##### Table of Contents



U. S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto.
 Commission File Number: 001-16695
 
 AMDL, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
(State of Incorporation)
    
    33-0413161
(I.R.S. employer identification no.)2492 Walnut Avenue, Suite 100
Tustin, California
(Address of principal executive offices)
    
    92780-7039
(Zip Code)
 Registrants telephone number, including area code: (714) 505-4460
 
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



AMDL, INC.
INDEX TO FORM 10-Q
 PagePart I Financial InformationItem 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets at September 30, 2008 (Unaudited) and December 31,
2007 (Audited)
    
    
    1Unaudited Condensed Consolidated Statements of Operations and Comprehensive Gain (Loss)
for the three and nine months ended September 30, 2008 and 2007
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2008 and 2007
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    44Part II Other InformationItem 1 Legal Proceedings
    
    
    45Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    53Item 3. Defaults upon Senior Securities
    
    
    54Item 4. Submission of Matters to a Vote of Security Holders
    
    
    54Item 5. Other Information
    
    
    54Item 6. Exhibits
    
    
    54Signatures
    
    
    55Exhibit Index
    
    
    56EX-31.1EX-31.2EX-32.1EX-32.2
  i




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 AMDL, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,357,071
    
    
    $
    6,157,493Accounts receivable, net
    
    
    10,531,356
    
    
    
    2,954,902Related party receivable
    
    
    451,038
    
    
    
    Inventories
    
    
    1,189,877
    
    
    
    921,135Prepaid consulting
    
    
    634,043
    
    
    
    872,688Prepaid expenses and other current assets
    
    
    860,088
    
    
    
    1,248,637Total current assets
    
    
    17,023,473
    
    
    
    12,154,855Property and equipment, net
    
    
    13,573,089
    
    
    
    11,672,462Intangible assets, net
    
    
    5,490,632
    
    
    
    5,615,312Other assets
    
    
    3,846,921
    
    
    
    3,424,549Total assets
    
    $
    39,934,115
    
    
    $
    32,867,178LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    3,349,228
    
    
    $
    1,676,347Related party payable
    
    
    133,331
    
    
    
    62,621Deferred revenue
    
    
    131,289
    
    
    
    246,758Current maturities of notes payable
    
    
    3,128,602
    
    
    
    5,159,939Total current liabilities
    
    
    6,742,450
    
    
    
    7,145,665Notes payable, net of current maturities (Note 7)
    
    
    
    
    
    
    Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value;
25,000,000 shares authorized; none
issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value;
100,000,000 shares authorized;
16,006,074 and 15,079,528 shares issued
at September 30, 2008 and December 31,
2007, respectively; 15,906,074 and
14,979,528 shares outstanding at
September 30, 2008 and December 31,
2007, respectively
    
    
    15,906
    
    
    
    14,980Additional paid-in capital
    
    
    67,954,631
    
    
    
    61,525,001Accumulated other comprehensive income
    
    
    2,440,650
    
    
    
    1,068,429Accumulated deficit
    
    
    (37,219,522
    )
    
    
    (36,886,897
    )Total stockholders equity
    
    
    33,191,665
    
    
    
    25,721,513Total liabilities and stockholders equity
    
    $
    39,934,115
    
    
    $
    32,867,178
  1




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##### Table of Contents



AMDL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 AND COMPREHENSIVE GAIN (LOSS)
 (Unaudited)
 Three Months Ended September 30
    
    
    Nine Months Ended September 302008
    
    
    2007
    
    
    2008
    
    
    2007Gross revenues
    
    $
    12,398,356
    
    
    $
    5,808,376
    
    
    $
    21,766,934
    
    
    $
    9,646,056Sales promotion discounts
    
    
    3,151,941
    
    
    
    
    
    
    
    3,151,941
    
    
    
    Net revenues
    
    
    9,246,415
    
    
    
    5,808,376
    
    
    
    18,614,993
    
    
    
    9,646,056Cost of sales
    
    
    4,390,573
    
    
    
    2,226,692
    
    
    
    9,084,317
    
    
    
    4,186,051Gross profit
    
    
    4,855,842
    
    
    
    3,581,684
    
    
    
    9,530,676
    
    
    
    5,460,005Operating expenses:Research and development
    
    
    35,032
    
    
    
    2,407
    
    
    
    100,779
    
    
    
    15,534Selling, general and administrative
    
    
    2,565,233
    
    
    
    3,090,059
    
    
    
    8,279,758
    
    
    
    8,330,6042,600,265
    
    
    
    3,092,466
    
    
    
    8,380,537
    
    
    
    8,346,138Income (loss) from operations
    
    
    2,255,577
    
    
    
