ADL Amdl,

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended September 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-16695

AMDL, Inc.

2492 Walnut Avenue, Suite 100, Tustin, California 92780

(Address of principal executive offices)

(714) 505-4460

(Issuer’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o       No þ

     Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ       No o

     As of November 16, 2007, the Company had 12,929,317 shares (includes 100,000 shares held in escrow) of its $0.001 par value common stock outstanding.

 

 

AMDL, INC.

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			3
Unaudited Condensed Consolidated Balance Sheet at September 30, 2007			3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2007 and 2006			4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006			5
Notes to Condensed Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis or Plan of Operation			26
Item 3A. Controls and Procedures			38
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults Upon Senior Securities			40
Item 4. Submission of Matters to a Vote of Security Holders			40
Item 5. Other Information			40
Item 6. Exhibits			41
SIGNATURES			42
EXHIBIT INDEX			43
EXHIBIT 10.44
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

See accompanying notes to condensed consolidated financial statements.

AMDL, INC.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

The Board of Directors on August 10, 2007, extended the required approval date to March 28, 2008. If Jade has not notified the escrow agent that the SFDA has issued the approval to market DR-70 ^® before March 28, 2008, or if the Company disputes that the purported approval is satisfactory, the Escrow Shares shall be delivered by the escrow agent to the Company for cancellation. In the event the Escrow Shares are released to Jade, the Company will record the fair value of the 100,000 shares of common stock issued as goodwill.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, the Company has allocated the total purchase price to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

The purchase consideration has been allocated as follows:

The fair values assigned to identifiable intangible assets acquired were based on an appraisal performed by an independent third party using estimates and assumptions determined by management. The fair values of the non-compete agreements, customer relationships and trade name and logo were determined using an income approach and discounted cash flow techniques.

During the nine months ended September 30, 2007, the Company determined that certain values assigned to property and equipment and debt required an adjustment, and accordingly, increased the values assigned to property and equipment and debt by $214,617.

During the three months ended September 30, 2007, the Company determined that certain values assigned to land use rights, non-corporate agreements, customer relationships and trade name and logo should be adjusted. Accordingly, land use rights was increased by $205,060 while non-complete agreements, customer relationships and trade name and logo were decreased proportionately.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $3,226,603 and $2,567,324 during the nine months ended September 30, 2007 and 2006, respectively, and had an accumulated deficit of $37,801,746 at September 30, 2007. In addition, the Company used cash in operations of $1,918,816 and $1,517,308 during the nine months ended September 30, 2007 and 2006, respectively. At November 15, 2007, the Company had cash on hand of approximately $605,000 and cash is being depleted at the rate of approximately $310,000 per month. Assuming (i) the current level of revenue from the sale of DR-70 ^® kits does not increase in the near future, (ii) the Company does not require new cancer samples to satisfy the FDA concerns on its pending 510(k) application; (iii) the Company does not conduct any full scale clinical trials for DR-70 ^® or its combination immunogene therapy technology in the U.S. or China, (iv) JPI generates sufficient cash to meet or exceed its cash requirements, and (v) no outstanding options or warrants are exercised, the amount of cash on hand is expected to be sufficient to meet the Company’s projected operating expenses only through mid January 2008.

The Company’s near and long-term operating strategies focus on (i) obtaining Food and Drug Administration (“FDA”) and China’s State Food and Drug Administration (“FDA”) approval for DR-70 ^® , (ii) seeking a large pharmaceutical partner for our combination immunogene therapy technology, (iii) increasing sales of JPI’s existing products and expanding JPI’s distribution networks, (iv) funding the research and development, licensing and/or purchase of new products, and (v) wholesale distribution to retail stores known as “Jade Healthy Supermarkets.”

The Company’s only source of additional funds to meet continuing operating expenses, to fund additional research and development, to promote JPI’s products or to conduct clinical trials which may be required to receive FDA approval is the sale of securities.

Management recognizes that the Company must generate additional capital resources to enable it to continue as a going concern. Management’s plans include seeking financing, alliances or other partnership agreements with entities interested in the Company’s technologies, or other business transactions that would generate sufficient resources to assure continuation of the Company’s operations and research and development programs.

In addition, on April 26, 2006, the American Stock Exchange (“AMEX”) sent a letter to the Company stating that based on a review of Company’s Form 10-KSB for the year ended December 31, 2005, the Company did not meet certain of the AMEX’s Continued Listing Standards as set forth in Part 10 of the AMEX Company Guide. Specifically, the Company did not meet the requirement of stockholders’ equity of $4,000,000 and the Company had losses from continuing operations in three out of its four most recent fiscal years. In the letter, AMEX gave the Company until May 26, 2006 to submit a plan of action that the Company has taken and will take to bring the Company into compliance with the AMEX Company Continued Listing Standards.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

On July 17, 2006, the American Stock Exchange sent a letter to the Company stating that the Company has made a reasonable demonstration of its ability to regain compliance with the AMEX Continued Listing Standards, and based on that demonstration, the AMEX is prepared to continued the listing of the Company’s common stock through the end of the third quarter of 2006 subject to certain conditions, including the closing of the JPI acquisition. On November 10, 2006, AMEX advised the Company that the plan period would remain open until the Company has been able to demonstrate compliance with the Continued Listing Standards for two consecutive fiscal quarters. As of November 15, 2007, AMEX has not notified the Company about whether it has demonstrated compliance with the Continued Listing Standards. Delisting from AMEX may impact our ability to raise capital in the future.

These items, among other matters, raise substantial doubt about the Company’s ability to continue as a going concern.

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

Reverse Stock Split

On September 28, 2006, the Company effected a one-for-five reverse stock split of its common stock. All share and per share information for the periods presented herein have been retroactively restated to reflect the reverse stock split as if it had occurred at the beginning of each period presented.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and transactions of AMDL, Inc. and its wholly owned subsidiary, JPI and its wholly owned subsidiaries, from date of acquisition. Intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

The Company generates revenues from wholesale sales of over-the-counter and prescription pharmaceuticals, and the direct distribution of pharmaceutical products through retail outlets known as “Jade Healthy Supermarkets.”

The Company recognizes revenue in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104. Accordingly, revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed and determinable, and (4) collectibility is reasonably assured.

Wholesale Sales

Revenues from the wholesale sales of over-the counter and prescription pharmaceuticals are recognized when title and risk of loss have passed to the buyer and provided the criteria in SAB No. 101 (as amended by SAB 104) are met. Buyers generally have limited rights of return, and the Company provides for estimated returns at the time of sale based on historical experience. Returns from customers historically have not been material. Actual returns and claims in any future period may differ from the Company’s estimates.

Direct Distribution

On June 14, 2007, JPI (through JJB) entered into an agreement and letter of intent with Shanghai XiangEn Food Company Co. Ltd. (“Shanghai XiangEn”) to begin direct distribution of pharmaceutical products through retail stores known as the “Jade Healthy Supermarkets” (“Retail Stores”). The Retail Stores are operated by independent

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

third parties who sell JJB’s products at retail to consumers. Originally, Shanghai XiangEn would recruit “sub-operators” for the Retail Stores. As of November 13, 2007 there were eight Retail Stores in operation. JJB received a one-time, non-refundable up front fee from each of the sub-operators of the Retail Stores in the aggregate amount of $314,762. JJB advanced $557,093 for general working capital purposes, including leasehold improvements and equipment to Shanghai XiangEn and the sub-operators in the establishment of the Retail Stores. JJB consigns inventories to the operators of the Retail Stores for sale to consumers. As a result, the sub-operators do not take ownership of the inventories at their stores until the products are sold to the consumer. Revenues from the sale of JJB’s products at the Retail Store level will be recognized by the Company at the time products are sold by the Retail Stores. Through September 30, 2007, the Retail Stores had not generated any sales, accordingly, no revenues were recognized in the accompanying statements of operations for the three and nine months ended September 30, 2007. Under the terms of the original agreement with Shanghai XiangEn, JJB was required to pay commission to Shanghai XiangEn based on two percent (2%) of the gross sales of the products sold at retail by the sub-operators of the Retail Stores. Pursuant to an amended agreement, this commission has been waived in the future.

During the three months ended June 30, 2007, the Company received $314,762 in up-front fees from store sub-operators before the Retail Stores were opened. In addition, at September 30, 2007, JJB accrued $20,645 for commissions to Shanghai XiangEn for finding the sub-operators. The Company deferred recognition of these fees until the Retail Stores opened. JJB will begin amortizing the up-front fees over the two year contract period. At September 30, 2007, all eight Retail Stores were opened, and accordingly, the Company recorded approximately $39,000 of the up-front fees received as revenues.

In accordance with Emerging Issues Task Force (“EITF”) Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) , JPI’s revenues are reported net of value added taxes (“VAT”) collected.

Accounting for Shipping and Handling Revenue, Fees and Costs

The Company classifies amounts billed for shipping and handling as revenue in accordance with EITF Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs. Shipping and handling fees and costs are included in cost of sales.

Other Comprehensive Income and Foreign Currency Translation

Statement of Financial Accounting Standards (“SFAS”) No. 130, Reporting Comprehensive Income , establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distribution to owners.

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of JPI is the Renminbi (“RMB”). The balance sheet accounts of JPI are translated into United States dollars from RMB at period end exchange rates and all revenues and expenses are translated into United States dollars at average exchange rates prevailing during the periods in which these items arise. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. Translation gains and losses are accumulated as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Translation gains were $591,254 for the nine months ended September 30, 2007.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at the rates used in translation.

