UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                 FORM 10-KSB

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

       For the Fiscal Year ended:  December 31, 2006

       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
       OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from: _____ to ____

                        Commission File No. 333-120688

                             AMERICAN TONERSERV CORP.
                ----------------------------------------------
                (Name of Small Business Issuer in its Charter)

            Delaware                                       33-0686105
-------------------------------                    -----------------------
(State or Other Jurisdiction of                    (I.R.S. Employer Identi-
Incorporation or Organization)                         fication No.)


             475 Aviation Blvd. Suite 100, Santa Rosa, Ca 95403
          ------------------------------------------------------------
          (Address of Principal Executive Offices, Including Zip Code)

                  Issuer's Telephone Number:  (800) 736-3515

Securities Registered Pursuant to Section 12(b) of the Act:  None.

Securities Registered Pursuant to Section 12(g) of the Act:  None.

Check whether the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. [ ]

Note - Checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.

Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

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

State issuer's revenues for its most recent fiscal year:  $456,433.

As of March 9, 2007, 23,171,510 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by non-
affiliates on that date was approximately $2,196,775.

Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]

Documents incorporated by reference: None.



                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

OVERVIEW

     American TonerServ Corp. (the "Company," "ATS," "we," or "us") was
founded as a Delaware corporation in 1995 and are headquartered in Santa
Rosa, California. We were originally incorporated under the name "Manage
Maintenance Systems, Inc." and on November 13, 1995 we amended our
Certificate of Incorporation to change our name to "Q MATRIX, Inc."  On
January 3, 2005, we amended our certificate of incorporation to change our
name to "American TonerServ Corp."

     After our incorporation in 1995 we merged with Critical Systems
Management, Inc. (CSMI) in December 1995.  CSMI was in the business of
repairing and maintaining office equipment.  After the merger, we commenced
operating in the office equipment and repair business in Phoenix, Arizona.
We began by offering agreements to small and mid sized businesses to provide
service for their office equipment for specific periods of time.

     On August 12, 2005, we became a reporting company under the federal
securities laws. On February 14, 2006 our common stock was accepted for
quotation on the OTC Bulletin Board. Our trading symbol is currently "ASVP."

     On March 16, 2006, we effected a one for one hundred (1 for 100) reverse
split of the outstanding shares of our common stock. Effective August 21,
2006, we effected a ten for one (ten shares for one exist1ng share) forward
stock split of the outstanding shares of our common stock.  All numbers of
shares and per share amounts in this report have been adjusted to give effect
to the reverse and forward splits, unless otherwise stated.

     On July 5, 2006, the Company acquired the customer list of Computech
Printer Solutions, Inc ("Computech"). Computech has been engaged in the
distribution of remanufactured laser toner cartridges, primarily to business
customers.  The Company intends to use the customer list to solicit sales of
remanufactured toner cartridges to increase the company's sales of such
products. The Company paid $30,000 in cash at closing and an additional
payment of $20,000 on August 31, 2006.  The Company also gave Computech a two
year, non interest bearing, convertible, contingent note in the amount of
$242,000. Principal payments of $48,000 have been paid on the note during the
year ended December 31, 2006.

     On August 26, 2006, the Company entered into a Customer List Purchase
Agreement with Laser Cartridge Recharge Systems, Inc. in which the Company
acquired Laser Cartridge Recharge Systems, Inc. list of customers and related
information for $104,000.  The terms of the agreement included a $5,000 down
payment and monthly payments of 25% of gross sales for year one and 20% of
gross sales for year two.  These payments assume annual gross sales of
$220,000.

     On December 20, 2006, the Company entered into a Customer List Purchase
Agreement ("Agreement") with Brody Enterprises, which had been doing business
as "Sun Products," pursuant to which the Company acquired Brody Enterprises'
list of customers and related information. Brody Enterprises has been engaged
in the distribution of remanufactured laser toner cartridges, primarily to

                                      2


business customers. The Company intends to use the customer list to solicit
sales of remanufactured toner cartridges to increase the Company's sales of
such products.  The Company gave Brody Enterprises a three year non-interest
bearing note in the amount of $800,000 with four annual payments of $200,000
beginning on January 2, 2007.  On January 2, 2007 the Company made its first
payment of $200,000.

     On February 5, 2007 the Company entered into a non-binding letter of
intent ("LOI") to purchase certain assets of Optima Technologies, Inc.
("Optima"). Optima Technologies has been engaged in the business of print
management, printing supplies and repair service since 1987. Optima's
business model is consistent with the Company's stated acquisition targets.
The Company expects to reduce costs through economies of scale through an
increase in purchasing power.  As part of the proposed acquisition, ATS
intends to contract with the current Optima management team and continue to
service Optima's customers as they have been in the past.

     As consideration for the purchase of Optima, ATS would pay approximately
$2,550,000 in cash and promissory notes, a portion of which will be
convertible into stock of ATS.  The acquisition is subject to the completion
of due diligence, negotiation and execution of a definitive agreement, and
the completion of an audit of Optima Technology's financial statements, as
well as customary closing conditions.

     We believe that we are positioned to become the "Complete Printer
Solution" for small to medium-sized businesses.  We provide customers printer
supplies and services. We offer toner cartridges, service and print
management for their printers. We plan to grow primarily through acquisitions
of businesses and customer lists of compatible toner cartridge distributors
and hiring independent sales representatives. We plan to leverage nationwide
buying power of compatible toner cartridges from remanufactures through
volume discounts. We have a scalable web based platform for order taking,
fulfillment, billing, collections, payments and customer service to bring
tremendous efficiencies to the marketplace. We will utilize our nationwide
independent service network to provide service on printers. We have been
servicing printers and other office equipment through our Preferred Provider
Network for over ten years.  We have established a network of over 3,000
office equipment service and supply dealers. We can provide customers with
time and material programs or full service maintenance on their printers.
Additionally, we have a relationship with a third party vendor to provide our
customers with a print management program. The print management program
allows the customer to pay for their printers on a cost per page basis.

RE-MANUFACTURED TONER CARTRIDGES - Over the last few years, we have
repositioned our operations and have started selling re-manufactured toner
cartridges through our dealers and marketing cartridges directly to
businesses. American TonerServ is now a national distributor of re-
manufactured printer toner cartridges. Our goal is to provide our customers
with high quality, competitively priced re-manufactured toner supplies for
their laser printers.

     Currently, American TonerServ purchases re-manufactured toner cartridges
from a number of selected re-manufacturers.  The product covers a wide base
of laser printers, both makes and models and monochrome or color.  These re-
manufacturers have agreed upon a base pricing that is at or below current

                                      3



distributor pricing.  Upon placing an order with the re-manufacturer, the
product is dropped shipped to the end user.  This enables American TonerServ
to reduce the need for inventory warehousing.  The product is private labeled
and packaged per our instructions.  We do not rely on any one or a selected
number of re-manufacturers nor do we have long-term contractual arrangements
with these re-manufacturers.  Management believes that there are a
significant number of companies who can provide high quality laser toner
compatible products at competitive prices and that our operations would not
be impacted by the loss of any one supplier or suppliers.

     As we market re-manufactured toner products, we believe that we will
have the opportunity to develop an expanded relationship with our customers.
Based on customers' needs, we can provide additional service and maintenance
for all makes and models of office equipment. We have the expertise in the
service areas of copiers, faxes, computers, plotters, printers and some
brands of phone equipment.  In addition, we can provide service for Regional
and National accounts via our Preferred Service Provider network.

SERVICE AND MAINTENANCE PROGRAMS - Our maintenance programs offer the
advantages of maximizing productivity through less equipment downtime,
reduced administrative costs, controlled repair costs and management
simplification all through a competitively priced service program.

PRINT MANAGEMENT - Our print management program allows us to track the actual
usage of prints on our customers network printers by using specialized
software. This program allows us to provide customers with a cost per printed
page program covering supplies and repairs for their printers. We can
remotely manage the network printers from our national service center to
provide a quicker and more efficient response.

PREFERRED PROVIDER NETWORK - Our nationwide Preferred Provider Network
includes partnerships with companies that provide guaranteed response times,
quality service and depth of expertise.  With an American TonerServ service
agreement, when office equipment malfunctions customers make just one call to
the company's National Service Center to have their equipment serviced.
American TonerServ then dispatches a qualified, certified technician to the
customer's site for service.

     We believe that the ability to service and support customers on a
nationwide basis for all makes and models of printers on a cost effective
basis sets us apart from our competitors.  Over the ten years we have been in
business, we have been approached by a number of companies including Xerox,
Kemper Insurance, Danka and Toshiba to discuss their using our provider
network because we have a proprietary network of independent office equipment
service providers. We have chosen to contract with service providers instead
of employing our own personnel because it allows more flexibility, a lower
cost structure, more expedient market entry and leverage in pricing and
quality.  There are no formal written agreements between American TonerServ
and the Preferred Service Providers (PSPs). There is a mutual understanding
as to service levels, response times and costs to be billed to us by our
network.

NATIONAL SERVICE CENTER - American TonerServ sells toner cartridges and
provides service on printers nationwide from its National Service Center
(NSC).  All product and service work order calls are received at the NSC that
provides a centralized processing and/or dispatching function.  The primary

                                      4



focus of the NSC is to control and ensure high quality customer service. The
NSC has the responsibility of being responsive to our customers, vendors and
PSPs.  Our customer service representatives handle the order taking to assure
the correct product is delivered to our customers in a timely manner. For
service calls, our customer places a telephone call to a single "800" number
at our National Service Center in Santa Rosa, whereby a trained technician is
dispatched and arrives at the customer's business location within a
guaranteed response time, typically four hours.  The malfunctioning equipment
is properly repaired on site when feasible.  American TonerServ manages the
entire repair to completion.  It is a "single source," one phone call
solution.

BUSINESS STRATEGY

     Management is working to position American TonerServ to become a
significant nationwide re-manufactured toner cartridge distribution company.
This strategy will utilize our existing national service network that has
been built over the last ten years. We plan to acquire and partner with small
local and regional toner companies to take advantage of the following
factors:

  *  VOLUME DISCOUNTS ON CARTRIDGES - We have established strategic
     relationships with a few large toner re-manufacturing companies that
     allow us to acquire toner cartridges at very competitive pricing.  Due
     to volume discounts, our cost to acquire re-manufactured cartridges is
     often less than the cost for the small independent companies to produce
     them.  American TonerServ plans to package service offerings with
     competitively priced toner cartridges which management believes would
     generate incremental revenue with its customers.

  *  CENTRALIZED PROCESSING - We have developed a web-based, centralized
     process that enables us to cost effectively process toner and service
     orders on a scalable basis.  We handle order taking, fulfillment,
     billing, collections, payments and customer service calls from our
     National Service Center. We track all product and service orders to
     assure timely fulfillment.

  *  QUALITY OF CARTRIDGES - We believe that providing excellent product
     quality print performance alone is not sufficient to ensure success in
     this competitive marketplace.  In response, we have developed a business
     strategy that we believe will allow us to compete and grow in this
     environment.  Key components of this business strategy are:(1) Maintain
     high product quality through use of defined standards for the re-
     manufacturer suppliers; (2) Maintain competitive product pricing; (3)
     Differentiate our toner product from the competitors by offering the
     innovative solution of combining service and toner; (4) Maintain our
     distinctive competitive edge by offering both office equipment supplies
     and service nationally by utilizing and expanding our existing network
     of service providers; and (5) implement a strategic marketing plan to
     access and increase revenue through existing distribution channels.

  *  PREFERRED PROVIDER NETWORK - Many of the small local and regional toner
     cartridge companies serving business customers today are limited in
     their ability to service their customers outside of their geographic
     marketplace.  American TonerServ currently offers national service


                                     5




     capabilities through approximately 3,000 independent service providers
     on all makes and models of office equipment.  The Company is not
     currently using a vast majority of these service providers, but
     management believes they can be reactivated as demand increases.

     This capability would allow significant incremental sales opportunities
     to existing customers with multiple locations requiring service.
     Management believes that American TonerServ's nationwide ability to
     provide service to its customers will be an attractive strategic benefit
     to these small local and regional toner cartridge companies. Our service
     offerings will afford the opportunity to generate additional revenues
     per existing client and offset marketing costs.  Additional benefits
     include the ability to open up new markets for toner cartridge sales to
     larger, multi-site customers who require service as a condition for
     buying toner cartridges.

  *  OTHER SERVICE OFFERINGS - We also provide service on a time and
     materials basis and service agreements on all make and models of
     printers and other office equipment. We will continue to offer to our
     new toner cartridge customers' access to our full service maintenance
     agreements on other office equipment that they have.

MAJOR CUSTOMERS

     During the years ended December 31, 2006 and 2005, one customer, Xerox
Corporation, represented approximately $76,540 and $264,244 of our revenues,
respectively, representing 17% and 60% of our revenues, respectively.

                   THE MARKET FOR TONER AND INKJET CARTRIDGES

     Based on a review of available market research, management estimates
that the market size for toner and inkjet cartridges is over $30 billion and
that more than 12 million desktop laser printers were shipped in 2005.
Additionally, the industry expects growth in the sale of color laser toner
supplies at an accelerated rate over the next five years.

     The printer manufacturers such as Hewlett-Packard, Lexmark, Canon and
Epson, have coupled low priced laser printers with high-priced disposable
cartridges for years.  These products are priced at roughly two times that of
compatible re-manufactured cartridge products.  Printers are sold at minimal
operating margins and manufacturers have profited significantly by selling
disposable cartridges.

     Management believes there are more than 2,000 cartridge re-manufacture
companies in the United States.

  *  GROWING MARKET SHARE - Management believes that while re manufac-
     turers have been steadily increasing market share during the past
     10 years, a large majority of consumers are still purchasing
     new cartridges from the printer manufacturers. As a result,
     management believes that there is substantial opportunity to
     further penetrate this market.


                                      6




  *  PRICING ADVANTAGE - The competition in the laser cartridge market
     has increased as independent companies started refilling and
     rebuilding toner and ink cartridges and selling them for approxi-
     mately half the price of new cartridges.  This has allowed re-
     manufacturers to gain market share at the expense of the OEM cart-
     ridge providers.

  *  PRINTER MANUFACTURER RESISTANCE - The biggest challenge to re-
     manufacturers is competing against the original equipment
     manufacturers (OEMs).  The gain of market share for the re-
     manufacturers has been subject to OEM resistance, including use
     of unfair tactics such as microchips, which disable equipment or
     voidable warranties if non-OEM replacement cartridges are used.
     Both the United States and the European Union have now taken
     legislative action against these non-competitive tactics which
     creates an even playing field for the re-manufacturers.

  *  ENVIRONMENTAL FRIENDLY - Pro-environment focus by consumers and
     government agencies could help accelerate growth in market share
     for re-manufacturers.

  *  QUALITY FACTORS - While re-manufacturers can compete on price,
     their cartridges have in the past sometimes been seen as inferior
     to OEM products.  The recent creation of re-manufactured product
     quality standards, as well as maturation of the industry segment,
     is expected to diminish this historical impediment to market growth
     for re-manufacturers.

                                  COMPETITION

     The competition for re-manufacturers includes re-manufacturers who sell
under a national brand or by a superstore retailer. These include Laser
Imaging International, International Laser Group, Office Depot, Office Max
and Corporate Express, among others. We believe that this represents about
one-third of the market. The rest of the market is represented by local and
regional suppliers.  We estimate that there are approximately 2,000 companies
in the local and regional supplier marketplace.  As a result, the market is
highly fragmented with no company having a dominant market position.  The
competition for our service and maintenance business includes equipment
manufacturers and local independent dealers for numerous makes and models of
office equipment. Given the large number of companies that service the office
equipment industry, American TonerServ competes primarily on the basis of
price and service.  Currently, we are not a significant competitor in this
market.

      Management believes that there are two segments of the toner re-
manufactured marketplace.  The first segment consists of companies selling
over 2,000 cartridges per month, representing about 22% of the market. The
second segment consists of companies that sell less than 2,000 cartridges a
month, which represents about 78% of the market.



                                      7




     Management's strategic business plan initially provides for acquiring or
partnering with smaller re-manufacturers or distributors and consolidating
their operations for increased profitability by optimizing the use of our
current back office operations.  Our research indicates that companies in
this market segment have limited ability to provide high quality service on
printers to their toner customers.  In addition, management believes that we
will be able to drive additional revenue growth by servicing multiple office
locations with customers that currently utilize multiple service providers.
Management believes that American TonerServ is positioned well to grow a
regional distributor/re-manufacturer on a national basis with both our
service products and our ability to provide volume toner cartridges via our
re-manufacturer relationships.

     To the best of our knowledge, there may be only one other company that
is implementing such a roll-up strategy in the toner cartridge market.
However, management is not aware of any other company that has as extensive
of a network of service providers as American TonerServ.

     The competition in the service and maintenance area is as follows:

  *  EQUIPMENT MANUFACTURERS   Equipment manufacturers such as Xerox,
     Canon, and others provide a high quality of service but do so at
     prices well in excess of American TonerServ.  Additionally,
     manufacturers are typically focused only on their own product
     lines and cannot promote single source solutions without changing
     their focus or aligning with a company similar to American TonerServ.

  *  REGIONAL SERVICE PROVIDERS   These companies service a larger range
     of products than equipment manufacturers. However, we believe that
     regional providers lack customer management capabilities and cannot
     provide service to customers outside of a limited geographic region.

  *  RESELLERS AND DISTRIBUTORS   These types of providers sell many types
     of equipment and brands. They typically do not have a large service
     and support capability.  If they do provide extended support, it is
     often out-sourced to other service providers.

                   PROPOSED INTEGRATION/ACQUISITION STRATEGY

     Management believes that the compatible toner cartridge market is mature
and prime for integration and consolidation.  As the market continues to
mature, a number of re-manufacturers and distributors are expected to be
looking for some type of exit strategy to transition their business as they
confront the pressure to expand their revenue and enhance their
profitability.    Management believes that few financially attractive
alternatives exist today for cartridge re-manufacturers and distributors that
are looking to transition their companies.  American TonerServ will seek to
fill this void by offering its service platform, national network and service
and maintenance expertise to attract partners who have these needs.
Management plans to integrate some of the smaller toner distributors by
offering them the back office support, access to toner supplies and equipment
servicing. During 2006, the Company made three customer list acquisitions of
certain toner distributors.  There is no assurance that we will be able to
continue to execute on our business strategy of acquiring smaller toner re-


                                      8



manufacturers and distribution companies until after we have successfully
raised funds through the issuance of our securities. The Company currently
has two private offerings in place to raise such funds.

CHALLENGES FOR SMALL TONER COMPANIES - As the market continues to develop and
mature, management believes that it is becoming increasingly difficult for
smaller re-manufacturers to maintain profitable operations.  These companies
are challenged to provide all of the makes and models necessary to supply the
current broad printer base.  Smaller re-manufacturers have also faced
significant problems with increasing cartridge design complexity. As a
result, management believes that many smaller re-manufacturers are unable or
unwilling to continue to invest the capital and research necessary to
maintain production levels and stay current with technology changes.

PROVIDING AN EXIT STRATEGY - Our strategic market evaluation indicated that a
number of the distributors have reached "burn out" as small independent
distributors and would entertain a strategic business partnership or sale to
a strategic buyer. Management believes that it can provide tangible benefits
to these business owners and an eventual exit strategy that will be
financially attractive to them.  Being able to provide a gradual exit
strategy through an acquisition and utilizing the company's national service
network and back office capabilities would provide tangible strategic benefit
to the selling shareholders of these companies

PROFILE OF A TYPICAL DISTRIBUTOR/RE-MANUFACTURER CANDIDATE - In year one of
the consolidation strategy, the Company has focused its initial target
acquisition candidates in the range of $250,000 to $1.5 million of annual
revenue. After gaining some critical mass, the Company will target candidates
in the $1.5 to $8.0 million range.  Our research indicates that these
companies generally experience operating income of 15% to 20%.  They
typically have been in business for up to 10 years and have less than 20
employees.  They generally provide service on a local or regional basis.
They generally have a national account base but are unable to provide service
to their customers nationally. We believe that many of them are looking for
an exit or merger.

