American Medical Alert (AMAC) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2008.

OR

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

For the transition period from ____________ to ____________

Commission File Number 1-8635

AMERICAN MEDICAL ALERT CORP.

(Exact Name of Registrant as Specified in its Charter)

New York	11-2571221
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3265 Lawson Boulevard, Oceanside, New York 11572

(Address of principal executive offices)

(Zip Code)

(516) 536-5850

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 on the Exchange Act)

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 9,484,927 shares of $.01 par value common stock as of August 13, 2008.

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

INDEX	PAGE
Part IFinancial Information
Report of Independent Registered Public Accounting Firm	1
Condensed Consolidated Balance Sheets for June 30, 2008 and December 31, 2007	2
Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2008 and 2007	4
Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2008 and 2007	5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007	6
Notes to Condensed Consolidated Financial Statements	8
Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Quantitative and Qualitative Disclosures About Market Risks	32
Controls and Procedures	32
Part IIOther Information	33

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

American Medical Alert Corp. and Subsidiaries

Oceanside, New York

We have reviewed the accompanying condensed consolidated balance sheet of American Medical Alert Corp. and Subsidiaries (the “Company”) as of June 30, 2008 and the related condensed consolidated statements of income for the six-month and three-month periods ended June 30, 2008 and 2007 and cash flows for the six-months ended June 30, 2008 and 2007. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of American Medical Alert Corp. and Subsidiaries as of December 31, 2007, and the related consolidated statements of income, shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated March 31, 2008 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Margolin, Winer & Evens LLP

Margolin, Winer & Evens LLP

Garden City, New York

August 13, 2008

1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2008		Dec. 31, 2007
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	1,078,336	$	911,525
Accounts receivable
(net of allowance for doubtful accounts of $598,000 and $554,000)		5,606,711		5,655,286
Note receivable		27,635		26,954
Inventory		640,123		552,736
Prepaid income taxes		166,077		309,260
Prepaid expenses and other current assets		960,822		941,601
Deferred income taxes		265,000		275,000
Total Current Assets		8,744,704		8,672,362
FIXED ASSETS
(Net of accumulated depreciation and amortization)		11,221,914		10,799,313
OTHER ASSETS
Long-term portion of note receivable		7,127		21,117
Intangible assets
(net of accumulated amortization of $5,034,733and $4,393,073)		3,636,229		4,232,226
Goodwill (net of accumulated amortization of $58,868)		9,896,438		9,766,194
Other assets		1,777,533		1,462,009
		15,317,327		15,481,546
TOTAL ASSETS	$	35,283,945	$	34,953,221
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	1,311,438	$	1,414,419
Accounts payable		1,351,068		1,716,179
Accounts payable - acquisitions		50,140		73,896
Accrued expenses		1,746,875		1,550,283
Current portion of capital lease obligations		43,508		42,015
Deferred revenue		381,942		274,101
Total Current Liabilities		4,884,971		5,070,893
DEFERRED INCOME TAX LIABILITY		937,000		947,000
LONG-TERM DEBT, Net of Current Portion		3,975,000		4,694,316
LONG -TERM Portion of Capital Lease Obligations		10,291		32,425
CUSTOMER DEPOSITS		92,225		81,200
ACCRUED RENTAL OBLIGATION		477,117		446,722
OTHER LIABILITIES		10,000		10,000
TOTAL LIABILITIES		10,386,604		11,282,556
COMMITMENTS AND CONTINGENT LIABILITIES		-		-

2

SHAREHOLDERS’ EQUITY
Preferred stock, $.01 par value - authorized, 1,000,000 shares; none issued and outstanding
Common stock, $.01 par value - authorized 20,000,000 shares;issued9,472,101 shares in 2008and 9,385,880 shares in 2007		94,721			93,859
Additional paid-in capital		15,746,900			15,421,227
Retained earnings		9,192,297			8,281,914
		25,033,918			23,797,000
Less treasury stock, at cost (48,573 shares in 2008 and 46,798 in 2007)		(136,577	)		(126,335	)
Total Shareholders’ Equity		24,897,341			23,670,665
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	35,283,945		$	34,953,221
See accompanying notes to condensed financial statements.

