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U.S. SECURITIES AND EXCHANGE COMMISSION  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 September 30, 2004  [  ]
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to Commission File Number 0-27689 AMDL, Inc.    Delaware
    
    33-0413161(State or other jurisdiction
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)
 2492 Walnut Avenue, Suite 100, Tustin, California 92780    (714) 505-4460 
  Not Applicable 
  Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X]      No [  ] As of November 10, 2004 the Company had 21,892,748 shares of its $.001 par
value common stock issued and outstanding.




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PAGEPART I - FINANCIAL INFORMATION
    
    
    2Item 1. Financial StatementsBalance Sheet at September 30, 2004 (unaudited)
    
    
    2Unaudited Statements of Operations for the three and
nine month periods ended September 30, 2004 and 2003
    
    
    3Unaudited Statements of Cash Flows for the nine
month periods ended September 30, 2004 and 2003
    
    
    4Notes to Condensed Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis
    
    
    14Item 3. Controls and Procedures
    
    
    18PART II - OTHER INFORMATION
    
    
    19EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  1




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PART I - FINANCIAL INFORMATION 
 Item 1. Financial Statements AMDL, INC. 
 BALANCE SHEET September 30,2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,171,433Accounts receivable
    
    
    2,340Inventories
    
    
    76,345Prepaid expenses and other current assets
    
    
    73,312Total current assets
    
    
    2,323,430Intellectual property, net
    
    
    1,683,333Equipment, net
    
    
    15,787Other assets
    
    
    5,757$
    4,028,307LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    174,603Accrued payroll and related expenses
    
    
    106,121Total current liabilities
    
    
    280,724Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value; 10,000,000 shares
authorized; no shares issued and outstanding
    
    
    Common stock, $0.001 par value; 50,000,000 shares
authorized; 21,892,748 shares issued and
outstanding
    
    
    21,893Additional paid in capital
    
    
    29,337,068Prepaid consulting
    
    
    (116,717
    )Accumulated deficit
    
    
    (25,494,661
    )Total stockholders equity
    
    
    3,747,583$
    4,028,307
 See accompanying notes to condensed financial statements. 2




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AMDL, INC. 
 STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net revenues
    
    $
    25,964
    
    
    $
    73,764
    
    
    $
    173,982
    
    
    $
    198,968Cost of sales
    
    
    5,150
    
    
    
    32,816
    
    
    
    67,804
    
    
    
    90,363Gross profit
    
    
    20,814
    
    
    
    40,948
    
    
    
    106,178
    
    
    
    108,605Operating expensesResearch and development
    
    
    41,893
    
    
    
    149,532
    
    
    
    231,469
    
    
    
    482,152General and administrative
    
    
    625,304
    
    
    
    564,761
    
    
    
    1,857,891
    
    
    
    1,474,714667,197
    
    
    
    714,293
    
    
    
    2,089,360
    
    
    
    1,956,866Loss from operations
    
    
    (646,383
    )
    
    
    (673,345
    )
    
    
    (1,983,182
    )
    
    
    (1,848,261
    )Other income (expense)Interest income
    
    
    7,152
    
    
    
    189
    
    
    
    20,211
    
    
    
    718Interest expense
    
    
    
    
    
    
    (145,801
    )
    
    
    
    
    
    
    (480,467
    )Net loss
    
    $
    (639,231
    )
    
    $
    (818,957
    )
    
    $
    (1,962,971
    )
    
    $
    (2,328,010
    )Basic and diluted loss
per share
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )
    
    $
    (0.21
    )Weighted average shares
outstanding  basic
and diluted
    
    
    21,892,748
    
    
    
    13,695,714
    
    
    
    21,681,564
    
    
    
    10,858,296
 See accompanying notes to condensed financial statements. 3




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AMDL, INC. 
 STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months EndedSeptember 30,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (1,962,971
    )
    
    $
    (2,328,010
    )Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization
    
    
    81,584
    
    
    
    82,491Fair market value of common stock issued for services
    
    
    247,350
    
    
    
    159,364Fair market value of options and warrants issued for services
    
    
    76,783
    
    
    
    Non-cash interest expense recognized
    
    
    
    
    
    
    479,318Changes in operating assets and liabilities:Accounts receivable
    
    
    150,627
    
    
    
    88,390Inventories
    
    
    (7,520
    )
    
    
    18,453Prepaid expenses and other current assets
    
    
    (43,080
    )
    
    
    (20,308
    )Accounts payable and accrued expenses
    
    
    (86,039
    )
    
    
    162,525Accrued payroll and related expenses
    
    
    14,225
    
    
    
    7,041Customer deposits
    
    
    
    
    
    
    (12,350
    )Net cash used in operating activities
    
    
    (1,529,041
    )
    
    
    (1,363,086
    )Cash flows from investing activities -
Purchase of equipment
    
    
    (789
    )
    
    
    Cash flows from financing activities:Proceeds from issuance of common stock,
net of offering costs of $295,766 in 2004 and $122,511 in 2003
    
    
    1,830,074
    
    
    
    562,489Proceeds from issuance of convertible notes,
net of offering costs of $263,295 in 2003
    
    
    
    
    