EXPECTED PROFILE OF A TYPICAL DISTRIBUTOR/RE-MANUFACTURER AFTER ACQUISITION -
After we acquire a distributor or re-manufacturer, we believe that the
acquired entity would phase out of the re-manufacturing process as a result
of our buying power.  The products would be drop shipped directly from our
manufacturer to the end-user for low inventory and elimination of delivery
issues.  Service would be available to their national and regional accounts
to provide incremental revenue growth.  Additional service contracts for
other office equipment would be available to increase revenues and further
reduce customer acquisition costs.  The quality of the products should be
improved by supplying from our re-manufacturers.  We believe that there will
be significant economies of scale by reducing the administration and
accounting functions into our operation.  The end result is expected to be an
opportunity for the prior owner/team to concentrate primarily on selling and
customer relations.  It is anticipated through these benefits of
consolidation that there would be an increase in the profitability of the
acquired entity.



                                      9



ACQUISITION STRATEGY - We are primarily targeting businesses that have $2.0
to $5.0 million in annual sales where the owner of the business would like to
remain with the business and grow it after our acquisition.  These businesses
must be currently marketing compatible toner and ink cartridges primarily to
businesses.  If we locate businesses fitting our targeted profiles in major
metropolitan markets in the Midwest or Eastern states, we will pursue them.
Our plans call for 10 to 12 acquisitions within the first 18 months. We
anticipate using a combination of cash, notes, earn-outs and stock to make
the acquisitions.  The acquisitions may include only the acquisition of the
customer lists of such companies.

     INTELLECTUAL PROPERTY

     We do not have any patents, trademarks or any other intellectual
property rights

     RESEARCH AND DEVELOPMENT

     We have not had any expenditures for research and development activities
during the last two fiscal years.

EMPLOYEES

     We currently have nine full time employees and two part time employees,
which consists of five executives, three customer service reps and one
acquisition support specialist. We also have one part time general accounting
employee and one part time contract administrator.

                                RISK FACTORS

     An investment in our securities involves a high degree of risk.
Investors should consider carefully all of the material risks described below
and all other information contained in this report before deciding to invest
in our securities. All forward-looking statements are inherently uncertain as
they are based on current expectations and assumptions concerning future
events or future performance of, or related to, our Company.

WE HAVE OPERATED AT A LOSS FOR MOST OF OUR HISTORY AND HAVE A SUBSTANTIAL
ACCUMULATED DEFICIT AND IF WE CONTINUE TO INCUR LOSSES WE MAY HAVE TO FILE
FOR BANKRUPTCY.

     During our eleven-year operating history, we have experienced
significant operating losses.  Additionally, we are currently operating at a
loss and are dependent on additional financing in order to continue to
operate.  During the years ended December 31, 2006 and 2005, we had net
losses of $1,933,869 and $443,906, respectively.  As of December 31, 2006, we
had an accumulated deficit of $12,746,515. The Company made three customer
list acquisitions during 2006. We do not believe that we can achieve
profitability until we obtain additional financing and continue to implement
our strategic business plan of acquiring other companies or customer lists.



                                     10



WE MAY BE UNABLE TO MAKE ACQUISITIONS IN THE TONER RE-MANUFACTURE MARKET
WHICH COULD FORCE THE COMPANY TO DECLARE BANKRUPTCY.

     Our business plan assumes that additional compatible toner re-
manufacturing providers will be interested in partnering with us.  In order
for this strategy to be effective, we must be able to acquire additional
companies at a reasonable valuation.  Additionally, our business plan is
based on the assumption that we will be able to reduce the back office and
other overhead and related expenses of an acquired company by at least 10% by
utilizing our existing back office, systems and service capabilities.
Further, we expect that future acquisitions will be for a combination of
cash, promissory notes and stock consideration over a time period of as much
as three years and we will depend on retaining the customers and revenues of
the acquired company.  There is no assurance that we will be able to make
additional acquisitions under these terms. If we are unable to fully
implement our business plan, we will have to consider filing for bankruptcy
which could result in our shareholders losing all of their investment in our
stock.

WE MAY BE UNABLE TO RAISE NECESSARY FUNDING TO CONTINUE TO OPERATE THE
BUSINESS WHICH MAY LEAD TO BANKRUPTCY.

     We have encountered difficulty in obtaining funding for our operations
and implementing our strategic business plan. If we are unable to raise
additional funding during the next six months, we may have to consider
bankruptcy.  In addition, if unexpected adverse conditions such as losses of
customers or judgments against us increase our cash requirements, we may not
be able to continue to operate.  We are currently spending approximating
$125,000 more cash per month than we bring in.   Delays in obtaining
additional financing could force us to cease operations and declare
bankruptcy which could result in our shareholders losing all of their
investments in our stock. If we are unable to implement our business plan,
management expects that we will require approximately $1,500,000 of outside
financing over the next 12 months to conduct our business as it is currently
operated.

CHANGES IN MARKET CONDITIONS COULD FORCE US TO REDUCE PRICES OR REQUIRE
RETOOLING WHICH WOULD REDUCE OR ELIMINATE THE OPPORTUNITIES FOR US TO MAKE A
PROFIT.

     The toner cartridge market is currently dominated by a few, very large
manufactures such as Hewlett Packard and Canon.  Significant adjustments in
their strategies, such as significant price reductions for new toner
cartridges, implementation of new toner technologies that render re-
manufacturing obsolete or require costly retooling or if they were to decide
to offer private label toner products, would have a negative impact on our
business strategy and cause our expected gross margins to decline.
Ultimately, this could force us to declare bankruptcy which could result in
our shareholders losing all of their investments in our stock.

TONER CARTRIDGE RE-MANUFACTURERS MAY BE UNABLE TO ADAPT TO NEW TECHNOLOGIES
WHICH WOULD LEAD TO LOST REVENUES.

     Our strategic business plans rely on the ability of other companies'
ability to continue to develop, package and supply re-manufactured toner
cartridges.  As printer technologies continue to evolve and change, it may be

                                     11



possible that a much smaller percentage of the current re-manufacturers will
be able to keep pace with the printer manufacturer and make the necessary
capital investments to produce quality toner replacements in a cost effective
manner.  Consolidation in the re-manufacture supplier business sector and
higher costs to manufacture replacement toner cartridges could cause an
increase in planned costs and a decline in revenue.

WE MAY BE UNABLE TO REACTIVATE OUR PREFERRED PROVIDER NETWORK WHICH WOULD
IMPAIR OUR ABILITY TO PROVIDE REPAIR SERVICE TO CUSTOMERS WHICH WOULD LEAD TO
LOST REVENUES.

     Our strategic business plan includes our ability to provide printer
repair and maintenance service on a nationwide basis.  American TonerServ
offers national service capabilities through approximately 3,000 independent
service providers. We are not currently using a vast majority of those
service providers. If we fail to reactivate our service network as demand
increases, we will not be able to provide service and lose revenues.

WE MAY BE UNABLE TO ATTRACT ENOUGH ACQUISITION CANDIDATES WHICH WOULD HAVE A
NEGATIVE IMPACT ON OUR BUSINESS PLAN.

     Our strategic business plan is based upon our ability to forge strategic
business relationships with compatible toner distributors.  This will require
us to identify structure and close business partnerships and acquisitions
with companies with which we have no affiliation today.  Our strategic
business plan requires that we strictly adhere to financial and customer
retention requirements in order to make the transactions attractive to our
potential partners or acquisition candidates. Although we have completed
three small acquisitions of customer lists and have entered into a letter of
intent to acquire a company engaged in the business of print management,
printing supplies and repair service, we will need to make additional
acquisitions to fully implement our business plan.  We have not entered into
any other letters of intent with any potential acquisition candidates, and
have not specifically identified terms and conditions that would be
acceptable to possible acquisition candidates.  If we fail to attract and
acquire additional suitable businesses, we will not achieve profitability and
will be unable to continue in business.

WE MAY BE UNABLE TO SUCCESSFULLY OPERATE COMPANIES THAT WE MAY ACQUIRE WHICH
COULD CAUSE US TO HAVE ADDITIONAL LOSSES.

     Our future revenues are expected to be derived from businesses and
customer lists that we acquire.  In general, the acquisition of any business,
and the subsequent integration of operations and customers, is a difficult
task with inherent risks. Failure to successfully integrate acquisition
companies could result in unanticipated costs and a loss of expected
revenues, leading to incurring additional losses. The primary asset that will
be acquired through our planned acquisitions is the underlying customer base
of the business.  We anticipate that in most cases the acquisitions will be
privately held companies wherein the customer relationships are very closely
tied to the existing ownership and management of that particular business. If
we fail to successfully transition and integrate these relationships into our
Company post acquisition, customers may elect not to continue with our
Company and we may fail to meet our planned revenue and profit objectives
relative to the purchase price paid for the acquisitions.

                                      12



THERE IS CURRENTLY ONLY A VERY LIMITED MARKET FOR OUR STOCK AND THE MARKET
PRICE FOR OUR COMMON STOCK MAY BE VOLATILE.

     There is currently only a very limited trading market for our common
stock.  We cannot assure you that a trading market for our common stock will
be available in the future.

     Quotations for our common stock have only recently become available on
the OTC Bulletin Board, and trading has been sporadic. The OTC Bulletin Board
is generally considered to be a less efficient market than national exchanges
or the Nasdaq Stock Market, and trading volumes for stocks quoted on the OTC
Bulletin Board are often small. Consequently, the liquidity of our securities
could be impaired, not only in the volume of securities which could be bought
and sold, but also through delays in the timing of transactions, difficulties
in obtaining price quotations, reduction in security analysts' and media
coverage of our business, if any, and lower prices for our common stock than
might otherwise be attained. This could have an adverse effect on the ability
of an investor to sell shares of our common stock as well as on the selling
price for such shares. In addition, the market price of our common stock
could fluctuate widely due to various factors including, but not limited to,
the following:

     *  quarter-to-quarter variations in results of operations;

     *  loss of a major customer;

     *  changes in, or our failure to meet, the expectations of securities
        analysts;

     *  announcements of strategic relationships or strategic partnerships;
        or

     *  other events or factors that may be beyond our control.

     In addition, the securities markets in general have experienced extreme
price and trading volume volatility in the past. The trading prices of
securities of many companies at our stage of growth have fluctuated broadly,
often for reasons unrelated to the operating performance of the specific
companies. These general market and industry factors may adversely affect the
trading price of our common stock, regardless of our actual operating
performance. If our stock price is volatile, we could face securities class
action litigation, which could result in substantial costs and a diversion of
management's attention and resources and could cause our stock price to fall.

WE PLAN TO SELL ADDITIONAL COMMON AND PREFERRED STOCK TO RAISE CAPITAL WHICH
WOULD HAVE A DILUTIVE AFFECT TO EXISTING SHAREHOLDERS.

     We plan to raise additional funds through the issuance of common and
preferred stock to help finance our strategic business plan.  If we are
successful selling our common stock the ownership interests of our existing
shareholders would be diluted, and shareholders could be adversely affected
because the amount available for dividends, if any, on each share would
decrease; the relative voting power of each previously outstanding share
would be decreased; and the market price of shares may decline.

                                      13




OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS HAVE SUBSTANTIAL DOUBT
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

     The reports of our independent registered public accounting firms, with
respect to our consolidated financial statements and the related notes for
the years ended December 31, 2006 and 2005, state that, we have incurred
losses in each of the past two years, have negative working capital, and a
shareholders' deficit as of December 31, 2006, which raises substantial doubt
about our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that might result from this
uncertainty.

WE MAY NOT BE ABLE TO IMPLEMENT SECTION 404 OF THE SARBANES-OXLEY ACT ON A
TIMELY BASIS.

     The SEC, as directed by Section 404 of the Sarbanes-Oxley Act, adopted
rules generally requiring each public company to include a report of
management on the company's internal controls over financial reporting in its
annual report on Form 10-KSB that contains an assessment by management of the
effectiveness of the company's internal controls over financial reporting. In
addition, the company's independent registered accounting firm must attest to
and report on management's assessment of the effectiveness of the company's
internal controls over financial reporting. This requirement will first apply
to our annual report on Form 10-KSB for the fiscal year ending December 31,
2008. We have not yet developed a Section 404 implementation plan.
Management is required to implement Section 404 in 2007. We have in the past
discovered, and may in the future discover, areas of our internal controls
that need improvement. How companies should be implementing these new
requirements including internal control reforms to comply with Section 404's
requirements and how independent auditors will apply these requirements and
test companies' internal controls, is still reasonably uncertain. We expect
that we may need to hire and/or engage additional personnel and incur
incremental costs in order to complete the work required by Section 404. We
can not assure you that we will be able to complete a Section 404 plan on a
timely basis. Additionally, upon completion of a Section 404 plan, we may not
be able to conclude that our internal controls are effective, or in the event
that we conclude that our internal controls are effective, our independent
accountants may disagree with our assessment and may issue a report that is
qualified. Any failure to implement required new or improved controls, or
difficulties encountered in their implementation, could negatively affect our
operating results or cause us to fail to meet our reporting obligations.

CHANGES IN STOCK OPTION ACCOUNTING RULES MAY ADVERSELY AFFECT OUR REPORTED
OPERATING RESULTS, OUR STOCK PRICE AND OUR ABILITY TO ATTRACT AND RETAIN
EMPLOYEES.

     In December 2004, the Financial Accounting Standards Board published new
rules that require companies to record all stock-based employee compensation
as an expense. The Company adopted these new rules effective January 1, 2006.
The new rules apply to stock option grants, as well as a wide range of other
share-based compensation arrangements including restricted share plans,
performance-based awards, share appreciation rights, and employee share
purchase plans. As a small company with limited financial resources, we have
depended upon compensating our officers, directors, employees and consultants

                                      14



with such share-based compensation awards in the past in order to limit our
cash expenditures and to attract and retain officers, directors, employees
and consultants. Accordingly, if we continue to grant stock options or other
stock based compensation awards to our officers, directors, employees, and
consultants, our future earnings, if any, will be reduced (or our future
losses will be increased) by the expenses recorded for those grants. These
compensation expenses may be larger than the compensation expense that we
would be required to record were we able to compensate these persons with
cash. The expenses we will have to record as a result of future options
grants may be significant and may materially negatively affect our reported
financial results. The adverse effects that the new accounting rules may have
on our future financial statements should we continue to rely heavily on
stock-based compensation may reduce our stock price and make it more
difficult for us to attract new investors. However, reducing our use of stock
plans to reward and incent our officers, directors, employees and
consultants, could result in a competitive disadvantage to us in the employee
marketplace.

WE HAVE NOT PAID CASH DIVIDENDS AND IT IS UNLIKELY THAT WE WILL PAY CASH
DIVIDENDS IN THE FORESEEABLE FUTURE.

     We plan to use all of our earnings, if any, to fund our operations. We
do not plan to pay any cash dividends in the foreseeable future. We cannot
guarantee that we will, at any time, generate sufficient surplus cash that
would be available for distribution as a dividend to the holders of our
preferred or common stock. You should not expect to receive cash dividends on
our preferred or common stock.

DELAWARE LAW AND OUR CORPORATE CHARTER AND BYLAWS CONTAIN ANTI-TAKEOVER
PROVISIONS THAT COULD DELAY OR DISCOURAGE TAKEOVER ATTEMPTS THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE.

     Our certificate of incorporation, our bylaws and Delaware law contain
provisions that may inhibit changes in control that are not approved by our
board of directors. These provisions may have the effect of delaying,
deferring or preventing a change in control despite possible benefits to our
stockholders, may discourage bids at a premium over the market price of our
common stock and may adversely affect the market price of our common stock
and the voting and other rights of our stockholders.

THE APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON
STOCK COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MARKET PRICE OF OUR
COMMON STOCK.

     Trading in our shares is subject to the "penny stock rules" adopted
pursuant to Rule 15g-9 of the Securities and Exchange Act of 1934, as
amended, which apply to non-Nasdaq companies whose common stock trades at
less than $5.00 per share or which have a tangible net worth of less than
$5,000,000 - or $2,000,000 if a company has been operating for three or more
years. The penny stock rules impose additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and institutional accredited investors. For transactions covered by
this rule, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the penny stock rules will affect

                                     15




the ability of broker-dealers to sell shares of our common stock and may
affect the ability of shareholders to sell their shares in the secondary
market, as compliance with such rules may delay and/or preclude certain
trading transactions. The penny stock rules could have an adverse effect on
the liquidity and/or market price of our common stock.

ITEM 2.  DESCRIPTION OF PROPERTY.

     Our facilities are located at 475 Aviation Blvd. Suite 100, Santa Rosa,
CA 95403.  The office space is approximately 4,063 square feet. The current
annual lease amount is $114,864 and the lease expires November 30, 2007.  The
Company believes that it has adequate insurance covering the leased premises
and its properties.

ITEM 3. LEGAL PROCEEDINGS.

     There are currently no legal actions pending against the Company.

     In the past, we have been subject to claims arising in the ordinary
course of business, primarily vendor disputes. We settled certain overdue
claims from certain service providers during the year ended December 31,
2006. There are currently no such claims outstanding.

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

     There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter of 2006.


                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Prior to this offering, there has been only a very limited market for
our common stock.  We cannot assure you that a trading market for our shares
will continue.  Our common stock is quoted on the OTC Bulletin Board under
the trading symbol "ASVP."  Quotations were first entered on the OTC Bulletin
Board on or about October 13, 2006.  The following table sets forth the high
and low sale prices for the Company's Common Stock as reported on the OTC
Bulletin Board for the period indicated:

     QUARTER ENDED                            HIGH       LOW

     December 31, 2006                      $ 0.51     $ 0.20


Approximate Number of Holder of Common Stock

     On March 9, 2007 there were approximately 167 holders of record of our
common stock.

Dividends

     We have not paid any cash dividends since our inception and do not
contemplate paying dividends in the foreseeable future. It is anticipated
that earnings, if any, will be retained for the operation of our business.

                                     16




Recent Sales of Unregistered Securities

     There were no sales of unregistered securities that have not been
reported in the Company's reports on Form 8-K and 10-QSB during the year
ended December 31, 2006, except as set forth below.

     During the period from September 2006 through December 2006, the Company
raised $125,000 through the sale of two and one half Units consisting of 10%
Convertible Notes and Warrants to purchase common stock at $50,000 per Unit.
The Units were sold to three accredited investors in a private offering.

     In connection with these sales, the Company relied on the exemption from
registration under the Act as provided in Section 4(2) of the Act. The number
of persons was limited and each person is an "accredited investor" as defined
in Regulation D under the Securities Act.  The Company provided a private
placement memorandum to the investors and each investor was given access to
complete information concerning the Company.  Each investor represented that
they were acquiring the securities for investment purposes.  A customary
restrictive legend was placed on each of the certificates for such
securities. The Company filed a Form D with the SEC related to this offering.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

     This Report contains statements that may contain forward-looking
statements, concerning the Company's future operations and planned future
acquisitions and other matters and the Company intends that such forward-
looking statements be subject to the safe harbors for such statements.  Any
statements that involve discussions with respect to predictions,
expectations, belief, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using phrases such as
"expects", or "does not expect", "is expected", "anticipates" or "does not
anticipate", "plans", "estimates" or "intends", or stating that certain
actions, events or results "may", could", "might", or "will" be taken to
occur or be achieved) are not statements of historical fact and may be
"forward looking statements". These forward-looking statements, include
statements relating to, among other things, the ability of the Company to
continue as a going concern.

     The Company cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Such
forward-looking statements are based on the beliefs and estimates of the
Company's management as well as on assumptions made by and information
currently available to the Company at the time such statements were made.
Forward looking statements are subject to a variety of risks and
uncertainties which could cause actual events or results to differ from those
reflected in the forward looking statements, including, without limitation,
the failure to obtain adequate financing on a timely basis.  Actual results
could differ materially from those projected in the forward-looking
statements, either as a result of the matters set forth or incorporated in
this Report generally and certain economic and business factors, some of
which may be beyond the control of the Company. Additional risks and
uncertainties that may affect forward-looking statements about the Company's
business and prospects include adverse economic conditions, inadequate

                                     17



capital, unexpected costs, and other factors set forth under "Risk Factors"
in Item 1 - Description of Business of this report which could have an
immediate and material adverse effect. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.

Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of
operations upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets,
liabilities, revenue and expenses and related disclosure of contingent assets
and liabilities.

     We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis on which we make judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Because this can vary in each situation, actual results may differ
from the estimates under different assumptions and conditions.