3

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Six Months Ended June 30,
	2008			2007
Revenues:
Services	$	18,558,490		$	17,401,074
Product sales		616,576			200,568
		19,175,066			17,601,642
Costs and Expenses (Income):
Costs related to services		8,944,634			8,464,967
Costs of products sold		310,708			120,999
Selling, general and administrative expenses		8,379,029			7,736,763
Interest expense		166,868			255,136
Other income		(169,556	)		(346,191	)
Income before Provision for Income Taxes		1,543,383			1,369,968
Provision for Income Taxes		633,000			596,000
NET INCOME	$	910,383		$	773,968
Net income per share:
Basic	$	.10		$	.08
Diluted	$	.09		$	.08
Weighted average number of common shares outstanding:
Basic		9,411,886			9,232,958
Diluted		9,708,325			9,635,350

See accompanying notes to condensed financial statements.

4

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,
	2008			2007
Revenues:
Services	$	9,219,378		$	8,788,093
Product sales		319,943			110,713
		9,539,321			8,898,806
Costs and Expenses (Income):
Costs related to services		4,397,245			4,222,906
Costs of products sold		159,953			68,792
Selling, general and administrative expenses		4,190,177			3,928,686
Interest expense		64,813			128,621
Other income		(48,893	)		(176,459	)
Income before Provision for Income Taxes		776,026			726,260
Provision for Income Taxes		318,000			319,000
NET INCOME	$	458,026		$	407,260
Net income per share:
Basic	$	.05		$	.04
Diluted	$	.05		$	.04
Weighted average number of common shares outstanding
Basic		9,417,701			9,261,738
Diluted		9,717,985			9,692,433
See accompanying notes to condensed financial statements.

5

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2008			2007
Cash Flows From Operating Activities:
Net income	$	910,383		$	773,968
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,137,026			1,954,628
Stock compensation charge		206,535			144,735
Decrease (increase) in:
Accounts receivable		48,575			(740,987	)
Inventory		(87,387	)		(196,407	)
Prepaid income taxes		143,183			-
Prepaid expenses and other current assets		(19,492	)		(228,092	)
Increase (decrease) in:
Accounts payable, accrued expenses and other		(127,099	)		845,489
Deferred revenue		107,841			73,253
Net Cash Provided by Operating Activities		3,319,565			2,626,587
Cash Flows From Investing Activities:
Expenditures for fixed assets		(1,912,914	)		(2,014,778	)
Repayment of notes receivable		13,309			12,661
Payment of accounts payable - acquisitions		(73,896	)		(171,532	)
Deposit on equipment and software		(321,990	)		-
Purchase of additional goodwill - American Mediconnect Inc.		(80,103	)		(7,542	)
Purchase - other intangibles		(45,663	)		-
Decrease in other assets		1,683			297,708
Net Cash Used In Investing Activities		(2,419,574	)		(1,883,483	)
Cash Flows From Financing Activities:
Proceeds from long-term debt		100,000			-
Principal payments under capital lease obligation		(20,641	)		(19,249	)
Purchase of Treasury Stock		(10,242	)		-
Repayment of long-term debt		(922,297	)		(663,295	)
Proceeds upon exercise of stock options and warrants		120,000			281,932
Net Cash Used In Financing Activities		(733,180	)		(400,612	)
See accompanying notes to condensed financial statements.

6

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Six Months Ended June 30,
	2008		2007
Net Increase in Cash	$	166,811	$	342,492
Cash, Beginning of Period		911,525		856,248
Cash, End of Period	$	1,078,336	$	1,198,740
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST	$	165,068	$	232,199
CASH PAID DURING THE PERIOD FOR INCOME TAXES	$	400,312	$	408,450
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accounts payable due sellers in connection with acquisition	$	50,141	$	102,309

See accompanying notes to condensed financial statements.

7

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.General:

These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K.

2.Results of Operations:

The accompanying condensed consolidated financial statements include the accounts of American Medical Alert Corp. and its wholly-owned subsidiaries; together the “Company”. All material inter-company balances and transactions have been eliminated.

In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals, except for a partial reduction of the Relocation and Employment Assistance Program (REAP) benefit accrual recorded in December 31, 2007. The net effect of this adjustment, which was included in other income, resulted in a reduction in net income of approximately $40,000 for the six and three months ended June 30, 2008) necessary to present fairly the financial position as of June 30, 2008 and the results of operations for the six and three months ended June 30, 2008 and 2007, and cash flows for the six months ended June 30, 2008 and 2007.