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.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Inventories

JPI records inventories at the lower of weighted average cost or net realizable value. Major components of inventories are raw materials, and packaging materials, direct labor and production overhead. AMDL’s inventories consist primarily of raw materials and related materials, and are stated at the lower of cost or market with cost determined on a first-in, first-out (“FIFO”) basis. The Company regularly monitors inventories for excess or obsolete items and makes any valuation corrections when such adjustments are needed. Once established, write-downs are considered permanent adjustments to the cost basis of the obsolete or excess inventories.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives as follows:

Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in the consolidated statement of operations.

Intangible Assets

Intangible assets consist of intellectual property, land use rights, non-compete agreements, customer relationships and trade name and logo.

Intellectual Property

In August 2001, the Company acquired intellectual property rights and an assignment of a US patent application for combination immunogene therapy technology for $2,000,000. The technology was purchased from Dr. Lung-Ji Chang, who developed it while at the University of Alberta, Edmonton, Canada. The $2,000,000 acquisition price is being amortized over the expected useful life of the technology, which the Company has currently determined to be 20 years, based upon an estimate of three years to perfect the patent plus 17 years of patent life.

Land Use Rights

The Company leases certain parcels of land from the Chinese government for original terms ranging from 40 to 50 years. The Company has capitalized $1,405,829 as land use rights, which are being amortized on the straight-line basis over the weighted-average remaining lease terms of 33 years. The land use rights are pledged with a bank as security for some of the loans granted to the Company (see Note 8).

Non-Compete Agreements

Non-compete agreements were entered into with Jade and certain of its officers, the estimated fair value of which was $324,415. The non-compete agreements are being amortized over their 5-year term using the straight-line method.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

Customer Relationships

In connection with the acquisition of JPI, the Company capitalized $214,328, which is the estimated fair value of certain customer relationships and is being amortized on the straight-line basis over their estimated useful life of 7 years.

Trade Name and Logo

In connection with the acquisition of JPI, the Company capitalized $530,829, which is the estimated fair value related to JPI’s trade names and logos and is being amortized on the straight-line basis over their estimated useful life of 10 years.

Production Rights

During the three months ended September 30, 1007, JPI acquired licenses for the right to produce five products, two of which went into production. JPI capitalized $1,340,853 for these rights and is amortizing this amount on a straight-line basis over the estimated useful life of 10 years.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , the Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that such carrying values may not be recoverable. The Company uses its best judgment based on the current facts and circumstances relating to its business when determining whether any significant impairment factors exist.

The Company considers the following factors or conditions, among others, that could indicate the need for an impairment review:

	•		significant under performance relative to expected historical or projected future operating results;
	•		market projections for cancer research technology;
	•		its ability to obtain patents, including continuation patents, on technology;
	•		significant changes in its strategic business objectives and utilization of the assets;
	•		significant negative industry or economic trends, including legal factors;
	•		potential for strategic partnerships for the development of its patented technology;
	•		changing or implementation of rules regarding manufacture or sale of pharmaceuticals in China; and
	•		ability to maintain Good Manufacturing Process (“GMP”) certifications.

If the Company determines that the carrying values of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company’s management performs an undiscounted cash flow analysis to determine if impairment exists. If impairment exists, the Company measures the impairment based on the difference between the asset’s carrying amount and its fair value, and the impairment is charged to operations in the period in which the long-lived asset impairment is determined by management. Based on its analysis, the Company believes that no indicators of impairment of the carrying value of its long-lived assets existed at September 30, 2007.

There can be no assurance, however, that market conditions will not change or demand for the Company’s products will continue or allow the Company to realize the value of its technologies and prevent future long-lived asset impairment.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

Accounting for Stock-Based Compensation

All issuances of the Company’s common stock for non-cash consideration have been assigned a per share amount equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares on the measurement date.

The Company accounts for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services, and EITF Issue No. 00-18, Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

In accordance with EITF Issue No. 00-18, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expense in its condensed consolidated balance sheet.

At September 30, 2007, the Company had five stock-based compensation plans.

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”), which establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in share-based payments transactions. SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. SFAS No. 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, for periods beginning in fiscal 2006. In March 2005, the SEC issued SAB No. 107 relating to SFAS No. 123(R). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which required the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s consolidated financial statements for the three and nine months ended September 30, 2007 and 2006 reflect the impact of SFAS No. 123(R). SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated statements of operations.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2007 and 2006 includes compensation expense for share-based payment awards granted based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Stock based compensation of $1,507,310 and $240,300 related to employees and directors was recognized during the nine months ended September 30, 2007 and 2006, respectively. Stock based compensation of $377,710 and $0 related to employees and directors was recognized during the three months ended September 30, 2007 and 2006, respectively.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

As stock-based compensation expense recognized in the consolidated statement operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated forfeiture rate for the periods ended September 30, 2007 and 2006 was 0% since options generally vest immediately upon grant.

Summary of Assumptions and Activity

The fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though the model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the Company’s stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price.

These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. The Company used the following weighted-average assumptions in determining fair value of stock options:

The Company issued 427,000 options to employees and directors during the nine months ended September 30, 2007 which resulted in compensation expense of $1,507,310 which is included in general and administrative expenses.

The following is a summary of stock option activity as of September 30, 2007 and changes during the nine months then ended:

At September 30, 2007, there was no unrecognized compensation cost related to employee and director stock options.

The aggregate intrinsic value set forth in the above table represents the total pre-tax intrinsic values, based on the Company’s closing stock price of $3.28 as of September 30, 2007.

At September 30, 2007, options to purchase a total of 2,093,235 shares (including non employees) of the Company’s common stock were exercisable at a weighted-average exercise price of $3.97 per share, of which options to purchase 678,001 shares were in the money.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

Basic and Diluted Income (Loss) Per Share

Basic loss per common share is computed based on the weighted-average number of shares outstanding for the period. Diluted loss per share is computed by dividing net loss by the weighted-average shares outstanding assuming all potentially 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. Diluted net income per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consists primarily of incremental shares issuable upon the assumed exercise of stock options and warrants to purchase common stock using the treasury stock method. Employee stock options and warrants to purchase common stock with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. However, the impact under the treasury stock method of dilutive stock options and warrants would have resulted in incremental shares of 344,499 and 129,761 for the nine months ended September 30, 2007 and 2006, respectively, and 218,025 and 26,456 for the three months ended September 30, 2007 and 2006, respectively.

Income Taxes

The Company accounts for income taxes under SFAS No. 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.

JJB has been granted a 100% waiver on corporate income taxes in China for 2007. YYB’s tax rate is 15% through 2010 in accordance with the “Western Region Development Concession Policy” of the PRC government.

Value Added Tax Payable

The Company is subject to a value added tax (“VAT”) at a rate of 17% on all product sales in the PRC. The VAT payable on product sales is computed net of VAT paid on purchases by the Company in the PRC.

Use of Estimates

The preparation of consolidated 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, realization of accounts receivable and inventories, determination of prepaid consulting fees, recoverability of long-lived assets, determination of useful lives of intangibles, determination of values of stock options and warrants, and valuation of deferred tax assets. Actual results could differ from those estimates.

Risks and Uncertainties

The Company’s proprietary test kit is deemed a medical device or biologic, and as such is governed by the Federal Food and Drug and Cosmetics Act and by the regulations of state agencies and various foreign government agencies Currently, the Company is not permitted to sell DR-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.

Prior to May 2002, the Company’s focus was on obtaining foreign distributors for its DR-70(R) kit. In May 2002, the Company decided to begin 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 (carcinoembryonic antigen), and it submitted the results to the FDA in September 2003. In January 2004, the FDA responded to the Company’s submission. The FDA identified deficiencies in the Company’s application and advised its consultant, Diagnostic Oncology CRO, Inc. (“DOCRO”) that based upon the data submitted, the FDA determined that the DR-70 ^® kit was

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

not substantially equivalent to any other device, which has gone through the 510(k) approval process. The FDA further advised that if the Company had data which it believes shows that the DR-70 ^® kit has substantial equivalence, it could submit such additional information for the FDA’s consideration. In January 2005, DOCRO supplied additional data and submitted a new application to the FDA proposing that DR-70 ^® be used in tandem with CEA in monitoring colorectal cancer patients. In June 2005, the FDA issued a non-substantially equivalent letter and pointed out several areas of concern regarding the new application for use of DR-70 ^® as an adjunctive test with CEA. Representatives of the Company met with the FDA to go over their concerns. The Company is revising its strategy regarding FDA approval of DR-70 ^® and the Company is reviewing additional patient data which supports “substantial equivalence” to CEA.

Company management met with the FDA on January 25, 2007. This was a Pre-IDE meeting to obtain further guidance on the Company’s submission of DR-70 ^® . After a responsive submission is filed, the FDA will likely raise other issues in furtherance of the approval process. The Company received additional questions from the FDA regarding the Pre-IDE submission which was responded to in May 2007.

On November 13, 2007, the Company received a memorandum of “Review Issues” from the United States Food and Drug Administration (“US FDA”) which addresses the pending application for 510(k) approval of DR-70® as an aid in monitoring the disease status in patients who have been previously diagnosed with colorectal cancer. Unlike prior communications from the US FDA, the US FDA did not raise the issue of whether the Company’s test was substantially equivalent to the existing predicate test, CEA. The memorandum includes requests for clarification of the intended use statement and clinical outcome measures.

