ADLI American Medical Technologies Inc (CE)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-QSB

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

FOR THE TRANSITION PERIOD FROM          TO        

Commission File Number: 0-19195

AMERICAN MEDICAL TECHNOLOGIES, INC.

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

5655 Bear Lane, Corpus Christi, Texas 78405

(Address of principal executive offices)

(361) 289-1145

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes  x     No  o

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

A s of  November 9, 2007, there were 9,845,258 shares of the registrant’s common stock outstanding.

Transitional Small Business Disclosure Format (Check One): Yes  o     No  x

AMERICAN MEDICAL TECHNOLOGIES, INC.

TABLE OF CONTENTS

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ITEM 1. Financial Statements

American Medical Technologies, Inc.

Condensed Consolidated Balance Sheet

See accompanying notes to unaudited condensed consolidated financial statements.

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See accompanying notes to unaudited condensed consolidated financial statements.

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See accompanying notes to unaudited condensed consolidated financial statements.

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American Medical Technologies, Inc.

Earnings Per Share - The following table sets forth the computation for basic and diluted earnings per share:

Options to purchase 3,579,000 and 2,500,000 shares of common stock were not included in the computation of diluted earnings per share for the three and nine month periods ended September 30, 2007 and September 30, 2006 respectively, because the options’ exercise prices were greater than the average market price for the common stock and their effect would have been antidilutive.

2.             Employee Stock Options

The Company currently sponsors a stock based compensation plan as described below. Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised), “Share-Based Payment.”  In accordance with the provisions of SFAS No. 123(R), stock based compensation is measured at the grant date based on the value of the awards and is recognized as expense over the requisite service period (usually the vesting period). The Company selected the modified prospective method of adoption described in SFAS No. 123(R); as such, no prior periods have been restated. The fair values of the stock awards recognized under SFAS No. 123(R) are determined based on each separately vesting portion of the awards, however, the total compensation expense is recognized on a straight-line basis over the vesting period. The Company has a policy of issuing new shares for stock option exercises.

In accordance with the provisions of SFAS No. 123(R), there was $18,152 and $74,372 in stock based compensation expense recorded in the three and nine months ended September 30, 2007, respectively.

Employee Stock Option Plan

In May 2005, the Company adopted the 2005 Stock Option Plan (the “Plan”) for employees, officers, directors, consultants and other key personnel.  When the Plan was implemented there were options to purchase 1,000,000 shares common stock available to be be granted under the Plan.  In the first quarter of 2007, the Company increased the number of options to purchase to 2,000,000 shares of common stock.

The Company granted 400,000 share options in June 2006 under the Plan.  The share options became exercisable at a rate of 100,000 per year beginning in September 2006.  The fair value of the options issued was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 5.14%; dividend yield of 0%, volatility factors of 238%, the expected market price over the estimated life of the option of 6.25 years.  In January 2007, the unvested portion of this grant was cancelled.  The calculated fair value of the portion of the option grant that remained was $26,813.  The Company recognized the full expense in 2006.

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The Company granted 100,000 share options in January 2007 under the Plan.  The share options became exercisable upon the grant date.  The fair value of the options issued was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 4.68%; dividend yield of 0%, volatility factors of 241%, the expected market price over the estimated life of the option of 5.5 years.    The calculated fair value of the option grant was $19,916.  The Company recognized the expense in the first quarter 2007.

Additionally, the Company granted 870,000 share options in January 2007 under the Plan.  The share options will become exercisable at a rate of 290,000 per year beginning in December 2007.  The fair value of the options issued was estimated at the date of the grant using the Black-Scholes pricing model with the following assumptions:  risk free interest rate of 4.68%, dividend yield of 0%, volatility factors of 243%, the expected market price over the estimated life of the option of 6 years.  The calculated fair value of the option grants was $173,567.  The Company is recognizing the expense of over the three year vesting period of the options.