     We believe the following critical accounting policies require more
significant judgments and estimates in the preparation of our financial
statements:

     Revenue Recognition - Revenue is generated from sales of supplies and
maintenance agreements.  Revenue from supplies sales is recognized upon
shipment of product. Revenue from maintenance is recognized as services are
completed or over the term of the maintenance agreements.  The following is a
detailed description of each revenue activity and its revenue recognition
policy:

     Time and Materials Maintenance Contracts - Revenue for equipment service
calls initiated by the customer.  All work is billed based on actual time and
materials.  The revenue is recognized (and billed) after the service work is
performed for the customer.

     Full Service Maintenance Contracts - Revenue for fixed fee equipment
service contracts (annual contracts for the first year of service; contracts
are billed quarterly thereafter with a ninety day cancellation provision).
Revenues are recognized straight-line over the life of the contract with the
unearned portion shown as deferred revenue in the accompanying balance sheet.

     Remanufactured Toner Sales - Revenue for the resale of laser toner
cartridges.  The revenue is recognized upon shipment of the toner cartridges
to the customer.  In the case where the toner cartridge is sold as a bundled
product with equipment service included as part of the total purchase price,
the combined revenue is segregated between the value of the cartridge and the
service components in accordance with EITF 00-21.  The cartridge portion is
recognized after shipment at the same price as a "cartridge only" sale.  The
service component is deferred and recognized on the earlier of actual
cartridge use or ninety days (the maximum term of the service offering with
each cartridge).

                                      18



     Customer Lists.  The Company has entered into three purchase agreements
to acquire customer lists during the year ended December 31, 2006. The
Company accounts for the purchase of these customer lists at cost, net of
discounts, if any, less accumulated amortization.  These customer lists are
amortized using the straight line method over an estimated useful life of
seven years.

     Valuation Allowance.  We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make
required payments. If the financial conditions of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances might be required. Our allowance for doubtful accounts
as of December 31, 2006 was $12,615.

     Stock-Based Compensation.  In assessing the fair value of option and
warrant grants to employees and consultants, we have valued these instruments
based on the Black-Scholes model which requires estimates of the volatility
of our stock and the market price of our shares.  On January 1, 2006, the
Company adopted Statement of Financial Accounting Standard ("SFAS") No. 123R
(revised 2004), "Share-Based Payment" ("FAS 123R"), that addresses the
accounting for share-based payment transactions in which an enterprise
receives employee services in exchange for equity instruments of the
enterprise. The statement eliminates the ability to account for share-based
compensation transactions, as the Company formerly did, using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25,  "Accounting for Stock Issued to Employees," and generally requires that
such transactions be accounted for using a fair-value-based method and
recognized as expenses in its statements of operations.   The Company adopted
FAS 123R using the modified prospective method which requires the application
of the accounting standard as of January 1, 2006. The Company's financial
statements as of and for the year ended December 31, 2006 reflect the impact
of adopting FAS 123R. There was no impact from the adoption of FAS 123R as
the Company had acelerated vesting for unvested options effective December
31, 2005.

     The estimated fair value of equity-based awards, less expected
forfeitures, is amortized over the awards' vesting period on a straight-line
basis.  The Company calculates the expected volatility for stock-based awards
using the historical volatility for its peer group public companies because
sufficient historical data does not yet exist for the Company's stock. The
risk free interest rates were determined by the rate of the 7 year treasury
bill on the grant date of the options.  The expected term was determined in
accordance with Staff Accounting Bulletin No. 107.

     The Company accounts for restricted stock and options granted to non-
employees in accordance with EITF No. 96-18,"Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services".  The Company records the fair
value of such restricted stock and options as deferred compensation at the
date of issuance and recognizes compensation on a straight-line basis over
the service period of the restricted stock or options.  The compensation is
adjusted for the change in fair market value at the end of each period in the
statement of operations.


                                      19




     Warrants and Detachable Warrants.  As the warrant contracts must be
settled by the delivery of registered shares and the delivery of the
registered shares are not controlled by the Company and the number of shares
is unknown, pursuant to EITF 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock",
the estimated fair value of the warrants at the date of issuance is recorded
as a warrant liability on the balance sheet.  The Company records the warrant
liability at fair value at the end of each reporting period with changes
recorded in earnings. At the time the warrants are exercised or the number of
shares are known the liability is reclassified to equity to reflect the
increase in shares outstanding. The Black-Scholes option pricing method is
used to value the warrants and detachable warrants upon the date of issuance
and at each balance sheet date for warrant liabilities.

     Income Taxes.  The Company uses the asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes
are provided for temporary differences in the bases of assets and liabilities
as reported for financial statement purposes and income tax purposes. We have
recorded a valuation allowance against all net deferred income tax assets.
The valuation allowance reduces deferred income tax assets to an amount that
represents management's best estimate of the amount of such deferred income
tax assets that more likely than not will be realized.  Due to the
significant increase in common stock issued and outstanding in 2006 and 2005,
Section 382 of the Internal Revenue Code may provide significant limitations
on the utilization of net operating loss carryforwards of the Company.  As a
result of these limitations, a portion of these loss and credit carryovers
may expire without being utilized.  A valuation allowance has been recorded
as a reduction against the net operating loss carry forwards due to the
uncertainty of the ultimate realization of future benefits from these net
operating losses.

     This following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
audited financial statements for the years ended December 31, 2006 and 2005,
and the related notes, contained in the Company's Registration Statement on
Form SB-2 and in conjunction with the audited financial statements and notes
thereto appearing elsewhere in this Form 10-KSB.

Year Ended December 31, 2006 and 2005

     Revenue. Revenue for the year ended December 31, 2006 was $456,433 as
compared to $440,406 for the year ended December 31, 2005. The increase in
revenue in the year ended December 31, 2006 was primarily due to the
acquisition of customer lists.

     Revenues from the sale of toner cartridges increased by $251,181 for
2006 as compared to 2005 due to the purchase of customer lists.  Revenues
from service decreased by $235,154 due to the non-renewal of full-service
maintenance agreements.

                                     20



     During the year ended December 31, 2006, American TonerServ employed a
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and
Senior Vice President of Corporate Development and Strategy.  The Company
also employed a V.P. of Operations, two customer service representatives, a
service network manager, and a part-time accounting assistant. During 2006,
we hired executive management personnel to begin implementing our new
business strategy. The Company anticipates that it will generate significant
new revenue as it continues to implement its new business strategy and plan.
However, there can be no assurance that the Company will raise sufficient
capital to pursue new business opportunities or to continue executing its
business plan.

     Gross Profit (Revenue less Cost of Goods Sold). Gross profit for the
year ended December 31, 2006 was $194,331 as compared to $175,640 for the
year ended December 31, 2005. The gross profit margin in 2006 was 42%
compared to a gross profit margin for 2005 of 40%. The Company has recently
experienced a higher gross profit trend as toner revenues with higher margins
have replaced lower margin service revenues.

     Salaries and Wages. Salaries and Wages expenses were $580,560 and
$196,162 for the years ended December 31, 2006 and 2005, respectively. The
$384,398 increase was due, primarily to stock related compensation to
management and advisors in the amount of $313,942, in connection with the
hiring of executive management, two customer service representatives, a Vice
President of Operations, and the hiring of a part-time bookkeeper.

     Professional Fees and Services. Professional Fees and Services expenses
were $982,493 and $69,931 for the years ended December 31, 2006 and 2005
respectively. This $912,562 increase was primarily due to an increase in
professional fees related to the preparation and filing of two Form SB-2's
for the registration of stock as well as the implementation of the Company's
Corporate Development.  The Corporate Development plan fees were $651,000
paid to Fort Holdings Limited, which includes $612,500 in the form of
restricted common stock.

     Sales and Marketing. Sales and marketing expenses were $87,990 and
$19,806 for the years ended December 31, 2006 and 2005, respectively. The
$68,184 increase was primarily due to services performed by Chuck Mache
Communications, sales commissions paid to Independent Sales Partners (ISP's)
and the development of the Company's web site. Stock related compensation
paid to Chuck Mache Communications was $28,544.

     General and Administrative. General and Administrative expenses were
$250,648 and $244,608 for the years ended December 31, 2006 and 2005
respectively. The $6,040 increase was primarily due to increased business
volume relating to the Company's acquisitions of customer lists from toner
distributors including telephone, office supplies and amortization, partially
offset by a decrease in bad debt expense.

     Net Loss.  The net loss for the year ended December 31, 2006 and 2005
was $1,933,869 and $443,906 respectively. The increase in the net loss of
$1,489,963 was primarily attributable to an increase of $912,562 in
professional fees relating to the implementation of the Company's business
plan and increased wages of $384,398 for the hiring of executive management

                                     21


and additional staff.  Additionally, the Company had an increase of
approximately $201,994 in expense relating to convertible debt incurred
during 2006.

     The Company believes that it will continue to have net losses for the
foreseeable future.

     Income (Loss) per Share. Net loss per share in 2006 was $(0.08) compared
to a loss of $(0.58) in 2005.

     Liquidity and Capital Resources

     At December 31, 2006, the Company had a working capital deficit of
$572,067 including cash and equivalent balances of $171,220 down from a
working capital deficit balance of $1,124,122 at December 31, 2005 including
cash and equivalent balances of $11,774. The change in working capital, and
cash and equivalent balances, was primarily affected by the Company's
operating losses offset by the financing from the convertible notes and
preferred stock.

     Accounts receivable increased by $19,464, from $81,019 at December 31,
2005 to $100,483 at December 31, 2006.  This was due primarily to an increase
in toner sales relating to the Company's three customer list acquisitions.

     Accounts payable and accrued expenses, which consist primarily of
amounts due to third party service providers and toner suppliers, increased
from $698,976 at December 31, 2005 to $723,817 at December 31, 2006.  This
increase was due to an increase in payables to our suppliers due to the Sun
Products customer list acquisition.  Included in these balances are $284,942
of long outstanding payables due to independent service providers.

     The Company has entered into no derivative financial instrument
arrangements at December 31, 2006, other than warrants issued in connection
with convertible notes payable.

     The Company has entered into certain transactions relating to its
Convertible Note Offering and its purchase of Computech's list of customers
and related information which contain financial instruments that are
classified as derivative instruments in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" and EITF Issue
No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled In, A Company's Own Stock."

     During the period from July 2006 through December 2006, the Company
raised $500,000 in gross proceeds from a private offering of Units consisting
of a convertible note and warrants and $150,000 in gross proceeds from a
private offering of Units consisting of Preferred Series C shares.  The notes
bear interest at the simple rate of ten percent (10%) per year, payable
monthly. The notes are due and payable in full two years from the date of
issuance. Each unit includes a warrant to purchase shares of our Common
Stock. The number of shares that may be purchased pursuant to each warrant
will equal approximately 30-40% of the number of shares a holder would
receive if the holder converted their notes into shares of the Company's
common stock. The notes may be converted, at the option of the holder, into
shares of our Common Stock upon the occurrence of a Private Investment in a
Public Entity offering ("PIPE offering") undertaken by the Company that

                                      22


raises a minimum of $3.0 million. The price at which the note may be
converted into Common Stock will be the average price at which the first $1.0
million of Common Stock is sold in a PIPE offering, as defined in the note.

     The Company currently has no external sources of liquidity.

     During the year ended December 31, 2006, the Company used $601,456 in
cash from operations. The cash flows were used primarily to finance the
Company's continued losses from operations.  The Company does not expect to
generate sufficient cash from operations to meet its capital requirements in
the short term, which makes the Company's ability to continue as a going
concern doubtful.

     During the year ended December 31, 2006, the Company used $79,036 in
cash from investing activities.  The cash flows were used primarily to
complete the acquisition of two customer lists, develop our customer
relationship management and enterprise resource planning software programs
and purchase computers and a telephone system.

     During the year ended December 31, 2006, the Company received $839,938
in cash from financing activities. These cash flows were primarily from
$385,000 for the issuance of preferred stock and $500,000 from the issuance
of convertible notes.

     During the year ended December 31, 2005, the Company used $346,341 in
cash from operations. The cash flows were used primarily due to finance the
Company's continued losses from operations and ongoing costs incurred to
position the Company as a public entity.

     During the year ended December 31, 2005, the Company had no investing
activities.

     During the year ended December 31, 2005, the Company received $300,000
from the issuance of convertible notes payable.

     The following table discloses aggregate information about our
contractual obligations and the periods in which payments are due as of
December 31, 2006.



<TABLE>
<CAPTION>
                                              Less Than                                 After
Contractual Obligations           Total        1 Year       1-3 Years     4-5 Years    5 Years
-----------------------        -----------    ---------    -----------    ---------    -------
<S>                            <C>            <C>          <C>            <C>         <C>
Notes Payable                   $  895,438    $250,433     $   644,995    $    -       $   -
Convertible Notes Payable          744,000     146,000         598,000         -           -
Interest on convertible notes
 payable                            55,000       5,000          50,000         -           -
Facilities and Property Leases      75,527      75,527            -            -           -
Unfulfilled Purchase Orders          2,975       2,975            -            -           -
                                ----------    --------      ----------    ---------    --------
Total Contractual Obligations   $1,772,940    $479,935      $1,292,995    $    -       $   -
                                ==========    ========      ==========    =========    ========
</TABLE>




                                     23


     Subsequent Events

     On February 5, 2007 the Company entered into a non-binding letter of
intent ("LOI") to purchase certain assets of Optima Technologies, Inc.
("Optima"). Optima Technologies has been engaged in the business of print
management, printing supplies and repair service since 1987. Optima's
business model is consistent with the Company's stated acquisition targets.
The Company expects to reduce costs through economies of scale through an
increase in purchasing power.  As part of the proposed acquisition, ATS
intends to contract with the current Optima management team and continue to
service Optima's customers as they have been in the past.

     As consideration for the purchase of Optima, the Company would pay
approximately $2,550,000 in cash and promissory notes, a portion of which
will be convertible into stock of ATS.  The acquisition is subject to the
completion of due diligence, negotiation and execution of a definitive
agreement, and the completion of an audit of Optima Technology's financial
statements, as well as customary closing conditions.

     On February 9, 2007, the Company hired four individuals to serve on its
Strategic Advisory Board.  These individuals were granted 100,000 options
each at $0.40 a share to serve a one year term.  The options will vest
ratably over the twelve month term.

     During the period from January 2007 to March 2007, the Company raised
$1,113,248 from 18 accredited investors in private offerings, of which
$1,063,248 was related to the Company's Convertible Preferred Stock offering
and $50,000 was related to the Company's Convertible Debt offering. Included
in the Convertible Stock offering is $38,248 of past due vendor accounts that
were settled.

     On February 26, 2007, the Company issued 389,630 shares of common stock
for services previously rendered to the Company. These shares were issued at
$0.45 per share.  Dan Brinker, CEO received 66,667 shares for a total of
$30,000 in compensation. Aaron Brinker, COO received 45,185 shares for a
total of $20,333 in compensation.  Ryan Vice, CFO received 26,667 shares for
a total of $12,000 in compensation.  Andrew Beaurline, Vice President of
Corporate Development and Strategy received 228,889 shares for a total of
$103,000 in compensation.  Chuck Mache, an advisor, received 22,222 shares
for a total of $10,000 in compensation.

     Business Outlook, Risks and Uncertainties

     Economic Uncertainties

     The current economic slowdown, financial market conditions, and the
political environment may affect the Company's ability to raise financing.
The Company will be required to raise additional capital to establish
business operations. The uncertainty about the Company's ability to raise
financing makes it difficult to predict the Company's results for the year
ending December 31, 2007 and its ability to continue as a going concern.




                                      24



     Sufficiency of Working Capital

     As of December 31, 2006, the Company had a net working capital deficit
of $572,067. The Company has inadequate financial resources to sustain its
business activities. The Company has no ability to generate positive cash
flows from operations.

     During 2006, the Company received $650,000 in proceeds from private
offerings, of which $500,000 came from Convertible Note Offerings and
$150,000 came from the Preferred Series C Offering.  These proceeds are being
used for working capital and acquisitions.

     During the period from January 2007 to March 2007, the Company raised
$1,113,248 from 18 accredited investors in private offerings, of which
$1,063,248 was related to the Company's Convertible Preferred Stock offering
and $50,000 was related to the Company's Convertible Debt offering. Included
in the Convertible Stock offering is $38,248 of past due vendor accounts that
were settled.

     The Company estimates that it will need to raise an additional
$1,500,000 during the next 12 months to meet its minimum capital
requirements. There can be no assurance that the Company will be successful
in obtaining the required financing. Thus, there is substantial doubt that
the Company will be able to continue as a going concern, absent raising
additional financing.

     The financial statements have been prepared on a going concern basis,
which assumes that the Company will be able to realize its assets and
discharge its obligations in the normal course of business.  If the Company
were not to continue as a going concern, it would likely not be able to
realize on its assets at values comparable to the carrying value or the fair
value estimates reflected in the balances set out in the preparation of the
consolidated financial statements.

     The Company does not use financial instruments for trading purposes and
is not a party to any leverage derivatives. To the extent that the Company
has or continues to issue debt obligations outside of the course of its
normal operations, the Company's business and results of operations may be
materially effected by changes in interest rates and certain other credit
risk associated with its operations.

     Convertible Notes Payable

     The Company has $1,539,290 in notes payable at December 31, 2006.  The
Company has inadequate financial resources to meet the repayment terms of its
convertible notes payable.  The Company does not use financial instruments
for trading purposes and is not a party to any leverage derivatives.  To the
extent that the Company has or continues to issue debt obligations outside of
the course of its normal operations, the Company's business and results of
operations may be materially effected by changes in interest rates and
certain other credit risk associated with its operations.




                                     25



     Other Matters

     In the event the Company experiences substantial growth in the future,
the Company's business and results of operations may be materially affected
by changes in interest rates and certain other credit risk associated with
its operations.

     Off Balance Sheet Arrangements

     The Company has no off balance sheet financing arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources
that are material to investors.

ITEM 7.  FINANCIAL STATEMENTS.

     The financial statements are set forth on pages F-1 through F-30 hereto.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     On August 31, 2006, Stonefield Josephson, Inc. ("Stonefield Josephson")
notified American TonerServ Corp. that it had resigned as the Company's
independent registered public accounting firm, effective immediately.

     Stonefield Josephson performed audits of the Company's consolidated
financial statements for the fiscal years ended December 31, 2005 and 2004.
Stonefield Josephson's reports did not contain an adverse opinion or
disclaimer of opinion. However, Stonefield Josephson's reports did include an
explanatory paragraph relating to substantial doubt about the Company's
ability to continue as a going concern.

     During the fiscal years ended December 31, 2005 and 2004 and through
August 31, 2006, there have been no disagreements with Stonefield Josephson
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.

     On September 7, 2006 the Company's audit committee engaged the
accounting firm of Perry-Smith LLP to serve as the Company's independent
registered public accounting firm.

ITEM 8A.  CONTROLS AND PROCEDURES.

     Evaluation of Disclosure Controls and Procedures.

     The term "disclosure controls and procedures" is defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This term refers to the controls and procedures of a company
that are designed to ensure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded,
processed, summarized, and reported within the required time periods. Our
Chief Executive Officer and Principal Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of the end of the


                                     26


period covered by this annual report. They have concluded that, as of that
date, our disclosure controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in our reports filed
under the Exchange Act.

     Changes in Internal Control over Financial Reporting.

     No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

ITEM 8B.  OTHER INFORMATION.

     None




































                                      27



                                   PART III

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

     The Directors and Executive Officers of American TonerServ are as
follows:

        Name             Age           Positions and Offices Held
--------------------     ---    -------------------------------------------

Daniel J. Brinker        49     Chairman of the Board, President and Chief
                                Executive Officer

William A. Robotham      64     Director

Thomas Hakel             46     Director and Secretary

Aaron L. Brinker         30     Chief Operating Officer

Andrew A. Beaurline      54     Senior Vice President of Corporate
                                Development and Strategy

Ryan Vice                34     Chief Financial Officer

     Daniel J. Brinker is the father of Aaron L. Brinker. There are no other
family relationships between any of the Directors or Executive Officers of
American TonerServ.

