional information for the FDAs consideration. We have supplied additional data and submitted
a new application to the FDA proposing that DR-70®be used in tandem with CEA in
monitoring colorectal cancer patients. Since the response of the FDA to our new application cannot
be anticipated, no assurances can be given that we will ever receive FDA clearance for the
commercial sale of DR-70â in the United States. Furthermore, if FDA approval is
granted, although the approval has no expiration date, if we are found in violation, the FDA may
impose fines, terminate the approval or seize our products, at its discretion. In addition, the
loss of previously received approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on our business, financial condition and results
of operations. In addition, each foreign jurisdiction may have separate and different approval requirements
and processes. Our distribution agreements require our distributors to obtain the requisite
approval and clearance in each jurisdiction in which they sell products. In our past experience,
once a foreign approval is obtained, it is generally renewed on a periodic basis, annually or
otherwise. In certain territories, distributors can sell under limited 6




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circumstances prior to approval and in other territories no formal approval is required. On
December 20, 2000, the Medical Devices Agency of United Kingdom Department of Health issued a
letter of no objection to the exportation of our DR-70â from the United States to
the United Kingdom, allowing DR-70â to be sold in the United Kingdom. In July 1996, we filed a 510(k) Premarket Notification with the FDA requesting approval to
sell PyloriProbeÔ in the United States. In August 1998, we received clearance from the FDA
to market in the United States the PyloriProbeÔ diagnostic kit. PyloriProbeÔ is not
being sold by us. As another non-invasive test exists, the Company does not believe that the
PyloriProbeÔ can be competitively marketed. In December 2003, we became CE compliant. Our DR-70® kit conforms to the essential
requirements of the CE Mark, which is required to sell our product in the European Union (EU). The
CE Mark is recognized around the world as an indication of quality practices and is referred to as
the Trade Passport to Europe for non-EU products. Patents Our success depends, in part, on our ability to obtain United States and foreign patent
protection for our products, preserve our trade secrets, and operate without infringing upon the
proprietary rights of third parties. The United States Patent and Trademark Office has issued to
us two patents which describe methods for measuring ring-shaped particles in extracellular fluid as
a means for detecting cancer. Our patent for a method of detecting the tumors using ring shaped
particles as a tumor marker was issued on October 17, 1995 and expires on December 9, 2012. Our
patent for a method for detecting the presence of ring shaped particles as tumor markers was issued
on June 3, 1997 and expires on March 6, 2015. We have four additional patent applications pending
in the United States with respect to our methodology for the DR-70â tumor-markers
as reliable indicators of the presence of cancer. In August 2001, we acquired intellectual property rights and an assignment of a US patent
application covering a combination immunogene therapy technology for $2,000,000. The technology
was purchased from Dr. Lung-Ji Chang, who developed it while at the University of Alberta,
Edmonton, Canada. The U.S. patent application Serial No. 09/826025 was issued on May 4, 2004 and
claims a gene therapy method for treating cancer using an expression vector comprising a gene
encoding the B7-2 protein in combination with an additional modulating protein. On November 21, 2001, Singapore granted our patent containing claims to the combination
immunogene therapy technology. Singapore is a registration only jurisdiction, which means that
patent applications are not substantively reviewed prior to grant. However, the patent is
enforceable in Singapore, but the validity of such patents is vetted in their courts. In early 2003, Australia granted us a patent for our humanized mouse model technology acquired
from Dr. Chang. This technology is a research tool suitable for the evaluation of anti-human tumor
immunity and the identification of immunomodulating genes. There can be no assurance, however, that any additional patents will be issued to us, or that,
if issued, the breadth or degree of protection of these patents will be adequate to protect our
interests. In addition, there can be no assurance that others will not independently develop
substantially equivalent proprietary information or obtain access to our know-how. Further, there
can be no assurance that others will not be issued patents which may prevent the sale of our test
kits or require licensing and the payment of significant fees or royalties by us in order for us to
be able to carry on our business. Finally, there can be no guarantee that any patents issued to or
licensed by us will not be infringed by the products of others. Defense and prosecution of patent
claims can be expensive and time consuming, even in those instances in which the outcome is
favorable to us. If the outcome is adverse, it could subject us to significant liabilities to
third parties, require us to obtain licenses from third parties or require us to cease research and
development activities or sales. 7




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Research and Development During the last two fiscal years ended December 31, 2004 and 2003, we spent $292,652 and
$545,599, respectively, on research and development related to DR-70®. During the 2005
fiscal year we expect to incur approximately $200,000 for research and development, including
$100,000 in furtherance of the FDA application for approval of DR-70®. Competition We have only had limited sales of DR-70® to our distributors. We are dependent on
our distributors financial ability to advertise and market DR-70® in those countries
where we have distributors. A number of domestic and international companies are in indirect
competition with us in all of these markets. Most of these companies are larger, more firmly
established, have significant marketing and development budgets and have greater capital resources
than us or our distributors. Therefore, there can be no assurance that we will be able to achieve
and maintain a competitive position in the diagnostic test industry. Many major medical device manufacturers, including Abbott Diagnostics, Baxter Healthcare
Corp., Beckman Diagnostics, Boehringer Mannheim, Centocor, Diagnostic Products Corporation, Bio-Rad
Laboratories, Roche Diagnostic Systems, Sigma Diagnostics and others, are manufacturers or
marketers of other diagnostic products. We are not aware of any efforts currently being devoted to
development of products such as DR-70â; however, there can be no assurance that
such efforts are not being undertaken without our knowledge. We believe that most of the
diagnostic products currently manufactured by other companies are complementary to
DR-70â. Moreover, such companies could develop products similar to our products
and they may be more successful than us in marketing and manufacturing their products. In
addition, there are a number of new technologies in various stages of development at the National
Institute of Health, university research centers and at other companies for the detection of
various types of cancers, e.g., identification of proteomic patterns in blood serum that
distinguishes benign from cancerous conditions, which may compete with our product. Product Liability Insurance We currently produce products for clinical studies and for investigational purposes. We are
producing our products in commercial sale quantities, which will increase as we receive various
regulatory approvals in the future. There can be no assurance, however, that users will not claim
that effects other than those intended may result from our products, including, but not limited to
claims alleged to be related to incorrect diagnoses leading to improper or lack of treatment in
reliance on test results. In the event that liability claims arise out of allegations of defects
in the design or manufacture of our products, one or more claims for damages may require the
expenditure of funds in defense of such claims or one or more substantial awards of damages against
us, and may have a material adverse effect on us by reason of our inability to defend against or
pay such claims. We carry product liability insurance for any such claims. Employees As of March 15, 2005, we had four full-time employees. We supplement our permanent staff with
temporary personnel. Our employees are neither represented by a union nor subject to a collective
bargaining agreement, and we consider our relations with our employees to be favorable. We have
entered into certain agreements with our employees regarding their services. We utilize the
services of consultants for research, testing, regulatory and legal compliance, and other services. 
 Item 2. Description of Properties Our offices, research laboratory and manufacturing facilities consist of 4,395 square feet and
are located at 2492 Walnut Avenue, Suite 100, Tustin, California. We rent these facilities at a
monthly rate of $6,373 per month, including property taxes, insurance and maintenance. Our lease
expires on July 31, 2005. The Company has two one-year options to renew its lease on the same
terms and conditions. 8




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##### Table of Contents



Item 3. Legal Proceedings On February 22, 2002, AcuVector Group, Inc. (AcuVector) filed a Statement of Claim in the
Court of Queens Bench of Alberta, Judicial District of Edmonton relating to the Companys
combination immunogene therapy technology acquired from Dr. Chang in August 2001. The claim
alleges damages of $CDN 20 million and seeks injunctive relief against Dr. Chang for, among other
things, breach of contract and breach of fiduciary duty, and against the Company for interference
with the alleged relationship between Dr. Chang and AcuVector. The claim for injunctive relief
seeks to establish that the AcuVector license agreement with Dr. Chang is still in effect. The
Company has performed extensive due diligence to determine that AcuVector had no interest in the
technology, when the Company acquired it. The Company has recently initiated action to commence
discovery in this case, and AcuVector has taken no action to advance the proceedings since filing
the complaint in 2002. The Company is confident that AcuVectors claims are without merit and that
the Company will receive a favorable judgment. As the final outcome is not determinable, no
accrual or loss relating to this action is reflected in the accompanying financial statements. We are also defending a companion case filed in the same court by the Governors of the
University of Alberta filed against us and Dr. Chang. The University of Alberta claims, among
other things, that Dr. Chang failed to remit the payment of the Universitys portion of the monies
paid by us to Dr. Chang for the combination immunogene technology purchased by us from Dr. Chang in
2001. In addition to other claims against Dr. Chang relating to other technologies developed by
him while at the University, the University also claims that the Company conspired with Dr. Chang
and interfered with the Universitys contractual relations under certain agreements with Dr. Chang,
thereby damaging the University in an amount which is unknown to the University at this time. The
University has not claimed that AMDL is not the owner of the combination immunogene therapy
technology, just that the University has an equitable interest therein or the revenues therefrom.
As the final outcome is not determinable, no accrual or loss relating to this action is reflected
in the accompanying financial statements. No significant discovery has as yet been conducted in
the case. Accordingly, if either AcuVector or the University is successful in their claims, we may be
liable for substantial damages, our rights to the technology will be adversely affected, and our
future prospects for exploiting or licensing the combination immunogene therapy technology will be
significantly impaired. 
 Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to our security holders for a vote during the fourth quarter
of 2004. 
 Part II 
 Item 5. Market for Common Equity and Related Stockholder Matters Our common stock is listed on the American Stock Exchange under the symbol ADL. Our stock
price, like that of some other cancer diagnostic and treatment companies, is highly volatile. Our
stock price may be affected by such factors as:  
    clinical trial results;
    product development announcements by us or our competitors;
    regulatory matters;
    announcements in the scientific and research community;
    intellectual property and legal matters; and
    broader industry and market trends unrelated to our performance. 9




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In addition, if our revenues or earnings in any period fail to meet the investment communitys
expectations, there could be an immediate adverse impact on our stock price. Set forth in the following table are the high and low closing prices for the years ended
December 31, 2003 and 2004 for our common stock. Quarter Ended
    
    High
    
    
    LowMarch 31, 2003
    
    $
    0.70
    
    
    $
    0.20June 30, 2003
    
    $
    1.25
    
    
    $
    0.23September 30, 2003
    
    $
    2.20
    
    
    $
    0.76December 31, 2003
    
    $
    1.65
    
    
    $
    1.01
 Quarter Ended
    
    High
    
    
    LowMarch 31, 2004
    
    $
    1.71
    
    
    $
    0.93June 30, 2004
    
    $
    1.13
    
    
    $
    0.76September 30, 2004
    
    $
    1.00
    
    
    $
    0.56December 31, 2004
    
    $
    1.23
    
    
    $
    0.78
 As of March 22, 2005, there were approximately 868 record holders of our common stock. We have not paid any cash dividends since our inception and do not contemplate paying
dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained for
the operation of our business. Securities Authorized for Issuance Under Equity Compensation Plans.The following provides
information concerning compensation plans under which equity securities of the Company that were
authorized for issuance as of December 31, 2004. (a)
    
    
    (b)
    
    
    (c)Number of securitiesremaining availablefor future issuancesNumber of securities
    
    
    Weighed-average
    
    
    under equityto be issued upon
    
    
    exercise price of
    
    
    compensation plansexercise of
    
    
    outstanding
    
    
    (excluding securitiesoutstandingoptions,
    
    
    options, warrants
    
    
    reflected inPlan Category
    
    warrants and rights
    
    
    and rights
    
    
    column (a))Equity compensation plans
approved by security holders
    
    
    4,318,185
    
    
    $
    1.46
    
    
    
    836,261Equity compensation plans not
approved by security holders
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Total
    
    
    4,318,185
    
    
    $
    1.46
    
    
    
    836,261
 In January 2005, options to purchase 300,000 common shares at the exercise price of $0.83 per
share were granted to the Companys President & CEO under his employment agreement. Voting Trust Agreement. Chinese Universal acquired 2,000,000 shares of our common stock in
December 2000. Concurrent with the purchase of the shares and execution of the voting trust, as
part of an integrated arms-length negotiated transaction, Chinese Universal acquired the exclusive
right to distribute DR-70® in ten countries in Asia, subject to minimum purchase
requirements on an annual basis (which were not met) and Chinese Universals agreement to seek
approval from the governments to permit distribution of DR-70® in those 10




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countries. This distribution agreement is no longer in effect. At the time of the
transactions the shares represented over 37% of our then outstanding shares of common stock, and
our board of directors used the voting trust to place limits on Chinese Universals ability to
control the Company, by allowing it only the right to nominate one candidate for director.
Pursuant to the voting trust agreement dated as of December 14, 2000, the 2,000,000 shares were
deposited with Jeanne Lai, former President of Chinese Universal, and Gary L. Dreher, as voting
trustees. Ms. Lai died and counsel for Chinese Universal has advised us that Dr. Fong-Lin Huang
was appointed as successor co-trustee. The voting trust agreement provides that during the ten
(10) year term of the voting trust agreement, (i) the voting trustees shall not be required to
elect to cumulatively vote the shares subject to the voting trust, (ii) Mr. Dreher or his successor
elected by us shall, in any election of directors, always vote in favor of one nominee of Chinese
Universal for director, and (iii) on all other matters coming before the stockholders, the voting
trustees shall be required to vote unanimously in favor of any such matters or the voting trustees
votes will not be counted except for purposes of a quorum for voting on such proposal. Recent Sales of Unregistered Securities. During the fiscal year ended December 31, 2004, we
issued unregistered shares of our securities in the following transactions: On January 8, 2004, the Company closed an offering to accredited investors only of an
aggregate of 2,657,300 shares of common stock at $0.80 per share and warrants to purchase
1,328,650 shares of common stock at an exercise price of $1.46 per share, exercisable on or after
April 7, 2004 and expiring December 31, 2006. This offering consisted of the unsold portion of
the 3,000,000 share offering approved by the stockholders on August 21, 2003, which permitted the
Company to sell shares at a discount of 25% from the current market price at the time of issuance.
In connection with this offering, the Company utilized the services of Gestibroker Consulting and
Financial Management S.A., a Swiss corporation and paid total cash compensation of $270,119 plus
issued warrants to purchase 259,730 common shares at an exercise price of $1.46 per share,
expiring December 31, 2006. All of the shares of common stock and warrants issued in the offering
were registered on Form S-3 on February 11, 2004. The common stock was issued pursuant to Section
4(2) of the Securities Act. On March 15, 2004, the board of directors authorized the issuance of 300,000 shares of common
stock to Boston Financial Partners, Inc., a consultant for financial advisory services to be
provided from March 18, 2004 through July 31, 2004 and the Company issued the shares on March 19,
2004. The shares were valued at $247,350 based upon the trading price of the common stock on such
date, and were charged to general and administrative expense in the period the services were
provided. The common stock was issued pursuant to Section 4(2) of the Securities Act. There was
no underwriter involved in this issuance. On September 27, 2004, the stockholders of the Company authorized the issuance of 6,500,000
shares of common stock at a discount of up to 25% below the current market price at the time of
issuance. Pursuant to stockholder authorization, on September 24, 2003, the board of directors
authorized concurrent Regulation S and Regulation D companion offerings for the sale of units
consisting of up to 6,500,000 shares of common stock at a discount of up to 25% below the current
market price at the time of issuance and 6,500,000 warrants to purchase common stock, to
accredited and non-U.S. investors only, in a private placement. In December 2004, 1,606,741
shares of common stock were sold at $0.77, representing a discount of 25% from the average of the
closing prices for the five consecutive trading days prior to each of two closing dates. The
Company received a total of $1,237,190 in gross proceeds in the two closings. Under the terms of
the offering, investors received warrants to purchase a number of shares of common stock equal to
the total number of shares purchased in the offering. The warrants are exercisable at $1.17 per
share, equal to 115% of the average closing price of the Companys common stock, as reported by
the American Stock Exchange, for the five (5) consecutive trading days immediately prior to the
closings. Each warrant became exercisable on January 13, 2005, the effective date of a Form S-3
registration statement covering the resale of the 1,606,741 shares of common stock and all of the
shares issuable upon exercise of the warrants. The warrants are exercisable until December 31,
2008. In connection with this registration statement, we also registered an additional 750,000
shares issuable upon exercise of warrants and 250,000 shares of restricted common stock held by a
consultant. In connection with the offering, the Company utilized the services of Galileo Asset
Management, S.A., a Swiss corporation, and paid total cash compensation of $160,835 and issued
warrants to purchase 160,674 common shares at an exercise price of $1.17 per share, expiring
December 31, 2008. The common stock was issued pursuant to Section 4(2) of the Securities Act. 11