The US FDA requested a response to the comments within 30 days, but also indicated a request for more time could be made. The Company is analyzing the comments and has not yet determined whether it can supply the requested information within the next 30 days. While the company is optimistic about its ability to perform the studies requested, until the requested studies are re-run, the Company is unable to assess what the probable response of the FDA will be to the new documentation, and no assurances can be given that the Company will ever receive FDA clearance for the commercial sale of DR-70® in the United States.”

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.

Operations in China

JJB and YYB operate as WFOEs in the PRC. Risks associated with operating as a WFOE include unlimited liability for claims arising from operations in China and potentially less favorable treatment from governmental agencies in China than JJB and YYB would receive if JJB and YYB operated through a joint venture with a Chinese partner.

JJB and YYB are subject to the Pharmaceutical Administrative Law, which governs the licensing, manufacture, marketing and distribution of pharmaceutical products in China and sets penalty provisions for violations of provisions of the Pharmaceutical Administrative Law. Compliance with changes in law may require the Company to incur additional expenditures which could have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

The value of the RMB fluctuates and is subject to changes in China’s political and economic conditions. Historically, the Chinese government has benchmarked the RMB exchange ratio against the United States dollar, thereby mitigating the associated foreign currency exchange rate fluctuation risk; however, no assurances can be given that the risks related to currency deviations of the RMB will not increase in the future. Additionally, the RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.

As JPI is a British Virgin Island Company, it does not have a license to operate in China and is therefore unable to open a RMB bank account. Accordingly, JPI entered into an agreement with Shenzhen Jiekang Technologies Ltd (“Jiekang”) to hold funds as a trustee for JPI even though no formal trust agreement exists. This type of transaction is common in China and is adopted by many overseas companies without an operations license. The balance of the amount at September 30, 2007 is approximately $908,000, which is included in current assets in the accompanying balance sheet. The Company is unsecured in this arrangement and accordingly may not be able to recover this amount if Jiekang becomes insolvent.

Concentration of Risk

From time to time, the Company maintains cash balances at certain institutions in excess of the FDIC limit. As of September 30, 2007, the Company had approximately $212,000 in excess of this limit.

Customers

The Company grants credit to customers within the PRC and does not require collateral. The Company’s ability to collect receivables is affected by economic fluctuations in the geographic areas and the industry served by the Company. Reserve for uncollectible amounts and estimated sales returns are provided based on past experience and a specific analysis of the accounts which management believes are sufficient. Accounts receivable of $3,055,584 at September 30, 2007, is net of reserves for doubtful accounts and sales returns of $37,567. Although the Company expects to collect amounts due, actual collections may differ from estimated amounts.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

As of September 30, 2007, there was one customer that comprised more than 10% of outstanding accounts receivable. For the nine months ended September 30, 2007 there was one customer which comprised more than 10% of revenues.

The majority of the Company’s customers are in the pharmaceutical industry. Consequently, there is a concentration of receivables within this industry, which is subject to normal credit risk.

There is no prior operating history or experience with respect to the Jade Healthy Supermarkets which are operated by independent third parties. JJB and YYB consign inventory to these stores. Five Jade Healthy Supermarkets were operating at September 30, 2007, however, due to the short duration of operations, the Company is unable at this time to assess the “credit risk” with respect to these operations.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and notes payable. Pursuant to SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” the Company is required to estimate the fair value of its financial instruments at the balance sheet date. The Company considers the carrying value of its financial instruments to approximate their fair values due to their short maturities and rates currently available to the Company for similar debt instruments.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007. The Company believes that its income tax filing position and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment related to the adoption of FIN 48. The Company’s policy for recording interest and penalties associated with income tax audits is to record such items as a component of income taxes.

In September 2006, the FASB adopted SFAS No. 157, Fair Value Measurements . SFAS No. 157 establishes a framework for measuring fair value and expands disclosure about fair value measurements. Specifically, this standard establishes that fair value is a market-based measurement, not an entity specific measurement. As such, the value measurement should be determined based on assumptions the market participants would use in pricing an asset or liability, including, but not limited to assumptions about risk, restrictions on the sale or use of an asset and the risk of non-performance for a liability. The expanded disclosures include disclosure of the inputs used to measure fair value and the effect of certain of the measurements on earnings for the period. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect adoption of SFAS No. 157 will have on its consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is permitted. The Company has not yet determined if it will elect to apply any of the provisions of SFAS No. 159 or what the effect of adoption of the statement would have, if any, on its consolidated financial statements.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

NOTE 3 — SEGMENT REPORTING

The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires public companies to report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. During the nine months ended September 30, 2006, 91% of our net revenues were to customers in foreign countries and during the nine months ended September 30, 2007, 99% of our revenues were to customers in foreign countries.

During the nine months ended September 30, 2007, approximately 1% of the Company’s net revenues were from sales of DR-70(R) with remaining sales related to JPI’s products. For the nine months ended September 30, 2007, sales of DR-70(R) were made to two foreign and one domestic customers. The foreign customers are located in Korea ($74,475) and in Taiwan ($17,625).

At September 30, 2007, the Company had three reportable segments. In China, there are two segments, (i) wholesale distribution to distributors, hospitals, clinics and similar institutional entities (“China-Wholesale”); and (ii) wholesale sales to operators of Jade Healthy Supermarkets which sell to consumers directly (“China-Direct Distribution”). In the United States (“U.S.”) there is only one segment, sales to distributors and institutional entities (“Corporate”). The Company evaluates performance based on sales, gross profit and net income (loss). The following is information for the Company’s reportable segments for the nine months ended September 30, 2007:

No information for the nine months ended September 30, 2006 is presented because JPI was not acquired until September 28, 2006.

JPI through JJB has initiated a new line of business where it engages in direct distribution of pharmaceutical products through retail outlets known as “Jade Healthy Supermarkets” operated by Shanghai XiangEn Food Company Co. Ltd. (“Shanghai XiangEn”). There are currently eight retail stores, none of which were opened as of September 30, 2007. The Company has also signed a Memorandum of Understanding with Shanghai XiangEn to negotiate and execute a Definitive Purchase Agreement for the purchase of Shanghai XiangEn. JJB and Shanghai XiangEn are exploring opportunities to open additional Retail Stores in other major cities throughout China, but as of November 13, 2007 have not decided to open any additional retail stores at this time.

Other receivables include approximately $557,000 from Shanghai XiangEn Food Company Ltd (“XiangEn”) representing advances of working capital and start up operating expenses for the Jade Healthy Supermarkets. JPI has entered into a Letter of Intent to acquire XiangEn subject to all requisite approvals from appropriate Chinese governmental authorities.

JPI entered into an agreement with Jiekang to hold funds as trustees for JPI, which funds were advanced by AMDL to JPI. At September 30, 2007 approximately $908,000 is held as trustee for JPI by Jiekang. See Note 2.

During the nine months ended September 30, 2007 JPI acquired production rights to seven new medical products. Five of the agreements were signed with Jiangxi Yibo Medicine Technology Development Co., Ltd during the quarter ended September 30, 2007. The total consideration for these production rights was approximately $4,200,000. See Note 10.

A deposit was made to the supplier of raw materials for the human placenta histosolutions. Management was made aware of the potential near term shortage of this raw material and made a deposit to ensure a disruption of supply does not occur.

Advances were made to certain managers and employees. These advances are unsecured, bear no interest and are due on demand.

NOTE 8 — EQUITY TRANSACTIONS

On April 20, 2006, the Board of Directors authorized the issuance of up to of 120,000 shares of common stock to First International Capital Group, Ltd. (“First International”) pursuant to an amendment to the consulting agreement dated July 22, 2005, for financial advisory services to be provided from July 23, 2006 through January 22, 2007. The Company issued 116,000 shares of common stock as consideration for the services to be provided by First International under the amendment. The shares were valued at $348,000 based on the trading price of the common stock on the measurement date. During the nine months ended September 30, 2007, the Company recorded general and administrative expense of $37,419 related to this agreement.

On September 22, 2006, the Board of Directors authorized the issuance of 5,653 shares of common stock to Aurelius Consulting Group, Inc. as consideration for marketing services provided from December 22, 2006 through March 21, 2007. The shares were valued at $22,498 based on the trading price of the common stock on the measurement date. During the nine months ended September 30, 2007, the Company recorded $20,248 to general and administrative expenses related to this agreement.

On October 5, 2006, the Board of Directors authorized the issuance of 84,000 shares of common stock to First International, pursuant to an amendment to the consulting agreement dated July 22, 2005 as consideration for financial advisory services to be provided from January 23, 2007 through March 22, 2007. The shares were valued at $204,960 based on the trading price of the common stock on the measurement date. The Company recorded general and administrative expense of $204,960 related to the agreement during the nine months ended September 30, 2007.

On October 24, 2006, the Company issued 140,000 shares of common stock to Lynx Consulting Group, Inc. for consulting services to be performed through April 30, 2007. The shares were valued at $548,800 based on the trading price of the common stock on the measurement date. The Company recorded $343,000 as general and administrative expense during the nine months ended September 30, 2007.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

On November 15, 2006, the Board of Directors authorized the issuance of warrants to purchase 25,000 shares of common stock at an exercise price of $4.52 per share to Savannah Capital Management, Inc. (“Savannah”) as consideration for investor public relations services to be provided from November 15, 2006 through February 15, 2007. The warrants were valued at $84,000 using the Black-Scholes pricing model. The Company recorded general and administrative expense of $42,000 during the nine months ended September 30, 2007.