The Company granted 11,000 share options in February 2007 under the Plan.  The share options will become exercisable in February 2008.  The fair value of the options issued was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate 4.77%, dividend yield of 0%, volatility factors of 234% the expected market price over the estimated life of the option of 5.5 years.  The calculated fair value of the option grants was $2,188.  The Company is recognizing the expense over the vesting period of the options.

The Company granted 60,000 share options in March 2007 under the Plan.  The share options will become exercisable at a rate of 30,000 per year beginning in March 2008.  The fair value of the options issued was estimated at the date of the grant using the Black-Scholes pricing model with the following assumptions:  risk free interest rate of 4.5%, dividend yield 0%, volatility factors of 247%, the expected market price over the estimated life of the options of 5.75 years.  The calculated fair value of the option grants was $25,132.  The Company is recognizing the expense over the two year vesting period of the options.

As of September 30, 2007 there was $146,428 of total unrecognized compensation cost related to nonvested share based compensation arrangements granted under the Plan which will be recognized over an estimated weighted-average amortization period of 2.18 years.

The Company’s nonvested share options as of December 31, 2007 and changes during the nine months ended September 30, 2007, is summarized as follows:

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Employee stock option activity is summarized as follows:

The Company granted 150,000 share options in October 2005 to non-employees. Of the options issued, 75,000 were exercisable on the date of the grant, with the remaining 75,000 vesting one year from the grant date. The fair value of the options issued was estimated at the date of the grant using a Black-Scholes option pricing model with the following assumptions:  risk-free interest rate of 4.27%; dividend yield of 0%; volatility factors of the expected market price over the estimated life of the option of three years. The calculated fair value of the option was $37,380 . The Company recognized the expense over the vesting period of the options.

3.             2007 Equity Incentive Plan

In July 2007, the Company adopted the 2007 Equity Incentive Plan (“Equity Plan”).  The Equity Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units and Performance Shares to employees, consultants and directors.  The purpose of the Equity Plan is to promote the success and  to enhance the value of the Company by aligning the interest of Participants with those of the Company’s shareholders, to provide flexibility to the Company in its ability to motivate, attract, and retain the services of outstanding individuals, upon whose judgment, interest, and special effort the success of the Company is largely dependent.   When the Equity Plan was implemented there were 1,000,000 common shares available to be granted under the Equity Plan.  In the three months ended September 30, 2007, a total of 100,000 performance shares and 215,952 performance unit shares had been granted under the Equity Plan to legal and outside consultants of the Company.  The $100,850 expense was included in other professional fees.

4.             Segment Reporting

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, established standards for reporting information about operating segments in annual financial statements and required selected information about operating segments in interim financial reports issued to stockholders.  It also established standards for related disclosures about products and services, and geographic areas.  Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

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The Company develops, manufactures, markets and sells high technology dental products, such as air abrasive equipment and curing lights as well as, tooth whitening products.  AMT markets its dental products through dealers and independent distributors to general dental practitioners and certain other dental specialists.   Internationally, the Company continues to sell its products through international distributor networks.  AMT presently markets its industrial products through independent distributors. The reportable segments are reviewed and managed separately because selling techniques and market environments differ from selling domestically versus selling through international distributor networks.  The remaining revenues of the Company, which are reported as “Other”, represent royalty income.

The accounting policies of the business segments are consistent with those used in prior years.

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5.             Comprehensive Loss

Total comprehensive loss, net of the related estimated tax, was ($340,159) and ($1,087,349) for the three and nine month periods ended September 30, 2007.  The components of other comprehensive loss for 2007 are net loss and foreign currency translation.

6.             Litigation

The Company was in arbitration for breach of employment contract claims filed by two former employees totaling $250,000. In April, 2006, the parties amended their claims to a total amount between $385,000 and $1,035,000.  In April 2006, the Company settled with both parties for an aggregate of $410,000.

