##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-QSB

(Mark One)

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|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.
(Exact name of small business issuer as specified in its charter)

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 33-0413161                       
|                                                               |  |                                  
|(State or other jurisdiction
of incorporation or organization) |  | (IRS Employer
Identification No.)

|                                                                                                
|------------------------------------------------------------------------------------------------
|2492 Walnut Avenue, Suite 100, Tustin, California 92780
(Address of principal executive offices)

|                                          
|------------------------------------------
|(714) 505-4460
(Issuers telephone number)

|                                                                                                 
|-------------------------------------------------------------------------------------------------
|Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)

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                      X                      No

As of August 12, 2003 the Company had 13,112,508 shares of its $.001 par
value common stock issued and outstanding.





---

TABLE OF CONTENTS



|                               |                                                                                               |                               |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | BALANCE SHEET                
|                               |                                                                                               | STATEMENTS OF OPERATIONS     
|                               |                                                                                               | STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 2. Changes in Securities and Use of Proceeds                                            
|                               | Item 3. Defaults Upon Senior Securities                                                      
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                               | Item 5. Other Information                                                                    
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EXHIBIT INDEX                 
|EXHIBIT 31.1                  
|EXHIBIT 31.2                  
|EXHIBIT 32.1                  
|EXHIBIT 32.2                  



---



##### Table of Contents



|                                                                                                    |  |      |    | 
|--------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                    |  | PAGE
|                                                                                                    |  |     
|PART I  FINANCIAL INFORMATION                                                                      |  |      | 2  | 
|Item 1. Financial Statements                                                                        |  |      |    | 
|Balance Sheet at June 30, 2003 (unaudited)                                                          |  |      | 2  | 
|Unaudited Statements of Operations for the three and
six month periods ended June 30, 2003 and 2002 |  |      | 3  | 
|Unaudited Statements of Cash Flows for the
six month periods ended June 30, 2003 and 2002           |  |      | 4  | 
|Notes to Condensed Financial Statements                                                             |  |      | 5  | 
|Item 2. Managements Discussion and Analysis                                                        |  |      | 12 | 
|Item 3. Controls and Procedures                                                                     |  |      | 17 | 
|PART II  OTHER INFORMATION                                                                         |  |      | 18 | 
|Item 1. Legal Proceedings                                                                           |  |      | 18 | 
|Item 2. Changes in Securities and Use of Proceeds                                                   |  |      | 18 | 
|Item 3. Defaults Upon Senior Securities                                                             |  |      | 19 | 
|Item 4. Submission of Matters to a Vote of Security Holders                                         |  |      | 19 | 
|Item 5. Other Information                                                                           |  |      | 19 | 
|Item 6. Exhibits and Reports on Form 8-K                                                            |  |      | 19 | 

1



---



##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements




AMDL, INC.

BALANCE SHEET

ASSETS

|                              |                                           |                                                                                                                         |                                       |             |             |  | 
|----------------------------- | ----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ----------- | ----------- |  | 
|                              |                                           |                                                                                                                         |                                       |             | June 30,   
|                              |                                           |                                                                                                                         |                                       |             | 2003       
|                              |                                           |                                                                                                                         |                                       |             |            
|                              |                                           |                                                                                                                         |                                       |             | (Unaudited)
|Current assets:               |                                           |                                                                                                                         |                                       |            
|                              | Cash and cash equivalents                 |                                                                                                                         | $                                     | 780,333     |            
|                              | Accounts receivable                       |                                                                                                                         |                                       | 1,974       |            
|                              | Inventories                               |                                                                                                                         |                                       | 69,791      |            
|                              | Prepaid expenses and other current assets |                                                                                                                         |                                       | 26,124      |            
|                              |                                           |                                                                                                                         |                                       |             |            
|Total current assets          |                                           |                                                                                                                         | 878,222                               |            
|Intellectual property, net    |                                           |                                                                                                                         | 1,808,333                             |            
|Fixed assets, net             |                                           |                                                                                                                         | 26,576                                |            
|Other assets                  |                                           |                                                                                                                         | 5,757                                 |            
|                              |                                           |                                                                                                                         |                                       |             |            
|                              |                                           | $                                                                                                                       | 2,718,888                             |            
|                              |                                           |                                                                                                                         |                                       |             |            
|                              |                                           |                                                                                                                         | LIABILITIES AND STOCKHOLDERS DEFICIT |             |             |  | 
|Current liabilities:          |                                           |                                                                                                                         |                                       |            
|                              | Accounts payable and accrued expenses     |                                                                                                                         | $                                     | 465,662     |            
|                              | Accrued payroll and related expenses      |                                                                                                                         |                                       | 108,524     |            
|                              | Notes payable, net                        |                                                                                                                         |                                       | 404,221     |            
|                              |                                           |                                                                                                                         |                                       |            
|Total current liabilities     |                                           |                                                                                                                         | 978,407                               |            
|                              |                                           |                                                                                                                         |                                       |            
|Commitments and contingencies |                                           |                                                                                                                         |                                       |            
|Stockholders 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; 12,038,977 shares issued and outstanding
at June 30, 2003 |                                       |             | 12,039      | 
|                              | Additional paid in capital                |                                                                                                                         |                                       | 23,954,868  |            
|                              | Prepaid consulting                        |                                                                                                                         |                                       | (59,379     | )          
|                              | Accumulated deficit                       |                                                                                                                         |                                       | (22,167,047 | )          
|                              |                                           |                                                                                                                         |                                       |            
|Total stockholders equity    |                                           |                                                                                                                         | 1,740,481                             |            
|                              |                                           |                                                                                                                         |                                       |            
|                              |                                           | $                                                                                                                       | 2,718,888                             |            
|                              |                                           |                                                                                                                         |                                       |            

See accompanying notes to financial statements.

2



---



##### Table of Contents






AMDL, INC.

STATEMENTS OF OPERATIONS
(Unaudited)