    489,218
    
    
    
    1,150,139
    
    
    
    (2,886,133
    )Other income (expense):Interest and other income (expense), net
    
    
    9,449
    
    
    
    441
    
    
    
    (56,052
    )
    
    
    3,729Interest expense
    
    
    (82,821
    )
    
    
    (87,081
    )
    
    
    (272,926
    )
    
    
    (276,045
    )Total other expense, net
    
    
    (73,372
    )
    
    
    (86,640
    )
    
    
    (328,978
    )
    
    
    (272,316
    )Income (loss) before provision for
income taxes
    
    
    2,182,205
    
    
    
    402,578
    
    
    
    821,161
    
    
    
    (3,158,449
    )Provision for income taxes
    
    
    613,067
    
    
    
    19,470
    
    
    
    1,153,786
    
    
    
    108,154Net income (loss)
    
    
    1,569,138
    
    
    
    383,108
    
    
    
    (332,625
    )
    
    
    (3,266,603
    )Other comprehensive gain (loss):Foreign currency translation gain
    
    
    64,974
    
    
    
    247,918
    
    
    
    1,372,221
    
    
    
    591,254Comprehensive gain (loss)
    
    $
    1,634,112
    
    
    $
    631,026
    
    
    $
    1,039,596
    
    
    $
    (2,675,349
    )Basic income (loss) per common share
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    (0.29
    )Diluted income (loss) per common share
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    (0.29
    )Weighted average common shares outstanding
 basic
    
    
    15,777,119
    
    
    
    12,550,666
    
    
    
    15,508,848
    
    
    
    11,357,055Weighted average common shares outstanding
 diluted
    
    
    17,988,069
    
    
    
    12,773,521
    
    
    
    15,508,848
    
    
    
    11,357,055
  2




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##### Table of Contents



AMDL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (332,625
    )
    
    $
    (3,266,603
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,102,178
    
    
    
    888,667Fair market value of options granted to employees and directors for services
    
    
    738,794
    
    
    
    1,507,310Fair market value of common stock, warrants and options expensed for
services
    
    
    1,551,249
    
    
    
    1,814,464Provision for bad debts
    
    
    126,754
    
    
    
    1,441Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,441,698
    )
    
    
    (1,178,386
    )Related party account with Jade Capital
    
    
    85,999
    
    
    
    Inventories
    
    
    (215,698
    )
    
    
    (94,847
    )Prepaid consulting, expenses and other assets
    
    
    446,706
    
    
    
    (2,393,578
    )Accounts payable and accrued expenses
    
    
    1,595,635
    
    
    
    523,372Deferred revenue
    
    
    (128,628
    )
    
    
    279,344Net cash used in operating activities
    
    
    (2,471,334
    )
    
    
    (1,918,816
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,374,318
    )
    
    
    (1,946,551
    )Funds advanced to Kangda (Note 12)
    
    
    (635,386
    )
    
    
    Repayment of funds from Kangda (Note 12)
    
    
    204,292
    
    
    
    Purchase of production rights
    
    
    
    
    
    
    (1,340,853
    )Return of advance (Note 2)
    
    
    159,859
    
    
    
    Net cash used in investing activities
    
    
    (1,645,553
    )
    
    
    (3,287,404
    )Cash flows from financing activities:Issuance of convertible debt, net of cash debt issuance costs of $384,308
    
    
    2,125,692
    
    
    
    Proceeds from issuance of common stock, net of cash offering costs of $139,584
in 2008 and $757,014 in 2007
    
    
    860,421
    
    
    
    4,572,497Proceeds from the exercise of options
    
    
    
    
    
    
    271,200Proceeds from the exercise of warrants, net of commissions and expenses of
$29,600
    
    
    559,530
    
    
    
    Payments on notes payable
    
    
    (2,282,145
    )
    
    
    Net cash provided by financing activities
    
    
    1,263,498
    
    
    
    4,843,697Effect of exchange rates on cash and cash equivalents
    
    
    52,967
    
    
    
    5,572Net change in cash and cash equivalents
    
    
    (2,800,422
    )
    
    
    (356,951
    )Cash and cash equivalents, beginning of period
    
    
    6,157,493
    
    
    
    1,584,973Cash and cash equivalents, end of period
    
    $
    3,357,071
    
    
    $
    1,228,022Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    255,665
    
    
    $
    276,045Cash paid during the period for taxes
    
    $
    602,665
    
    
    $
    108,199Supplemental disclosure of non-cash activities:Fair market value of common stock recorded as prepaid consulting
    
    $
    1,011,000
    
    
    $
    1,893,600Fair value of warrants issued for services, included in prepaid expense
    