On November 20, 2006 a demand for arbitration and statement of claim was filed against the Company, alleging that the Company had breached agreements to pay the claimant in the action royalties and consulting fees.  The original demand sought damages of $47,800.  The demand for arbitration sought an award of $125,000.  The original demand of $47,800 is included in “other accrued liabilities” in the Company’s December 2006 balance sheet.  In October 2007, the Company settled this claim for $32,500.

7.             Note Payable & Line of Credit

On December 21, 2006, the Company entered into a secured line of credit agreement with Texas State Bank.  The funds available under the line of credit were $600,000.  The Company invested $300,000 with funds drawn against the line of credit in a Certificate of Deposit with a term of one year as collateral for the loan.  Interest on the line of credit is set at the prime rate plus 1%.  The interest rate on the line of credit was 9.75% as of September 30, 2007.  The principal on the loan was payable in one payment on December 20, 2007, with interest on the outstanding amount payable monthly.  The Company borrowed an additional $100,000 against the line of credit in December 2006 and $120,000 in February 2007.  In January 2007, Texas State Bank increased the line of credit to $800,000 using the Company’s accounts receivable and inventory as additional collateral.  The terms of the original line of credit remained the same with the exception of the payment date of the principal being extended to January 2008.

8.             Income Taxes

FIN 48 - In June 2006, FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement 109 “Accounting for Income Taxes”, was issued.  FIN No. 48 describes accounting for uncertainty in income taxes, and includes a recognition threshold and measurement attribute for recognizing the effect of a tax position taken or expected to be taken in a tax return.  FIN No. 48 is effective for fiscal years beginning after December 15, 2006.  The Company adopted FIN No. 48 on January 1, 2007, and the initial adoption of this Statement did not have a material impact on the Company’s financial position, results of operations or cash flows.  The tax years still open for examination by Federal and major state agencies as of September 30, 2007 are 2003 — 2006.

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9.             Related Party Transactions

Roger Dartt —In consideration of his continued work during the three month period ended March 31, 2007, the Company agreed to issue 200,000 shares of common stock to Mr. Dartt.  The common stock was issued in August 2007.  The Company recorded an estimated expense of $78,000 for the stock issuance in the first quarter of 2007.  The Company issued 200,000 restricted shares of common stock to Mr. Dartt and made an adjustment to the actual expense of $60,000 in September 2007.

10.           Other Event

On April 1, 2007, the Company entered into a License Agreement with CrownBeav LLC, an Oregon limited liability company, under which the Company became the nonexclusive distributor for the United States and Canada and the exclusive distributor for the rest of the world of it’s DirectCrown brand of temporary crown and bridge material.  The license agreement is for a term of ten years with automatic renewals for additional five year terms, contains minimum requirements for sale of the products by the Company, and may be terminated (i) for cause upon 60 days notice, (ii) upon the Company’s failure to comply with applicable securities laws, (iii) upon the occurrence of certain other customary events of default.  In full consideration, the Company granted to CrownBeav a five year option to purchase (the “Option”) 1,000,000 shares of common stock at $0.20 per share.  The shares subject to the Option will vest two years from the Effective Date of the agreement.  The option agreement includes a guaranteed trading price of $0.40 per share for the 30-day period prior to vesting.  Additional option shares will be granted for the difference if the market price of the shares is below $0.40 during the 30-day period.

 The Black-Scholes option pricing model was used to determine the fair value of the options issued to CrownBeav with the following assumptions:  risk free interest rate of 4.54%; dividend yield of 0%; volatility factors of 139%, the expected market price of the Company’s common shares over the estimated life of the option of 3.5 years.  The resulting fair value of the call option was $341,726.  The option grant vests on April 1, 2009.  The option agreement includes a guaranteed trading price of $0.40 per share for the 30-day period prior to vesting.  Additional option shares will be granted for the difference if the market price is below $0.40 during the 30-day period.  The Black-Scholes option pricing model was used to determine the fair value of the option guarantee issued to CrownBeav with the following assumptions:  risk free interest rate of 4.60%; dividend yield of 0%; volatility factors of 100%, the expected market price of the Company’s common shares over the guarantee period of 2 years.  The resulting fair value of the put option was $185,000.  The $526,726 fair market value of the option (combination of call and put) was capitalized as an intangible asset and is being recognized as a licensing fee over the 10 year period of the license.