     Our success will depend to a significant extent on the performance and
continued service of our officers, directors and key employees. None of our
employees have employment contracts. There can be no assurance that we will
be successful in attracting or retaining personnel needed to implement our
strategic business plan and expand our operations. We may experience
increased costs in order to attract and retain skilled employees. In
addition, there can be no assurance that we will have the resources to retain
key employees. If we fail to attract additional qualified employees or to
retain the services of key personnel, we may be unable to achieve our
objectives.

     The following sets forth biographical information as to the business
experience of each Officer and Director for at least the last five years.

     DANIEL J. BRINKER, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER - Mr. Brinker has been a Director of American TonerServ since 1995,
and served as President from 1995 to 2002.  Since November 2005, he has
served as President and CEO of the Company.  He currently devotes full time
to our business.  Since 2002, he has been a business consultant and serves as
President of ASKM Enterprises, Inc., his consulting firm. He has over twenty
years of experience as a principal, operating officer and financier of
financial and other service businesses, and technology companies.  Mr.
Brinker has extensive operational, financial and/or senior management
experience with a number of financial services companies including American
Home Shield (a publicly traded company) and Benchmark Lending Group. Mr.
Brinker served as President of American Home Shield (AHS), the nation's

                                      28



largest home warranty company, from 1987 to 1995.  Mr. Brinker led a
turnaround management team that engineered a buyout of AHS by ServiceMaster
and management in 1989.  Mr. Brinker is a Certified Public Accountant and
earned a Bachelor of Science degree in Accounting from Santa Clara University
in 1979.  Mr. Brinker has also completed certain graduate courses at Stanford
University.

     WILLIAM A. ROBOTHAM, DIRECTOR - Mr. Robotham became a Director in July
2006.  William A. Robotham is a certified public accountant and the executive
partner for Pisenti & Brinker LLP. He has served as the partner-in-charge of
the Auditing and Accounting department, the Tax department and the Management
Advisory Services department. He joined the firm in 1966, became a partner in
1969 at twenty-seven years of age, managing partner in 1983 and executive
partner in 1996. Mr. Robotham currently works in tax, general practice and
management consulting for the firm. He is also a director of American River
Bankshares, a publicly-held company listed on NASDAQ.   Mr. Robotham is
Chairman of the audit committee and is a member of other committees of
American River Bankshares.  He also serves on the regional board of North
Coast Bank and is Chairman of the Board, President and CEO of Randal
Nutritional Products, Inc.  Mr. Robotham is a member of the American
Institute of Certified Public Accountants and the California Society of
Certified Public Accountants.

     THOMAS HAKEL, DIRECTOR - Mr. Hakel has been a Director of the Company
since 2001, and as Secretary since November 2005. He has extensive experience
in corporate finance and business development. Since 1998, Mr. Hakel has been
the founder and manager of International Commerce Group, LLC, a business
consultancy organization working primarily with emerging stage technology
companies. He also served as the CEO of Accerra Corporation, a web based
communications and marketing service from 2003 to April 2004.  From 1997 to
1999, Mr. Hakel was co-founder of DTI Network Services, LLC and
ICN/CommSource Network Services, LLC, which bought international undersea
network fiber optic cable capacity. Prior to that, Mr. Hakel was Executive
Vice President at World Change Communications ("WXC"), a telecommunications
company with over $400M in annual revenues from 1996 to 1997.  In both
consulting and operational roles, Mr. Hakel has assisted numerous companies
with the development of strategic plans, debt and equity financing and
mergers and acquisitions, including transactions involving companies in the
software, telecom equipment, financial services and internet industries. He
is a Certified Public Accountant and received a Bachelors of Science Degree
in computer science from California State University, Sonoma in 1985.

     AARON L. BRINKER, COO - Mr. Brinker became Chief Operating Officer of
the Company in July 2006. Since 2004, Mr. Brinker has been the founder and
General Partner of MAS Enterprises, GP, which successfully opened and manages
two Fantastic Sams franchise hair salons in the East Bay area of San
Francisco. Fantastic Sams is the world's largest full service hair care
franchise with salons located throughout the United States, Canada,
Singapore, Taiwan and Japan. From 1998 to 2004, Mr. Brinker served as a
Director of SVB Capital.  SVB Capital is the private equity arm of SVB
Financial Group (Nasdaq: SIVB), a $4 billion financial services firm serving
companies in the technology, life science, private equity and premium wine
markets. Mr. Brinker helped raise, invest, and manage SVB Capital's first two
venture capital funds in excess of $385 million. From 2002 to 2005, Mr.

                                     29



Brinker also served as Board Member and Treasurer of Friends for Youth, a
non-profit organization dedicated to providing youth mentoring services. He
also volunteers as a wish grantor for Make-A-Wish Foundation, which grants
the wishes of children with life-threatening medical conditions. Mr. Brinker
earned a Bachelor of Science degree in Finance from Santa Clara University in
1998.

     ANDREW BEAURLINE, SENIOR VICE PRESIDENT - CORPORATE DEVELOPMENT AND
STRATEGY - Mr. Beaurline became Sr. Vice President of Corporate Development
and Strategy in September 2006. Mr. Beaurline had been advising the Company
as a consultant since February 2006. Mr. Beaurline has 31 years experience
working with middle market businesses including 21 years of investment
banking and venture capital experience. Since August 2004, Mr. Beaurline has
served as Vice President - Corporate Development for Central Garden & Pet
("Central"), a Nasdaq National Market listed company which is one of the
largest suppliers in the lawn and garden and pet supplies industries. Mr.
Beaurline will continue to consult to Central through December 2006.  Prior
to 2005, Mr. Beaurline served as Senior Vice President, Corporate Finance
with Sucsy, Fischer & Co. (SFCo), an investment-banking firm headquartered in
Chicago.  Mr. Beaurline served SFCo for 19 years and was involved with all
aspects of developing and managing a middle-market investment banking
practice.  Mr. Beaurline has extensive experience providing all types of
financial advisory services to privately held companies.  He has successfully
completed corporate merger, sale, acquisition, management buy-out, private
equity placement and debt financing transactions. At SFCo Mr. Beaurline was
also responsible for the firm's valuation services practice.  He has
significant experience providing formal valuation reports on corporations,
partnerships, and individual securities.  Mr. Beaurline has also provided
fairness opinions and has served as an expert witness regarding valuation
issues.  Mr. Beaurline also has operating experience serving as interim CFO
for clients when requested. Prior to joining SFCo, Mr. Beaurline was an
investment officer with First Chicago's Institutional Venture Capital Fund,
and a Senior Manager with Arthur Andersen & Co. (Minneapolis) in its tax and
audit divisions. Mr. Beaurline has served as a director for several companies
including Nserve Corporation, an extended warranty contract underwriter with
annual revenues of $125 million. Mr. Beaurline is a Certified Public
Accountant and earned a Masters in Business Administration from the
University of Chicago with a specialization in business economics and
concentrations in marketing and finance.  He also earned a Bachelors of
Science in Accountancy (with honors) from the University of Illinois.

     RYAN VICE, CFO - On July 7, 2006, the Board of Directors elected Ryan
Vice to serve as Chief Financial Officer of the Company.  Mr. Vice has over
10 years of experience in corporate finance, accounting and business
development.  Mr. Vice is currently serving as an Associate Business Advisor
for The Business Resource, Inc. which is a 20 year old small business
advisory firm specializing in business development. From 1999 to 2006, Mr.
Vice was the corporate controller and primary financial officer for North Bay
Corporation, a refuse and recycling company, with over 20 subsidiaries and
over 150,000 customers.  Mr. Vice oversaw all aspects of the accounting and
finance functions of the company including budgeting, forecasting and
preparing the consolidated financial statements of multiple operating
companies. From October 1996 to April 1999, Mr.Vice practiced public
accounting with Pisenti & Brinker LLP.   He is also the founder and part-
owner of four other small businesses with primary financial and accounting

                                      30



responsibilities in each of them. Mr. Vice is a Certified Public Accountant
and a member of the American Institute of Certified Public Accountants.
Mr.Vice is also a Real Estate Broker licensed by the California Department of
Real Estate and a member of the National Association of Realtors.  Mr. Vice
earned his Bachelor of Science in Finance from California State University,
Sacramento in 1995.

     Our Executive Officers hold office until the next annual meeting of the
Board of Directors. There are no known arrangements or understandings between
any Director or Executive Officer and any other person pursuant to which any
of the above-named Executive Officers or Directors was selected as an
Executive Officer or Director.

     The Board of Directors currently has an audit committee and a
compensation committee, of which William Robotham and Thomas Hakel are both
members.  The audit committee is chaired by William Robotham and the
compensation committee is chaired by Thomas Hakel.

ADVISORS

     The following persons have agreed to assist the Company on an advisory
basis.

     HENRY MANAYAN, CHAIRMAN OF THE ADVISORY BOARD - On September 30, 2006,
Mr. Manayan began serving the Company as a consultant and is the Chairman of
the Advisory Board.  The Company and Mr. Manayan entered in a one year
advisory engagement, whereby Mr. Henry Manayan will introduce the Company to
business opportunities, advise the Company of strategies and opportunities
and assist in business development.  Currently, Mr. Manayan is the President
and General Counsel of Transpacific Capital Corporation, a finance and
investment company based in the Silicon Valley area of California. He is also
a board director, officer and legal counsel to several hi-tech companies and
organizations.  Mr. Manayan has served as Executive Director of CultureCom
Holdings Ltd. since September 1999. Mr. Manayan is a lawyer and management
consultant based in Silicon Valley, California.  Mr. Manayan served three-
terms as the Mayor of the City of Milpitas, California, the first Asian-
American ever elected to the position. Mr. Manayan was educated at Syracuse
University, Oxford University (Great Britain), Yale-in-China College, Golden
Gate University Graduate College of Banking and Finance, and received his
Juris Doctor from University of Santa Clara School of Law. Mr. Manayan also
completed post-graduate work at the London Business School and Harvard
University. Mr. Manayan has been a college professor and lectures at the
University of Washington (Seattle, Washington). Mr. Manayan's experience
includes commercial real estate development in five Western States and
investment banking. He was one of the original co-founding Directors of
ViaGold Capital, Ltd., and helped to take it public on the Australian Stock
Exchange in 1997.

     CHUCK MACHE - Chuck Mache has spent a quarter-century selling, managing,
building, and leading sales organizations, with a specialty in highly
competitive industries. He used his breakthrough sales approach to lead the
transition of Benchmark Lending Group from a mortgage broker to a full
mortgage bank, and dramatically increased both the number and size of loans
in a short period, turning the company into a mid-size player in the
California market.  As Executive Vice President of Sales for American Home


                                     31



Shield, Mache grew revenues from $6M to $100M in ten years, formed strategic
partnerships with other market leaders, such as Coldwell Banker and
Prudential, and restructured sales teams during acquisitions.  From working
in the field to leading the executive team, Mr. Mache has mentored thousands
of sales professionals. Through those relationships, he discovered the four
paths to breakthrough sales, and he is committed to using these concepts to
build next level sales teams worldwide, through his speeches, coaching, and
consulting programs.

     BRYAN THOMAS - Mr. Thomas is the President and Chief Executive Officer
of Thomas Reprographics, Inc. which provides construction document printing
and distribution management services for the architectural and construction
industry. In the nine years in his position, Mr. Thomas has led his company
through significant expansion. He has made over twenty acquisitions during
this time while maintaining a focus on organic growth. As a result, Thomas
Reprographics has grown over 300% and is the second largest reprographics
company in North America. Thomas Reprographics currently employs over 900
people in Arizona, Texas, Minnesota, and Florida. Mr. Thomas is a past
Chairman of ReproMAX, Inc. ("ReproMAX") and is a current Director of that
corporation. He is also the 2007-2008 President of the International
Reprographics Association and Past President of the Central Reprographics
Association.  Mr. Thomas earned his Masters in Business Administration from
Southern Methodist University.

     RICK BOSWORTH - Mr. Bosworth has developed and successfully expanded
profitable reprographic companies over a 30+ year career. For the past four
years, Mr. Bosworth has lead and grown ReproMAX, the world's largest
reprographic network with over 250 participating companies throughout the
United States, Canada and Western Europe. Mr. Bosworth's continuing goals are
to assist and accelerate the changing direction of the reprographic industry
through technology implementation and industry integrations.  As President of
Indox Services Corporation from 1973 to 2003, Mr. Bosworth worked closely
within the architectural and construction communities to facilitate, manage
and improve information/document processes, and successfully integrating
internal information workflows, print, copy and related services for
companies such as MasterCard, Anheuser-Busch, Sara Lee, US Bank, and others.
Mr. Bosworth served as ReproMAX Chairman from 1999 to 2001. Mr. Bosworth has
contributed to the International Reprographics Association as a Board Member
for 5 years, acting as both Program and Convention Chair. Mr. Bosworth has
also served as Board Member and President of the Central Reprographics
Association. Mr. Bosworth currently serves the community as a Board Member
for the St. Louis Area Foodbank. Mr. Bosworth earned his degree from the
University of Missouri with a Bachelors of Arts in Economics.

     GENE KLEIN - Mr. Klein is the Chief Executive Officer of BarkerBlue
Digital Imaging, Inc. (BarkerBlue), a document management and print company
servicing the San Francisco Bay Area, where Mr.Klein has been since 1979. In
2000, BarkerBlue became the first reprographics company in Northern
California to successfully host an online blue print plan room for the
Aluminum Extruders Council industry. This changed the paradigm for Mr.
Klein's peers in the reprographics industry, as it forced them to expand
their core competence from printing to digital document management. Mr. Klein
was instrumental in developing the technology into a system-wide standard
within ReproMAX, the world's leading Network of wide-format technology
experts, which allowed the organization to become the first successful

                                     32



distribute-and-print network of building plans and specifications. Mr.Klein
is a past Chairman of ReproMAX and is currently on its Board of Directors.
Mr.Klein has been a member of the IRgA (International Reprographic
Association) since 1980 and a member of PIA (Printing Association of America)
since 1984. Mr.Klein is the immediate past Chairman of the Board of the San
Mateo Area Chamber of Commerce. Mr. Klein graduated from Stanford University
with a Bachelors of Arts degree in English Literature in 1979.

     DAVID FERRARI - Mr. Ferrari is the President of One Workplace L.
Ferrari, LLC ("One Workplace"), a full service office furnishings dealership
in the San Francisco Bay Area where he has worked since 1973. One Workplace
provides workplace furnishings, architectural demountable walls, audio visual
systems integration, and interactive technology white board products for the
work place. In addition to its products, One Workplace provides complete
asset management storage services, re-furbishing and light re-manufacturing
as well as installation and delivery services. One Workplace represents
Steelcase products and 200 other manufacturers.   Recent start up divisions
in the company include Health Care, Audio Visual, and On Site Facility
Management Services. One Workplace is the largest independent office
furnishings dealer east of New York City and is viewed as a leader in
innovation for their industry. Mr. Ferrari is on the Board of Directors of
Lindsay-Ferrari, Facility Link LLC a nation wide service organization,
Proview Global an international off shore production company providing
Computer Automated Design services and benefits administration, OFRA (office
furniture rental alliance) a national office furniture rental business,  and
various not for profit boards including Los Gatos Little League. Mr. Ferrari
graduated from the University of Santa Clara in 1974 with Bachelor of Science
degrees in marketing and management.

SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE

     Not Applicable.

CODE OF ETHICS

     The Company's Code of Ethics and Business conduct is filed with this
report as Exhibit 14.


















                                     33



ITEM 10.  EXECUTIVE COMPENSATION.



<TABLE>
<CAPTION>
                                           SUMMARY COMPENSATION TABLE

----------------------------------------------------------------------------------------------------------------
                                                                               Non-
                                                                   Non-Equity  qualified
                                                                   Incentive   Deferred
                                                                   Plan        Compen-     All Other
Name and                                     Stock      Option     Compensa-   sation      Compen-
Principal                             Bonus  Awards(1)  Awards(1)  tion        Earnings    sation      Total
Position            Year  Salary ($)  ($)   ($)         ($)        ($)         (4)         ($)         ($)
------------------  ----  ----------  ----  ----------  ---------  ----------  ----------  ----------  --------
<S>                 <C>   <C>         <C>   <C>         <C>        <C>         <C>         <C>         <C>
Daniel J. Brinker,  2006  $30,000(2)   -    $90,517     $ 8,566(3)     -           -         -         $129,083
 CEO
Aaron L. Brinker,   2006  $23,333(2)   -    $72,414     $ 3,269        -           -       $12,000     $111,016
 COO
Ryan P. Vice, CFO   2006  $15,000(4)   -    $ 1,875     $ 2,352        -           -       $12,000     $ 31,227

Andrew Beaurline,   2006  $58,000(2)   -       -        $31,009        -           -       $70,000(5)  $159,009
 VP of Corporate
 Development
----------------------------------------------------------------------------------------------------------------
</TABLE>



________________

(1) The value for Stock Awards and Option Awards in the table above
represents the dollar amount recognized for financial reporting purposes for
2006 in accordance with Statement of Financial Accounting Standards No. 123R,
Accounting for Stock-Based Compensation, ("FAS 123R"). The fair value of the
Stock Awards on the grant date was $0.015 per share, as determined by the
Board of Directors. For Option Awards, the dollar amount for each individual
varies depending on the number of options held, the fair value of such
options, and the vesting terms of such options. See Note 2 of Notes to
Audited Financial Statements for the year ended December 31, 2006 for
information on the assumptions used to calculate the grant date fair value of
Option Awards and the expense recognized under FAS 123R.

(2) This amount had been accrued but not paid as of December 31, 2006.  In
February 2007, this person agreed to accept shares of the Company's common
stock in lieu of cash for this amount. (See Item 12.  Certain Relationships
and Related Transactions.)

(3) Of the Option Awards to Daniel J Brinker, $2,027 relates to his services
as a Director of the Company.

(2) This amount had been accrued but not paid as of December 31, 2006.  In
February 2007, Mr. Vice agreed to accept shares of the Company's common stock
in lieu of cash for $12,000 of this amount. (See Item 12.  Certain
Relationships and Related Transactions.)

(5) Represents amounts paid to Andrew Beaurline for consulting services
performed from February 2006 to August 2006 prior to becoming the Company's
Senior Vice President of Corporate Development.




                                     34



EMPLOYMENT ARRANGEMENTS

     We do not currently have any formal employment agreements with current
or proposed Executive Officers. However, in July 2006 we entered into letter
agreements concerning compensation matters with Daniel J. Brinker, Aaron L.
Brinker and Ryan Vice.

     In July 2006, the company entered into a Stock Compensation Agreement
with Mr. Daniel Brinker for services rendered to the Company as President,
Chief Executive Officer and Chief Financial Officer.  Mr. Brinker received
5.0 million shares of common stock at $0.015 per share.  As President and CEO
Mr. Daniel Brinker's compensation package provides for base compensation of
$180,000 per year multiplied by the portion of time he devotes to the
Company.  His compensation will begin when the Company receives funding of at
least $750,000 or earlier upon the Board's discretion.  Mr.  Daniel Brinker's
salary will thereafter be reviewed on an annual basis by the Board of
Director's compensation committee.  Upon funding of an offering of a least
$5.0 million, Mr. Daniel Brinker will receive a three-year employment
contract with a guarantee of one year.  Upon becoming a full time employee,
Mr. Brinker will receive an opportunity to achieve cash bonus equal to 25% of
his salary and a $600.00 monthly auto allowance.  The bonus will be based
upon criteria set by the Board of Director's compensation committee.
Additionally, Mr. Daniel Brinker has been granted 900,000 stock options.

     In July 2006, the company entered into a Stock Compensation Agreement
with Mr. Aaron Brinker for services rendered to the Company as a consultant
relating to the procurement of new Customer Relationship Management software
and accounting systems from February 2006 to July 2006.  Mr. Brinker received
4.0 million shares of common stock at $0.015 per share.  Mr. Aaron L.
Brinker, our Chief Operating Officer, effective July 2006, has a compensation
package that provides for base compensation of $140,000 per year multiplied
by the portion of time he devotes to the Company.  Beginning in February
2006, Mr. Aaron Brinker has spent approximately 10 to 20 hours per week at
ATS.  It is anticipated that he will continue to spend 20 to 30 hours of time
and ramp up to full time depending on the Company's needs and resources.  Mr.
Aaron Brinker's compensation begins when the Company receives funding of at
least $750,000 or earlier upon the Board's discretion.  Mr. Aaron Brinker's
salary will be reviewed annually thereafter by the Board of Director's
compensation committee.  Upon becoming a full time employee, Mr. Aaron
Brinker will receive an opportunity to achieve cash bonus equal to 25% of his
base salary and a $750.00 monthly auto allowance.  The bonus will be based
upon criteria set by the Board of Director's compensation committee.
Additionally, Mr. Aaron Brinker has been granted 450,000 stock options.