    
    1,162,702Proceeds from exercise of options and warrants,
net of offering costs of $0 in 2004 and $69,805 in 2003
    
    
    162,303
    
    
    
    564,539Net cash provided by financing activities
    
    
    1,992,377
    
    
    
    2,289,730Net change in cash and cash equivalents
    
    
    462,547
    
    
    
    926,644Cash and cash equivalents at beginning of period
    
    
    1,708,886
    
    
    
    347,752Cash and cash equivalents at end of period
    
    $
    2,171,433
    
    
    $
    1,274,396Supplemental disclosure of cash flow informationCash paid during the period forInterest
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    
 See accompanying notes to condensed financial statements. 4




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AMDL, INC. 
 NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
 For the Periods Ended September 30, 2004 and 2003 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 nine months ended September 30, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. It is suggested that the financial statements be
read in conjunction with the audited financial statements and notes thereto for
the year ended December 31, 2003 included in the Companys Annual Report on
Form 10-KSB. NOTE 2  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AMDL, Inc.s predecessor was incorporated May 13, 1988 and the Company
reorganized as a Delaware corporation on June 7, 1989. Since inception, the Company has primarily been engaged in the commercial
development of and the obtaining of various governmental regulatory approvals
for the marketing of its proprietary diagnostic tumor-marker test kit
(DR-70®)
to detect the presence of multiple types of cancer. The Companys product line
also includes a selection of diagnostic test kits for several types of cancer,
infectious diseases, endocrinology, diabetes, nephrology and allergy. Revenue Recognition Product revenue is recognized upon passage of title to customers, typically
upon shipment of product. Any provision for discounts and estimated returns
are accounted for in the period the related revenue is recorded. Advertising The Company expenses the cost of advertising when incurred as a component of
general and administrative expenses. No advertising costs were incurred for
the nine months ended September 30, 2004 or 2003. Research and Development Internal research and development costs are expensed as incurred. Third party
research and development costs are expensed when the contracted work has been
performed or as milestone results have been achieved. Cash Equivalents The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents. Inventories Inventories, which consist primarily of raw materials and related materials,
are stated at the lower of cost or market with cost determined on a first-in,
first-out (FIFO) basis. The Company regularly monitors inventories for excess
or obsolete items and makes any valuation corrections when such adjustments are
needed. 5




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 Equipment Equipment is stated at cost. Depreciation is computed using the straight-line
method over estimated useful lives of three to ten years. Betterments, renewals, and extraordinary repairs that extend the lives of the
assets are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts, and the gain or loss on disposition is
recognized in current operations. Intangible Assets The Company has expended funds for patents that are in various stages of the
filing approval process. During the nine months ended September 30, 2004 and
2003, the Company expended approximately $14,280 and $17,148, respectively, on
patents. The Company elected to expense these expenditures immediately due to
their uncertain realizability. In August 2001, the Company acquired intellectual property rights and an
assignment of a US patent application for combination immunogene therapy
technology for $2,000,000 (see Note 5). The technology was purchased from Dr.
Lung-Ji Chang, who developed it while at the University of Alberta, Edmonton,
Canada. The $2,000,000 acquisition price is being amortized over the expected
useful life of the technology, which the Company has currently determined to be
20 years, based upon an estimate of three years to perfect the patent plus 17
years of patent life. The Company recorded amortization expense of $75,000 for
each of the nine month periods ended September 30, 2004 and 2003. Impairment of Long-Lived Assets The Companys management assesses the recoverability of its long-lived assets
by determining whether the depreciation and amortization of long-lived assets
over their remaining lives can be recovered through projected undiscounted
future cash flows. The amount of long-lived asset impairment is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. Based on its analysis, the
Company believes that no impairment of the carrying value of its long-lived
assets existed at September 30, 2004. There can be no assurance, however, that
market conditions will allow us to realize the value of our technologies and
prevent future long-lived asset impairment. Common Stock Issued for Services Rendered The Company periodically issues common stock for services rendered. Common
stock issued is valued at the estimated fair market value, as determined by
management and the board of directors of the Company. Management and the board
of directors consider market price quotations; recent stock offering prices and
other factors in determining fair market value for purposes of valuing the
common stock. Risks and Uncertainties The Companys proprietary test kit is deemed a medical device or biologic, and
as such is governed by the Federal Food, 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,
although the Company is in the process of seeking regulatory approval. The
Company has received regulatory approval from various foreign governments to
sell its products and is in the process of obtaining regulatory approval in
other foreign markets. There can be no assurance that the Company will
maintain the regulatory approvals required to market its products or that they
will not be withdrawn. In May 2002, the Company began the FDA process under Section 510(k) of the
Food, Drug and Cosmetic Act for approval of its intent to market DR-70® as an
aid in monitoring patients with colorectal cancer. The Company conducted
clinical trials comparing its DR-70® to the currently accepted assay, CEA, and
submitted the results to the FDA in September 2003. In January 2004, the FDA
responded to the Companys submission. The FDA 6




