**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON****,
      D.C. 20549**







**FORM
      10-Q**




**x**
            **Quarterly Report Pursuant to
              Section
              13 or 15(d) of the Securities Exchange Act of 1934****For the quarterly period ended
              September 30, 2007**or**o**
            **Transition Report Pursuant
              to Section
              13 or 15(d) of the Securities Exchange Act of 1934****For the transition period from
              _____________ to****_____________**




Commission
      File Number: 000-29531




**ADVANCED
      MEDICAL INSTITUTE INC.**


(Exact
      Name of Registrant as Specified in Its Charter)


NEVADA
            88-0409144(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            (I.R.S.
                Employer Identification No.)Level
                1, 204-218 Botany Road
              Alexandria,
                NSW
              Australia
                2015(Address
                of Principal Executive Offices) (Zip
                Code)





(61)
      2
      9640 5253


(Registrant’s
      Telephone Number, Including Area Code)






(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
      (or for such shorter period that the registrant was required to file such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days.


Yes
x No
o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated Filer o  Accelerated
      Filer o  Non-Accelerated
      Filer x




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




There
      were 53,507,450 shares of the Registrant’s Common Stock issued and outstanding
      on November 9, 2007.







**TABLE
        OF CONTENTS**


**Page****Part
                I.**
            **Financial
                Information**Item
                1. Condensed Financial Statements (unaudited)Consolidated
                Balance Sheets as of September 30, 2007 and June 30, 2007
            
            1Consolidated
                Statements of Operations for the three months ended September 30,
                2007,
                2006 and 2005
            
            2Consolidated
                Statements of Cash Flows for the three months ended September 30,
                2007,
                2006 and 2005
            
            3Notes
                to Consolidated Financial Statements
            
            5Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            21Item
                3. Quantitative and Qualitative Disclosures About Market Risk
            
            35Item
                4. Controls and Procedures
            
            36**Part
                II.**
            **Other
                Information**Item
                1. Legal Proceedings
            
            37Item
                1A. Risk Factors
            
            37Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            37Item
                3. Defaults Upon Senior Securities
            
            37Item
                4. Submission of Matters to a Vote of Security Holders
            
            37Item
                5. Other Information
            
            37Item
                6. Exhibits
            
            38SIGNATURES
            
            39




ii




**PART
      I -**  **FINANCIAL
      INFORMATION**




**ITEM
      1.** **FINANCIAL
      STATEMENTS** ****





**ADVANCED
      MEDICAL INSTITUTE INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**September
                30, 2007**
            
            **June
                30, 2007****(unaudited)**
            
            **(audited)****ASSETS****CURRENT
                ASSETS**Cash
                & cash equivalent
            
            $
            1,089,472
            
            $
            864,481Receivables,
                net
            
            
            13,681,868
            
            
            12,158,950Receivables
                due from related parties
            
            
            1,521
            
            
            1,453Inventory
            
            
            272,780
            
            
            269,707Other
                assets
            
            
            636,676
            
            
            1,174,445**TOTAL
                CURRENT ASSETS**
            
            
            15,682,317
            
            
            14,469,036**NON-CURRENT
                ASSETS**Security
                deposits
            
            
            199,885
            
            
            191,702Property
                and equipment, net
            
            
            1,124,416
            
            
            1,045,917Intangible
                assets, net
            
            
            29,169,082
            
            
            28,217,069**TOTAL
                NON-CURRENT ASSETS**
            
            
            30,493,383
            
            
            29,454,688**TOTAL
                ASSETS**
            
            $
            46,175,700
            
            $
            43,923,724**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Unearned
                revenue
            
            $
            5,212,243
            
            $
            5,101,288Accounts
                payable & accrued expenses
            
            
            6,476,215
            
            
            5,808,271Payables
                due to related parties
            
            
            10,858
            
            
            4,932Interest
                bearing liabilities - current
            
            
            78,649
            
            
            72,044Income
                taxes payable
            
            
            412,231
            
            
            326,006**TOTAL
                CURRENT LIABILITIES**
            
            
            12,190,196
            
            
            11,312,541**NON-CURRENT
                LIABILITIES**Securities
                deposit received
            
            
            7,320
            
            
            6,833Interest
                bearing liabilities - non-current
            
            
            2,467,943
            
            
            2,424,362Deferred
                tax liabilities
            
            
            1,641,471
            
            
            1,501,602Minority
                interests
            
            
            -
            
            
            -**TOTAL
                NON-CURRENT LIABILITIES**
            
            
            4,116,734
            
            
            3,932,797**TOTAL
                LIABILITIES**
            
            
            16,306,930
            
            
            15,245,338**Commitments
                & Contingency****STOCKHOLDERS’
                EQUITY**Common
                stock, par value $0.001 per share,90,000,000
                shares authorized,53,507,450
                issued and outstanding
            
            
            53,507
            
            
            53,507Additional
                paid in capital
            
            
            24,149,420
            
            
            24,149,420Other
                comprehensive income (loss)
            
            
            4,397,897
            
            
            3,171,506Retained
                earnings
            
            
            1,267,946
            
            
            1,303,953**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            29,868,770
            
            
            28,678,386**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            46,175,700
            
            $
            43,923,724




The
      accompanying notes are an integral part of these unaudited financial
      statements.




1





**ITEM
      1.**  **FINANCIAL
      STATEMENTS (CONTINUED)**





**ADVANCED
      MEDICAL INSTITUTE INC. AND SUBSIDIARIES**


**CONSOLIDATED** **STATEMENTS
      OF OPERATIONS**





**Three
                Month Periods Ended****September
                30, 2007**
            
            **September
                30, 2006**
            
            **September
                30, 2005****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)****NET
                REVENUE**
            
            $
            11,208,507
            
            $
            10,403,670
            
            $
            5,094,700**COST
                OF REVENUE**
            
            
            (2,612,183
            )
            
            (2,365,582
            )
            
            (1,910,514
            )**GROSS
                PROFIT**
            
            
            8,596,324
            
            
            8,038,088
            
            
            3,184,186**SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES**
            
            
            (8,417,952
            )
            
            (7,285,713
            )
            
            (3,558,002
            )**OPERATING
                INCOME (LOSS)**
            
            
            178,372
            
            
            752,375
            
            
            (373,816
            )**OTHER
                INCOME AND (EXPENSE)**Rental
                income
            
            
            -
            
            
            4,561
            
            
            12,933Bank
                interest
            
            
            9,659
            
            
            20,359
            
            
            2,691Management
                fee income
            
            
            14,384
            
            
            181,182
            
            
            379Other
                income
            
            
            11,011
            
            
            26,122
            
            
            -Interest
                expense
            
            
            (64,753
            )
            
            (2,305
            )
            
            (1,246
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            4,527**TOTAL
                OTHER (EXPENSE) INCOME**
            
            
            (29,699
            )
            
            229,919
            
            
            19,284**NET
                INCOME (LOSS) BEFORE INCOME TAXES**
            
            
            148,673
            
            
            982,294
            
            
            (354,532
            )INCOME
                TAX EXPENSE
            
            
            (210,210
            )
            
            (440,603
            )
            
            127,473NET
                INCOME (LOSS)
            
            
            (61,537
            )
            
            541,691
            
            
            (227,059
            )Other
                Comprehensive item - Foreign currency translation income
            
            
            1,226,391
            
            
            124,419
            
            
            1,185**Net
                Comprehensive Income (Loss)**
            
            **$**
            **1,164,854**
            
            **$**
            **666,110**
            
            **$**
            **(225,874**
            **)****Earnings
                (loss) per common share, basic & diluted**
            
            
            **($0.00**
            **)**
            **$**
            **0.01**
            
            **$**
            **(0.01**
            **)****Weighted
                average number of shares, basic and diluted**
            
            
            **53,507,450**
            
            
            **40,865,506**
            
            
            **31,122,450**





The
      accompanying notes are an integral part of these unaudited financial
      statements.




2





**ITEM
      1.**  **FINANCIAL
      STATEMENTS (CONTINUED)**





**ADVANCED
      MEDICAL INSTITUTE INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Three
                Month Periods Ended****September
                30, 2007**
            
            **September
                30, 2006**
            
            **September
                30, 2005****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)****Cash
                Flows from Operating Activities**Receipts
                from Customers
            
            $
            9,652,695
            
            $
            7,473,589
            
            $
            4,874,955Interest
                Received
            
            
            9,575
            
            
            20,359
            
            
            2,691Payment
                to Suppliers & Employees
            
            
            (9,082,079
            )
            
            (6,537,399
            )
            
            (4,578,659
            )Interest
                Paid
            
            
            (64,753
            )
            
            -
            
            
            -Income
                Tax Paid
            
            
            (35,991
            )
            
            (226,370
            )
            
            -**Net
                cash provided by operating activities**
            
            
            479,447
            
            
            730,179
            
            
            298,987**Cash
                Flows from Investing Activities**Acquisition
                of subsidiaries
            
            
            -
            
            
            (2,258,100
            )
            
            -Payment
                for Property, Plant & Equipment
            
            
            (40,095
            )
            
            (118,113
            )
            
            (10,839
            )Payment
                for Intellectual Properties
            
            
            (23,813
            )
            
            (24,689
            )
            
            (33,652
            )Loans
                to related entities
            
            
            -
            
            
            (814,206
            )
            
            (755
            )Payment
                for security deposit
            
            
            -
            
            
            (228
            )
            
            (5,218
            )**Net
                cash used in investing activities**
            
            
            (63,908
            )
            
            (3,215,336
            )
            
            (50,464
            )**Cash
                Flows From Financing Activities**Collection
                of Note Receivable
            
            
            -
            
            
            150,771
            
            
            150,771Interest
                & Other Finance costs paid
            
            
            -
            
            
            (2,305
            )
            
            (1,246
            )Proceeds
                from Borrowings
            
            
            -
            
            
            2,258,100
            
            
            -Repayment
                of Borrowings
            
            
            (85,879
            )
            
            (48,175
            )
            
            (115,219
            )Dividend
                Payment
            
            
            -
            
            
            (37,994
            )
            
            -**Net
                cash provided by (used in) financing activities**
            
            
            (85,879
            )
            
            2,320,397
            
            
            34,306Net
                increase(decrease) in cash and cash equivalents
            
            
            329,660
            
            
            (164,760
            )
            
            282,829Effect
                of exchange rate on cash
            
            
            (104,669
            )
            
            46,833
            
            
            1,518Cash
                and cash equivalents at beginning of period
            
            
            864,481
            
            
            1,103,243
            
            
            295,961**Cash
                and cash equivalents at end of period**
            
            **$**
            **1,089,472**
            
            **$**
            **985,316**
            
            **$**
            **580,308**





The
      accompanying notes are an integral part of these unaudited financial
      statements.




3





**ITEM
      1.**  **FINANCIAL
      STATEMENTS (CONTINUED)**





**ADVANCED
      MEDICAL INSTITUTE, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)**





**Three
                Month Periods Ended****September
                30, 2007**
            
            **September
                30, 2006**
            
            **September
                30, 2005****(unaudited)**
            
            **(unaudited)**
            
            **(unaudited)****Reconciliation
                of Cash & Cash Equivalents**Cash
                & cash equivalents at the end of financial period as shown in the
                Statement of Cash Flows is reconciled to the related items in the
                Statement of Financial Position as follows:**Cash
                & Cash Equivalents**
            
            $
            1,089,472
            
            $
            985,316
            
            $
            580,308**Reconciliation
                of Cash Flow from Operations with Profit from Ordinary Activities
                after
                Income Tax****Net
                (Loss) Income**
            
            $
            (61,537
            )
            $
            541,691
            
            $
            (227,059
            )**Non-Cash
                Flows in Profit from Ordinary Activities**Depreciation
            
            
            404,870
            
            
            170,660
            
            
            21,764Provision
                for doubtful accounts
            
            
            495,700
            
            
            1,386,021
            
            
            199,375Minority
                interest
            
            
            12,341
            
            
            (2,825
            )
            
            (4,527
            )**Cash
                Flows in Profit from Financing Activities**Interest
                & Other Finance costs paid
            
            
            -
            
            
            2,305
            
            
            1,246**Changes
                in Assets and Liabilities**Increase
                in inventories
            
            
            9,071
            
            
            (37,047
            )
            
            -Increase
                in receivables
            
            
            (853,746
            )
            
            (3,270,877
            )
            
            (1,502,848
            )(Decrease)
                Increase in unearned revenue
            
            
            (121,171
            )
            
            458,968
            
            
            1,279,819Increase
                in payables
            
            
            395,109
            
            
            1,135,181
            
            
            778,248Decrease
                in provisions for compensated absences
            
            
            61,836
            
            
            -
            
            
            (87,351
            )Increase
                (Decrease) in deferred tax liabilities
            
            
            66,587
            
            
            207,579
            
            
            (159,202
            )Increase
                in security deposit
            
            
            2,661
            
            
            -
            
            
            -Increase
                (Decrease) in income tax payable
            
            
            67,726
            
            
            138,523
            
            
            (478
            )**Cash
                Flows Provided by Operating Activities**
            
            **$**
            **479,447**
            
            **$**
            **730,179**
            
            **$**
            **298,987****Supplemental
                Cash Flow Disclosures:**Interest
                paid
            
            $
            64,753
            
            $
            2,305
            
            $
            1,246Income
                tax paid
            
            $
            35,991
            
            $
            87,926
            
            $
            43,280**Non-Cash
                Investing/Financing Activities:**Stock
                issued in acquisition
            
            $
            -
            
            $
            16,125,000
            
            $
            -Assets
                acquired under capital leases
            
            $
            22,661
            
            
            -
            
            $
            18,546





The
      accompanying notes are an integral part of these unaudited financial
      statements.