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Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Total assets increased to $4,403,751 at December 31, 2004 from $3,746,582 at December 31,
2003. The increase is a result of cash received from the sale of common stock and the exercise of
stock options, which was partially offset by funds used in operating activities. Our total outstanding indebtedness decreased to $165,373 at December 31, 2004 as compared to
$352,538 at December 31, 2003. The decrease resulted from the reduction of operating payables. From December 31, 2003 to December 31, 2004, our cash and cash equivalents increased by
$896,651, primarily as a result of cash received from the sale of common stock and the exercise of
stock options. As of March 22, 2005, cash is being depleted at the rate of approximately $180,000
per month. As of March 22, 2005, our cash on hand was approximately $2,125,000. Assuming (i) the
current level of revenue from the sale of DR-70®kits to our distributors and our
principal OEM product do not increase in the near future, (ii) we do not conduct any full scale
clinical trials, and (iii) no outstanding warrants are exercised, the amount of cash on hand is
expected to be sufficient to meet our projected operating expenses through March 2006. There are significant uncertainties which negatively affect our operations. These are
principally related to (i) the absence of a distribution network for our DR-70® kits,
(ii) the early stage of development of our Combination Immunogene Therapy (CIT) technology and
the need to enter a strategic relationship with a larger company capable of completing the
development of any ultimate product and the subsequent marketing of such product, and (iii) the
absence of any commitments or firm orders from our distributors. Moreover, there is no assurance
as to when, if ever, we will be able to conduct our operations on a profitable basis. Our limited
sales to date for DR-70®, the lack of any purchase requirements in the existing
distribution agreements, and absence of FDA approval make it impossible to identify any trends in
our business prospects. There is no assurance we will be able to generate sufficient revenues or
sell any equity securities to generate sufficient funds when needed, or whether such funds, if
available, will be obtained on terms satisfactory to us. In addition, if either AcuVector or the
University of Alberta is successful in their claims, we may be liable for substantial damages, our
rights to the CIT technology will be adversely affected, and our future prospects for licensing the
CIT technology will be significantly impaired. The Company does not expect to incur any material capital expenditures until sales volume
increases substantially. Any required future capital expenditures for manufacturing equipment will
be funded out of future revenues or additional equity. The Company does not have any long term or
contingent obligations that must be satisfied. Critical Accounting Policies Our financial statements have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of our financial statements: Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. The allowance for
doubtful accounts is based on specific identification of customer accounts and our best estimate of
the likelihood of potential loss, taking into account such factors as the financial condition and
payment history of major customers. We evaluate the collectibility of our receivables at least
quarterly. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be
required. The differences could be material and could significantly impact cash flows from
operating activities. 12




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##### Table of Contents



Inventory. We write down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market value based upon
assumptions about future demand, future pricing and market conditions. If actual future demand,
future pricing or market conditions are less favorable than those projected by management,
additional inventory write-downs may be required and the differences could be material. Such
differences might significantly impact cash flows from operating activities. Once established,
write-downs are considered permanent adjustments to the cost basis of the obsolete or unmarketable
inventories. Sales Allowances.A portion of our business is to sell products to distributors who resell
the products to the end customers. In certain instances, these distributors obtain discounts based
on the contractual terms of these arrangements. Sales discounts are usually based upon the volume
of purchases or by reference to a specific price in the related distribution agreement. We
recognize the amount of these discounts at the time the sale is recognized. Additionally, sales
returns allowances are estimated based on historical return data, and recorded at the time of sale.
If the quality or efficacy of our products deteriorates or market conditions otherwise change,
actual discounts and returns could be significantly higher than estimated, resulting in potentially
material differences in cash flows from operating activities. Valuation of Intangibles. From time to time, we acquire intangible assets that are beneficial
to our product development processes. We periodically evaluate the carrying value of intangibles,
including the related amortization periods. In evaluating acquired intangible assets, we determine
whether there has been an impairment by comparing the anticipated undiscounted cash flows from the
operation and eventual disposition of the product line with its carrying value. If the
undiscounted cash flows are less than the carrying value, the amount of the impairment, if any,
will be determined by comparing the carrying value of each intangible asset with its fair value.
Fair value is generally based on either a discounted cash flows analysis or market analysis.
Future operating income is based on various assumptions, including regulatory approvals, patents
being granted, and the type and nature of competing products. If regulatory approvals or patents
are not obtained or are substantially delayed, or other competing technologies are developed and
obtain general market acceptance, or market conditions otherwise change, our intangibles may have a
substantially reduced value, which could be material. As this asset represents the largest asset
on our balance sheet, any substantial deterioration of value would significantly impact our
reported financial position and our reported operating results. Deferred Taxes. We record a valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized. We have considered estimated future taxable
income and ongoing tax planning strategies in assessing the amount needed for the valuation
allowance. Based on these estimates, all of our deferred tax assets have been reserved. If actual
results differ favorably from those estimates used, we may be able to realize all or part of our
net deferred tax assets. Such realization could positively impact our operating results and cash
flows from operating activities. Litigation. We account for litigation losses in accordance with Statement of Financial
Accounting Standards (SFAS) No. 5, Accounting for Contingencies. Under SFAS No. 5, loss
contingency provisions are recorded for probable losses at managements best estimate of a loss, or
when a best estimate cannot be made, a minimum loss contingency amount is recorded. These
estimates are often initially developed substantially earlier than the ultimate loss is known, and
the estimates are refined each accounting period, as additional information is known. Accordingly,
we are often initially unable to develop a best estimate of loss; therefore, the minimum amount,
which could be zero, is recorded. As information becomes known, either the minimum loss amount is
increased or a best estimate can be made, resulting in additional loss provisions. Occasionally, a
best estimate amount is changed to a lower amount when events result in an expectation of a more
favorable outcome than previously expected. Due to the nature of current litigation matters, the
factors that could lead to changes in loss reserves might change quickly and the range of actual
losses could be significant, which could materially impact our results of operations and cash flows
from operating activities. 13




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Results of Operations Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Net Revenue.During the year ended December 31, 2003, the Company generated $186,182 from
product sales compared to revenues from product sales $360,107 in the prior year period, a
decrease of $173,925, or 48.3%. The decrease is primarily due to decreased orders for Ketone
strips, our principal OEM product. Revenues from sales of OEM products for the year ended
December 31, 2004 were $123,465 compared to $316,279 for the prior year period, a decrease of
$192,814, or 61.0%. Ketone strips comprised 93.7% of our OEM sales, and 62.1% of our total sales
in the year ended December 31, 2004. All sales of OEM products were to domestic customers in both
the current year and prior year periods. Revenues from sales of DR-70® for the year
ended December 31, 2004 were $62,717 compared to $43,828 for the year ended December 31, 2003, an
increase of $18,889, or 43.1%. Domestic customers accounted for $3,667, or 5.8%, and foreign
customers accounted for $59,050, or 94.2%, of the DR-70® revenues in the year ended
December 31, 2004. Domestic customers accounted for $1,549, or 3.5%, and foreign customers
accounted for $42,279, or 96.5%, of the DR-70® revenues in the year ended December 31,
2003. The continued low level of DR-70® sales is disappointing to management of the
Company. Our existing distributors have not been effective and no new distributors were engaged
in 2004. Market acceptance of our DR-70® kits has been slower than originally
anticipated, in part due to the fact that the DR-70® kit has not yet received FDA
approval. In addition, the Company has not concluded any material new distribution agreements
this year as new potential distributors have experienced similar delays and face similar market
acceptance issues because of the lack of FDA approval. During 2005, we expect sales of OEM products to be at the same level as experienced in 2004.
Assuming FDA approval of DR-70® in 2005, we expect sales of DR-70® to
increase in 2005, but any such increase in sales is not expected to impact significantly our
operating results for 2005. The statement concerning future sales is a forward-looking statement
that involves certain risks and uncertainties which could result in a fluctuation of sales below
those achieved for the year ended December 31, 2004. Sales could be negatively impacted by
potential competing products and overall market acceptance of the Companys products. Gross Profit.Gross profit decreased by $79,551 or 41.2% to $113,487 for the year ended
December 31, 2004, compared to $193,038 for the year ended December 31, 2003. The decrease in
gross profit was due to the decrease in sales. Gross profit on product sales was 61.0% in the
year ended December 31, 2004 compared to 53.6% in the prior year. The increase is due to the
increased proportion of DR-70® product sales compared to OEM product sales. Assuming the product sales mix remains the same, management anticipates future gross profit
margins to remain at the levels of the year ended December 31, 2004. The statement concerning
future gross profit margins is a forward-looking statement that involves certain risks and
uncertainties which could result in a fluctuation of gross margins below those achieved for the
year ended December 31, 2004. Gross profit could be negatively impacted by potential competing
products and overall market acceptance of the Companys products. Research and Development.Research and development expenses for the year ended December 31,
2004 were $292,652 as compared to $545,599 for the year ended December 31, 2003. The decrease of
$252,947 was primarily a result of (i) a decrease in expenses related to clinical trials to
$128,791 compared to $439,002 in the prior period offset by (ii) an increase in the amount of
services provided by our principal consultant and other costs to $163,861 in 2004 compared to
$106,597 for the year ended December 31, 2003. General and Administrative Expenses.General and administrative expenses increased by
$434,954 to $2,476,740 for the year ended December 31, 2004 as compared to the $2,041,786 reported
for the year ended December 31, 2003 due mainly to: (i) an increase in investor and financial
consulting services of approximately $151,000; (ii) an overall increase of approximately $43,000
in payroll and other compensation costs; (iii) an increase of $58,000 in directors fees; (iv) an
increase of approximately $37,000 of legal expenses related to capital formation, regulatory
compliance and patent prosecution expenses; (v) aborted offering costs of approximately $84,000;
and (vi) stock exchange listing fees of approximately $41,000. The significant components of
general and administrative expenses for the years ended December 31, 2003 and 2004 primarily
consist of payroll, taxes and benefits; consulting expenses, including financial consulting,
investor relations and public relations; professional fees, including legal, audit and patent
expenses, and stock exchange and shareholder services expenses. 14




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##### Table of Contents



Interest Income and Expense.Interest income for the year ended December 31, 2004 was
$26,544, as compared to $1,119 for the year ended December 31, 2003. The increase of $25,425, or
2,273%, is due to the significantly larger average cash balances maintained by the Company during
2004. Interest expense for the year ended December 31, 2003, totaling approximately $480,000,
consists of non-cash amortization of a debt discount associated with the warrants issued as part
of the units in our June 2003 private placement offering in the amount of approximately $100,000,
non-cash amortization of debt issuance costs in the amount of approximately $270,000, and a charge
for the beneficial conversion of a convertible note into shares of common stock in the amount of
$105,000, interest paid in shares of common stock in the amount of approximately $4,000 and cash
interest paid of approximately $1,000. There was no interest expense in 2004. Net Loss and Loss from Operations.As a result of the factors described above, in fiscal
year 2004, our net loss was $2,629,361 or ($0.12) per share, compared to a net loss of $2,873,695
or ($0.23) per share in fiscal year 2003. The reduction in the loss per share was significantly
affected by the 72% increase in the weighted average number of common shares outstanding. Assets and Liabilities At December 31, 2004, the Company had total assets of $4,403,751 compared to total assets of
$3,746,582 at December 31, 2003. Cash and cash equivalents was $2,605,537 as of December 31,
2004, an increase of $896,651 (52.5%) from the $1,708,886 cash on hand as of December 31, 2003.
Cash used in operations was $2,135,405; cash used in investing activities was $780 and cash
provided by financing activities from the sale of common stock and exercise of options was
$3,032,845. There were no accounts receivable at December 31, 2004. A single large order for OEM
products of $152,967 was shipped in December 2003 and paid for early in 2004. Inventories
decreased $790 (1.2%), to $68,035, from the $68,825 at December 31, 2003. The change is not
material. Net property and equipment totaled $13,888 at December 31, 2004 compared to $21,582 at
December 31, 2003, a decrease of $7,694 (35.6%). Purchases of fixed assets in 2004 totaled $789,
while depreciation and amortization totaled $8,483, resulting in the net decrease in fixed assets. Total liabilities at December 31, 2004 were $165,373, a decrease of $187,165 from the
$352,538 at December 31, 2003. Accounts payable and accrued expenses were $83,761 at December 31,
2004, a decrease of $176,881 (67.9%) from the $260,642 at December 31, 2003. The decrease is
primarily due to payment of certain deferred obligations and significant trade payables incurred
in December 2003 and paid in early 2004. Accrued payroll totaled $81,612 at December 31, 2004, a
decrease of $10,284 compared to $91,896 at December 31, 2003. The decrease is due to the
acceleration of charges by the payroll service company compared to the prior year, offset by an
increase in accrued vacation pay. Forward Looking Statements This Annual Report on Form 10-KSB contains forward-looking statements. Such forward-looking
statements which we make involve known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially from the forward looking statements
include, but are not limited to, risks associated with failure to obtain FDA approval for
DR-70®, lack of demand for our products, dependence on licensees and on management,
governmental regulations, technological changes, and intense competition. Given these
uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements. Our management disclaims any obligation to forward-looking statements contained herein
to reflect any change in our expectation with regard thereto or any change in events, conditions,
circumstances or assumptions underlying such statements. 15




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Item 7. Financial Statements Report of Independent Registered Public Accounting Firm
    
    
    F-1Balance Sheet as of December 31, 2004
    
    
    F-2Statements of Operations for the years ended December 31, 2004 and 2003
    
    
    F-3Statements of Stockholders Equity for the years ended
December 31, 2004 and 2003
    
    
    F-4Statements of Cash Flows for the years ended December 31, 2004 and 2003
    
    
    F-6Notes to Financial Statements
    
    
    F-7
 16




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders of  We have audited the accompanying balance sheet of AMDL, Inc. (the Company) as of December 31,
2004, and the related statements of operations, stockholders equity and cash flows for each of the
years in the two-year period then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on the financial statements
based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of AMDL, Inc. as of December 31, 2004, and the results of its
operations and its cash flows for each of the years in the two-year period then ended in conformity
with accounting principles generally accepted in the United States of America. CORBIN & COMPANY, LLP Irvine, California
March 7, 2005 F-1




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AMDL, INC. BALANCE SHEET December 31,2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,605,537Inventories
    
    
    68,035Prepaid expenses
    
    
    52,201Total current assets
    
    
    2,725,773Intellectual property, net
    
    
    1,658,333Property and equipment, net
    
    
    13,888Other assets
    
    
    5,757$
    4,403,751LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    83,761Accrued payroll and related expenses
    
    
    81,612Total current liabilities
    
    
    165,373Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value; 10,000,000 shares
authorized; no shares issued and outstanding
    
    
    Common stock, $0.001 par value; 50,000,000 shares
authorized; 23,499,489 shares issued and outstanding
    
    
    23,499Additional paid-in capital
    
    
    30,375,929Accumulated deficit
    
    
    (26,161,050
    )Total stockholders equity
    
    
    4,238,378$
    4,403,751
 See accompanying notes to financial statements. F-2




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##### Table of Contents



AMDL, INC. STATEMENTS OF OPERATIONS Years EndedDecember 31,
    
    
    December 31,2004
    
    
    2003Net revenues
    
    $
    186,182
    
    
    $
    360,107Cost of sales
    
    
    72,695
    
    
    
    167,069Gross profit
    
    
    113,487
    
    
    
    193,038Operating expenses:Research and development
    
    
    292,652
    
    
    
    545,599General and administrative
    
    
    2,476,740
    
    
    
    2,041,7862,769,392
    
    
    
    2,587,385Loss from operations
    
    
    (2,655,905
    )
    
    
    (2,394,347
    )Other income (expense):Interest income
    
    
    26,544
    
    
    
    1,119Interest expense
    
    
    
    
    
    
    (480,467
    )26,544
    
    
    
    (479,348
    )Net loss
    
    $
    (2,629,361
    )
    
    $
    (2,873,695
    )Basic and diluted loss available to common
stockholders per common share
    
    $
    (0.12
    )
    
    $
    (0. 23
    )Weighted average common shares outstanding,
basic and diluted
    
    
    21,829,371
    
    
    
    12,693,847
 See accompanying notes to financial statements. F-3




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##### Table of Contents



AMDL, INC. STATEMENTS OF STOCKHOLDERS EQUITY For The Years Ended December 31, 2004 and 2003 AdditionalCommon Stock
    