The accounting policies used in preparing these financial statements are the same as those described in the December 31, 2007 financial statements.

Certain amounts in the 2007 condensed consolidated financial statements have been reclassified to conform to the 2008 presentation.

The results of operations for the six and three months ended June 30, 2008 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

3.Recent Accounting Pronouncements:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosure regarding fair value measurements. SFAS No. 157 does not require new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 did not have a material effect on the financial statements.

In December 2007, the FASB issued SFAS No. 141(R) (revised 2007), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. The statement provides a broader definition of the “Acquirer” and establishes principles and requirements of how the Acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed as well as how the Acquirer recognizes and measures the goodwill acquired in the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

8

In May 2008, the FASB issued SFAS 162 “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The adoption of SFAS 162 will be effective 60 days following the Securities and Exchange Commission (SEC) approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not expect that the adoption of this statement will have a material impact on our financial position or results of operations.

4. Accounting for Stock-Based Compensation:

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment”(“Statement No. 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payments to employees, including grants of stock and employee stock options, based on estimated fair values. 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.

The Company granted 25,000 stock options during the six month period ended June 30, 2008. No options were granted during the six month period ended June 30, 2007.

The following tables summarize stock option activity for the six months ended June 30, 2008 and 2007.

	2008
	Number of Options			Weighted Average Option Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Balance at January 1		922,273		$	4.01
Granted		25,000			6.91
Exercised		(60,000	)		2.00

Expired/Forfeited	(15,001	)		3.35
Balance at June 30	872,272		$	4.24	3.93	$	1,482,974
Vested and exercisable	869,772		$	4.24	3.93	$	1,482,974

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	2007
	Number of Options			Weighted Average Option Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Balance at January 1		1,052,818		$	4.02
Granted		-			-
Exercised		(43,425	)		4.55
Expired/Forfeited		(7,800	)		3.37
Balance at June 30		1,001,593		$	4.01		4.68	$	3,989,604
Vested and exercisable		1,001,593		$	4.01		4.68	$	3,989,604

The aggregate intrinsic value of options exercised during the six months ended June 30, 2008 and 2007 was $288,000 and $102,168, respectively. There were 2,500 nonvested stock options outstanding as of June 30, 2008. There were no nonvested stock options outstanding as of June 30, 2007.

The following table summarizes stock-based compensation expense related to all share-based payments recognized in the condensed consolidated statements of income.

	Three Months Ended June 30,			Three Months Ended June 30,
	2008			2007
Stock options	$	32,500		$	-
Stock grants - other		22,878			-
Service based awards		31,068			42,137
Performance based awards		31,196			48,663
Tax benefit		(48,250	)		(39,225	)
Stock-based compensation expense, net of tax	$	69,392		$	51,575

		Six Months Ended June 30,			Six Months Ended June 30,
		2008			2007
Stock options	$	36,250		$	-
Stock grants - other		45,756			-
Service based awards		62,137			62,137
Performance based awards		62,392			71,163
Tax benefit		(84,700	)		(57,500	)
Stock-based compensation expense, net of tax	$	121,835		$	75,800

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Stock Grants - Other

The outside Board of Directors are granted shares of common stock at the end of each quarter as compensation for services provided as members of the Board of Directors and other committees. These share grants vest immediately.

Service Based Awards

In January 2006 and May 2007, the Company granted 60,000 and 22,000 restricted shares, respectively, to certain executives in respect of services rendered but at no monetary cost. These shares vest over periods ranging from 3 to 5 years, on December 31 of each year. The Company records the compensation expense on a straight-line basis over the vesting period. Fair value for restricted stock awards is based on the Company's closing common stock price on the date of grant. As of June 30, 2008 and 2007 there were 31,500 and 12,500 shares vested, respectively. The aggregate grant date fair value of restricted stock grants was $537,100. As of June 30, 2008 and 2007, the Company had $270,688 and $405,350, respectively, of total unrecognized compensation costs related to nonvested restricted stock units expected to be recognized over a weighted average period of 2.42 years.