11.           Preferred Stock

The Company has authorized up to 575,000 shares of Series B Preferred Stock at a per share price of $1 per share.  The holders of the Series B Preferred Stock are entitled to (i) receive an annual cumulative dividend at the rate of 10%, payable prior to dividends of any shares of common stock, (ii) two and one-half times the number of votes to which a holder of the same number of common shares is entitled, (iii) receive tow and one-half shares of common stock for each share of Series B Preferred Stock tendered for conversion after September 30, 2005, (iv) require the Company to redeem shares of Series B Preferred Stock at the original sales price, plus accrued cumulative dividends, upon prior notice after September 30, 2005, or in the event of a merger, sale of a majority of the stock or sale of substantially all of the assets of the Company, and (v) receive a liquidation preference equal to the original sales price plus accrued cumulative dividends, prior to the rights of holders of the Series A Preferred Stock and common stock.  On September 30, 2007, all outstanding shares of Series B Preferred Stock were automatically redeemable at the original sales price plus accrued cumulative dividends.

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In September 2007, the holders of the Series B Preferred Stock tendered the 400,000 shares outstanding for conversion and the Company issued to the holders 1,000,000 shares of common stock.  The Company declared and paid $25,963 of Series B Preferred dividends in the period ended September 30, 2007.  Additionally, in the period ended September 2007, the Company paid $80,000 of Series B Preferred dividends declared and accrued in 2005 and 2006.

12.           Subsequent Event

On October 24, 2007, the Company entered into a one year Authorized Detailer Agreement with Sheervision, Inc. (“Sheervision”), a Delaware corporation, under which the Company became an authorized broker and detailer of Sheervision’s Firefly Infinity LED Headlight and all related accessories.  The agreement will be renewed for an additional one or two year period in 2008.  The Company was appointed as an exclusive authorized detailer in certain international markets and as a non-exclusive authorized detailer in Sheervision’s retained territory, excluding the United States of America.  In consideration of the Company’s efforts to develop and retain an international dealer network, Sheervision will pay the Company a monthly management fee during the first four months of the agreement and a commission for all products sold in the AMT managed territory during the agreement period.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements and related footnotes. These estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information the Company believes to be reasonable under the circumstances. There can be no assurance that actual results will conform to the Company’s estimates and assumptions, and that reported results of operations will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. The policies the Company believes to be the most sensitive to estimates and judgments are described in Item 7 of the Company’s 2006 Annual Report on Form 10-KSB. There have been no material changes to that information during the first nine months of 2007.

Results of Operations

The Company had revenues of $784,277 for the three month period ended September 30, 2007 compared to $768,686 for the same period in 2006, an increase of 2%.  For the three month period ended September 30, 2007, domestic revenues decreased 18% while international revenues increased 62% over the same period in 2006.  The increase during the three month period ended September 30, 2007 resulted primarily from a $50,800 increase in Spectrum Dental product line sales, $33,500 in revenues related to the representation of Direct Crown products under the licensing agreement entered into in the second quarter of 2007 and a $26,000 increase in sales of the Company’s industrial product line.  The increases and additions were partially offset by a $52,000 decrease in sales of the KCP product line and a $50,300 decrease in the sales of parts and repairs.  The Company anticipates the continued growth in the Spectrum Dental and Direct Crown revenues.