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 identified deficiencies in the application and advised the Companys
consultant, Diagnostic Oncology CRO, Inc. (DOCRO) that based upon the data
submitted to date, the FDA determined that the DR-70® kit was not
substantially equivalent to any other device which has gone through the 510(k)
approval process (e.g. CEA). The deficiencies must be resolved before the
510(k) process can be successfully completed for market clearance. The
Company has submitted additional information at the suggestion of the FDA and
is awaiting a response. At this time, the Company cannot predict (i) the
length of time it will take for the FDA to review the submission, (ii) whether
510(k) premarket notification will be available for its DR-70® test kit, or
(iii) if available, whether such approval will be ultimately obtained. The Company is subject to the risk of failure in maintaining its existing
regulatory approvals, in obtaining other regulatory approval, as well as the
delays until receipt of such approval, if obtained. Therefore, the Company is
subject to substantial business risks and uncertainties inherent in such an
entity; including the potential of business failure. Accounting for Stock-Based Compensation The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by APB Opinion No. 25 Accounting
for Stock Issued to Employees (APB 25). Under the intrinsic value based
method, compensation is the excess, if any, of the fair value of the stock at
the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Compensation, if any, is recognized over the applicable
service period, which is usually the vesting period. In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123). This standard, if fully adopted,
changes the method of accounting for employee stock-based compensation plans to
the fair value based method. For stock options and warrants, fair value is
determined using an option pricing model that takes into account the stock
price at the grant date, the exercise price, the expected life of the option or
warrant and the annual rate of quarterly dividends. Compensation expense, if
any, is recognized over the applicable service period, which is usually the
vesting period. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44),
Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion 25. FIN 44 clarifies the application of APB 25
for (a) the definition of employee for purposes of applying APB 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory plan,
(c) the accounting consequence for various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25, as amended by FIN 44; however, pro forma
disclosures, as if the Company adopted the cost recognition requirements under
SFAS 123, are required to be presented (see below). For stock-based
compensation issued to non-employees, the Company values these grants at
fair value as defined in SFAS 123, FIN 44 and EITF 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services. At September 30, 2004, the Company had three stock-based employee compensation
plans, which are described more fully in Note 4. The Company accounts for
these plans under the recognition and measurement principles of APB 25, and
related interpretations. No stock-based employee compensation cost is
reflected in the statements of operations, as all options granted under those
plans had exercise prices equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
loss and loss per share if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based employee compensation. 7




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss as reported
    
    $
    (639,231
    )
    
    $
    (818,957
    )
    
    $
    (1,962,971
    )
    
    $
    (2,328,010
    )Deduct: Total
stock-based
employee
compensation under
fair value based
method for all
awards, net of
related tax effects
    
    
    
    
    
    
    
    
    
    
    (934,400
    )
    
    
    Pro forma net loss
    
    $
    (639,231
    )
    
    $
    (818,957
    )
    
    $
    (2,897,371
    )
    
    $
    (2,328,010
    )Basic and diluted
loss per share  as
reported
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )
    
    $
    (0.21
    )Basic and diluted
loss per share 
pro forma
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.13
    )
    
    $
    (0.21
    )
 Basic and Diluted Loss Per Share Basic earnings (loss) per common share is computed based on the weighted
average number of shares outstanding for the period. Diluted earnings (loss)
per share is computed by dividing net income (loss) by the weighted average
shares outstanding assuming all potential dilutive common shares were issued.
Basic and diluted loss per share are the same as the effect of stock options
and warrants on loss per share are anti-dilutive and thus not included in the
diluted loss per share calculation. However, the impact under the treasury
stock method of dilutive stock options and warrants would have been incremental
shares of 618,291 and 1,582,339 for the nine months ended September 30, 2004
and 2003, respectively. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates made by management are, among others, provisions for
doubtful accounts, realizability of long-lived assets, useful lives of
intangibles and valuation of deferred tax assets. Actual results could differ
from those estimates. 8




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 Comprehensive Income Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income, establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 has not impacted the Companys financial
position or results of operations as the Company has no items of comprehensive
income. Segments of an Enterprise and Related Information During the nine months ended September 30, 2004, approximately 27.2% of our
sales were to customers in foreign countries. Of the foreign sales,
approximately 87.6% were to customers in Korea and 12.4% were to customers in
Taiwan. During the nine months ended September 30, 2003, approximately 17.1%
of our sales were to customers in foreign countries. Of the foreign sales,
approximately 61.2% were to customers in Korea and 36.4% were to customers in
Taiwan. All of the Companys assets are held in the United States and all
transactions are denominated in U.S. dollars. Concentration of Risk Two customers accounted for 100% of accounts receivable as of September 30,
2004. Generally, all sales are prepaid. There was no accounts receivable as
of September 30, 2003. One customer accounted for 66.5% of sales for the nine
months ended September 30, 2004 and 86.9% of sales for the nine months ended
September 30, 2003. Sales to this customer are exclusively OEM products and no
DR-70® kits. This customer has indicated that it does not expect to make
further purchases until 2005. The loss of this customer in the future could
significantly affect the Companys operating results. From time to time, the Company maintains cash balances at certain institutions
in excess of the FDIC limit. As of September 30, 2004, the Company had
approximately $2,081,000 in excess of this limit. Recent Accounting Pronouncements In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The disclosure requirements in FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Companys adoption of FIN 45 in 2003 did not have a
material impact on its financial position or results of operations (see Note
5). In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 (SFAS 148), Accounting for Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123. SFAS 148 amends SFAS 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
The transition guidance and annual disclosure provisions of SFAS 148 are
effective for financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. The Company has applied the disclosure provisions in
SFAS 148 in its financial statements. 9