4


**ADVANCED
      MEDICAL INSTITUTE INC.**


**AND
      SUBSIDIARIES**





**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2007**





**1.**
            **NATURE
                OF BUSINESS**





Nature
      of Business





Advanced
      Medical Institute Inc. (formerly Hawksdale Financial Visions, Inc.) (the
“Company”) was organized on December 6, 1996 under the laws of the State of
      Nevada and was previously in the development stage through March 21,
      2005.





On
      March
      21, 2005 the Company completed a Stock Exchange Agreement with Advanced Medical
      Institute Pty Ltd (renamed as “AMI Australia Holdings Pty Limited” on November
      22, 2005) (“AMI Australia”). As a result of the exchange agreement, the
      reorganization was treated as an acquisition by the accounting acquiree that
      is
      being accounted for as a recapitalization and as a reverse merger by the legal
      acquirer for accounting purposes. Pursuant to the recapitalization, all capital
      stock shares and amounts and per share data have been retroactively restated.
      Accordingly, the financial statements include the following:





(1)
            The
                balance sheet consists of the net assets of the accounting acquirer
                at
                historical cost and the net assets of the legal acquirer at historical
                cost.


(2)
            The
                statements of operations include the operations of the accounting
                acquirer
                for the period presented and the operations of the legal acquirer
                from the
                date of the merger.




AMI
      Australia is a company limited by shares, incorporated and domiciled in
      Australia. The principal activity of AMI Australia is the medical treatment
      of
      sexual dysfunction in Australia, New Zealand, China and Japan, however AMI
      Australia also provides prostate treatments to patients. AMI Australia is a
      service provider company which arranges for patients with sexual dysfunction
      to
      be provided with medical services, pharmaceuticals and associated support
      services. AMI Australia operates a centralized call center and twenty medical
      centers and sales offices throughout Australia and New Zealand. AMI China,
      a
      wholly owned subsidiary of the Company, operates 2 medical centers in Beijing,
      China and AMI Japan, a 75% subsidiary of the Company, operates a clinic in
      Tokyo, Japan as well as having an informal referral arrangement with 3 medical
      clinics in Osaka, Nagoya and Okinawa.




On
      November 17, 2005, AMI Australia acquired 100% of the outstanding shares of
      PE
      Patent Holdco Pty Limited (“PE”) in exchange for 5 million shares of the Company
      valued at $1.10 per share. PE’s assets comprise an Australian innovation patent
      (Australian Innovation Patent No 2005100183, which is due to expire on July
      9,
      2012) and an Australian standard patent application (Australian standard patent
      application No. 2004222783) (collectively, the “Patents”).




The
      patents and patent applications relate to various methods of treatment delivery
      via nasal (mucosal) inhalation and topical application of certain formulations
      which are used in AMI Australia’s treatments for premature ejaculation. The
      patents and associated formulations are integral to those
      treatments.




AMI
      Australia’s nasal spray, injection, lozenge and tablet impotence and erectile
      dysfunction treatments are not patent protected.




In
      acquiring PE, AMI Australia acquired only the right to use the Patents and
      the
      associated pharmaceutical formulations, treatment methodologies and dosing
      manuals in Australia and has no rights to use the patents or any of the
      underlying intellectual property in any other country.




On
      April
      18, 2006, the Company acquired the remaining 7% of Intelligent Medical
      Technologies Pty Limited (“IMT”) which was previously held by third parties in
      exchange for 1.26 million shares of the Company. These shares were subsequently
      transferred by the Company to AMI Australia. As of September 30, 2006, the
      Company owned 93% of IMT.




5




In
      2003,
      IMT was granted the exclusive worldwide right and license from Sheiman Ultasonic
      Research Foundation Pty Limited (“SURF”) to exploit and sub-license certain
      inventions, patents and other intellectual property in relation to certain
      ultrasonic nebulizer technology within the field of the treatment of sexual
      dysfunction in men and women (including impotence, premature ejaculation and
      the
      treatment of female sexual arousal disorders). Some of these patents expire
      in
      October 2013, with the remaining patents expiring around 2023. IMT’s license was
      a broad based license which included the right to manufacture, market, sell
      and
      distribute products based on the technology and patents within the field of
      use.





IMT
      also
      had the option to extend its field of use to the treatment of prostate diseases.
      IMT exercised its option to extend its field of use to include prostate diseases
      on July 15, 2006 and IMT “terminated” its license with SURF. The termination was
      because of SURF’s failure to deliver to the Company information concerning
      updates and advances on the technologies. The termination does not affect IMT’s
      rights to use the technology - the only effect is to terminate the royalty
      payment obligations to SURF under the license. As
      a
      result of terminating the license agreement, IMT retained the right to use
      the
      technology in its treatments to treat sexual dysfunction without paying
      royalties or other fees to SURF.





IMT
      applied for four worldwide patents relating to its ultrasonic nebulizer device
      in July 2005 and applied for three further worldwide patents relating to its
      device on February 10, 2006.





IMT
      acquired this license in order to develop an ultrasonic nebulizer to deliver
      medications to patients’ lungs for the treatment of sexual dysfunction as it
      believes that this delivery system will be more efficient and clinically
      effective than any other alternative treatment option and will reduce dosage
      levels and the likelihood of side effects.





IMT
      applied to list its nebuliser with the Therapeutic Goods Administration (the
      Australian functional equivalent of the FDA) in October 2006. IMT received
      comment letters from the TGA during March 2007 which requires it to provide
      further material in order to advance its application. IMT is in the process
      of
      dealing with the matters raised by the TGA and currently anticipates it will
      submit a revised application later this financial year.





On
      September 8, 2006, the Company entered into a Share Exchange Agreement with
      Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned
      Australian company (“Worldwide PE”), and Worldwide PE’s shareholders pursuant to
      which the Company acquired all of the issued and outstanding shares of stock
      of
      Worldwide PE in exchange for the payment of A$3 million (approximately US$2.25
      million) and the issuance in the aggregate of 16,125,000 shares of the Company’s
      common stock valued at $1.00 per share.





The
      Company funded the cash component of the purchase price by AMI Australia
      entering into two secured three year term loans in the aggregate principal
      amount of A$3 million with ANZ Nominees Limited in its capacity as custodian
      of
      the Professional Pensions PST. The loan is secured by a security interest in
      all
      of AMI Australia’s assets and undertakings (including its existing equity
      interests in PE Patent Holdco Pty Limited, Intelligent Medical Technologies
      Pty
      Limited, Advanced Medical Institute (NZ) Limited and Whygo Video Conferencing
      Pty Limited). The loans accrue interest at an annual coupon of 450 basis points
      above the then Australian Reserve Bank’s current cash rate (currently being an
      aggregate current interest rate of 11.25%). The Company has been meeting its
      interest payment obligations under these loans and has pre-paid approximately
      A$292,000 in principal as at the date of this filing.





The
      Company has been actively exploring international expansion into a range of
      jurisdictions and established subsidiaries in China and Japan in
      2006.





The
      Chinese subsidiary, named Ai Te Wei (Beijing) Medicine Consulting Company (“AMI
      China”), is an indirect wholly owned subsidiary of the Company and AMI China has
      formed an alliance with 2 Beijing hospitals for the purpose of establishing
      operations and conducting clinical trials for regulatory purposes. AMI China
      has
      obtained regulatory approval to its proposed advertisements and commenced
      operations on September 4, 2006.




6





The
      Japanese subsidiary, named AMI Japan Kabushiki Gaisya (“AMI Japan”), is an
      indirect 75% owned subsidiary of the Company. AMI Japan has formed an alliance
      with a Japanese party with expertise in marketing in the Japanese market and
      two
      financial investors. AMI Japan commenced operations on October 1,
      2006.





The
      Company’s initial operations in China and Japan have not been as successful as
      the company anticipated and the Company has substantially reduced the nature
      and
      scope of its operations in China and Japan. The Company is investigating
      alternative marketing and distribution methods in each of China and Japan but
      intends to expend considerably less on these activities than it spent on its
      operations during the year ended June 30, 2007 until it establishes a successful
      sales and marketing platform for these markets.




On
      May 2,
      2007, Worldwide PE entered into an Option Agreement (the “Option”) with AMI
      Group Limited, a privately owned company registered in the United Kingdom (“AMI
      UK”).




The
      Option grants AMI UK a right to enter into an exclusive license to use Worldwide
      PE’s intellectual property in the United Kingdom. AMI UK has paid Worldwide PE
      an upfront non-refundable fee of $50,000 to secure an initial period of four
      months to confirm the license which period may be extended for a further two
      months by AMI UK paying Worldwide PE a non-refundable extension fee of $50,000.
      During this initial six month period, AMI UK may elect to enter into a License
      Agreement (the “License”) by paying Worldwide PE an upfront non-refundable
      license fee of $1 million less the upfront fees paid to Worldwide PE prior
      to
      that date. Terms of the Option and the License have been disclosed by the
      Company on its Current Report on Form 8-K filed with the Securities and Exchange
      Commission (the “SEC”) on May 3, 2007. On September 4, 2007 AMI UK exercised its
      right to extend the option period and paid an extension fee of $50,000.
      Worldwide PE agreed to vary this extension period to four months rather than
      two
      months.





7




Subsidiaries










The
      Company’s direct subsidiaries are AMI Australia, AMI International Pty Limited
      (“AMI International”) and AMI Management Services Pty Limited (formerly known as
      Women’s Health Foundation Pty Limited).




AMI
      Australia’s direct subsidiaries are Advanced Medical Institute Pty Limited, PE
      Patent Holdco Pty Limited (“PE
      Patent”) ,
      Worldwide PE Patent Holdco Pty Limited (“Worldwide
      PE”) ,
      Advanced Medical Institute (NZ) Limited, IMT and Whygo Video
      Conferencing Pty Ltd (“Whygo”) .




AMI
      International’s direct subsidiaries are AMI China (100% owned) and AMI Japan
      (75% owned).




Details
      of PE Patent Holdco are set forth in the Nature of Business description above.


Details
      of Worldwide PE are set forth in the Nature of Business description above.




Details
      of IMT are set forth in the Nature of Business description above.




AMI
      International Pty Limited was established to hold the Group’s ownership
      interests in the Japanese and Chinese companies established to conduct
      operations in those countries.




AMI
      Management Services Pty Limited provides treasury and management services to
      AMI
      Australia and its subsidiaries.




8




Advanced
      Medical Institute (NZ) Limited (“AMI NZ”) conducts the group’s business in New
      Zealand. AMI NZ contributed 3.7% of AMI Australia’s consolidated revenue during
      the half year (excluding other income).




AMI
      Australia holds 50% of the outstanding shares of Whygo. Whygo provides video
      conferencing services across Australia and in
      various locations around
      the world. James Matthews, a director of Whygo, holds the remaining 50% of
      the
      outstanding shares of Whygo.





Whygo
      owns proprietary scheduling software, which allows its corporate partners to
      login and book rooms around the world. The source of Whygo’s income is derived
      from renting video conferencing rooms to its corporate partners through AMI
      Australia and its other channeling partners.




AWIT
      Beijing Medicine Consulting Company (“AMI China”) conducts the Company’s
      business in China. AMI China commenced advertising of its services on September
      4, 2006.




AMI
      Japan
      Kabushiki Gaisya (“AMI Japan”) conducts the Company’s business in Japan. AMI
      Japan commenced advertising of its services on October 1, 2006.




During
      September 2006, AMI commenced a not for profit unit entity named “AMI SCI” which
      provides, as part of its community services program, specialized sexual
      dysfunction treatments to spinal cord victims in Australia. Details regarding
      its services and operation are located at rocketlaunch.com.au.