|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |           |            |  
|----------------------------------- | -------------------------- | -------- | --------- | ------------------ | -------- | ---------------- | ---------- | --------- | ---------- | ---- | ---------- | -------- | ---------- | - | ---------- | --------- | ---------- | -
|                                    |                            |          |           | Three Months Ended |          | Six Months Ended
|                                    |                            |          |           | June 30,           |          | June 30,        
|                                    |                            |          |           |                    |          |                 
|                                    |                            |          |           | 2003               |          | 2002             |            | 2003      |            | 2002
|                                    |                            |          |           |                    |          |                  |            |           |            |     
|Revenues                            |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|                                    | Product sales              |          | $         | 59,168             |          |                  | $          | 43,062    |            |      | $          | 125,204  |            |   | $          | 73,807    |           
|Cost of sales                       |                            |          | 30,399    |                    |          |                  | 18,772     |           |            |      | 57,547     |          |            |   | 34,066     |          
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|Gross profit                        |                            |          | 28,769    |                    |          |                  | 24,290     |           |            |      | 67,657     |          |            |   | 39,741     |          
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|Operating expenses                  |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|                                    | Research and development   |          |           | 224,113            |          |                  |            | 91,361    |            |      |            | 332,619  |            |   |            | 240,758   |           
|                                    | General and administrative |          |           | 408,065            |          |                  |            | 1,070,188 |            |      |            | 909,954  |            |   |            | 2,323,975 |           
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|                                    |                            |          | 632,178   |                    |          |                  | 1,161,549  |           |            |      | 1,242,573  |          |            |   | 2,564,733  |          
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|Loss from operations                |                            |          | (603,409  | )                  |          |                  | (1,137,259 | )         |            |      | (1,174,916 | )        |            |   | (2,524,992 | )        
|Other income                        |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|                                    | Interest income            |          |           | 55                 |          |                  |            | 6,249     |            |      |            | 529      |            |   |            | 16,720    |           
|Other expense                       |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|                                    | Interest expense           |          |           | (334,666           | )        |                  |            |          |            |      |            | (334,666 | )          |   |            |          |           
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|                                    |                            | Net loss |           | $                  | (938,020 | )                |            | $         | (1,131,010 | )    |            | $        | (1,509,053 | ) |            | $         | (2,508,272 | )
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|Basic and diluted loss
per share    |                            | $        | (0.10     | )                  |          | $                | (0.13      | )         |            | $    | (0.16      | )        |            | $ | (0.30      | )        
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          
|Weighted average shares
outstanding |                            |          | 9,669,892 |                    |          |                  | 8,549,752  |           |            |      | 9,416,073  |          |            |   | 8,346,740  |          
|                                    |                            |          |           |                    |          |                  |            |           |            |      |            |          |            |   |            |          

See accompanying notes to financial statements.

3



---



##### Table of Contents






AMDL, INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |            |         |         |         | 
|------------------------------------------------ | -------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------- | ---------------- | ---------- | ---------- | ------- | ------- | ------- | 
|                                                 |                                                                                        |                                                       |                                           |                                                     |         | Six Months Ended
|                                                 |                                                                                        |                                                       |                                           |                                                     |         | June 30,        
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                 
|                                                 |                                                                                        |                                                       |                                           |                                                     |         | 2003             |            | 2002      
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|Cash flows from operating activities             |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|                                                 | Net loss                                                                               |                                                       | $                                         | (1,509,053                                          | )       |                  | $          | (2,508,272 | )      
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities             |                                                       |                                           |                                                     |         |                  |            |            |        
|                                                 |                                                                                        | Depreciation and amortization                         |                                           |                                                     | 54,994  |                  |            |            | 54,100  |        
|                                                 |                                                                                        | Fair market value of common stock issued for services |                                           |                                                     | 34,686  |                  |            |            | 587,987 |        
|                                                 |                                                                                        | Non-cash interest expense recognized                  |                                           |                                                     | 334,336 |                  |            |            |        |        
|                                                 |                                                                                        | Changes in operating assets and liabilities           |                                           |                                                     |         |                  |            |            |         |        
|                                                 |                                                                                        |                                                       | Accounts receivable                       |                                                     |         | 86,416           |            |            |         | (12,118 | )      
|                                                 |                                                                                        |                                                       | Inventories                               |                                                     |         | 13,183           |            |            |         | (19,761 | )      
|                                                 |                                                                                        |                                                       | Prepaid expenses and other current assets |                                                     |         | (6,597           | )          |            |         | 24,123  |        
|                                                 |                                                                                        |                                                       | Accounts payable and accrued expenses     |                                                     |         | 320,975          |            |            |         | 75,260  |        
|                                                 |                                                                                        |                                                       | Accrued payroll and related expenses      |                                                     |         | 21,976           |            |            |         | (12,249 | )      
|                                                 |                                                                                        |                                                       | Customer deposits                         |                                                     |         | (12,350          | )          |            |         |        |        
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|Net cash used in operating activities            |                                                                                        |                                                       | (661,434                                  | )                                                   |         |                  | (1,810,930 | )         
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|Cash flows from investing activities             |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|                                                 | Purchases of equipment                                                                 |                                                       |                                           |                                                    |         |                  |            | (25,664    | )      
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|Cash flows from financing activities             |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|                                                 | Proceeds from issuance of common stock,
net of offering costs of $2,620 in 2003        |                                                       |                                           | 17,380                                              |         |                  |            |           |        
|                                                 | Proceeds from issuance of convertible notes,
net of offering costs of $244,365 in 2003 |                                                       |                                           | 1,076,635                                           |         |                  |            |            |        
|                                                 | Proceeds from exercise of warrants and options,
net of costs of $4,451 in 2002         |                                                       |                                           |                                                    |         |                  |            | 253,949    |        
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|                                                 |                                                                                        |                                                       |                                           | Net cash provided by (used in) financing activities |         |                  | 1,094,015  |            |         |         | 253,949 | 
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|Net change in cash                               |                                                                                        |                                                       | (432,581                                  | )                                                   |         |                  | (1,582,645 | )         
|Cash at beginning of period                      |                                                                                        |                                                       | 347,752                                   |                                                     |         |                  | 2,929,833  |           
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|Cash at end of period                            |                                                                                        | $                                                     | 780,333                                   |                                                     |         | $                | 1,347,188  |           
|Supplemental disclosure of cash flow information |                                                                                        |                                                       |                                           |                                                     |         |                  |            |           
|                                                 | Cash paid during the period for
Interest                                               |                                                       | $                                         |                                                    |         |                  | $          |           |        
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |            |        
|                                                 |                                                                                        | Income taxes                                          |                                           | $                                                   |        |                  |            | $          |        |        
|                                                 |                                                                                        |                                                       |                                           |                                                     |         |                  |            |            |        

See accompanying notes to financial statements.

4



---



##### Table of Contents






AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

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
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 and six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. It is suggested that the financial statements be read in
conjunction with the audited financial statements and notes for the fiscal year
ended December 31, 2002 included in the Companys Annual Report on Form
10-KSB/A.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is primarily 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 colorectal and other 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.

Going Concern

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has an accumulated deficit of $22,167,047 as of June 30,
2003, continues to generate low levels of sales from its DR-70® product, and
has incurred significant continuing losses from operations through June 30,
2003. These items, among other matters, raise substantial doubt about the
Companys ability to continue as a going concern.

The Companys near and long-term operating strategies focus on exploiting the
technologies currently owned by the Company. The Company has begun the process
of obtaining FDA approval of its DR-70® product, which if successful, will
allow the Company to sell this product in the United States. The Company
believes that FDA approval would increase sales of the DR-70® product
worldwide. In addition, the Company is making efforts to license its
combination immunogene therapy technology by entering into a strategic
relationship with a larger company. The Company hopes that this relationship
will provide cash up-front to help improve the current financial condition.
The impact on the results of operations or the outcome of these activities
cannot be determined at this time.