On March 2, 2007, the Board of Directors authorized the issuance of 190,000 shares of common stock to Boston Financial Partners, Inc. pursuant to an amendment to the consulting agreement dated September 16, 2003, as consideration for financial advisory services to be provided from March 1, 2007 through September 1, 2007. The shares were valued at $558,600 based on the trading price of the common stock on the measurement date. During the nine months ended September 30, 2007, the Company recorded general and administrative expense of $558,600 related to the agreement.

Also on March 2, 2007, the Board of Directors authorized the issuance of 150,000 shares of common stock to First International pursuant to an amendment to the consulting agreement dated July 22, 2005, as consideration for financial advisory services to be provided from March 22, 2007 through September 22, 2007. The shares were valued at $517,500 based on the trading price of the common stock on the measurement date. During the nine months ended September 30, 2007, the Company recorded general and administrative expense of $517,500.

On April 24, 2007, the Board of Directors authorized the issuance of warrants to purchase 25,000 shares of common stock to Brookstreet Securities Corporation, a consultant, as consideration for financial advisory services. The common shares issuable on exercise of the warrants are exercisable at $3.68 per share. The warrants were valued at $35,000 using the Black-Scholes option pricing model which amount was charged to consulting expense in the nine months ended September 30, 2007.

On September 14, 2007, the Board of Directors authorized the issuance of 250,000 shares of common stock to First International pursuant to an amendment to the consulting agreement dated July 22, 2005, for financial advisory services to be provided from September 22, 2007 through September 22, 2008. The shares were valued at $817,500 based on the trading price of the common stock on the measurement date. During the nine months ended September 30, 2007, the Company recorded general and administrative expense of $20,438 related to the agreement and the balance of $797,063 is included in prepaid consulting at September 30, 2007. The shares of common stock were not issued as of September 30, 2007 pending American Stock Exchange approval. Therefore, the balance is included as an accrued expense at September 30, 2007 and was reclassified to equity upon issuance of the shares in October 2007.

The Company issued 10,000 options to a consultant and an investor during the nine months ended September 30, 2007 which resulted in compensation expense of $35,300 which is included in general and administrative expense. In pricing these options, the Company used the Black-Scholes pricing model with the following weighted-average assumptions: expected volatility of 353%; risk-free interest rate of 4.92%; expected term of one year; and dividend yield of 0%.

Between April 14, 2007 and June 7, 2007, the Company conducted a combined private offering (“April 2007 Offering”) under Regulation D and Regulation S for the sale to accredited investors of shares of common stock and warrants to purchase a number of shares of common stock equal to one-half the number of shares sold in the April 2007 Offering. On May 4, 2007, the Company conducted the first closing of the April 2007 Offering and received approximately $3,789,500 in aggregate gross proceeds, exclusive of placement agent fees and expenses of approximately $492,600 from the sale of a total of 1,443,620 shares. The shares were sold at a price of $2.625 per share, representing a discount of 25% from the average of the closing prices for the five consecutive trading days prior to the second trading day before the closing date. The exercise price of the warrant shares issued in the April 2007 Offering was $3.68. On June 7, 2007, the Company conducted the second closing of the April 2007 Offering for the sale. The Company received approximately $1,540,900 in aggregate gross proceeds, exclusive of placement agent fees and expenses of approximately $200,400 from the sale of a total of 587,000 shares in the second closing.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

The shares were sold at a price of $2.625 per share and three year warrants to purchase an additional 293,500 shares, which warrants are exercisable at $3.86 per share. Warrants to purchase an additional 58,700 shares were also issued to the placement agents at the same exercise price in the second closing.

In connection with the April 2007 Offering, we utilized the services of Galileo Asset Management, S.A. (“Galileo”), a Swiss corporation for sales to non-U.S. persons, and Securities Network, LLC (“Network”), a NASD member broker-dealer as our placement agent for sales in the United States. For their services, Galileo and Network received commissions and a non-accountable expense allowance in the aggregate of approximately $693,000 and warrants to purchase an aggregate of 203,023 shares of the Company’s common stock. In connection with the April 2007 Offering, the Company has also agreed to pay Galileo and Network a six percent (6%) cash commission upon exercise of the warrants by the purchasers. In addition, the Company incurred additional legal and other costs totaling approximately $64,000 in connection with the April 2007 Offering. The Company charged all of these costs to additional paid-in capital, since the investment was treated as a purchase of shares of common stock.

After the closing of the April 2007 Offering, the Company filed a registration statement with the Securities and Exchange Commission to register the shares of the Company’s common stock, shares issuable upon exercise of the related investor warrants, and shares issuable upon exercise of the warrants issued to the placement agents. The registration statement was declared effective on June 29, 2007.

NOTE 9 — NOTES PAYABLE

At September 30, 2007, the Company had $5,140,425 in outstanding indebtedness owed to two financial institutions, representing working capital and construction advances. These notes are secured by substantially all the assets of JJB and YYB and bear interest at rates ranging from 5.31% to 9.45% per annum. Any remaining unpaid principal and accrued interest is due at maturity on various dates through December 31, 2008.

Future aggregate maturities of notes payable at September 30, 2007 are as follows:

Years ending December 31,
2007		$	3,248,864
2008			1,891,561
			5,140,425
Less current portion			(3,248,864	)
		$	1,891,561

Prior to the purchase of certain assets of JiangXi Shangrao Pharmacy Co. Ltd (“Kangda”) by JJB, Kangda had bank loans of $5,357,000 secured by land and buildings which were subsequently transferred to JJB. Pursuant to an agreement between JJB, Kangda and the bank, JJB assumed bank loans of $4,332,000, and Kangda continued to owe the bank $1,025,000. A new bank loan to reflect this assumption has not been made. However, a debt payment extension has been executed whereby the payment terms of the loan have been extended. As of September 30, 2007, a total of approximately $696,000 was due but has not been repaid. The verbal agreement with the bank to extend the terms of the loan will apply until a new bank loan agreement is finalized.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its laboratory and manufacturing space under a non-cancelable two year operating lease agreement that expires on December 1, 2008. The lease requires monthly lease payments of $6,600. JPI’s main office is located in the Di Wang Building of Shenzen and is leased for approximately $6,515 per month through November 2007.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

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 consolidated financial statements.

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 either AcuVector or the University is successful in their 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

Suspension of Product Sales

The sale of one of the Company’s products, Yuxingcao, has been temporarily prohibited in the PRC due to safety concerns. Although the Company considers its products safe, the prohibition will remain in effect until such time as the government determines the source of the unsafe products. The PRC authority has allowed the commercial sales of some Yuxingcao products in October 2006 but not the one produced by the Company. No products have been returned during the nine months ended September 30, 2007.

Management believes there will be no claims from customers on the sale of Yuxingcao as the quality of the product is not an issue. It is the current policy of the relevant authorities in the PRC to prohibit the sales of Yuxingcao-related products. No estimate is known at this time for the resumption of the commercial sales of Yuxingcao.

Consulting Agreements

The Company has various agreements with consultants whereby the consultants perform corporate development services of attracting investors. During the nine months ended September 30, 2007 and 2006, the Company paid cash, and issued stock and warrants to third parties under these agreements.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

On September 20, 2006, JPI entered into an agent’s contract with Shenzen Jie Kang to assist in marketing and consulting for the Jade Healthy Supermarket venture. The contract requires an initial payment of approximately $31,000 for each authorized distributor retained and a commission based on the schedule below:

	•		commission of 2% on the amount of goods or services sold to the distributor if total sales delivered to the distributor exceeds $63,000 in any single month;
	•		additional commission of 1% if total sales delivered to the distributor exceeds $189,000 in any single month;
	•		Special bonus of 2% on total amount of goods delivered exceeds $251,000 in any single month; and
	•		An additional allowance progressively increased with the number of distributors successfully solicited.

An agency agreement was signed between JJB and Shanghai Xiang En on June 14, 2007. Pursuant to the agency agreement, JJB appointed Shanghai as the agent to solicit interested parties to operate the chain stores in the name of “Jade” for the purpose of distributing JPI’s products and healthy products of Esmond Nature Inc. The contract term is for a period of two years. If the shares of Shanghai are subsequently acquired by JPI or its group companies, the agency contract will be automatically terminated. A one-time fee of approximately $38,000 is paid by the sub-operators upon their signing of the sub-agency agreement with Shanghai. The original agency agreement was amended to have Shanghai Xiangen assume management responsibility for the Jade Healthy Supermarket.

See Note 8 for a summary of non-cash consulting agreements.

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 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. Pursuant to the Sale and Purchase Agreement, the Company has indemnified the holders of registrable securities for any claims or losses resulting from any untrue, allegedly untrue or misleading statement made in a registration statement, prospectus or similar document. Additionally, the Company has agreed to indemnify the former owners of JPI against losses up to a maximum of $2,500,000 for damages resulting from breach of representations or warranties in connection with the JPI acquisition. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheet.

Construction in Progress

JJB began a renovation project of their manufacturing facility to increase efficiency and facilitate the manufacturing process. Major improvements for the quarter ended September 30, 2007 include improvement of the factory’s water supply, improve drainage and upgrade pipes. The outstanding commitment is approximately $420,000.