On
      February 12, 2007, the Company entered into a written agreement with the
      Heartcheck Group of companies for an indefinite term, which can be terminated
      at
      any time with not less than twelve months written notice. Under the agreement,
      Heartcheck agrees to utilize services provided by the Company, including the
      provision of staff and premises. In exchange for these services, Heartcheck
      has
      agreed to reimburse the Company for all expenses associated with the provision
      of these services and to pay the company a net margin on those expenses. The
      provision of these services and the fees generated from this agreement with
      Heartcheck has contributed to the Company’s net revenues during the quarter
      ended September 30, 2007. Heartcheck is independently owned from the Company,
      its subsidiaries and its affiliates and it operates a business of providing
      cardiac related medical services in Australia.





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**




The
      accounting and reporting policies of the Company conform to accounting
      principles generally accepted in the United States of America. The following
      are
      descriptions of the more significant policies:





Basis
      of Accounting





The
      accompanying financial statements are prepared on an accrual basis.




Principles
      of Consolidation




The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries, AMI Australia Holdings Pty Limited, AMI Management
      Services Pty Limited (“AMI MS”) and AMI International Pty Limited (“AMI
      International”) and their direct and indirect wholly-owned subsidiaries:
      Advanced Medical Institute Pty Ltd, PE Patent Holdco Pty Limited (“PE”),
      Advanced Medical Institute (NZ) Limited (“AMI NZ”) and Intelligent Medical
      Technologies Pty Ltd (“IMT”) and its 50% owned subsidiary, Whygo Video
      Conferencing Pty Ltd (“Whygo”) (which owns all of the shares in Whygo Limited, a
      UK entity). All significant intercompany accounts and transactions have been
      eliminated upon consolidation.




9




Concentration
      of Credit Risk




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk are cash, accounts receivable and other receivables arising from its normal
      business activities. The Company places its cash in what it believes to be
      credit-worthy financial institutions. The Company has a diversified customer
      base. The Company controls credit risk related to accounts receivable through
      credit approvals, credit limits and monitoring procedures. The Company routinely
      assesses the financial strength of its customers and, based upon factors
      surrounding the credit risk, establishes an allowance, if required, for
      uncollectible accounts and, as a consequence, believes that its accounts
      receivable credit risk exposure beyond such allowance is limited.




Cash
      Equivalents




For
      purposes of the statement of cash flows, the Company considers all highly liquid
      investments with maturities of three months or less to be cash
      equivalents.




Use
      of
      Estimates




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect certain reported amounts and disclosures. Accordingly, actual results
      could differ from those estimates.




Revenue
      Recognition




Sales
      are
      reported as deferred income when the sales contracts are executed and the term
      of the contract exceeds three months. Up to three months of medication is
      delivered to the patient upon the signing of a contract. Generally the term
      of
      the sales contracts are up to one year, but they can be for longer periods
      of
      time. The deferred income arising from the contracts that exceed three months
      is
      then amortized, on a straight line basis, into income during the approximated
      composite remaining medication delivery period. This approximated composite
      is
      an estimate that may vary from period to period.




Unearned
      Revenue




Unearned
      revenue arises from programs that exceed three months. The maximum program
      length is twelve months while the average program length purchased by each
      individual patient is four & half months. The Company made estimate of
      unearned revenue based on the average program length less three months for
      which
      medication is provided and revenue is recognized.




Advertising
      Expense




Advertising
      costs are charged to expense as they are incurred.




Income
      Tax




Income
      taxes have been provided based upon the tax laws and rates in the countries
      in
      which operations are conducted and income is earned. The income tax rates
      imposed by the taxing authorities vary. Taxable income may vary from pre-tax
      income for financial accounting purposes. There is no expected relationship
      between the provision for income taxes and income before income taxes because
      the countries have different taxation rules, which vary not only to nominal
      rates but also in terms of available deductions, credits and other benefits.
      Deferred tax assets and liabilities are recognized for the anticipated future
      tax effects of temporary differences between the financial statement basis
      and
      the tax basis of the Company’s assets and liabilities using the applicable tax
      rates in effect at year end as prescribed by SFAS 109 “Accounting for Income
      Taxes”.




Accounts
      Receivable




Accounts
      receivable are sales for the year, net of sales refund, cancellation, unearned
      revenue and provision for doubtful debt. The Company estimates provision for
      doubtful debts based on the historical results.




10




Inventories




Inventories
      are valued at the lower of cost (determined on a first-in first-out basis)
      or
      market. Management compares the cost of inventories with the market value and
      allowance is made for writing down our inventories to market value, if lower.
      As
      of June 30, 2007 inventory consisted only of finished goods.




Property
      and Equipment




Property
      & Equipment placed in service is depreciated over the estimated useful lives
      of the assets using the diminishing value depreciation method.




Property
      and equipment are carried at the lesser of cost and written down value.
      Expenditures for maintenance and repairs are expenses as incurred and
      expenditures for major renewals and betterments are capitalized. Assets retired
      or sold are removed from the property accounts, with gains or losses on disposal
      included in income.




Employee
      Entitlements




Contributions
      are made to an employee superannuation fund and are charged as expenses when
      incurred.




Exchange
      Gain (Loss)




During
      the three month periods ended September 30, 2007, 2006, and
      2005 the transactions of AMI Australia were denominated in foreign currency
      and were recorded in Australian Dollars (AUD) at the rates of exchange in effect
      when the transactions occur. Exchange gains and losses are recognized for the
      different foreign exchange rates applied when the foreign currency assets and
      liabilities are settled.




Foreign
      Currency




As
      of
      September 30, 2007, the accounts of AMI Australia and its subsidiaries were
      maintained and its financial statements were expressed in the local currency
      for
      the jurisdiction in which the entity operated. Such financial statements were
      translated into the functional currency in Australian Dollars (AUD) and
      thereafter to reporting currency in U.S. Dollars (USD) in accordance with
      Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency
      Translation,” with the AUD as the functional currency. According to the
      Statement, all assets and liabilities were translated at the current exchange
      rate, stockholders’ equity (deficit) is translated at the historical rates and
      income statement items are translated at the average exchange rate for the
      period. The resulting translation adjustments are reported under other
      comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive
      Income” as a component of shareholders’ equity (deficit).




Research
      and Development Costs




Research
      and development costs are charged against income from ordinary activities before
      income tax as incurred.




Intangible
      assets




The
      Company applies the criteria specified in SFAS No. 141, “Business
      Combinations” to determine whether an intangible asset should be recognized
      separately from goodwill. Intangible assets acquired through business
      acquisitions are recognized as assets separate from goodwill if they satisfy
      either the “contractual-legal” or “separability” criterion. Per SFAS 142,
      intangible assets with definite lives are amortized over their estimated useful
      life and reviewed for impairment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible
      assets, such as purchased technology, trademark, customer list, user base and
      non-compete agreements, arising from the acquisitions of subsidiaries and
      variable interest entities are recognized and measured at fair value upon
      acquisition. Intangible assets are amortized over their estimated useful lives
      from one to ten years. The Company reviews the amortization methods and
      estimated useful lives of intangible assets at least annually or when events
      or
      changes in circumstances indicate that it might be impaired. The recoverability
      of an intangible asset to be held and used is evaluated by comparing the
      carrying amount of the intangible asset to its future net undiscounted cash
      flows. If the intangible asset is considered to be impaired, the impairment
      loss
      is measured as the amount by which the carrying amount of the intangible asset
      exceeds the fair value of the intangible asset, calculated using a discounted
      future cash flow analysis. The Company uses estimates and judgments in its
      impairment tests, and if different estimates or judgments had been utilized,
      the
      timing or the amount of the impairment charges could be different.




11




Goodwill,
      trademarks, patents and other intangible assets determined to have indefinite
      useful lives are not amortized. We test such trademarks and other intangible
      assets with indefinite useful lives for impairment annually, or more frequently
      if events or circumstances indicate that an asset might be impaired. Goodwill,
      trademarks, patents and other intangible assets determined to have definite
      lives are amortized over their estimated useful lives or the life of the
      trademark, patent and other intangible asset, whichever is less.





Impairment
      is determined by assessing the recoverable amount of the cash-generating unit
      (group of cash-generating units), to which the intangible asset relates. When
      the recoverable amount of the cash-generating unit (group of cash-generating
      units) is less than the carrying amount, an impairment loss is
      recognised.





At
      September 30, 2007 and June 30, 2007, intangibles consist of the
      following:





**Intangibles**
            
            **Gross
                Carrying****Amount**
            
            **Accumulated****Amortization**
            
            **Impairment****Loss**
            
            **Net**
              **Sep
                30, 2007**
            
            **Net**
              **June
                30, 2007****(unaudited)**
            
            **(audited)**Amortized
                intangibles:Patents
            
            $
            10,308,590
            
            $
            (845,384
            )
            $
            (727,600
            )
            $
            8,735,606
            
            $
            8,479,526Intellectual
                Properties
            
            
            16,701,780
            
            
            (1,056,326
            )
            
            -
            
            
            15,645,454
            
            
            15,198,095Computer
                Software
            
            
            378,559
            
            
            (208,652
            )
            
            -
            
            
            169,907
            
            
            152,713Unamortized
                intangibles:Intellectual
                Properties
            
            
            4,618,115
            
            
            -
            
            
            -
            
            
            4,618,115
            
            
            4,386,735$
            32,007,044
            
            $
            (2,110,362
            )
            $
            (727,600
            )
            $
            29,169,082
            
            $
            28,217,069




The
      Company assigned an 18 year life to the patents that are held by Worldwide
      PE
      Patent and a 19 year life to the patents that are held by PE
      Patent.




For
      intellectual property, the company assigned an 18 year life to the intellectual
      property that arose from Worldwide PE Patent, a 19 year life to the intellectual
      property that arose from PE Patent, and indefinite life to the intellectual
      property that arose from IMT.




Computer
      software was assigned as having a 3 year life.




Amortization
      expense from continuing operation for the three month periods ended September
      30, 2007, 2006 and 2005 was $367,065, $136,053 and zero respectively. The
      Company expects the amortization expenses for the next five years to be as
      follows:





**Year
                Ending September 30,**
            
            **Annual
                Amount**2008
            
            $
            1,504,0002009
            
            $
            1,504,0002010
            
            $
            1,504,0002011
            
            $
            1,504,0002012
            
            $
            1,504,000




12






Long-Lived
      Assets ******




Effective
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”), which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
      the Results of Operations for a Disposal of a Segment of a Business.” The
      Company periodically evaluates the carrying value of long-lived assets to be
      held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
      to be recorded on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. In that event, a
      loss is recognized based on the amount by which the carrying amount exceeds
      the
      fair market value of the long-lived assets. Loss on long-lived assets to be
      disposed of is determined in a similar manner, except that fair market values
      are reduced for the cost of disposal. Based on its review, the Company believes
      that, as of September 30, 2007 there were no significant impairments of its
      long-lived assets.




Segment
      Reporting




Statement
      of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
      Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
      is based on the way a company’s management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.
      SFAS
      131 has no effect on the Company’s consolidated financial statements as the
      Company consists of one reportable business segment.




Basic
      and Diluted Earnings Per Share





Earnings
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
      all
      periods presented has been restated to reflect the adoption of SFAS No. 128.
      Basic net loss per share is based upon the weighted average number of common
      shares outstanding. Diluted net loss per share is based on the assumption that
      all dilutive convertible shares and stock options were converted or exercised.
      Dilution is computed by applying the treasury stock method. Under this method,
      options and warrants are assumed to be exercised at the beginning of the period
      (or at the time of issuance, if later), and as if funds obtained thereby were
      used to purchase common stock at the average market price during the
      period.





**RECENT
      PRONOUNCEMENTS**





In
      September 2006, FASB issued SFAS No. 157 “Fair Value Measurements”. This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles (GAAP), and expands disclosures
      about fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. Management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      September 2006, FASB issued SFAS No. 158 “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106, and 132(R)”. This Statement improves financial reporting by
      requiring an employer to recognize the over funded or under funded status of
      a
      defined benefit postretirement plan (other than a multiemployer plan) as an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income of a business entity or changes in unrestricted net assets
      of a not-for-profit organization. This Statement also improves financial
      reporting by requiring an employer to measure the funded status of a plan as
      of
      the date of its year-end statement of financial position, with limited
      exceptions. An employer with publicly traded equity securities is required
      to
      initially recognize the funded status of a defined benefit postretirement plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after December 15, 2006. An employer without publicly traded equity securities
      is required to recognize the funded status of a defined benefit postretirement
      plan and to provide the required disclosures as of the end of the fiscal year
      ending after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:




·
            A
                brief description of the provisions of this Statement




13




·
            The
                date that adoption is required




·
            The
                date the employer plans to adopt the recognition provisions of this
                Statement, if earlier.




