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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-QSB (Mark One) þ           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 o            TRANSITION REPORT PURSUANT TO SECTION 13                    
          OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 0-27689 AMDL, Inc. 
  Delaware
    
    33-0413161(State or other jurisdiction
of incorporation or organization)
    
    (IRS Employer
Identification No.)
 2492 Walnut Avenue, Suite 100, Tustin, California 92780 
  (714) 505-4460 
  Not Applicable 
  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes þ            No o As of May 10, 2005 the Company had 23,799,489 shares of its $.001 par value common stock
issued and outstanding.




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PAGEPART I  FINANCIAL INFORMATION
    
    
    2Item 1. Financial StatementsBalance Sheet at March 31, 2005 (unaudited)
    
    
    2Unaudited Statements of Operations for the three
months ended March 31, 2005 and 2004
    
    
    3Unaudited Statements of Cash Flows for the three
months ended March 31, 2005 and 2004
    
    
    4Notes to Condensed Financial Statements (unaudited)
    
    
    5Item 2. Managements Discussion and Analysis
    
    
    13Item 3. Controls and Procedures
    
    
    16PART II  OTHER INFORMATION
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  1




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PART I - FINANCIAL INFORMATION 
 Item 1. Financial Statements AMDL, INC. 
 BALANCE SHEET ASSETS March 31,2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,105,721Accounts receivable
    
    
    1,600Inventories
    
    
    79,593Prepaid expenses and other current assets
    
    
    31,090Total current assets
    
    
    2,218,004Intellectual property, net
    
    
    1,633,333Equipment, net
    
    
    17,753Other assets
    
    
    5,757$
    3,874,847LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    98,141Accrued payroll and related expenses
    
    
    90,973Total current liabilities
    
    
    189,114Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value; 10,000,000
shares authorized; no shares issued and
outstanding
    
    
    Common stock, $0.001 par value; 50,000,000 shares
authorized; 23,499,489 shares issued and
outstanding
    
    
    23,499Additional paid in capital
    
    
    30,382,929Prepaid consulting
    
    
    (4,667
    )Accumulated deficit
    
    
    (26,716,028
    )Total stockholders equity
    
    
    3,685,733$
    3,874,847
 See accompanying notes to condensed financial statements. 2




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AMDL, INC. 
 STATEMENTS OF OPERATIONS (Unaudited)
 Three Months EndedMarch 31,2005
    
    
    2004Net revenues
    
    $
    22,875
    
    
    $
    124,503Cost of sales
    
    
    4,828
    
    
    
    56,399Gross profit
    
    
    18,047
    
    
    
    68,104Operating expenses:Research and development
    
    
    81,444
    
    
    
    82,875General and administrative
    
    
    500,957
    
    
    
    554,134582,401
    
    
    
    637,009Loss from operations
    
    
    (564,354
    )
    
    
    (568,905
    )Other income:Interest income
    
    
    9,376
    
    
    
    4,649Net loss
    
    $
    (554,978
    )
    
    $
    (564,256
    )Basic and diluted loss
per share
    
    $
    (0.02
    )
    
    $
    (0.03
    )Weighted average common shares outstanding,
basic and diluted
    
    
    23,499,489
    
    
    
    21,300,144
 See accompanying notes to condensed financial statements. 3




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AMDL, INC. 
 STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months EndedMarch 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (554,978
    )
    
    $
    (564,256
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    26,710
    
    
    
    27,497Fair market value of common stock issued for services
    
    
    
    
    
    
    27,483Fair market value of options and warrants issued for services
    
    
    2,333
    
    
    
    17,000Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,600
    )
    
    
    40,204Inventories
    
    
    (11,558
    )
    
    
    1,363Prepaid expenses and other current assets
    
    
    21,111
    
    
    
    11,503Accounts payable and accrued expenses
    
    
    14,380
    
    
    
    (39,909
    )Accrued payroll and related expenses
    
    
    9,361
    
    
    
    3,518Net cash used in operating activities
    
    
    (494,241
    )
    
    
    (475,597
    )Cash flows used in investing activities:Purchase of equipment
    
    
    (5,575
    )
    
    
    Cash flows from financing activities:Proceeds from issuance of common stock,
net of offering costs of $295,766 in 2004
    
    
    
    
    
    
    1,830,074Proceeds from exercise of stock options
    
    
    
    
    
    
    119,803Net cash provided by financing activities
    
    
    
    
    
    
    1,949,877Net change in cash and cash equivalents
    
    
    (499,816
    )
    
    
    1,474,280Cash and cash equivalents at beginning of period
    
    
    2,605,537
    
    
    
    1,708,886Cash and cash equivalents at end of period
    
    $
    2,105,721
    
    
    $
    3,183,166Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    
 See accompanying notes to condensed financial statements. 4