In response to the current financial conditions of the Company and as a part of
its ongoing corporate strategy, the Company conducted a private placement of
units between April 1,2003 and June 30, 2003 generating net proceeds of
$1,076,635, which proceeds increased liquidity and better positioned the
Company to complete the DR-70® application to the FDA (See Note 4). For the
period from July 1, 2003 through August 12, 2003, the Company received
additional net proceeds of approximately $71,000 from the exercise of warrants
included in the units in the private placement (See Note 7). There can be no
assurances that any additional warrants included in the units will be exercised
or that any further financing will be obtained, or if obtained, that the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.

5



---



##### Table of Contents



AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

Accordingly, the Company believes that its cash position of $780,333 at June
30, 2003 together with the additional funds raised through August 12, 2003 is
sufficient to fund its operations and working capital requirements only through
October 15, 2003.

The financial statements do not include any adjustments related to
recoverability and classification of assets or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

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.

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.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by APB Opinion No. 25 Accounting
for Stock Issued to Employees (APB 25). Under the intrinsic value based
method, compensation is the excess, if any, of the fair value of the stock at
the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Compensation, if any, is recognized over the applicable
service period, which is usually the vesting period.

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123). This standard, if fully adopted,
changes the method of accounting for employee stock-based compensation plans to
the fair value based method. For stock options and warrants, fair value is
determined using an option pricing model that takes into account the stock
price at the grant date, the exercise price, the expected life of the option or
warrant and the annual rate of quarterly dividends. Compensation expense, if
any, is recognized over the applicable service period, which is usually the
vesting period.

In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44),
Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion 25. FIN 44 clarifies the application of APB 25
for (a) the definition of employee for purposes of applying APB 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory plan,
(c) the accounting consequence for various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective
July 1, 2000, but certain provisions cover specific events that occur after
either December 15, 1998, or January 12, 2000. The adoption of FIN 44 did not
have a material effect on the financial statements.

The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25, as amended by FIN 44; however, pro forma
disclosures, as if the Company adopted the cost recognition requirements under
SFAS 123, are required to be presented (see below). For stock-based
compensation issued to non-employees, the Company values these grants at fair
value as defined in SFAS 123, FIN 44 and EITF 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.

6



---



##### Table of Contents



AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

At June 30, 2003 the Company had two stock-based employee compensation plans,
which are described more fully in Note 5. The Company accounts for those plans
under the recognition and measurement principles of APB 25, and related
interpretations. No stock based employee compensation cost is reflected in the
statement 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 income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS 123, to stock-based employee compensation.

|                                                                                                                   |  |                            |          |                          |  |      |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | -------- | ------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                   |  | For The Three Months Ended |          | For The Six Months Ended
|                                                                                                                   |  | June 30,                   |          | June 30,                
|                                                                                                                   |  |                            |          |                         
|                                                                                                                   |  | 2003                       |          | 2002                     |  | 2003 |            | 2002
|                                                                                                                   |  |                            |          |                          |  |      |            |     
|Net loss as reported                                                                                               |  | $                          | (938,020 | )                        |  | $    | (1,131,010 | )    |  | $ | (1,509,053 | ) |  | $ | (2,508,272 | )
|Deduct: Total stock-based employee
compensation under fair value method
for all awards, net of related tax effects |  |                            |         |                          |  |      | (490,910   | )    |  |   |           |   |  |   | (490,910   | )
|                                                                                                                   |  |                            |          |                          |  |      |            |      |  |   |            |   |  |   |            |  
|Pro forma net loss                                                                                                 |  | $                          | (938,020 | )                        |  | $    | (1,621,920 | )    |  | $ | (1,509,053 | ) |  | $ | (2,999,182 | )
|                                                                                                                   |  |                            |          |                          |  |      |            |      |  |   |            |   |  |   |            |  
|Basic and diluted loss per share -
as reported                                                                     |  | $                          | (0.10    | )                        |  | $    | (0.13      | )    |  | $ | (0.16      | ) |  | $ | (0.30      | )
|                                                                                                                   |  |                            |          |                          |  |      |            |      |  |   |            |   |  |   |            |  
|Basic and diluted loss per share -
pro forma                                                                       |  | $                          | (0.10    | )                        |  | $    | (0.19      | )    |  | $ | (0.16      | ) |  | $ | (0.36      | )
|                                                                                                                   |  |                            |          |                          |  |      |            |      |  |   |            |   |  |   |            |  

Risks and Uncertainties

The Companys proprietary DR-70® 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-70® in the
United States. The Company has received regulatory approval from various
foreign governments to sell its products and is in the process of obtaining
regulatory approval within other foreign markets. There can be no assurance
that the Company will maintain the regulatory approvals required to market its
products.

The Company is subject to the risk of failure in maintaining its current
regulatory approvals and in obtaining future regulatory approval, as well as
the timely 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.

The current level of revenues from the sale of DR-70® kits to our distributors
and one OEM product are not sufficient to finance current operations and the
costs of the colon cancer samples and the clinical trials needed for the FDA
approval process. Accordingly, our business and operations are substantially
dependent on our ability to raise additional working capital to finance the
costs of FDA approval of DR-70® and to pay ongoing general and administrative
expenses of our business. There are no definitive commitments to provide the
required capital. Additional financing may not be available to us when needed
or, if available, may not be obtained on commercially

7



---



##### Table of Contents



AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

reasonable terms. In addition, any equity financing may involve substantial
dilution to our shareholders. The Company is also making efforts to license
our combination immunogene therapy technology by entering into a strategic
relationship with a larger company. It is anticipated that a successful
transaction would provide up-front cash to the Company which would enable the
Company to fund future operations; however, there is no assurance that a
transaction will be consummated nor can the Company anticipate the amount of
any up-front cash available.

Revenue Recognition

Product sales revenue is recognized upon passage of title to customers,
typically upon shipment of product. Any provision for discounts and estimated
returns are accounted for in the period the related sales are recorded.
Licensing revenue is recognized as earned over the term of each respective
agreement.

Segments of an Enterprise and Related Information

During the three months ended June 30, 2003, approximately 8.0% of our total
sales were to customers in foreign countries. Customers in Korea accounted
for approximately 7.0% of total sales and 87.3% of foreign sales. During the
three months ended June 30, 2002, approximately 28.6% of our sales were to
customers in foreign countries. Customers in Taiwan accounted for
approximately 28.6% of total sales and 100% of foreign sales. During the six
months ended June 30, 2003, approximately 13.9% of our total sales were to
customers in foreign countries. Customers in Taiwan accounted for
approximately 9.9% of total sales and 70.9% of foreign sales. Customers in
Korea accounted for approximately 3.6% of total sales and 25.7% of foreign
sales. During the six months ended June 30, 2002, approximately 35.1% of our
sales were to customers in foreign countries. Customers in Taiwan accounted
for approximately 33.5% of total sales and 95.5% of foreign sales. The
Company currently operates in one segment.