    
    Preferred Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance, January 1, 2003
    
    
    9,106,656
    
    
    $
    9,107
    
    
    
    
    
    
    $
    
    
    
    $
    22,839,605
    
    
    $
    (20,657,994
    )
    
    $
    2,190,718Common stock issued for cash (including
95,000 shares of common stock issued to finders),
net of cash offering costs of $207,627
    
    
    1,437,700
    
    
    
    1,438
    
    
    
    
    
    
    
    
    
    
    
    850,935
    
    
    
    
    
    
    
    852,373Common stock issued on conversion of notes
and accrued interest
    
    
    3,565,603
    
    
    
    3,566
    
    
    
    
    
    
    
    
    
    
    
    1,262,757
    
    
    
    
    
    
    
    1,266,323Common stock issued for consulting services
    
    
    761,666
    
    
    
    761
    
    
    
    
    
    
    
    
    
    
    
    428,630
    
    
    
    
    
    
    
    429,391Common stock issued for warrants and options
exercised (including 100,000 shares of common
stock issued to consultants), net of cash offering
costs of $148,741
    
    
    3,840,138
    
    
    
    3,840
    
    
    
    
    
    
    
    
    
    
    
    1,299,446
    
    
    
    
    
    
    
    1,303,286Estimated fair market value of options and
warrants granted to third parties and
beneficial conversion feature on convertible
note financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,648
    
    
    
    
    
    
    
    225,648Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,873,695
    )
    
    
    (2,873,695
    )Balance, December 31, 2003
    
    
    18,711,763
    
    
    $
    18,712
    
    
    
    
    
    
    $
    
    
    
    $
    26,907,021
    
    
    $
    (23,531,689
    )
    
    $
    3,394,044
 See accompanying notes to financial statements. F-4




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##### Table of Contents



AMDL, INC. STATEMENTS OF
STOCKHOLDERS EQUITY (continued) For The Years Ended December 31, 2004 and 2003 AdditionalCommon Stock
    
    
    Preferred Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance, December 31, 2003
    
    
    18,711,763
    
    
    $
    18,712
    
    
    
    
    
    
    $
    
    
    
    $
    26,907,021
    
    
    $
    (23,531,689
    )
    
    $
    3,394,044Common stock issued for cash,
net of cash offering costs of $492,489
    
    
    4,264,041
    
    
    
    4,264
    
    
    
    
    
    
    
    
    
    
    
    2,866,277
    
    
    
    
    
    
    
    2,870,541Common stock issued for consulting services
    
    
    300,000
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    247,050
    
    
    
    
    
    
    
    247,350Common stock issued for options exercised
    
    
    223,685
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    162,081
    
    
    
    
    
    
    
    162,304Estimated fair market value of options and
warrants granted to third parties
for consulting services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193,500
    
    
    
    
    
    
    
    193,500Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,629,361
    )
    
    
    (2,629,361
    )Balance, December 31, 2004
    
    
    23,499,489
    
    
    $
    23,499
    
    
    
    
    
    
    $
    
    
    
    $
    30,375,929
    
    
    $
    (26,161,050
    )
    
    $
    4,238,378
 See accompanying notes to financial statements. F-5




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AMDL, INC. STATEMENTS OF CASH FLOWS Years EndedDecember 31,
    
    
    December 31,2004
    
    
    2003Cash flows from operating activitiesNet loss
    
    $
    (2,629,361
    )
    
    $
    (2,873,695
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    108,483
    
    
    
    109,988Common stock issued for services
    
    
    247,350
    
    
    
    276,391Warrants and options issued for services
    
    
    193,500
    
    
    
    2,950Non-cash interest expense recognized
    
    
    
    
    
    
    479,318Changes in operating assets and liabilities:Accounts receivable
    
    
    152,967
    
    
    
    (64,577
    )Inventories
    
    
    790
    
    
    
    14,149Prepaid expenses and other current assets
    
    
    (21,969
    )
    
    
    (10,704
    )Accounts payable and accrued expenses
    
    
    (176,881
    )
    
    
    115,955Accrued payroll and related expenses
    
    
    10,284
    
    
    
    5,348Customer deposits
    
    
    
    
    
    
    (12,350
    )Net cash used in operating activities
    
    
    (2,135,405
    )
    
    
    (1,957,227
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (789
    )
    
    
    Cash flows from financing activitiesProceeds from issuance of common stock,
net of cash offering costs of $492,489 in 2004 and
$207,627 in 2003
    
    
    2,870,541
    
    
    
    852,373Proceeds from the exercise of warrants and options,
net of cash offering costs of $0 in 2004 and $148,741 in 2003
    
    
    162,304
    
    
    
    1,303,286Proceeds from issuance of convertible notes,
net of cash offering costs of $0 in 2004 and $263,295 in 2003
    
    
    
    
    
    
    1,162,702Net cash provided by financing activities
    
    
    3,032,845
    
    
    
    3,318,361Net change in cash and cash equivalents
    
    
    896,651
    
    
    
    1,361,134Cash and cash equivalents, beginning of year
    
    
    1,708,886
    
    
    
    347,752Cash and cash equivalents, end of year
    
    $
    2,605,537
    
    
    $
    1,708,886Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    
    
    
    $
    1,052Cash paid during the year for taxes
    
    $
    800
    
    
    $
    800
 Supplemental schedule of non-cash investing and financing activities: See Notes 6, 8, and 9 to financial statements for non-cash investing and financing
activities. See accompanying notes to financial statements. F-6




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##### Table of Contents



AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business AMDL, Inc.s (the Company) predecessor was incorporated May 13, 1988 and the Company reorganized
as a Delaware corporation on June 7, 1989. Since inception, the Company has primarily been engaged in the commercial development of and the
obtaining of various governmental regulatory approvals for the marketing of its proprietary
diagnostic tumor-marker test kit (DR-70®) to detect the presence of multiple types of
cancer. The Companys product line also includes a selection of diagnostic test kits for several
types of cancer, infectious diseases, endocrinology, diabetes, nephrology and allergy. Revenue Recognition Product sales revenue is recognized upon passage of title to customers, typically upon shipment of
product. Any provision for discounts and estimated returns are accounted for in the period the
related sales are recorded. Advertising The Company expenses the cost of advertising when incurred as a component of general and
administrative expenses. No advertising costs were incurred for the years ended December 31, 2004
or 2003. Research and Development Internal research and development costs are expensed as incurred. Third party research and
development costs are expensed when the contracted work has been performed or as milestone results
have been achieved. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or
less when purchased to be cash equivalents. Inventories Inventories, which consist primarily of raw materials and related materials, are stated at the
lower of cost or market with cost determined on a first-in, first-out (FIFO) basis. The Company
regularly monitors inventories for excess or obsolete items and makes any valuation corrections
when such adjustments are needed. Once established, write-downs are considered permanent
adjustments to the cost basis of the obsolete or unmarketable inventories. Property and Equipment Equipment is stated at cost. Depreciation is computed using the straight-line method over useful
lives of three to ten years. Betterments, renewals, and extraordinary repairs that extend the lives of the assets are
capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets retired are removed from the accounts, and the gain
or loss on disposition is recognized in current operations. F-7




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 Intangible Assets The Company has expended funds for patents that are in various stages of the filing approval
process. During 2004 and 2003, the Company expended approximately $21,328 and $27,732,
respectively, on patents. The Company elected to expense these expenditures immediately due to
their uncertain realizability. In August 2001, the Company acquired intellectual property rights and an assignment of a US patent
application for combination immunogene therapy technology for $2,000,000 (see Note 4). The
technology was purchased from Dr. Lung-Ji Chang, who developed it while at the University of
Alberta, Edmonton, Canada. The $2,000,000 acquisition price is being amortized over the expected
useful life of the technology, which the Company has currently determined to be 20 years, based
upon an estimate of three years to perfect the patent plus 17 years of patent life. The Company
recognized amortization expense of $100,000 for each of the years ended December 31, 2004 and 2003. Impairment of Long-Lived Assets The Companys management assesses the recoverability of its long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their remaining lives can be
recovered through projected undiscounted future cash flows. The amount of long-lived asset
impairment is measured based on fair value and is charged to operations in the period in which
long-lived asset impairment is determined by management. Based on its analysis, the Company
believes that no impairment of the carrying value of its long-lived assets existed at December 31,
2004. There can be no assurance, however, that market conditions will allow us to realize the
value of our technologies and prevent future long-lived asset impairment. Common Stock Issued for Services Rendered The Company periodically issues common stock for services rendered. Common stock issued is valued
at the estimated fair market value, as determined by management and the board of directors of the
Company. The board of directors considers market price quotations; recent stock offering prices
and other factors in determining fair market value for purposes of valuing the common stock (see
Note 9). Risks and Uncertainties The Companys proprietary test kit is deemed a medical device or biologic, and as such is governed
by the Federal Food and Drug and Cosmetics Act and by the regulations of state agencies and
various foreign government agencies. Currently, the Company is not permitted to sell
DR-70â in the United States, although the Company is in the process of seeking
regulatory approval. The Company has received regulatory approval from various foreign
governments to sell its products and is in the process of obtaining regulatory approval in other
foreign markets. There can be no assurance that the Company will maintain the regulatory
approvals required to market its products or that they will not be withdrawn. Prior to May 2002, our focus was on obtaining foreign distributors for our DR-70®kit.
In May 2002, we decided to begin the FDA process under Section 510(k) of the Food, Drug and
Cosmetic Act for approval of our intent to market DR-70® as an aid in monitoring
patients with colorectal cancer. We conducted clinical trials comparing our DR-70® to
the currently accepted assay, CEA, and we submitted the results to the FDA in September 2003. In
January, 2004, the FDA responded to our submission. The FDA identified deficiencies in our
application and advised our consultant, Diagnostic Oncology CRO, Inc. (DOCRO) that based upon the
data submitted, the FDA determined that the DR-70® kit was not substantially equivalent
to any other device which has gone through the 510(k) approval process. The FDA further advised
that if we had data which we believe shows that the DR-70® kit has substantial
equivalence, we could submit such additional information for the FDAs consideration. The Company
has supplied additional data and submitted a new application to the FDA proposing that
DR-70® be used in tandem with CEA in monitoring colorectal cancer patients and is
awaiting the FDAs response. The Company cannot predict the length of time it will take for the
FDA to review the new application or whether approval will ultimately be obtained. F-8




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 The Company is subject to the risk of failure in maintaining its existing regulatory approvals, in
obtaining other regulatory approval, as well as the delays until receipt of such approval, if
obtained. Therefore, the Company is subject to substantial business risks and uncertainties
inherent in such an entity; including the potential of business failure. Accounting for Stock-Based Compensation The Company accounts for stock-based compensation issued to employees using the intrinsic value
based method as prescribed by APB Opinion No. 25 Accounting for Stock Issued to Employees (APB
25). Under the intrinsic value based method, compensation is the excess, if any, of the fair
value of the stock at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Compensation, if any, is recognized over the applicable service period,
which is usually the vesting period. In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). This
standard, if fully adopted, changes the method of accounting for employee stock-based compensation
plans to the fair value based method. For stock options and warrants, fair value is determined
using an option pricing model that takes into account the stock price at the grant date, the
exercise price, the expected life of the option or warrant and the annual rate of quarterly
dividends. Compensation expense, if any, is recognized over the applicable service period, which
is usually the vesting period. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25. FIN 44 clarifies
the application of APB 25 for (a) the definition of employee for purposes of applying APB 25, (b)
the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain provisions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a
material effect on the financial statements. The adoption of the accounting methodology of SFAS 123 is optional and the Company has elected to
continue accounting for stock-based compensation issued to employees using APB 25, as amended by
FIN 44; however, pro forma disclosures, as if the Company adopted the cost recognition requirements
under SFAS 123, are required to be presented (see below). For stock-based compensation issued to
non-employees, the Company values these grants at fair value as defined in SFAS 123, FIN 44 and
EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services. At December 31, 2004, the Company had three stock-based employee compensation plans, which are
described more fully in Note 7. The Company accounts for those plans under the recognition and
measurement principles of APB 25, and related interpretations. No stock-based employee
compensation cost is reflected in the statements of operations, as all options granted under those
plans had exercise prices equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net loss and loss per share if the Company
had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation. F-9




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 Year ended December 31,2004
    
    
    2003Net loss as reported
    
    $
    (2,629,361
    )
    
    $
    (2,873,695
    )Deduct: Total stock-based employee
compensation under fair value based method
for all awards, net of related tax effects
    
    
    (1,094,200
    )
    
    
    (322,948
    )Pro forma net loss
    
    $
    (3,723,561
    )
    
    $
    (3,196,643
    )Basic and diluted loss per share  as reported
    
    $
    (0.12
    )
    
    $
    (0.23
    )Basic and diluted loss per share  pro forma
    
    $
    (0.17
    )
    
    $
    (0.25
    )
 See Note 12 for stock option activity subsequent to December 31, 2004. Basic and Diluted Loss Per Share Basic earnings (loss) per common share is computed based on the weighted average number of shares
outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income
(loss) by the weighted average shares outstanding assuming all dilutive potential common shares
were issued. Basic and diluted loss per share are the same as the effect of stock options and
warrants on loss per share are anti-dilutive and thus not included in the diluted loss per share
calculation. However, the impact under the treasury stock method of dilutive stock options and
warrants would have been incremental shares of 617,392 and 724,161 for the years ended December 31,
2004 and 2003, respectively. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income Taxes. Under SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided for significant deferred tax assets when it is more
likely than not that such assets will not be recovered. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make certain estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates made by management are, among others,
provisions for doubtful accounts, recoverability of long-lived assets, useful lives of intangibles
and valuation of deferred tax assets. Actual results could differ from those estimates. F-10




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 Fair Value of Financial Instruments The carrying amounts of the Companys cash and cash equivalents, accounts payable and accrued
expenses approximates their estimated fair values due to the short-term maturities of those
financial instruments. Comprehensive Income Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income,
establishes standards for reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. SFAS 130 has not impacted the Companys
financial position or results of operations as the Company has no items of comprehensive income. Segments of an Enterprise and Related Information The Company has adopted Statement of Financial Accounting Standards No. 131 (SFAS 131),
Disclosures about Segments of an Enterprise and Related Information. SFAS 131 changes the way
public companies report information about segments of their business in their annual financial
statements and requires them to report selected segment information in their quarterly reports
issued to shareholders. It also requires entity-wide disclosures about the products and services
an entity provides, the material countries in which it holds assets and reports revenues and its
major customers. During fiscal year 2004, approximately 31.7% of our sales were to customers in
foreign countries. Of the foreign sales, approximately 84.1% were to customers in Korea and 15.9%
were to customers in Taiwan. During fiscal year 2003, approximately 11.7% of our sales were to
customers in foreign countries. Of the foreign sales, approximately 69.4% were to customers in
Korea and 29.2% were to customers in Taiwan. All of the Companys assets are held in the United
States and all transactions are denominated in U.S. dollars. Concentration of Risk The Company had no accounts receivable as of December 31, 2004. One customer accounted for 100% of
accounts receivable as of December 31, 2003. One customer accounted for 62.1% of sales for the
year ended December 31, 2004 and 84.4% of sales for the year ended December 31, 2003. In 2004,
this customer indicated that it did not expect to make further purchases until sometime in 2005.
The loss of this customer in the future could significantly affect the Companys operating results. From time to time, the Company maintains credit balances at certain institutions in excess of the
FDIC limit. As of December 31, 2004, the Company had approximately $2,506,000 in excess of this
limit. Recent Accounting Pronouncements In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS 150 establishes standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. SFAS 150 also includes required
disclosures for financial instruments within its scope. For the Company, SFAS 150 was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be effective as of
January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily
redeemable financial instruments, SFAS 150 will be effective for the Company on January 1, 2005.
The Company currently does not have any financial instruments that are within the scope of SFAS
150. In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151,  Inventory
Costs, an amendment of ARB No. 43, Chapter 4, (SFAS 151) to clarify the accounting guidance
related to abnormal amounts of idle facility expense, freight, handling costs and wasted material
(spoilage) costs. SFAS 151 specifies that these costs should be recognized as current period
charges, and that fixed production overhead should be allocated to inventory based on normal
capacity of production facilities. SFAS 151 is effective for fiscal years beginning after June 15,
2005. F-11