    $
    97,875
    
    
    $
    Derivative asset recorded in issuance of convertible debt
    
    $
    125,000
    
    
    $
    Broker warrants issued in connection with convertible debt
    
    $
    324,207
    
    
    $
    Receipt of machines as partial settlement of note receivable
    
    $
    472,451
    
    
    $
    Increase in debt and fixed assets due to purchase price adjustment
    
    $
    
    
    
    $
    214,617
  3




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##### Table of Contents



AMDL, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 NOTE 1  MANAGEMENTS REPRESENTATION
  Share-Based Payment
 NOTE 2  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business and Basis of Presentation
  ® ® ® ®
  4




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
   ® ® ® ®
 Going Concern
   5




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
   ® ® ®
 Principles of Consolidation
  Revenue Recognition
  Wholesale Sales
 Revenue Recognition in Financial Statements
 Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendors Products)
  6




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
 Direct Distribution
  
  Accounting for Shipping and Handling Revenue, Fees and Costs
 Accounting for Shipping and Handling Fees and Costs.
 Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 
    
    significant under performance relative to expected historical or projected future
operating results;
    
    market projections for cancer research technology;
    
    its ability to obtain patents, including continuation patents, on technology;
    
    significant changes in its strategic business objectives and utilization of the assets;
    
    significant negative industry or economic trends, including legal factors;
    
    potential for strategic partnerships for the development of its patented technology;
    
    changing or implementation of rules regarding manufacture or sale of pharmaceuticals in
China; and
    
    ability to maintain Good Manufacturing Process certifications in the U.S. (GMP) and
in China (cGMP).
 7




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
  Derivative Financial Instruments
 Accounting for Derivative Instruments and
Hedging Activities
 Risks and Uncertainties
 Manufacturing and Distribution Operations in China
     Regulatory Environment
  8




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 ® ®
 ® ® ® ®
 ® ® ® ®
 ®
 ® ® ® ®
  
    
    Compile technical file and prepare clinical protocol;
    
    Clinical trial preparation and design;
    
    Clinical trial supervision and monitoring;
    
    Apply for SFDA approval
  Basic and Diluted Income (Loss) Per Share
  9




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AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income (loss)
    
    $
    1,569,138
    
    
    $
    383,108
    
    
    $
    (332,625
    )
    
    $
    (3,266,603
    )Numerator for basic per share amounts 
income available (loss attributable) to
common stockholders
    
    $
    1,569,138
    
    
    $
    383,108
    
    
    $
    (332,625
    )
    
    $
    (3,266,603
    )Interest on convertible debt
    
    
    12,581
    
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted per share amounts
    
    $
    1,581,719
    
    
    $
    383,108
    
    
    $
    (332,625
    )
    
    $
    (3,266,603
    )Denominator:Denominator for basic per share amounts
 weighted-average shares
    
    
    15,777,119
    
    
    
    12,550,666
    
    
    
    15,508,848
    
    
    
    11,357,055Effect of dilutive securities:Options and warrants  dilutive
potential common shares
calculated using the treasury
stock method
    
    
    119,283
    
    
    
    222,855
    
    
    
    
    
    
    
    Incremental shares from assumed
conversion  convertible debt
    
    
    2,091,667
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted per share amounts
    
    
    17,988,069
    
    
    
    12,773,521
    
    
    
    15,508,848
    
    
    
    11,357,055Basic income (loss) per common share
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    (0.29
    )Diluted income (loss) per common share
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    (0.29
    )
   Use of Estimates
  10




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 Concentrations of Credit Risk
 Cash
  Customers
    Other
  Recent Accounting Pronouncements
 Fair
Value Measurements Effective Date of FASB Statement No. 157
 11




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AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
  The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations Business Combinations.
 Noncontrolling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles
 NOTE 3  INVENTORIES
  September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)Raw materials
    
    $
    888,718
    
    
    $
    620,128Work-in-process
    
    
    12,597
    
    
    
    17,331Finished goods
    
    
    288,562
    
    
    
    283,676$
    1,189,877
    
    
    $
    921,135
 12




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 NOTE 4  PREPAID EXPENSES, OTHER CURRENT ASSETS, AND OTHER ASSETS
  September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)Material deposits
    
    $
    748,486
    
    
    $
    617,661Receivable from Jiekang
    
    
    
    
    
    
    498,726Due from officers and directors
    
    
    23,702
    
    
    
    9,764Other
    
    
    87,900
    
    
    
    122,486$
    860,088
    
    
    $
    1,248,637
   September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)Deposits,
primarily related to product licenses
    
    $
    2,983,276
    
    
    $
    2,827,526Debt issuance costs (Note 7)
    