Reclassifications

Certain reclassifications were made to the prior period amounts, in order to
conform with current period presentation.

NOTE 3  NOTES PAYABLE

Convertible notes were issued as part of the units in the private placement
offering. At June 30, 2003 notes totaling $442,632 were outstanding.
Unamortized debt discount and unamortized deferred issuance costs are as
follows:

|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Notes payable                       |  | $ | 442,632 |  
|Unamortized debt discount           |  |   | (10,629 | )
|Unamortized deferred issuance costs |  |   | (27,782 | )
|                                    |  |   |         |  
|Net notes payable                   |  | $ | 404,221 |  
|                                    |  |   |         |  

See Notes 4 and 7.

NOTE 4  STOCK ISSUANCES

Cash Financing Activities

On October 23, 2002, the board of directors authorized a proposed Regulation S
offering of up to 1,575,000 shares of common stock (Regulation S Offering)
at a price of 70% of the current market price at the time of sale, subject to
a

8



---



##### Table of Contents



AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

floor price of no less than $.35 per share, the payment of commissions of 10%
of the sales price in cash, non-accountable expenses of 3% of the sales price,
and warrants equal to 10% of the shares sold in the Regulation S Offering.
The Company also authorized a companion offering in the United States under
Regulation D (Regulation D Offering) under the same terms and conditions as
the Regulation S Offering. On February 24, 2003, 50,000 shares were sold in
the Regulation D Offering at a price of $0.40 per share, generating net
proceeds of $17,380, net of issuance costs of $2,620. PCNA, S.A., a Swiss
corporation, acted as the placement agent in connection with this offering.
In addition to the cash compensation, the placement agent received common
stock purchase warrants for 5,000 shares during the six months ended June 30,
2003.

On March 21, 2003, the board of directors authorized the sale of units
consisting of unsecured convertible notes and warrants to purchase common
stock, at or above the market price of the common stock to accredited and
non-U.S. investors only in a private placement. The Company raised $1,321,000
in gross proceeds from this offering and the Company is hopeful that an
additional amount of up to $1.6 million in gross proceeds from the exercise of
the warrants will be received. Under the terms of the offering, investors
received one unit for each $1,000 invested. Each unit generally consisted of
a 5% convertible promissory note due June 30, 2003, in the principal amount of
$1,000, generally convertible into 2,598 shares of the Companys common stock
plus a warrant to purchase 2,598 shares of the Companys common stock at an
exercise price of $0.385 each, expiring on December 31, 2005. The notes were
generally automatically converted into common shares upon the approval of the
listing of the shares issuable on conversion of the notes by the American
Stock Exchange.

The Company has registered with the Securities and Exchange Commission on Form
S-3 the shares of the Companys common stock issued upon conversion of the
notes and issuable upon exercise of the warrants, which registration statement
became effective on July 31, 2003; however, there are significant restrictions
on the sale of the shares issuable on exercise of the warrants. The Company
was contractually required to issue 5% additional warrants to each investor
(totaling 170,234 warrants at an exercise price of generally $0.385 each
expiring on December 31, 2005) because the registration statement was not
declared effective prior to July 1, 2003.

In connection with its fundraising efforts, the Company utilized the services
of two placement agents, PCNA, S.A., a Swiss corporation and Gestibroker
Consulting and Financial Management S.A., a Swiss corporation and paid a total
cash compensation of 13% of funds raised plus issued warrants to purchase
common shares equal to 10% of the aggregate number of shares of common stock
issued or issuable on conversion of the promissory notes. In addition, the
Company entered into an investment advisory agreement with First London
Finance, Ltd, a British Virgin Islands company. Under the terms of the
investment advisory agreement, the Company issued 400,000 shares of common
stock as a success fee for the offering. The Company is required to issue to
First London Finance an additional 100,000 shares of common stock if $750,000
in gross proceeds is received from the exercise of the warrants included in
the units within the 90-day period beginning on August 1, 2003 and ending on
October 29, 2003. Through August 12, 2003, the additional shares are not yet
issuable to First London Finance.

On June 18, 2003, upon the approval of the American Stock Exchange,
approximately $878,000 of the convertible notes were converted into 2,265,655
shares of our common stock, including 10,424 shares in respect of the interest
earned on the notes. On July 8, 2003, a further $340,000 of convertible notes
were converted into 881,823 shares of our common stock. The Company
anticipates the remaining $103,000 of convertible notes, which are convertible
into 268,125 shares of our common stock, will be converted on or about August
24, 2003.

In connection with the warrants, the Company recorded a debt discount of
approximately $142,000 (valued based on the Black-Scholes model under SFAS 123
and allocated on a relative fair value basis under APB 14), which was amortized
from the dates of purchase through the maturity dates of the convertible notes,
generally June 30, 2003, or the date of mandatory conversion, whichever
occurred first. As of June 30, 2003, the Company amortized approximately
$90,000 of the debt discount to interest expense and transferred approximately
$41,000 of the debt discount to additional paid-in capital for notes converted
prior to their maturity dates, representing the unamortized debt discount
associated with the converted notes. Approximately $11,000 of the debt
discount will be amortized to

9



---



##### Table of Contents



AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

interest expense during the three months ending September 30, 2003.

The Company incurred approximately $413,000 of issuance costs related to
issuance of the units. Of these costs approximately $244,000 was paid in cash
to placement agents (see above) and other service providers, and the remaining
$169,000 was based on the estimated fair market value of the 400,000 shares of
common stock granted to First London Finance (see above), and warrants to
purchase 340,479 shares of common stock at an exercise price generally of
$0.385 per share expiring December 31, 2005 issued to placement agents (valued
based on the Black-Scholes model under SFAS 123) and warrants to purchase
200,000 shares of common stock at an exercise price of $0.385 per share
expiring May 31, 2005 issued to two investors. As of June 30, 2003, the
Company recognized approximately $240,000 of these issuance costs as interest
expense based on the original amortization period of the notes, and transferred
approximately $145,000 to additional paid-in capital, representing the
unamortized debt issuance costs associated with the converted notes, as certain
of the issuances were converted prior to their maturity dates,. Approximately
$28,000 of the debt discount will be amortized to interest expense during the
three months ending September 30, 2003. See also Notes 3 and 7.