     Andrew Beaurline, who became our Senior Vice President of Corporate
Development and Strategy on September 19, 2006, has a compensation package
that provides for base compensation of $180,000 per year. Mr. Beaurline's
compensation will accrue until the Company receives funding of at least
$750,000 or earlier upon the Board's discretion.  Mr. Beaurline's salary will
be reviewed by the Board of Director's compensation committee annually
thereafter.  Mr. Beaurline will receive an opportunity to achieve cash bonus
equal to 30% of his base salary and a $20,000 bonus if the Company achieves a
specified level of annualized revenues by December 31, 2006. Additionally,
Mr. Beaurline was granted options to purchase up to 4,000,000 shares of the
Company.

                                      35



     Ryan Vice, our Chief Financial Officer, has a compensation package that
provides for base compensation of $90,000 per year multiplied by the portion
of time he devotes to the Company.  Mr. Vice's compensation will begin when
the Company receives funding of at least $750,000 or earlier upon the Board's
discretion.  Mr. Vice's salary will be reviewed annually thereafter by the
Board of Director's compensation committee.  Mr. Vice began with the Company
in June 2006. Mr. Vice plans to spend approximately 24 hours per week at the
Company and ramp up to full time depending on the Company's needs and
resources.  Upon becoming a full time employee, Mr. Vice will receive an
opportunity to achieve cash bonus equal to 25% of his base salary and a
$350.00 monthly auto allowance.  The bonus will be based upon criteria set by
the Board of Director's compensation committee.  Additionally, Mr. Vice has
been granted 300,000 stock options. In connection with his employment, Mr.
Vice received 1,000,000 shares of the Company's common stock.  Mr. Vice has
executed a repurchase agreement with ATS whereby the Company may repurchase
these shares if he is employed by the Company for less than two years.

     The compensation agreements for Daniel J. Brinker, Aaron L. Brinker and
Ryan Vice began accruing as of November 1, 2006 at the discretion of the
Board of Directors.

            2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE



<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                       Option Awards                                       Stock Awards
                   ---------------------------------------------------- --------------------------------------------
                                                                                                          Equity
                                                                                                          Incentive
                                                                                              Equity      Plan
                                                                                              Incentive   Awards:
                                           Equity                                             Plan        Market or
                                           Incentive                                          Awards:     Payout
                                           Plan                                               Number of   Value of
                                           Awards:                                 Market     Unearned    Unearned
                   Number      Number      Number                       Number     Value      Shares,     Shares,
                   of Securi-  of Securi-  of                           of Shares  of Shares  Units       Units
                   ties Under- lying Un-   Securi-                      or Units   or Units   or Other    or Other
                   lying Un-   exercised   ties Un-                     of Stock   of Stock   Rights      Rights
                   exercised   Options (#) lying Un-  Option   Option   That       That       That        That
                   Options (#) ----------- exercised  Exercise Expir-   Have Not   Have Not   Have Not    Have Not
                   -----------     Un-     Unearned   Price    ation    Vested     Vested     Vested      Vested
Name               Exercisable exercisable Options(#) ($)      Date     ($)        ($)        (#)         ($)
----               ----------- ----------- ---------- -------- -------- ---------- ---------- ----------  ----------
<S>                <C>         <C>         <C>        <C>      <C>      <C>        <C>        <C>         <C>
Daniel J. Brinker                900,000              $0.165   7/7/2016

Daniel J. Brinker     25,000     275,000              $0.165   10/2/2016

Aaron L. Brinker                 450,000              $0.165   7/7/2016

Ryan P. Vice                     300,000              $0.150   7/7/2016  1,000,000  $490,000
                                                                            (1)

Andrew Beaurline               4,000,000              $0.150   9/19/2016
--------------------------------------------------------------------------------------------------------------------



(1) The market value of shares that have not vested was determined by the
last reported sale price of the common stock of $0.49 on December 31, 2006.
</TABLE>

                                      36




COMPENSATION OF DIRECTORS AND ADVISORS

     Members of the Board of Directors do not currently receive any cash
compensation for their services as Directors.  However, certain Directors
have received options to purchase shares of our Common Stock. To attract and
keep Board members the Company may grant options to Board members.  Director
Thomas Hakel was granted 7,500 options on March 22, 2001, and 7,500 options
on December 17, 2003.  Michael Walker, a former Director, was granted 7,500
options on July 16, 2004. Each of these options are excisable at $2.50 per
share and vest as to 1/42nd of the total number of shares six months after
their respective grant date and vest as to an additional 1/42nd of the number
of shares on the first day of each of the following 41 calendar months.  Mr.
Walker resigned as a Director in March 2005.  These options were terminated.

     In July 2006, the Company entered into a Stock Compensation Agreement
with Mr. Tomas Hakel for consulting services rendered to the Company relating
to financial modeling and acquisition strategies. Mr. Hakel received 2.5
million shares of common stock at $0.015 per share.

     In July 2006, the Company entered into a Stock Compensation Agreement
with Mr. William Robotham for consulting services rendered to the Company
relating to strategic planning and acquisition strategies. Mr. Robotham
received 2.0 million shares of common stock at $0.015 per share.

     On October 2, 2006 the Board granted options to purchase 300,000 shares
to each of the three board members comprised of Daniel Brinker, William
Robotham and Thomas Hakel. These options are exercisable at $0.165 per share
and vest in equal monthly increments over two years starting on the grant
date.

     Henry Manayan, the Chairman of our Advisory Board, was granted 200,000
non-qualified stock options exercisable at a price of $0.15 per share.  The
options shall vest over one year commencing October 1, 2006 at a rate of
16,667 shares per month as long as the one year agreement remains in affect.
This engagement is cancelable by either party without notice after 90 days.
Mr. Manayan is expected to devote approximately forty (40) hours per annum to
perform his duties in this position.

     Chuck Mache, Advisor, was granted 240,000 non-qualified stock options
exercisable at a price of $0.15 per share.  The options shall vest over one
year commencing September 4, 2006 at a rate of 20,000 shares per month as
long as the one year agreement remains in affect. In addition, Mr. Mache will
also receive $2,000 per month over the one year term of the agreement. This
engagement is cancelable by either party without notice after 90 days.  Mr.
Mache is expected to devote approximately two days per month to perform his
duties in this position.

     On February 9, 2007 the Board granted options to purchase 100,000 shares
to four individuals comprised of Bryan Thomas, Rick Bosworth, Gene Klein and
David Ferrari to serve on its Strategic Advisory Board.  These options are
exercisable at $0.40 a share and will vest equally over the twelve month
term.  These agreements are cancelable by either party without notice after
30 days.  These individuals are expected to devote approximately one hour of
their time in a bi-weekly conference call.

                                      37







<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
                             2006 DIRECTOR COMPENSATION TABLE


                                                                     Non-
                    Fees                              Non-Equity   qualified
                   Earned                             Incentive    Deferred     All
                     or                                 Plan        Compen-     Other
                   Paid in      Stock      Option      Compen-      sation      Compen-
                    Cash      Awards(1)   Awards(1)    sation       Earnings    sation     Total
      Name           ($)         ($)        ($)          ($)          ($)        ($)        ($)
----------------   --------   ---------   ---------   ----------   ---------   --------   -------
<S>                <C>        <C>         <C>         <C>          <C>         <C>        <C>
William Robotham   $  -0-     $36,207(2)   $2,027(2)                                      $38,234
Thomas Hakel       $  -0-     $45,259(3)   $2,027(3)                                      $47,286

---------------------------------------------------------------------------------------------------



______________________

(1) The value for Stock Awards and Option Awards in the table above
represents the dollar amount recognized for financial reporting purposes for
2006 in accordance with FAS No. 123R. The fair value of the Stock Awards on
the grant date was $0.015 per share, as determined by the Board of Directors.
For Option Awards, the dollar amount for each individual varies depending on
the number of options held, the fair value of such options, and the vesting
terms of such options. See Note 2 of Notes to Audited Financial Statements
for the year ended December 31, 2006 for information on the assumptions used
to calculate the grant date fair value of Option Awards and the expense
recognized under FAS 123R.

(2)  As of December 31, 2006, none of the Stock Awards and $16,219 of the
Option Awards held by Mr. Robotham were unvested.

(3)  As of December 31, 2006, none of the Stock Awards and $16,219 of the
Option Awards held by Mr. Hakel were unvested.
</TABLE>

2005 STOCK INCENTIVE PLAN

     On December 15, 2005, the Board of Directors adopted a new Stock
Incentive Plan (the "2005 Plan"), which was approved by our shareholders in
February 2006.  The 2005 Plan allows the Board of Directors to grant stock
options from time to time to employees, officers and directors of the Company
and service providers (consultants) to American TonerServ. The Board of
Directors has the power to determine at the time the option is granted
whether the option will be an Incentive Stock Option (an option that
qualifies under Section 422 of the Internal Revenue Code of 1986) or an
option that is not an Incentive Stock Option.  However, Incentive Stock
Options will only be granted to persons who are employees or officers of
American TonerServ.  The Board of Directors determines vesting provisions at
the time options are granted. In July 2006, the shareholders approved an

                                      38



increase in the total number of shares of Common Stock subject to options
under the 2005 Plan from 2,500,000 to 7,000,000 shares (after giving effect
to the ten for one (10 for 1) stock split), subject to adjustment in the
event of certain recapitalizations, reorganizations and so forth. On
September 29, 2006, the Board of Directors and our shareholders approved an
increase in the total number of shares of Common Stock subject to options
under the 2005 Plan from 7,000,000 to 8,400,000 shares, subject to adjustment
in the event of certain recapitalizations, reorganizations and so forth.  The
option price must be satisfied by the payment of cash and will be no less
than 100% of the fair market value of the Common Stock on the date the option
is granted for Incentive Stock Options and 85% of the market value for non-
qualified options.

     During 2006, a total of 7,446,300 options to purchase shares of common
stock were granted under the 2005 Stock Incentive Plan, of which 490,000
options were granted to non-employees.  A total of 50,000 options vested upon
granting and and 440,000 shares vest equally over a twelve month period.  The
remaining 6,956,300 of options to purchase shares were granted to directors,
officers and employees of the Company.  The Company received $1,500 for
10,000 shares issued upon the exercise of options in October 2006. A total of
40,000 options to purchase shares were forfeited due to termination of
employment.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS

     The following table sets forth the number and percentage of shares of
our $.001 par value common stock and preferred shares owned beneficially, as
of March 9, 2007, by any person who is known by us to be the beneficial owner
of 5% or more of such common stock, by all Directors and Executive Officers
individually, and by all Directors and Executive Officers as a group.
Information as to beneficial ownership is based upon statements furnished to
us by such persons.

                                      Amount of
Name and Address                      Beneficial             Percentage
of Beneficial Owner                   Ownership               of Class
-------------------                  --------------          ----------
BRAM Enterprises (1)                  5,312,500 (1)            20.4%
3550 Round Barn Blvd, Suite 100
Santa Rosa, CA 95403

Daniel J. Brinker                     6,708,067 (2)            27.5%
475 Aviation Blvd., Suite 100
Santa Rosa, CA  95403

Aaron L. Brinker                      4,444,477 (3)            19.2%
729 Cumberland Ct.
Pleasant Hill, CA 94523

Thomas Hakel                          2,934,555 (4)            12.8%
1020 Blue Oak Pl.
Santa Rosa, CA 95404

                                      39



William A. Robotham                   5,209,393 (5)            21.0%
3550 Round Barn Blvd, Suite 100
Santa Rosa, CA 95403

Lynn J. Brinker                       3,380,790 (6)            13.5%
77 875 Seminole Rd.
Indian Wells, CA 92210

James Laier                           1,895,930 (7)             7.7%
1080 Airport Blvd.
Santa Rosa, CA 95403

Fort Holdings Ltd.                    1,500,000 (8)             6.6%
138 Gloucester Road, Room 1005
Wan Chai, Hong Kong

Basilio Chen                          1,206,900 (9)             5.3%
1840 Gateway Drive, #200
San Mateo, CA 94404

Ryan Vice                             1,026,667 (10)            4.4%
PO Box 5545
Santa Rosa, CA 95402

Andrew Beaurline
2149 - 48th Avenue                      228,889 (11)            1.0%
San Francisco, CA 94116

All Directors and Officers            20,552,048                85.4%
as a group (6 persons)
_____________________

(1)  BRAM Enterprises is a general partnership in which Lynn Brinker and
William A. Robotham are equal partners.  The number of shares beneficially
owned by BRAM Enterprises includes 2,000,000 common shares and 3,312,500
shares into which shares of Series C Preferred stock held by BRAM Enterprises
may be converted.  The Series C Preferred stock can be converted at a ten for
one (10 for 1) ratio.  Bram Enterprises currently owns 331,250 of Series C
Preferred stock.

(2)  Includes 5,502,307 common shares held directly by Daniel J. Brinker;
1,086,720 shares of common shares into which shares of Series C Preferred
Stock held by Daniel J. Brinker may be converted; 114,040 shares issuable on
exercise of options held by Daniel J. Brinker that are exercisable within 60
days; and 5,000 shares that are issuable under warrants held by Daniel J.
Brinker. The Series C Preferred stock can be converted at a ten for one (10
for 1) ratio.  Mr. Brinker currently owns 108,672 of Series C Preferred
stock.

(3)  Includes common shares held directly by Aaron L. Brinker.

(4)  Includes 2,832,055 common shares held directly by Thomas Hakel and
83,750 shares issuable upon exercise of options held by Thomas Hakel within
60 days.

                                     40




(5)  Includes 2,215,643 common shares held by William A. Robotham; 250,000
shares into which shares of Series C Preferred Stock held by Mr. Robotham may
be converted; 68,750 shares issuable on exercise of options held by Mr.
Robotham within 60 days; 1,000,000 of the common shares held by BRAM
Enterprises in which Mr. Robotham is a partner; and 1,656,250 common shares
into which shares of Series C Preferred Stock held by BRAM Enterprises may be
converted. The Series C Preferred stock can be converted at a ten for one (10
for 1) ratio.  Mr. Robotham currently owns 25,000 of Series C Preferred
stock. Mr. Robotham's share of Bram Enterprises Series C preferred stock is
165,625 shares.

(6)  Includes 39,750 common shares held by Lynn Brinker; 671,260 common
shares into which shares of Series C Preferred Stock held by Lynn Brinker may
be converted; 13,530 shares that are issuable under warrants held by Lynn
Brinker; 1,000,000 of the common shares held by BRAM Enterprises in which Mr.
Lynn Brinker is a partner; and 1,656,250 common shares into which shares of
Series C Preferred Stock held by BRAM Enterprises may be converted. The
Series C Preferred stock can be converted at a ten for one (10 for 1) ratio.
Mr. Brinker currently owns 67,126 of Series C Preferred stock. Mr. Brinker's
share of Bram Enterprises Series C preferred stock is 165,625 shares.

(7)  Includes 24,050 common shares held by James Laier and 1,871,880 common
shares into which shares of Series C Preferred Stock held by Mr. Laier may be
converted. The Series C Preferred stock can be converted at a ten for one (10
for 1) ratio.  Mr. Laier currently owns 187,188 of Series C Preferred stock.

(8)  Includes common shares held directly by Fort Holdings Ltd.

(9)  Includes common shares held directly by Basilio Chen.

(10) Includes common shares held directly by Ryan Vice.

(11) Includes common shares held directly by Andrew Beaurline.

EQUITY COMPENSATION PLAN INFORMATION

     The following table provides information about the Common Stock that may
be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2006.
















                                      41



<TABLE>
<CAPTION>



______________________________________________________________________________________
                                                                   Number of
                                                                   Securities Remain-
                                                                   ing Available for
                                                                   Future Issuance
                     Number of Secure-                             Under Equity
                     ties to be Issued      Weighted-Average       Compensation Plans
                     upon Exercise of       Exercise Price of      (excluding secure-
                     Outstanding Options,   Outstanding Options,   ties reflected
                     Warrants and Rights    Warrants and Rights    in column (a))
Plan Category             (a)                     (b)                    (c)
______________________________________________________________________________________
<S>                  <C>                    <C>                    <C>
Equity Compensation
Plans approved by          7,484,190                $0.18                 993,700
Stockholders
______________________________________________________________________________________
Equity compensation
plans not approved            -                  -                               -
by Stockholders
______________________________________________________________________________________



</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On May 8, 2006, we issued shares of Series C Convertible Preferred Stock
("Series C Shares") to accredited investors in a private offering.  A total
of 1,067,884 Series C Shares were issued to 12 accredited investors, of which
832,884 Series C Shares were issued in exchange for outstanding convertible
notes and the interest accrued thereon of $832,884, along with the warrants
that were issued with the convertible notes.  In addition, 235,000 Series C
Shares were issued for $235,000 in cash. Among the investors that exchanged
convertible notes and interest for Series C Shares were BRAM Enterprises a
general partnership of which Lynn Brinker (a principal shareholder of the
Company and the father of Daniel J. Brinker, President, CEO and a Director of
the Company) and William A. Robotham (a principal shareholder and Director of
the Company) are partners, who exchanged $331,250 for 331,250 Series C Shares
; Daniel Brinker who exchanged $108,672 for 108,672 Series C Shares ; Lynn
Brinker who exchanged $67,126 for 67,126 Series C Shares  and James Laier who
exchanged $187,188 for 187,188 Series C Shares . Additionally, William
Robotham invested $25,000 for 25,000 Series C Shares.

     In July 2006, the Company issued 2.0 million shares of common stock at
$0.015 per share to BRAM Enterprises for $25,000 in cancellation of
indebtedness of the Company and $5,000 of cash.

     On July 7, 2006, the Company entered into Stock Compensation Agreements
with five persons, for which the Company agreed to issue shares of the
Company's common stock to them in exchange for services those persons have
provided to the Company.  The shares were issued at a rate of $.015 per share
for such services.  The names of the persons with whom the Company entered
into Stock Compensation Agreements and their relationships with the Company;
the value of the services provided and the number of share issued for such

                                      42




services are set forth in the following table.  After giving effect to the
issuance of common stock pursuant to the Compensation Agreements, each of
these persons has beneficial ownership of greater than 5% of the Company's
outstanding common stock.

Name and Relationship        Value of Services       Number of Shares
---------------------        -----------------       ----------------

Daniel J. Brinker,
President, CEO
and Director                     $90,517                  6,034,480

Thomas Hakel,
Director and
Consultant                       $45,259                  3,017,240

Aaron L. Brinker,
Consultant (1)                   $72,414                  4,827,590

William A. Robotham,
Consultant (2)                   $36,207                  2,413,790

Basilio Chen,
Consultant                       $18,104                  1,206,900

----------------

(1)  Aaron L. Brinker became Chief Operating Officer of the Company on July
7, 2006.  He is the son of Daniel J. Brinker, who is President, CEO and a
Director of the Company.

(2)  Mr. Robotham became a Director of the Company on July 10, 2006.

     On July 7, 2006, the Company issued 200,000 shares to BRAM Enterprises
in exchange for $5,000 cash and cancellation of indebtedness in the amount of
$25,000 for money advanced to the Company.

On July 7, 2006, the Company also entered into a Corporate Development and
Consulting Agreement with Fort Holdings Limited ("Fort Holdings"), pursuant
to which Fort Holdings will provide the Company with consulting services with
regard to corporate and business development, corporate planning and other
matters as agreed to from time to time.  Initially, Fort Holdings will assist
the Company to develop and manage a corporate development plan.  As
compensation for these services, Fort Holdings received a $10,000 retainer
and 1,500,000 shares of the Company's Common Stock. Fort Holdings will be
required to return 500,000 shares in the event that the corporate development
plan is not completed and 1,000,000 shares if Fort Holdings terminates the
Corporate Development and Consulting Agreement within six months of entering
into the agreement. 1,000,000 shares are fully vested as of January 7, 2007.
The corporate development plan is estimated to be completed within one year
from the date of the agreement.  As a result of the receipt of this stock,
Fort Holdings is now a beneficial owner of more than 5% of the Company's
outstanding Common Stock.  A direct family member of Basilio Chen not
residing in the same home address is a beneficiary non-majority shareholder
of Fort Holdings.  The family member is neither an officer nor a director of
Fort Holdings. Basilio Chen is not an officer or director in Fort Holdings.