    
    708,515
    
    
    
    Convertible debt derivative (Note 7)
    
    
    125,000
    
    
    
    Advance to Shanghai XiangEn
    
    
    
    
    
    
    574,123Refundable deposits
    
    
    30,130
    
    
    
    22,900$
    3,846,921
    
    
    $
    3,424,549
  NOTE 5  INTANGIBLE ASSETS
  Effect of
    
    
    
    
    
    
    Amort-Foreign
    
    
    
    
    
    
    izationCurrency
    
    
    
    
    
    
    PeriodGross
    
    
    Accumulated
    
    
    Trans-
    
    
    
    
    
    
    (inValue
    
    
    Amortization
    
    
    lation
    
    
    Net
    
    
    years)Assets subject to amortization:Intellectual property
    
    $
    2,000,000
    
    
    $
    (716,667
    )
    
    $
    
    
    
    $
    1,283,333
    
    
    
    20Production rights
    
    
    1,916,622
    
    
    
    (267,037
    )
    
    
    153,598
    
    
    
    1,803,183
    
    
    
    10Land use rights
    
    
    1,405,829
    
    
    
    (90,662
    )
    
    
    209,839
    
    
    
    1,525,006
    
    
    
    33Non-compete agreements
    
    
    324,415
    
    
    
    (145,021
    )
    
    
    32,482
    
    
    
    211,876
    
    
    
    5Customer relationships
    
    
    214,328
    
    
    
    (69,033
    )
    
    
    26,570
    
    
    
    171,865
    
    
    
    7Trade name and logo
    
    
    530,829
    
    
    
    (113,515
    )
    
    
    78,055
    
    
    
    495,369
    
    
    
    10$
    6,392,023
    
    
    $
    (1,401,935
    )
    
    $
    500,544
    
    
    $
    5,490,632
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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
  Effect of
    
    
    
    
    
    
    Amort-Foreign
    
    
    
    
    
    
    izationCurrency
    
    
    
    
    
    
    PeriodGross
    
    
    Accumulated
    
    
    Trans-
    
    
    
    
    
    
    (inValue
    
    
    Amortization
    
    
    lation
    
    
    Net
    
    
    years)Assets subject to amortization:Intellectual property
    
    $
    2,000,000
    
    
    $
    (641,667
    )
    
    $
    
    
    
    $
    1,358,333
    
    
    
    20Production rights
    
    
    1,916,622
    
    
    
    (113,985
    )
    
    
    38,725
    
    
    
    1,841,362
    
    
    
    10Land use rights
    
    
    1,405,829
    
    
    
    (49,304
    )
    
    
    111,644
    
    
    
    1,468,169
    
    
    
    33Non-compete agreements
    
    
    324,415
    
    
    
    (90,269
    )
    
    
    17,488
    
    
    
    251,634
    
    
    
    5Customer relationships
    
    
    214,328
    
    
    
    (42,960
    )
    
    
    15,153
    
    
    
    186,521
    
    
    
    7Trade name and logo
    
    
    530,829
    
    
    
    (67,888
    )
    
    
    46,352
    
    
    
    509,293
    
    
    
    10$
    6,392,023
    
    
    $
    (1,006,073
    )
    
    $
    229,362
    
    
    $
    5,615,312
   NOTE 6  INCOME TAXES
     14




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AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 NOTE 7  NOTES PAYABLE
  September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)Convertible
debt, net of unamortized discount, inclusive of bonus interest, of
$3,765,000 at September 30, 2008 and $0
at December 31, 2007
    
    $
    
    
    
    $
    Bank debt
    
    
    3,128,602
    
    
    
    5,159,939$
    3,128,602
    
    
    $
    5,159,939
 Convertible Debt
    Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios Application of Issue No. 98-5 to Certain Convertible
Instruments
  Bank Debt
  15




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
    Debt Repayment Obligations
  2008
    
    $
    3,128,6022009
    
    
    2010
    
    
    3,765,000$
    6,893,602
 NOTE 8  COMMITMENTS AND CONTINGENCIES
 Litigation
   16




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
     Suspension of Product Sales
   Licensing Agreements
  ®
  Indemnities and Guarantees
  17




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
  Contingent Share Issuance
 ®
 ®
 Letter of Intent
  NOTE 9  STOCK OPTIONS
   18




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 Summary of Assumptions and Activity
  2008
    
    2007Expected volatility
    
    
    248
    %
    
    
    353
    %Expected term
    
    5 years
    
    5 yearsRisk-free interest rate
    
    
    2.48
    %
    
    
    4.92
    %Dividend yield
    
    
    
    %
    
    
    