Non-Cash Financing Activities

On October 23, 2002, the board of directors authorized the issuance of 50,000
shares of common stock per month to International Consulting Partners, a
consultant for financial consulting services to be rendered thereafter on a
month to month basis. On January 31, 2003, the Company issued an aggregate of
99,999 shares of common stock (33,333 shares per month for the three months
ended January 31, 2003) for consulting services to the same consultant
pursuant to the prior authorization. Of these shares, 66,666 shares, valued
at $30,600 based upon the trading price of the common stock on the dates
earned, were charged to consulting expense in 2002 as if issued on December
31, 2002. The remaining 33,333 shares were valued at $16,433, based upon the
trading price of the common stock on January 31, 2003, and charged to
consulting expense. An additional 33,333 shares were issued to the same
consultant for services performed in February 2003, valued at $11,333, based
upon the trading price of the common stock on February 28, 2003, and charged
to consulting expense.

On March 23, 2003 the board of directors authorized the issuance of 500,000
shares of common stock to First London Finance in connection with the unit
offering described above. On June 18, 2003, the Company issued 400,000 of the
shares to First London Finance and valued 200,000 of the shares at $57,800 on
May 21, 2003, the date the first 200,000 shares were earned, and 200,000 of
the shares at $95,200 on June 17, 2003, the date the other 200,000 shares were
earned. The value of these shares was included in debt issuance costs and
recorded as described above.

On June 11, 2003, the board of directors authorized the issuance of 150,000
shares of common stock to International Consulting Group Ltd., a consultant
for financial advisory services for a six-month period ending November 2003,
and the Company issued the shares on July 2, 2003. The shares were valued at
$66,300 based upon the trading price of the common stock on June 11, 2003, the
date the shares were earned, and recorded to stockholders equity as if issued
on June 11, 2003. The $66,300 will be recorded to general and administrative
expense over the term of the agreement. For the period ended June 30, 2003,
the Company recorded $6,921 of expense and the unamortized balance of $59,379
as of June 30, 2003 has been recorded as a prepaid consulting expense and
classified as an offset to stockholders equity.

NOTE 5  STOCK OPTIONS

The Company has a 1999 Stock Option Plan (the 1999 Plan). Under the 1999
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 2,000,000 shares of the Companys common stock. All
options granted have an exercise price equal to the fair market value at the
date of grant, vested upon grant and expire in five years. No options were
granted

10



---



##### Table of Contents



AMDL, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

For the Periods Ended June 30, 2003 and 2002

during the three and six months ended June 30, 2003 and no further options are
available for grant under the 1999 Plan.

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 during the
three and six months ended June 30, 2003 and 245,000 options remain available
for grant under the 2002 Plan as of June 30, 2003.

NOTE 6  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 seeks substantial damages and
injunctive relief against Dr. Chang for, among other things, breach of contract
and breach of fiduciary duty, and against the Company for interference with the
alleged relationship between Dr. Chang and AcuVector. The claim for injunctive
relief in the Canadian case seeks to establish that the AcuVector license
agreement with Dr. Chang is still in effect. The Company has performed
extensive due diligence to determine that AcuVector had no interest in the
technology when the Company acquired it. The Company is confident that
AcuVectors claims are without merit and that the Company will receive a
favorable judgment. As the final outcome is not determinable, no accrual or
loss relating to these actions 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 the Companys future prospects for licensing the technology will
be significantly impaired.

In the ordinary course of business, there are 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.

NOTE 7  SUBSEQUENT EVENTS

On July 8, 2003, 881,823 shares of the Companys common stock were issued on
conversion of $340,000 of outstanding notes held by eight investors. These
notes were included in the units sold in the private placement.

As of August 12, 2003 warrants included in the units sold in the private
placement for 191,708 shares of the Companys common stock were exercised
providing gross proceeds of $78,748 to the Company. The Company accrued
$7,875 in fees to its placement agents in respect of the proceeds received.

11



---



##### Table of Contents






Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources,

Total assets increased from $2,434,303 at December 31, 2002 to $2,718,888 at
June 30, 2003. The increase is primarily the result of $1,076,635 of net cash
received in our unit private placement offering and collection of net accounts
receivable of $86,416, which increase was offset by cash used for research and
development and losses incurred in operations.

The Company recently conducted an offering in the US under Regulation D and
concurrently in Europe under Regulation S, and raised net proceeds of
approximately $1,076,635 through the sale of 1,321 units at a price of $1,000
each. Each unit generally consisted of a 5% convertible promissory note due
June 30, 2003, in the principal amount of $1,000, convertible into 2,598 shares
of the Companys common stock plus a warrant to purchase 2,598 shares of the
Companys common stock, at an exercise price of $0.385 each, expiring on
December 31, 2005. Through June 30, 2003, 878.4 units have been converted into
2,265,655 shares of our common stock. On July 8, 2003, a further 339.5 units
were converted into 881,823 shares of our common stock. We anticipate the
remaining 103.1 units, which are convertible into 268,125 shares of our common
stock, will be converted on or about August 24, 2003. As of August 12, 2003,
investors have exercised 191,708 warrants generating net proceeds of $70,873.
There is no assurance that the Company will be successful raising additional
funds in any other future equity offering.

Our total outstanding current liabilities increased to $978,407 at June 30,
2003 as compared to $243,585 at December 31, 2002. The increase resulted from
the remaining balance of our convertible notes payable as part of our unit
private placement offering, accrued expenses related to the offering and the
lack of cash to pay ongoing operating payables until conversion of the
remaining notes to common stock in early July 2003. On July 8, 2003 current
liabilities were reduced by approximately $340,000 upon the conversion of
certain notes payable and by approximately $260,000 upon the payment of
operating payables through such date. As of August 12, 2003 our current
accounts payable were approximately $213,000.

From December 31, 2002 to June 30, 2003, our cash and cash equivalents
increased by $432,581 as a result of receipt of net proceeds in private
placement offerings of $1,076,635, offset by expenditures for research and
development, including $286,041 for research studies, and other operating
expenses, including compensation and related costs of $385,440, consulting fees
of $191,715 and legal fees of $101,233. Where the Company can pay for services
(e.g. financial consulting and investor relations services) using shares of its
common stock, the Company takes advantage of these opportunities to conserve
cash.

As of August 12, 2003, our cash on hand was approximately $374,000. Assuming
no decrease in current accounts payable, as of August 12, 2003, cash is being
depleted at the rate of approximately $100,000 per month, excluding clinical
trials and certain one-time operating costs for insurance and our upcoming
annual meeting totaling $170,000. Without a significant change in sales, our
only sources of significant additional funds to meet future operating expenses
and the costs of the FDA approval process is the exercise of outstanding
warrants and the sale of the Companys securities. The amount of cash on hand
is only sufficient to meet our operating expenses through October 15, 2003.

There are significant uncertainties that negatively affect our operations.
These are principally related to (i) the lack of US FDA approval and absence of
any strong 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 into 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 in Taiwan and Hong Kong, Australia and Korea. In addition,
the lack of a market for our PyloriProbe product due to changes in technology
and the presence of improved competitive products in the United States has led
us to conclude that our investment in this product and any inventory on hand
will have no further realizable value domestically. Moreover, there is no
assurance as to when, if ever, we will be able to conduct our operations on a
profitable basis. The Companys limited sales to date and the lack of any
purchase requirements in the existing distribution agreements, makes it
impossible to identify any trends in our business prospects.