                                      43




     On July 7, 2006, the Company also issued 1,000,000 shares to Ryan Vice,
our Chief Financial Officer, in connection with his employment with the
Company.  Mr. Vice executed a Stock Repurchase Right Agreement with the
Company, whereby the Company may repurchase these shares if he is employed by
the Company for less than two years at cost.

     From February 2006 to August 2006, Andrew Beaurline served as a
consultant to American TonerServ before becoming our Sr. Vice President -
Corporate Development and Strategy.  He received $70,000 for his services as
a consultant.

     On September 18, 2006, the Company completed the sale of seven and one
half Units consisting of 10% Convertible Notes and Warrants to purchase
common stock at $50,000 per Unit for aggregate proceeds of $375,000.  The
Units were sold to five accredited investors.  Included among the investors
are BRAM Enterprises, a principal shareholder of the Company, which purchased
one and one-half Units; James Laier, principal shareholder of the Company,
who purchased four Units; and Andrew Beaurline, Senior Vice President of
Corporate Development and Strategy, who purchased one half Unit.  Each Unit
consists of a 10% Convertible Note in the principal amount of $49,999 (the
"Notes") and a detachable warrant to purchase shares of the Company's Common
Stock (the "Warrants").  The Notes bear interest at the rate of 10% per annum
and become due and payable in full two years after issuance.  The Notes may
be converted, at the option of the holder, into shares of Common Stock  upon
the sale and issuance of Common Stock by the company in a PIPE ("Private
Investment in a Public Entity") offering resulting in gross proceeds of not
less than $3,000,000 (a "$3 Million Qualified Offering").  The conversion
term will expire six months after the Company completes a $3 Million
Qualified Offering.  The Notes will be automatically converted into shares of
Common stock upon the sale and issuance of Common Stock by the Company in a
PIPE offering resulting in gross proceeds of not less than $5,000,000 (a "$5
Million Qualified Offering").  The price at which this Note may be converted
into Common Stock (the "Conversion Price") shall be the average price at
which the first $1.0 million of Common Stock is sold in a $3 Million or $5
Million Qualified Offering, whichever may occur.  The Warrants provide that
the holder may purchase a number of shares equal 40% of the number of shares
a holder would receive if he or she converted their Notes into shares of
Common Stock.  The exercise price will be the average sales price of Common
Stock sold in the first $1.0 million of a $5 Million Qualified Offering.  The
Warrants become exercisable upon a closing of the $5 Million Qualified
Offering and will be exercisable for a period of twelve months thereafter.

     On February 26, 2007 the Company issued 389,630 shares of common stock
for services previously rendered to the Company. These shares were issued at
$0.45 per share.  Dan Brinker, Chief Executive Officer received 66,667 shares
for a total of $30,000 in compensation. Aaron Brinker, Chief Operating
Officer received 45,185 shares for a total of $20,333 in compensation.  Ryan
Vice, Chief Financial Officer received 26,667 shares for a total of $12,000
in compensation.  Andrew Beaurline, Vice President of Corporate Development
and Strategy received 228,889 shares for a total of $103,000 in compensation,
of which $45,000 related to consulting services prior to his employment with
the Company.

                                      44



     During 2006, the Company paid $12,000 each to aron L. Brinker and Ryan
Vice for management and consulting prior to their employment with the
Company.  Andrew Beaurline provided consulting services to the Company
totaling $70,000 for management and consulting from February 2006 to August
2006 prior to his employment with the Company.  At December 31, 2006, the
Company had a payable to Andrew Beaurline of $45,000 for the consulting
services.

     At December 31, 2006, the Company had outstanding payables to Dan
Brinker, President and Chief Executive Officer, of $61,095 and Thomas Hakel,
Director, of $7,809.  These payables related to advances for operating
capital to the Company during the Company's transition into a public company.

ITEM 13.  EXHIBITS

EXHIBIT
NUMBER     DESCRIPTION
--------   -----------

3.1        Certificate of Incorporation, as amended (1)

3.2        Bylaws (1)

3.3        Certificate of Amendment filed January 3, 2005 (1)

3.4        Certificate of Amendment filed March 16, 2006 (3)

3.5        Certificate of Amendment filed August 21, 2006 (4)

3.6        Certificate of Designations, Preferences and Rights of
           Series C Convertible Preferred Stock (5)

10.1       1995 Stock Incentive Plan, as amended (1)

10.2       Full Service Lease between Oak Valley Business Center and
           Q MATRIX, Inc. (1)

10.3       Consulting Agreement with Hanover Capital Corporation (1)

10.4       Customer List Purchase Agreement with Computech Print
           Solutions, Inc. (6)

10.5       Convertible Promissory Note issued to Computech Print
           Solutions, Inc. (6)

10.6       Stock Compensation Agreement with Daniel J. Brinker (7)

10.7       Stock Compensation Agreement with Thomas Hakel (7)

10.8       Stock Compensation Agreement with Aaron L. Brinker (7)

10.9       Stock Compensation Agreement with William A. Robotham (7)

10.10      Stock Compensation Agreement with Basilio Chen (7)

                                      45




10.11      Employment Letter with Daniel J. Brinker (7)

10.12      Employment Letter with Aaron L. Brinker (7)

10.13      Employment Letter with Ryan Vice (7)

10.14      Stock Repurchase Right Agreement with Ryan Vice (7)

10.15      Corporate Development and Consulting Agreement with Fort Holdings
           Ltd. (7)

10.16      Employment Letter with Andrew A. Beaurline (8)

10.17      Form of 10% Convertible Note for 2006 Offering (8)

10.18      Form of Warrant to Purchase Common Stock for 2006 Offering (8)

10.19      Form of Registration Rights Agreement for 2006 Offering (8)

10.20      Customer List Purchase Agreement with Brody Enterprises (9)

10.21      Promissory Note issued to Brody Enterprises (9)

10.22      Consulting Agreement with Arnold Brody (9)

10.23      Stock Compensation Agreement dated February 26, 2007 with
           Daniel J. Brinker - Filed herewith electronically

10.24      Stock Compensation Agreement dated February 26, 2007 with
           Ryan Vice - Filed herewith electronically

10.25      Stock Compensation Agreement dated February 26, 2007 with
           Aaron L. Brinker - Filed herewith electronically

10.26      Stock Compensation Agreement dated February 26, 2007 with
           Andrew A. Beaurline - Filed herewith electronically

23.1       Consent of Stonefield Josephson, Inc., Certified Public
           Accountants - Filed herewith electronically

23.2       Consent of Perry-Smith LLP, Indepenent Registered Public
           Accounting Firm - Filed herewith electronically

14         Code of Ethics (2)

31.1       Certification of Chief Executive Officer Pursuant to Section 302
           of the Sarbanes-Oxley Act of  2002 - Filed herewith electronically

31.2       Certification of Principal Financial Officer Pursuant to Section
           302 of the Sarbanes-Oxley Act of 2002 - Filed herewith
           electronically


                                      46




32.1       Certification of Chief Executive Officer Pursuant to Section 18
           U.S.C. Section 1350 - Filed herewith electronically

32.1       Certification Principal Financial Officer of Pursuant to Section
           18 U.S.C. Section 1350 - Filed herewith electronically
_______________

(1)  Incorporated by reference to the Company's Form SB-2 registration
statement SEC File No. 333-120688.

(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2005.

(3) Incorporated by reference to the Company's Report on Form 8-K dated March
16, 2006.

(4) Incorporated by reference to the Company's Report on Form 8-K dated
August 21, 2006.

(5) Incorporated by reference the Company's Report on Form 8-K dated May 15,
2006.

(6) Incorporated by reference the Company's Report on Form 8-K dated July 5,
2006.

(7) Incorporated by reference the Company's Report on Form 8-K dated July 7,
2006.

(8) Incorporated by reference the Company's Report on Form 8-K dated
September 18, 2006.

(9) Incorporated by reference the Company's Report on Form 8-K dated December
20, 2006.






















                                      47



ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     The following table presents aggregate fees for professional services
rendered by Perry-Smith LLP for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2006 and Stonefield
Josephson, Inc. for the audit of the Company's annual financial statements
for the fiscal year ended December 31, 2005.  Fees billed for other services
rendered by them during those periods are also included.

                                        2006           2005
                                     ----------     ----------

Audit Fees (1)                        $46,000        $42,610
Audit-Related Fees                        -             -
Tax Fees
All Other Fees                            -             -
                                      -------        -------
     Total                            $46,000        $42,610
                                      -------        -------

(1)  These are fees for professional services performed by Stonefield
Josephson, Inc. and Perry-Smith LLP for the audit of the Company's annual
financial statements and the Company's filing of an SB-2 registration
statement in October of 2006.

AUDIT COMMITTEE PRE-APPROVAL POLICY

     The Company's independent accountants may not be engaged to provide non-
audit services that are prohibited by law or regulation to be provided by it,
nor may the Company's principal accountant be engaged to provide any other
non-audit service unless it is determined that the engagement of the
principal accountant provides a business benefit resulting from its inherent
knowledge of the Company while not impairing its independence.  The Audit
Committee must pre-approve the engagement of the Company's principal
accountant to provide both audit and permissible non-audit services.  No non-
audit services were provided by the independent accountants during the past
two fiscal years.


















                                      48




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
AMERICAN TONERSERV CORP.
Santa Rosa, CA

We have audited the accompanying balance sheet of AMERICAN TONERSERV CORP.
(formerly Q Matrix, Inc.) as of December 31, 2006, and the related statements
of operations, stockholders' deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMERICAN TONERSERV CORP. as
of December 31, 2006, and the results of its operations, stockholders'
deficit and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements for the year ended December 31, 2006,
have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 3 to the financial statements, the Company has
suffered recurring losses from operations and its total liabilities exceeds
its total assets and has a shareholders' deficit as of December 31, 2006.
This raises substantial doubt about the Company's ability to continue as a
going concern.  Management's plan regarding these matters is also described
in Note 3.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


Perry-Smith LLP
Sacramento, California
March 23, 2007












                                      F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
AMERICAN TONERSERV CORP.
(FORMERLY Q MATRIX, INC.)
Santa Rosa, CA

We have audited the accompanying statements of operations, stockholders'
deficit and cash flows of AMERICAN TONERSERV CORP. (formerly Q Matrix, Inc.)
for the year ended December 31, 2005. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations, stockholders' deficit
and its cash flows of AMERICAN TONERSERV CORP. for the year ended December
31, 2005 in conformity with accounting principles generally accepted in the
United States of America.

The accompanying financial statements for the year ended December 31, 2005,
have been prepared assuming that the company will continue as a going
concern. As discussed in Note 3 to the financial statements, the company has
incurred losses in each of the past two years which raises substantial doubt
about its ability to continue as a going concern.  Management's plan in
regard to these matters is also described in Note 3.  These financial
statements do not include any adjustments relating to the recoverability and
classification of reported asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.



Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

San Francisco, California
March 27, 2006



                                      F-2



AMERICAN TONERSERV CORP.
Balance Sheet

                                                                December 31,
                                                                    2006
                                                                ------------
ASSETS
Current assets:
 Cash and cash equivalents                                      $    171,220
 Accounts receivable, net of doubtful accounts of $12,615            100,483
 Prepaid expenses and other current assets                             5,504
 Deferred compensation                                               235,142
                                                                ------------
     Total current assets                                            512,349

 Customer lists, net                                                 902,940
 Property and equipment, net                                          27,373
 Deposits                                                              7,110
                                                                ------------
     Total Assets                                               $  1,449,772
                                                                ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
 Accounts payable and accrued expenses                          $    723,817
 Notes payable - current portion
  (net of unamortized discount of $78,825)                           176,175
 Convertible notes payable - current portion
  (net of unamortized discount of $14,001)                           182,442
 Deferred revenue                                                      1,982
                                                                ------------
     Total current liabilities                                     1,084,416
                                                                ------------
Long-term liabilities:
 Notes payable (net of unamortized discount of $154,489)             485,949
 Convertible notes payable, related parties                          375,000
 Convertible notes payable (net of unamortized discount
  of $7,000)                                                         319,724
Warrant liabilities                                                   47,827
                                                                ------------
     Total long-term liabilities                                   1,228,500
                                                                ------------
     Total liabilities                                             2,312,916
                                                                ------------
Commitments and contingencies
Stockholders' deficit:
 Convertible preferred stock, $.001 par value; 50,000,000
  Series C authorized shares; 1,117,884 shares issued and
  outstanding (liquidation preference of $1,117,884)                   1,118
Common stock; $.001 par value; 450,000,000 shares authorized;
  22,781,880 shares issued and outstanding                            22,782
Additional paid-in capital                                        11,859,471
Accumulated deficit                                              (12,746,515)
                                                                ------------
     Total stockholders' deficit                                    (863,144)
                                                                ------------
     Total Liabilities and Stockholders' Deficit                $  1,449,772
                                                                ============

The accompanying notes form an integral part of these financial statements.

                                      F-3




AMERICAN TONERSERV CORP.
Statements of Operations

                                                  December 31,  December 31,
                                                      2006          2005
                                                  ------------  -------------
Revenues:
 Service                                          $   188,649     $ 423,803
 Toner                                                267,784        16,603
                                                  -----------     ---------
Total revenues                                        456,433       440,406
                                                  -----------     ---------
Cost of sales:
 Service                                               90,873       253,063
 Toner                                                171,229        11,703
                                                  -----------     ---------
Total cost of sales                                   262,102       264,766
                                                  -----------     ---------
Gross profit                                          194,331       175,640

Operating Expenses:
 Salaries and wages                                   580,560       196,162
 Professional fees and services                       982,493        69,931
 Sales and marketing                                   87,990        19,806
 General and administrative                           250,648       244,608
                                                  -----------     ---------
Total operating expenses                            1,901,691       530,507
                                                  -----------     ---------
Loss from operations                               (1,707,359)     (354,867)

Other income (expense):
 Fair value of convertible debt                      (154,166)         -
 Interest expense                                     (75,162)      (86,740)
 Change in fair value of warrant liabilities          (35,000)       (2,299)
 Gain on claims settlements                            37,819
                                                  -----------     ---------
 Net loss                                         $(1,933,869)    $(443,906)
                                                  ===========     =========
Net loss per share:
 Basic and diluted                                $     (0.08)    $   (0.58)
                                                  ===========     =========

Weighted average number of shares outstanding:
 Basic and diluted                                 11,359,337       771,880
                                                  ===========     =========


The accompanying notes form an integral part of these financial statements.




                                      F-4




AMERICAN TONERSERV CORP.
Statement of Stockholders' Deficit
Years Ended December 31, 2006 and 2005




<TABLE>
<CAPTION>
                                                              Addi-
                                                              tional
                        Common Stock       Preferred Stock    Paid-in    Accumulated
                      Shares     Amount   Shares     Amount   Amount      Deficit         Total
                    ----------   ------   ---------  ------  ----------  -----------    ----------
<S>                 <C>          <C>      <C>        <C>     <C>         <C>            <C>
January 1, 2005        771,880   $  772       -     $  -    $9,397,566 $(10,368,740)  $ (970,402)

Net Loss                  -        -          -        -          -        (443,906)    (443,906)
                    ----------   ------   ---------  ------  ----------  ------------  -----------

December 31, 2005      771,880      772       -        -      9,397,566  (10,812,646)  (1,414,308)

Issuance of common
 stock              19,500,000   19,500       -        -        293,000         -         312,500

Issuance of common
 stock - restricted  2,500,000    2,500       -        -           -            -           2,500

Exchange of conver-
 tible notes for
 preferred stock          -        -        832,884     833     832,051         -         832,884
Sale of preferred
 stock                    -        -        285,000     285     384,715         -         385,000
Reclassification of
 warrant liability        -        -           -       -           -          22,224       22,224
Exercise of stock
 options                10,000       10        -       -          1,490         -           1,500
Stock compensation
 from options             -        -           -       -           -         330,926      330,926
Stock compensation
 from restricted
 stock                    -        -           -       -           -         597,499      597,499

Net loss                  -        -           -       -           -      (1,933,869)  (1,933,869)
                    ----------  -------   ---------  ------ ----------- ------------   ----------
December 31, 2005   22,781,880  $22,782   1,117,884  $1,118 $11,859,471 $(12,746,515)  $ (863,144)
                      ===========   =======    ==========  ======= ============= =============    ===========




</TABLE>











The accompanying notes form an integral part of these financial statements.

                                       F-5



AMERICAN TONERSERV CORP.
Statements of Cash Flows
                                                    Years Ended December 31,
                                                       2006          2005
                                                   -----------    ---------
Cash flow from operating activities:
 Net loss                                          $(1,933,869)   $(443,906)

Adjustment to reconcile net loss to net
 cash used in operating activities:
  Depreciation                                          11,330        7,158
  Amortization                                          26,941       13,204
  Accretion of notes discounts                          11,804         -
  Change in fair value of warrant liabilities           35,000        2,299
  Fair value of convertible debt                       154,166         -
  Gain on claims settlement                            (37,819)        -
  Stock compensation                                   262,500         -
  Stock based compensation                             715,783         -
  Bad debt                                                -          15,841

Changes in operating assets and liabilities:
 (Increase) decrease in assets:
  Accounts receivable                                  (19,464)      11,562
  Prepaid expenses and other current assets              4,127           73
  Deposits                                              (7,110)        -

 Increase (decrease) in liabilities:
  Accounts payable and accrued expenses                184,760       55,712
  Deferred revenue                                      (9,605)      (8,284)
                                                   -----------    ---------
     Net cash used in operating activities            (601,456)    (346,341)
                                                   -----------    ---------
Cash flow from investing activities:
 Purchase of customer lists                            (55,000)        -
 Purchase of property and equipment                    (24,036)        -
                                                   -----------    ---------
     Net cash used in investing activities             (79,036)        -
                                                   -----------    ---------
Cash flow from financing activities:
 Proceeds from issuance of preferred stock             385,000      300,000
 Proceeds from issuance of convertible notes
  payable                                              500,000         -
 Payment of debt on customer list acquisitions         (51,562)        -
 Proceeds from issuance of common stock                  6,500         -
                                                   -----------    ---------
     Net cash provided by financing activities         839,938      300,000
                                                   -----------    ---------
     Net increase (decrease) in cash                   159,446      (46,341)
                                                   -----------    ---------
Cash and cash equivalents, beginning of period          11,774       58,115
                                                   -----------    ---------
Cash and cash equivalents, end of period           $   171,220    $  11,774
                                                   ===========    =========

The accompanying notes form an integral part of these financial statements.

                                      F-6


AMERICAN TONERSERV CORP.
Condensed Statements of Cash Flows (Continued)
Increase (Decrease) in Cash and Cash Equivalents

                                                    Years Ended December 31,
                                                       2006          2005
                                                   -----------    ---------
Supplementary information:
 Interest paid                                     $    58,749    $  10,974
                                                   ===========    =========

Income taxes paid                                  $       800    $     800
                                                   ===========    =========

Non cash investing and financing transactions:
 Series C Convertible Preferred stock issued
 on conversion of notes payable and interest       $   832,884    $    -
                                                   ===========    =========

Issuance of notes payable for acquisition
 of customer lists                                 $   874,881    $    -
                                                   ===========    =========

Deferred compensation on restricted stock and
 option grants to non-employees                    $   262,990    $    -
                                                   ===========    =========

Warrant liabilities reclassified to equity         $    22,224    $    -
                                                   ===========    =========

Issuance of common stock to settle accounts
 payable                                           $    25,000    $    -
                                                   ===========    =========

Issuance of convertible notes payable to
 settle accounts payable                           $    97,100    $    -
                                                   ===========    =========

















The accompanying notes form an integral part of these financial statements.

                                      F-7



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

1.   The Company

     Organization and Business Activity:

     Managed Maintenance Systems, Inc. was incorporated in the state of
Delaware on May 30, 1995.  During 1995 the Company changed its name to "Q
MATRIX, Inc."  In January 2005, the Company changed its name to AMERICAN
TONERSERV CORP. (the "Company").  The Company is a national distributor of
compatible printer toner cartridges.  The Company services printers and other
office equipment through its Preferred Provider Network. The Company is
located in Santa Rosa, California.