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 The Company does not expect the adoption of SFAS 151
to have an impact on its financial condition or results of operations. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R) which
requires that companies recognize compensation cost related to share based payment transactions in
their financial statements. Compensation cost is measured based on the grant-date fair value of the
equity or liability instruments and will be recognized over the period that an employee provides
service (usually the vesting period) in exchange for the award. This standard replaces SFAS 123,
and supersedes APB Opinion No. 25. SFAS 123(R) is effective beginning December 15, 2005. The
Company is currently in the process of evaluating the impact of the adoption of SFAS 123(R), which
will result in additional compensation expense for remaining unvested stock options and will be
affected by the number of future options granted. In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary
Assets - an amendment of APB Opinion No 29, Accounting for Nonmonetary
Transactions. SFAS No. 153 eliminates the exception for non-monetary exchanges
of similar productive assets, which were previously required to be recorded on a
carryover basis rather than a fair value basis. Instead, this statement provides
that exchanges of non-monetary assets that do not have commercial substance be
reported at carryover basis rather than a fair value basis. A non-monetary
exchange is considered to have commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange. The
provisions of this statement are effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect the adoption of SFAS No. 153 to have an impact on its financial condition
or results of operations. NOTE 2 - INVENTORIES Inventories consist of the following at December 31, 2004: Raw materials
    
    $
    51,047Work-in-process
    
    
    14,477Finished goods
    
    
    2,511$
    68,035
 NOTE 3  PROPERTY AND EQUIPMENT Property and equipment at December 31, 2004 consists of the following: Office equipment
    
    $
    38,164Lab equipment
    
    
    5,97944,143Less accumulated depreciation
    
    
    (30,255
    )$
    13,888
 Depreciation expense totaled $8,483 for the year ended December 31, 2004. F-12




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 NOTE 4  INTELLECTUAL PROPERTY Intangible assets consist of the following as of December 31, 2004: Purchased patent pending technology
    
    $
    2,000,000Accumulated amortization
    
    
    (341,667
    )$
    1,658,333
 During each of the fiscal years ended December 31, 2004 and 2003, amortization expense totaled
$100,000. The estimated amortization expense for the next five years is as follows: Years Ending2004
    
    $
    100,0002005
    
    
    100,0002006
    
    
    100,0002007
    
    
    100,0002008
    
    
    100,000
 In August 2001, the Company acquired intellectual property rights and an assignment of a US patent
application for combination immunogene therapy technology for $2,000,000. The technology was
purchased from Dr. Lung-Ji Chang, who developed it while at the University of Alberta, Edmonton,
Canada (see Note 1). During 2003, two lawsuits were filed challenging the Companys ownership of
this intellectual property. The value of the intellectual property will be diminished if either of
the lawsuits is successful (see Note 6). As part of the acquisition of the technology, the Company agreed to pay Dr. Chang a 5% royalty on
net sales of combination gene therapy products. The Company has entered into a two-year consulting
contract with Dr. Chang, which required payments of $2,500 per month in consideration for services
relating to the development of intellectual property and scientific consultations. The Company
expensed $30,000 for consulting services in the year ended December 31, 2003. The contract expired
in 2003. The Company has not paid any royalties to Dr. Chang to date. NOTE 5  INCOME TAXES The tax effects of temporary differences that give rise to deferred taxes at December 31, 2004 are
as follows: Deferred tax asset:Net operating loss carryforward
    
    $
    9,170,000Expenses recognized for granting of options and warrants
    
    
    672,000Total gross deferred tax asset
    
    
    9,842,000Less valuation allowance
    
    
    (9,842,000
    )Net deferred tax asset
    
    $
    
 The valuation allowance increased by approximately $1,052,000 and $1,148,000 during the years ended
December 31, 2004 and 20023, respectively. No current provision for income taxes for the years
ended December 31, 2004 and 2003 is required, except for minimum state taxes, since the Company
incurred taxable losses during such years. F-13




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 The provision for income taxes for fiscal 2004 and 2003 was $800 and differs from the amount
computed by applying the U.S. Federal income tax rate of 34% to loss before income taxes as a
result of the following: 2004
    
    
    2003Computed tax benefit at federal statutory rate
    
    $
    (894,000
    )
    
    $
    (976,000
    )State income tax benefit, net of federal effect
    
    
    (158,000
    )
    
    
    (172,000
    )Increase in valuation allowance
    
    
    1,052,000
    
    
    
    1,148,000Other
    
    
    800
    
    
    
    800$
    800
    
    
    $
    800
 As of December 31, 2004 the Company had net operating loss carry forwards of approximately
$23,430,000 and $11,715,000 for federal and state income tax reporting purposes, which expire at
various dates through 2024 and 2014, respectively. The utilization of the net operating loss carry forwards might be limited due to restrictions
imposed under federal and state laws upon a change in ownership. The amount of the limitation, if
any, has not been determined at this time. A valuation allowance is provided when it is more
likely than not that some portion or all of the deferred tax assets will not be realized. As a
result of the Companys continued losses and uncertainties surrounding the realization of the net
operating loss carry forwards, the Company has recorded a valuation allowance equal to the net
deferred tax asset amount as of December 31, 2004. NOTE 6  COMMITMENTS AND CONTINGENCIES Operating Lease The Company leases its laboratory and manufacturing space under a non-cancelable operating lease
agreement that expires on July 31, 2005 and requires monthly lease payments of $6,373 over the
remaining term of the lease. The lease is renewable for two one-year terms on the same terms and
conditions, at the option of the Company. Future minimum commitments under this lease agreement
are as follows: Years EndingDecember 31,2005
    
    $
    45,000
 Rent expense was approximately $76,000 for each of the years ended December 31, 2004 and 2003. Litigation On February 22, 2002, AcuVector Group, Inc. (AcuVector) filed a Statement of Claim in the Court
of Queens Bench of Alberta, Judicial District of Edmonton relating to the Companys combination immunogene therapy
technology acquired from Dr. Chang in August 2001. The claim alleges damages of $CDN 20 million and seeks
injunctive relief against Dr. Chang for, among other things, breach of contract and breach of
fiduciary duty, and against us for interference with the alleged relationship between Dr. Chang and
AcuVector. The claim for injunctive relief seeks to establish that the AcuVector license agreement
with Dr. Chang is still in effect. The Company performed extensive due diligence to determine that
AcuVector had no interest in the technology when the Company acquired it. The Company is confident
that AcuVectors claims are without merit and that the Company will receive a favorable result in
the case. As the final outcome is not determinable, no accrual or loss relating to this action is
reflected in the accompanying financial statements. F-14




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 The Company is also defending a companion case filed in the same court by the Governors of the
University of Alberta filed against the Company and Dr. Chang in August 2003. The University of
Alberta claims, among other things, that Dr. Chang failed to remit the payment of the Universitys
portion of the monies paid by the Company to Dr. Chang for the combination immunogene technology
purchased by us from Dr. Chang in 2001. In addition to other claims against Dr. Chang relating to
other technologies developed by him while at the University, the University also claims that the
Company conspired with Dr. Chang and interfered with the Universitys contractual relations under
certain agreements with Dr. Chang, thereby damaging the University in an amount which is unknown to
the University at this time. The University has not claimed that the Company is not the owner of
the combination immunogene therapy technology, just that the University has an equitable interest
therein or the revenues therefrom. If either AcuVector or the University is successful in their claims, the Company may be liable for
substantial damages, its rights to the technology will be adversely affected (see Note 4), and its
future prospects for exploiting or licensing the combination immunogene therapy technology will be
significantly impaired. In the ordinary course of business, there are other potential claims and lawsuits brought by or

against the Company. In the opinion of management, the ultimate outcome of these matters will not
materially affect the Companys operations or financial position or are covered by insurance. Change in Control Severance Plan On November 15, 2001, the board of directors adopted an Executive Management Change in Control
Severance Pay Plan. The director, who is also the Companys Chief Executive Officer, who may
become entitled to benefits under the plan did not participate in the deliberations or vote to
approve the plan. The plan covers the persons who at any time during the 90-day period ending on the date of a change
in control (as defined in the plan), are employed by the Company as Chief Executive Officer and/or
President and are not party to a separate agreement which makes such person ineligible to
participate in the plan. These persons become eligible for benefits under the plan if (1) (a) the
Company terminates his or her employment for any reason other than his or her
death or cause (as defined in the plan) or (b) the person terminates his or her employment with the
Company for good reason (as defined in the plan) and (2) the termination occurs within the period beginning on the
date of a change in control and ending on the last day of the twelfth month that begins after the month in which the
change in control occurs. These persons also become eligible for benefits under the plan if the
person terminates employment with the Company for any reason during the one-month period commencing
on the date six months following a change in control. The plan requires the Company to make a cash payment in an amount equal to three hundred percent
(300%) of the participants average total compensation over the prior three years preceding the change in
control. If the Companys auditors determine that the total payments made to a person result in an
excise tax imposed by Internal Revenue Code §4999, the Company will make an additional cash payment
to the person equal to an amount such that after payment by the person of all taxes (including any
interest or penalties imposed with respect to such taxes), including any excise tax, imposed upon
the additional payment, the person would retain an amount of the additional payment equal to the
excise tax imposed upon the total payments. Immediately following a change in control, the Company is required to establish a trust and fund
the trust with the amount of any payments which may become owing to persons entitled to receive
benefits under the plan but only to the extent that the funding of the trust would not impair the
working capital of the Company. Consulting Agreements The Company has various agreements with consultants whereby the consultants perform corporate
development services of attracting investors. During 2004 and 2003, the Company paid cash, stock
and warrants to third parties under these agreements. See Note 9 for a summary of non-cash
consulting agreements. F-15




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 Effective October 1, 1999, the Company entered into a one-year consulting agreement with its former
president to review and analyze new technologies and supervise continued testing of existing
products and such other services related to diagnostic technology as the Board of Directors may
request for a monthly payment of not to exceed $4,800. The agreement was not renewed at expiration.
The former president is now engaged on a month-to-month basis at $250 per hour, as needed. For
the years ended December 31, 2004 and 2003, $161,536 and $104,519, respectively, were paid under
the current terms, to this consultant. Licensing Agreements The Company has an agreement to pay royalty fees to JGT Management Services Ltd., an unrelated
third party, equal to 2.5% of gross sales of DR-70® on a quarterly basis. The agreement
expires in August 2008; however, the Company may elect to pay a $25,000 buy-out fee after October
1, 2003, subject to acceptance by JGT. During 2004 and 2003 the Company paid or accrued $1,471 and
$881, respectively, in connection with this agreement. Indemnities and Guarantees The Company has executed certain contractual indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party. The Company also has agreed to
indemnify its directors, officers, employees and agents to the maximum extent permitted under the
laws of the State of Delaware. In connection with its facility lease, the Company has indemnified
its lessor for certain claims arising from the use of the facilities. The duration of the
guarantees and indemnities varies, and in many cases is indefinite. These guarantees and
indemnities do not provide for any limitation of the maximum potential future payments the Company
could be obligated to make. Historically, the Company has not been obligated to make any payments
for these obligations and no liabilities have been recorded for these indemnities and guarantees in
the accompanying balance sheet. NOTE 7  STOCK OPTIONS Effective June 30, 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan). The
shareholders of the Company approved the 1999 Plan on June 28, 2000. Under the 1999 Plan,
incentive stock options and nonqualified options may be granted to officers, employees and
consultants of the Company for the purchase of up to 2,000,000 shares of the Companys common
stock. The exercise price per share under the incentive stock option plan shall not be less than
100% of the fair market value per share on the date of grant. The exercise price per share under
the non-qualified stock option plan shall not be less than 85% of the fair market value per share
on the date of grant. Expiration dates for the grants may not exceed 10 years from the date of
grant. The 1999 Plan terminates on June 30, 2009. Under the terms of the 1999 Plan, the Company
granted options to purchase 113,279 shares of the Companys common stock under incentive stock
option agreements in 2003, and granted options to purchase 159,091 shares of the Companys common
stock under non-qualified stock option agreements in 2003. No options were granted under the 1999
Plan in 2004. All options granted have an exercise price equal to the fair market value at the
date of grant, vest upon grant and expire five years from the date of grant. Pursuant to SFAS 123,
total compensation expense recognized for options issued to consultants during 2003 was $2,950. As
of December 31, 2004, 1,509,370 options at an average exercise price of $2.34 per share were
outstanding under the 1999 Plan. Due to the expiration of unexercised options in 2004, which
under the terms of the 1999 Plan can be re-granted, the Company had 306,261 options available for
grant under the 1999 Plan at December 31, 2004. As stated in Note 12, options to purchase 300,000
shares under the 1999 Plan were granted subsequent to December 31, 2004. On January 25, 2002, the board of directors adopted the 2002 Stock Option Plan (the 2002 Plan).
The shareholders of the Company approved the 2002 Plan on May 10, 2002. Under the 2002 Plan,
incentive stock options and nonqualified options may be granted to officers, employees, directors
and independent contractors of the Company for the purchase of up to 1,000,000 shares of the
Companys common stock. The exercise price per share under the incentive stock option plan shall
not be less than 100% of the fair market value per share on the date of grant. The exercise price
per share under the non-qualified stock option shall be not less than 85% of the fair market value
per share on the date of grant. Expiration dates for the grants may not exceed 10 years from the
date of grant. Under the F-16




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 terms of the 2002 Plan, the Company granted options to purchase 120,000
shares of the Companys common stock under incentive stock option agreements in 2003, and granted
options to purchase 160,000 shares of the Companys common stock under non-qualified stock option
agreements in 2003. No options were granted under the 2002 Plan in 2004. All options granted
have an exercise price equal to the fair market value at the date of grant, vest upon grant and
expire five years from the date of grant. Pursuant to SFAS 123, there was no compensation expense
recognized for options issued to consultants during 2003. As of December 31, 2004, 938,815
options at an average exercise price of $0.64 per share were outstanding under the 1999 Plan. The
Company had no options available for grant under the 2002 Plan at December 31, 2004. On February 23, 2004, the board of directors adopted the 2004 Stock Option Plan (the 2004 Plan).
The shareholders of the Company approved the 2004 Plan on September 27, 2004. Under the 2004 Plan,
incentive stock options and nonqualified options may be granted to officers, employees, directors
and independent contractors of the Company for the purchase of up to 2,400,000 shares of the
Companys common stock. The exercise price per share under the incentive stock option plan shall
generally not be less than 100% of the fair market value per share on the date of grant. The
exercise price per share under the non-qualified stock option shall be not less than 85% of the
fair market value per share on the date of grant. Expiration dates for the grants may generally
not exceed 10 years from the date of grant. Under the terms of the 2004 Plan, 251,300 options were
granted under incentive stock option agreements to employees, and 1,143,700 options were granted
under non-qualified stock option agreements to employees, directors and a consultant; these options
have an exercise price equal to the fair market value on the date of grant, vested immediately and
expire in 5 years. During 2004, 5,000 options were granted under an incentive stock option
agreement to one employee; these options have an exercise price equal to the fair market value on the date of grant,
vested immediately and expire 5 years after the date of issuance. During 2004, options to purchase
470,000 shares of common stock were granted under non-qualified stock option agreements to one
employee/director and the other directors of the Company; these options have an exercise price
equal to the fair market value on the date of grant, vested immediately and expire in 5 years. In
accordance with SFAS 123, the Company recognized $17,000 of non-cash consulting expense related to
the options issued to the consultant in 2004. As of December 31, 2004, 1,870,000 options at an
average exercise price of $1.15 per share were outstanding under the 2004 Plan. The Company had
530,000 options available for grant under the 2004 Plan at December 31, 2004. The following is a status of the stock options outstanding at December 31, 2004 and 2003 and the
changes during the years then ended: 2004
    
    
    2003Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding,
beginning of year
    
    
    3,000,000
    
    
    $
    1.51
    
    
    
    2,676,630
    
    
    $
    1.62Granted
    
    
    1,870,000
    
    
    
    1.15
    
    
    
    552,370
    
    
    
    1.10Exercised
    
    
    (223,685
    )
    
    
    (0.73
    )
    
    
    
    
    
    
    Expired/forfeited
    
    
    (328,130
    )
    
    
    (0.68
    )
    
    
    (229,000
    )
    
    
    (1.87
    )Outstanding and exercisable,
end of year
    
    
    4,318,185
    
    
    $
    1.46
    
    
    
    3,000,000
    
    
    $
    1.51Weighted average fair value
of options granted
    
    
    
    
    
    $
    0.61
    
    
    
    
    
    
    $
    0.59
 The following table summarizes information about stock options outstanding at December 31, 2004: F-17