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin 51, Consolidated Financial Statements, to improve financial
reporting of special purpose and other entities. In accordance with the
interpretation, business enterprises that represent the primary beneficiary of
another entity by retaining a controlling financial interest in that entitys
assets, liabilities, and results of operations must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN
46 must be applied for the first interim or annual period beginning after June
15, 2003. Adoption of FIN 46 did not have an impact on the Companys financial
statements as it has no variable interest entities. In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS 150 establishes
standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. SFAS 150 also
includes required disclosures for financial instruments within its scope. For
the Company, SFAS 150 was effective for instruments entered into or modified
after May 31, 2003 and otherwise will be effective as of January 1, 2004,
except for mandatorily redeemable financial instruments. For certain
mandatorily redeemable financial instruments, SFAS 150 will be effective for
the Company on January 1, 2005. The Company currently does not have any
financial instruments that are within the scope of SFAS 150. NOTE 3  STOCK ISSUANCES Cash Financing Activities On January 8, 2004, the Company closed an offering to accredited investors
only of an aggregate of 2,657,300 shares of common stock at $0.80 per share
and warrants to purchase 1,328,650 shares of common stock at an exercise price
of $1.46 per share, exercisable on or after April 7, 2004 and expiring
December 31, 2006. This offering was part of the 3,000,000 share offering
approved by the stockholders on August 21, 2003, which permitted the Company
to sell shares at a discount of 25% from the current market price. In
connection with this offering, the Company utilized the services of
Gestibroker Consulting and Financial Management S.A., a Swiss corporation, and
paid total cash compensation of 13% of funds raised and issued warrants to
purchase 259,730 common shares at an exercise price of $1.46 per share,
expiring December 31, 2006. The Company registered with the Securities and Exchange Commission on Form S-3
the shares of the Companys common stock issued in connection with the shares
issued to the investors and the shares issuable upon exercise of the related
warrants, including those issued to the placement agent, which registration
statement became effective on February 11, 2004. Non-Cash Financing Activities On March 15, 2004, the board of directors authorized the issuance of 300,000
shares of common stock to Boston Financial Partners, Inc., a consultant for
financial advisory services to be provided from March 18, 2004 through July 31,
2004, and the Company issued the shares on March 19, 2004. The shares were
valued at $247,350 based upon the trading price of the common stock on such
date and this amount was charged to general and administrative
expense in the nine months ended September 30, 2004. There was no underwriter
involved in this issuance. NOTE 4  STOCK OPTIONS AND WARRANTS Effective June 30, 1999, the Company adopted the 1999 Stock Option Plan (the
1999 Plan). The shareholders of the Company approved the 1999 Plan on June
28, 2000. Under the 1999 Plan, incentive stock options and nonqualified
options may be granted to officers, employees and consultants of the Company
for the purchase of up to 2,000,000 shares of the Companys common stock. The
exercise price per share under the incentive stock option plan shall not be
less than 100% of the fair market value per share on the date of grant. The
exercise price per share 10




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 under the non-qualified stock option plan shall not be less than 85% of the
fair market value per share on the date of grant. Expiration dates for the
grants may not exceed 10 years from the date of grant. The 1999 Plan
terminates on June 30, 2009. Under the terms of the 1999 Plan, prior to 2004,
the Company granted all available options to purchase shares of the Companys
common stock under both incentive stock option agreements and non-qualified
stock option agreements. On June 30, 2004, options to purchase 328,130 shares
of our common stock expired unexercised. Under the terms of the plan, when
options expire, these options to purchase shares of our common stock can be
re-issued. All options granted have an exercise price equal to the fair market
value at the date of grant, vest upon grant and expire five years from the date
of grant. The Company had 306,261 options available for grant under the 1999
Plan at September 30, 2004. During the nine months ended September 30, 2004,
former employees exercised options to purchase 162,500 shares of our common
stock for total consideration of $110,500. As of September 30, 2004, 1,509,370
options at an average exercise price of $2.34 per share were outstanding 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. During nine month periods ended
September 30, 2004 and 2003, the Company granted no options to purchase shares
of the Companys common stock under incentive stock option agreements or under
non-qualified stock option agreements under the terms of the 2002 Plan. All
options granted have an exercise price equal to the fair market value at the
date of grant, vest upon grant and expire five years from the date of grant.
The Company had no options available for grant under the 2002 Plan at
September 30, 2004. During the nine months ended September 30, 2004,
employees and former employees exercised options to purchase 61,185 shares of
our common stock for total consideration of $51,803. As of September 30,
2004, 938,815 options at an average exercise price of $0.64 per share were
outstanding under the 2002 Plan. On February 23, 2004, the board of directors adopted the 2004 Stock Option Plan
(the 2004 Plan). The shareholders of the Company approved the 2004 Plan on
September 27, 2004. Under the 2004 Plan, incentive stock options and
nonqualified options may be granted to officers, employees, directors and
independent contractors of the Company for the purchase of up to 2,400,000
shares of the Companys common stock. The exercise price per share under the
incentive stock option plan shall generally not be less than 100% of the fair
market value per share on the date of grant. The exercise price per share
under the non-qualified stock option shall be not less than 85% of the fair
market value per share on the date of grant. Expiration dates for the grants
may generally not exceed 10 years from the date of grant. Under the terms of
the 2004 Plan, on February 23, 2004, 251,300 options were granted under
incentive stock option agreements to employees, and 1,143,700 options were
granted under non-qualified stock option agreements to employees, directors and
a consultant; these options have an exercise price equal to the fair market
value on the date of grant, vested immediately and expire in 5 years. On April
16, 2004, 5,000 options were granted under an incentive stock option agreement
to one employee. These options have an exercise price equal to the fair market
value on the date of grant, vested immediately and expire 5 years after the
date of issuance. In accordance with SFAS 123, the Company recognized $17,000
of non-cash consulting expense related to the options issued to the consultant
in 2004. As of September 30, 2004, 1,400,000 options at an average exercise
price of $1.23 per share were outstanding under the 2004 Plan. On August 16, 2004, the board of directors authorized the issuance of warrants
to purchase 750,000 shares of common stock to Boston Financial Partners, Inc.,
a consultant, for financial advisory services to be provided from August 16,
2004 through December 31, 2004. 250,000 common shares are exercisable at $0.94
per share, 250,000 common shares are exercisable at $0.99 per share and common
shares are exercisable at $1.09 per share. The warrants were valued at
$152,500 using the Black-Scholes pricing method. Of this amount, $50,783 was
charged to general and administrative expense in the nine months ended
September 30, 2004 and the balance of $101,717 will be charged to general and
administrative expense in the fourth quarter of 2004. There was no underwriter
involved in this issuance. 11