Performance Based Awards

In January 2006 and May 2007, respectively, the Company granted share awards for 90,000 shares (up to 18,000 shares per year through December 31, 2010) and 46,000 shares (up to 11,500 shares per year through December 31, 2010) to certain executives. Vesting of such shares is contingent upon the Company achieving certain specified consolidated gross revenue and Earnings before Interest and Taxes (“EBIT”) objectives in each of the next four fiscal years ending December 31. The fair value of the performance shares (aggregate value of $909,400) is based on the closing trading value of the Company’s stock on the date of grant and assumes that performance goals will be achieved. The fair value of the shares is expensed over the performance period for those shares that are expected to ultimately vest. If such objectives are not met, no compensation cost is recognized and any recognized compensation cost is reversed.  As of June 30, 2008 and 2007, 29,750 and 18,000 shares were vested, respectively. As of June 30, 2008 and 2007, there was $538,743 and $705,700, respectively, of total unrecognized compensation costs related to nonvested share awards; that cost is expected to be recognized over a period of 2.50 years.

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5.Earnings Per Share:

Earnings per share data for the six and three months ended June 30, 2008 and 2007 is presented in conformity with SFAS No. 128, “Earnings Per Share.”

The following table is a reconciliation of the numerators and denominators in computing earnings per share:

	Income		Shares		Per-Share
	(Numerator)		(Denominator)		Amounts
Six Months June 30, 2008
Basic EPS - Income available to common stockholders	$	910,383		9,411,886	$	.10
Effect of dilutive securities - Options and warrants		-		296,439
Diluted EPS - Income available to common stockholders and assumed conversions	$	910,383		9,708,325	$	.09
Three Months June 30, 2008
Basic EPS -Income available to common stockholders	$	458,026		9,417,701	$	.05
Effect of dilutive securities - Options and warrants		-		300,284
Diluted EPS - Income available to common stockholders and assumed conversions	$	458,026		9,717,985	$	.05
Six Months June 30, 2007
Basic EPS - Income available to common stockholders	$	773,968		9,232,958	$	.08
Effect of dilutive securities - Options and warrants		-		402,392
Diluted EPS - Income available to common stockholders and assumed conversions	$	773,968		9,635,350	$	.08
Three Months Ended June 30, 2007
Basic EPS -Income available to common stockholders	$	407,260		9,261,738	$	.04

Effect of dilutive securities - Options and warrants		-	430,695
Diluted EPS - Income available to common stockholders and assumed conversions	$	407,260	9,692,433	$	.04

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6. Goodwill

Changes in the carrying amount of goodwill, all of which relate to the Company’s TBCS segment, for the six months ended June 30, 2008 and 2007 are as follows:

Six Months Ended June 30, 2008
Balance as of January 1, 2008	$	9,766,194
Additional Goodwill		130,244
Balance as of June 30, 2008	$	9,896,438
Six Months Ended June 30, 2007
Balance as of January 1, 2007	$	9,532,961
Additional Goodwill		109,891
Balance as of June 30, 2007	$	9,642,852

The addition to goodwill during the six months ended June 30, 2008 and 2007 relates to additional purchase price of American Mediconnect, Inc. based primarily on the cash receipts from the clinical trials portion of the business.

7.Long-term Debt:

As of January 1, 2006 the Company had a credit facility arrangement for $4,500,000 which included a revolving credit line which permitted borrowings of $1,500,000 (based on eligible receivables as defined) and a $3,000,000 term loan payable. The term loan is payable in equal monthly principal installments of $50,000 over five years commencing January 2006. The revolving credit line was set to mature in May 2008.

In March 2006 and December 2006, the credit facility was amended whereby the Company obtained an additional $2,500,000 and $1,600,000 of term loans, the proceeds of which were utilized to finance certain acquisitions. These term loans are payable over five years in equal monthly principal installments of $41,666.67 and $26,666.67, respectively. Additionally, certain of the covenants were amended.

13

In December 2006, the credit facility was amended to reduce the interest rates charged by the bank such that borrowings under the term loan will bear interest at either (a) LIBOR plus 2.00% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater, and the revolving credit line will bear interest at either (a) LIBOR plus 1.75% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater.  The LIBOR interest rate charge shall be adjusted in .25% intervals based on the Company’s ratio of Consolidated Funded Debt to Consolidated EBITDA. In the third quarter of 2007, the interest rate was reduced by .25% based on this ratio. The Company has the option to choose between the two interest rate options under the amended term loan and revolving credit line. Borrowings under the credit facility are collateralized by substantially all of the assets of the Company.