The
      requirement to measure plan assets and benefit obligations as of the date of
      the
      employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. Management is currently evaluating
      the effect of this pronouncement on financial statements.




In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted subject
      to
      specific requirements outlined in the new Statement. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.




The
      new
      Statement allows entities to choose, at specified election dates, to measure
      eligible financial assets and liabilities at fair value that are not otherwise
      required to be measured at fair value. If a company elects the fair value option
      for an eligible item, changes in that item's fair value in subsequent reporting
      periods must be recognized in current earnings. FAS 159 also establishes
      presentation and disclosure requirements designed to draw comparison between
      entities that elect different measurement attributes for similar assets and
      liabilities. Management is currently evaluating the effect of this pronouncement
      on financial statements.





**2.**
            **OTHER
                ASSETS**




Following
      is the summary of other assets as of September 30, 2007 and June 30,
      2007.





September
                30
            
            June
                30**(unaudited)**
            
            **(audited)**Bank
                guarantees
            
            $
            76,847
            
            $
            84,917Advances
                and prepayments
            
            
            47,000
            
            
            57,397Other
                receivables
            
            
            62,188
            
            
            106,100Other
                debtors
            
            
            450,641
            
            
            926,041Total
            
            $
            636,676
            
            $
            1,174,455




**3.**
            **PROPERTY,
                PLANT AND EQUIPMENT**





Property,
      plant and equipment comprised of the following as of September 30, 2007 and
      June
      30, 2007:





**September
                30,**
              **2007**
            
            **June
                30,**
              **2007****(unaudited)**
            
            **(audited)**Leasehold
                improvements
            
            $
            580,318
            
            $
            541,746Less:
                Accumulated depreciation
            
            
            85,765
            
            
            74,746494,553
            
            
            467,000Motor
                Vehicles
            
            
            52,682
            
            
            50,334Less:
                Accumulated Depreciation
            
            
            29,122
            
            
            26,70823,560
            
            
            23,626Office
                Furniture & Equipment
            
            
            518,780
            
            
            474,426Less:
                Accumulated Depreciation
            
            
            115,262
            
            
            99,363403,518
            
            
            375,063Computer
                Hardware
            
            
            399,802
            
            
            357,854Less:
                Accumulated Depreciation
            
            
            245,479
            
            
            220,420154,323
            
            
            137,434Low
                Value Pooled Fixed Assets
            
            
            157,099
            
            
            142,171Less:
                Accumulated Depreciation
            
            
            108,637
            
            
            99,37748,462
            
            
            42,794**Total
                Property, Plant and Equipment**
            
            **$**
            **1,124,416**
            
            **$**
            **1,045,917**




14




**4.**
            **INTEREST
                BEARING LIABILITIES**





Interest
      bearing liabilities comprised of the following as of September 30, 2007 and
      June
      30, 2007:





**September
                30,**
              **2007**
            
            **June
                30,**
              **2007****(unaudited)**
            
            **(audited)****Current,
                as of the period ended**Capitalized
                lease liability
            
            $
            78,649
            
            $
            72,044Unsecured
                loan
            
            
            -
            
            
            -**$**
            **78,649**
            
            **$**
            **72,044****Non-current,
                due as of the period ended**Capitalized
                lease liability2007
            
            
            -
            
            
            -2008
            
            $
            22,266
            
            $
            25,22022,266
            
            
            25,220Secured
                loan
            
            
            2,445,677
            
            
            2,399,412Total
                non-current
            
            **$**
            **2,467,943**
            
            **$**
            **2,424,362**




The
      interest bearing liabilities require monthly payments of principal and interest
      at a per annum interest rate ranging from 6.2% to 13.85%. Interest expense
      on
      the interest bearing liabilities amounted to $64,753, $2,305 and $1,246 for
      the
      three month periods ended September 30, 2007, 2006 and 2005, respectively.


15




Obligations
      under the notes are secured by the financed assets included in property and
      equipment. The secured loan is secured over all of AMI Australia’s assets and
      undertakings. The future aggregate payments arising from this loan is as
      follows:




**September
                30,**
              **2007****(unaudited)**Due
                during the period ended2007
            
            $
            283,2432008
            
            
            315,9622009
            
            
            351,6532010
            
            
            391,3752011
            
            
            435,2952012
            
            
            484,7532013
            
            
            183,396$
            2,445,677





**5.**
            **ACCOUNTS
                PAYABLE AND ACCRUED
                EXPENSES**




Accounts
      payable and accrued expenses as of September 30, 2007 and June 30, 2007 are
      summarized as follows:




September
                30
            
            June 30**(unaudited)**
            
            **(audited)**Accounts
                payable
            
            $
            2,300,395
            
            $
            1,714,756Accrued
                salaries
            
            
            401,158
            
            
            443,806Accrued
                professional fees
            
            
            14,392
            
            
            30,557Other
                current liabilities
            
            
            365,429
            
            
            102,000Provision
                for DDR medication cost
            
            
            880,404
            
            
            887,845Provision
                for DDR sales commission
            
            
            880,404
            
            
            828,428Provision
                for DDR collection fee
            
            
            880,404
            
            
            828,428Provision
                for patient refund
            
            
            79,956
            
            
            84,880Accrued
                legal case settlement
            
            
            137,702
            
            
            250,396Accrued
                DDR collection fee
            
            
            100,000
            
            
            211,709Accrued
                payroll tax
            
            
            -
            
            
            59,416Accrued
                compensated absences
            
            
            435,971
            
            
            366,050Total
            
            $
            6,476,215
            
            $
            5,808,271




16


**6.**
            **LEGAL
                PROCEEDINGS**




As
      of
      September 30, 2007, there were no litigation pending or threatened by or against
      the Company or any of its direct or indirect subsidiaries other than AMI
      Australia. AMI Australia currently is involved in the following litigation
      and
      administrative matters:




On
      July
      19, 2004, the Australian Competition and Consumer Commission (collectively,
      the
“ACCC”) filed a suit against AMI Australia in the Federal Court of Australia
      Sydney Registry. The ACCC claimed that a series of advertisements made by AMI
      Australia involving a celebrity that confessed impotence were misleading and
      deceptive. On August 15, 2006 the court ruled in favor of the ACCC that the
      advertisements were misleading and deceptive but declined to order corrective
      advertising or any pecuniary penalty other than an order that AMI Australia
      pay
      the ACCC’s costs on a party-party basis. The Company has agreed to pay $94,300
      in full settlement of these costs and partial payment has been made with the
      balance to be paid by January 2008.




On
      September 27, 2004, Rocco Licastro, a former patient, filed a suit against
      AMI
      Australia in the District Court of NSW, Sydney Registry. Mr. Licastro’s claims
      result from an injection therapy that Mr. Licastro claims caused physical
      injuries. AMI Australia and Mr. Licastro agreed to settle the claim on
      confidential terms on September 21, 2007 with all payments made in full
      settlement of the claim fully accrued as at September 30, 2007.




On
      May
      25, 2007, AMI Australia commenced proceedings in the New South Wales Supreme
      Court against Channel Seven Sydney Pty Limited in respect of certain allegedly
      actionable statements made by Channel Seven. AMI Australia has alleged that
      the
      statements made involve a breach of the doctrine of injurious falsehood and
      that
      it is entitled to be compensated in damages. The proceedings are at an early
      stage.





**7.**
            **LEASE
                COMMITMENTS**




The
      Company is party to long-term, non-cancelable operating lease agreements for
      its
      administrative offices and clinic locations. The future aggregate minimum annual
      lease payments arising from these lease agreements are as follows:





**September
                30,**
              **2007****(unaudited)**Due
                during the period ended,2007
            
            -2008
            
            $
            829,0012009
            
            
            529,7702010
            
            
            213,5572011
            
            
            104,1602012
            
            
            22,210**$**
            **1,698,698**




Rent
      paid
      for the three months ended September 30, 2007, 2006 and 2005 was $441,256,
      $374,388 and $284,771, respectively.





**8.**
            **CONCENTRATION**




Sales
      Markets - The Company’s revenue arises from Australian, New Zealand, Chinese and
      Japanese customers.




Suppliers
      - Although the Company has access to a variety of suppliers, the majority of
      the
      Company’s products that are obtained for resale are purchased from a limited
      number of suppliers.




17





**9.**
            **SHARE
                EXCHANGE AGREEMENTS**




On
      September 8, 2006 the Company entered into a Share Exchange Agreement with
      Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned
      Australian company (“Worldwide PE”), and Worldwide PE’s shareholders pursuant to
      which the Company acquired all of the issued and outstanding shares of stock
      of
      Worldwide PE in exchange for the payment of A$3 million (approximately US$2.25
      million) and the issuance in the aggregate of 16,125,000 shares of the Company’s
      common stock valued at $1.00 per share. These shares were subsequently
      transferred by the Company to AMI Australia. The issuance of our shares of
      common stock to the Worldwide PE Shareholders was exempt from registration
      under
      the Securities Act pursuant to Section 4(2) and Regulation S. As used herein,
      the “Company” shall also mean Worldwide PE when used for events after September
      8, 2006, described herein.




The
      Company funded the cash component of the purchase price by AMI Australia
      entering into two secured three year term loans in the aggregate principal
      amount of A$3 million with ANZ Nominees Limited in its capacity as custodian
      of
      the Professional Pensions PST. The loan is secured by a security interest in
      all
      of AMI Australia’s assets and undertakings (including its existing equity
      interests in PE Patent Holdco Pty Limited, Intelligent Medical Technologies
      Pty
      Limited, Advanced Medical Institute (NZ) Limited and Whygo Video Conferencing
      Pty Limited). The loan accrues interest at an annual coupon of 450 basis points
      above the then Australian Reserve Bank’s current cash rate (currently being an
      aggregate current interest rate of 11.25%).




**10.**
            **RELATED
                PARTY TRANSACTIONS**




**September
                30,**
              **2007**
            
            **June
                30,**
              **2007****(unaudited)**
            
            **(audited)**Related
                party transactions comprised of the following:***Forhad
                (Tony) Khan***Relationship:Director of the parent entityPayable
                to this related party
            
            $
            -
            
            $
            2,947***Jack
                Vaisman********(an
                AU citizen)***Relationship:
                Director of the CompanyDirector
                salary from AMI Australia
            
            $
            111,850
            
            $
            -***James
                Matthews********(an
                AU citizen)***Relationship:
                Director of the subsidiary (Whygo)Payable
                to this related party
            
            $
            10,858
            
            $
            1,985Director
                salary
            
            $
            19,856
            
            $
            -***Prostate
                Health Clinic Pty. Ltd. (an AU co.)***Relationship:Under common management control by Jack VaismanReceivable
                from this related party
            
            $
            1,521
            
            $
            1,453




18


Total
      receivables due from related parties included in the Company’s statement of
      financial position was $1,521 and $1,453 as of September 30, 2007 and June
      30,
      2007 respectively.




Total
      accounts payable to related parties included in the Company’s statement of
      financial position was $10,858 and $4,932 as of September 30, 2007 and June
      30,
      2007 respectively.




Receivables
      from, and payables to, related parties are unsecured, interest-free and are
      due
      on demand.





**11.**
            **CONTINGENT
                LIABILITY**




A
      dispute
      with a previous telecommunication carrier over billing in the amount of $122,924
      arose in 2002. AMI Australia responded with a counterclaim of $550,904 against
      the carrier in 2003 and no correspondence has been received from the carrier.
      No
      settlement has been reached, but in the opinion of the Company’s directors, the
      $122,924 will not be paid. Similarly, the Company has not been actively pursuing
      the amount it claims is owed to it under the counterclaim. The financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





**12.**
            **INCOME
                TAXES**




Total
      Federal and State income tax expense for the three months period ended September
      30, 2007, 2006 and 2005 amounted to $210,210, $440,603 and
      ($127,473),respectively. For the three month periods ended September 30, 2007,
      2006 and 2005 there is a difference of 1% between the Australian federal
      statutory tax rate and the effective tax rate. This difference is due to the
      domicile of operating profits and losses in the Group as well as the impact
      of
      timing and past operating profits (losses) on these matters.




19




The
        following is a reconciliation of income tax expense for the nine month periods
        ended September 30, 2007 and June 30, 2007:
  September
                  30, 2007
              
              U.S.
              