The Company had revenues of $2,466,868 for the nine month period ended September 30, 2007 compared to $1,846,797 for the same period in 2006, an increase of 34%.  For the nine month period ended September 30, 2007, domestic revenues increased 4% while international revenues increased 187% over the same period in 2006.  The increase in revenues is largely related to the addition of the Spectrum tooth whitening product line in April 2006 which contributed approximately $686,000 in additional revenues in the nine month period ended September 30, 2007 compared to 2006.  The increase also included $94,000 in sales of inventory previously included in the Company’s inventory reserve, an increase of approximately $113,400 in the Company’s industrial product line sales and $50,411 in revenues related to the representation of Direct Crown products under the licensing agreement entered into in the second quarter of 2007.  These increases were partially offset by a $156,000 decrease in the KCP product line and a $137,500 decrease in the sales of parts and repairs.  The Company anticipates the continued growth in the Spectrum Dental and Direct Crown revenues.

Additionally, the Company received $8,593 and $14,656 in royalties for the three and nine month periods ended September 30, 2007 compared to $7,307 and $23,716 for the same periods in 2006.

Gross profit as a percentage of revenues was 31% and 53% for the three and nine month periods ended September 30, 2007 compared to 53% and 44% for the same periods in 2006.  The decrease in gross profit for the three month period ended September 30, 2007 was primarily attributable to a $218,000 increase in the Company’s inventory valuation allowance for slow moving inventory, which increased cost of goods sold.  The increase in gross profit for the nine month period ended September 30, 2007 was primarily attributable to the addition of the Spectrum product line in April 2006 which has a higher gross margin than other product lines.  Additionally, the nine month period ended September 30, 2007 included a $23,000 decrease in the warranty provision and actual warranty expense.   The increases in gross profit for the nine month period ended September 30, 2007 were partially offset by a $239,000 increase in the Company’s inventory valuation allowance compared to a $122,400 increase during the same period in 2006.

Selling, general and administrative expenses were $807,169 and $2,325,576 for the three and nine month periods ended September 30, 2007 compared to $614,170 and $2,207,085 for the same periods in 2006, constituting increases of 31% and 5% respectively.

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Legal expenses increased approximately $152,000 in the three month period ended September 30, 2007 compared to the same period in 2006.  The increase in legal expenses was largely attributable to litigation and pending new product contract negotiations.  Other significant increases in selling, general and administrative expenses for the three month period ended September 30, 2007 included a $51,000 increase in general office expenses primarily attributable to the Direct Crown license and expenses related to business development and a $12,000 increase in insurance expense.  These increases were partially offset by a decrease of approximately $21,000 in show expenses in the three month period ended September 30, 2007 compared to the same period in 2006 as a result of AMT’s master distributors representing the Company’s product lines on the Company’s behalf.

The increase in selling, general and administrative expenses in the nine month period ended September 30, 2007 compared to the same period in 2006 included a $138,400 increase in general office expense primarily attributable to the Spectrum and Direct Crown licenses, an increase in computer expenses and expenses related to business development; a $58,700 increase in occupancy costs mostly attributable to the sale and leaseback of the building in April 2006; a $68,000 increase in marketing expense; a $152,600 increase in professional fees mostly attributable to management consulting fees and legal fees for litigation and pending new product contract negotiations and a $16,000 increase in insurance expense.  These increases in the nine month period ended September 30, 2007 were partially offset by a $73,400 decrease in show expenses as a result of AMT’s master distributors representing the Company’s product lines on the Company’s behalf.  Additionally, the nine month period ended September 30, 2006 included $410,000 for the settlement of breach of employment and other claims with two former employees.

There were no research and development expenses in the three month period ended September 30, 2007 compared to $16,617 for the same period in 2006.  Research and development expenses for the nine month period ended September 30, 2007 were $10,846 compared to $55,470 for the same period in 2006, constituting a decrease of 80%.  The Company has no new products in development for manufacturing and does not anticipate the addition of any new products for manufacturing in the immediate future.