    %
   WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualOptions
    
    
    Price
    
    
    Life (Years)Outstanding and expect to vest, December 31, 2007
    
    
    2,093,236
    
    
    $
    3.97Granted
    
    
    850,000
    
    
    
    3.45Forfeited
    
    
    (48,237
    )
    
    
    4.48Outstanding and expected to vest, September 30, 2008
    
    
    2,894,999
    
    
    $
    3.81
    
    
    
    2.72Vested and exercisable at September 30, 2008
    
    
    2,292,919
    
    
    $
    3.90
    
    
    
    2.27
   NOTE 10  STOCKHOLDERS EQUITY
 Cash Financing Activities
  19




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
   April 2007 Offering
    December 2007 Offering
     20




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
  Convertible Debt
  Non-Cash Financing Activities
        21




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
       Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjuntion with Selling, Goods or Services
  22




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
    Warrants
  WeightedAverageExerciseWarrants
    
    
    PriceOutstanding, December 31, 2007.
    
    
    4,528,668
    
    
    $
    3.98Granted
    
    
    522,779
    
    
    
    3.56Exercised
    
    
    (252,733
    )
    
    
    2.34Forfeited
    
    
    (115,727
    )
    
    
    2.50Outstanding, September 30, 2008
    
    
    4,682,987
    
    
    $
    4.06
  NOTE 11  SEGMENT REPORTING
 Disclosures about Segments of an Enterprise and Related
Information.
  23




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##### Table of Contents



AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
  China-Wholesale
    
    China-Direct
    
    Corporate
    
    TotalNet revenue
    
    $
    18,419,796
    
    
    $
    128,629
    
    
    $
    66,568
    
    
    $
    18,614,993Gross profit
    
    $
    9,353,246
    
    
    $
    128,629
    
    
    $
    48,801
    
    
    $
    9,530,676Net income (loss)
    
    $
    6,514,770
    
    
    $
    128,629
    
    
    $
    (6,976,024
    )
    
    $
    (332,625
    )Identifiable assets
    
    $
    34,892,315
    
    
    $
    
    
    
    $
    5,041,800
    
    
    $
    39,934,115
  China-Wholesale
    
    China-Direct
    
    Corporate
    
    TotalNet revenue
    
    $
    9,171,732
    
    
    $
    43,777
    
    
    $
    30,906
    
    
    $
    9,246,415Gross profit
    
    $
    4,789,893
    
    
    $
    43,777
    
    
    $
    22,172
    
    
    $
    4,855,842Net income (loss)
    
    $
    3,701,500
    
    
    $
    43,777
    
    
    $
    (2,176,139
    )
    
    $
    1,569,138
   China-Wholesale
    
    China-Direct
    
    Corporate
    
    TotalNet revenue
    
    $
    9,513,272
    
    
    $
    39,084
    
    
    $
    93,700
    
    
    $
    9,646,056Gross profit
    
    $
    5,344,500
    
    
    $
    39,084
    
    
    $
    76,421
    
    
    $
    5,460,005Net income (loss)
    
    $
    2,787,289
    
    
    $
    39,084
    
    
    $
    (6,092,976
    )
    
    $
    (3,266,603
    )
  China-Wholesale
    
    China-Direct
    
    Corporate
    
    TotalNet revenue
    
    $
    5,736,192
    
    
    $
    39,084
    
    
    $
    33,100
    
    
    $
    5,808,376Gross profit
    
    $
    3,518,805
    
    
    $
    39,084
    
    
    $
    23,795
    
    
    $
    3,581,684Net income (loss)
    
    $
    2,280,950
    
    
    $
    39,084
    
    
    $
    (1,936,926
    )
    
    $
    383,108
  NOTE 12  RELATED PARTY TRANSACTIONS
     24




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AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Nine Months Ended September 30, 2008 and 2007
 NOTE 13  SUBSEQUENT EVENTS
  25