              State
              
              International
              
              TotalCurrent
              
              $
              0
              
              $
              0
              
              $
              86,225
              
              $
              86,225Deferred
              
              $
              0
              
              $
              0
              
              
              123,985
              
              $
              123,985Total
              
              $
              0
              
              $
              0
              
              $
              210,210
              
              $
              210,210June
                  30, 2007
              
              
              U.S.
              
              
              State
              
              
              International
              
              
              TotalCurrent
              
              $
              0
              
              $
              0
              
              $
              154,849
              
              $
              154,849Deferred
              
              $
              0
              
              $
              0
              
              
              614,842
              
              $
              614,842Total
              
              $
              0
              
              $
              0
              
              $
              769,691
              
              $
              769,691
  Reconciliation
          of the differences between the statutory U.S. Federal income tax rate and
          the
          effective rate is as follows:
  September
                  30,
                2007
              
              June
                  30,
                2007Federal
                  statutory tax rate
              
              
              34
              %
              
              34
              %Increase
                  (decrease) in rate resulting from:Non
                  US income taxed at different rates
              
              
              -1
              %
              
              -1
              %Effective
                  tax rate
              
              
              33
              %
              
              33
              %






**13.**
            **OTHER
                COMPREHENSIVE INCOME
                (LOSS)**




Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholders’ equity, at September 30, 2007 and June
      30, 2007 are as follows:





*Accumulated
                Other Comprehensive Income*Balance
                at June 30, 2006
            
            $
            (204,483
            )Change
                for year ended June 30, 2007
            
            
            3,375,989Balance
                at June 30, 2007
            
            $
            3,171,506Change
                for three months ended September 30, 2007
            
            
            1,226,391Balance
                at September 30, 2007
            
            $
            4,397,897


**14.**
              **RECLASSIFICATION**
  Certain
        comparative amounts have been reclassified to conform to the current
        presentation.




20




**ITEM
      2.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




THE
      FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION
      CONTAINED IN THE FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
      APPEARING ELSEWHERE HEREIN AND IN CONJUNCTION WITH THE MANAGEMENT’S DISCUSSION
      AND ANALYSIS SET FORTH IN THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB FOR THE
      YEAR ENDED JUNE 30, 2007.




**PRELIMINARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




The
      statements contained in this Form 10-Q that are not purely historical are
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended. These include statements about the Company’s expectations, beliefs,
      intentions or strategies for the future, which are indicated by words or phrases
      such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the Company
      believes,” “management believes” and similar words or phrases. The
      forward-looking statements are based on the Company’s current expectations and
      are subject to certain risks, uncertainties and assumptions. The Company’s
      actual results could differ materially from results anticipated in these
      forward-looking statements. All forward-looking statements included in this
      document are based on information available to the Company on the date hereof,
      and the Company assumes no obligation to update any such forward-looking
      statements.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Our
      discussion and analysis or plan of operations are based upon our consolidated
      financial statements, which 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, revenue and expenses, and related
      disclosure of contingent assets and liabilities. On an on-going basis, we
      evaluate our estimates, including those related to accounts receivable reserves,
      provisions for impairment losses of affiliated companies and other intangible
      assets, income taxes and contingencies. 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 for 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 reflect our more significant
      estimates and assumptions used in the preparation of our consolidated financial
      statements:





REVENUE
      RECOGNITION - Sales are reported as deferred income when the sales contracts
      are
      executed and the term of the contract exceeds three months. Up to three months
      medication is delivered to the patient upon the signing of a contract. Generally
      the term of the sales contracts are up to one year, but they can be for longer
      periods of time. The deferred income arising from the contracts that exceed
      three months is then amortized, on a straight-line basis, into income during
      the
      approximated composite remaining medication delivery period. This approximated
      composite is an estimate that may vary from period to period.




ALLOWANCE
      FOR DOUBTFUL ACCOUNTS - We evaluate the collectibility of our trade receivables
      based on a combination of factors. We regularly analyze our significant customer
      accounts, and, when we become aware of a specific customer’s inability to meet
      its financial obligations to us, such as in the case of bankruptcy filings
      or
      deterioration in the customer’s ability to pay for our services, we record a
      specific reserve for bad debt to reduce the related receivable to the amount
      we
      reasonably believe is collectible. The allowances are calculated based on
      detailed review of certain individual customer accounts, historical rates and
      an
      estimation of the overall economic conditions affecting our customer base.
      We
      review a customer’s credit history with the Company before extending credit. 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.




21




INCOME
      TAXES - We record a valuation allowance to reduce our deferred tax assets to
      the
      amount that is more likely than not to be realized. We have considered future
      market growth, forecasted earnings, future taxable income, and prudent and
      feasible tax planning strategies in determining the need for a valuation
      allowance.




CONTINGENCIES
      - We may be subject to certain asserted and unasserted claims encountered in
      the
      normal course of business. It is our belief that the resolution of these matters
      will not have a material adverse effect on our financial position or results
      of
      operations, however, we cannot provide assurance that damages that result in
      a
      material adverse effect on our financial position or results of operations
      will
      not be imposed in these matters. We account for contingent liabilities when
      it
      is probable that future expenditures will be made and such expenditures can
      be
      reasonably estimated.




LONG-LIVED
      ASSETS - We periodically assesses the need to record impairment losses on
      long-lived assets, such as property, plant and equipment, goodwill and purchased
      intangible assets, used in operations and its investments when indicators of
      impairment are present indicating the carrying value may not be recoverable.
      An
      impairment loss is recognized when estimated undiscounted future cash flows
      expected to result from the use of the asset plus net proceeds expected from
      disposition of the asset (if any) are less than the carrying value of the asset.
      When impairment is identified, the carrying amount of the asset is reduced
      to
      its estimated fair value. Goodwill is no longer amortized and potential
      impairment of goodwill and purchased intangible assets with indefinite useful
      lives are evaluated using the specific guidance provided by SFAS No. 142 and
      SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
This impairment analysis is performed at least annually. For investments in
      affiliated companies that are not majority-owned or controlled, indicators
      or
      value generally include revenue growth, operating results, cash flows and other
      measures. Management then determines whether there has been a permanent
      impairment of value based upon events and circumstances that have occurred
      since
      acquisition. It is reasonably possible that the impairment factors evaluated
      by
      management will change in subsequent periods, given that the Company operates
      in
      a volatile environment. This could result in material impairment charges in
      future periods.




**NATURE
      OF THE OPERATIONS OF THE COMPANY**




**NATURE
      OF BUSINESS**




We
      were
      incorporated under the name of Hawksdale Financial Visions, Inc. (sometimes
      the
“Company”) on December 6, 1996 under the laws of the State of Nevada. We
      originally had intended to time share a single family dwelling house in the
      Rum
      Cay area of the Bahamas, offering a one-twelfth fractional interest. As at
      March
      31, 1997, all funds raised by the sale of shares of $.001 par value common
      stock
      (“Common Stock”) in order to fulfill our initial objective had been expended and
      we, thereafter, become dormant. From March 31, 1997 until January 28, 2005,
      we
      were in the developmental stage and had no operations and we could be defined
      as
      a “shell” company, an entity which is generally described as having no or
      nominal operations and with no or nominal assets or assets consisting solely
      of
      cash and cash equivalents.




On
      October 1, 2004, we formed a corporation under the laws of the State of Nevada
      called “Advanced Medical Institute Inc.” and on October 5, 2004, we acquired one
      hundred shares of its common stock for cash. On October 15, 2004, the subsidiary
      was merged with and into the Company and as a result of the merger, the
      Company’s corporate name was changed to “Advanced Medical Institute Inc.”




22




On
      January 28, 2005, we entered into a Share Exchange Agreement (the “Exchange
      Agreement”) with Advanced Medical Institute Pty Limited (since renamed AMI
      Australia Holdings Pty Limited), a privately owned Australian company (“AMI
      Australia”), and AMI Australia’s shareholders, (the “Shareholders”), pursuant to
      which the parties agreed that we would acquire all of the issued and outstanding
      shares of stock of AMI Australia in exchange for the issuance in the aggregate
      of 14,600,000, or 58.4%, of our then issued shares of Common Stock (the
“Shares”) to the Shareholders. On March 21, 2005, we closed the transaction and
      issued our Shares, resulting in us acquiring the business of AMI Australia
      (the
“Share Exchange”), which is discussed below. As used herein, the “Company” shall
      also mean AMI Australia and its subsidiaries after the close of the Share
      Exchange when used for events after March 21, 2005, described
      herein.




On
      November 17, 2005 (the “Second Closing Date”), we entered into a Share Exchange
      Agreement (the “Second Exchange Agreement”) with PE Patent Holdco Pty Limited, a
      privately owned Australian company (“PE Patent”), and PE’s shareholders, (the
“PE Shareholders”), pursuant to which we acquired all of the issued and
      outstanding shares of stock of PE Patent in exchange for the issuance in the
      aggregate of 5,000,000 of our Shares to the PE Shareholders. The issuance of
      our
      shares of common stock to the PE Shareholders was exempt from registration
      under
      the Securities Act pursuant to Section 4(2) and Regulation S. As used herein,
      the “Company” shall also mean PE Patent after the Second Closing Date when used
      for events after November 17, 2005, described herein. On November 22, 2005
      ownership of PE Patent was transferred by us to our wholly owned subsidiary
      AMI
      Australia Holdings Pty Limited.




On
      November 22, 2005 Advanced Medical Institute Pty Limited was renamed AMI
      Australia Holdings Pty Limited and a new wholly owned subsidiary of this entity
      was incorporated under the name Advanced Medical Institute Pty Limited.




On
      April
      18, 2006, the Company acquired the remaining 7% of Intelligent Medical
      Technologies Pty Limited (“IMT”) which was previously held by third parties in
      exchange for 1.26 million shares of the Company. These shares were subsequently
      transferred by the Company to AMI Australia. The issuance of our shares of
      common stock to the IMT Shareholders was exempt from registration under the
      Securities Act pursuant to Section 4(2) and Regulation S.




In
      2003,
      IMT was granted the exclusive worldwide right and license from Sheiman Ultasonic
      Research Foundation Pty Limited (“SURF”) to exploit and sub-license certain
      inventions, patents and other intellectual property in relation to certain
      ultrasonic nebulizer technology within the field of the treatment of sexual
      dysfunction in men and women (including impotence, premature ejaculation and
      the
      treatment of female sexual arousal disorders). Some of these patents expire
      in
      October 2013, with the remaining patents expiring around 2023. IMT’s license was
      a broad based license which included the right to manufacture, market, sell
      and
      distribute products based on the technology and patents within the field of
      use.




IMT
      also
      had the option to extend its field of use to the treatment of prostate diseases.
      IMT exercised its option to extend its field of use to include prostate diseases
      on July 15, 2006 and IMT “terminated” its license with SURF. The termination was
      because of SURF’s failure to deliver to the Company information concerning
      updates and advances on the technologies. The termination does not affect IMT’s
      rights to use the technology - the only effect is to terminate the royalty
      payment obligations to SURF under the license. As
      a
      result of terminating the license agreement, IMT retained the right to use
      the
      technology in its treatments to treat sexual dysfunction without paying
      royalties or other fees to SURF.




23






IMT
      applied for 4 worldwide patents relating to its ultrasonic nebulizer device
      in
      July 2005 and applied for 3 further worldwide patents relating to its device
      on
      February 10, 2006.




IMT
      acquired this license in order to develop an ultrasonic nebulizer to deliver
      medications to patients’ lungs for the treatment of sexual dysfunction as it
      believes that this delivery system will be more efficient and clinically
      effective than any other alternative treatment option and will reduce dosage
      levels and the likelihood of side effects.




IMT
      applied to list its nebulizer with the Therapeutic Goods Administration (the
      Australian functional equivalent of the FDA) in October 2006. IMT received
      comment letters from the TGA during March 2007 which requires it to provide
      further material in order to advance its application. IMT is in the process
      of
      dealing with the matters raised by the TGA and currently anticipates it will
      submit a revised application later this financial year.




On
      September 8, 2006, the Company entered into a Share Exchange Agreement with
      Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned
      Australian company (“Worldwide PE”), and Worldwide PE’s shareholders pursuant to
      which the Company acquired all of the issued and outstanding shares of stock
      of
      Worldwide PE in exchange for the payment of A$3 million (approximately $2.25
      million) and the issuance in the aggregate of 16,125,000 shares of the Company’s
      common stock valued at $1.00 per share.