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AMDL, INC. 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 NOTE 1  MANAGEMENTS REPRESENTATION The financial statements included herein have been prepared by AMDL, Inc. (the Company), without
audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission.
Certain information normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States of America has been omitted pursuant
to such rules and regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management, all adjustments
(consisting primarily of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005. It is suggested that the
financial statements be read in conjunction with the audited financial statements and notes thereto
for the year ended December 31, 2004 included in the Companys Annual Report on Form 10-KSB. NOTE 2  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AMDL, Inc.s predecessor was incorporated May 13, 1988 and the Company reorganized as a Delaware
corporation on June 7, 1989. Since inception, the Company has primarily been engaged in the commercial development of and the
obtaining of various governmental regulatory approvals for the marketing of its proprietary
diagnostic tumor-marker test kit (DR-70®) to detect the presence of multiple types of
cancer. The Companys product line also includes a selection of diagnostic test kits for several
types of cancer, infectious diseases, endocrinology, diabetes, nephrology and allergy. Revenue Recognition Product sales revenue is recognized upon passage of title to customers, typically upon shipment of
product. Any provision for discounts and estimated returns are accounted for in the period the
related revenue is recorded. Advertising The Company expenses the cost of advertising when incurred as a component of general and
administrative expenses. No advertising costs were incurred for the three months ended March 31,
2005 or 2004. Research and Development Internal research and development costs are expensed as incurred. Third party research and
development costs are expensed when the contracted work has been performed or as milestone results
have been achieved. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or
less when purchased to be cash equivalents. Inventories Inventories, which consist primarily of raw materials and related materials, are stated at the
lower of cost or market with cost determined on a first-in, first-out (FIFO) basis. The Company
regularly monitors inventories for excess or obsolete items and makes any valuation corrections
when such adjustments are needed. Once established, write-downs are considered permanent
adjustments to the cost basis of the obsolete or excess inventories. 5




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 Equipment Equipment is stated at cost. Depreciation is computed using the straight-line method over
estimated useful lives of three to ten years. Betterments, renewals, and extraordinary repairs that extend the lives of the assets are
capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets retired are removed from the accounts, and the gain
or loss on disposition is recognized in current operations. Intangible Assets The Company has expended funds for patents that are in various stages of the filing approval
process. During the three months ended March 31, 2005 and 2004, the Company expended approximately
$5,554 and $5,178, respectively, on patents. The Company elected to expense these expenditures
immediately due to their uncertain realizability. In August 2001, the Company acquired intellectual property rights and an assignment of a US patent
application for combination immunogene therapy technology for $2,000,000. The technology was
purchased from Dr. Lung-Ji Chang, who developed it while at the University of Alberta, Edmonton,
Canada. The $2,000,000 acquisition price is being amortized over the expected useful life of the
technology, which the Company has currently determined to be 20 years, based upon an estimate of
three years to perfect the patent plus 17 years of patent life. The Company recorded amortization
expense of $25,000 for each of the three month periods ended March 31, 2005 and 2004. Impairment of Long-Lived Assets The Companys management assesses the recoverability of its long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their remaining lives can be
recovered through projected undiscounted future cash flows. The amount of long-lived asset
impairment is measured based on fair value and is charged to operations in the period in which
long-lived asset impairment is determined by management. Based on its analysis, the Company
believes that no impairment of the carrying value of its long-lived assets existed at March 31,
2005. There can be no assurance, however, that market conditions will allow us to realize the
value of our technologies and prevent future long-lived asset impairment. Common Stock Issued for Services Rendered The Company periodically issues common stock for services rendered. Common stock issued is valued
at the estimated fair market value, as determined by management and the board of directors of the
Company. Management and the board of directors consider market price quotations; recent stock
offering prices and other factors in determining fair market value for purposes of valuing the
common stock. Risks and Uncertainties The Companys proprietary test kit is deemed a medical device or biologic, and as such is governed
by the Federal Food and Drug and Cosmetics Act and by the regulations of state agencies and
various foreign government agencies. Currently, the Company is not permitted to sell
DR-70â in the United States, although the Company is in the process of seeking
regulatory approval. The Company has received regulatory approval from various foreign
governments to sell its products and is in the process of obtaining regulatory approval in other
foreign markets. There can be no assurance that the Company will maintain the regulatory
approvals required to market its products or that they will not be withdrawn. Prior to May 2002, our focus was on obtaining foreign distributors for our DR-70®kit.
In May 2002, we decided to begin the FDA process under Section 510(k) of the Food, Drug and
Cosmetic Act for approval of our intent to market DR-70® as an aid in monitoring
patients with colorectal cancer. We conducted clinical trials comparing our 6