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 WeightedAverageNumber of
    
    
    RemainingOptioned
    
    
    ContractualExercise Price
    
    Shares
    
    
    Life(Years)$4.00
    
    
    475,000
    
    
    1.7$2.39
    
    
    50,000
    
    
    2.4$2.25
    
    
    177,000
    
    
    2.0$2.00
    
    
    25,000
    
    
    0.3$1.75
    
    
    345,000
    
    
    0.1$1.23
    
    
    1,395,000
    
    
    4.2$1.10
    
    
    516,185
    
    
    4.0$1.00
    
    
    165,000
    
    
    0.8$0.97
    
    
    5,000
    
    
    4.3$0.93
    
    
    470,000
    
    
    4.8$0.48
    
    
    695,000
    
    
    2.6
 The fair value of each option granted during 2004 and 2003 to employees and directors is estimated
using the Black-Scholes option-pricing model on the date of grant using the following assumptions:
(i) no dividend yield, (ii) average volatility of 137 percent and 159 percent, respectively, (iii)
weighted-average risk-free interest rate of approximately 1.5 percent and 1.3 percent,
respectively, and (iv) expected lives of one year, respectively. NOTE 8  STOCK WARRANTS From time to time, the Company issues warrants pursuant to various consulting agreements and other
compensatory arrangements. During the year ended December 31, 2003, the Company issued warrants to purchase 5,000 shares of
the Companys common stock at an exercise price of $0.40 per share. All of the warrants were
exercised on October 15, 2003. As these warrants were issued in connection with fund raising
activities, no consulting expense was recognized for these warrants in the accompanying statement
of operations. During the year ended December 31, 2003, the Company issued warrants to purchase 4,115,620 shares
of the Companys common stock at exercise prices of $0.385 to $0.561 per share, with an average
exercise price of $0.388. Of these warrants, warrants to purchase 3,575,141 common shares were
issued to investors participating in the unit offering, warrants to purchase 340,479 common shares
were issued to placement agents and warrants to purchase 200,000 shares of common stock were issued
to two investors. Warrants to purchase 200,000 shares of common stock are exercisable through May
31, 2005 and the remaining warrants are exercisable through December 31, 2005. During 2003
investor warrants to purchase 3,369,659 shares of common stock and placement agent warrants to
purchase 340,479 shares of common stock were exercised. These warrants were issued in connection
with the Companys convertible note offering in 2003. Accordingly, interest expense was recognized
for these warrants in the accompanying statement of operations (see Note 9). During the year ended December 31, 2003, the Company issued warrants to purchase 205,620 shares of
the Companys common stock at an exercise price of $1.58 per share. Of these warrants, warrants to
purchase 171,350 common shares
were issued to investors participating in this offering and warrants to purchase 34,270 common
shares were issued to the placement agent. All of the warrants are vested and are exercisable
through December 31, 2005. As these warrants were issued in connection with fund raising
activities, no consulting expense was recognized for these warrants in the accompanying statement
of operations. F-18




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 During January 2004, the Company issued warrants to purchase 1,588,380 shares of the Companys
common stock at an exercise price of $1.46 per share. Of these warrants, warrants to purchase
1,328,650 common shares were issued to investors participating in the unit offering and warrants to
purchase 160,674 common shares were issued to placement agents. All of the warrants are vested and
are exercisable through December 31, 2006. These warrants were issued in connection with the
Companys unit offering in January 2004 and the shares of the Companys common stock issuable upon
exercise of the warrants, including those issued to the placement agent, were registered with the
Securities and Exchange Commission on Form S-3, which registration statement became effective on
February 11, 2004 (see Note 9). As these warrants were issued in connection with fund raising
activities, no consulting expense was recognized for these warrants in the accompanying statement
of operations. On August 16, 2004, the board of directors authorized the issuance of warrants to purchase 750,000
shares of common stock to Boston Financial Partners, Inc., a consultant, for financial advisory
services to be provided from August 16, 2004 through December 31, 2004. Warrants to purchase
250,000 common shares are exercisable at each of $0.94, $0.99, and $1.09 per share, respectively.
The warrants were valued at $152,500 using the Black-Scholes pricing method, which amount was
charged to general and administrative expense in 2004. On August 18, 2004, the board of directors authorized the issuance of warrants to purchase 100,000
shares of common stock and made a cash payment of $15,000 to Sargon Capital, Inc., a consultant,
for investor public relations services to be provided from August 18, 2004 through January 17,
2005. The warrants are exercisable at $0.92 per share. The warrants were valued at $24,000 using
the Black-Scholes pricing method, which amount was charged to general and administrative expense in
2004. During December 2004, the Company issued warrants to purchase 1,767,415 shares of the Companys
common stock at an exercise price of $1.17. Of these warrants, warrants to purchase 1,606,741
common shares were issued to investors participating in the unit offering and warrants to purchase
160,674 common shares were issued to placement agents. The warrants are exercisable through
December 31, 2008. These warrants were issued in connection with the Companys unit offering in
December 2004 and the shares of the Companys common stock issuable upon exercise of the warrants,
including those issued to the placement agents, were registered with the Securities and Exchange
Commission on Form S-3, which registration statement became effective on January 13, 2005 (see Note
9). As these warrants were issued in connection with fund raising activities, no consulting
expense was recognized for these warrants in the accompanying statement of operations. The fair value of each warrant granted during 2004 and 2003 to consultants and other service
providers is estimated using the Black-Scholes option-pricing model on the date of grant using the
following assumptions: (i) no dividend yield, (ii) average volatility of 140 percent and 94
percent, respectively, (iii) weighted-average risk-free interest rate of approximately 1.9 percent
and 1.3 percent, respectively, and (iv) expected life of one year and three months, respectively. F-19




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 The following represents a summary of the warrants outstanding at December 31, 2004 and 2003 and
changes during the years then ended: 2004
    
    
    2003Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageWarrants
    
    
    Exercise Price
    
    
    Warrants
    
    
    Exercise PriceOutstanding,
beginning of year
    
    
    754,908
    
    
    $
    0.77
    
    
    
    668,806
    
    
    $
    1.99Granted
    
    
    4,205,795
    
    
    
    1.24
    
    
    
    4,326,240
    
    
    
    0.45Expired/forfeited
    
    
    (143,806
    )
    
    
    (0.68
    )
    
    
    (500,000
    )
    
    
    (2.45
    )Exercised
    
    
    
    
    
    
    
    
    
    
    (3,740,138
    )
    
    
    (0.39
    )Outstanding and exercisable,
end of year
    
    
    4,816,897
    
    
    $
    1.19
    
    
    
    754,908
    
    
    $
    0.77Weighted average fair value
of warrants granted
    
    
    
    
    
    $
    0.63
    
    
    
    
    
    
    $
    0.42
 The following table summarizes information about warrants outstanding at December 31, 2004: WeightedAverageNumber of
    
    
    RemainingWarranted
    
    
    ContractualExercise Price
    
    Shares
    
    
    Life(Years)$1.58
    
    
    205,620
    
    
    1.0$1.46
    
    
    1,588,380
    
    
    2.0$1.17
    
    
    1,767,415
    
    
    4.0$1.09
    
    
    250,000
    
    
    2.6$0.99
    
    
    250,000
    
    
    2.6$0.94
    
    
    250,000
    
    
    2.6$0.92
    
    
    100,000
    
    
    2.6$0.39
    
    
    205,482
    
    
    2.0$0.39
    
    
    200,000
    
    
    1.4
 The outstanding warrants at December 31, 2004 are held by consultants and other service providers,
stockholders, and former noteholders. NOTE 9 
STOCKHOLDERS EQUITY Preferred Stock The Companys Certificate of Incorporation authorizes up to 10,000,000 shares of $0.001 par value
preferred stock. Shares of preferred stock may be issued in one or more classes or series at such
time and in such quantities as the Board of Directors may determine. All shares of any one series
shall be equal in rank and identical in all respects. As of October 22, 1999, the Board of Directors designated 11,000 shares as Series A 8% convertible
Preferred Stock (Preferred A). Each Preferred A had a liquidation preference of $500 per share
plus accrued dividends and was convertible at any time into such number of fully paid and
non-assessable shares of common stock as is determined by dividing the $500 plus the amount of any
accrued and unpaid dividends by $2, the initial conversion price. During the periods presented, the Company had no shares of preferred stock outstanding. F-20




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 Common Stock Cash Financing Activities On March 21, 2003, the board of directors authorized the sale of units consisting of unsecured
convertible notes and warrants to purchase common stock, at or above the market price of the
common stock to accredited and non-U.S. investors only, in a private placement (2003 Offering No.
1). Under the terms of the offering, investors received one unit for each $1,000 invested. Each
unit generally consisted of a $1,000 principal amount 5% convertible promissory note due June 30,
2003, generally convertible into 2,598 shares of the Companys common stock plus a warrant to
purchase 2,598 shares of the Companys common stock at an exercise price of $0.385 each, expiring
on December 31, 2005. The notes were generally automatically converted into common shares upon
the approval of the listing of the shares issuable on conversion of the notes by the American
Stock Exchange. The Company raised $1,321,000 in gross proceeds from the initial sale of the
units. See below for details of associated costs. During the year ended December 31, 2003 the
Company received approximately $1,308,000 in gross proceeds from investors upon the exercise of
the warrants included in the units to purchase 3,369,659 shares of common stock. The Company paid
a cash commission of 10% of the proceeds of warrant exercises to the placement agents. In
addition, during the year ended December 31, 2003 the Company received approximately $132,000 from
the placement agents upon the exercise of warrants for 340,479 shares of common stock, on which no
commissions were paid. Included in the actual number of warrants issued to each investor was a 5%
bonus of warrants to purchase an aggregate of 170,234 shares, which bonus warrants the Company was
contractually obligated to issue because the registration statement for the shares issued on
conversion of the notes and issuable upon exercise of the warrants did not become effective prior
to July 1, 2003. During 2003, all of the convertible notes were converted into 3,415,603 shares
of the Companys common stock, including 10,424 shares related to the approximately $4,000 of
interest earned on the notes. In the unit offering, the Company utilized the services of two placement agents, PCNA, S.A., a
Swiss corporation, and Gestibroker Consulting and Financial Management S.A., a Swiss corporation,
and paid a total cash compensation of 13% of funds raised plus issued warrants to purchase common
shares equal to 10% of the aggregate number of shares of common stock issued or issuable on
conversion of the promissory notes. In addition, the Company entered into an investment advisory
agreement with First London Finance, Ltd, a British Virgin Islands company. Under the terms of
the investment advisory agreement, the Company issued 400,000 shares of common stock as a success
fee for the offering. The Company was also required to issue to First London Finance an
additional 100,000 shares of common stock if $750,000 in gross proceeds were received from the
exercise of the warrants included in the units within the 90-day period beginning on August 1,
2003 and ending on October 29, 2003. The additional 100,000 shares were earned by First London
Finance, Ltd. as of October 17, 2003 and were issued on October 29, 2003 as a cost of equity
raising. The Company incurred approximately $413,000 of issuance costs related to issuance of the units. Of
these costs approximately $244,000 was paid in cash to placement agents and other service
providers, and the remaining $169,000 was based on (i) the estimated fair market value of the
400,000 shares of common stock granted to First London Finance, (ii) warrants to purchase 340,479
shares of common stock at an exercise price generally of $0.385 per share
expiring December 31, 2005 issued to placement agents (valued based on the Black-Scholes model
under SFAS 123), and (iii) warrants to purchase 200,000 shares of common stock at an exercise price
of $0.385 per share expiring May 31, 2005 issued to two investors. The Company recognized
approximately $268,000 of these issuance costs as interest expense based on the original
amortization period of the notes, and transferred approximately $145,000 to additional paid-in
capital, representing the unamortized debt issuance costs associated with the converted notes, as
certain of the issuances were converted prior to their maturity dates. During the year ended
December 31, 2003, the Company incurred approximately $140,000 of issuance costs related to the
exercise of warrants consisting of cash paid to placement agents and other service providers which
was charged to additional paid-in capital. The Company charged the full amount of $140,000 to
additional paid-in capital. In connection with the investor warrants, the Company recorded a debt discount of approximately
$142,000 (valued based on the Black-Scholes model under SFAS 123 and allocated on a relative fair
value basis under APB 14), which was amortized from the dates of purchase through the maturity
dates of the convertible notes, generally June 30, 2003, or the date of mandatory conversion,
whichever occurred first. The Company amortized approximately $101,000 of the F-21




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 debt discount to
interest expense and transferred approximately $41,000 of the debt discount to additional paid-in
capital for notes converted prior to their maturity dates, representing the unamortized debt
discount associated with the converted notes. The Company filed a registration statement with the Securities and Exchange Commission on Form S-3
to register 8,261,233 shares of the Companys common stock consisting of (i) the 3,415,603 common
shares issued upon conversion of the notes, (ii) the shares underlying the warrants to purchase
3,575,141 common shares issued to the investors and (iii) the shares underlying the warrants to
purchase 340,479 common shares issued to the placement agents, (vi) the shares underlying the
warrants to purchase 200,000 shares of common stock issued to two investors and (v) the 400,000
shares of common stock issued to First London Finance all in connection with 2003 Offering No. 1;
and (vi) the 300,000 shares purchased by the two investors, and (vii) the shares underlying the
warrants to purchase 30,000 common shares issued to the placement agent, all in connection with the
Regulation S Offering of 2002. The registration statement was declared effective on July 31, 2003. On July 17, 2003 the board of directors authorized a Regulation S offering of up to 1,100,000
shares of common stock (2003 Offering No. 2) at a price of $0.70 per share, or $770,000 of 5%
convertible notes, convertible into common shares at $0.70 per share, and the payment of
commissions of 10% of the sales price in cash, non-accountable expenses of 3% of the sales price,
plus shares of common stock equal to 10% of the shares sold in 2003 Offering No. 2. Under the
terms of the offering, the notes automatically converted to common shares on the attainment of
certain market share prices, but no later than August 31, 2004. On August 13, 2003, the Company
received gross proceeds of $105,000 from one investor in respect of the issuance of a convertible
note of equal amount. On August 27, 2003, the convertible note automatically converted into
150,000 shares of common stock. Due to the fact that the conversion price of the note payable was
less than the fair market value of the underlying common stock on the date of issuance, the company
recorded imputed interest expense of $105,000 which is included in interest expense in the
accompanying statements of operations. On September 9, 2003, the Company received an additional
subscription representing gross proceeds of $665,000 under 2003 Offering No. 2. The Company and
the investor agreed that the terms of the offering with respect to such investor would be amended
so as to treat the investment as a direct subscription of 950,000 shares of common stock rather
than a convertible note. In connection with 2003 Offering No. 2, the Company utilized the services of Gestibroker Consulting
and Financial Management S.A., as placement agent, and paid total cash compensation of 13% of funds
raised plus issued 110,000 common shares to Gestibroker. The Company incurred approximately
$43,000 of issuance costs related to issuance of the convertible notes on August 13, 2003. Of
these costs approximately $19,000 was paid in cash to the placement agent (see above) and other
service providers, and the remaining $24,000 was based on the estimated fair market value of the
15,000 shares of common stock granted to the placement agent (see above). The Company recognized
approximately $2,000 of these issuance costs as interest expense based on the original amortization
period of the note, and transferred approximately $41,000 to additional paid-in capital,
representing the unamortized debt issuance costs associated with the converted notes, as the note
was converted prior to their maturity dates. On September 9, 2003, the Company incurred
approximately $120,000 in cash issuance costs related to issuance of the common shares. The
Company charged these issuance costs to additional paid-in capital, since the investment was
treated as a purchase of shares of common stock. On August 21, 2003, the stockholders of the Company authorized the issuance of 3,000,000 shares of
common stock at a discount of up to 25% below the current market price at the time of issuance.
Pursuant to stockholder authorization, on September 24, 2003, the board of directors authorized a
Regulation S offering for the sale of units consisting of up to 3,000,000 shares of common stock at
a discount of up to 25% below the current market price at the time of issuance and 1,500,000
warrants to purchase common stock (2003 Offering No. 3), to accredited and non-U.S. investors
only, in a private placement. Under the terms of 2003 Offering No. 3, investors receive warrants
to purchase a number of shares of common stock equal to one-half (1/2) of the total number of
shares purchased in the offering. The warrants are exercisable at $1.58 per share, equal to 110%
of the average closing price of the Companys common stock, as reported by the American Stock
Exchange, for the ten (10) consecutive trading days immediately prior to and including October 31,
2003. Each warrant will become exercisable beginning ninety (90) days after the effective date of
a registration statement covering the resale of the shares issuable upon exercise of the warrants,
and will remain F-22