     Certificate of Incorporation Amendment:

     On March 16, 2006, American TonerServ Corp. (the "Company") filed a
Certificate of Amendment to the Certificate of Incorporation of the Company.
The Certificate of Amendment was filed to effect a one for one-hundred
reverse split of the shares of the Company's common stock outstanding.

     On July 10, 2006, the Company's shareholders approved an amendment to
the Company's Certificate of Incorporation of the Corporation to increase the
number of shares of capital stock authorized to 500,000,000 (450,000,000
shares of Common Stock and 50,000,000 shares of Preferred Stock) and to
effect a one for ten stock split.  The stock split became effective on August
21, 2006.

     All numbers of shares and per share amounts in this filing have been
adjusted to give effect to the reverse and forward splits, unless otherwise
stated.

2.   Summary of Significant Accounting Policies

     Estimates:

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.

     Fair Value of Financial Instruments:

     For certain of the Company's financial instruments, including accounts
receivable, accounts payable, accrued expenses, other liabilities and
warrants, the carrying amounts approximate fair value due to the short-term
nature of these items.  The amounts owed on notes payable also approximate
fair value, because the interest rates and terms are offered to the Company
at current market rates.  On long term debt that is interest free an implied
interest rate is used to discount the liabilities.

                                      F-8



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     The Black-Scholes model is used to value warrants and options. The
conversion option, included as a component of convertible debt, is valued
using an estimated Private Investment in a Public Entity ("PIPE") price equal
to a 20% discount off the fair market value of the stock.

     Cash and Cash Equivalents:

     Cash and cash equivalents consist principally of bank deposits. Cash
balances are maintained in bank accounts that are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to a maximum of $100,000.  At
December 31, 2006, The Company had cash deposits of approximately $120,014 in
excess of FDIC insurance limits.

     Accounts Receivable:

     Accounts receivable are shown net of allowance for doubtful accounts. In
determining the allowance for doubtful accounts, the Company uses specific
identification, which includes a reserve on older balances that are disputed
or in cases where the Company has knowledge of a potential customer payment
issue.  During the year ended December 31, 2006, the Company had write-offs
of $2,535 against the allowance for doubtful accounts.  The allowance for
doubtful accounts balance at December 31, 2006 was $12,615.

     Property and Equipment:

     Property and equipment is stated at cost less accumulated depreciation.
Property and equipment is depreciated using the straight line method over
estimated useful lives, which range from three to seven years.  Leasehold
improvements are depreciated on a straight line basis over the lesser of the
lease term or estimated useful life.

     Customer Lists:

     The Company entered into three purchase agreements to acquire customer
lists during the year ended December 31, 2006. The Company accounts for the
purchase of these customer lists at cost, net of discounts, if any, less
accumulated amortization. These customer lists are amortized using the
straight line method over an estimated useful life of seven years, which
approximates the estimated useful life of the customer lists.

     The Company uses debt to purchase the customer lists.  The debt is
interest free so the Company discounts these notes using an imputed interest
rate ranging from 10% to 15%.  The discounts on the notes are amortized over
the term of the notes using the effective interest method.




                                      F-9




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     Long-Lived Assets:

     The Company evaluates the carrying value of its long-lived assets when
events or circumstance indicate the existence of a possible impairment, based
on projected undiscounted cash flows, and recognizes impairment when such
cash flows will be less than the carrying values. Measurement of the amounts
of impairments, if any, is based upon the difference between carrying value
and fair value of the long lived assets. At December 31, 2006, management
determined that its long-lived assets were not impaired.

     Revenue Recognition:

     Revenue is generated from sales of supplies and maintenance agreements.
Revenue from supplies sales is recognized upon shipment.  Revenue from
maintenance is recognized as services are completed or over the term of the
maintenance agreements.  The following is a detailed description of each
revenue activity and its revenue recognition policy:

     Remanufactured Toner Sales - Revenue for the resale of laser toner
cartridges is recognized upon shipment of the toner cartridges to the
customer. In the case where the toner cartridge is sold as a bundled product
with equipment service included as part of the total purchase price, the
combined revenue is segregated between the value of the cartridge and the
service components in accordance with Emerging Issues Task Force 00-21,
Revenue Arrangements with Multiple Elements.  The cartridge portion is
recognized after shipment at the same price as a "cartridge only" sale.  The
service component is deferred and recognized on the earlier of actual
cartridge use or ninety days (the maximum term of the service offering with
each cartridge).

     Time and Materials Maintenance Contracts - Revenue for equipment service
calls initiated by the customer is billed based on actual time and materials.
The revenue is recognized as the service is provided.

     Full Service Maintenance Contracts - Revenue for fixed fee equipment
service contracts are recognized on a straight-line basis over the life of
the contract.

     Deferred Revenue:

     Contract revenue for full-service contracts is recognized by the
straight line method over the life of the contract with the unearned portion
shown as deferred revenue in the accompanying balance sheet. Deferred revenue
is also recorded due to the Company's government customers prepaying for
toner orders before they are shipped.



                                      F-10





AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     Deferred Income Taxes:

     The Company uses the asset and liability approach for financial
accounting and reporting for income taxes. Deferred income taxes are provided
for temporary differences in the bases of assets and liabilities as reported
for financial statement purposes and income tax purposes. We have recorded a
valuation allowance against all net deferred income tax assets.  The
valuation allowance reduces deferred income tax assets to an amount that
represents management's best estimate of the amount of such deferred income
tax assets that more likely than not will be realized.

     Stock Based Compensation:

     The Company has a stock incentive plan (the "Plan"), administered by the
Board of Directors, which provides for the granting of options and shares of
common stock to employees, officers, directors and other service providers of
the Company. Options granted under the Plan generally are granted with an
exercise price equal to the market value of a common share at the date of
grant and typically vest over four years from the date of grant.  The total
number of shares authorized to be granted under the 2005 plan was 8,400,000
at December 31, 2006.  On October 2, 2006 the Board of Directors authorized a
1,400,000 increase in the Plan to 8,400,000 shares.  The 1995 Stock Option
Plan has expired but all options outstanding at that time continue in
accordance with their respective terms.  As of December 31, 2006, no new
options will be granted under the 1995 Plan and there were 46,343 options
outstanding under the 1995 Plan.

      On January 1, 2006, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 123R (revised 2004), "Share-Based Payment"
("FAS 123R"), that addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange
for equity instruments of the enterprise. The statement eliminates the
ability to account for share-based compensation transactions, as the Company
formerly did, using the intrinsic value method as prescribed by Accounting
Principles Board ("APB") Opinion No. 25,  "Accounting for Stock Issued to
Employees," and generally requires that such transactions be accounted for
using a fair-value-based method and recognized as expenses in its statements
of operations.

      The Company adopted FAS 123R using the modified prospective method
which requires the application of the accounting standard as of January 1,
2006. The Company's financial statements as of and for the year ended
December 31, 2006 reflect the impact of adopting FAS 123R. There was no
impact from the adoption of FAS 123R as the Company had accelerated vesting
for unvested options effective December 31, 2005.



                                      F-11




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     Stock Based Compensation (Continued):

     The estimated fair value of equity-based awards, less expected
forfeitures, is amortized over the awards' vesting period on a straight-line
basis.  Share-based compensation expense recognized in the statements of
operations relating to stock options was $51,442 ($0.00 per share) for year
ended December 31, 2006.  We have not recorded income tax benefits related to
equity-based compensation expense as deferred tax assets are fully offset by
a valuation allowance.  The implementation of SFAS 123R did not have a
significant impact on cash flows from operations during the year ended
December 31, 2006.

     In calculating compensation related to stock option grants, the fair
value of each stock option is estimated on the date of grant using the Black-
Scholes option-pricing model and the following weighted average assumptions:

                                               December 31, 2006
                                               -----------------

     Dividend yield                                  None
     Expected volatility                             35.0%
     Risk-free interest rate                       4.56%-5.1%
     Expected terms (years)                         5.7-6.3

     The Company calculates the expected volatility for stock-based awards
using the historical volatility for its peer group public companies because
sufficient historical data does not yet exist for the Company's stock. The
risk free interest rates were determined by the rate of the 7 year treasury
bill on the grant date of the options.  The expected term was determined in
accordance with Staff Accounting Bulletin No. 107.

     Pro Forma Information for Periods Prior to 2006:

     Prior to the adoption of FAS 123R, the Company provided the disclosures
required under SFAS No. 123 "Accounting for Stock Based Compensation", as
amended by SFAS No. 148 "Accounting for Stock-Based Compensation-Transition
and Disclosure-an amendment of FASB Statement No. 123". Employee stock-based
compensation expense recognized under FAS 123 was reflected in the Company's
results of operations for the year ended December 31, 2005 for employee stock
option awards that were granted with an exercise price equal to the fair
value of the underlying common stock on the date of grant.  There were no
stock options issued or vested therefore the Company had no compensation
expense related to stock options for the year ended December 31, 2005.



                                      F-12



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     Pro Forma Information for Periods Prior to 2006 (Continued):

     The pro forma information for the year ended December 31, 2005 required
under FAS 123 was as follows:

                                                        December 31,
                                                            2005
                                                        ------------
     Loss for the period
       as reported                                      $(443,906)

       Add: Employee stock-based
       compensation expense, as reported                     -

       Deduct: Employee stock-based
       compensation expense determined
       under the fair value method                           -

     Pro forma loss for the period                      $(443,906)
     Pro forma - basic and diluted                      =========
       loss per share                                   $   (0.58)
                                                        =========

     The Company accounts for restricted stock and options granted to non-
employees in accordance with EITF No. 96-18,"Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services".  The Company records the fair
value of such restricted stock and options as deferred compensation at the
date of issuance and recognizes compensation on a straight-line basis over
the service period of the restricted stock or options.  The compensation is
adjusted for the change in fair market value at the end of each period in the
statement of operations.

     Net Loss per Share:

     Net loss per share has been calculated using the weighted average number
of shares outstanding during the period.  Diluted loss per common share is
computed similar to basic loss per share except that the weighted average
number of common shares outstanding is increased to include additional common
shares from the assumed exercise of options and warrants and conversion of
convertible debt, if dilutive. Dilutive loss per share is the same as basic
loss per share in all periods, since the impact of outstanding options and
warrants is antidilutive.

     All numbers of shares and per share amounts in these financial
statements and notes have been adjusted to give effect to the reverse and
forward splits, unless otherwise stated.



                                      F-13



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     Net Loss per Share (Continued):

     The following securities could potentially dilute basic earnings per
share in the future:

                                             December 31,   December 31,
                                                 2006           2005
                                             ------------   ------------
     Options                                   7,442,643       87,890
     Common Stock Warrants - 1998 & 1999
       grants                                     50,729       50,729
     Common Stock Warrants - Convertible
       debt                                      682,399 (1)   48,083 (4)
     Convertible debt                          1,538,462 (2)   32,055 (4)
     Convertible Preferred Stock              11,178,840 (3)     -
                                              ----------      -------
     Potential equivalent shares excluded     20,893,073      218,757
                                              ==========      =======

(1) In addition to the outstanding options and common stock warrants, the
Company has issued $550,000 of notes as of December 31, 2006 that are
convertible into common stock at a conversion price equal to the price of
shares sold in a future offering of common stock.  The holders of these notes
also hold warrants that may be exercised to purchase a number of shares equal
to 30% to 150% of the number of shares each holder would receive if their
notes are converted into common stock. The exercise price of the warrants
will be equal to the price of shares sold in the offering of common stock.
The Company estimated the number of warrant's based on the fair value of
common stock of $0.49 per share at December 31, 2006.

(2)  Convertible debt was calculated based on $600,000 of convertible notes
outstanding using an estimated conversion price of $0.39 per share, which
represents a discount of 20%, the estimated discount of a PIPE offering, of
the fair value of common stock of $0.49 per share at December 31, 2006.

(3)  Preferred Series C Convertible Shares are convertible into ten shares of
the Company's common stock at the option of the holders.

(4)  In addition to the outstanding options and common stock warrants, the
Company has issued $801,386 of notes as of December 31, 2005 that are
convertible into common stock at a conversion price equal to the price of
shares sold in a future offering of common stock.  The holders of these notes
also hold warrants that may be exercised to purchase a number of shares equal
to 150% of the number of shares each holder would receive if their notes are
converted into common stock. The exercise price of the warrants will be equal
to the price of shares sold in the offering of common stock. For estimation
purposes at December 31, 2006, if the Company sells shares of common stock in
a future offering at $25.00 per share, 32,055 shares would be issuable on
conversion of the notes and 48,083 shares would be issuable upon exercise of
the warrants.

                                      F-14



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

2.   Summary of Significant Accounting Policies (Continued)

     Convertible Debt Securities:

     The Company has issued convertible debt securities with non-detachable
conversion features.  The Company accounts for such securities in accordance
with SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity."  The Company accounts for
such securities on the balance sheet as a component of the overall fair value
of the securities.  The Company estimates fair value based on the intrinsic
value of common stock by determining the difference between the total shares
converted at fair value and the total shares converted at a 20% discount,
which is the estimated discount of a PIPE offering.

     Warrants and Detachable Warrants:

     As the warrant contracts must be settled by the delivery of registered
shares and the delivery of the registered shares are not controlled by the
Company and the number of shares is unknown, pursuant to EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock", the estimated fair value of the warrants
at the date of issuance was recorded as a warrant liability on the balance
sheet.  The Company records the warrant liability at fair value at the end of
each reporting period with changes recorded in earnings. At the time the
warrants are exercised or the number of shares are known the liability will
be reclassified to equity to reflect the increase in shares outstanding.

     The Black-Scholes option pricing method is used to value the warrants
and detachable warrants upon the date of issuance and at each balance sheet
date for warrant liabilities.  During 2006, the Company reclassified $22,224
of warrants to equity upon conversion of notes payable (Note 9).  The
assumptions used to value this amount was based on $0.025 per share, a 1%
volatility and a risk free interest rate of 3%. At December 31, 2006, a $0.49
per share value was attached to the warrants, a 35% volatility and a risk
free interest rate of 4.0% based on the estimated life of 1.25 years of the
warrant liabilities.

     Segment:

     Based on the Company's integration and management strategies, the
Company operates in a single business segment.  For the years ended December
31, 2006 and December 31, 2005, all material revenues have been derived from
domestic operations.

3.   Going concern and Basis of Presentation

     The financial statements have been prepared on a going concern basis,
which assumes that the Company will be able to realize its assets and
discharge its obligations in the normal course of business.

                                      F-15



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

3.   Going concern and Basis of Presentation (Continued):

     The Company had a net loss of $1,933,869 and had negative cash flows
from operations of $601,455 for the year ended December 31, 2006 and had an
accumulated deficit of $12,746,515 and a working capital deficit of $572,067
at December 31, 2006. The Company settled overdue claims from certain service
providers resulting in a net gain of $37,819 during the year ended December
31, 2006.  The Company has significant cash requirements and no ability to
generate sufficient cash flows from operations. Thus, the Company has
insufficient funds to meet its financial obligations as they become due.

     Management believes it will be successful in financing its operations
for the next twelve months. However, until such time as financing is
obtained, there can be no assurance that sufficient funds will be available
to finance its operations.  This raises substantial doubt about the Company's
ability to continue as a going concern.  It is management's objective to seek
additional capital and funding sources to finance its future operations. The
Company raised $885,000 through private offerings during the year ended
December 31, 2006.

     The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.  Although the Company will continue to seek
additional cash resources through equity issuances in order to position the
Company for possible future opportunities, there can be no assurance that
funds will be available on an economic basis to the Company.

4.   Recent Accounting Pronouncements

     In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS
No. 154, "Accounting Changes and Error Corrections," which replaces APB
Opinion No. 20,  "Accounting Changes,"  and SFAS No. 3,  "Reporting
Accounting Changes in Interim Financial Statements," and changes the
requirements for the accounting for and reporting of a change in accounting
principle. SFAS No. 154 is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. The
adoption of SFAS No. 154 in the year ended December 31, 2006 did not have a
material effect on the Company's results of operations, liquidity or capital
resources.










                                      F-16



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

4.   Recent Accounting Pronouncements (Continued):

     In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109" ("FIN
48").  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in a company's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes".  The Company presently
recognizes income tax positions based on management's estimate of whether it
is reasonably possible that a liability has been incurred for unrecognized
income tax benefits by applying SFAS No. 5, "Accounting for Contingencies".
FIN 48 prescribes a comprehensive model for recognizing, measuring,
presenting and disclosing in the financial statements tax positions taken or
expected to be taken on a tax return.  FIN 48 is effective for fiscal years
beginning after December 15, 2006.  If there are changes in net assets as a
result of the application of FIN 48, these will be accounted for as an
adjustment to the opening balance of retained earnings.  Management will
adopt FIN 48 in the first quarter of 2007 and does not expect the adoption to
have a material impact on the Company's financial position or results of
operations.

     In September 2006, the Securities and Exchange Commission published
Staff Accounting Bulleting (SAB) No. 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements".  SAB 108 was issued to address diversity in practice in
quantifying financial statement misstatements and the potential under current
practice to build up improper amounts on the balance sheet.  SAB 108 is
effective for the first fiscal year ending after November 15, 2006.  The
adoption of SAB 108 did not have a material impact on the Company's financial
position, results of operations or cash flows.

     In December 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements".  This statement defines fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements and is intended to increase consistency and
comparability.  SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007.  The adoption of SFAS No. 157
is not expected to have a material impact on our financial position, results
of operations or cash flows.












                                     F-17




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

5.   Property and Equipment

A summary of property and equipment as of December 31, 2006, is as follows:

                Computer hardware                  $   6,402
                Furniture and fixtures                22,842
                Leasehold improvements                27,631
                Computer software                     11,300
                                                   ---------
                                                      68,175
                Less accumulated depreciation        (40,802)
                                                   ---------
                                                   $  27,373
                                                   =========

     Depreciation for the years ended December 31, 2006 and 2005, totaled
$11,330 and $7,158, respectively.

6.   Customer List Acquisitions

     A summary of customer lists as of December 31, 2006, is as follows:

                Customer lists                     $ 929,881
                Less accumulated amortization        (26,941)
                                                   ---------
                                                   $ 902,940
                                                   =========

Amortization expense for the year ended December 31, 2006 totaled $26,941.

     On July 5, 2006, the Company entered into a Customer List Purchase
Agreement with Computech Printer Solutions, Inc. ("Computech") in which the
Company acquired Computech's list of customers and related information for
$292,000.  The terms of the agreement included a $50,000 down payment and a
note for $242,000 and monthly payments of $8,000. The monthly payments are
contingent upon the purchased customer list achieving certain revenue levels
consistent with past performances while maintaining a 40% gross margin over a
two year period. After the two year term of the note, a $50,000 balloon
payment is due in cash or the note can be converted at the option of the note
holder.  The conversion price will be at a 25% discount to the PIPE Offering,
but can be no less than $0.20 per share.  The Company recorded a customer
list asset of $263,999.

     The note has been discounted at 10% to impute interest and is being
amortized over the two year term of the note.  In addition to the payments
listed above, Computech will be entitled to receive a bonus payment if the
gross margin from sales generated from the customer list is above $220,000
for any fiscal year during the first two years. The bonus payment would be
equal to 30% of gross margin in excess of $220,000. During the year ended
December 31, 2006, Computech did not exceed gross margins above $220,000.

                                     F-18



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

6.   Customer List Acquisitions (Continued)

     On August 26, 2006, the Company entered into a Customer List Purchase
Agreement with Laser Cartridge Recharge Systems, Inc. ("LCRS") in which the
Company acquired LCRS's list of customers and related information for
$104,000.  The terms of the agreement included a $5,000 down payment and
monthly payments of 25% of gross sales for year one and 20% of gross sales
for year two.  These payments are assuming annual gross sales of $220,000.
The liability associated with this purchase has been discounted at 10% to
impute interest and will be amortized over the two year term of the note.
The Company recorded a customer list asset of $94,886.

     On December 20, 2006, the Company entered into a Customer List Purchase
Agreement with Brody Enterprises in which the Company acquired Brody
Enterprises' list of customers and related information for $800,000.  The
terms of the agreement include four annual payments of $200,000 beginning
January 2, 2007. The liability associated with this purchase has been
discounted at 15% to impute interest and will be amortized over the three
year term. The Company recorded a customer list asset of $570,996.