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 DR-70® to the currently accepted assay, CEA (carcinoembryonic antigen), and we
submitted the results to the FDA in September 2003. In January 2004, the FDA responded to our
submission. The FDA identified deficiencies in our application and advised our consultant,
Diagnostic Oncology CRO, Inc. (DOCRO) that based upon the data submitted, the FDA determined that
the DR-70® kit was not substantially equivalent to any other device which has gone
through the 510(k) approval process. The FDA further advised that if we had data which we believe
shows that the DR-70® kit has substantial equivalence, we could submit such additional
information for the FDAs consideration. The Company has supplied additional data and submitted a
new application to the FDA proposing that DR-70® be used in tandem with CEA in
monitoring colorectal cancer patients and is awaiting the FDAs response. The Company cannot
predict the length of time it will take for the FDA to review the new application or whether
approval will ultimately be obtained. The Company is subject to the risk of failure in maintaining its existing regulatory approvals, in
obtaining other regulatory approval, as well as the delays until receipt of such approval, if
obtained. Therefore, the Company is subject to substantial business risks and uncertainties
inherent in such an entity; including the potential of business failure. Accounting for Stock-Based Compensation The Company accounts for stock-based compensation issued to employees using the intrinsic value
based method as prescribed by APB Opinion No. 25 Accounting for Stock Issued to Employees (APB
25). Under the intrinsic value based method, compensation is the excess, if any, of the fair
value of the stock at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Compensation, if any, is recognized over the applicable service period,
which is usually the vesting period. In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). This
standard, if fully adopted, changes the method of accounting for employee stock-based compensation
plans to the fair value based method. For stock options and warrants, fair value is determined
using an option pricing model that takes into account the stock price at the grant date, the
exercise price, the expected life of the option or warrant and the annual rate of quarterly
dividends. Compensation expense, if any, is recognized over the applicable service period, which
is usually the vesting period. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25. FIN 44 clarifies
the application of APB 25 for (a) the definition of employee for purposes of applying APB 25, (b)
the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in a business
combination. The adoption of the accounting methodology of SFAS 123 is optional and the Company has elected to
continue accounting for stock-based compensation issued to employees using APB 25, as amended by
FIN 44; however, pro forma disclosures, as if the Company adopted the cost recognition requirements
under SFAS 123, are required to be presented (see below). For stock-based compensation issued to
non-employees, the Company values these grants at fair value as defined in SFAS 123, FIN 44 and
EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services. At March 31, 2005, the Company had three stock-based employee compensation plans, which are
described more fully in Note 3. The Company accounts for these plans under the recognition and
measurement principles of APB 25, and related interpretations. No stock-based employee
compensation cost is reflected in the statements of operations, as all options granted under those
plans had exercise prices equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net loss and loss per share if the 7




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee
compensation for each of the three month periods ended March 31, 2005 and 2004. For the Three Months Ended March 31,2005
    
    
    2004Net loss as reported
    
    $
    $(554,978
    )
    
    $
    $(564,256
    )Deduct: Total stock-based employee
compensation under fair value based method
for all awards, net of related tax effects
    
    
    (72,000
    )
    
    
    (931,600
    )Pro forma net loss
    
    $
    $(626,978
    )
    
    $
    $(1,495,856
    )Basic and diluted loss per share  as reported
    
    $
    $(0.02
    )
    
    $
    $(0.03
    )Basic and diluted loss per share  pro forma
    
    $
    $(0.03
    )
    
    $
    $(0.07
    )
 Basic and Diluted Loss Per Share Basic earnings (loss) per common share is computed based on the weighted average number of shares
outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income
(loss) by the weighted average shares outstanding assuming all potential dilutive common shares
were issued. Basic and diluted loss per share are the same for the periods presented as the effect
of stock options and warrants on loss per share are anti-dilutive and thus not included in the
diluted loss per share calculation. However, the impact under the treasury stock method of
dilutive stock options and warrants would have been incremental shares of 507,777 and 1,021,807 for
the three months ended March 31, 2005 and 2004, respectively. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income Taxes. Under SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided for significant deferred tax assets when it is more
likely than not that such assets will not be recovered. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses 8




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 during the reporting period. Significant estimates made by management are, among others,
realization of accounts receivable and inventories, recoverability of long-lived assets,
determination of useful lives of intangibles and valuation of deferred tax assets. Actual results
could differ from those estimates. Comprehensive Income Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income,
establishes standards for reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. SFAS 130 has not impacted the Companys
financial position or results of operations as the Company has no items of comprehensive income. Segments of an Enterprise and Related Information During the three months ended March 31, 2005, approximately 87.8% of our sales were to customers in
foreign countries. Of the foreign sales, approximately 82.4% were to customers in Korea and 17.6%
were to customers in Taiwan. During the three months ended March 31, 2004, approximately 8.5% of
our sales were to customers in foreign countries. Of the foreign sales, approximately 77.9% were
to customers in Korea and 22.1% were to customers in Taiwan. All of the Companys assets are held
in the United States and all transactions are denominated in U.S. dollars. Concentration of Risk One domestic customer accounted for 100% of accounts receivable as of March 31, 2005. One foreign
customer accounted for 72.4% of sales for the three months ended March 31, 2005. Generally, all
sales are prepaid. One domestic customer accounted for approximately 99.3% of accounts receivable
as of March 31, 2004. The same customer accounted for 90.0% of sales for the three months ended
March 31, 2004. The loss of this customer in the future could significantly affect the Companys
operating results. Sales to this customer are exclusively OEM products and no DR-70®
kits. In 2004, this customer indicated that it does not expect to make further purchases until
some time in 2005. From time to time, the Company maintains cash balances at certain institutions in excess of the
FDIC limit. As of March 31, 2005, the Company had approximately $2,042,000 in excess of this
limit. Recent Accounting Pronouncements In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS 150 establishes standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. SFAS 150 also includes required
disclosures for financial instruments within its scope. For the Company, SFAS 150 was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be effective as of
January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily
redeemable financial instruments, SFAS 150 will be effective for the Company on January 1, 2005.
The Company currently does not have any financial instruments that are within the scope of SFAS
150. In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4, (SFAS 151) to clarify the accounting guidance
related to abnormal amounts of idle facility expense, freight, handling costs and wasted material
(spoilage) costs. SFAS 151 specifies that these costs should be recognized as current period
charges, and that fixed production overhead should be allocated to inventory based on normal
capacity of production facilities. SFAS 151 is effective for fiscal years 9