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 exercisable until December 31, 2005. On October 24, 2003 the Company received
$375,000 in gross proceeds from the initial sale of the units in 2003 Offering No. 3. The Company
issued 342,700 common shares and issued a warrant to purchase 171,350 additional common shares. In connection with 2003 Offering No. 3, the Company utilized the services of Gestibroker Consulting
and Financial Management S.A. and agreed to pay a total cash compensation of 13% of funds raised
plus issue to Gestibroker warrants to purchase common shares equal to 10% of the aggregate number
of shares of common stock issued. The Company paid $48,750 in fees to its placement agent in
respect of the proceeds received and issued to the placement agent a warrant to purchase 34,270
shares of common stock at $1.58. The Company incurred legal costs of approximately $17,500 in the fourth quarter of 2003 related to
an offering which closed in January 2004 (see below). The Company charged these issuance costs to
additional paid-in capital in December 2003, since the transaction in January 2004 was a purchase
of shares of common stock. The Company filed a registration statement with the Securities and Exchange Commission on Form S-3
to register 1,858,320 shares of the Companys common stock consisting of (i) the 150,000 common
shares issued upon conversion of the notes, (ii) the 950,000 common shares issued directly upon
subscription and (iii) the 110,000 common shares issued to the placement agent, all in connection
with 2003 Offering No. 2 and (iv) the 342,700 shares purchased by the investor, (v) the shares
underlying the warrants to purchase 171,350 common shares issued to the investor and (vi) the
shares underlying the warrants to purchase 34,270 common shares issued to the placement agent, all
in connection with 2003 Offering No. 3, and (vii) the 100,000 shares of common stock issued to
First London Finance on October 29, 2003. The registration statement was declared effective on
December 3, 2003. On January 8, 2004, the Company closed an offering (2004 Offering No. 1) to accredited investors
only of an aggregate of 2,657,300 shares of common stock at $0.80 per share and warrants to
purchase 1,328,650 shares of common stock at an exercise price of $1.46 per share, exercisable on
or after April 7, 2004 and expiring December 31, 2006. 2004 Offering No. 1 was part of the
3,000,000 share offering approved by the stockholders on August 21, 2003, which permitted the
Company to sell shares at a discount of 25% from the current market price. The Company received
$2,125,840 in gross proceeds. In connection with this 2004 Offering No. 1, the Company utilized
the services of Gestibroker Consulting and Financial Management S.A., a Swiss corporation, and
paid total cash compensation of $270,119 and issued warrants to purchase 259,730 common shares at
an exercise price of $1.46 per share, expiring December 31, 2006. In addition to the legal costs
of approximately $17,500 incurred by the Company in the fourth quarter of 2003 (see above), the
Company incurred additional legal and other costs totaling $25,647 in connection with 2004
Offering No. 1. The Company charged all of these costs to additional paid-in capital, since the
investment was treated as a purchase of shares of common stock. The Securities and Exchange Commission declared the Companys Form S-3 registration statement
effective on February 11, 2004 registering 4,245,680 shares of the Companys common stock
consisting of the shares issued to the
investors in 2004 Offering No. 1 and the shares issuable upon exercise of the related warrants,
including those issued to the placement agent. On September 27, 2004, the stockholders of the Company authorized the issuance of 6,500,000 shares
of common stock at a discount of up to 25% below the current market price at the time of issuance.
Pursuant to stockholder authorization, on September 24, 2003, the board of directors authorized
Regulation S and Regulation D companion offerings (2004 Offering No. 2) for the sale of up to
6,500,000 units consisting of one share of common stock at a discount of up to 25% below the
current market price at the time of issuance and a warrant to purchase one share of common stock
(a unit), to accredited and non-U.S. investors only, in a private placement. The shares were
sold at $0.77 representing a discount of 25% from the average of the closing prices for the five
consecutive trading days prior to each of two closing dates. The Company received a total of
$1,237,190 in gross proceeds in the two closings, which closings took place on December 6 and
December 16, 2004, in exchange for 1,606,741 units. Under the terms of 2004 Offering No. 2,
investors receive warrants to purchase a number of shares of common stock equal to the total
number of shares purchased in the offering. The warrants are exercisable at $1.17 per share,
equal to 115% of the average closing price of the Companys common stock, as reported by the
American Stock Exchange, for the five (5) consecutive F-23




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 trading days immediately prior to the
closings. Each warrant became exercisable on January 13, 2005, the effective date of a
registration statement covering the resale of the shares issuable upon exercise of the warrants,
and remains exercisable until December 31, 2008. In connection with 2004 Offering No. 2, the Company utilized the services of Galileo Asset
Management, S.A., a Swiss corporation, and paid total cash compensation of $160,835 and issued
warrants to purchase 160,674 common shares at an exercise price of $1.17 per share, expiring
December 31, 2008. In addition, the Company incurred additional legal and other costs totaling
$35,888 in connection with 2004 Offering No. 2. The Company charged all of these costs to
additional paid-in capital, since the investment was treated as a purchase of shares of common
stock. The Securities and Exchange Commission declared the Companys Form S-3 registration statement
effective on January 13, 2005 to register 4,374,156 shares of the Companys common stock
consisting of (i) the total of 3,374,156 shares issued to the investors in 2004 Offering No. 2 and
the shares issuable upon exercise of the related warrants, including those issued to the placement
agent; (ii) the 750,000 shares issuable upon exercise of the warrants granted to Boston Financial
Partners in August 2004 (see Note 8); and (iii) 250,000 of the shares issued to Boston Financial
Partners in March 2004 (see Non-Cash Financing Activities below). Non-Cash Financing Activities On October 23, 2002, the board of directors authorized the issuance of 50,000 shares of common
stock per month to International Consulting Partners, a consultant for financial consulting
services to be rendered thereafter on a month to month basis. On January 31, 2003, the Company
issued an aggregate of 99,999 shares of common stock (33,333 shares per month for the three months
ended January 31, 2003) for consulting services to the same consultant pursuant to the prior
authorization. Of these shares, 66,666 shares, valued at $30,600 based upon the trading price of
the common stock on the dates earned, and charged to consulting expense, are reflected in the
accompanying financial statements as if issued on December 31, 2002. The remaining 33,333 shares
were valued at $16,433, based upon the trading price of the common stock on January 31, 2003, and
charged to consulting expense. An additional 33,333 shares were issued to the same consultant for
services performed in February 2003, valued at $11,333, based upon the trading price of the common
stock on February 28, 2003, and charged to consulting expense. On March 23, 2003 the board of directors authorized the issuance of up to 500,000 shares of common
stock to First London Finance under an advisory agreement in connection with the unit offering
described above. On June 18, 2003, the Company issued 400,000 of the shares to First London
Finance and valued 200,000 of the shares at $57,800 on May 21, 2003, the date the first 200,000
shares were earned, and valued 200,000 of the shares at $95,200 on June 17, 2003, the date the
additional 200,000 shares were earned. The value of the 400,000 shares was included in debt
issuance costs for the year ended December 31, 2003. On October 29, 2003 the Company issued
100,000 shares of common stock to First London Finance and valued the shares at $123,250 on
October 17, 2003, the date the shares were earned. The value of the 100,000 shares was included in stock issuance costs for the year ended December
31, 2003. There was no underwriter involved in this issuance. On June 11, 2003, the board of directors authorized the issuance of 150,000 shares of common stock
to International Consulting Group Ltd., a consultant for financial advisory services for a
six-month period ending November 2003, and the Company issued the shares on July 2, 2003. The
shares were valued at $66,300 based upon the trading price of the common stock on June 11, 2003
and were recorded to general and administrative expense over the term of the agreement. There was
no underwriter involved in this issuance. On September 15, 2003, the board of directors authorized the issuance of 130,000 shares of common
stock to Boston Financial Partners, Inc., a consultant for financial advisory services, and the
Company issued the shares on September 29, 2003. The shares were valued at $182,375 based upon
the trading price of the common stock on September 16, 2003, the date of signing of the agreement.
The services were performed during the two-month period of September and October 2003, and
accordingly, the $182,375 was recorded to general and administrative expense over such period.
There was no underwriter involved in this issuance. F-24




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AMDL, INC. NOTES TO FINANCIAL STATEMENTS For The Years Ended December 31, 2004 and 2003 On March 15, 2004, the board of directors authorized the issuance of 300,000 shares of common
stock to Boston Financial Partners, Inc., a consultant for financial advisory services to be
provided from March 18, 2004 through July 31, 2004, and the Company issued the shares on March 19,
2004. The shares were valued at $247,350 based upon the trading price of the common stock on such
date and this amount was charged to general and administrative expense in the year ended December
31, 2004. There was no underwriter involved in this issuance. NOTE 10 - EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the years ended December 31: 2004
    
    
    2003Numerator for basic and diluted earnings per share
Net loss available to common stockholders
    
    $
    (2,629,361
    )
    
    $
    (2,873,695
    )Denominator for basic and diluted earnings per share
Weighted average shares
    
    
    21,829,371
    
    
    
    12,693,847Basic and diluted loss per share
    
    $
    (0.12
    )
    
    $
    (0.23
    )
 NOTE 11  RELATED PARTY TRANSACTIONS On January 30, 2002 the Company granted Guangzhou A-Share Technology Co. Ltd., a Peoples Republic
of China corporation (GAST), the right to sell DR-70® kits in Taiwan and Hong Kong
during the one year period ending January 31, 2003. GAST was formed by Jeanne Lai, a former voting
trustee under the voting trust concerning 2,000,000 shares of our common stock held by Chinese
Universal. Accordingly, GAST is considered a related party for financial reporting purposes.
There are no minimum quantities or fixed payments required of either party to this agreement. An
oral distribution arrangement for Taiwan and Hong Kong continues with Mercy Bio-Technology, Co.,
Ltd, a company related to GAST, based in Taiwan. Mercy Bio-Technology purchased kits at a total
cost of $9,400 and $12,350 during 2004 and 2003, respectively. NOTE 12  SUBSEQUENT EVENTS On January 31, 2005, the Company entered into a three year employment agreement with the President
and Chief Executive Officer at a base compensation of $400,000 per year. Under the employment
agreement, the officer also received non-qualified stock options to purchase 300,000 shares of the
Companys common stock, under its 1999 Stock Option Plan exercisable at $.0.83 per share. F-25




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Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 8A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Companys chief executive officer and chief financial officer carried out an evaluation of
the effectiveness and operation of the Companys disclosure controls and procedures. They have
concluded after evaluating the effectiveness of the Companys disclosure controls and procedures as
of December 31, 2004, that as of such date, the Companys disclosure controls and procedures were
effective and designed to ensure that material information relating to the Company would be made
known to them by others. Changes in Internal Controls There have been no significant changes in the Companys internal controls or in other factors
that could significantly affect those controls subsequent to the evaluation date. 
 Part III 
 Item 9. Directors and Executive Officers of the Registrant. The following table sets forth the name and age of each nominee for director, the year he was
first elected a director and his position(s) with AMDL. Year FirstName
    
    Age
    
    Elected
    
    PositionWilliam M. Thompson III, M.D.
    
    76
    
    1989
    
    Chairman of the board of directorsGary L. Dreher
    
    58
    
    1999
    
    President, Chief Executive Officer, Secretary and DirectorDouglas C. MacLellan
    
    49
    
    1992
    
    DirectorEdward R. Arquilla, M.D., Ph.D.
    
    82
    
    1997
    
    DirectorMarvin E. Rosenthale, Ph.D.
    
    71
    
    2002
    
    Director
 Dr. Thompson has been one of our directors since June 1989, Chairman since 1991, and he was
CEO during the years 1992-1994. He is currently Medical Director of PPO Next and a member of the
clinical surgical faculty of U. C. Irvine School of Medicine. Dr. Thompson has practiced medicine
for over 40 years, in general practice, general surgery and trauma surgery. Previously he
practiced patent law and worked in the pharmaceutical industry in research, law and senior
management for 13 years. During his medical career, he was founding Medical Director of Beach
Street and August Healthcare Companies during a 25-year association with the managed care (PPO)
industry. Dr. Thompson has also served on the OSCAP Board of SCPIE, the malpractice carrier for 20
years and chaired its Claims Committee. He has been heavily involved with organized medicine and
hospital staff management over many years and was a principal architect of the paramedic and
emergency systems of Orange County, CA. Mr. Dreher joined AMDL in January 1998 as Vice President of Sales and Marketing. Mr. Dreher
has served as our President and as a member of our board of directors since February 1999. From
1993 to 1997, Mr. Dreher
served as President of Medical Market International of Yorba Linda, California, a marketing
and management services company he co-founded. From 1991 to 1993, Mr. Dreher served as Vice
President of Sales and Marketing for Apotex Scientific of Arlington, Texas, a division of Canadas
largest pharmaceutical company. Mr. Dreher also currently serves on the board of directors of
Optimum Care Corporation. 19




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Mr. MacLellan is a member of the board of directors and chairman of the audit and governance
committees of the Company. Mr. MacLellan is currently Chairman and CEO of Broadband Access
MarketSpace, Ltd, a China-Centric IT firm marketing products under the Zinc Networks brands since
June 2002. Mr. MacLellan is also currently President and CEO of the MacLellan Group, Inc. a
privately held business incubator and financial advisory firm since May 1992. Mr. MacLellan is
also currently Vice-Chairman of the Board of AXM Pharma, Inc. (AMEX:AXJ) and its predecessors,
since October 2000. AXM is a China based bio-pharmaceutical company. From January 1996 through
August 1996, Mr. MacLellan was also the Vice-Chairman of Asia American Telecommunications (now
Metromedia China Corporation) a majority owned subsidiary of Metromedia International Group, Inc.
From November 1996 until March 1998, Mr. MacLellan was co-Chairman and Investment Committee member
of the Strategic East European Fund. From November 1995 until March 1998, Mr. MacLellan was
President, Chief Executive Officer and Director of PortaCom Wireless, Inc., a company engaged as a
developer and operator of cellular and wireless telecommunications ventures in selected developing
world markets. Mr. MacLellan is a former member of the board of directors and co-founder of
FirstCom Corporation, an international telecommunications company that operates a competitive
access fiber and satellite network in Latin America, which became AT&T Latin America, Inc. in
August 2000. From 1993 to 1995, Mr. MacLellan was a Principal and co-founder of Maroon Bells
Capital Partners, Inc., a U.S. based merchant bank, which specializes in providing corporate
finance services to companies in the international and domestic telecommunications and media
industries. Mr. MacLellan was educated at the University of Southern California in economics and
finance, with advanced training in classical economic theory. Dr. Arquilla has been one of our directors since February 1997. From 1959 until 1994, Dr.
Arquilla was a full time faculty member in the Department of Pathology at the University of
Southern California, the University of California at Los Angeles and the University of California,
Irvine. From 1968 to 1986, Dr. Arquilla also served as Professor and Chair of Pathology at U.C.
Irvine and Chief of Pathology services at the U.C. Irvine Medical Center. Marvin E. Rosenthale, Ph. D., Director, became a member of the Board of Directors in May 2002.
He has served as a Scientific Advisory Board member for AMDL since February 2002. Dr. Rosenthale
was President and CEO of Allergan Ligand Retinoid Therapeutics and Vice President Drug Discovery
Worldwide at the R.W. Johnson Pharmaceutical Institute of Johnson & Johnson as well as a director
of several privately held entities. Dr. Rosenthale holds a B.Sc. in Pharmacy from Philadelphia
College of Pharmacy and Science, and M.Sc. in Pharmacology from Philadelphia College of Pharmacy
and Science, and a Ph.D. in Pharmacology from Hahnemann Medical College and Hospital. Board of Directors Meetings and Committees During the fiscal year ended December 31, 2004, there were eight meetings of the board of
directors as well as numerous actions taken with the unanimous written consent of the directors.
The board of directors has established a compensation committee consisting of Mr. MacLellan, Dr.
Thompson and Dr. Arquilla. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of all of our officers and reviews general policy matters
relating to compensation benefits of our employees. The board of directors has also established an
audit committee consisting of Mr. MacLellan, Dr. Thompson and Dr. Arquilla. The audit committee
reviews the qualifications of the independent auditors, our annual and interim financial
statements, the independent auditors report, significant reporting or operating issues and
corporate policies and procedures as they relate to accounting and financial controls. The Board
has established a governance committee consisting of Mr. MacLellan, Dr. Rosenthale, and Dr.
Thompson. The governance committee makes recommendations on board nominees and reviews
managements performance. Dr. Thompson serves as the Chairman of the compensation committee. Mr.
MacLellan serves as the Chairman of the audit and governance committees. Mr. MacLellan serves as
the financial expert on the Companys audit committee. Our executive officer who is not also a director is as follows: Arthur S. Rosten, Age 57, Chief Financial Officer.Mr. Rosten joined us as our Chief
Financial Officer in December 2001. During the previous eight years, Mr. Rosten served in various
senior financial executive positions with American Purification, Inc., SDI Capital Resources, Inc.
and Le Group Equus, all in Newport Beach, California. Earlier in his career, Mr. Rosten was a
principal shareholder, President and Chief Financial Officer of Asyst Data Group. From 1971 to
1991, Mr. Rosten was practicing as a Certified Public Accountant in the US and Europe with Spicer &
Oppenheim International, Ltd. and as a Chartered Accountant in Canada. He is a licensed CPA in
California and a Chartered Accountant in Canada. Mr. Rosten received his Degree of Accountancy
(Post Bachelor) in 1971 and a Bachelor of Science (with honors) in 1969 from McGill University,
Montreal, Canada. 20