On April 30, 2007, the Company amended its credit facility whereby the term of the revolving credit line was extended through June 2010 and the amount of credit available under the revolving credit line was increased to $2,500,000.

As of June 30, 2008 and March 31, 2008, the Company was in compliance with its financial covenants in its loan agreement. As of June 30, 2007 and March 31, 2007, the Company was in compliance with its financial covenants in its loan agreement.

8.Major Customers:

Since 1983, the Company has provided Personal Emergency Response Systems (“PERS”) services to the City of New York’s Human Resources Administration Home Care Service Program ("HCSP"). The Company has been operating since 1993 with a contract, and related extensions, to provide HCSP with these services. During the six months ended June 30, 2008 and 2007, the Company’s revenue from this contract represented 6% and 7%, respectively, of its total revenue. As of June 30, 2008 and December 2007, accounts receivable from the contract represented 12% and 10%, respectively, of total accounts receivable. Medical devices in service under the contract represented approximately 12% of medical devices.

In September 2006, Human Resource Administration (“HRA”) issued a bid proposal relating to the providing of the PERS services which are the subject of the Company’s contract. In October 2007, the Company was informed they were awarded the contract with respect to this proposal and executed such contract. The contract term is two years, commencing September 21, 2007, with two options to renew in favor of HRA for two additional two year terms. Under the terms of the agreement, a downward rate adjustment was made in conjunction with reduced equipment requirements from previous years. The estimated impact of this lower rate is to reduce this contract’s contribution to gross revenues by approximately $270,000 and its contribution to net income by approximately $150,000 on an annual basis. For the six months ended June 30, 2008, the Company’s revenue from this contract decreased by approximately $130,000 and this contract’s contribution to net income decreased by approximately $74,000 as a result of this reduced rate.

The Company was notified by HRA that one of the bidders has filed an Article 78 proceeding seeking a reversal of HRA's determination that the Company was the lowest qualified bidder. In April 2008, the Company was notified that the proceeding was completed and it was determined that the Company was the lowest qualified bidder.

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9. Segment Reporting:

Effective January 1, 2007, the Company has two reportable segments, (i) Health and Safety Monitoring Systems (“HSMS”) and (ii) Telephone Based Communication Services (“TBCS”).

The table below provides a reconciliation of segment information to total consolidated information for the six and three months ended June 30, 2008 and 2007:

	2008
	HSMS		TBCS		Consolidated
Six Months Ended June 30, 2008
Revenue	$	9,778,598	$	9,396,468	$	19,175,066
Income before provision for income taxes		932,511		610,872		1,543,383
Total assets		16,385,446		18,898,499		35,283,945

		HSMS		TBCS		Consolidated
Three Months Ended June 30, 2008
Revenue	$	4,941,643	$	4,597,678	$	9,539,321
Income before provision for income taxes		412,250		363,776		776,026

	2007
	HSMS		TBCS		Consolidated
Six Months Ended June 30, 2007
Revenue	$	8,508,792	$	9,092,850	$	17,601,642
Income before provision for income taxes		538,841		831,127		1,369,968
Total assets		15,447,480		18,560,875		34,008,355

	HSMS		TBCS		Consolidated
Three Months Ended June 30, 2007
Revenue	$	4,409,487	$	4,489,319	$	8,898,806
Income before provision for income taxes		360,605		365,655		726,260

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10. Commitments and Contingencies:

The Company is aware of various threatened or pending litigation claims against the Company relating to its products and services and other claims arising in the ordinary course of its business. The Company has given its insurance carrier notice of such claims and it believes there is sufficient insurance coverage to cover any such claims. Currently, there are no litigation claims for which an estimate of loss, if any, can be reasonably made as they are in the preliminary stages and therefore, no liability or corresponding insurance receivable has been recorded.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. This discussion and analysis should be read in conjunction with the consolidated financial statements contained in the latest Annual Report on Form 10-K for the year ended December 31, 2007.

