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CORRESP
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filename1.htm

August 25,
2005

United
States Securities and Exchange Commission

Division
of Corporation Finance

450
Fifth Street, N.W.

Mail
Stop 6010

Washington,
DC 20549

Attn:
      Brian Cascio, Accounting Branch Chief

Martin
James, Senior Assistant Chief Accountant

Lynn
Dicker

Re:      American Medical Technologies, Inc. – Form 10-KSB
for the fiscal year ended December 31, 2004 and Form 10-QSB for the
fiscal quarter ended March 31, 2005

Ladies
and Gentlemen:

On
June 29, 2005 we received your letter requesting that we provide the
Securities and Exchange Commission (the “Commission”) with certain responses to
items disclosed in the Form 10-KSB and Form 10-QSB filed with the
Commission by American Medical Technologies, Inc. (the “Company”) for the
year ended December 31, 2004 and quarter ended March 31, 2005,
respectively.  This letter sets forth the
information requested in that letter.
For your convenience, the paragraphs included in this letter are
numbered to correspond with the comments in your letter.  Below each comment we have provided a
response to that comment and, where applicable, an example of how that response
will be implemented in future filings, using language revised from our previous
filing.

Form 10-KSB
for the Fiscal Year Ended December 31, 2004

Inventories
– Slow Moving, page 10

1.     We note your disclosure that the “valuation
allowance could change materially, either up or down, if actual part usage in
future years is materially different than the usage projected.”  In future filings please clarify that any
inventory write-downs create a new cost basis that subsequently cannot be
marked up based on changes in underlying facts and circumstances in accordance
with SAB Topic 5.BB.

Response:

In
response to the comment above, we will revise in future filing our Inventories
disclosure to clarify that a new cost basis cannot be subsequently marked up.

Revision:

The
valuation allowance could change materially either up or down, if actual part
usage in future years is materially different than the usage projected at December 31,
2004; however, the new cost basis cannot subsequently
be marked up based on changes in underlying facts and circumstances.

Results of Operations, page 10

2.     In future filings, please quantify, in
dollars, the reasons that you describe are primarily attributable to a change
in a line item.  For example, you say
that gross profit improved because of the elimination of the need to increase
inventory reserves and an increase in selling prices.  Also, in your March 31, 2005 Form 10-QSB
you state that the improvement in gross profit is mostly attributable to
decreases in the warranty provision and labor/overhead variance and increased
sales prices.  However, you do not list
the dollar impact of these changes.  In
addition, each of the factors that contributed to the improved margins and any
significant changes in expense amounts each period should be quantified and
discussed, to the extent practicable, along with details of whether these are
trends that are expected to continue.

Response:

In
response to the comment above, we will revise in future filings our discussion
of Results of Operations to quantify in dollars the reasons that we describe
are primarily attributable to a change in a line item.

Revision:

Results of Operations (Form 10-KSB for the
Year Ended December 31, 2004)

For the year ended December 31, 2004, the
Company’s revenues decreased approximately 19% compared to 2003.  This decrease in revenues was primarily due
to the sale of the Company’s laser division in May 2003.  Additionally, the Company was unable to
attract additional dealers and independent sales representatives until they
were convinced that the negative financial conditions of the Company had been
corrected.  As a result of the Company’s
negative financial conditions prior to the sale of the laser division, the
Company’s relationship with its vendors was strained and hindered its ability
to purchase parts to manufacture and repair its products, and prohibited the
Company’s participation in major dental shows, a primary source of sales and
exposure to customers.

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Gross profit as a percentage of revenues was
approximately 47% for the year ended December 31, 2004 compared to 40% for
the year ended December 31, 2003. The reason for this improvement was the
elimination of the need to increase inventory reserves and an increase in
selling prices. The provision for slow-moving
inventory was $2,527,924 in 2004 and $2,611,145 in 2003. Selling prices
increased approximately $130,000.  The
Company does not anticipate any major price increases in 2005.

Selling, general and administrative expenses were
$2,693,427 and $2,644,729 in 2004 and 2003.
In 2004, the Company’s selling, general and administrative expenses
continued to remain low as a result of restructuring efforts implemented in
2002. Selling, general and administrative
expenses were $6,772,812 in 2002.

Other income was $1,932,369 in 2004 and $4,123,763
in 2003.  Of the amount for 2004, $1.6
million is related to the sale of the Biolase shares.  Of the amount for 2003, $3.9 million is
related to a gain on the sale of the Dental Laser Assets to Biolase.