The
      Company funded the cash component of the purchase price by AMI Australia
      entering into two secured three year term loans in the aggregate principal
      amount of AUD3 million (approximately $2.46 million) with ANZ Nominees Limited
      in its capacity as custodian of the Professional Pensions PST. The loan is
      secured by a security interest in all of AMI Australia’s assets and undertakings
      (including its existing equity interests in PE Patent Holdco Pty Limited,
      Intelligent Medical Technologies Pty Limited, Advanced Medical Institute (NZ)
      Limited and Whygo Video Conferencing Pty Limited). The loans accrue interest
      at
      an annual coupon of 450 basis points above the then Australian Reserve Bank’s
      current cash rate (currently being an aggregate current interest rate of
      11.25%). As at September 30, 2007 the principal of the loan had been reduced
      to
      AUD2.752 million (approximately $2.4 million) and as at November 1, 2007 the
      principal of the loan had been reduced to AUD2.702 million (approximately $2.4
      million).




The
      Company has been actively exploring international expansion and established
      subsidiaries in China and Japan in 2006.




The
      Chinese subsidiary, named Ai Te Wei (Beijing) Medicine Consulting Company (“AMI
      China”), is an indirect, wholly owned subsidiary of the Company and has formed
      an alliance with 2 Beijing hospitals for the purpose of establishing operations
      and conducting clinical trials for regulatory purposes. AMI China has obtained
      regulatory approval to its proposed advertisements and commenced operations
      on
      September 4, 2006. AMI China rents premises from these hospitals and has agreed
      to give persons associated with these hospitals a 20% share of profits from
      AMI
      China’s operations.




The
      Japanese subsidiary, named AMI Japan Kabushiki Gaisya (“AMI Japan”), is an
      indirect, 75% owned subsidiary of the Company. AMI Japan is also partly owned
      by
      a Japanese individual who has expertise in Japanese marketing and 2 financial
      investors. The Japanese subsidiary commenced operations on October 1, 2006.
      The
      Japanese investor received his shareholding in AMI Japan in consideration for
      assisting with the establishment of AMI Japan and in consideration for assisting
      with the marketing and management of AMI Japan.




The
      Company’s initial operations in China and Japan have not been as successful as
      the company anticipated and the Company has substantially reduced the nature
      and
      scope of its operations in China and Japan. The Company is investigating
      alternative marketing and distribution methods in each of China and Japan but
      intends to expend considerably less on these activities than it spent on its
      operations during the year ended June 30, 2007 until it establishes a successful
      sales and marketing platform for these markets.




24




On
      May 2,
      2007, Worldwide PE entered into an Option Agreement (the “Option”) with AMI
      Group Limited, a privately owned company registered in the United Kingdom (“AMI
      UK”). The Option grants AMI UK a right to enter into an exclusive license to use
      Worldwide PE’s intellectual property in the United Kingdom. AMI UK has paid
      Worldwide PE an upfront non-refundable fee of $50,000 to secure an initial
      period of four months to confirm the license which period may be extended for
      a
      further two months by AMI UK paying Worldwide PE a non-refundable extension
      fee
      of $50,000. During this initial six month period, AMI UK may elect to enter
      into
      a License Agreement (the “License”) by paying Worldwide PE an upfront
      non-refundable license fee of $1 million less the upfront fees paid to Worldwide
      PE prior to that date. Terms of the Option and the License have been disclosed
      by the Company on its Current Report on Form 8-K filed with the Securities
      and
      Exchange Commission (the “SEC”) on May 3, 2007.




On
      September 4, 2007 AMI UK exercised its right to extend the option period and
      paid an extension fee of $50,000. Worldwide PE agreed to vary this extension
      period to four months rather than two months.




General
      Business Plan




AMI
      Australia is a company incorporated and domiciled in Australia. AMI Australia
      was established in February 2001 when it entered into an agreement with Health
      Services for Men and Australian Momentum Health to acquire two chains of medical
      clinics and sales offices which provided services relating to the medical
      treatment of sexual dysfunction. The principal activity of AMI Australia
      continues to be the sale of services relating to the medical treatment of sexual
      dysfunction in Australia, New Zealand and Asia, however, AMI Australia also
      provides prostate treatments to patients. For the first quarter ended September
      30, 2007, AMI Australia’s revenues were approximately $11.2
      million.




AMI
      Australia operates a centralized call center and twenty clinics and sales
      offices throughout Australia and New Zealand. AMI Australia operates two clinics
      in Beijing, China and one medical center in Tokyo, Japan as well as having
      an
      informal alliance with 3 other medical centers in Osaka, Nagoya and
      Okinawa.




AMI
      Australia is a service provider company which arranges for male patients in
      Australia, New Zealand, China and Japan with sexual dysfunction and prostate
      problems to be provided with medical services, pharmaceuticals and associated
      clinical support services. Its treatment options include:




(a)  injections,
      lozenges, tablets and nasal spray program options for the treatment of erectile
      dysfunction;




(b)  injections,
      lozenges and nasal spray program options for the treatment of premature
      ejaculation; and




(c)  an
      oral
      elixir program for the treatment of prostate problems.




AMI
      Australia changed its marketing focus during fiscal 2005 to target the broader
      market for its premature ejaculation treatments while continuing to offer and
      separately market erectile dysfunction treatments. AMI Australia’s concentration
      on sales within the market for those treatments has expanded our revenue base.
      Prior to this time, AMI Australia did not directly advertise or market its
      premature ejaculation treatments and its sole focus had been on the erectile
      dysfunction market. AMI Australia’s erectile dysfunction treatments
      predominantly focus on men age 40 and over whereas AMI Australia’s premature
      ejaculation treatments are targeted at a market that includes men from age
      18
      and over.




25




During
      September 2006, the Company launched AMI SCI, a not-for-profit, indirect wholly
      owned subsidiary of the Company which aims to provide specialized sexual
      dysfunction treatments to spinal cord victims in Australia.




Each
      of
      AMI Australia's treatments are prescribed by licensed Australian, New Zealand,
      Chinese and Japanese doctors and prepared and delivered by an Australian, New
      Zealand, Chinese or Japanese compounding pharmacy in full compliance with the
      relevant regulatory requirements. AMI Australia's products and services are
      only
      available by prescription and are sold on an "off-label" basis. AMI Australia's
      treatments are generally available in the same manner through both its medical
      clinics and sales offices or through its over-the-phone sales and marketing
      program.




Since
      August 1, 2003, AMI Australia has used in its business certain intellectual
      property owned by PE Patent on a royalty free oral license. PE Patent became
      a
      wholly owned subsidiary through a Share Exchange Agreement on November 17,
      2005
      and subsequently became a wholly owned subsidiary of AMI Australia on November
      22, 2005. These transactions are more fully described in the section entitled
      “Introduction” above. This intellectual property consists solely of the rights
      to use the relevant medical formulations in Australia, an Australian innovation
      patent for AMI Australia’s premature ejaculation treatments (Australian
      Innovation Patent No 2005100183, which is due to expire on July 9, 2012) and
      an
      Australian standard patent application (Australian standard patent application
      No. 2004222783).




The
      Australian innovation patent was issued to Dr. Jack Vaisman, the Chief Executive
      Officer, President and Chairman of the Board of Directors of the Company and
      the
      Founder, President and Chief Executive Officer of AMI Australia, who on July
      22,
      2005 transferred the patent to PE Patent, which is now a wholly owned subsidiary
      of AMI Australia. The development of the intellectual property underlying the
      patents and patent applications was originally undertaken and funded by Dr.
      Vaisman. The innovation patent, titled “Treatment of Premature Ejaculation”
relates to various methods of treatment delivery via nasal (mucosal) inhalation
      and topical application of certain formulations which are used in AMI
      Australia’s treatments for premature ejaculation. The patents and associated
      formulations are integral to AMI Australia’s premature ejaculation
      treatments.




AMI
      Australia’s nasal spray, injection, lozenge and tablet erectile dysfunction
      treatments are not patent protected. This technology was developed by AMI
      Australia and its founder, Dr Jack Vaisman, and in connection with predecessor
      businesses during the last 14 years.




AMI
      Australia obtains customers through direct advertising and marketing and through
      its existing customer database which exceeds 300,000 people.




Each
      of
      the individual medications used in our compound formulations are fully approved
      by the Australian Therapeutic Goods Administration (“TGA”) and the New Zealand Medicines
      and Medical Devices Safety Authority (“NZ
      DSA”). Our compound formulations have not been subject to a clinical trial
      program and have not been approved for use by the TGA or NZ DSA for
      over-the-counter sale, but may lawfully be prescribed by accredited medical
      practitioners on an individual prescription basis in Australia and New
      Zealand.




As
      part
      of its treatments, AMI Australia arranges for a fully licensed
      Australian , New
      Zealand, Chinese and Japan pharmacy to fill its patients’ individual
      prescriptions and supply medications to those patients.




26




AMI
      Australia’s wholly-owned subsidiary, Intelligent Medical Technologies Pty
      Limited (“IMT”) was granted the exclusive worldwide right and license from
      Sheiman Ultrasonic Research Foundation Pty Limited (“SURF”) to exploit and
      sub-license certain inventions, patents and other intellectual property in
      relation to certain ultrasonic nebulizer technology (including Australian Patent
      No’s 693064 and 753817, European Patent No’s 0 705 145 and 1 071 479 and US
      Patent No’s 5,908,158 and 6,379,616) within the field of the treatment of sexual
      dysfunction in men and women (including impotence, premature ejaculation and
      the
      treatment of female sexual arousal disorders). Some of these patents expire
      in
      October 2013, with the remaining patents expiring around 2023.




IMT’s
      license was a broad based license which included the right to manufacture,
      market, sell and distribute products based on the technology and patents within
      the field of use. IMT also had the option to extend its field of use to the
      treatment of prostate diseases. IMT exercised its option to extend its field
      of
      use to include prostate diseases on July 15, 2006 and IMT “terminated” its
      license with SURF. The termination was because of SURF’s failure to deliver to
      the Company information concerning updates and advances on the technologies.
      The
      termination does not affect the Company’s rights to use the technology - the
      only effect is to terminate the royalty payment obligations to SURF under the
      license. As
      a
      result of terminating the license agreement, IMT retained the right to use
      the
      technology in its treatments to treat sexual dysfunction without paying
      royalties or other fees to SURF.




IMT
      applied for four patents in various countries throughout the world relating
      to
      its ultrasonic nebulizer device in July 2005 and applied for three additional
      patents relating to its device in February 2006. On April 18, 2006, AMI
      Australia acquired the remaining 7% of the outstanding shares of IMT, making
      it
      a wholly owned subsidiary of AMI Australia.




IMT
      acquired its right to use the SURF technology in order to develop an ultrasonic
      nebulizer to deliver medications to patients’ lungs for the treatment of sexual
      dysfunction as it believes that this delivery system will be more efficient
      and
      clinically effective than any other alternative treatment option and will reduce
      dosage levels and the likelihood of side effects.




IMT
      applied to list its nebulizer with the Therapeutic Goods Administration (the
      Australian functional equivalent of the FDA) in October 2006. IMT received
      comment letters from the TGA during March 2007 which requires it to provide
      further material in order to advance its application. IMT is in the process
      of
      dealing with the matters raised by the TGA and currently anticipates it will
      submit a revised application later this financial year.




IMT
      intends to commence a voluntary pharmacokinetic clinical trial in Australia
      of a
      liquid form of a well known medication for the treatment of erectile dysfunction
      which is capable of being delivered through the nebulizer device in order to
      evidence the effectiveness of the nebulizer in delivering medications during
      this calendar year. This study is designed
      to test the efficacy of using its patent protected ultrasonic nebulizer device
      to deliver drugs used in the treatment of sexual dysfunction. In
      April,
      2006 IMT received
      approval from the Queensland Institute of Medical Research Human Research Ethics
      Committee to
      conduct this clinical trial and plans to conduct the trial at the direction
      of
      and under analysis by Q-Pharm, the commercial arm of a leading Australian
      university. IMT estimates the cost of this clinical trial to be approximately
      $180,000.




IMT
      has
      been spending a part of its capital on research and development activities
      with
      financial support from AMI Australia (approximately USD182,000 during fiscal
      2007). IMT has compiled a team of experts to assist it with these research
      and
      development activities. AMI Australia has entered into a distribution agreement
      with IMT whereby AMI Australia has the exclusive worldwide distribution rights
      of the technology for sexual dysfunction treatments and is entitled to use
      any
      innovations, including those that are in a non-sexual dysfunction field,
      developed by it as a result of its research and development in connection with
      its nebulizer device. As at June 30, 2007, the IMT research and development
      into
      the efficacy of the nebulizer is still in a development stage and there has
      been
      no income generated by AMI Australia as a result of its agreement with
      IMT.