Statements contained in this Quarterly Report on Form 10-Q include “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, in particular and without limitation, statements contained herein under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company’s actual results, performance and achievements, whether expressed or implied by such forward-looking statements, not to occur or be realized. These include uncertainties relating to government regulation, technological changes, our expansion plans and product liability risks. Such forward-looking statements generally are based upon the Company’s best estimates of future results, performance or achievement, based upon current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “project,” “anticipate,” “continue” or similar terms, variations of those terms or the negative of those terms.

You should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements. Readers should carefully review the risk factors and any other cautionary statements contained in the Company’s Annual Report on Form 10-K and other public filings. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview:

The Company’s primary business is the provision of healthcare communication services through (1) the development, marketing and monitoring of health and safety monitoring systems (“HSMS”) that include personal emergency response systems, telehealth/disease management monitoring systems, medication management systems and pharmacy security monitoring systems, and (2) telephony based communication services and solutions primarily for the healthcare community (“TBCS”). The Company’s products and services are primarily marketed to the healthcare community, including hospitals, home care, durable medical equipment, medical facility, hospice, pharmacy, managed care and other healthcare oriented organizations. The Company also offers certain products and services directly to consumers. Until 2000, the Company’s principal business was the marketing of personal emergency response systems (“PERS”), a device that allows a patient to signal an emergency response center for help in the event of a debilitating illness or accident. The Company provides PERS nationwide to private pay customers, Medicaid programs and healthcare related entities. In 2003, the Company initiated a relationship with a large, west coast managed care organization that recognized the value associated with provisioning PERS to its senior population and contracted with AMAC to roll out its PERS product to its subscribers. Today, the number of PERS units in service under that program has more than doubled. In February of 2007, the Company announced it had entered into an exclusive relationship with Walgreen Co. (“Walgreen”) to provide the Company’s flagship personal emergency response systems under the Walgreen brand. Walgreens Ready Response™ Medical Alert system is currently being offered at Walgreen stores throughout the United States and Puerto Rico. The Company believes the Walgreen relationship will provide a significant opportunity for AMAC to increase its PERS market share through Walgreen’s direct to consumer distribution channel.

In 2001, the Company entered the emerging telehealth market, a market in its embryonic stage, recognizing the opportunity to provide new monitoring technologies to assist healthcare professionals in home-based, health management activities. The Company has made a significant investment in its initial endeavors in the disease management monitoring market. This market focuses on various technologies to permit chronic disease management through remote patient monitoring. During the last several years, the Company has learned how this market functions and has explored a variety of methods of making a meaningful entry into this market. The Company has experienced technical difficulties with certain products supplied by its primary vendor, Health Hero Networks, Inc.  The Company has since reached a financial settlement with respect to the technical difficulties associated with the products.

Beginning in 2000, the Company began a program of product diversification and customer baseexpansion to decrease its reliance on a single product line by marketing complementary call center and monitoring services to the healthcare community.

The Company diversified its products/service mix to include telephony based communication services (“TBCS”) for professionals in the healthcare community. The rationale to enter this segment had several components. These include targeting existing customer relationships, leveraging existing infrastructure capability, and establishing an additional significant revenue source. The Company’s entry into the TBCS market was accomplished initiallythrough acquisition and later through internally generated sales growth coupled with acquisitions.

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The Company has since further expanded its communication infrastructure and capacity and now operates a total of nine communication centers in Long Island City and Port Jefferson, New York, New Jersey, Maryland, Connecticut, Massachusetts, Rhode Island, Illinois and New Mexico.

In December 2006 the Company acquired the PhoneScreen brand (“PhoneScreen”) through the acquisition of AMI. PhoneScreen specializes in the recruitment of patients for clinical trials. PhoneScreen’s customers are pharmaceutical companies and Contract Research Organizations (“CROs”). CROs are organizations that offer pharmaceutical companies and medical entities a wide range of pharmaceutical research services which include the development and execution of clinical trials.

The Company believes it has identified other communication needs as expressed by the expanded TBCSclient base. In response to these expressed needs, the Company has developed specialized healthcare communication solutions. These solutions are creating additional opportunities for long-term revenue enhancement. The Company has broadened its service offerings and is in the process of significantly expanding the TBCS reporting segment.