Interest expense declined from $136,518 in 2003 to
$115,944 in 2004.  This reduction is due
to the pay off of the $1.825 million
Bank One loan in May 2003 with a portion of the proceeds from the sale of
the Dental Laser Assets.

Research and development activities were $152,252
in 2004 and $233,898 in 2003. Research and
development in 2004 and 2003 was primarily related to the development of the
Company’s KCP Flexijet® product.  The
decrease in expenses in 2004 was a result of the initial research and
development being completed in 2003.  In
2004, the expenses were related to the development of an improved handpiece for
the Flexijet.

The Company had no income tax expense in 2004.  The Company had no income tax expense in
2003.  At December 31, 2004, the
Company had approximately $22 million of net operating loss carry forwards.
These net operating loss carry forwards expire in various amounts in the years
2008 through 2023.

Results of Operations (Form 10-QSB for the Quarter
Ended March 31, 2005)

The
Company had revenues of $611,286 for the three-month period ended March 31,
2005 compared to $398,747 for the same period in 2004, an increase of 53%. For the three-month period, domestic revenues increased $101,082 or
33%, while international revenues increased $41,818 or 48% over the same
period. The increases resulted primarily from increased marketing efforts, an
increase in sales prices of approximately $36,000  and an increase of $131,254 in sales of the
Company’s KCP Flexijet®, an air abrasion unit with an integrated water system
Additionally, royalties increased from $966 to $70,605 due to air abrasion

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licensing agreements signed with Danville Engineering and KaVo in
2005.  The Company expects revenue
increases from its KCP® and industrial product lines to continue.

Gross
profit as a percentage of revenues was 53% for the three-month period ended March 31,
2005, compared to 49% for the same period in 2004.  The
improvement in gross profit is primarily attributable to a $10,228 decrease in
the warranty provision, a $16,027 decrease in labor/overhead variance, an
$11,242 decrease in standard cost of inventory and the sales increases noted
previously.

Selling,
general and administrative expenses were $594,126, for the three-month period
ended March 31, 2005 compared to $785,375 for the same period in 2004,
constituting a decrease of 24%.  Selling, general and
administrative expenses in 2004 included legal and other professional fees of
approximately $208,000 incurred due to litigation which has since been settled.

Research
and development expenses were $31,389 for the three-month period ended March 31,
2005 compared to $42,183 for the same period in 2004, a decrease of 24%.
 The decrease is primarily due to the Flexijet® handpiece modifications
being completed in 2004.

For the
three-month period ended March 31, 2005, the net loss was ($288,915) as
compared to net income of $1,087,318 for the same period in 2004.  Of the
$1,087,318 in net income in 2004, $1,642,050 was other income arising from the
sale of the Biolase Shares.  The Company experienced a loss from
operations of ($269,932) for the three months ended March 31, 2005,
compared to a loss from operations of ($631,547) in the same period of
2004.  There was a substantial decrease in legal and other professional
fees in the current period, which accounted for $208,531of the reduction in the
net loss from operations.

Liquidity and Capital Resources, page 11

3.     We see that cash used in operating activities
has varied significantly from period to period and that movements have been
inconsistent with earnings.  In future
filings please provide a more detailed analysis of movements in operating cash
flows from period to period.  That
analysis should identify, describe and quantify the underlying drivers of
operating cash flows and should more fully reflect the guidance from FR-72.  Please apply in future filings.

Response:

In
response to the comment above, we will revise in future filings our discussion
of Liquidity and Capital Resources to include a more detailed analysis of
movements in operating cash flows from period to period.

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Revision:

Liquidity and Capital Resources

The
Company’s operating activities used $3,399,701 in cash resources in 2004.
Cash used by operating activities in 2004 related
primarily to payments of existing accounts payable ($996,914), legal
settlements ($200,000), accrued employee compensation ($550,000) and other
accrued liabilities ($271,919).  These items were partially
offset by the sale of the 307,500 shares of Biolase stock in March 2004
which resulted in approximately $5.3 million of net proceeds, as reported in
investing.

Item 7. Financial Statements, page 12

Consolidated Statements of Cash Flows, page 16

4.     We noted that the effect of exchange rates on
cash of $11,542 and $56,681 for 2004 and 2003, respectively, are the same as
the foreign currency translations on your consolidated statements of
stockholders’ equity.  Please tell us
whether you prepared the statement of cash flows for your German operations
using the exchange rates in effect at the time of the cash flows in accordance
with paragraph 25 of SFAS 95.  Revise as
necessary in future filings.