Purchase of Production Rights

During the quarter ended September 30, 2007, the Company entered into product license agreements with Jiangxi Yibo Medicine Technology Development Co., Ltd for five new products. The total consideration to be paid under these agreements is approximately $4,200,000. As of September 30, 2007, $1,600,000 has been paid and is classified as a current asset in the accompanying balance sheet, leaving an outstanding commitment of $2,600,000. During the three months ended September 30, 2007 two products went into production and $1,340,854 was capitalized and is being amortized on a straight line basis over the estimated useful life of 10 years.

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

AMDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006

On October 30, 2007, the Company negotiated with Noble International Investments, Inc. (“Noble”) for Noble to act as its placement agent in connection with the sale of common stock and warrants (collectively the “Securities”) on terms acceptable to the Company to one or more financial investors until December 31, 2007. The Company paid Noble a $15,000 retainer and delivered a letter regarding the terms of Noble’s engagement along with a Term Sheet regarding the offering of the Securities. Noble immediately thereafter demanded that the Company advance an additional $50,000 for due diligence expenses that was not agreed or provided for in the letter. The Company claims, among other things, that the letter was not executed and delivered by Noble before it was voided, that Noble neither acted or negotiated in good faith from the outset, and Noble never intended to obtain financing on the terms outlined in the Term Sheet, or at all. Noble did not deliver any investors for the Securities. Notwithstanding the forgoing, Noble now claims that it is entitled to a so-called “break up fee” of $150,000 which was provided in the letter. No action has been filed on this claim by Noble.

On November 2, 2007, JPI’s subsidiary JJB has signed the third round of regional distribution agreements for its new anti-aging and skin care injectible product under the brand name “Goodnak.“ JJB has signed three new Western Regional exclusive, one-year renewable Distribution and Agency Agreements that were signed between Jade Pharma’s subsidiary JJB and Xian Maryland Cosmetics Co., Ltd. (“XMC”), Lanzhou Charm Trade Co., Ltd. (“LCT”) and Wulumuqi Ozi Cosmetics Co., Ltd. (“WOC”). These agreements cover the key cities in Shanxi, Xinjiang and Gansu Provinces. These two separate agreements in combination, require these new distributors to purchase a minimum of $6,844,206 of JJB’s new HPH product during the one-year period of the contracts and a minimum initial order of $3,422,102.

On November 13, 2007, the Company received a memorandum of “Review Issues” from the United States Food and Drug Administration (“US FDA”) which addresses the pending application for 510(k) approval of DR-70 ^® as an aid in monitoring the disease status in patients who have been previously diagnosed with colorectal cancer. Unlike prior communications from the US FDA, the US FDA did not raise the issue of whether the Company’s test was substantially equivalent to the existing predicate test, CEA.  The memorandum includes requests for clarification of the intended use statement and clinical outcome measures.

The US FDA requested a response to the comments within 30 days, but also indicated a request for more time could be made.  The Company is analyzing the comments and has not yet determined whether it can supply the requested information within the next 30 days.  While the company is optimistic about its ability to perform the studies requested, until the requested studies are re-run, the Company is unable to assess what the probable response of the FDA  will be to the new documentation, and no assurances can be given that the Company will ever receive FDA clearance for the commercial sale of DR-70 ^® in the United States.”

Item 2. Management’s Discussion and Analysis or Plan of Operation.

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 doing business in China and internationally, demand for the Company’s products, governmental regulation and required licensing of the Company’s products and manufacturing operations, dependence on distributors, foreign currency fluctuation, 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 update 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 statement.

Overview

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.

On September 28, 2006, the Company acquired 100% of the outstanding shares of Jade Pharmaceutical Inc. (“JPI”). JPI has two wholly owned People’s Republic of China (“PRC” or “China”) based subsidiaries, Yangbian Yiqiao Bio-Chemical Pharmacy Company Limited (“YYB”) and Jiangxi Bio-Chemical Pharmacy Company Limited (“JJB”) who manufacture and distribute pharmaceutical products in China.

Acquisition of Jade Pharmaceuticals Inc.

On September 28, 2006, pursuant to the closing of the Stock Purchase and Sale Agreement dated May 12, 2006, we acquired 100% of the outstanding shares of JPI from Jade Capital Group Limited (“Jade”). JPI has two wholly-owned PRC based subsidiaries, YYB and JJB. YYB is located in Tuman City, Jilin Province, PRC and JJB is located in Shangrao, Jiangxi Province, PRC. JPI sells over-the-counter and prescription pharmaceutical products in the PRC and its business is conducted through two subsidiaries, JJB and YYB. JJB is a manufacturer of proprietary and generic pharmaceutical products, including injectibles, capsules, tablets, liquids and medicated skin products.

The acquisition of JPI provides:

	•		Access to the fastest growing pharmaceutical and consumer market in the world, China;
	•		A platform to in-license North American drugs for manufacture and sale in China and Asia;
	•		A program for DR-70(R) and CIT clinical trials, sales, and marketing into China and Asia;
	•		New opportunities for cancer-related product development in China.

As JJB’s and YYB’s resources permit, both JJB and YYB anticipate expanding their current domestic Chinese distribution beyond the cities in which they currently sell through the utilization of new distribution firms in regions currently not covered by existing distributors or the in-house sales force.

Sales of JJB’s products are approximately 40% to individuals and 60% to institutional or hospital customers. JJB employs regional sales managers and over three hundred representatives who contact distributors throughout China. There are eighteen distributors who purchase products from JJB. Distributors have the right to return product only if the product is defective..

YYB has established a multi-level marketing program of approximately forty sales managers and engages over 1,000 sales representatives who act as individual marketers of YYB’s products. YYB also has eight distributors. 60% of YYB’s products are sold to individuals and 40% are sold to institutional or hospital customers.

Both JJB and YYB are continually developing educational programs for hospitals, doctors, clinics and distributors with respect to JJB’s and YYB’s product lines. These educational programs are intended to improve sales and promotion of JJB’s and YYB’s products. Both JJB and YYB sell to hospitals, retail stores and distributors who act as agents. One primary distributor has 29 retail outlets throughout the PRC. In addition, JJB and YYB have a dedicated sales team that manages its own direct sales force and retail outlets all over China.

JPI product development strategy will focus on expanded in-house research and development activities and the in-licensing of new products from third party pharmaceutical research firms. This product development strategy is expected to provide at least an additional six new products to the Company’s existing family of strong selling products over the next 36 months. Additionally, JPI is regularly reviewing various other product in-licensing opportunities. JPI is accelerating its new product development process beyond the nine new products that have already been announced. It currently has two products under review by the SFDA (China State Food and Drug Administration), AMDL’s DR-70 ^® cancer diagnostic test kit and Docetaxel Injectibles. Both products are anticipated to be approved for sale in China during mid-2008.

JJB has entered into a number of manufacturing and distribution arrangements for product distribution in China for various existing and to-be-developed JJB products. For example, in 2006 Jiangxi Baikang Medicine Co., Ltd. transferred the product license and manufacturing licenses for four new drugs (Marine and Sodium Chloride Injection, Lomefloxacin Aspartate Injection, Lysine Hydrochloride Glucose Injection and Omeprazole Sodium for injection) and two generic medicine (Roxithromycin capsule and Levofloxacin capsule) to JJB, which products are currently being manufactured and distributed by JJB.

Commencing in July 2007, JPI began direct distribution of pharmaceutical products through retail outlets known as “Jade Healthy Supermarkets.” The Jade Healthy Supermarkets are small retail stores operated by others who sell JJB’s products at retail to consumers. JJB advances funds for working capital, leasehold improvements and equipment to the operators for an up front fee and consigns inventory to the operator or sub-operator of the store. As of November 15, 2007 there were currently eight retail stores in operation. Due to management constraints and to operate within applicable laws and regulations in China, all management responsibilities were turned over to Shanghai XiangEn. In addition, Shanghai XiangEn is responsible for supplying equipment and fixtures for the shops.

During the third quarter ended September 30, 2007,

	•		JPI signed an agreement with Heze Mudan Medicals Co. Ltd. to distribute Domperidone tablets in the Province of Shandong and the surrounding areas, one of the most affluent regions in China. Domperidone is an important medicine for treating nausea and vomiting. JPI’s generic version of this product is significantly lower priced than competitors. The contract is subject to minimum sales which will be reviewed annually and is expected to add at least $2.3 million in annual revenues to JPI.
	•		JPI’s subsidiary JJB launched a new anti-aging and skin care injectible product under the brand name “Goodnak.” This initial product is the first in a new line of anti-aging & skin care products currently under development by JJB. Goodnak is a high quality injectible anti-aging & skin care product that contains an amalgam of various therapeutic elements including human placental histosolution (“HPH”). JPI has begun selling Goodnak, in August, through wholesale distribution channels that service high-end beauty salon and plastic surgery hospitals and or medical cosmetology institutions.
	•		JPI’s subsidiary JJB has signed a key set of regional distribution agreements for its new anti-aging and skin care injectible product under the brand name “Goodnak.” This initial product is the first in a new line of anti- aging & skin care products currently under development by JJB. JJB has signed three new Southern Region exclusive, one-year renewable Distribution and Agency Agreements that were signed with Changsha Hongli Co., Ltd. (“CHC”), Wenzhou Limeikang Trade., Ltd. (“WLT”) and Xiamen Larry Beauty Technology Co., Ltd. (“XLB”). These agreements cover the key cities in Hunnan, Zhejiang and Fujian Provinces that have a combined population of approximately 134.4 million people. These two separate agreements in combination, require these new distributors to purchase a minimum of $7,126,496 of JJB’s new Goodnak product during the one-year period of the contracts and a minimum initial order of $3,563,248.
	•		JPI’s subsidiary JJB has signed the third round of regional distribution agreements for its new anti-aging and skin care injectible product under the brand name “Goodnak.” JJB has signed three new Western Regional exclusive, one-year renewable Distribution and Agency Agreements that were signed between JJB and Xian Maryland Cosmetics Co., Ltd. (“XMC”), Lanzhou Charm Trade Co., Ltd. (“LCT”) and Wulumuqi Ozi Cosmetics Co., Ltd. (“WOC”). These agreements cover the key cities in Shanxi, Xinjiang and Gansu Provinces that have a combined population of approximately 86 million people. These two separate agreements in combination, require these new distributors to purchase a minimum of $6,844,206 of JJB’s new HPH product during the one-year period of the contracts and a minimum initial order of $3,422,102.
	•		During the three months ended September 30, 2007, JPI entered into an agreement with Jiangxi Yibo Medicine Technology Development Co., Ltd to acquire five new medical products, two of which went into production. JPI paid approximately $1,340,000 for the license rights to produce these two products. The application of these products include treatments for coronary dysfunction, adult rhinallergosis, primary and secondary treatment for oophoroplasty and breast cancer and acute and chronic virus hepatitis.