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 beginning after June 15, 2005. The Company does not expect the adoption of SFAS 151 to have an
impact on its financial condition or results of operations. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R) which
requires that companies recognize compensation cost related to share based payment transactions in
their financial statements. Compensation cost is measured based on the grant-date fair value of the
equity or liability instruments and will be recognized over the period that an employee provides
service (usually the vesting period) in exchange for the award. This standard replaces SFAS 123,
and supersedes APB Opinion No. 25. SFAS 123(R) is effective beginning December 15, 2005. The
Company is currently in the process of evaluating the impact of the adoption of SFAS 123(R), which
will result in additional compensation expense for remaining unvested stock options and will be
affected by the number of future options granted. In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets  an amendment of
APB Opinion No 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates the exception
for non-monetary exchanges of similar productive assets, which were previously required to be
recorded on a carryover basis rather than a fair value basis. Instead, this statement provides
that exchanges of non-monetary assets that do not have commercial substance be reported at
carryover basis rather than a fair value basis. A non-monetary exchange is considered to have
commercial substance if the future cash flows of the entity are expected to change significantly as
a result of the exchange. The provisions of this statement are effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect
the adoption of SFAS No. 153 to have an impact on its financial condition or results of operations. NOTE 3  STOCK OPTIONS AND WARRANTS Effective June 30, 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan). The
shareholders of the Company approved the 1999 Plan on June 28, 2000. Under the 1999 Plan,
incentive stock options and nonqualified options may be granted to officers, employees and
consultants of the Company for the purchase of up to 2,000,000 shares of the Companys common
stock. The exercise price per share under the incentive stock option plan shall not be less than
100% of the fair market value per share on the date of grant. The exercise price per share under
the non-qualified stock option plan shall not be less than 85% of the fair market value per share
on the date of grant. Expiration dates for the grants may not exceed 10 years from the date of
grant. The 1999 Plan terminates on June 30, 2009. Under the terms of the 1999 Plan, the Company
granted non-qualified options to purchase 300,000 shares of the Companys common stock during the
three months ended March 31, 2005, expiring on June 30, 2009. As of March 31, 2005, 1,464,370
options at an average exercise price of $2.17 per share were outstanding under the 1999 Plan. The
Company had 351,261 options available for grant under the 1999 Plan at March 31, 2005. On January 25, 2002, the board of directors adopted the 2002 Stock Option Plan (the 2002 Plan).
The shareholders of the Company approved the 2002 Plan on May 10, 2002. Under the 2002 Plan,
incentive stock options and nonqualified options may be granted to officers, employees, directors
and independent contractors of the Company for the purchase of up to 1,000,000 shares of the
Companys common stock. The exercise price per share under the incentive stock option plan shall
not be less than 100% of the fair market value per share on the date of grant. The exercise price
per share under the non-qualified stock option shall be not less than 85% of the fair market value
per share on the date of grant. Expiration dates for the grants may not exceed 10 years from the
date of grant. No options were granted under the 2002 Plan during the three months ended March
31, 2005. All options granted have an exercise price equal to the fair market value at the date
of grant, vest upon grant and expire five years from the date of grant. As of March 31, 2005,
938,815 options at an average exercise price of $0.64 per share were outstanding under the 1999
Plan. The Company had no options available for grant under the 2002 Plan at March 31, 2005. On February 23, 2004, the board of directors adopted the 2004 Stock Option Plan (the 2004 Plan).
The shareholders of the Company approved the 2004 Plan on September 27, 2004. Under the 2004 Plan,
incentive stock options and nonqualified options may be granted to officers, employees, directors
and independent contractors of the Company for the purchase of up to 2,400,000 shares of the
Companys common stock. The exercise price per share 10