The Company believes that the overall mix of cash flow generating businesses from PERS and TBCS, combined with its emphasis on developing products and services in the telehealth field, provides the correct blend of stability and growth opportunity. The Company believes this strategy will enable it to maintain and increase its role in the healthcare communications field.

Components of Statements of Income by Operating Segment

The following table shows the components of the Statement of Income for the six and three months ended June 30, 2008 and 2007.  

	Three Months Ended June 30,										Six Months Ended June 30,
In thousands (000’s)	2008		%			2007		%			2008		%			2007		%
Revenues
HSMS		4,942		52	%		4,410		50	%		9,779		51	%		8,509		48	%
TBCS		4,597		48	%		4,489		50	%		9,396		49	%		9,093		52	%
Total Revenues		9,539		100	%		8,899		100	%		19,175		100	%		17,602		100	%
Cost of Services and Goods Sold
HSMS		2,149		43	%		1,978		45	%		4,231		43	%		3,910		46	%
TBCS		2,408		52	%		2,314		52	%		5,024		53	%		4,676		51	%
Total Cost of Services and Goods Sold		4,557		48	%		4,292		48	%		9,255		48	%		8,586		49	%

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Gross Profit
HSMS	2,793		57	%	2,432		55	%	5,548		57	%	4,600		54	%
TBCS	2,189		48	%	2,175		48	%	4,372		47	%	4,416		49	%
Total Gross Profit	4,982		52	%	4,607		52	%	9,920		52	%	9,016		51	%
Selling, General & Administrative	4,190		44	%	3,929		44	%	8,379		44	%	7,737		44	%
Interest Expense	65		1	%	129		1	%	167		1	%	255		1	%
Other Income	(49	)	(1	)%	(177	)	(2	)%	(169	)	(1	)%	(346	)	(2	)%
Income before Income Taxes	776		8	%	726		8	%	1,543		8	%	1,370		8	%
Provision for Income Taxes	318				319				633				596
Net Income	458				407				910				774

Note: The percentages for Cost of Services and Goods Sold, Gross Profit and are calculated based on a percentage of revenue.

Results of Operations:

The Company has two distinct operating business segments, which are HSMS and TBCS.

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Revenues:

HSMS

Revenues, which consist primarily of monthly rental revenues, increased approximately $532,000, or 12%, for the three months ended June 30, 2008 as compared to the same period in 2007. The increase is primarily attributed to the following factors:

· In 2007, the Company entered into an exclusive arrangement with Walgreen to market the Company’s PERS product directly to the consumer. The Company believes this arrangement will positively impact the revenues generated from the HSMS services being provided directly to the consumer. In the three months ended June 30, 2008, the Company recognized increased revenues of approximately $424,000, as compared to the same period in 2007, from this arrangement. The Company anticipates it will continue to see increased growth under this arrangement with Walgreen.

· The Company continues to realize increased revenues from the sale of its enhanced senior living products to retirement communities. During the three months ended June 30, 2008, the Company generated approximately $209,000 of product sales to retirement communities. In the same period of 2007, the enhanced senior living product was still in development and no sales were generated. The Company anticipates it will continue to see growth from these product sales in 2008.

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These increases were partially offset by a decrease of approximately $65,000 of revenues related to a contract executed with the Human Resource Administration (HRA) in 2007 whereby a downward rate adjustment was made.

TBCS

The increase in revenues of approximately $108,000, or 2%, for the three months ended June 30, 2008 as compared to the same period in 2007 was primarily due to the following:

· The Company experienced minimal revenue growth within its existing telephone answering service businesses for the three months ended June 30, 2008 and realized increased revenue of approximately $108,000, as compared to the same period in 2007. The Company believes that it will see increased growth from this segment in the latter part of 2008, primarily through its patient appointment concierge solutions and its clinical trial recruitment call center services.

Costs Related to Services and Goods Sold:

HSMS

Costs related to services and goods sold increased by approximately $171,000 for the three months ended June 30, 2008 as compared to the same period in 2007, an increase of 9%, primarily due to the following:

· The Company has incurred additional depreciation expense of approximately $55,000 primarily due to the increased purchases of PERS related products during 2007. The increased purchases are a result of the increase in the number of subscribers online.