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 On August 18, 2004, the board of directors authorized the issuance of warrants
to purchase 100,000 shares of common stock and made a cash payment of $15,000
to Sargon Capital, Inc., a consultant, for investor public relations services
to be provided from August 18, 2004 through January, 17, 2005. The common
shares are exercisable at $0.92 per share. The warrants were valued at $24,000
using the Black-Scholes pricing method. Of this amount, $9,000 was charged to
general and administrative expense in the nine months ended September 30, 2004
and the balance of $15,000 will be charged to general and administrative
expense in the fourth quarter of 2004. There was no underwriter involved in
this issuance. See Note 6 for stock option activity subsequent to September 30, 2004. NOTE 5  COMMITMENTS AND CONTINGENCIES Litigation On February 22, 2002, AcuVector Group, Inc. (AcuVector) filed a Statement of
Claim in the Court of Queens Bench of Alberta, Judicial District of Edmonton
relating to the Companys combination immunogene therapy technology acquired
from Dr. Chang in August 2001. The claim alleges damages of $CDN 20 million
and seeks injunctive relief against Dr. Chang for, among other things, breach
of contract and breach of fiduciary duty, and against us for interference with
the alleged relationship between Dr. Chang and AcuVector. The claim for
injunctive relief seeks to establish that the AcuVector license agreement with
Dr. Chang is still in effect. The Company performed extensive due diligence to
determine that AcuVector had no interest in the technology when the Company
acquired it. The Company is confident that AcuVectors claims are without
merit and that the Company will receive a favorable judgment. As the final
outcome is not determinable, no accrual or loss relating to this action is
reflected in the accompanying financial statements. If AcuVector is
successful, the Company may be liable for substantial damages, its rights to
the intellectual property will be adversely affected, and its future prospects
for licensing the technology will be significantly impaired. The Company is also defending a companion case filed in the same court by the
Governors of the University of Alberta filed against the Company and Dr. Chang
in August 2003. The University of Alberta claims, among other things, that Dr.
Chang failed to remit the payment of the Universitys portion of the monies
paid by the Company to Dr. Chang for the combination immunogene technology
purchased by us from Dr. Chang in 2001. In addition to other claims against
Dr. Chang relating to other technologies developed by him while at the
University, the University also claims that the Company conspired with Dr.
Chang and interfered with the Universitys contractual relations under certain
agreements with Dr. Chang, thereby damaging the University in an amount which
is unknown to the University at this time. The University has not claimed that
the Company is not the owner of the combination immunogene therapy technology,
just that the University has an equitable interest therein or the revenues
therefrom. If the University is successful in these claims, the Company may be
liable for substantial damages, its rights to the technology will be adversely
affected, and its future prospects for exploiting or licensing the combination
immunogene therapy technology will be significantly impaired. In the ordinary course of business, there are other potential claims and
lawsuits brought by or against the Company. In the opinion of management, the
ultimate outcome of these matters will not materially affect the Companys
operations or financial position or are covered by insurance. Indemnities and Guarantees The Company has executed certain contractual indemnities and guarantees, under
which it may be required to make payments to a guaranteed or indemnified party.
The Company also has agreed to indemnify its directors, officers, employees
and agents to the maximum extent permitted under the laws of the State of
Delaware. In connection with a certain facility lease, the Company has
indemnified its lessor for certain claims arising from the use of the
facilities. The duration of the guarantees and indemnities varies, and in many
cases is indefinite. These guarantees and 12