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 under the incentive stock option plan shall generally not be less than 100% of the fair market
value per share on the date of grant. The exercise price per share under the non-qualified stock
option shall be not less than 85% of the fair market value per share on the date of grant.
Expiration dates for the grants may generally not exceed 10 years from the date of grant. No
options were granted under the 2004 Plan during the three months ended March 31, 2005. As of
December 31, 2004, 1,870,000 options at an average exercise price of $1.15 per share were
outstanding under the 2004 Plan. The Company had 530,000 options available for grant under the
2004 Plan at March 31, 2005. On February 17, 2005, the board of directors authorized the issuance of warrants to purchase 25,000
shares of common stock and cash payments of $9,000 to Savannah Capital Management, Inc., a
consultant, for investor public relations services to be provided from March 1, 2005 through May
31, 2005. The common shares issuable on exercise of the warrants are exercisable at $0.92 per
share. The warrants were valued at $7,000 using the Black-Scholes pricing method. Of this amount,
$2,333 was charged to general and administrative expense in the three months ended March 31, 2005
and the balance of $4,667 will be charged to general and administrative expense in the second
quarter of 2005. NOTE 4  COMMITMENTS AND CONTINGENCIES Litigation On February 22, 2002, AcuVector Group, Inc. (AcuVector) filed a Statement of Claim in the Court
of Queens Bench of Alberta, Judicial District of Edmonton relating to the Companys combination
immunogene therapy technology acquired from Dr. Chang in August 2001. The claim alleges damages of
$CDN 20 million and seeks injunctive relief against Dr. Chang for, among other things, breach of
contract and breach of fiduciary duty, and against us for interference with the alleged
relationship between Dr. Chang and AcuVector. The claim for injunctive relief seeks to establish
that the AcuVector license agreement with Dr. Chang is still in effect. The Company performed
extensive due diligence to determine that AcuVector had no interest in the technology when the
Company acquired it. The Company is confident that AcuVectors claims are without merit and that
the Company will receive a favorable judgment. As the final outcome is not determinable, no
accrual or loss relating to this action is reflected in the accompanying financial statements. If
AcuVector is successful, the Company may be liable for substantial damages, its rights to the
intellectual property will be adversely affected, and its future prospects for licensing the
technology will be significantly impaired. The Company is also defending a companion case filed in the same court by the Governors of the
University of Alberta filed against the Company and Dr. Chang in August 2003. The University of
Alberta claims, among other things, that Dr. Chang failed to remit the payment of the Universitys
portion of the monies paid by the Company to Dr. Chang for the combination immunogene technology
purchased by us from Dr. Chang in 2001. In addition to other claims against Dr. Chang relating to
other technologies developed by him while at the University, the University also claims that the
Company conspired with Dr. Chang and interfered with the Universitys contractual relations under
certain agreements with Dr. Chang, thereby damaging the University in an amount which is unknown to
the University at this time. The University has not claimed that the Company is not the owner of
the combination immunogene therapy technology, just that the University has an equitable interest
therein or the revenues therefrom. If the University is successful in these claims, the Company
may be liable for substantial damages, its rights to the technology will be adversely affected, and
its future prospects for exploiting or licensing the combination immunogene therapy technology will
be significantly impaired. In the ordinary course of business, there are other potential claims and lawsuits brought by or
against the Company. In the opinion of management, the ultimate outcome of these matters will not
materially affect the Companys operations or financial position or are covered by insurance. Indemnities and Guarantees The Company has executed certain contractual indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party. The Company also has agreed to
indemnify its directors, officers, 11