27





On
      September 8, 2006, the Company entered into a Share Exchange Agreement with
      Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned
      Australian company (“Worldwide PE”), and Worldwide PE’s shareholders pursuant to
      which the Company acquired all of the issued and outstanding shares of stock
      of
      Worldwide PE in exchange for the payment of AUD3 million (approximately USD2.46
      million) and the issuance in the aggregate of 16,125,000 shares of the Company’s
      common stock valued at $1.00 per share. The Company funded the cash component
      of
      the purchase price by AMI Australia entering into two secured three year term
      loans in the aggregate principal amount of AUD3 million with ANZ Nominees
      Limited in its capacity as custodian of the Professional Pensions PST. The
      loan
      is secured by a security interest in all of AMI Australia’s assets and
      undertakings (including its existing equity interests in PE Patent Holdco Pty
      Limited, Intelligent Medical Technologies Pty Limited, Advanced Medical
      Institute (NZ) Limited and Whygo Video Conferencing Pty Limited). The loans
      accrue interest at an annual coupon of 450 basis points above the then
      Australian Reserve Bank’s current cash rate (currently being an aggregate
      current interest rate of 11.25%). As at June 30, 2007 the principal of the
      loan
      had been reduced to AUD2.825 million (approximately USD2.4 million) and as
      at
      October 5, 2007 the principal of the loan had been reduced to AUD2.726 million
      (approximately USD2.32 million).




On
      February 12, 2007, the Company entered into a written agreement with the
      Heartcheck Group of companies for an indefinite term, which can be terminated
      at
      any time with not less than twelve months written notice. Under the agreement,
      Heartcheck agrees to utilize services provided by the Company, including the
      provision of staff and premises. In exchange for these services, Heartcheck
      has
      agreed to reimburse the Company for all expenses associated with the provision
      of these services and to pay the company a net margin on those expenses.
      Heartcheck is independently owned from the Company, its subsidiaries and its
      affiliates and it operates a business of providing cardiac related medical
      services in Australia.




Competition





We
      compete with rival treatments such as Viagra, Cialis and Levitra in the erectile
      dysfunction field. AMI Australia does not currently have any major competitors
      in the premature ejaculation market in Australia and New Zealand.





Companies
      of all sizes are engaged in the development and commercialization of
      technologies in the erectile dysfunction and premature ejaculation market
      segments. Currently, no known alternate premature ejaculation technology similar
      to ours has been commercialized in our primary territories. Competition is
      intense in the erectile dysfunction segment of our business and includes many
      large and small competitors who have greater revenue, more customers and higher
      levels of brand recognition than AMI Australia. The efficacy, safety, patients’
and customers’ ease of use and cost effectiveness of our products are important
      factors for success in our principal businesses. Many of our competitors have
      substantially greater financial and other resources, larger research and
      development staffs and more experience in the regulatory approval process.
      Moreover, potential competitors have or may have intellectual property or other
      rights that conflict with patents, license agreements and other intellectual
      property rights covering our technologies .





Staff





As
      of
      September 30, 2007, the Company and its operating subsidiaries had a total
      staff
      of approximately 281 people, of which 210 are full-time and 71 are part-time
      staff, working in the areas of sales and marketing, customer support, product
      development and back office functions. The Company’s staff includes 26
      independent consultants and 48 licensed medical personnel. None of the Company’s
      employees are members of a union or labor organization.




28




None
      of
      AMI Australia’s subsidiaries have any employees except Whygo which has 3
      full-time employees and 1 part-time employee, AMI NZ which has 1 full-time
      employee and 2 part time employee, AMI China which has 12 full-time employees
      and AMI Japan which has 3 full-time employees and 1 part-time employee.




The
      Company’s core staff includes:




DR.
      JACOV
      (JACK) VAISMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR - Dr. Vaisman
      has served as the Company’s Chief Executive Officer, President and as a Director
      since March 21, 2005. Dr. Vaisman is a pioneer in the sexual dysfunction
      business in Australia. Since 2001, he has served as the managing director and
      chief executive officer of AMI Australia. He is responsible for the overall
      management and strategic direction of AMI Australia’s impotency operations. Dr.
      Vaisman is also currently a consultant to and shareholder in Yayasan On Clinic,
      which operates a similar business in Indonesia. From 1993 through 2001, Dr.
      Vaisman was the founder and director of On Clinic International in Australia,
      the predecessor company to AMI Australia. The holder of a Bachelor of Medicine,
      a Master of Gynecology and a PhD in Medical Science, Dr. Vaisman has more than
      35 years of experience and expertise in the field of sexual health care
      provision and was recently granted an innovation patent in the field of
      premature ejaculation treatment by the Australian patent office.




DILIP
      SHRESTHA, CHIEF FINANCIAL OFFICER - Mr. Shrestha was appointed as the Company’s
      Chief Financial Officer on April 7, 2005. Mr. Shrestha has also served as the
      chief financial officer of AMI Australia since July 1, 2005. From 2001 to July
      1, 2005, Mr. Shrestha was the Financial Controller of AMI Australia. Prior
      to
      that he was an Assistant Accountant, a position held from 1999 until 2001,
      with
      Australian Momentum Health Pty Ltd, one of two medical establishments leading
      in
      providing impotency treatment in Australia and a predecessor company to AMI
      Australia. Mr. Shrestha holds a Bachelor of Business Accounting, Master of
      E-Commerce and a Graduate Diploma of Information System and E-Commerce and
      is a
      fully qualified certified practicing accountant in Australia.




FORHAD
      (TONY) KHAN, EXECUTIVE VICE PRESIDENT, SECRETARY AND DIRECTOR - Mr. Khan has
      served as the Company’s Executive Vice President since July 30, 2005, he has
      been the Company’s Secretary and a Director since March 21, 2005. Mr. Khan also
      served as the Chief Operating Officer of AMI Australia since July 1, 2005.
      From
      2001 to July 1, 2005, Mr. Khan was the General Manager of AMI Australia. Prior
      to joining AMI Australia, Mr. Khan was the Director and sole operator of
      Australian Momentum Health Pty Ltd (“AMH”). Mr. Khan was Sales Manager and then
      Operations Manager for On Clinic International prior to establishing AMH. Mr.
      Khan holds a Masters degree in Commerce and Accounting and has been involved
      in
      the industry for over ten years.





Currency
      Conversion




As
      of
      September 30, 2007 and 2006, the accounts of AMI Australia were maintained,
      and
      its financial statements were expressed, in Australian Dollars (AUD). Such
      financial statements were translated into US Dollars (USD) in accordance with
      Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency
      Translation”, with the AUD as the functional currency. According to the
      Statement, all assets and liabilities were translated at the exchange rate
      (AUD1
      = USD0.88840) as of September 30, 2007, stockholder’s equity are translated at
      the historical rates and income statement items are translated at the
      weighted-average exchange rate for the period. The resulting translation
      adjustments are reported under other comprehensive income in accordance with
      SFAS No. 130, “Reporting Comprehensive Income”.




29





The
      following table sets forth, for the periods indicated, certain operating
      information expressed as a percentage of revenue:





Result
      of operations:





**Three
                Months ended September 30,**
            
            **Three
                Months ended September 30,****2007**
            
            **2006**Revenue
            
            
            100
            %
            
            100
            %Cost
                of revenue
            
            
            23.3
            %
            
            22.7
            %Gross
                profit
            
            
            76.7
            %
            
            77.3
            %Selling,
                general and administrative expenses
            
            
            75.1
            %
            
            70.0
            %Other
                income and expenses
            
            
            (0.3
            %)
            
            2.1
            %Income
                before income tax
            
            
            1.3
            %
            
            9.4
            %Income
                tax expenses
            
            
            1.9
            %
            
            4.2
            %Net
                income
            
            
            (0.5
            %)
            
            5.2
            %




**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      of
      September 30, 2007, we had total liabilities of $16,306,930 including unearned
      revenue of $5,212,243 and we had a positive net worth of $29,868,770. Our total
      liabilities as at September 30, 2007 included approximately $2.5 million in
      non-current debt and $1.64 million in deferred tax liabilities, leaving a
      balance of approximately $7 million of current liabilities (other than deferred
      revenue). These current liabilities are typically due within 30 to 90 days.
      As
      of June 30, 2007, we had total liabilities of $15,245,338 including unearned
      revenue of $5,101,288 and we had a positive net worth of
      $28,678,386.  As
      at our
      fiscal year ended June 30, 2006, we had total liabilities of $9,561,389
      including unearned revenue of $3,887,052 and we had a positive net worth of
      $10,497,919. As of September 30, 2006, we had total liabilities of $13,182,052
      including unearned revenue of $4,427,030 and we had a positive net worth of
      $27,289,029.




Our
      aggregate cash balances as at September 30, 2007 were $1,089,472, our inventory
      was $272,780 and our net receivables were approximately $13.7 million. These
      receivables are due on average within 90-180 days. We forecast that we will
      be
      able to generate sufficient funds from our business in order to fund our
      operations in the ordinary course during the next 12 months. Management has
      expanded our business into China and Japan and is considering further
      international expansion through either establishing new sales clinic operations
      or by licensing the intellectual property for use in territories in which we
      do
      not have clinics such as our recent entry into an Option Agreement with AMI
      UK
      to license our intellectual property for the United Kingdom. Income of $14,384
      that was generated from Heartcheck is also expected to be reinvested into the
      Company to contribute to our ongoing working capital needs.




The
      Company borrowed AUD3 million from ANZ Nominees Limited in its capacity as
      custodian of the Professional Pensions PST. The loan is secured by a security
      interest in all of AMI Australia’s assets and undertakings (including its
      existing equity interests in PE Patent Holdco Pty Limited, Intelligent Medical
      Technologies Pty Limited, Advanced Medical Institute (NZ) Limited and Whygo
      Video Conferencing Pty Limited). The loans accrue interest at an annual coupon
      of 450 basis points above the then Australian Reserve Bank’s current cash rate
      (currently being an aggregate current interest rate of 11.25%). As at September
      30, 2007 the principal of the loan had been reduced to AUD2.752 million
      (approximately $2.4 million) and as at November 1, 2007 the principal of the
      loan had been reduced to AUD2.702 million (approximately $2.4 million). This
      loan is currently due to be repaid in September 2009.




30




In
      the
      event that we continue to expand our business, we may need to raise additional
      debt or equity funding in order to undertake such expansion. However, there
      can
      be no assurance that we can or will obtain sufficient funds from operations
      or
      from additional financings on terms acceptable to us. If we are unable to obtain
      sufficient additional financing, we may not be able to expand our operations
      as
      considered or we could be required to reduce spending and operations.





**THREE
      MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
      2006**




*REVENUE* .
      Revenue
      was $11,208,507 in the three months ended September 30, 2007 compared to
      $10,403,670 in the three months ended September 30, 2006. Compared to the same
      period in the previous year, there is an increase of $804,837 or 7.7% in the
      three months ended September 30, 2007. The increase in revenue during the
      three-month period is attributable to exchange rate movements. Revenue was
      A$13,195,328 in the three months ended September 30, 2007 compared to
      A$13,691,201 in the prior corresponding period with the increase due to
      significant movements in the A$:US$ exchange rate conversion from Australian
      Dollars to U.S. Dollars resulting in the reporting of revenue. Revenue was
      fairly constant in Australian dollar terms.





In
      addition, our unearned revenue in the three months ending September 30, 2007
      increased by $110,955 to $5,212,243 compared to an increase of $539,978 to
      $4,427,030 in the three months ending September 30, 2006. The gross increase
      in
      unearned revenue from the three months ended September, 2006 to the quarter
      ended September 30, 2007 was $785,213, or an increase of 17.7%. Our unearned
      revenue in the three months ending September 30, 2006 increased by $539,978
      to
      $4,427,030. The increase in revenue during the three-month period is
      attributable to exchange rate movements.




Revenue
      in AMI Australia’s PE treatments has decreased by $680,079 or 12.1% to
      $4,929,545 and revenue in AMI Australia’s ED treatments has increased by
      $1,182,203 or 28.5% to $5,328,493 in the three months ending September 30,
      2007,
      compared to the three months ending September 30, 2006. The number of patients
      in AMI Australia’s PE treatments decreased by 9% and ED treatments increased by
      27% compared to the three months ending September 30, 2006. We attribute the
      decrease in revenue in our PE treatments and the increase in revenue in our
      ED
      treatments to a partial shift in focus in our advertising with increased
      targeting of marketing to the ED segment of the market. Revenue in AMI
      Australia’s prostate treatments has increased by $209,504 or 56.1% to $583,186
      in the three months ending September 30, 2007, compared to the three months
      ending September 30, 2006. We attribute the increase in revenue in our prostate
      treatments to increased awareness and advertising of those treatments. The
      number of patients in AMI Australia’s prostate treatments increased by 18.6%
      compared to the three months ending September 30, 2006.