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Our management intends for this discussion and analysis to provide the reader with information
that will assist in understanding our financial statements, the changes in certain key items in
those financial statements from period to period, and the primary factors that accounted for those
changes, as well as how certain accounting principles affect our financial statements. The
following discussion and analysis should be read in conjunction with our financial statements and
notes thereto included in this report on Form 10-Q and in our Annual Report on Form 10-K for the
year ended December 31, 2007, as amended on Form 10-K/A . Operating results are not necessarily
indicative of results that may occur in future periods.
 This report includes various forward-looking statements that are subject to risks and
uncertainties, many of which are beyond our control. Our actual results could differ materially
from those anticipated in these forward looking statements as a result of various factors,
including, but not limited to, risks associated with doing business in China and internationally,
demand for our products, governmental regulation and required licensing of our products and
manufacturing operations, dependence on distributors, foreign currency fluctuation, technological
changes, intense competition and dependence on management and those risks set forth below under
Part II  Item 1A Risk Factors and set forth in Part I  Item 1A Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2007, as amended on Form 10-K/A .
Forward-looking statements discuss matters that are not historical facts and include, but are not
limited to, discussions regarding our operating strategy, sales and marketing strategy, regulatory
strategy, industry, economic conditions, financial condition, liquidity and capital resources and
results of operations. Such statements include, but are not limited to, statements preceded by,
followed by or that otherwise include the words believes, expects, anticipates, intends,
estimates, projects, can, could, may, will, would, or similar expressions. For those
statements, we claim the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these
forward-looking statements, which speak only as of the date on which they were made. They give our
expectations regarding the future, but are not guarantees. We undertake no obligation to update
publicly or revise any forward-looking statements, whether because of new information, future
events or otherwise, unless required by law.
 AMDL
  ® ® ® ®
 Operations of Jade Pharmaceutical Inc.
  26




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##### Table of Contents



New Capsule and Cream Formulation of Goodnak Anti-Aging Product
 ®
    27




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##### Table of Contents



Letter of Intent to purchase Sichuan ZhiTong Pharmaceutical, Ltd.
  License Agreement with Mygene International, Inc.
 MGI
   The MyHPV Chip Kit
  
    
    Diagnosis of cervical cancer;
    
    Detection of 24 types of HPV infection and the identity of the specific genotype of HPV
infection;
 28




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##### Table of Contents




    
    Detection of low copy number of HPV infection;
    
    Detection of the presence of multiple genotypes of HPV infections within the same sample;
and
    
    Accurate and prompt results.
 Regulatory Approval of the MyHPV Chip Kit
  Limitation on Quantity of DR-70® Antibody
 ® ® ® ® ®
 ®
 Current Economic and Market Environment
   
    
    China is experiencing growth rate of 8  10% per year as measured by the gross domestic
product;
    
    Chinas pharmaceutical market is forecasted to become the worlds fifth largest by 2010
and the largest by 2050 as reported by PriceWaterhouseCoopers ; and
    
    The growing demand in China for over the counter pharmaceutical products.
 29




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##### Table of Contents




    
    gain access to what we believe to be the fastest growing pharmaceutical and consumer
market in the world, China;
    
    platform to in-license North American drugs for manufacture and sale in China and
throughout Asia;
    
    expand DR-70®,and MyHPV Chip Kit clinical trials, sales, and marketing into
China and Asia; and
    
    create new opportunities for cancer related product development in China.
 Research and Development
   
    
    Additional expenditures for research and development is needed in China for SFDA
approval of DR-70® and the need for clinical trials in China for SFDA approval
of DR-70®, and
    
    The need for research and development for an updated version of the DR-70® test kit in
the US, clinical trials for such tests and funds for ultimate USFDA approval, and
    
    Research and development for manufacturing the MyHPV Chip Kit
 ® ® ® ® ®
 Liquidity and Capital Resources
    ®
 30




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##### Table of Contents



31




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##### Table of Contents



Going Concern
  ®
 ® ® ®
 ® ® ®
  32




---



##### Table of Contents



Critical Accounting Policies
   Allowance for Doubtful Accounts
 Inventories
 Sales Allowances
 33




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##### Table of Contents



Valuation of Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets
 
    
    significant under performance relative to expected historical or projected future
operating results;
    
    market projections for cancer research technology;
    
    its ability to obtain patents, including continuation patents, on technology;
    
    significant changes in its strategic business objectives and utilization of the assets;
    
    significant negative industry or economic trends, including legal factors;
    
    potential for strategic partnerships for the development of its patented technology;
    
    changing or implementation of rules regarding manufacture or sale of pharmaceuticals in
China; and
    
    ability to maintain Good Manufacturing Process (GMP) certifications in the U.S.
(GMP) and in China (cGMP).
  Revenue Recognition
 Wholesale Sales Revenue Recognition in Financial Statements
 Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors Products)
 34




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##### Table of Contents



How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
 Direct Distribution
   Deferred Taxes
 Litigation Accounting for
Contingencies
 Stock-Based Compensation Expense
 Accounting for Equity
Instruments that are Issued to Other
 35




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##### Table of Contents



than Employees for Acquiring, or in Conjunction with Selling Goods or Services Accounting Recognition for Certain Transactions Involving Equity
Instruments Granted to Other than Employees
  Share-Based Payment
 Derivative Financial Instruments. Accounting for
Derivative Instruments and Hedging Activities
 Results of Operations
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
 Net Revenues
 Corporate
 ® ®
 ®
 ® ® ®
 36




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##### Table of Contents



China-Wholesale
 %
  
    
    Human Placental Tissue Extract Lotion
    
    Domperidone Tablet
    
    50% NACL G.S.
    