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended March 31, 2005 and 2004 employees and agents to the maximum extent permitted under the laws of the State of Delaware. In
connection with a certain facility lease, the Company has indemnified its lessor for certain claims
arising from the use of the facilities. The duration of the guarantees and indemnities varies, and
in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make. Historically, the
Company has not been obligated to make any payments for these obligations and no liabilities have
been recorded for these indemnities and guarantees in the accompanying balance sheet. NOTE 5  SUBSEQUENT EVENTS Non-Cash Financing Activities On April 11, 2005, the board of directors authorized the issuance of 300,000 shares of common stock
to Boston Financial Partners, Inc., a consultant for financial advisory services to be provided
from April, 11, 2005 through October 31, 2005, and the Company issued the shares on April 11, 2005.
The shares were valued at $204,000 based on the trading price of the common stock on such date and
this amount will be charged to general and administrative expense over the contract period. 12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Total assets decreased to $3,874,847 at March 31, 2005 from $4,403,751 at December 31, 2004. The
decrease is a result of cash used in operating activities. Our total outstanding current liabilities increased to $189,114 at March 31, 2005 as compared to
$165,373 at December 31, 2004. The increase resulted from the increase in general accounts payable
and accrued vacation pay. From December 31, 2004 to March 31, 2005, our cash and cash equivalents decreased by $499,816,
primarily as a result of cash used in operating activities. As of May 10, 2005, cash is being
depleted at the rate of approximately $180,000 per month, including expected costs related to (i)
the application for approval of DR-70® by the FDA and (ii) litigation with AcuVector and
the University of Alberta. As of May 10, 2005, our cash on hand
was approximately $1,886,000.
Assuming (i) the current level of revenue from the sale of DR-70®kits to our
distributors and our principal OEM product do not increase in the near future, (ii) we do not
conduct any full scale clinical trials, and (iii) no outstanding warrants are exercised, the amount
of cash on hand is expected to be sufficient to meet our projected operating expenses through March
2006. There are significant uncertainties which negatively affect our operations. These are
principally related to (i) the absence of a distribution network for our DR-70® kits,
(ii) the early stage of development of our Combination Immunogene Therapy (CIT) technology and
the need to enter a strategic relationship with a larger company capable of completing the
development of any ultimate product and the subsequent marketing of such product, and (iii) the
absence of any commitments or firm orders from our distributors. Moreover, there is no assurance
as to when, if ever, we will be able to conduct our operations on a profitable basis. Our limited
sales to date for DR-70®, the lack of any purchase requirements in the existing
distribution agreements, and absence of FDA approval make it impossible to identify any trends in
our business prospects. There is no assurance we will be able to generate sufficient revenues or
sell any equity securities to generate sufficient funds when needed, or whether such funds, if
available, will be obtained on terms satisfactory to us. In addition, if either AcuVector or the
University of Alberta is successful in their claims, we may be liable for substantial damages, our
rights to the CIT technology will be adversely affected, and our future prospects for licensing the
CIT technology will be significantly impaired. The Company does not expect to incur any material capital expenditures until sales volume
increases substantially. Any required future capital expenditures for manufacturing equipment will
be funded out of future revenues or additional equity. The Company does not have any long term or
contingent obligations that must be satisfied. Critical Accounting Policies Our financial statements have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis of making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, affect our more significant
judgments and estimates used in the preparation of our financial statements: Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. The allowance for
doubtful accounts is based on specific identification of customer accounts and our best estimate
of the likelihood of potential loss, taking into account such factors as the financial condition
and payment history of major customers. We evaluate the collectibility of our receivables at
least quarterly. If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. The
differences could be material and could significantly impact cash flows from operating activities. 13




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Inventory. We write down our inventory for estimated obsolescence or unmarketable inventory equal
to the difference between the cost of inventory and the estimated market value based upon
assumptions about future demand, future pricing and market conditions. If actual future demand,
future pricing or market conditions are less favorable than those projected by management,
additional inventory write-downs may be required and the differences could be material. Such
differences might significantly impact cash flows from operating activities. Once established,
write-downs are considered permanent adjustments to the cost basis of the obsolete or excess
inventories. Sales Allowances.A portion of our business is to sell products to distributors who resell the
products to the end customers. In certain instances, these distributors obtain discounts based on
the contractual terms of these arrangements. Sales discounts are usually based upon the volume of
purchases or by reference to a specific price in the related distribution agreement. We recognize
the amount of these discounts at the time the sale is recognized. Additionally, sales returns
allowances are estimated based on historical return data, and recorded at the time of sale. If
the quality or efficacy of our products deteriorates or market conditions otherwise change, actual
discounts and returns could be significantly higher than estimated, resulting in potentially
material differences in cash flows from operating activities. Valuation of Intangibles. From time to time, we acquire intangible assets that are beneficial to
our product development processes. We periodically evaluate the carrying value of intangibles,
including the related amortization periods. In evaluating acquired intangible assets, we
determine whether there has been an impairment by comparing the anticipated undiscounted cash
flows from the operation and eventual disposition of the product line with its carrying value. If
the undiscounted cash flows are less than the carrying value, the amount of the impairment, if
any, will be determined by comparing the carrying value of each intangible asset with its fair
value. Fair value is generally based on either a discounted cash flows analysis or market
analysis. Future operating income is based on various assumptions, including regulatory
approvals, patents being granted, and the type and nature of competing products. If regulatory
approvals or patents are not obtained or are substantially delayed, or other competing
technologies are developed and obtain general market acceptance, or market conditions otherwise
change, our intangibles may have a substantially reduced value, which could be material. As this
asset represents the largest asset on our balance sheet, any substantial deterioration of value
would significantly impact our reported financial position and our reported operating results. Deferred Taxes. We record a valuation allowance to reduce the deferred tax assets to the amount
that is more likely than not to be realized. We have considered estimated future taxable income
and ongoing tax planning strategies in assessing the amount needed for the valuation allowance.
Based on these estimates, all of our deferred tax assets have been reserved. If actual results
differ favorably from those estimates used, we may be able to realize all or part of our net
deferred tax assets. Such realization could positively impact our operating results and cash
flows from operating activities. Litigation. We account for litigation losses in accordance with Statement of Financial Accounting
Standards (SFAS) No. 5, Accounting for Contingencies. Under SFAS No. 5, loss contingency
provisions are recorded for probable losses at managements best estimate of a loss, or when a
best estimate cannot be made, a minimum loss contingency amount is recorded. These estimates are
often initially developed substantially earlier than the ultimate loss is known, and the estimates
are refined each accounting period, as additional information is known. Accordingly, we are often
initially unable to develop a best estimate of loss; therefore, the minimum amount, which could be
zero, is recorded. As information becomes known, either the minimum loss amount is increased or a
best estimate can be made, resulting in additional loss provisions. Occasionally, a best estimate
amount is changed to a lower amount when events result in an expectation of a more favorable
outcome than previously expected. Due to the nature of current litigation matters, the factors
that could lead to changes in loss reserves might change quickly and the range of actual losses
could be significant, which could materially impact our results of operations and cash flows from
operating activities. Results of Operations Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Net Revenue. During the three months ended March 31, 2005, the Company generated $22,875 from
product sales compared to revenues from product sales for the three months ended March 31, 2004 of
$124,503, a decrease of $101,628 or 81.6%. The decrease is due to the lack of orders for Ketone
strips, our principal OEM product. Revenues from sales of OEM products for the three months ended
March 31, 2005 were $2,400 compared to $112,789 for the prior year period, a decrease of $110,389,
or 97.9%. All sales of OEM products were to domestic customers in 14