The Current Economic and Market Environment

We operate in a challenging economic environment that has undergone significant changes in technology and in patterns of global trade. Our goal is to build a broad-based international pharmaceutical enterprise. We plan to achieve this by combining our cancer detection, gene therapy research, and vaccine technology with JPI’s China based pharmaceutical manufacturing, consumer sales, and clinical trials expertise.

Research and Development

During the nine months ended September 30, 2007 and 2006, the Company spent $15,534 and $282,139 respectively, on research and development related to DR-70 ^® .

The Company retained the statistical and regulatory firm R.P. Chiacchierini & Associates, LLC to provide additional statistical analysis for the U.S. FDA to support the Company’s request for clearance to market DR-70(R) cancer test kits in the U.S. An application has also been submitted to the Chinese State Food and Drug Administration (“SFDA”) and Taiwanese Department of Health for approval of DR-70(R) in those countries.

The Company filed with the U.S. Food & Drug Administration (FDA) for clearance to market its unique, proprietary DR-70 ^® (FDP) ELISA tumor marker test for use as an aid in monitoring patients previously diagnosed with colorectal cancer. AMDL used the guidance provided at the meeting they had with the FDA on January 25, 2007. In its submission to the FDA, The Company and its statistical consultant, Dr. Richard P. Chiacchierini provided statistical evidence that the DR-70 ^® (FDP) ELISA is an “informative test” to validate AMDL’s claim that the DR-70 ^® (FDP) ELISA is effective at monitoring colorectal cancer patients.

JJB and YYB currently perform all of their own research and development activities on new products at their own facilities. Currently, JJB is researching and attempting to develop a liver cancer treatment, a bone growth stimulant and an antibiotic for the treatment of the urinary system. YYB is attempting to develop products for the treatment of cardiovascular disease, treatments for cancer, and a healthy food series. Each of these products will require an additional investment of funds before these products will be available for sale, assuming product licenses are obtained for their manufacture.

Due to the growing Chinese economy and the opportunities to expand upon JPI’s name recognition and distribution network versus available capital resources, the overall amount expended for research and development has been limited. Funds previously allocated for research and development has been reallocated to:

	•		Increase in inventory necessary for anticipated demand for product;
	•		Renovation of current manufacturing facilities to accommodate new products;
	•		Purchasing or licensing new products;
	•		Purchase of new machinery to increase capacity for existing products as well as purchase of machinery to facilitate the manufacture of new products; and
	•		Increase the distribution network for current as well as new products.

JPI’s research and development takes place at seven locations in China. Two of these are in-house facilities that include the Research Center of YYB, located in Jiangxi, and the Research Center at JJB, located in Jilin. Additionally, five collaborative research and development facilities include: Jilin Traditional Chinese Medicine Research Institute; Baiqiuen Pharmaceutical Research Institute; Research Center of Nanjing Pharmacy University; Jiangxi Bikang Technology Development Co. Ltd.; and the Changsha Continental Pharmaceutical Research Institute.

Liquidity and Capital Resources

Total assets increased to $26,156,009 at September 30, 2007 from $19,240,613 at December 31, 2006. This increase was due primarily to increase in accounts receivable of approximately $1.2 million, property and equipment of approximately $1.9 million and intangibles of approximately $1.3 million, which amount was offset by a decrease in cash of approximately $350,000.

Our total outstanding indebtedness increased to $8,670,795 at September 30, 2007 as compared to $6,577,457 at December 31, 2006. The primary reason for the increase is due to the increase in accounts payable, value added and other taxes payable and loan amounts. The change in loan amounts is primarily due to the fluctuation of the RMB.

During the nine months ended September 30, 2007, our cash and cash equivalents decreased by a net of approximately $357,000. During the nine months ended September 30, 2007, our primary source of cash was a private placement of our common stock which generated net proceeds of $4,572,497. Cash usage continues to

exceed cash generation. As of November 15, 2007, cash on hand was approximately $604,998 and cash is being depleted at the rate of approximately $310,000 per month. This monthly amount does not include any expenditures related to further development or attempts to license our combination immunogene therapy (“CIT”) technology, as no significant expenditures on the CIT technology are anticipated other than the legal fees incurred in furtherance of patent protection for the CIT technology. Assuming (i) the current level of revenue from the sale of DR-70 ^® kits does not increase in the near future, (ii) the Company does not require new cancer samples to satisfy the FDA concerns on its pending 510(k) application; (iii) the Company does not conduct any full scale clinical trials for DR-70 ^® or its combination immunogene therapy technology in the U.S. or China, (iv) JPI generates sufficient cash to meet or exceed its cash requirements, and (v) no outstanding options or warrants are exercised, the amount of cash on hand is expected to be sufficient to meet the Company’s projected operating expenses only through mid January 2008.

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 CIT technology and the need to enter into a strategic relationship with a larger company capable of completing the development of any ultimate product and the subsequent marketing of such product, (iii) the absence of any commitments or firm orders from our distributors, and (iv) most of our sales and distribution channels in China are unseasoned. 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 for AMDL. There is no assurance we will be able to generate sufficient revenues or sell any equity securities to generate sufficient funds when needed, or whether such funds, if available, will be obtained on terms satisfactory to us. In addition, if either AcuVector and/or the University of Alberta is successful in their claims, we may be liable for substantial damages, our rights to the CIT technology will be adversely affected, and our future prospects for licensing the CIT technology will be significantly impaired.

If sufficient funds are available, the Company expects to incur capital expenditures of $ 2,000,000 at our China facilities in the fourth quarter half of 2007, primarily for the addition of additional manufacturing lines, the purchase of additional product licenses, and upgrading current manufacturing facilities. These capital expenditures will enable JPI to increase its production efficiency. Management anticipates that this capital expenditure will be financed by raising additional capital through the sale of equity securities. In addition to the capital expenditures, additional working capital will be needed in China for additional direct manufacturing staff, general and administrative purposes, consultants, the costs of consigned inventory, salaries for additional office and sales staff.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 and the differences could be material.

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.

      Inventories . JPI records inventories at the lower of weighted average cost or net realizable value. Major components of inventories are raw materials, packaging materials, direct labor and production overhead. AMDL’s inventories consist primarily of raw materials and related materials, and are stated at the lower of cost or market with cost determined on a first-in, first-out (“FIFO”) basis. The Company regularly monitors inventories for excess or obsolete items and makes any valuation corrections when such adjustments are needed. Once established, write-downs are considered permanent adjustments to the cost basis of the obsolete or excess inventories.

     We write down our inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand, future pricing and market conditions. If actual future demand, future pricing or market conditions are less favorable than those projected by management, additional 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 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 Intangible Assets . In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , the Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that such carrying values may not be recoverable. The Company uses its best judgment based on the current facts and circumstances relating to its business when determining whether any significant impairment factors exist.

The Company considers the following factors or conditions, among others, that could indicate the need for an impairment review:

	•		significant under performance relative to expected historical or projected future operating results;
	•		market projections for cancer research technology;
	•		its ability to obtain patents, including continuation patents, on technology;
	•		significant changes in its strategic business objectives and utilization of the assets;
	•		significant negative industry or economic trends, including legal factors;
	•		potential for strategic partnerships for the development of its patented technology;
	•		changing or implementation of rules regarding manufacture or sale of pharmaceuticals in China; and
	•		ability to maintain Good Manufacturing Process (“GMP”) certifications.

If the Company determines that the carrying values of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company’s management performs an undiscounted cash flow analysis to determine if impairment exists. If impairment exists, the Company measures the

impairment based on the difference between the asset’s carrying amount and its fair value, and the impairment is charged to operations in the period in which the long-lived asset impairment is determined by management. Based on its analysis, the Company believes that no indicators of impairment of the carrying value of its long-lived assets existed at September 30, 2007. There can be no assurance, however, that market conditions will not change or demand for the Company’s products will continue or allow the Company to realize the value of its technologies and prevent future long-lived asset impairment

      Revenue Recognition. The Company generates revenues from wholesale sales of over-the-counter and prescription pharmaceuticals, and the direct distribution of pharmaceutical products through retail outlets known as “Jade Healthy Supermarkets.”

The Company recognizes revenue in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements , as amended by SAB No. 104. Accordingly, revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed and determinable, and (4) collectibility is reasonably assured.