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.

12



---



##### Table of Contents



Additionally, in order to pay ongoing general and administrative expenses, the
Company is currently seeking to raise
additional funds through the exercise of additional warrants issued in the
recent offering and the potential sale of additional securities in a possible
subsequent offering. The potential impact of either an adverse determination
in the action brought by AcuVector Group, Inc. or poor results in ongoing
German trials could materially impact the Companys ability to obtain the
additional working capital. There is no assurance the Company will be able to
generate sufficient revenues or obtain sufficient funds when needed, or whether
such funds, if available, will be obtained on terms satisfactory to the
Company. In addition, the filing of the AcuVector lawsuit may have an effect
on our ability to license the CIT technology.

As reported in our financial statements and in the report of our auditors for
the year ended December 31, 2002, there was a substantial doubt as to our
ability to continue as a going concern. The financial statements did not
include any adjustments related to recoverability and classification of assets
and liabilities that might result should we be unable to continue as a going
concern. As described in this section, the Company has taken several steps
through August 12, 2003 to reduce this risk in the future. There is no
assurance that the financial results of the Companys actions will eliminate
the going concern risk in the future.

Critical Accounting Policies

Our Unaudited 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.

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.

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

13



---



##### Table of Contents



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 June 30, 2003 Compared to Three Months Ended June 30, 2002

Net Revenue.   During the three months ended June 30, 2003, the Company
generated $59,168 from product sales compared to revenues from product sales
for the three months ended June 30, 2002 of $43,062, an increase of $16,106 or
37.4%. The increase is primarily due to increased orders for Ketone strips,
our principal OEM product. Revenues from sales of OEM products for the three
months ended June 30, 2003 were $54,430 compared to $30,047 for the prior year
period, an increase of $24,383 or 81.2%. Ketone strips comprised 95.4% of our
OEM sales, and 87.8% of our total sales in the three months ended June 30,
2003. All sales of OEM products were to domestic customers in both the current
year and prior year periods. Revenues from sales of DR-70® for the three
months ended June 30, 2003 were $4,738 compared to $13,015 for the three months
ended June 30, 2002, a decrease of $8,277 or 63.6%. All of the DR-70® revenues
in the three months ended June 30, 2003 were from foreign customers. Of the
DR-70® revenues in the three months ended June 30, 2002, $689 was from domestic
customers and $12,326 was from foreign customers.

The continued low level of DR-70® sales is disappointing to management of the
Company. Our current distributors advise that market acceptance of our DR-70®
kits has been slower than originally anticipated, in part due to the fact that
the DR-70® kit has not yet received FDA approval. In addition, the Company has
not concluded any material new distribution agreements this year as new
potential distributors have experienced similar delays and face similar market
acceptance issues because of the lack of FDA approval.

Gross Profit.   Gross profit on product sales increased by $4,479, or 18.4%, to
$28,769 for the three months ended June 30, 2003, compared to $24,290 for the
period ended June 30, 2002. The increase in gross profit was due to an
increase in OEM product sales offset to a small degree by the decrease in sales
of DR-70®. The Companys gross profit on total product sales was 48.6% for the
three months ended June 30, 2003 as compared to 56.4% for the prior year
period. The decrease is due to the relative changes in product mix, variations
in manufacturing costs based on low volume production quantities and the fact
that the DR-70® sales in the three months ended June 30, 2003 were made at
special pricing for clinical studies.

Assuming the product sales mix remains the same, management anticipates future
gross profit margins to remain at the levels of the three months ended June 30,
2003. The statement concerning future gross profit margins is a
forward-looking

14



---



##### Table of Contents



statement that involves certain risks and uncertainties, which
could result in a fluctuation of gross margins below those achieved for the
three months ended June 30, 2003. Pricing of our products and gross profit on
OEM product sales could change due to competitive forces and sales of DR-70® could
be negatively impacted by either further delay in receipt of FDA approval or
poor market acceptance of the Companys product.

Research and Development.  Research and development expenses for the three
months ended June 30, 2003 were $224,113 as compared to $91,361 for the three
months ended June 30, 2002. The increase of $132,752 was a result of (i) the
resumption of the clinical trials and acquisition of cancer samples primarily
related to our DR-70® product, at a total cost of $215,238 during the three
months ended June 30, 2003, compared to clinical study costs of $12,982 in the
prior year period; offset by (ii) a decrease in the services provided by our
principal research consultant in the amount of $63,805 due to the general
attempt to reduce cash outlays and reduced needs during the period.

General and Administrative Expenses.   General and administrative expenses for
the three months ended June 30, 2003, decreased by $662,123 from $1,070,188 for
the three months ended June 30, 2002 to $408,065 for the three months ended
June 30, 2003, primarily as a result of a decrease in consulting expenses of
$193,301; the fact that there were no aborted offering costs as compared to
$297,499 of such costs for the prior years period; a decrease in stock
exchange fees of $81,500; a decrease in legal costs of $54,561; and a decrease
in payroll, taxes and benefits of $18,564 for the three months ended June 30,
2003 as compared to the same period for 2002. The significant components of
general and administrative expenses for the three months ended June 30, 2003
primarily consist of payroll, taxes and benefits; consulting expenses; and
professional fees, including legal, audit and patent expenses.

Interest Income and Expense.   Interest income for the three months ended June
30, 2003 was $55, as compared to $6,249 for the three months ended June 30,
2002. The decrease of $6,194, or 99.1%, is due to the lower cash balance
maintained by the Company during 2003. Interest expense for the three months
ended June 30, 2003 consists of non-cash amortization of debt discount
associated with the warrants issued as part of the units in our private
placement offering in the amount of approximately $90,000, non-cash
amortization of issuance costs in the amount of approximately $240,000 and
interest paid in shares of common stock in the amount of approximately $4,000.
There was no interest expense in 2002.

Net Loss and Loss from Operations.  As a result of the above, in the three
months ended June 30, 2003, the Companys net loss was $938,020 or $(0.10) per
share compared to a net loss of $1,131,010 or $(0.13) per share for the same
period in the prior year.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Net Revenue.   During the six months ended June 30, 2003, the Company generated
$125,204 from product sales compared to revenues from product sales for the six
months ended June 30, 2002 of $73,807, an increase of $51,397 or 69.6%. The
increase is primarily due to increased orders for Ketone strips, our principal
OEM product. Revenues from sales of OEM products for the six months ended June
30, 2003 were $107,018 compared to $45,480 for the prior year period, an
increase of $61,538 or 135.3%. Ketone strips comprised 94.5% of our OEM sales,
and 80.8% of our total sales in the six months ended June 30, 2003. All sales
of OEM products were to domestic customers in both the current year and prior
year periods. Revenues from sales of DR-70® for the six months ended June 30,
2003 were $18,186 compared to $28,326 for the six months ended June 30, 2002, a
decrease of $10,140 or 35.8%. Of the DR-70® revenues in the six months ended
June 30, 2003, $766 was from domestic customers and $17,420 was from foreign
customers. Of the DR-70® revenues in the six months ended June 30, 2002,
$2,410 was from domestic customers and $25,916 was from foreign customers.