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both the current year and prior year periods. Revenues from sales of DR-70® for the
three months ended March 31, 2005 were $20,475 compared to $11,714 for the three months ended March
31, 2004, an increase of $8,761, or 74.8%. Domestic customers accounted for $400, or 2.0%, and
foreign customers accounted for $20,075, or 98.0%, of the DR-70® revenues in the three
months ended March 31, 2005. Domestic customers accounted for $1,089, or 9.3%, and foreign
customers accounted for $10,625, or 90.7%, of the DR-70® revenues in the three months
ended March 31, 2004. The continued low level of DR-70® sales is disappointing to management of the Company.
Market acceptance of our DR-70® kits has been slower than originally anticipated, in
part due to the fact that the DR-70® kit has not yet received FDA approval. Under FDA
rules, the Company is not permitted to market and promote DR-70® while the test is
undergoing the FDA submission and review process. In addition, the Company has not concluded any
material new distribution agreements. During the balance of 2005, we expect sales of OEM products to be at the same level as experienced
for the three months ended March 31, 2005. Assuming FDA approval of DR-70® in 2005, we
expect sales of DR-70® to increase in 2005, but any such increase in sales is not
expected to impact significantly our operating results for 2005. These statements concerning
future sales are forward-looking statements that involve certain risks and uncertainties which
could result in a fluctuation of sales above or below those achieved for the three months ended
March 31, 2005 in each category. Sales could also be negatively impacted by potential competing
products and overall market acceptance of the Companys products. Gross Profit. Gross profit on product sales decreased by $50,057 or 73.5% to $18,047 for the three
months ended March 31, 2005, compared to $68,104 for the period ended March 31, 2004. The decrease
in gross profit was due to a decrease in OEM product sales offset by an increase in
DR-70® sales. The Companys gross profit percentage was 78.9% for the three months
ended March 31, 2005 as compared to 54.7% for the prior year period. The increase is primarily due
to the relative changes in product sales mix. Assuming the product sales mix remains the same, management anticipates gross profit margins for
the remainder of 2005 to be at levels similar to that of the three months ended March 31, 2005,
although gross profit from product sales does not significantly cover the current level of general
and administrative expenses. The statement concerning future gross profit margins is a
forward-looking statement that involves certain risks and uncertainties which could result in a
fluctuation of gross margins below those achieved for the three months ended March 31, 2005.
Although the Company believes it provides high-quality products, pricing and gross profit could be
negatively impacted by potential competing products and overall market acceptance of the Companys
products. Research and Development.Research and development expenses for the three months ended March 31,
2005 were $81,444 as compared to $82,875 for the three months ended March 31, 2004. There were no
material changes in the components of research and development expenses. General and Administrative Expenses. General and administrative expenses decreased by $53,177 to
$500,957 for the three months ended March 31, 2005 as compared to the $554,134 reported for the
three months ended March 31, 2004 due mainly to net decreases in: (i) legal costs of $24,321,
primarily related to the AcuVector and University of Alberta actions; (ii) consulting fees of
$41,516; (iii) stock exchange fees of $23,205; offset by (iv) an overall increase of approximately
$29,700 in payroll and other compensation costs; and (v) an increase in directors compensation of
$21,000. The significant components of general and administrative expenses for the three months
ended March 31, 2005 primarily consist of payroll, taxes and benefits; directors fees; consulting
expenses, including financial consulting, investor relations and public relations; and professional
fees, including legal, audit and patent expenses. Interest Income.Interest income for the three months ended March 31, 2005 was $9,376, as compared
to $4,649 for the three months ended March 31, 2004. The increase of $4,727 is due to the
significantly higher average cash balance maintained by the Company during the three months ended
March 31, 2005 as a result of fundraising activities. Net Loss and Loss from Operations.As a result of the above, in the three months ended March 31,
2005, the Companys net loss was $554,978 or $(0.02) per share compared to a net loss of $564,256
or $(0.03) per share for the same period in the prior year. 15