      Wholesale Sales. Revenues from the wholesale sales of over-the counter and prescription pharmaceuticals are recognized when title and risk of loss have passed to the buyer and provided the criteria in SAB No. 101 are met. Buyers generally have limited rights of return, and the Company provides for estimated returns at the time of sale based on historical experience. Returns from customers historically have not been material. Actual returns and claims in any future period may differ from the Company’s estimates.

      Direct Distribution. Commencing in July 2007, JPI began direct distribution of pharmaceutical products through the Jade Healthy Supermarkets. The Jade Healthy Supermarkets are small retail stores operated by independent third parties who sell JJB’s products at retail to consumers. Pursuant to these arrangements, JJB receives a one-time, non-refundable up front fee from the operator of the retail stores. As of November 15, 2007 there were eight Retail Stores in operation. JJB received a one-time, non-refundable up front fee from each of the sub-operators of the Retail Stores. JJB provided leasehold improvements and equipment to the sub-operators in the establishment of the Retail Stores. JJB consigns inventories to the operators of the Retail Stores for sale to consumers. As a result, the sub-operators do not take ownership of the inventories at their stores until the products are sold to the consumer. Revenues from the sale of JJB’s products at the Retail Store level will be recognized by the Company at the time products are sold by the Retail Stores.

     During the three months ended June 30, 2007, the Company received $314,762 in upfront fees from store operators. The Company deferred recognition of these up front, non-refundable fees until the retail stores were opened, at which time the Company has no further obligations to the store operator. At September 30, 2007, all retail stores were opened, and accordingly, the Company amortized the up front fees received and expensed commissions paid to Shanghai XiangEn for finding sub-operators as revenues in the accompanying condensed consolidated Statements of Operations and Comprehensive Income (Loss).

     In accordance with Emerging Issues Task Force (“EITF”) Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) , JPI’s revenues are reported net of value added taxes (“VAT”) collected.

      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 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.

      Stock-Based Compensation. All issuances of the Company’s common stock for non-cash consideration have been assigned a per share amount equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares on the measurement date.

The Company accounts for equity instruments issued to consultants and vendors in exchange for services in accordance with the provisions of Emerging Issues Task Force (“EITF”) Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services, and EITF Issue No. 00-18, Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

In accordance with EITF Issue No. 00-18, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its consolidated balance sheet.

At September 30, 2007, the Company had five stock based compensation plans.

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”), which establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtain employee services in share-based payments transactions. SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the besting period. SFAS No. 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees , for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 107 relating to SFAS No. 123(R). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which required the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s consolidated financial statements for the three and nine months ended September 30, 2007 and 2006 reflect the impact of SFAS No. 123(R).

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2007 and 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provision of SFAS No. 123, Accounting for Stock-Based Compensation and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). As stock-based compensation expense recognized in the consolidated statement operations for the nine months ended September 30, 2007 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ form those estimates. The estimated forfeiture rate for the periods ended September 30, 2007 and 2006 was 0% since options generally vest immediately upon grant.

Results of Operations

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

The results of operations for the three months ended September 30, 2007 and 2006 are not comparable due to the acquisition of JPI on September 28, 2006. JPI’s results of operations have been included in the Company’s consolidated results since the date of acquisition.

Net Revenues . During the three months ended September 30, 2007, the Company generated aggregate net revenues of $5,769,292 from product sales and $39,084 from the amortization of up front fees, of which JPI contributed $5,736,192 from product sales and $39,084 from the amortization of up front fees and AMDL contributed product sales of $33,100.

For the nine months ended September 30, 2007, JPI generated revenues of approximately $171,000 from the sales of medical and healthy products which were purchased from a third party in Hong Kong and resold within that region.

During the three months ended September 30, 2007, the Company generated $33,100 from product sales compared to revenues from product sales for the three months ended September 30, 2006 of $21,500. The primary reasons for this increase are an increase in the sales price of DR-70 ^® , along with an increase in sales. Management expects that DR-70 ^® revenues will remain at a similar level until either FDA and/or SFDA grants approval of its DR-70 ^® kit. No significant revenues in China are expected from sales of DR-70 ^® in the remainder of 2007.

Market acceptance of our DR-70 ^® kits has been slower than originally anticipated, in part due to the fact that the DR-70 ^® kit has not yet received FDA approval. Under FDA rules, the Company is not permitted to market and promote DR-70 ^® while the test is undergoing the FDA submission and review process. In addition, the Company has not consummated any material new distribution agreements.

During the balance of 2007, we expect sales of OEM products to be at the same level as experienced for the nine months ended September 30, 2007. JPI is expected to increase its revenues in the fourth quarter of 2007 due to the continued overall strength of the Chinese economy together with increases in sales under the recently signed distribution agreements, opening of the Jade Health Supermarkets and the launching of a new a new anti-aging and skin care injectible product under the brand name “Goodnak.” This initial product is the first in a new line of anti-aging & skin care products currently under development by JJB. Goodnak is a high quality injectible anti-aging and skin care product that contains an amalgam of various therapeutic elements including human placental histosolution. JPI has begun selling Goodnak, in August, through wholesale distribution channels that service high-end beauty salon and plastic surgery hospitals and or medical cosmetology institutions.

These statements concerning future sales are forward-looking statements that involve certain risks and uncertainties which could result in a fluctuation of sales above or below those achieved for the three months ended September 30, 2007 in each category. Sales could also be negatively impacted by potential competing products and overall market acceptance of the Company’s products, both in the U.S. and China.

Research and Development. Research and development expenses primarily related to DR-70 ^® for the three months ended September 30, 2007 were $2,407 compared to $162,894 for the three months ended September 30, 2006. This decrease was due to less involvement by outside consultants in preparation for the next FDA submission.

General and Administrative Expenses . General and administrative expenses increased to $3,090,059 from $819,263 for the three months ended September 30, 2007 and 2006, respectively. JPI incurred $1,085,366 of these general and administrative expenses for the three months ended September 30, 2007. In addition, AMDL incurred more than $1 million additional general and administrative expenses for (i) consulting and investor relations services; and (ii) the non-cash expenses of the fair value of options granted as computed under the Black-Scholes model.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

The results of operations for the nine months ended September 30, 2007 and 2006 are not comparable due to the acquisition of JPI on September 28, 2006. JPI’s results of operations have been included in the Company’s consolidated results since the date of acquisition.

Net Revenues . During the nine months ended September 30, 2007, the Company generated aggregate net revenues of $9,606,972 from product sales and $39,084 from the amortization of up front fees.

Corporate

     Net revenues for AMDL were $93,700 for the nine months ended September 30, 2007 compared to $54,105 for the same period in 2006. The approximate $40,000 increase in revenues for AMDL products was due to an increase in price charged for DR-70 ^® products and a modest increase in sales of both OEM products and DR-70 ^® . During the remainder of 2007, we expect sales of OEM products to be at the same level as experienced in the third quarter of 2007. Even, assuming FDA approval of DR-70 ^® sometime in late 2007, we expect sales of DR-70 ^® to be low, and any increase in sales is not expected to impact significantly our operating results for 2007.

     Sales of OEM products in the remainder of 2007 could be negatively impacted by potential competing products and overall market acceptance of the Company’s products . The statements concerning future sales of DR-70 ^® and OEM products are a forward-looking statement that involves certain risks and uncertainties which could result in a fluctuation of sales below those achieved for the year ended December 31, 2006. The continued low level of DR-70 ^® and OEM product sales is disappointing to management of the Company. Our existing distributors have not been effective and no new distributors were engaged during the nine months ended September 30, 2007. Market acceptance of our DR-70(R) kits has been slower than originally anticipated, in part due to the fact that the DR-70(R) kit has not yet received FDA approval.

     In addition, the Company has not concluded any material new distribution agreements this year as new potential distributors have experienced similar delays and face similar market acceptance issues because of the lack of FDA approval.

China-Wholesale

     China-Wholesale’s net revenues was $9,513,271 for the nine months ended September 30, 2007.

     Revenue for the three months ended September 30, 2007 increased by $3,408,225 over the three months ended June 30, 2007 due in part to increased sales due to new distribution agreements, new products and an overall increase in utilization of distribution channels established in previous periods.

     Consistent with the quarter ended June 30, 2007, Domperidonen tablets comprised a large percentage of sales for the three months ended September 30, 2007. The sale of Domperidonen tablets comprised approximately 29% of

China-Direct Distribution

     The Company received $314,762 in up-front fees from sub-operators of the Jade Healthy Supermarkets. The Company deferred recognition of these fees until opening of these stores. Net revenue was $39,084 of amortized up-front fees for the nine months ended September 30, 2007.

sales for the quarter ended September 30, 2007 compared to approximately 58% of sales for the three months ended June 30, 2007.

     Due to the launching of “Goodnak,” JPI’s new anti-aging and skin care injectible product, the sales of Human Placenta Tissue injection has increase from 3.8% of sales for the six months ended June 30, 2007 to 30.55% of sales for the three months ended September 30, 2007.

     JPI’s top five selling products for the three months ended September 30, 2007 were:

JPI experienced decreases in sales of Gu Yan Lind, Compound Benzoic Acid and Camphor and Iodine Solutions. The lower sales of Compound Benzoic Acid and Camphor and Iodine Solutions were due to delays in the renewal of the GMP license application while the temporary prohibition in the sale of Yuxingcao continues from the second quarter of 2006.

     Sales in the third quarter 2007 were favorably impacted by the new distribution agreements executed during the second and third quarters of 2007.