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AMDL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) For the Periods Ended September 30, 2004 and 2003 indemnities do not provide for any limitation of the maximum potential future
payments the Company could be obligated to make. Historically, the Company has
not been obligated to make any payments for these obligations and no
liabilities have been recorded for these indemnities and guarantees in the
accompanying balance sheet. NOTE 6  SUBSEQUENT EVENTS Under the terms of the 2004 Stock Option Plan, on October 7, 2004, options to
purchase 470,000 shares of common stock were granted under non-qualified stock
option agreements to one employee and the directors of the Company; these
options have an exercise price equal to the fair market value on the date of
grant, vested immediately and expire in 5 years. 13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations Liquidity and Capital Resources Total assets increased to $4,028,307 at September 30, 2004 from $3,746,582 at
December 31, 2003. The increase is a result of cash received from the sale of
common stock and the exercise of options, which was partially offset by funds
used in operating activities. Our total outstanding current liabilities decreased to $280,724 at September
30, 2004 as compared to $352,538 at December 31, 2003. The decrease resulted
from the decrease in general accounts payable. From December 31, 2003 to September 30, 2004, our cash and cash equivalents
increased by $462,547, primarily as a result of cash received from the sale of
common stock and the exercise of options. As of November 10, 2004, cash is
being depleted at the rate of approximately $170,000 per month, including
expected costs related to (i) the application for approval of DR-70® by the FDA
and (ii) litigation with AcuVector and the University of Alberta. As of
November 10, 2004, our cash on hand was approximately $1,888,000. The amount
of cash on hand is believed to be sufficient to meet our operating expenses at
the current rate through September 30, 2005. There are significant uncertainties which negatively affect our operations.
These are principally related to (i) the absence of a distribution network for
our DR-70® kits, (ii) the early stage of development of our Combination
Immunogene Therapy (CIT) technology and the need to enter a strategic
relationship with a larger company capable of completing the development of any
ultimate product and the subsequent marketing of such product, and (iii) the
absence of any commitments or firm orders from our distributors. Moreover,
there is no assurance as to when, if ever, we will be able to conduct our
operations on a profitable basis. Our limited sales to date for DR-70®, the
lack of any purchase requirements in the existing distribution agreements, and
absence of FDA approval make it impossible to identify any trends in our
business prospects. There is no assurance we will be able to generate
sufficient revenues or sell any equity securities to generate sufficient funds
when needed, or whether such funds, if available, will be obtained on terms
satisfactory to us. In addition, the AcuVector and University of Alberta
lawsuits may have an adverse effect on our ability to license the CIT
technology. 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
which must be satisfied. Critical Accounting Policies Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis of making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, affect
our more significant judgments and estimates used in the preparation of our
financial statements: Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. The allowance for doubtful accounts is based on specific
identification of customer accounts and our best estimate of the likelihood of
potential loss, taking into account such factors as the financial condition
and payment history of major customers. We evaluate the collectibility of our
receivables at least quarterly. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. The differences could be
material and could significantly impact cash flows from operating activities. 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 14




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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 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 September 30, 2004 Compared to Three Months Ended September
30, 2003 Net Revenue. During the three months ended September 30, 2004, the Company
generated $25,964 from product sales compared to revenues from product sales
for the three months ended September 30, 2003 of $73,764, a decrease of $47,800
or 64.8%. The decrease is due to the lack of orders for Ketone strips, our
principal OEM product. Revenues from sales of OEM products for the three
months ended September 30, 2004 were $4,800 compared to $56,831 for the prior
year period, a decrease of $52,031, or 91.6%. 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 September 30, 2004
were $21,164 compared to $16,933 for the three months ended September 30, 2003,
an increase of $4,231, or 25.0%. Domestic customers accounted for $1,089, or
5.2%, and foreign customers accounted for $20,075, or 94.8%, of the DR-70®
revenues in the three months ended September 30, 2004. Domestic customers 15