    Compound Benzoic Acid and Camphor Solution
    
    Levofloxacin Hydrochloride Injection
    
    
    Delays in shipments of Goodnak injectable products due to the lack of cGMP certification
on the JJBs small injectable line. All renovations have been made and it is anticipated
recertification will be obtained in the fourth quarter of 2008.
    
    JJB entered into a distribution agreement with several distribution companies to open
new distribution lines. In order to support this effort, the distribution agreements
include an allowance for the promotion and marketing of new Goodnak/Nalefen line of skin
care lotions. This allowance is based on reaching a monthly sales target and is 400,000
RMB (approximately $58,400) for every 1,000,000RMB (approximately $146,000) of products
ordered. This allowance is necessary as the Goodnak/Nalefen line is a new product.
 Cash flow was adversely affected because JJB
granted payment terms of 120 days to the distributors.
 China-Direct Distribution
  37




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##### Table of Contents



Gross Profit.
 Corporate
 ®
 China-Wholesale
    China-Direct Distribution
  Research and Development.
 Corporate
 ® .
 China-Wholesale and China-Direct Distribution
  ® ®
 38




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##### Table of Contents



®
 Selling, General and Administrative Expenses.
  Corporate
  China-Wholesale
  China-Direct Distribution
  Nine Months Ended September 30, 2008 Compared to Nine Months September 30, 2007
 Net Revenues
 Corporate
 ® .
 ®
 ® ®
 39




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##### Table of Contents



®
 ®
 ® ® ®
 China-Wholesale
   
    
    Human Placental Histosolution (Goodnak)
    
    Levofloxacin Lactate and Sodium Chloride Injection
    
    50% NACL G.S.
    
    Metronidazole Injection
    
    Levofloxacin Hydrochloride Injection
    
    Ondansetron Hydrochloride Injection
    
    Domperidone Tablets
   40




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##### Table of Contents



Percent ofTotalChina-WholesaleName
    
    SalesHuman Placenta Tissue Extract Lotion
    
    
    41.2
    %Domperidone Tablet
    
    
    32.1
    %Diavitamin, Calcium and Lysine Tablets
    
    
    6.9
    %Levofloxacin Lactate and Sodium Chloride Injection
    
    
    4.8
    %Compound Benzoic Acid and Camphor Solutions
    
    
    4.0
    %89.0
    %
  GeographicLocation - ChinaSoutheastern
    
    
    24
    %Eastern
    
    
    15
    %Central
    
    
    40
    %Northeastern
    
    
    20
    %Southwestern
    
    
    1
    %
  China-Direct Distribution
  Gross
Profit.
 Corporate
 ®
 China-Wholesale
    41




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##### Table of Contents



China-Direct Distribution
  Research and Development. ® .
 Corporate
 ® .
 China-Wholesale and China-Direct Distribution
  ® ® ® ®
 Selling, General and Administrative Expenses.
  Corporate
  42




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##### Table of Contents



China-Wholesale
  China-Direct Distribution
  Other Income and Expense.
 Corporate.
   China-Wholesale
  Income (Loss) from Operations and Net Income (Loss).
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  43




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
   
    
    We entered into a transaction in which our subsidiary advanced funds to a related
party without preparing legal documentation to evidence amounts advanced.
    
    We do not have adequate controls in place to identify and approve non-recurring
transactions such that the validity and proper accounting can be determined on a timely
basis.
    
    A lack of clear policy regarding delegated authority has contributed to a lapse in
oversight regarding such transactions.
    
    We do not have adequate procedures in place to detect related party transactions which
give rise to conflicts of interest.
  
    
    We corrected the lack of proper legal documentation evidencing amounts advanced in the
first quarter of 2008 by obtaining a promissory note from the counterparty.
    
    We are in the process of developing written policies and procedures regarding
delegation of authority and ensure that all employees are aware of these policies.
    
    We are in the process of developing procedures to allow for scrutiny of related party
transactions by uninterested members of management or the board of directors, as
appropriate. Initial steps in that regard include the preparation of account analysis and
transaction review in China by an outsourced accounting service, reporting to the Chief
Financial Officer, and increased third-party language translation services.
    
    We will develop an internal audit function with direct reporting responsibility to the
board of directors.
    