Revenue
      in our Australian operations was $10,889,197 in the three months ended September
      30, 2007 compared to $9,977,423 in the three months ended September 30, 2006.
      Compared to the same period in previous year, there is an increase of $911,774
      or 9.1% in the three months ended September 30, 2007. We attribute this increase
      to exchange rate movements. Revenue was fairly constant in Australian dollar
      terms.





Revenue
      in our New Zealand operations was $284,658 in the three months ended September
      30, 2007 compared to $426,247 in the three months ended September 30, 2006.
      The
      decrease of $141,589 or 33.2% in revenue in the three months ended September
      30,
      2007 is primarily attributable to the decrease in the number of patients buying
      treatments from us during the three months ended September 30, 2007 than in
      the
      same period in 2006.




31





Revenue
      in our Chinese operations was $7,207 in the three months ended September 30,
      2007 compared to zero during the three months ended September 30, 2006. The
      China operation (AMI China) started to operate on September 4, 2006 and no
      income was generated during the three months ended September 30,
      2006.





Revenue
      in our Japanese operations was $27,446 in the three months ended September
      30,
      2007 compared to zero during the three months ended September 30, 2006. The
      Japan operation (AMI Japan) was established on October 1, 2006 and no income
      was
      generated during the three months ended September 30, 2006.




***COST
      OF REVENUE*** **.** Cost of
      revenue was $2,612,183 in the three months ended September 30, 2007 compared
      to
      $2,365,582 in the three months ended September 30, 2006. The increase in cost
      of
      revenue was attributable to an increase in the staff cost incurred by AMI
      Australia. As a percentage of revenue, cost of revenue was 23.3% in the three
      months ended September 30, 2007 compared to 22.7% in the three months ended
      September 30, 2006. The increase in cost of revenue percentage by 0.6% in the
      three months ended September 30, 2007 is primarily attributable to the growth
      in
      AMI Australia’s revenue being smaller than the growth in staff costs necessary
      to service the treatments resulting from that increased revenue.




***GROSS
      PROFIT.*** Gross
      profit was $8,596,324 in the three months ended September 30, 2007 compared
      to
      $8,038,088 in the three months ended September 30, 2006. As a percentage of
      revenue, gross profit decreased to 76.7% in the three months ended September
      30,
      2007 from 77.3% in the three months ended September 30, 2006. The 1.2% decrease
      in the gross profit percentage in the three months ended September 30 2007
      is
      primarily attributable to the increase in total costs being more than the
      increase in total revenue.




***SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES*** **.** Selling,
      general and administrative expenses were $8,417,952 in the three months ended
      September 30, 2007 compared to $7,285,713 in the three months ended September
      30, 2006. As a percentage of revenue, selling, general and administrative
      expenses increased to 75.1% in the three months ended September 30, 2007 from
      70.0% in the three months ended September 30, 2006. The principal reason for
      the
      increase of 5.1% in the three months ended September 30, 2007 is due to the
      conversion rate of calls resulting in paying customers in the Company’s call
      centre fell slightly during the period requiring additional advertising
      expenditures to be incurred to maintain the same booking levels. Other reasons
      for this change were increased patent amortization expenses and increased
      expenditure in China and Japan compared to the prior period.




Selling,
      general and administrative expenses in our Chinese operations were $172,073
      in
      the three months ended September 30, 2007 compared to $266,045 **** in
      the
      three months ended September 30, 2006. Major expenses incurred were staff costs
      and advertising expenses.




Selling,
      general and administrative expenses in our Japanese operations were $295,888
      in
      the three months ended September 30, 2007 compared to $138,880 **** in
      the
      three months ended September 30, 2006. Major expenses incurred were staff costs
      and advertising expenses.




***OTHER
      INCOME AND EXPENSES*** **.** Other
      income and expenses were ($29,699) in the three months ended September 30,
      2007
      compared to $229,919 in the three months ended September 30, 2006. As a
      percentage of revenue, other income and expenses decreased to (0.3%) in the
      three months ended September 30, 2007 from 2.1% in the three months ended
      September 30, 2006. The decrease in the three months ended September 30, 2007
      is
      due to the decrease in the income received by the Company from Heart Check
      and
      the interest arising from the Company’s secured long term loan.




***NET
      INCOME (LOSS) BEFORE INCOME TAX AND INCOME TAX
      EXPENSES*** **.**




Income
      before income tax was $148,673 in the three months ended September 30, 2007
      compared to $982,294 in the three months ended September 30, 2006. This decrease
      in the three months ended September 30, 2007 compared to the three months ended
      September 30, 2006 was attributable to losses in the Company’s Japan and China
      operations, non-cash expenses arising from the amortization of the Company’s
      intellectual property, additional advertising expenditures required to maintain
      the same level of bookings and a significant decrease in the Company’s other
      income and expenses.




32




Income
      tax expenses were $210,210 in the three months ended September 30, 2007 compared
      to $440,603 in the three months ended September 30, 2006. As a percentage of
      revenue, income tax expense decreased to 1.9% in the three months ended
      September 30, 2007 from 4.2% in the three months ended September 30, 2006 which
      is attributable to the decreasing profitability of the Company.




The
      Company’s income (loss) before income tax during the three most recent fiscal
      quarters were $485,132 (December 31, 2006), ($716,814) (March 31, 2007) and
      ($1,301,443) (June 30, 2007). The result in this quarter is an improvement
      on
      the performance during the last two quarters with the improvement being due
      principally to a reduction in the Company’s losses in its China and Japan
      operations, though the result in the quarter ended June 30, 2007 was also
      affected by an impairment in the carrying value for the Company’s intellectual
      property.




***NET
      INCOME (LOSS)*** **.** Net
      income (loss) was ($61,537) in the three months ended September 30, 2007
      compared to $541,691 in the three months ended September 30, 2006. This decrease
      the three months ended September 30, 2007 compared to the three months ended
      September 30, 2006 is attributable to losses in the Company’s Japan and China
      operations, non-cash expenses arising from the amortization of the Company’s
      intellectual property, additional advertising expenditure needing to be incurred
      to maintain the same level of bookings and a significant decrease in the
      Company’s other income and expenses.




The
      Company’s net income (loss) during the three most recent fiscal quarters were
      $96,020 (December 31, 2006), ($722,651) (March 31, 2007) and ($1,235,582) (June
      30, 2007). The result in this quarter is an improvement on the performance
      during the last two quarters with the improvement being due principally to
      a
      reduction in the Company’s losses in its China and Japan operations, though the
      result in the quarter ended June 30, 2007 was also affected by an impairment
      in
      the carrying value for the Company’s intellectual property.





Net
      income in our Australian operations was $432,042 in the three months ended
      September 30, 2007 compared to $981,118 **** in
      the
      three months ended September 30, 2006. The decrease in the three months ended
      September 30, 2007 compared to the three months ended September 30, 2006 is
      primarily attributable to patent amortization expenses as well as a significant
      decrease in the Company’s other income and expenses.





Net
      loss
      in our New Zealand operations was ($25,624) in the three months ended September
      30, 2007 compared to $123,517 in the three months ended September 30, 2006.
      The
      decrease in the three months ended September 30, 2007 compared to the three
      months ended September 30, 2006 is attributable to a decline in customer
      numbers.





Net
      loss
      in our Chinese operations was ($164,955) in the three months ended September
      30,
      2007 compared to ($317,853) **** in
      the
      three months ended September 30, 2006 and zero in the three months ended
      September 30, 2005. The decrease in the three months ended September 30, 2007
      compared to the three months ended September 30, 2006 is because we have reduced
      the size of our investment and expenditure into our China
      operations.





Net
      loss
      in our Japanese operations was ($268,155) in the three months ended September
      30, 2007 compared to ($138,880) in the three months ended September 30, 2006.
      The principal reason for the increase is because the Japanese operation was
      not
      fully operationally during the three months ended September 30,
      2006.




33





The
      above
      discussions of results exclude those entities which have no or what management
      deems insignificant operations.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a material current or future effect on our financial condition, changes
      in
      financial condition, revenues or expenses, results of operations, liquidity,
      capital expenditures or capital resources.




34




**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





We
      may be
      exposed to changes in financial market conditions in the normal course of
      business. Market risk generally represents the risk that losses may occur as
      a
      result of movements in interest rates and equity prices. We currently do not
      use
      financial instruments in the normal course of business that are subject to
      changes in financial market conditions.





***Currency
      Fluctuations and Foreign Currency Risk***





The
      majority of our operations are conducted in Australia, except for small parts
      of
      our operations which are located in New Zealand, the United Kingdom, China
      and
      Japan. Most of our sales and purchases are conducted within Australia in
      Australian Dollars. Hence, the effect of fluctuations of exchange rate is
      considered minimal to our business operations as the vast majority of both
      our
      revenues and expenses are denominated in Australian dollars, which is the
      official currency of Australia.





The
      Company does, however, use United States dollars for financial reporting
      purposes. Conversion of Australian Dollars into foreign currencies is regulated
      by the Reserve Bank of Australia through a unified floating exchange rate
      system. Although the Australian government has stated its intention to support
      the value of the Australian Dollar, there can be no assurance that such exchange
      rate will not become volatile or that the Australian Dollar will not devalue
      significantly against the US dollar. Exchange rate fluctuations may adversely
      affect the value, in US dollar terms, of the Company’s net assets and income
      derived from its operations in Australia. In this respect we note that the
      Australian dollar has strengthened significantly against the United States
      dollar over the last 3 to 6 months.





***Interest
      Rate Risk***





Our
      long
      term debt is subject to a variable interest rate. The interest rate applicable
      to that debt has increased from 10.5% in September 2006 (when the facility
      commenced) to 11.25% now due to 3 increases in the official Australian
      government interest rate which the rate is based on. Market commentary suggests
      that further increases in this interest rate by 0.25% to 0.5% are likely in
      the
      short to medium term.





***Credit
      Risk***





Our
      receivables are consumer based with a broad spread of concentration with average
      receivable size less than $1,500. The Company has made significant provisions
      against our receivables in line with historical collection levels. Our
      receivables are regularly monitored by our credit manager.




35




**ITEM
      4.**  **CONTROLS
      AND PROCEDURES**




*Disclosure
      Controls and Procedures*




Under
      the
      supervision and with the participation of our management, including our chief
      executive officer and the chief financial officer, we conducted an evaluation
      of
      the effectiveness of the design and operation of our disclosure controls and
      procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, as of September 30, 2007, the end of the period covered
      by
      this report (the “Evaluation Date”). Based on this evaluation, our chief
      executive officer and chief financial officer concluded as of the Evaluation
      Date that our disclosure controls and procedures were effective such that the
      material information required to be included in our Securities and Exchange
      Commission (“SEC”) reports is recorded, processed, summarized and reported
      within the time periods specified in SEC rules and forms relating to us and
      our
      consolidated subsidiaries, and was made known to others within those entities,
      particularly during the period when this report was being prepared.




*Changes
      in internal controls over financial reporting*




There
      were no significant changes in our internal controls over financial reporting
      (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
      Act
      of 1934) during the three months ended September 30, 2007 that have materially
      affected, or are reasonably likely to materially affect, the Company’s internal
      control over financial reporting.




36




**PART
      I -** **OTHER
      INFORMATION** ****




**ITEM
      1.** **LEGAL
      PROCEEDINGS.** ****




None.




**ITEM
      1A.**  **RISK
      FACTORS**




There
      have been no material changes in our business, operations or prospects that
      would require a change to the Risk Factor disclosure included in our most recent
      Annual Report on Form 10-KSB for the year ended June 30, 2007 that have not
      already been disclosed.




**ITEM
      2.** **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**




None.




**ITEM
      3.** **DEFAULTS
      UPON SENIOR SECURITIES.**




None.




**ITEM
      4.** **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.** ****





None.




**ITEM
      5.** **OTHER
      INFORMATION.**




There
      have been no material changes to the procedures by which security holders may
      recommend nominees to the Company’s board of directors.




37




**ITEM
      6.** **EXHIBITS.** ****




The
      following exhibits are filed as part of this report:




**Exhibit
                Number**
            
            **Description**31.1
            
            Certification
                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer and the Chief Financial Officer Pursuant
                to 18
                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
                2002).


38




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**ADVANCED
                MEDICAL INSTITUTE INC.**Date:
                November 14, 2007
            By:
            /s/ Jacov
              (Jack) VaismanJacov
                (Jack) Vaisman
              Chief
                Executive Officer




Date:
                  November 14, 2007
            By:
            /s/ Dilip ShresthaDilip
                Shrestha
              Chief
                Financial Officer




39