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accounted for $383, or 2.3%, and foreign customers accounted for $16,550, or
97.7%, of the DR-70® revenues in the three months ended September 30, 2003. The continued low level of DR-70® sales is disappointing to management of the
Company. Market acceptance of our DR-70® kits has been slower than originally
anticipated, in part due to the fact that the DR-70® kit has not yet received
FDA approval. In addition, the Company has not concluded any material new
distribution agreements. During the balance of 2004, we expect sales of OEM products to be at or below
the same level as experienced in the three months ended September 30, 2004. If
FDA approval of DR-70® in received in 2004, we expect sales of DR-70® to
increase by the end of 2004, but any such increase in sales is not expected to
impact significantly our operating results for 2004. The statement concerning
future sales is a forward-looking statement that involves certain risks and
uncertainties which could result in a fluctuation of sales below those achieved
for the three months ended September 30, 2004. Sales could be negatively
impacted by potential competing products and overall market acceptance of the
Companys products. Gross Profit. Gross profit on product sales decreased by $20,134 or 49.2% to
$20,814 for the three months ended September 30, 2004, compared to $40,948 for
the period ended September 30, 2003. The decrease in gross profit was due to a
decrease in OEM product sales offset by an increase in DR-70® sales. The
Companys gross profit percentage was 80.2% for the three months ended
September 30, 2004 as compared to 55.5% for the prior year period. The
increase is primarily due to the relative changes in product sales mix. Assuming the product sales mix remains the same, management anticipates gross
profit margins for the remainder of 2004 to remain at similar levels as the
three months ended September 30, 2004, although gross profit from product sales
does not significantly cover the current level of general and administrative
expenses. The statement concerning future gross profit margins is a
forward-looking statement that involves certain risks and uncertainties which
could result in a fluctuation of gross margins below those achieved for the
three months ended September 30, 2004. Although the Company believes it
provides high-quality products, pricing and gross profit could be negatively
impacted by potential competing products and overall market acceptance of the
Companys products. Research and Development.Research and development expenses for the three
months ended September 30, 2004 were $41,893 as compared to $149,532 for the
three months ended September 30, 2003. The decrease of $107,639 was primarily
a result of a reduction in the costs of clinical trials and our outside
clinical research organization offset by an increase in the services provided
by our principal research consultant in preparing additional data for
submission to the FDA. General and Administrative Expenses. General and administrative expenses
increased by $60,543 to $625,304 for the three months ended September 30, 2004
as compared to the $564,761 reported for the three months ended September 30,
2003 due mainly to net increases in: (i) legal costs of $29,396, primarily
related to the AcuVector and University of Alberta actions; (ii) aborted
offering costs of $21,996; (iii) insurance costs of $10,542; (iv) an overall
increase of approximately $27,636 in payroll and other compensation costs; and
(v) an increase in directors compensation of $21,000. The significant
components of general and administrative expenses for the three months ended
September 30, 2004 primarily consist of payroll, taxes and benefits; consulting
expenses, including financial consulting, investor relations and public
relations; and professional fees, including legal, audit and patent expenses. Interest Income and Expense.Interest income for the three months ended
September 30, 2004 was $7,152, as compared to $189 for the three months ended
September 30, 2003. The increase of $6,963 is due to the significantly higher
average cash balance maintained by the Company during 2004 as a result of
fundraising activities. Interest expense for the three months ended September
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 $11,000, non-cash amortization of issuance costs in the
amount of approximately $30,000 and a charge for the beneficial conversion of a
convertible note into shares of common stock in the amount of $105,000. There
was no interest expense in 2004. Net Loss and Loss from Operations.As a result of the above, in the three
months ended September 30, 2004, the Companys net loss was $639,231 or $(0.03)
per share compared to a net loss of $818,957 or $(0.06) per share for the same
period in the prior year. The reduction in the net loss per share was related
in part to the 60% increase in the weighted average number of common shares
outstanding. 16




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Nine Months Ended September 30, 2004 Compared to Nine Months Ended September
30, 2003 Net Revenue. During the nine months ended September 30, 2004, the Company
generated $173,982 from product sales compared to revenues from product sales
for the nine months ended September 30, 2003 of $198,968, a decrease of $24,986
or 12.6%. The decrease is due to decreased sales of Ketone strips, our
principal OEM product offset by increased orders for DR-70® kits. Revenues
from sales of OEM products for the nine months ended September 30, 2004 were
$143,465 compared to $163,849 for the prior year period, a decrease of $40,384,
or 24.7%. Ketone strips comprised 93.7% of our OEM sales, and 66.5% of our
total sales in the nine months ended September 30, 2004. 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 nine months ended September 30,
2004 were $50,517 compared to $35,119 for the nine months ended September 30,
2003, an increase of $15,398, or 43.9%. Domestic customers accounted for
$3,267, or 6.5%, and foreign customers accounted for $47,250, or 93.5%, of the
DR-70® revenues in the nine months ended September 30, 2004. Domestic
customers accounted for $1,149, or 3.3%, and foreign customers accounted for
$33,970, or 96.7%, of the DR-70® revenues in the nine months ended September
30, 2003. 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. Gross Profit. Gross profit on product sales decreased by $2,427 or 2.2% to
$106,178 for the nine months ended September 30, 2004, compared to $108,605 for
the period ended September 30, 2003. The decrease in gross profit is not
material. The Companys gross profit percentage was 61.0% for the nine months
ended September 30, 2004 as compared to 54.6% for the prior year period. The
increase is due to the relative changes in product mix. Research and Development.Research and development expenses for the nine
months ended September 30, 2004 were $231,469 as compared to $482,152 for the
nine months ended September 30, 2003. The decrease of $250,683 was primarily a
result of a reduction in the costs of clinical trials and our outside clinical
research organization offset by an increase in the services provided by our
principal research consultant in preparing additional data for submission to
the FDA. General and Administrative Expenses. General and administrative expenses
increased by $383,177 to $1,857,891 for the nine months ended September 30,
2004 as compared to the $1,474,714 reported for the nine months ended September
30, 2003 due mainly to net increases in: (i) consulting services of $ 161,591,
including $247,350 of non-cash amortization of the value of the common stock
granted to a consultant for financial advisory services applicable to the nine
months ended September 30, 2004; (ii) aborted offering costs of $84,296; (iii)
insurance costs of $34,015; (iv) an overall increase of approximately $34,126
in payroll and other compensation costs; and (v) an increase in directors
compensation of $37,000. The significant components of general and
administrative expenses for the nine months ended September 30, 2004 primarily
consist of payroll, taxes and benefits; consulting expenses, including
financial consulting, investor relations and public relations; and professional
fees, including legal, audit and patent expenses. Interest Income and Expense.Interest income for the nine months ended
September 30, 2004 was $20,211, as compared to $718 for the nine months ended
September 30, 2003. The increase of $19,493 is due to the significantly higher
average cash balance maintained by the Company during 2004 as a result of
fundraising activities. Interest expense for the nine months ended September
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 $101,000, non-cash amortization of issuance costs in
the amount of approximately $270,000, a charge for the beneficial conversion of
a convertible note into shares of common stock in the amount of $105,000 and
interest paid in shares of common stock in the amount of approximately $4,000.
There was no interest expense in 2004. Net Loss and Loss from Operations.As a result of the above, in the nine
months ended September 30, 2004, the Companys net loss was $1,962,971 or
$(0.09) per share compared to a net loss of $2,328,010 or $(0.21) per share for
the same period in the prior year. The reduction in the net loss per share was
related in part to the 100% increase in the weighted average number of common
shares outstanding. 17