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Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and
directors and those persons who beneficially own more than 10% of our outstanding shares of common
stock to file reports of securities ownership and changes in such ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10% beneficial owners are also required
by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to us, we believe that during
2004 all Section 16(a) filing requirements applicable to our officers, directors and greater than
10% beneficial owners were complied with. Code of Ethics for Financial Professionals The Company has adopted a Code of Ethics for Financial Professionals. The Code of Ethics has
been posted and may be viewed on our website at: http://www.amdlcorporate.com/shar.htm. 
 Item 10. Executive Compensation. Cash Compensation of Executive Officers. The following table sets forth the total
compensation earned by the Chief Executive Officer and all other executive officers who earned in
excess of $100,000 per annum during any of our last three fiscal years. Long-TermAnnual Compensation
    
    
    CompensationOther
    
    Common SharesAwards
    
    Underlying Options
    
    All OtherName and Position
    
    Year
    
    Salary ($)
    
    Bonus ($)
    
    Compensation ($)
    
    Granted (#)
    
    Compensation ($)Gary L. Dreher,
    
    2004
    
    $373,750(1)
    
    -0-
    
    $18,000(2)
    
    950,000
    
    -0-President and CEO
    
    2003
    
    $330,000(1)
    
    -0-
    
    $17,856(2)
    
    245,000
    
    -0-2002
    
    $325,000(1)
    
    -0-
    
    $28,893(2)
    
    450,000
    
    -0-Arthur S. Rosten,
    
    2004
    
    $175,000(3)
    
    $8,000
    
    -0-
    
    75,000
    
    -0-Chief Financial Officer
    
    2003
    
    $175,000(3)
    
    $8,000
    
    -0-
    
    70,000
    
    -0-2002
    
    $162,240(3)
    
    -0-
    
    -0-
    
    79,000
    
    -0-
   (1)
    
    Effective March
1, 2002, Mr. Drehers compensation was raised from $300,000 to $330,000 per annum. Effective May, 1, 2004 Mr. Drehers
compensation was raised to $400,000 per annum.(2)
    
    The 2004 amount represents $4,644 for golf membership dues, $9,000 for a car allowance and
$4,356 for life insurance. The 2003 amount represents $4,500 for golf membership dues, $9,000
for a car allowance and $4,356 for life insurance. The 2002 amount represents an additional
payment of $8,880 in respect of taxes on the 2001 purchase of the golf club membership, $8,835
for golf membership dues and other items, $9,000 for a car allowance and $2,178 for life
insurance.(3)
    
    On December 1, 2001, Mr. Rosten became our Chief Financial Officer on a part-time basis at a
monthly salary of $7,291. Effective March 1, 2002, Mr. Rosten began serving on a full-time
basis at an annual salary of $175,000. 21




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##### Table of Contents



OPTION GRANTS IN LAST FISCAL YEAR Individual Grants % of Total OptionsNumber of Securities
    
    Granted toUnderlying Options
    
    Employees in Fiscal
    
    Exercise or BaseName
    
    Granted
    
    Year(3)
    
    Price ($/Sh)
    
    Expiration DateGary L. Dreher, President and CEO
    
    950,000(1)
    
    84.4%
    
    (1)
    
    (1)Arthur S. Rosten, Chief Financial Officer
    
    75,000(2)
    
    6.7%
    
    (2)
    
    (2)
   (1)
    
    Includes 81,300 options granted as incentive stock options and 618,700 options
granted as non-qualified stock options under our 2004 stock option plan all exercisable at
$1.23 per share and expiring on February 23, 2009 and 250,000 options granted as non-qualified
stock options under our 2004 stock option plan exercisable at $0.93 per share and expiring on
October 7, 2009. All of these options are fully vested and became exercisable on the date of
grant.(2)
    
    Includes 70,000 options granted as incentive stock options under our 2004 stock
option plan exercisable at $1.23 per share and expiring on February 23, 2009 and 5,000 options
granted as incentive stock options under our 2004 stock option plan exercisable at $0.97 per
share and expiring on April 16, 2009. All of these options are fully vested and became
exercisable on the date of grant.(3)
    
    Based on an aggregate of 1,125,000 options granted to employees in fiscal 2004. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES Number of SecuritiesShares
    
    
    
    Underlying Unexercised
    
    Value of Unexercised In-the-MoneyAcquired on
    
    
    
    Options at FY-End (#)
    
    Options at FY-End ($)Name
    
    Exercise (#)
    
    Value Realized ($)
    
    Exercisable/Unexerciseable
    
    Exercisable/Unexercisable(1)Gary Dreher, President and CEO
    
    0
    
    0
    
    2,395,000 / 0
    
    $105,000/0Arthur S. Rosten, Chief Financial Officer
    
    0
    
    0
    
    224,000 / 0
    
    $22,500/0
   (1)
    
    Based on a price of $0.78 per share, the closing price as reported on the American
Stock Exchange on December 31, 2004. Director Compensation Certain members of our board of directors received cash compensation for their services in
2004 on committees at the rate of $2,000 per month through April 30, 2004 and $3,000 per month
beginning in May 2004. As Chairman of our compensation committee through April 30, 2004 and as
chairman of our governance and audit committees, Douglas MacLellan received an additional $1,000
per month through April 30, 2004 and an additional $2,000 per month beginning May 1, 2004 and as
Chairman of our compensation committee, Dr. William Thompson received an additional $2,000 per
month beginning May 1, 2004. 22




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##### Table of Contents



Employment Agreements On November 23, 1999, we entered into an employment agreement with Mr. Dreher. The agreement,
which has a term of five years, provided for an annual base salary of $222,000 effective January 1,
2000, which expired in 2004. On January 31, 2005, the Company entered into a new approximate three
year employment agreement with Mr. Dreher at his then base salary of $400,000 per annum. In
addition to the same benefits provided under the prior agreement, Mr. Drehers employment agreement
provides a severance benefit if he is terminated without cause that will provide him with a salary
continuation for the greater of one year after termination or the remaining term of the agreement.
In connection with his employment agreement, Mr. Dreher was also granted non-qualified stock
options to purchase 300,000 shares of our common stock at $0.83, expiring June 30, 2009. Change in Control Severance Pay Plan On November 15, 2001, our board of directors adopted an Executive Management Change in Control
Severance Pay Plan. The director who is also our Chief Executive Officer may become entitled to
benefits under the plan did not participate in the deliberations or the vote to approve the plan. The plan covers the persons who at any time during the 90-day period ending on the date of a
change in control, are employed by the company as Chief Executive Officer and/or President and are
not party to a separate agreement which makes such person ineligible to participate in the plan.
These persons become eligible for benefits under the plan if (1) (a) the company terminates his or
her employment for any reason other than his or her death or cause (as defined in the plan) or (b)
the person terminates his or her employment with the company for good reason (as defined in the
plan) and (2) the termination occurs within the period beginning on the date of a change in control
and ending on the last day of the twelfth month that begins after the month in which the change in
control occurs. These persons also become eligible for benefits under the plan if the person
terminates employment with the company for any reason during a one month period commencing six
months following a change in control as defined in the plan. The plan requires the company to make a cash payment in an amount equal to three hundred
percent (300%) of the participants average total compensation over the prior three years preceding
the change in control. If the companys auditors determine that the total payments made to a
person result in an excise tax imposed by Internal Revenue Code §4999, the company will make an
additional cash payment to the person equal to an amount such that after payment by the person of
all taxes (including any interest or penalties imposed with respect to such taxes), including any
excise tax, imposed upon the additional payment, the person would retain an amount of the
additional payment equal to the excise tax imposed upon the total payments. Immediately following a change in control, the company is required to establish a trust and
fund the trust with the amount of any payments which may become owing to persons entitled to
receive benefits under the plan but only to the extent that the funding of the trust would not
impair the working capital of the company. Report of the Compensation Committee on Executive Compensation Our Compensation Committee has issued the following report: Compensation Philosophy.The Compensation Committee is responsible for developing and
recommending the companys executive compensation policies to the board of directors. The
executive compensation philosophy of the company is to (i) attract and retain qualified management
to run the business efficiently and guide the companys growth in both existing and new markets,
(ii) establish a link between management compensation and the achievement of the companys annual
and long-term performance goals, and (iii) recognize and reward individual initiative and
achievement. Base Salaries.Base salaries for management employees are based primarily on the
responsibilities of the position and the experience of the individual, with reference to the
competitive marketplace for management talent, measured in terms of executive compensation offered
by comparable companies in related businesses. Increases in base salaries are based upon the
performance of the executive officers as evaluated by the Compensation Committee. Cash Bonuses.Cash bonuses are awarded, at the discretion of the Compensation Committee, to
executive officers based in part on the overall financial performance of the company and in part on
the performance of the executive officer. The financial performance of the company is measured by
revenue and operating income growth and actual performance against budgeted performance. 23




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##### Table of Contents



Stock Options.The Company grants stock options as part of its strategy to attract and retain
qualified persons as executive officers and to motivate such persons by providing them with an
equity participation in the Company. During 2004, options to purchase an aggregate of 1,870,000
shares were granted to executives, directors and consultants of the Company. CEO Compensation.Mr. Drehers salary for fiscal 2004 was $373,750 in accordance with the
terms of his employment agreement with the Company. Pursuant to the Compensation Committees
recommendation, on January 31, 2005, the Company entered into a new three-year employment agreement
with Mr. Dreher at a base salary of $400,000 per year and granted him options to purchase 300,000
shares of common stock at $0.83 each. On November 1, 2001, the board of directors approved an
Executive Management Change in Control Severance Pay Plan which provides the CEO with a cash
severance payment equal to 300% of his average total compensation over the prior three years in the
event of a change in control. Compensation Limitations.Under section 162(m) of the Internal Revenue Code, adopted in
August 1993, and regulations adopted thereunder by the Internal Revenue Service, publicly-held
companies may be precluded from deducting certain compensation paid to an executive officer in
excess of $1.0 million in a year. The regulations exclude from this limit performance-base
compensation and stock options provided certain requirements such as stockholder approval, are
satisfied. The Company plans to take actions, as necessary, to insure that its stock option plans
and executive compensation plans qualify for exclusion. William M. Thompson III, M.D.Douglas C. MacLellanEdward R. Arquilla, M.D., Ph.D.COMPENSATION COMMITTEE
 24




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##### Table of Contents



Item 11. Security Ownership of Certain Beneficial Owners and Management. The following table shows the beneficial ownership of our shares of common stock as of March
22, 2005 by (i) each person who is known by us to be the beneficial owner of more than five percent
(5%) of our common stock, (ii) each of our directors and executive officers and (iii) all directors
and executive officers as a group. Except as otherwise indicated, the beneficial owners listed in
the table have sole voting and investment powers of their shares. PercentageName and Address(1)
    
    Number of Shares
    
    
    
    OwnedGary L. Dreher
    
    
    4,405,500
    (2
    )
    
    
    17.0
    %William M. Thompson III, M.D.
    
    
    455,191
    (3
    )
    
    
    1.9
    %408 Town Square Lane
Huntington Beach, CA 92648Douglas C. MacLellan
    
    
    335,500
    (4
    )
    
    
    1.4
    %8324 Delgany Avenue
Playa del Rey, CA 90293Edward R. Arquilla, M.D., Ph.D.
    
    
    344,820
    (5
    )
    
    
    1.5
    %Department of Pathology
University of California  Irvine
Irvine, CA 92697Marvin E. Rosenthale, Ph.D.
    
    
    225,000
    (6
    )
    
    
    *6908 Queenferry Circle
Boca Raton, FL 33496Arthur S. Rosten
    
    
    224,000
    (7
    )
    
    
    *Chinese Universal Technologies Co., Ltd.
    
    
    2,000,000
    (8
    )
    
    
    8.5
    %7F-3B1, 61 SEC GUN GYI Road
403 Taichuna, TaiwanBoston Financial Partners, Inc.
    
    
    1,323,095
    (9
    )
    
    
    5.4
    %601 Edgewater Drive. Suite 195
Wakefield, Massachusetts 01880All Directors and Officers
    
    
    5,990,011
    
    
    
    
    21.8
    %as a group (6 persons)
   *  Less than 1.0%(1)

    Unless otherwise indicated, address is 2492 Walnut Avenue, Suite 100, Tustin, California,
92780.(2)

    Includes 350,000 shares of common stock issuable upon the exercise of options at $0.48 per
share, 300,000 shares of common stock issuable upon the exercise of options at $0.83 per
share, 250,000 shares of common stock issuable upon the exercise of options at $0.93 per
share, 100,000 shares of common stock issuable upon the exercise of options at $1.00 per
share, 245,000 shares of common stock issuable upon the exercise of options at $1.10 per
share, 700,000 shares of common stock issuable upon the exercise of options at $1.23 per
share, 100,000 shares of common stock issuable upon the exercise of options at $2.25 per
share, and 350,000 shares of common stock issuable upon the exercise of options at $4.00 per
share. Also includes 2,000,000 shares of common stock for which Mr. Dreher serves as a voting
co-trustee (see footnote (8) below) of which he disclaims beneficial ownership.(3)

    Includes, 65,000 shares of common stock issuable upon the exercise of options at $0.48 per
share, 55,000 shares of common stock issuable upon the exercise of options at $0.93 per share,
20,000 shares of common stock issuable upon the exercise of options at $1.00 per share, 40,000
shares of common stock issuable upon 25




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##### Table of Contents



the exercise of options at $1.10 per share, 200,000 shares of common stock issuable upon the
exercise of options at $1.23 per share, 20,000 shares of common stock issuable
upon the exercise of options at $2.25 per share, and 35,000 shares of common stock issuable
upon the exercise of options at $4.00 per share.(4)
    
    Includes, 65,000 shares of common stock issuable upon the exercise of options at $0.48 per
share, 55,000 shares of common stock issuable upon the exercise of options at $0.93 per share,
20,000 shares of common stock issuable upon the exercise of options at $1.00 per share, 40,000
shares of common stock issuable upon the exercise of options at $1.10 per share, 200,000
shares of common stock issuable upon the exercise of options at $1.23 per share,
20,000 shares of common stock issuable upon the exercise of options at $2.25 per share,
and 35,000 shares of common stock issuable upon the exercise of options at $4.00 per share.(5)
    
    Includes, 65,000 shares of common stock issuable upon the exercise of options at $0.48 per
share, 55,000 shares of common stock issuable upon the exercise of options at $0.93 per share,
20,000 shares of common stock issuable upon the exercise of options at $1.00 per share, 40,000
shares of common stock issuable upon the exercise of options at $1.10 per share, 200,000
shares of common stock issuable upon the exercise of options at $1.23 per share,
20,000 shares of common stock issuable upon the exercise of options at $2.25 per share,
and 35,000 shares of common stock issuable upon the exercise of options at $4.00 per share.(6)
    
    Includes 35,000 shares of common stock issuable upon the exercise of options at $0.48 per
share, 55,000 shares of common stock issuable upon the exercise of options at $0.93 per share,
40,000 shares of common stock issuable upon the exercise of options at $1.10, per share,
100,000 shares of common stock issuable upon the exercise of options at $1.23 per share, and
50,000 shares of common stock issuable upon the exercise of options at an exercise price of
$2.39 per share.(7)
    
    Includes 75,000 shares of common stock issuable upon the exercise of options at $0.48 per
share, 5,000 shares of common stock issuable upon the exercise of options at $0.97 per share,
70,000 shares of common stock issuable upon the exercise of options at $1.10 per share, 70,000
shares of common stock issuable upon the exercise of options at $1.23 per share, and 4,000
shares of common stock issuable upon the exercise of options at $2.25 per share.(8)
    