     These companies are distributors of remanufactured laser toner
cartridges, primarily to business customers.  The Company intends to use the
customer lists to solicit sales of remanufactured toner cartridges to
increase the Company's sales of such products.

     As of December 31, 2006, notes payable in connection with the
acquisition of customer lists (also see note 8) are comprised of unsecured
notes payable as follows.

                  Gross Notes Payable     $ 895,438
                  Unamortized discount     (233,314)
                                          ---------

                  Subtotal                  662,124
                  Less: current portion    (176,175)
                                          ---------
                  Total long term debt    $ 485,949
                                          =========

     Amortization expense related to the notes payable discount was $4,804
for the year ended December 31, 2006.










                                      F-19



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

7.   Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses as of December 31, 2006 is
comprised of the following:

                                                   December 31,
                                                       2006
                                                   ------------
   Accounts payable                                  $263,455
   Long outstanding payables                          284,942
   Accrued payroll                                    153,670
   Accrued other expenses                              21,750
                                                     --------
   Total accounts payable and accrued expenses       $723,817
                                                     ========

8.   Convertible Notes Payable

     As of December 31, 2006, convertible notes payable (the "Notes") are
comprised of unsecured notes payable as follows:

                                                Third     Related
                                                Parties   Parties
                                               --------   --------

   Convertible notes payable                   $250,000   $300,000
   Convertible notes payable - customer
     lists (Note 6)                             194,000       -
   Fair value of convertible debt                62,500     75,000
   Fair value of convertible debt - customer
     lists                                       16,666       -
   Less unamortized discount - customer lists   (21,000)      -
                                               --------   --------
   Subtotal                                     502,166    375,000
   Less current portion                        (182,442)      -
                                               --------   --------
   Total long term portion                     $319,724   $375,000
                                               ========   ========

     For the year ended December 31, 2006, the amortization expense relating
to the convertible notes payable discount was $7,000.









                                     F-20



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

8.   Convertible Notes Payable (Continued)

     In the period from July to December of 2006, $500,000 of convertible
notes payable was issued.  The offering consisted of the sale of Units at a
purchase price of $50,000 per Unit.  Each Unit consists of a 10% Convertible
Note in the principal amount of $49,999 (the "Notes") and a detachable
warrant to purchase shares of the Company's Common Stock (the "Warrants").
The Notes bear interest at the rate of 10% per annum and become due and
payable in full two years after issuance.  The Notes may be converted, at the
option of the holder, into shares of Common Stock  upon the sale and issuance
of Common Stock by the Company in a PIPE offering resulting in gross proceeds
of not less than $3,000,000 (a "$3 Million Qualified Offering").  The
conversion term will expire six months after the Company completes a $3
Million Qualified Offering.  The Notes will be automatically converted into
shares of common stock upon the sale and issuance of common stock by the
Company in a PIPE offering resulting in gross proceeds of not less than
$5,000,000 (a "$5 Million Qualified Offering").  The price at which the Notes
may be converted into Common Stock (the "Conversion Price") will be the
average price at which the first $1.0 million of Common Stock is sold in a $3
Million or $5 Million Qualified Offering, whichever may occur.

     The Notes also contain detachable warrants equal to 30-40% of the face
value of the Note.  In assessing the fair value of the warrant grants, the
Company recorded the fair value of these instruments based on the Black-
Scholes model which requires estimates of the volatility of our stock and the
market price of our shares at the date of grant (see Note 9).  The intrinsic
value of the warrants at their grant date was $137,500.  The fair value of
the warrant liabilities at December 31, 2006 was $47,827.

     In May 2006, $751,386 of convertible notes payable issued in May 2005
and $81,498 of related accrued interest on these notes, which were originally
to be converted into shares of common stock, were exchanged for Series C
Convertible Preferred Stock ("Series C Shares"). In addition, the warrants to
purchase 1,127,079 shares of common stock were terminated.  A total of
832,884 Series C Shares were issued in exchange for the convertible notes and
the interest accrued thereon, along with the termination of warrants issued
with the convertible notes.  This did not result in an expense for the
induced conversion because the note holders did not receive additional
consideration to convert the notes payable to Series C preferred
shareholders. As of December 31, 2006, there was $50,000 of convertible notes
outstanding that were issued in May 2005.









                                      F-21




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

9.   Warrant Liabilities

     In conjunction with raising capital through the sale of convertible
notes payable (see Note 8), the Company issued various warrants to purchase
shares of common stock.  As the contracts must be settled by the delivery of
registered shares and delivery of the registered shares are not controlled by
the Company, the fair value of the warrants at the date of issuance was
recorded as warrant liabilities on the balance sheet.  The fair value of the
warrant liabilities at December 31, 2006 was $47,827. The Company recorded
the change in fair value of warrant liabilities of $35,000 and $2,299 in the
statement of operations for the years ended December 31, 2006 and 2005,
respectively.

     In calculating the warrant liabilities, the fair value of each warrant
is estimated at the end of each period using the Black-Scholes model and the
following weighted average assumptions:

                            December 31, 2006          December 31, 2005
                            -----------------          -----------------
     Dividend yield               None                       None
     Expected volatility          35.0%                      35.0%
     Risk-free interest rate       4.0%                       4.0%
     Expected terms (years)       1.25                       1.25

     In June 2006, $22,224 of warrants were transferred to equity upon
conversion of the notes payable to preferred stock (see note 8).

10.  Pension Plan:

     The Company had a 401(k) benefit plan for its full time employees during
the year ended December 31, 2005. This plan was terminated during the year
ended December 31, 2006.  Prior to the termination of the plan, the Company
made no contributions to the plan during the years ended December 31, 2006
and December 31, 2005.
















                                      F-22



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

11.  General and Administrative Expenses:

     During the years ended December 31, 2006 and 2005 General and
Administrative expenses were comprised as follows:

                                               December 31,    December 31,
                                                   2006            2005
                                               ------------    ------------
Office lease                                     $112,405        $ 93,208
Telephone                                          16,892          33,327
Insurance                                          11,377          77,788
Payroll tax                                        22,140          15,898
Depreciation                                       11,330           8,271
Amortization                                       26,941            -
Bad debt                                             -             10,741
Other                                              49,563           5,375
                                                 --------        --------
Total General and Administrative Expenses        $250,648        $244,608
                                                 ========        ========
12.  Income Taxes:

     The Company has no taxable income and a full valuation allowance on
deferred income tax assets.  Accordingly, there was no provision for federal
and state income taxes for the years ended December 31, 2006 and 2005.

     A reconciliation of the statutory federal rate and the Company's
effective tax rate for the year ended December 31, 2006 and 2005, is as
follows:
                                                     2006     2005
                                                     -----    -----

     Statutory federal income tax rate               (34)%    (34)%
     State income taxes net of federal benefit        (6)%     (6)%
     Valuation allowance on deferred income tax
       assets                                         40 %     40 %
                                                     -----    -----
       Effective tax rate                               0%       0%
                                                     ======  ======

     Significant components of the Company's deferred tax assets and
liabilities as of December 31, 2006, are as follows:

     Deferred tax assets:
       Net operating loss carryforwards                $4,071,000
     Stock compensation                                   285,000
     Fair value of convertible notes payable               75,000
     Amortization                                           4,000
                                                       ----------
       Total deferred tax asset                         4,435,000
       Less valuation allowance                        (4,435,000)
                                                       ----------
         Net deferred tax asset                        $     -
                                                       ==========
                                      F-23




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

12.  Income Taxes (Continued):

     Net operating loss carryforwards of approximately $11,472,000 for
federal and $2,589,000 for state are available as of December 31, 2006, to be
applied against future taxable income.  The net operating loss carryforwards
expire in tax years 2015 through 2026 for federal purposes and in tax years
2007 through 2026 for state purposes.   In 2006 $161,936 in state net
operating losses expired for tax purposes.

     Due to the significant increase in common stock issued and outstanding
in 2005 and 2006, Section 382 of the Internal Revenue Code may provide
significant limitations on the utilization of net operating loss
carryforwards of the Company.  As a result of these limitations, a portion of
these loss and credit carryovers may expire without being utilized.  A
valuation allowance has been recorded as a reduction against the net
operating loss carry forwards due to the uncertainty of the ultimate
realization of future benefits from these net operating losses.  The change
in valuation allowance for the year ended December 31, 2006 and 2005, was
$775,022 and $1,420,574, respectively.

13.  Preferred Stock

     In May 2006, the Company issued 1,067,884 Series C Shares in exchange
for convertible notes and the interest accrued thereon totaling $832,884 (see
Note 6) and cash of $235,000.

     In December 2006, the Company received subscriptions for 50,000 shares
of Series C Shares from accredited investors in a private offering for
$150,000 in cash.

     The Series C Shares are convertible into ten shares of the Company's
common stock at the option of the holders . The holders of the Series C
Shares will vote together with the holders of common stock on an "as if
converted" basis.  The holders of the Series C Shares will also be entitled
to vote as a separate class as required by Delaware law. Holders of Series C
Convertible Preferred Stock will receive dividends only when and if declared
by the Board of Directors of the Company and no dividends shall accumulate on
the Series C Convertible Preferred Stock.












                                     F-24



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

14.  Common Stock Warrants

     Common stock warrants were issued in 1998 and 1999, in connection with
debt agreements, which have been fully repaid; the warrants expire between
the years 2007 through 2008. Common stock warrants have also been issued in
connection with debt agreements relating to the Company's private debt
offerings from 2004 to 2006 (see Notes 8 & 9).  Warrants outstanding as of
December 31, 2006, are as follows:

             Balance at December 31, 2005                50,729
             Exercised in 2006                             -
             Expired in 2006                               -
                                                      ---------
             Balance at December 31, 2006                50,729
                                                      =========

     The weighted average exercise price per share of the warrants issued in
1998 and 1999 at December 31, 2006, was $2.50.

15.  Stock-based Compensation

     On July 7, 2006, 17,500,000 shares of common stock were issued to the
below listed individuals in the amounts set forth opposite their names.
These are being issued to such individuals in payment for services rendered
to the Corporation under the terms and conditions set forth in the Stock
Compensation Agreements entered on this date for the following individuals:
Dan Brinker (6,034,480), Aaron Brinker (4,827,590), Tom Hakel (3,017,240),
Bill Robotham (2,413,790) and Basilio Chen (1,206,900). The fair value of
such shares is $0.015 per share, as determined by the Board of Directors.
Total compensation recognized during the year ended December 31, 2006
relating to this stock was $262,500, of which $244,396 was recorded in
salaries and wages and $18,104 was recorded in management fees.  These
amounts have been recorded in Equity as a component of Additional Paid In
Capital.

     On July 7, 2006, 2,000,000 shares of common stock were issued to
BRAM Enterprises in cancellation of $25,000 of indebtedness for money
advanced by BRAM Enterprises plus $5,000 cash paid to the Company.












                                      F-25




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

15.  Stock-based Compensation (Continued)

     At December 31, 2006, $174,434 in compensation was accrued for services
rendered by certain individuals. On February 22, 2007, the Company issued
389,630 shares of common stock for services previously rendered to the
Company. The number of shares issued was based on the share price of $0.45,
which is the fair market value of stock as of the date of issuance.  Dan
Brinker, Chief Executive Officer, received 66,667 shares for a total of
$30,000 in compensation. Aaron Brinker, Chief Operating Officer, received
45,185 shares for a total of $20,333 in compensation.  Ryan Vice, Chief
Financial Officer, received 26,667 shares for a total of $12,000 in
compensation.  Andrew Beaurline, Vice President of Corporate Development and
Strategy received 228,889 shares for a total of $103,000 in compensation, of
which $45,000 related to consulting services prior to his employment with the
Company.  Chuck Mache, advisor, received 22,222 shares for a total of $10,000
in compensation.

16.  Restricted Stock

     On July 7, 2006, the Company's Board of Directors entered into a
Corporate Development and Consulting Agreement with Fort Holdings Limited, a
British Virgin Island corporation ("Fort Holdings"), under which Fort
Holdings will provide corporate and business development, planning and
financial consulting services to the Corporation. As compensation for these
services, Fort Holdings received a $10,000 retainer and 1,500,000 shares of
the Company's Common Stock. Fort Holdings will be required to return 500,000
shares in the event that the corporate development plan is not completed and
1,000,000 shares if Fort Holdings terminates the Corporate Development and
Consulting Agreement within six months of entering into the agreement.  The
fair value of this stock when granted was $0.015 per share. At December 31,
2006, this consulting agreement was still in effect.  The completion date of
the Corporate Development Plan is estimated to be one year from the date of
the agreement.

     On July 7, 2006 the Board of Directors granted 1,000,000 shares of
restricted stock for services provided by Ryan Vice prior to his appointment
as Chief Financial Officer of the Company. These shares are subject to the
employee's continued service of two years to the Company. The fair value of
this stock when granted was $0.015 per share.

     Restricted shares have the same voting and dividend rights as the
Company's unrestricted common shares.  Prior to the implementation of SFAS
123R, the Company had not issued any restricted stock.  Compensation cost for
restricted stock is recognized in the financial statements on a pro rata
basis over the vesting period for the Chief Financial Officer.





                                     F-26



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

16.  Restricted Stock (Continued)

     The amount of expense for the year ended December 31, 2006 related to
restricted stock that would have been included in the consolidated statements
of operations under the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees was $3,750 ($0.015 per share).
The amount of expense for the year ended December 31, 2006 related to
restricted stock for non-employees was $612,500.  We have not recorded income
tax benefits related to the expense for restricted stock issued to non-
employees as deferred tax assets are fully offset by a valuation allowance.
The implementation of SFAS 123R did not have a significant impact on cash
flows from operations during the year ended December 31, 2006.

     A summary of the changes in restricted stock outstanding during the year
ended December 31, 2006 is presented below:

---------------------------------------------------------------------------
                                                            Weighted
                                                             Average
                                                            Grant Date
                                     Shares                 Fair Value
---------------------------------------------------------------------------
Non-vested shares
 at January 1, 2006                     -                       -
   Granted                         2,500,000                 $0.015
   Vested                               -                       -
   Forfeited/Expired                    -                       -
                                   ---------                 ------
Non-vested shares
 at December 31, 2006              2,500,000                 $0.015
                                   =========                 ======

     As of December 31, 2006, there was $126,250 of total unrecognized
compensation cost related to restricted stock, of which $122,500 is recorded
as deferred compensation. The weighted average vesting period remaining for
the restricted stock is 1.2 years.












                                     F-27



AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

17.  Stock Option Plan

     A summary of the changes in stock options outstanding under our equity-
based compensation plans during the twelve months ended December 31, 2006 is
presented below:



<TABLE>
<CAPTION>
                                                            Weighted
                                                            Average
                                               Weighted     Remaining
                                               Average      Contractual    Aggregate
                                               Exercise     Term           Intrinsic
                                  Shares       Price        (Years)        Value
                                ----------     --------     -----------    ----------
<S>                             <C>            <C>          <C>            <C>
Outstanding at January 1, 2006     87,890       $2.500          -          $     -
                                                                           ==========
 Granted                        7,446,300       $0.155          -           2,496,417
 Exercised                        (10,000)      $0.150          -          ==========
 Forfeited/Expired                (81,550)      $2.040          -
                                ---------       ------        ----
Outstanding at December 31,
  2006                          7,442,640       $0.169        9.67         $2,386,274
                                =========       ======        ====         ==========
Exercisable at December 31,
  2006                            344,173       $0.471        8.97         $  114,934
                                =========       ======        ====         ==========




</TABLE>

     The weighted average grant date fair value of options granted during the
year ended December 31, 2006 was $513,893.  The fair value of options
exercised during the year ended December 31, 2006 was $4,900.

     As of December 31, 2006, there was $430,475 of total unrecognized
compensation cost related to non-vested options granted under the plans,
which is expected to be recognized over a weighted average period of 2.85
years, of which $235,142 is recorded as deferred compensation.  The total
fair value of options vested was $133,362 during the year ended December 31,
2006.  A former employee paid $1,500 to exercise 10,000 options during the
year ended December 31, 2006.









                                      F-28




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

18.  Operating Lease Commitment:

     The Company leases its business premises in Santa Rosa under a non-
cancelable operating lease expiring November 2007.  The lease payments are
subject to annual increases per the lease agreement.

     Future minimum rental payments required under this lease as of December
31, 2006 is $75,527 for the year ending December 31, 2007.  Rent expense for
December 31, 2006, and December 31, 2005, totaled $112,405 and $93,208,
respectively.

19.  Concentration of Credit Risk

     During the years ended December 31, 2006 and 2005, one customer, Xerox
Corporation, represented approximately $76,540 and $264,244 of revenues,
respectively, representing 17% and 60% of total revenues, respectively.

     At December 31, 2006 one customer, Xerox Corporation, represented 16% of
the total accounts receivable at December 31, 2006.

20.  Related Party Balances and Transactions

     During 2006, the Company paid $12,000 each to Aaron L. Brinker and Ryan
Vice for management and consulting prior to their employment with the
Company.  Andrew Beaurline provided consulting services to the Company
totaling $70,000 for management and consulting from February 2006 to August
2006 prior to his employment with the Company.  At December 31, 2006, the
Company had a payable to Andrew Beaurline of $45,000 for the consulting
services.

     At December 31, 2006, the Company had outstanding payables to Dan
Brinker, President and Chief Executive Officer, of $61,095 and Thomas Hakel,
Director, of $7,809.  These payables related to advances for operating
capital to the Company during the Company's transition into a public company.

21.  Commitments and Contingencies

     There are currently no legal actions pending against the Company. In the
past, we have been subject to claims arising in the ordinary course of
business, primarily vendor disputes. We settled certain overdue claims from
certain service providers during the year ended December 31, 2006. There are
currently no such claims outstanding. During the year ended December 31,
2006, the Company settled $65,697 in long outstanding payables.  The Company
paid $25,478 in cash and realized a gain of $37,819.




                                      F-29




AMERICAN TONERSERV CORP.
Notes to Financial Statements
Years Ended December 31, 2006 and 2005

22.  Subsequent Events (Unaudited)

     On February 5, 2007 the Company entered into a non-binding letter of
intent to purchase certain assets of Optima Technologies, Inc. ("Optima").
Optima has been engaged in the business of print management, printing
supplies and repair service since 1987. Optima's business model is consistent
with the Company's stated acquisition targets.

     The Company expects to reduce costs by achieving economies of scale
through an increase in purchasing power.  As part of the proposed
acquisition, the Company intends to contract with the current Optima
management team and continue to service Optima's customers as they have been
in the past.

     As consideration for the purchase of Optima, the Company would pay
approximately $2,550,000 in cash and promissory notes, a portion of which
will be convertible into common stock of the Company.  The acquisition is
subject to the completion of due diligence, negotiation and execution of a
definitive agreement, the completion of an audit of Optima's financial
statements, as well as customary closing conditions.

     On February 9, 2007, the Company engaged four individuals to serve on
its Strategic Advisory Board.  These individuals were granted 100,000 options
each at $0.40 a share to serve a one year term.  The options will vest
equally over the twelve month term.

     During the period from January 2007 to March 2007, the Company raised
$1,113,248 from 18 accredited investors in private offerings, of which
$1,063,248 was related to the Company's Convertible Preferred Stock offering
and $50,000 was related to the Company's Convertible Debt offering. Included
in the Convertible Stock offering is $38,248 of past due vendor accounts at
December 31, 2006 that were settled.



















                                      F-30



                                  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.

                                      AMERICAN TONERSERV CORP.



Date:  March 26, 2007                 By:/s/ Daniel J. Brinker
                                         Daniel J. Brinker
                                         President and Chief Executive
                                         Officer


                                      By:/s/ Ryan Vice
                                         Ryan Vice
                                         Chief Financial Officer and
                                         Principal Accounting Officer


     In accordance with the Exchange Act, this report has been signed
following persons on behalf of the registrant and in the capacities and on
the dates indicated.



/s/ Daniel J. Brinker                                 March 26, 2007
Daniel J. Brinker, Director



/s/ Thomas Hakel                                      March 26, 2007
Thomas Hakel, Director



/s/ William A. Robotham                               March 26, 2007
William A. Robotham, Director