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Assets and Liabilities At March 31, 2005, the Company had total assets of $3,874,847 compared to total assets of
$4,403,751 at December 31, 2004. Cash and cash equivalents was $2,105,721 as of March 31, 2005, a
decrease of $499,816 (19.2%) from the $2,605,537 cash on hand as of December 31, 2004. Cash used
in operations was $494,241 and cash used to purchase equipment was $5,575. As of May 10, 2005, our
cash on hand was approximately $1,886,000. Accounts receivable was $1,600 at March 31, 2005 and there was no accounts receivable at December
31, 2004. Inventories increased $11,558 (17.0%), to $79,593, from the $68,035 at December 31,
2004. The increase in inventories is due to additional manufacturing of DR-70® kits
pending receipt of FDA approval. Net equipment totaled $17,753 at March 31, 2005 compared to $13,888 at December 31, 2004, an
increase of $3,865 (12.6%). The increase is attributable to the purchase of lab equipment for
increased automation of the manufacturing process in the amount of $5,575 during the three months
ended March 31, 2005 less depreciation and amortization in the amount of $1,710 for the period.
Intellectual property decreased to $1,633,333 at March 31, 2005 from $1,658,333 at December 31,
2004 as the result of amortization in the amount of $25,000 for the three months ended March 31,
2005. Total liabilities at March 31, 2005 were $189,114, an increase of $23,741 (14.5%) from the $165,373
at December 31, 2004. Accounts payable and accrued expenses were $98,141 at March 31, 2005, an
increase of $14,380 (17.2%) from the $83,761 at December 31, 2004. The increase is primarily due
to the payment cycle of trade payables. Accrued payroll and related expenses totaled $90,973 at
March 31, 2005; an increase of $9,361 compared to $81,612 at December 31, 2004 and is related to an
increase in the rate of net accrued vacation earned during the three months ended March 31, 2005. Forward Looking Statements This Form 10-QSB contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements made by the Company involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors that could cause
actual results to differ materially from the forward looking statements include, but are not
limited to, risks associated with lack of significant operating history, demand for the Companys
products, international business operations, dependence on licensees, governmental regulations,
technological changes, intense competition and dependence on management. Given these
uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements. The Companys management disclaims any obligation to forward-looking statements
contained herein to reflect any change in the Companys expectation with regard thereto or any
change in events, conditions, circumstances or assumptions underlying such statements. 
 Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Companys chief executive officer and chief financial officer carried out an evaluation of the
effectiveness and operation of the Companys disclosure controls and procedures. They have
concluded after evaluating the effectiveness of the Companys disclosure controls and procedures as
of March 31, 2005, that as of such date, the Companys disclosure controls and procedures were
effective and designed to ensure that material information relating to the Company would be made
known to them by others. Changes in Internal Controls There have been no significant changes in the Companys internal controls or in other factors that
could significantly affect those controls during the three months ended March 31, 2005. 16




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PART II  OTHER INFORMATION Item 1. Legal Proceedings Inapplicable. Item 2. Unregistered Sales of Equity Securities On February 17, 2005, the board of directors of the Company authorized the issuance of warrants to
purchase 25,000 shares of common stock and cash payments of $9,000 to Savannah Capital Management,
Inc., a consultant, for investor public relations services to be provided from March 1, 2005
through May 31, 2005. The common shares issuable upon exercise of the warrants are exercisable at
$0.92 per share. The warrants were valued at $7,000 using the Black-Scholes pricing method. Of
this amount, $2,333 was charged to general and administrative expense in the three months ended
March 31, 2005 and the balance of $4,667 will be charged to general and administrative expense in
the second quarter of 2005. There was no underwriter involved in this issuance. On April 11, 2005, the Company issued 300,000 shares of common stock to Boston Financial Partners,
Inc., a consultant for financial advisory services to be provided from April, 11, 2005 through
October 31, 2005. The shares were valued at $204,000 based upon the trading price of the common
stock on such date and this amount will be charged to general and administrative expense during the
contract period. There was no underwriter involved in this issuance. Item 3. Defaults Upon Senior Securities Inapplicable. Item 4. Submission of Matters to a Vote of Security Holders Inapplicable. Item 5. Other Information Based on the Companys quarterly financial statements for the three months ended March 31, 2005,
the Company no longer meets the stockholders equity requirement for continued listing on AMEX.
Under AMEX rules, after receipt of a formal notification by AMEX, the Company will have 30 days to
provide AMEX with its plan to bring it in compliance with the AMEX listing requirements, up to 18
months to implement such plan, and the Companys progress will be reviewed periodically by AMEX.
The Company believes it will be able to submit and effectuate a satisfactory plan to bring it into
compliance with the AMEX continued listing requirements. Item 6. Exhibits  Exhibits31.1
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer32.2
    Certification Pursuant to 18 U.S.C. §1350 of Chief Financial Officer 17




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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. AMDL, Inc.Dated: May 12, 2005
    By:
    /s/ Gary L. DreherGARY L. DREHER, President Dated: May 12, 2005
    By:
    /s/ Arthur S. RostenARTHUR S. ROSTEN, Chief Financial Officer 18




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EXHIBIT INDEX Exhibits
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Financial Officer
 19