    The Company believes that one or more individuals may be deemed to share beneficial ownership
in these shares due to their control of Chinese Universal Technologies Co., Ltd. The Company
is unable to ascertain who those individuals or entities might be. These same 2,000,000
shares of common stock are subject to a Voting Trust Agreement dated as of December 14, 2000
pursuant to which Dr. Fong-Lin Huang and Gary L. Dreher serve as voting co-trustees. The
Voting Trust Agreement provides that during its 10 year term, (i) the voting trustees shall
not be required to elect to cumulatively vote the shares subject to the voting trust, (ii) Mr.
Dreher or his successor shall always, in any election of directors, vote in favor of one
nominee of Chinese Universal Technologies Co., Ltd., and (iii) on all other matters coming
before the stockholders, the voting trustees shall be required to vote unanimously in favor
(or opposed or in abstention) with regard to all such matters, otherwise such vote shall not
be counted as having been voted on a proposal, except that the vote or proxy of only one
trustee shall be required to count the shares as present for purposes of establishing a
quorum.(9)
    
    According to a Schedule 13G filed on January 5, 2005 which includes 946,875 shares of common
stock issuable upon exercise of warrants. (Note: this was incorrectly reported as 5.8% on the
Schedule 13G). 
 Item 12. Certain Relationships and Related Transactions. On January 30, 2002 the Company granted Guangzhou A-Share Technology Co. Ltd., a Peoples
Republic of China corporation (GAST), the right to sell DR-70® kits in Taiwan and Hong
Kong during the one year period ending January 31, 2003. GAST was formed by Jeanne Lai, a former
voting trustee under the voting trust concerning 2,000,000 shares of our common stock held by
Chinese Universal. Accordingly, GAST is considered a related party for financial reporting
purposes. There are no minimum quantities or fixed payments required of either party to this
agreement. An oral distribution arrangement for Taiwan and Hong Kong continues with Mercy
Bio-Technology, Co., Ltd, a company related to GAST, based in Taiwan. Mercy Bio-Technology
purchased DR-70® kits at a total cost of $9,400 and $12,350 during the years ended
December 31, 2004 and 2003, respectively. 26




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##### Table of Contents



Item 13. Exhibits. Exhibit No.3.1
    
    Certificate of Incorporation of the Company(1)3.2
    
    Bylaws of the Company(2)3.3
    
    Certificate of Amendment(3)4.1
    
    Specimen of Common Stock Certificate(4)4.2
    
    Certificate of Designations(4)9.1
    
    Voting Trust Agreement by and between Jeanne Lai and Gary L. Dreher, as Co-Trustees, and
Chinese Universal Technologies Co., Ltd.(5)10.1
    
    Amendments to License Agreement between the Company and AMDL Canada, Inc., dated September
20, 1989, June 16, 1990 and July 5, 1990(6)10.2
    
    The Companys 1992 Stock Option Plan(2)10.3
    
    Operating Agreement of ICD, L.L.C.(7)10.4
    
    Letter Agreement between the Company and BrianaBio-Tech, Inc. and AMDL Canada, Inc., dated
February 7, 1995(7)10.5
    
    The Companys Stock Bonus Plan(8)10.6
    
    Employment Agreement between the Company and Gary L. Dreher, dated January 15, 1998(9)10.7
    
    Salary Continuation Agreement between the Company and That T. Ngo, Ph.D., dated May 21, 1998(10)10.8
    
    Salary Continuation Agreement between the Company and Thomas V. Tilton, dated May 21, 1998(10)10.9
    
    Salary Continuation Agreement between the Company and Harry Berk, dated May 21, 1998(10)10.10
    
    Salary Continuation Agreement between the Company and Gary L. Dreher, dated May 21, 1998(10)10.11
    
    Agreement between the Company and William M. Thompson, M.D., dated May 21, 1998(10)10.12
    
    Amendment No. 1 to Employment Agreement with That T. Ngo, Ph.D., dated July 1, 1998 (10)10.13
    
    Agreement Relating to Salary deferral between the Company and Thomas V. Tilton, dated July
1, 1998(10)10.14
    
    Agreement Relating to Salary deferral between the Company and Harry Berk, dated July 1,
1998(10)10.15
    
    Securities Purchase Agreement between the Company and the Purchasers listed on the Purchaser
Signature Pages attached thereto, dated February 17, 1999(11)10.16
    
    The Companys 1999 Stock Option Plan(11)10.17
    
    Agreement Regarding Cancellation of Indebtedness between the Company and William M.
Thompson, III, M.D., dated July 1, 1999(11)10.18
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Harry Berk, dated
July 1, 1999(11)
 27




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##### Table of Contents



Exhibit No.10.19
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Edward Arquilla,
M.D., dated July 1, 1999(11)10.20
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Thomas V. Tilton,
dated July 1, 1999(11)10.21
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Donald Rounds,
dated July 1, 1999(11)10.22
    
    Agreement Regarding Cancellation of Indebtedness between the Company and That T. Ngo, Ph.D.,
dated July 1, 1999(11)10.23
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Gary L. Dreher,
dated July 1, 1999(11)10.24
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Douglas C.
MacLellan, dated July 1, 1999(11)10.25
    
    Employment Agreement of Gary L. Dreher dated November 23, 1999(4)10.26
    
    Consulting Agreement with That T. Ngo dated October 1, 1999(4)10.27
    
    Securities Purchase Agreement between the Company and the Purchasers listed on the Purchaser
Signature Pages attached thereto dated February 9, 2000(4)10.28
    
    Securities Purchase Agreement dated as of December 14, 2000 executed December 19, 2000(5).10.29
    
    Secured Promissory Note dated December 14, 2000, effective December 19, 2000(5)10.30
    
    Security and Pledge Agreement dated as of December 14, 2000, executed December 19, 2000(5)10.31
    
    Voting Trust Agreement dated as of December 14, 2000, executed December 19, 2000(5)10.32
    
    Exclusive Distribution Agreement dated December 14, 2000, effective December 19, 2000(5)10.33
    
    Technology Transfer Agreement effective July 30, 2001 between the Company and Lung-Ji Chang,
Ph.D.(12)10.34
    
    Executive Management Change in Control Severance Plan (13)10.35
    
    The Companys 2002 Stock Option Plan (14)10.36
    
    The Companys 2004 Stock Option Plan (15)10.37
    
    Employment Agreement of Gary L. Dreher dated January 31, 2005 (16)21.1
    
    Subsidiaries of the small business issuerNot Applicable.*31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*32.1
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer*32.2
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Financial Officer
 28




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##### Table of Contents



*
    
    filed herewith(1)
    
    Incorporated by reference to the Companys Report on Form 10-K for the
year ended December 31, 1989.(2)
    
    Incorporated by reference to the Companys Report on Form 10-K for the
year ended December 31, 1991.(3)
    
    Incorporated by reference to the Companys Report on Form 10-QSB for the
period ended September 30, 1998.(4)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1999.(5)
    
    Incorporated by reference to the Companys Report on Form 8-K dated
December 26, 2000.(6)
    
    Incorporated by reference to the Companys Report on Form 10-K for the
year ended December 31, 1990.(7)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1993.(8)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1995.(9)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1997.(10)
    
    Incorporated by reference to the Companys Report on Form 10-QSB for the
period ended June 30, 1998.(11)
    
    Incorporated by reference to the Companys Registration Statement on Form
10-SB dated October 15, 1999.(12)
    
    Incorporated by reference from the Companys Report on Form 8-K dated
August 31, 2001(13)
    
    Incorporated by reference from the Companys Report on Form 10-KSB for
the year ended December 31, 2001.(14)
    
    Incorporated by reference from the Companys Report on Form 10-KSB for
the year ended December 31, 2002.(15)
    
    Incorporated by reference from the Companys Report on Form 10-KSB for
the year ended December 31, 2004.(16)
    
    Incorporated by reference from the Companys Form 8-K filed February 1,
2005. 
 Item 14. Principal Accountant Fees and Services The Audit Committee, which is composed entirely of independent directors, has selected Corbin
& Company LLP as independent accountants to audit our books, records and accounts for the year 2004.
Corbin & Company LLP previously audited our financial statements during the fiscal year
ended December 31, 2003. Audit and Non-Audit Fees Aggregate fees for professional services rendered to the Company by Corbin & Company LLP for the years ended December 31, 2004 and 2003 were as follows: 29




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##### Table of Contents



Services Provided
    
    2004
    
    
    2003Audit Fees
    
    $
    38,000
    
    
    $
    43,000Audit Related Fees
    
    $
    
    
    
    $
    Tax Fees
    
    $
    
    
    
    $
    All Other Fees
    
    $
    18,050
    
    
    $
    50,605Total
    
    $
    56,050
    
    
    $
    93,605
 Audit Fees. The aggregate fees billed for the years ended December 31, 2004 and 2003 were
for the audits of our financial statements and reviews of our interim financial statements included
in our annual and quarterly reports. Audit Related Fees. There were no fees billed for the years ended December 31, 2004 and
2003 for the audit or review of our financial statement that are not reported under Audit Fees. Tax Fees. There were no fees billed for the years ended December 31, 2004 and 2003 for
professional services related to tax compliance, tax advice and tax planning. All Other Fees. The aggregate fees billed for the years ended December 31, 2004 and 2003
were for services other than the services described above. These services include attendance and
preparation for shareholder and audit committee meetings, consultation on accounting, on internal
control matters and review of and consultation on our registration statements and issuance of
related consents (Forms S-3). Audit Committee Pre-Approval Policies and Procedures The Audit Committee has implemented pre-approval policies and procedures related to the
provision of audit and non-audit services. Under these procedures, the Audit Committee pre-approves
both the type of services to be provided by Corbin & Company, LLP and the estimated fees related to
these services. 30




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##### Table of Contents



SIGNATURES In accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMDL, INC.Dated: March 30, 2005
    
    By
    
    /s/ Gary L DreherGary L. DreherPresident and Chief Executive OfficerDated: March 30, 2005
    
    By:
    
    /s/ Arthur S. RostenArthur S. Rosten,Chief Financial Officer
 In accordance with the Exchange Act, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated. Signatures
    
    Title
    
    Date/s/ Gary L. Dreher
    
    President and Chief
Executive Officer and
Director (principal
    
    March 30, 2005executive officer)Gary L. DreherChief Financial Officer/s/ Arthur S. Rosten
    
    (principal financial and
    
    March 30, 2005accounting officer)Arthur S. Rosten/s/ William M. Thompson
    
    
    
    March 30, 2005Chairman of the BoardWilliam M. Thompson III, M.D./s/ Edward R. Arquilla
    
    
    
    March 30, 2005DirectorEdward R. Arquilla, M.D./s/ Douglas C. MacLellan
    
    
    
    March 30, 2005DirectorDouglas C. MacLellan/s/ Marvin E. Rosenthale
    
    
    
    March 30, 2005DirectorMarvin E. Rosenthale
 31




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##### Table of Contents



Exhibit Index Exhibit No.3.1
    
    Certificate of Incorporation of the Company(1)3.2
    
    Bylaws of the Company(2)3.3
    
    Certificate of Amendment(3)4.1
    
    Specimen of Common Stock Certificate(4)4.2
    
    Certificate of Designations(4)9.1
    
    Voting Trust Agreement by and between Jeanne Lai and Gary L. Dreher, as Co-Trustees, and
Chinese Universal Technologies Co., Ltd.(5)10.1
    
    Amendments to License Agreement between the Company and AMDL Canada, Inc., dated September
20, 1989, June 16, 1990 and July 5, 1990(6)10.2
    
    The Companys 1992 Stock Option Plan(2)10.3
    
    Operating Agreement of ICD, L.L.C.(7)10.4
    
    Letter Agreement between the Company and BrianaBio-Tech, Inc. and AMDL Canada, Inc., dated
February 7, 1995(7)10.5
    
    The Companys Stock Bonus Plan(8)10.6
    
    Employment Agreement between the Company and Gary L. Dreher, dated January 15, 1998(9)10.7
    
    Salary Continuation Agreement between the Company and That T. Ngo, Ph.D., dated May 21, 1998(10)10.8
    
    Salary Continuation Agreement between the Company and Thomas V. Tilton, dated May 21, 1998(10)10.9
    
    Salary Continuation Agreement between the Company and Harry Berk, dated May 21, 1998(10)10.10
    
    Salary Continuation Agreement between the Company and Gary L. Dreher, dated May 21, 1998(10)10.11
    
    Agreement between the Company and William M. Thompson, M.D., dated May 21, 1998(10)10.12
    
    Amendment No. 1 to Employment Agreement with That T. Ngo, Ph.D., dated July 1, 1998 (10)10.13
    
    Agreement Relating to Salary deferral between the Company and Thomas V. Tilton, dated July
1, 1998(10)10.14
    
    Agreement Relating to Salary deferral between the Company and Harry Berk, dated July 1,
1998(10)10.15
    
    Securities Purchase Agreement between the Company and the Purchasers listed on the Purchaser
Signature Pages attached thereto, dated February 17, 1999(11)10.16
    
    The Companys 1999 Stock Option Plan(11)10.17
    
    Agreement Regarding Cancellation of Indebtedness between the Company and William M.
Thompson, III, M.D., dated July 1, 1999(11)10.18
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Harry Berk, dated
July 1, 1999(11)




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##### Table of Contents



10.19
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Edward Arquilla,
M.D., dated July 1, 1999(11)10.20
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Thomas V. Tilton,
dated July 1, 1999(11)10.21
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Donald Rounds,
dated July 1, 1999(11)10.22
    
    Agreement Regarding Cancellation of Indebtedness between the Company and That T. Ngo, Ph.D.,
dated July 1, 1999(11)10.23
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Gary L. Dreher,
dated July 1, 1999(11)10.24
    
    Agreement Regarding Cancellation of Indebtedness between the Company and Douglas C.
MacLellan, dated July 1, 1999(11)10.25
    
    Employment Agreement of Gary L. Dreher dated November 23, 1999(4)10.26
    
    Consulting Agreement with That T. Ngo dated October 1, 1999(4)10.27
    
    Securities Purchase Agreement between the Company and the Purchasers listed on the Purchaser
Signature Pages attached thereto dated February 9, 2000(4)10.28
    
    Securities Purchase Agreement dated as of December 14, 2000 executed December 19, 2000(5).10.29
    
    Secured Promissory Note dated December 14, 2000, effective December 19, 2000(5)10.30
    
    Security and Pledge Agreement dated as of December 14, 2000, executed December 19, 2000(5)10.31
    
    Voting Trust Agreement dated as of December 14, 2000, executed December 19, 2000(5)10.32
    
    Exclusive Distribution Agreement dated December 14, 2000, effective December 19, 2000(5)10.33
    
    Technology Transfer Agreement effective July 30, 2001 between the Company and Lung-Ji Chang,
Ph.D.(12)10.34
    
    Executive Management Change in Control Severance Plan (13)10.35
    
    The Companys 2002 Stock Option Plan (14)10.36
    
    The Companys 2004 Stock Option Plan (15)10.37
    
    Employment Agreement of Gary L. Dreher dated January 31, 2005 (16)21.1
    
    Subsidiaries of the small business issuerNot Applicable.*31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*32.1
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer*32.2
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Financial Officer




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##### Table of Contents



*
    
    filed herewith(1)
    
    Incorporated by reference to the Companys Report on Form 10-K for the
year ended December 31, 1989.(2)
    
    Incorporated by reference to the Companys Report on Form 10-K for the
year ended December 31, 1991.(3)
    
    Incorporated by reference to the Companys Report on Form 10-QSB for the
period ended September 30, 1998.(4)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1999.(5)
    
    Incorporated by reference to the Companys Report on Form 8-K dated
December 26, 2000.(6)
    
    Incorporated by reference to the Companys Report on Form 10-K for the
year ended December 31, 1990.(7)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1993.(8)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1995.(9)
    
    Incorporated by reference to the Companys Report on Form 10-KSB for the
year ended December 31, 1997.(10)
    
    Incorporated by reference to the Companys Report on Form 10-QSB for the
period ended June 30, 1998.(11)
    
    Incorporated by reference to the Companys Registration Statement on Form
10-SB dated October 15, 1999.(12)
    
    Incorporated by reference from the Companys Report on Form 8-K dated
August 31, 2001(13)
    
    Incorporated by reference from the Companys Report on Form 10-KSB for
the year ended December 31, 2001.(14)
    
    Incorporated by reference from the Companys Report on Form 10-KSB for
the year ended December 31, 2002.(15)
    
    Incorporated by reference from the Companys Report on Form 10-KSB for
the year ended December 31, 2004.(16)
    
    Incorporated by reference from the Companys Form 8-K filed February 1,
2005.