Other income (expenses) were $239,485 and ($44,252) for the three and nine month periods ended September 30, 2007 compared to $125,484 and $60,860 for the same periods in 2006.  The revaluation of the Discus warrant resulted in $174,931 and ($349,322) in other income (expenses) for the three and nine month periods ended September 30, 2007 compared to $75,074 and $25,283 for the same periods in 2006.  The change in the Discus warrant valuation is primarily related to changes in the market value of the Company’s common stock during the periods.  Additionally, the three month period ended September 30, 2007 included approximately $18,000 received for consulting services and $17,600 received for rental of a portion of the building.  The nine month period ended September 30, 2007 included approximately $72,000 for consulting services and approximately $53,500 received for the rental of a portion of the building.

For the three and nine month periods ended September 30, 2007, the net loss available to common stockholders was ($342,378) and ($1,090,015) compared to ($101,269) and ($1,362,705) for the same periods in 2006.  The Company experienced a loss from operations of ($555,900) and ($1,019,830) for the three and nine month periods ended September 30, 2007 compared to ($226,753) and ($1,423,565) for the same periods in 2006.

Liquidity and Capital Resources

The Company’s operating activities used $253,468 for the nine months ended September 30, 2007.

The Company’s investing activities provided $216,710 for the three months ended September 30, 2007 which included $76,300 in proceeds from the sale of machinery and the $157,938 from the maturity of government securities.

The Company’s financing activities provided $94,037 for the three month period ended September 30, 2007 in funds received from the Company’s line of credit with Texas State Bank.

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On December 21, 2006, the Company entered into a secured line of credit agreement with Texas State Bank.  The funds available under the line of credit were $600,000.  The Company invested $300,000 with funds drawn against the line of credit in a Certificate of Deposit with a term of one year as collateral for the loan.  Interest on the line of credit is set at the prime rate plus 1%.  The interest rate on the line of credit was 9.75% as of September 30, 2007.  The principal on the loan is payable in one payment on December 20, 2007, with interest on the outstanding amount payable monthly.  The Company borrowed an additional $100,000 against the line of credit in December 2006 and $120,000 in February 2007.  In January 2007, Texas State Bank increased the line of credit to $800,000 using the Company’s accounts receivable and inventory as additional collateral.  The terms of the original line of credit remained the same with the exception of the payment date of the line being extended to January 2008.

On April 11, 2006 the Company sold its 45,000 square foot Corpus Christi facility for $1.9 million to the Sepulveda Group, a California limited liability company. The Company entered into a five year lease back of the facility with a monthly rent of $20,385. The lease provides for a 3% yearly rent increase and an option to extend the lease for an additional five years. The Company invested $632,744 of the sale proceeds in a Certificate of Deposit with Texas State Bank which will be used as replacement collateral for the loan entered into in February 2005. Of the proceeds, $54,858 was used for a security deposit and rent for the facility, $88,671 was used to pay the 2005 property taxes and $14,088 was used as real estate and closing fees. The remaining $1.1 million in net proceeds were used to reduce liabilities and for operational expenses as needed.

On April 11, 2006, the Company entered into a licensing agreement with Discus Dental Holdings, Inc. (“Discus”) and its wholly owned subsidiary, Spectrum Dental, Inc. (“Spectrum Dental”), a leading provider of professional tooth whitening products under the brand names of “Contrastpm”, “Contrastpmplus” and “Contrastam”, under which AMT became the exclusive distributor of the Spectrum Dental product line, which provided  approximately $933,000 in additional revenue in 2006. The Sepulveda Group, LLC is affiliated with Discus. In full payment for the license, the Company issued Discus a warrant to purchase 2,500,000 shares of common stock of the Company at $0.20 per share.

The warrants issued to Discus is subject to registration rights and the fair value is estimated at the end of each period using the Black-Scholes option pricing model with the following assumptions used on September 30, 2007:  risk free interest rate of 4.25%; dividend yield of 0%; volatility factors of 250%, the expected market price of the Company’s common stock  over the estimated life of the warrant of 6.5 years.  The original calculated fair value of the warrant was $549,530 which the Company capitalized as an intangible asset and is recognizing as a licensing fee over the license period of five years.