    We have enhanced the capabilities of our financial control function and reporting
mechanisms, via the outsourcing noted previously, and will continue to improve these
capabilities through the implementation of integrated accounting software that includes
automatic language translation capabilities.
   44




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##### Table of Contents



Changes in Internal Control Over Financial Reporting.
  AMDL, INC.
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
      45




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##### Table of Contents



ITEM 1A. RISK FACTORS
  Risks Related to our Financial Position
 We may not be able to continue to operate our business if we are unable to attract additional
operating capital.
 ®
   Our independent registered public accounting firm has included a going concern paragraph in their
report on our financial statements.
  46




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##### Table of Contents



We have limited product liability insurance.
  Risks Related to our Foreign Operations
 Our operations in China involve significant risk.
     Risks Related to the Distribution of our Products
 Our current products cannot be sold in certain countries if we do not obtain and maintain
regulatory approval.
  47




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##### Table of Contents



Sales of our products may be limited if reimbursement is not available from health care insurers,
the government and other payers.
 ®
 We have limited sales of DR-70 ® and are reliant on our distributors for sales of our
products.
 ® ® ® ® ®
 JPI is reliant on its distributors for sales of its products.
  We are subject to risks associated with our foreign distributors.
 ® ®
 48




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##### Table of Contents



Risks Related to Our Product Development and Intellectual Property
 Limited product development activities; our product development efforts may not result in
commercial products.
 ® ®
 
    
    the product candidate did not demonstrate acceptable clinical trial results even though
it demonstrated positive preclinical trial results;
    
    the product candidate was not effective in treating a specified condition or illness;
    
    the product candidate had harmful side effects on humans;
    
    the necessary regulatory bodies, such as the SFDA, did not approve our product
candidate for an intended use;
    
    the product candidate was not economical for us to manufacture and commercialize; and
    
    the product candidate is not cost effective in light of existing therapeutics.
  ®
 It is difficult and costly to protect our intellectual property and proprietary rights, and we may
not be able to ensure their protection.
  49




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##### Table of Contents



If our intellectual property positions are challenged, invalidated or circumvented, or if we fail
to prevail in future intellectual property litigation, our business could be adversely affected.
  We may incur substantial costs as a result of litigation or other proceedings relating to patent
and other intellectual property rights.
  Our future prospects will be negatively impacted if we are unsuccessful in pending litigation over
our CIT technology.
  The value of intangible assets may not be equal to their carrying values.
   50




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##### Table of Contents



If our intellectual property positions are challenged, invalidated or circumvented, or if we fail
to prevail in future intellectual property litigation, our business could be adversely affected.
  We face substantial competition, and others may discover, develop, acquire or commercialize
products before or more successfully than we do.
  Risks Related to Managing Growth
 We may experience difficulties in managing our significant continuing growth in China.
  We may not be able to manage our business effectively if we are unable to attract and retain key
management personnel.
  Risks Related to Our Stock
 Our stock price is volatile, which could adversely affect your investment.
  
    
    clinical trial results;
 51




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##### Table of Contents




    
    product development announcements by us or our competitors;
    
    regulatory matters;
    
    announcements in the scientific and research community;
    
    intellectual property and legal matters;
    
    broader industry and market trends unrelated to our performance;
    
    economic markets in Asia; and
    
    competition in local Chinese markets where we sell JPIs product.
  Loss of our listing on the American Stock Exchange could adversely affect the marketability and
price of our shares.
  We do not intend to pay dividends on our common stock in the foreseeable future.
  If we fail to comply with the rules under the Sarbanes-Oxley Act related to accounting controls and
procedures or if material weaknesses or other deficiencies are discovered in our internal
accounting procedures, our stock price could decline significantly .
   52




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     53




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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Shares WithheldNominee/Director
    
    Shares for
    
    from VotingWilliam M. Thompson
    
    
    8,850,250
    
    
    
    1,421,775Gary L. Dreher(1)
    
    
    8,846,602
    
    
    
    1,425,423Edward R. Arquilla
    
    
    8,972,994
    
    
    
    1,299,031Douglas C. MacLellan
    
    
    8,974,195
    
    
    
    1,297,830Minghui Jia
    
    
    8,935,697
    
    
    
    1,336,328
 
 (1)
    
    Note: Gary L. Dreher resigned as an officer and director effective October 31,
2008. 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  54




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##### Table of Contents



AMDL, INC.
 
 SIGNATURES
  AMDL, INC.
(Registrant)Date: November 14, 2008
    By:
    /s/ Douglas C. MacLellanDouglas C. MacLellan, President andChief Executive OfficerDate: November 14, 2008
    By:
    /s/ Akio AriuraAkio Ariura, Chief Financial Officer andSecretary (Principal Financial Officer) 55




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description:31.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (Filed herewith.)31.2
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (Filed herewith.)32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
 56