The continued low level of DR-70® sales is disappointing to management of the
Company. Our current distributors advise that market acceptance of our DR-70®
kits has been slower than originally anticipated, in part due to the fact that
the DR-70® kit has not yet received FDA approval. In addition, the Company has
not concluded any material new distribution agreements this year as new
potential distributors have experienced similar delays and face similar market
acceptance issues because of the lack of FDA approval.

Gross Profit.  Gross profit on product sales increased by $27,916 or 70.2% to
$67,657 for the six months ended June 30, 2003, compared to $39,741 for the
period ended June 30, 2002. The increase in gross profit was due to an
increase in OEM product sales offset by the decrease in DR-70® sales. The
Companys gross profit on total product

15



---



##### Table of Contents



sales was 54.0% for the six months
ended June 30, 2003 as compared to 53.8% for the prior year period. The slight
increase is due to the relative changes in product mix.

Research and Development.  Research and development expenses for the six months
ended June 30, 2003 were $332,619 as compared to $240,758 for the six months
ended June 30, 2002. The increase of $91,861 was a result of
(i) the resumption of the clinical trials and acquisition of cancer samples
primarily related to our DR-70® product, at a total cost of $286,041 during the
six months ended June 30, 2003, compared to clinical study costs of $89,871 in
the prior year period; offset by (ii) a decrease in the services provided by
our principal research consultant in the amount of $97,431 due to the general
attempt to reduce cash outlays and reduced needs during the period. From July
1, 2003 through August 12, 2003 we spent approximately $45,000 related to our
DR-70® clinical trials and expect to spend an additional $105,000 before filing
our application with the FDA.

General and Administrative Expenses.   General and administrative expenses for
the six months ended June 30, 2003, decreased by $1,414,021 from $2,323,975 for
the six months ended June 30, 2002 to $909,954 for the six months ended June
30, 2003, primarily as a result of a decrease in consulting expenses of
$852,693; the fact that there were no aborted offering costs as compared to
$297,499 of such costs for the prior year; a decrease in stock exchange fees of
$64,000; a decrease in legal costs of $132,896; and a decrease in payroll,
taxes and benefits of $43,469 for the six months ended June 30, 2003 as
compared to same period in 2003 . The significant components of general and
administrative expenses for the six months ended June 30, 2003 primarily
consist of payroll, taxes and benefits; consulting expenses; and professional
fees, including legal, audit and patent expenses.

Interest Income and Expense.   Interest income for the six months ended June 30,
2003 was $529, as compared to $16,720 for the six months ended June 30, 2002.
The decrease of $16,191, or 96.8%, is due to the lower cash balance maintained
by the Company during 2003. Interest expense for the three months ended June
30, 2003 consists of non-cash amortization of debt discount associated with the
warrants issued as part of the units in our private placement offering in the
amount of approximately $90,000, non-cash amortization of issuance costs in the
amount of approximately $240,000 and interest paid in shares of common stock in
the amount of approximately $4,000. There was no interest expense in 2002.

Net Loss and Loss from Operations.  As a result of the above, in the six months
ended June 30, 2003, the Companys net loss was $1,509,053 or $(0.16) per share
compared to a net loss of $2,508,272 or $(0.30) per share for the same period
in the prior year.

Assets and Liabilities

At June 30, 2003, the Company had total assets of $2,718,888 compared to total
assets of $2,434,303 at December 31, 2002. Cash was $780,333 as of June 30,
2003, an increase of $432,581 (124.4%) from the $347,752 cash on hand as of
December 31, 2002. Cash used in operations was $661,434 and cash provided by
financing activities from the sale of common stock and units was $1,094,015,
net of cash costs of $246,985. As of August 12, 2003, our cash has decreased
to approximately $374,000.

Accounts receivable was $1,974 at June 30, 2003, a decrease of $86,416 (97.8%)
from the $88,390 at December 31, 2002 due principally to a single large order
for OEM products in 2002 which was shipped just prior to year end and collected
during the six months ended June 30, 2003. Inventories decreased $13,183
(15.9%), to $69,791, from the $82,974 at December 31, 2002. The decrease in
inventories is attributable to use of materials for clinical trials.

Net fixed assets totaled $26,576 at June 30, 2003 compared to $31,570 at
December 31, 2002, a decrease of $4,994 (15.8%). The decrease is fully
attributable to depreciation and amortization for the six months ended June 30,
2003.

Total liabilities at June 30, 2003 were $ 978,407, an increase of $734,822 from
the $243,585 at December 31, 2002. Accounts payable and accrued liabilities
were $465,662 at June 30, 2003, an increase of $320,974 (221.8%) from the
$144,688 at December 31, 2002. The increase is primarily due to accrued
expenses related to the offering and the lack of cash to pay ongoing operating
payables until conversion of the additional notes to common stock in early July
2003. Approximately $260,000 of such liabilities were paid by July 8, 2003.
Accrued payroll totaled $108,524 at June 30, 2003, an increase of $21,976
compared to $86,548 at December 31, 2002 primarily as a result of the deferral
of payment of a portion of management compensation. The remaining balance of
convertible notes payable, net of

16



---



##### Table of Contents



unamortized debt discount and unamortized
deferred issuance costs, totaled $404,221 at June 30, 2003. There were no
notes payable at December 31, 2002.

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 a date
(the Evaluation Date) within 90 days before the filing date of this quarterly
report, that as of the Evaluation Date, the Companys disclosure controls and
procedures were effective and designed to ensure that material information
relating to the Company would be made known to them by others.

Changes in Internal Controls

There have been no significant changes in the Companys internal controls or in
other factors that could significantly affect those controls subsequent to the
Evaluation Date.

17



---



##### Table of Contents






PART II  OTHER INFORMATION




Item 1.  Legal Proceedings

Inapplicable.




Item 2.   Changes in Securities and Use of Proceeds

October 23, 2002, the board of directors authorized the issuance of 50,000
shares of common stock per month to International Consulting Partners, a
consultant, for further financial consulting services to be rendered thereafter
on a month to month basis. On January 31, 2003, the Company issued an
aggregate of 99,999 shares of common stock (33,333 shares per month for the
three months ended January 31, 2003) for consulting services to the same
consultant pursuant to the prior authorization. The 66,666 shares for services
rendered in 2002 were valued at $30,600, and the 33,333 for services rendered
in 2003 were valued at $16,433 based upon the trading price of the common stock
on the dates earned, and these amounts were charged to consulting expense.
This consulting arrangement was extended for one additional month and 33,333
shares were issued for services rendered in February 2003 and valued at $11,333
based upon the trading price of the common stock on the date earned, and this
amount was charged to consulting expense. The common stock was issued pursuant
to Section 4(2) of the Securities Act. There was no underwriter involved in
this issuance.