In 2006, the Company entered into a new phase of its corporate development.  The first step in the transition was a change in the existing executive and sales management teams.  The second step in the transition was to review the status of AMT’s existing core products and as a result of this review, the Company is exploring the discontinuation of some of its mature product lines in order to reduce spending and to outsource some of the Company’s equipment service and maintenance in order to take advantage of lower overhead costs.

In 2007, the Company continues to include the Hydro Jet in its product offering, selling through its existing international network of dealers; however, no significant investment is planned to upgrade the product technology or to market the products.

As a final step in the transition, the Company has begun the alteration of its basic business model from that of traditional manufacturing to one of a product-brokering organization, directing the sales of products from contractually bound manufacturers to the international dental market.  Under the new business model, AMT is in the process of positioning itself as the premier “outsourced sales organization” for companies seeking the international sale and distribution of their unique dental products.  The Company believes it can continually grow contractually protected revenue by increasing the sales of existing products and by the sales of new product lines, while minimizing overhead costs and expenses related to maintaining inventory.

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On April 1, 2007, the Company entered into a License Agreement with CrownBeav LLC (“CrownBeav”), an Oregon limited liability company, under which the Company became the nonexclusive distributor for the United States and Canada and the exclusive distributor for the rest of the world of it’s DirectCrown brand of temporary crown and bridge material.  The license agreement is for a term of ten years with automatic renewals for additional five year terms, contains minimum requirements for sale of the products by the Company, and may be terminated (i) for cause upon 60 days notice, (ii) upon the Company’s failure to comply with applicable securities laws, (iii) upon the occurrence of certain other customary events of default.  In full consideration, the Company granted to CrownBeav a five year option to purchase (the “Option”) 1,000,000 shares of the Company’s common stock at $0.20 per share.  The shares subject to the Option will vest two years from the Effective Date of the agreement.

The Black-Scholes option pricing model was used to determine the fair value of the options issued to CrownBeav with the following assumptions:  risk free interest rate of 4.54%; dividend yield of 0%; volatility factors of 139%, the expected market price of the Company’s common shares over the estimated life of the option of 3.5 years.  The resulting fair value of the call option was $341,726.  The option grant vests on April 1, 2009.  The option agreement includes a guaranteed trading price of $0.40 per share of the underlying shares of the Company’s common stock for the 30-day period prior to vesting.  Additional option shares will be granted for the difference if the market price is below $0.40 during the 30-day period.  The Black-Scholes option pricing model was used to determine the fair value of the option guarantee issued to CrownBeav with the following assumptions:  risk free interest rate of 4.60%; dividend yield of 0%; volatility factors of 100%, the expected market price of the Company’s common shares over the guarantee period of 2 years.  The resulting fair value of the put option was $185,000.  The $526,726 fair market value of the option (combination of call and put) was capitalized as an intangible asset and is being recognized as a licensing fee over the 10 year period of the license.

On October 24, 2007, the Company entered into a one year Authorized Detailer Agreement with Sheervision, Inc. (“Sheervision”), a Delaware corporation, under which the Company became an authorized broker and detailer of Sheervision’s Firefly Infinity LED Headlight and all related accessories.  The agreement will be renewed for an additional one or two year period in 2008.  The Company was appointed as an exclusive authorized detailer in certain international markets and as a non-exclusive authorized detailer in Sheervision’s retained territory, excluding the United States of America.  In consideration of the Company’s efforts to develop and retain an international dealer network, Sheervision will pay the Company a monthly management fee during the first four months of the agreement and a commission for all products sold in the AMT managed territory during the agreement period.

The Company’s ability to generate positive operational cash flow is dependent upon increasing revenues through the sales of existing product lines and the expansion related to the representation of additional lines of dental products.  While the Company has identified additional product lines, there can be no assurance that the Company will be successful in finalizing the contract for representation of these products or that the Company will be successful in generating a positive operational cash flow.