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Assets and Liabilities At September 30, 2004, the Company had total assets of $4,028,307 compared to
total assets of $3,746,582 at December 31, 2003. Cash and cash equivalents was
$2,171,433 as of September 30, 2004, an increase of $462,547 (27.1%) from the
$1,708,886 cash on hand as of December 31, 2003. Cash used in operations was
$1,529,041, cash used to purchase equipment was $789 and cash provided by
financing activities from the sale of common stock and option exercises was
$1,992,377, net of expenses of $295,766. As of November 3, 2004, our cash on
hand is approximately $1,885,000. Accounts receivable was $2,340 at September 30, 2004, a decrease of $150,627
(98.5%) from the $152,967 at December 31, 2003 due principally to a single
large order for OEM products in 2003 which was shipped just prior to year end
and collected during the nine months ended September 30, 2004. Inventories
increased $7,520 (10.9%), to $76,345, from the $68,825 at December 31, 2003.
The increase in inventories is due to additional manufacturing of DR-70® kits. Net equipment totaled $15,787 at September 30, 2004 compared to $21,582 at
December 31, 2003, a decrease of $5,795 (26.9%). The decrease is attributable
to depreciation and amortization in the amount of $6,584 for the nine months
ended September 30, 2004 less additional equipment purchases of $789. Total liabilities at September 30, 2004 were $280,724, a decrease of $71,814
(20.4%) from the $352,538 at December 31, 2003. Accounts payable and accrued
expenses were $174,603 at September 30, 2004, a decrease of $86,039 (33.0%)
from the $260,642 at December 31, 2003. The decrease is primarily due to the
payment of previously deferred director fees and the payment of other supplier
amounts. Accrued payroll and related expenses totaled $106,121 at September
30, 2004; an increase of $14,225 compared to $91,896 at December 31, 2003 and
is related to an increase in net accrued vacation earned during the nine months
ended September 30, 2004. 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
September 30, 2004, that as of such date, the Companys disclosure controls and
procedures were effective and designed to ensure that material information
relating to the Company would be made known to them by others. Changes in Internal Controls There have been no significant changes in the Companys internal controls or in
other factors that could significantly affect those controls during the three
months ended September 30, 2004. 18




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PART II - OTHER INFORMATION Item 1. Legal Proceedings Inapplicable. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities Inapplicable. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of our stockholders, held September 27, 2004, the
stockholders elected five directors to serve for one year terms or until their
successors are duly elected and qualify as follows: Shares WithheldNominee/Director
    
    Shares for
    
    from VotingWilliam M. Thompson
    
    
    12,915,632
    
    
    
    69,978Gary L. Dreher
    
    
    12,915,632
    
    
    
    69,978Edward R. Arquilla
    
    
    12,918,673
    
    
    
    66,937Douglas C. MacLellan
    
    
    12,918,673
    
    
    
    66,937Marvin E. Rosenthale
    
    
    12,918,673
    
    
    
    66,937
 The stockholders approved the 2004 Stock Option Plan by a vote of 2,023,326
shares in favor, 302,180 shares against and 289,499 shares abstained from
voting. The stockholders authorized the issuance of up to 6,500,000 shares of common
stock below current market prices by a vote of 2,048,589 shares in favor,
281,816 shares against and 284,600 shares abstained from voting. The stockholders ratified the appointment of Corbin & Company as our
independent registered public accounting firm by a vote of 12,883,030 shares in
favor, 29,932 shares against and 122,648 shares abstained from voting. Item 5. Other Information Inapplicable. Item 6. Exhibits and Reports on Form 8-K a)
    
    Exhibits31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Financial Officerb)
    
    Reports on Form 8-K
 None 19




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SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized. AMDL, Inc.Dated:  November 12, 2004
    By:
    /S/  GARY L. DREHERGARY L. DREHER, President Dated:  November 12, 2004
    By:

/S/  ARTHUR
S. ROSTENARTHUR S. ROSTEN, Chief Financial Officer 20




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EXHIBIT INDEX Exhibits
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. §1350 of Chief Financial Officer
 21