Response:

In
response to the comment above, the statement of cash flows for our German
operations was prepared using exchange rates in effect at the end of the year
as the cash flows for our German operations were immaterial.

Total
operating cash flows for our German operations were only $60,760 and $80,734 in
2004 and 2003, respectively.

As of December 31,
2004, the Company ceased operations of its wholly-owned subsidiary based in
Keltern, Germany.  All current sales
activities in Germany are being conducted through an exclusive German
distributor.

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Note 1. Organization and Significant Accounting
Policies, page 17

Inventories, page 18

5.     We noted that you record a 100% valuation
allowance on any parts on hand exceeding three years of projected usage.  Please tell us whether your record any
provision on parts that do not exceed three years, and how your accounting
policy is in accordance with GAAP.  Refer
to Chapter 4 of ARB 43.

Response:

In
response to the comment above, a provision on parts that do not exceed three
years of projected usage is effectively provided through the Company’s present
policy of estimating that projected annual usage will only be 50% of the prior
12 months’ part usage in order to take into consideration the resulting loss of
utility for parts that are held 1-3 years. The 50% factor was determined based
on recent history of declining sales. The Company previously determined its
reserve based on five years of projected usage. During the fourth quarter of
2002, the Company reassessed its methodology due to the significant downturn in
business the Company was experiencing at that time.  Revenues decreased from $19,685,222 during
2000 to $8,943,076 during 2002. The reassessment resulted in an additional
provision of $1.4 million during 2002. The methodology is evaluated periodically
and the projected usage may be increased once the Company displays a stable or
increasing trend for sales.  However, as
noted earlier, any previously-reserved inventory cannot subsequently be marked
up based on improvements in current sales levels.

ARB 43
states that the rules of “lower of cash or market” may properly be applied
either directly to each item or to the total of the inventory.  The Company’s inventory represents a largely
homogeneous group of small parts whose selling prices are typically not
affected by temporary or small fluctuations in current costs of purchase or
manufacture.  The measurement of loss of
utility of our inventories is primarily driven by excess quantities.  To the extent that specific significant items
have been deemed obsolete, the Company specifically writes-off the items from
inventory.  We believe our methodology of
primarily relying on a formula to assess potential obsolescence is consistent
with the guidance in Chapter 4 of ARB 43 to reflect inventories at the lower of
cost or market.

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Revenue Recognition, page 19

6.     We note from your website that you grant your
customers a money back guarantee, whereby “all items except otherwise
mentioned, may be returned within 30 days from the original invoice date.”  In future filings your revenue recognition
policies should address the extent of any rights of return in accordance with
SFAS 48.

Response:

In
response to the comment above, we will revise in future filings our Revenue
Recognition policy to address the extent of any rights of return.  Note that claims based on the 30-day
money-back guarantee have been insignificant.

Revision:

Revenue Recognition

The
Company recognizes revenue when all of the following criteria are met: 1) a
contract or sales arrangement exists and the buyer is
obligated to pay and such obligation would not be changed in the event of theft
or physical destruction or damage of the product; 2) products have
been shipped, and if necessary installed, and title has been transferred or services
have been rendered; 3) the price of the products or services is fixed or
determinable; 4) no further obligation exists on the part of the Company (other
than warranty obligations); and 5) collectibility is reasonably assured.  The Company provides a 30-day
unconditional money-back guarantee and a warranty for one year of parts and
labor on defective products.  The Company
accrues its estimated exposure to returns and warranty claims based upon
historical average returns and claims paid.
The Company recognizes the related estimated warranty expense
when title is transferred to the customer, generally upon shipment.  The Company recognizes revenue on certain
sales to two of its international distributors under terms that require
shipment to a local independent warehouse.
Only the Company’s Anthos dental chairs and its networked camera systems
required installation, and revenue is not recorded until the installation is
complete.  The Company’s policy is to
include shipping and handling costs, net of the related revenues, in costs of
goods sold.

Receivables and Credit Policies, page 19

7.     We note that your valuation allowance
includes a provision for 5% of the balance less than 90 days past due.  Please tell us how you determined the 5%
provision rate, whether it is a general reserve, and how it is in accordance
with GAAP, citing applicable literature.

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Response:

In
response to the comment above, 5% provision rate has been determined based on
historical experience.  Appendix A of
SFAS No. 5 specifically notes that the probability and estimate of losses
f