Also on October 23, 2002, the board of directors authorized a proposed
Regulation S offering of up to 1,575,000 shares of common stock (Regulation S
Offering) at a price of 70% of the current market price at the time of sale,
subject to a floor price of no less than $.35 per share, the payment of
commissions of 10% of the sales price in cash, non-accountable expenses of 3%
of the sales price, and warrants equal to 10% of the shares sold in the
Regulation S Offering. The Company also authorized a companion offering in
the United States under Regulation D (Regulation D Offering) under the same
terms and conditions as the Regulation S Offering. On February 24, 2003,
50,000 shares were sold in the Regulation D Offering at a price of $0.40 per
share, generating net proceeds of $17,400, net of issuance costs of $2,600.
PCNA, S.A., a Swiss corporation, acted as our placement agent in connection
with this offering. In addition to the cash compensation, the placement agent
received common stock purchase warrants for 5,000 shares.

On March 21, 2003, the board of directors authorized the sale of units
consisting of unsecured convertible notes and warrants to purchase common
stock, at or above the market price of the common stock to accredited and
non-U.S. investors only in a private placement. The Company raised $1,321,000
in gross proceeds from this offering and the Company is hopeful that an
additional amount of up to $1.6 million in gross proceeds from the exercise of
the warrants will be received. Under the terms of the offering, investors
received one unit for each $1,000 invested. Each unit generally consisted of
a 5% convertible promissory note due June 30, 2003, in the principal amount of
$1,000, generally convertible into 2,598 shares of the Companys common stock
plus a warrant to purchase 2,598 shares of the Companys common stock at an
exercise price of $0.385 each, expiring on December 31, 2005. The notes were
generally automatically converted into common shares upon the approval of the
listing of the shares issuable on conversion of the notes by the American
Stock Exchange.

The Company has registered with the Securities and Exchange Commission on Form
S-3 the shares of the Companys common stock issued upon conversion of the
notes and issuable upon exercise of the warrants, which registration statement
became effective on July 31, 2003. The Company was contractually required to
issue 5% additional warrants to each investor (totaling 170,234 warrants at an
exercise price of generally $0.385 each expiring on December 31, 2005) because
the registration statement was not declared effective prior to July 1, 2003.

In connection with its fundraising efforts, the Company utilized the services
of two placement agents, PCNA, S.A., a Swiss corporation and Gestibroker
Consulting and Financial Management S.A., a Swiss corporation and paid a total
cash compensation of 13% of funds raised plus issued warrants to purchase
common shares equal to 10% of the aggregate number of shares of common stock
issued or issuable on conversion of the promissory notes, totaling 340,479
warrants at an exercise price of generally $0.385 per share, expiring December
31, 2005. In addition, the Company issued warrants to purchase 200,000 shares
of common stock at an exercise price of $0.385 per share expiring May 31, 2005
to two investors. In addition, the Company entered into an investment
advisory agreement with First London Finance, Ltd, a British Virgin Islands
company. Under the terms of the investment advisory agreement, the Company
issued 400,000 shares of common stock as a success fee for the offering. The
Company is required to issue to First London Finance an additional 100,000
shares of common stock if $750,000 in gross proceeds is received from the
exercise of the warrants included in the units within the 90-day period
beginning on

18



---



##### Table of Contents



August 1, 2003 and ending on October 29, 2003. Through August 12, 2003, the
additional shares are not yet issuable to First London Finance.

On June 18, 2003, upon the approval of the American Stock Exchange, on June
18, 2003 approximately $878,000 of the convertible notes were converted into
2,265,655 shares of our common stock, including 10,424 shares in respect of
the interest earned on the notes. On July 8, 2003, another $340,000 of
convertible notes were converted into 881,823 shares of our common stock. The
Company anticipates the remaining $103,000 of convertible notes, which are
convertible into 268,125 shares of our common stock, will be converted on or
about August 24, 2003.

Also on March 23, 2003 the board of directors authorized the issuance of
500,000 shares of common stock to First London Finance as described above. On
June 18, 2003, the Company issued 400,000 of the shares to First London
Finance and valued 200,000 of the shares at $57,800 on May 21, 2003, the date
the first 200,000 shares were earned, and 200,000 shares at $95,200 on June
17, 2003, the date the other 200,000 shares were earned. The common stock was
issued pursuant to Section 4(2) of the Securities Act. Gestibroker and PCNA
were our placement agent in connection with the offering , but there was no
direct underwriter in connection with this issuance to First London Finance.

On June 11, 2003, the board of directors authorized the issuance of 150,000
shares of common stock to International Consulting Group Ltd., a consultant
for financial advisory services, and the Company issued the shares on July 2,
2003. The shares were valued at $66,300 based upon the trading price of the
common stock on June 11, 2003, the date the shares were earned, and were
charged to consulting expense in the period as if issued on June 11, 2003.
The common stock was issued pursuant to Section 4(2) of the Securities Act.
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

Inapplicable.




Item 6.   Exhibits and Reports on Form 8-K



|a) |  | Exhibits
|-- |  | --------

| |      |  |                                                                                                                                                   
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| | 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
| |      |  |                                                                                                                                                   
| | 31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
| |      |  |                                                                                                                                                   
| | 32.1 |  | Certification of Chief Executive Officer of Periodic Financial Reports pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350
| |      |  |                                                                                                                                                   
| | 32.2 |  | Certification of Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350



|b) |  | Reports on Form 8-K
|-- |  | -------------------

None.




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.

19



---



##### Table of Contents



|                       |  |     |  |                                           |  | 
|---------------------- |  | --- |  | ----------------------------------------- |  | 
|Dated: August 12, 2003 |  | By: |  | /s/ Gary L. Dreher                        |  | 
|                       |  |     |  |                                           |  | 
|                       |  |     |  | GARY L. DREHER, President                 |  | 
|                       |  |     |  |                                           |  | 
|                       |  |     |  |                                           |  | 
|Dated: August 12, 2003 |  | By: |  | /s/ Arthur S. Rosten                      |  | 
|                       |  |     |  |                                           |  | 
|                       |  |     |  | ARTHUR S. ROSTEN, Chief Financial Officer |  | 

20



---



##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                       
|            |  |                                                                                                                                                   
|31.1        |  | Certification of
Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                               
|            |  |                                                                                                                                                   
|31.2        |  | Certification of
Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                               
|            |  |                                                                                                                                                   
|32.1        |  | Certification of Chief Executive Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. § 1350
|            |  |                                                                                                                                                   
|32.2        |  | Certification of Chief Financial Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. § 1350

27