Gross Profit. The Company’s gross profit for the nine months ended September 30, 2007 was $5,460,005 or approximately 57%, $5,383,583 of which was contributed by JP. AMDL’s gross profit for the nine months ended September 30, 2007 was $76,422, as compared to gross profit of $32,645 for the nine months ended September 30, 2006, all of which was contributed by AMDL.

Corporate

     Gross profit increased in aggregate dollars approximately $44,000 for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2006 due to increased sales and a per unit price increase of OEM products and DR-70 ^® .

China-Wholesale

     China-Wholesale’s gross profit for the nine months ended September 30, 2007 was $5,344,500. The major components of cost of sales include raw materials, salary and production overhead. Production overhead is comprised of depreciation of manufacturing equipment, utilities and repairs and maintenance. China-Wholesale’s gross profit for the nine months ended September 30, 2007 was positively impacted by increased production efficiencies and manufacturing of products with higher margins. There was an overall increase in the gross profit from approximately 48% for the six months ended June 30, 2007 to approximately 56% for the nine month period ended September 30, 2007. This increase is primarily due to the production and sale of Human Placenta Tissue injection which has a gross profit margin of approximately 83%.

     Management anticipates future gross profit margins for China Wholesale to remain at the same level for the year ending December 31, 2007. 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 year ending December 31, 2007. Gross profit could be negatively impacted by potential competing products and overall market acceptance of the Company’s products.

China-Direct Distribution

     China-Direct Distribution’s revenues and gross profit for the nine months ended September 30, 2007 was $39,084.

Research and Development. Research and development expense for the Company for the nine months ended September 30, 2007 was $15,534 compared to $282,139 for the same period in 2006. This decrease was due to less involvement by outside consultants in preparation for the next FDA submission.

Corporate

     All research and development costs incurred during the nine months ended September 30, 2007 was almost entirely incurred by AMDL. These costs comprised of funding the necessary research and development of the DR-70 ^® test kit for the FDA as well as funding the application and research needed to receive approval from the SFDA for marketing the DR-70 ^® test kit in China.

China-Wholesale and China-Direct Distribution

     JPI currently performs all of its own research and development activities on new products at their own facilities, but only a nominal amount of research and development was conducted during the nine month period ended September 30, 2007 by JPI.

Selling, General and Administrative Expenses . General and administrative expenses for the Company were $8,330,604 for the nine months ended September 30, 2007 as compared to $2,340,319 for the same period in 2006, an increase of about 260%, most of which relates to the items set forth in the table below.

Corporate

     We incurred selling, general and administrative expenses of $6,161,612 primarily consisting of consulting (including financial consulting) and legal expenses, director and commitment fees, regulatory compliance, professional fees related to patent protection, payroll, payroll taxes, investor and public relations, professional fees, and stock exchange and shareholder services expenses. Also included in selling, general and administrative expenses were non-cash expenses incurred during the nine months ended September 30, 2007 of approximately $1,750,000 for common stock, options and warrants issued to consultants for services and approximately $1,575,000 for options issued to employees and directors.

China-Wholesale

     China-Wholesale incurred selling, general and administrative expenses of $2,169,971 for the nine months ended September 30, 2007. Major components were depreciation and amortization, payroll and related taxes, transportation charges, meals and entertainment and insurance.

China-Direct Distribution

     China-Direct Distribution did not incur selling, general and administrative expenses during the nine months ended September 30, 2007.

     There was a general increase in the general and administrative expenses for the nine months ended September 30, 2007 due in part to additional travel required through out China to establish and promote China-Wholesale’s existing business and China-direct distribution Jade Healthy Supermarkets and increase in administrative staff.

Net Loss. As a result of the above, in the nine months ended September 30, 2007, the Company’s net loss was $3,266,603 or $(0.24) per share as compared to a net loss of $2,567,324 or $(0.38) per share for the period ended September 30, 2006.

Item 3A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and President, our Executive Vice President, and the Secretary and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2007. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and President and our Secretary and Chief Financial Officer have concluded that, as of September 30, 2007, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act were recorded, processed, summarized and reported for the quarter ended September 30, 2007 within the time periods specified in the applicable rules and forms, and that it was accumulated and communicated to our management, including our Chief Executive Officer and President, Executive Vice President, and Secretary and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In the course of continuing our review of the effectiveness of our internal controls of our financial reporting at September 30, 2007, we identified the following issues that individually or aggregately may materially affect our internal controls of financial reporting:

	•		The Company did not maintain effective internal control over financial reporting relating to accurate recording and presentation of certain routine and non-routine accounting transactions in accordance with GAAP; and
	•		The Company did not have adequate controls to properly determine and account for (i) the contractual arrangements with Shenzhen JieKang Technologies Ltd., or (ii) our business arrangement with Shanghai XiangEn Food Company Ltd. relating to the Retail Stores.

In order to remediate these issues, we hired an accounting manager for Chinese operations who is familiar with GAAP and who reports to our Chief Financial Officer. We have instituted additional procedures for future accounting periods that will cause the transactions in China to be reported on a more timely basis and we will continue to ensure that these transactions are recorded in accordance with GAAP prior to consolidation. We will continue our efforts to improve or modify our procedures and controls to provide reasonable assurance with respect to the accurate reporting of transactions and presentation of our financial disclosures.

Notwithstanding the material weaknesses discussed above, our management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-QSB fairly present in all material respects the Company’s financial condition, results in operations and cash flows for the period ended September 30, 2007 in conformity with accounting principles generally accepted in the United States of America.

Changes in Internal Controls

Except as set forth above, there has been no change in our internal control over financial reporting during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

incurred additional legal and other costs totaling approximately $64,000 in connection with the Offering. The Company charged all of these cash costs to additional paid-in capital, since the investment was treated as a purchase of shares of common stock. Total costs associated with the sale of stock were $756,674.

We filed a registration statement with the Securities and Exchange Commission to register the shares of the Company’s common stock, shares issuable upon exercise of the related investor warrants, and shares issuable upon exercise of the warrants issued in the April 2007 Offering, which registration statement became effective on June 29, 2007.

Item 3. Defaults Upon Senior Securities.

Inapplicable.

Item 4. Submission of Matters to a Vote of Security Holders.

At the Special in Lieu of Annual Meeting of our stockholders, held September 7, 2007, the stockholders voted on numerous proposals. All votes described below were with respect to pre-reverse split shares of our common stock

At the meeting, the stockholders elected four directors to serve for one year terms or until their successors are duly elected and qualify as follows:

The stockholders approved the proposal to authorize the issuance of up to 5,000,000 shares of common stock below current market prices by a vote of 6,714,492 shares in favor, 435,059 shares against and 27,135 shares abstained from voting.

The stockholders approved the proposal for the adoption of the 2007 Equity Incentive Plan by a vote of 6,608,118 shares in favor, 528,001 shares against and 40,568 shares abstained from voting.

Item 5. Other Information.

On August 10, 2007, the Company entered into an Amendment No. 1 to the Escrow Agreement with Jade Capital Group Limited (“Jade”), which amendment extend the date from September 28, 2007 to March 28, 2008 on which Chinese SFDA approval for DR-70 ^® must be obtained in order to not have the 100,000 shares of common stock which are held in escrow be cancelled. The Company believed that there were unanticipated events at the SFDA which warranted the extension.

On October 3, 2007, AMDL, Inc. obtained products liability insurance coverage for Jade Pharmaceutical Inc.’s (“JPI”) pharmaceutical manufacturing and distribution activities in China from PICC Property and Casualty Company Limited in the aggregate amount of US $2,000,000 at a cost of approximately US $65,500 for one year of coverage. The policy was retroactive to October 1, 2006, the date of first operations after the acquisition of JPI and provides that AMDL/JPI shall retain and indemnify the insurance carrier for liability of US $ 10,000 per claim up to an aggregate of $50,000 in any year. The prior US based products liability insurance policy provided for aggregate coverage of US $ 2 million. No carrier contacted by JPI was willing to provide greater coverage at this time.

AMDL believes that the new products liability insurance is adequate for its current needs, but there can be no assurance, however, that claims from the use of JPI’s products would not exceed the available coverage, or that one or more claims for damages may require the expenditure of significant funds in defense of such claims. Moreover, one or more substantial awards of damages against JPI or AMDL could have a material adverse effect on JPI and AMDL by reason of the inability to defend against or pay such claims, although to date neither AMDL or JPI has received any claim for damages for the manufacture or use of any of their products by any company or individual.

On November 13, 2007, the Company received a memorandum of “review issues” from the United States Food and Drug Administration (“US FDA”) which addresses the pending application for 510(k) approval of DR-70 ^® as an aid in monitoring the disease status in patients who have been previously diagnosed with colorectal cancer. Unlike prior communications from the US FDA, the US FDA did not raise the issue of whether the Company’s test was substantially equivalent to the existing predicate test, CEA.  The memorandum includes, among other things, requests for clarification of the intended use statement and clinical outcome measures.

The US FDA requested a response to the comments within 30 days, but also indicated a request for more time could be made.  The Company is analyzing the comments and has not yet determined whether it can supply the requested information within the next 30 days. While the Company is optimistic about its ability to perform the studies requested, until the requested studies are re-run, the Company is unable to assess what the probable response of the FDA will be to the new documentation, and no assurances can be given that the Company will ever receive FDA clearance for the commercial sale of DR-70 ^® in the United States.

Item 6. Exhibits.

(a)

Exhibits

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.

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