· In relation to the increase in the sales of its enhanced senior living products to retirement communities the Company incurred costs of approximately $105,000.

TBCS:

Costs related to services and goods sold increased by approximately $94,000 for the three months ended June 30, 2008 as compared to the same period in 2007, an increase of 4%, primarily due to the following:

· In 2008, the Company incurred additional labor and telephone service costs of approximately $138,000 with the majority of these costs relating to the consolidation of its call center infrastructure. As part of operating nine call centers, in 2007 the Company engaged in a consolidation strategy to leverage its call center infrastructure in an effort to maximize operational efficiencies. The Company has substantially completed the consolidation. As part of this initiative, the Company has incurred these additional costs to ensure a seamless transition. Moving forward, the Company believes this call center consolidation strategy will produce operational and financial efficiencies.

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This increase was partially offset by the Company receiving a reduction in the cost of pagers during this period as compared to the same period in 2007, resulting in approximately $30,000 expense savings.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased by approximately $261,000 for the three months ended June 30, 2008 as compared to the same period in 2007, an increase of 7%. The increase is primarily attributable to the following:

· In conjunction with various new programs and agreements, the Company has hired additional marketing and sales personnel and increased its internet and television advertising. As a result of this, the Company recorded an increase in these expenses of approximately $318,000. In an effort to grow and expand these programs, the Company anticipates increased marketing, advertising and travel expenses throughout 2008.

There were decreases in selling, general and administrative expenses which arose out of the normal course of business such as both health and business insurance expense.

Interest Expense:

Interest expense for the three months ended June 30, 2008 and 2007 was approximately $65,000 and $129,000, respectively. The decrease of $64,000 was primarily due to the Company continuing to pay down its term loan as well as a reduction in the interest rate.

Other Income:

Other income for the three months ended June 30, 2008 and 2007 was approximately $49,000 and $177,000, respectively. Other income for the three months ended June 30, 2008 includes an economic development incentive through the City of Clovis in the amount of $100,000. This amount was partially offset by an adjustment to the Relocation and Employment Assistance Program credit due from New York City. Other income for the three months ended June 30, 2007 includes a Relocation and Employment Assistance Program (“REAP”) credit in the approximate amount of $118,000. In connection with the relocation of certain operations to Long Island City, New York in April 2003, the Company became eligible for the REAP credit which is based upon the number of employees relocated to this designated REAP area. The REAP is in effect for a twelve year period commencing in April 2003; during the first five years the Company will be refunded the full amount of the eligible credit and, thereafter, the benefit will be available only as a credit against New York City income taxes. As of 2008, the Company is eligible to only receive a credit against New York City income taxes, which is reflected within the Company’s tax provision.

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Income Before Provision for Income Taxes:

The Company’s income before provision for income taxes for the three months ended June 30, 2008 was approximately $776,000 as compared to $726,000 for the same period in 2007. The increase of $50,000 for the three months ended June 30, 2008 primarily resulted from an increase in the Company's service and product revenues offset by an increase in the Company’s costs related to services and product sales and selling, general and administrative costs.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Revenues:

HSMS

Revenues, which consist primarily of monthly rental revenues, increased approximately $1,270,000, or 15%, for the six months ended June 30, 2008 as compared to the same period in 2007. The increase is primarily attributed to the following factors:

· In 2007, the Company entered into an exclusive arrangement with Walgreen to market the Company’s PERS product directly to the consumer. The Company believes this arrangement will positively impact the revenues generated from the HSMS services being provided directly to the consumer. In the first half of 2008, as compared to the same period in 2007, the Company recognized increased revenues of approximately $689,000 from this arrangement. The Company anticipates it will continue to see increased growth under this arrangement with Walgreen.

· The Company continues to realize increased revenues from the sale of its enhanced senior living products to retirement communities. During the first half of 2008, the Company generated approximately $407,000 of product sales to retirement communities. In the first half of 2007, the enhanced senior living product was still in development and no sales were generated. The Company anticipates it will continue to see growth from these product sales in 2008.

· In late 2006, the Company executed a new agreement with a third party Agency whereby PERS were placed online. Since inception, the subscriber base associated with this agreement has grown and accounted for an approximate $182,000 increase in revenue during the first half of 2008 as compared to the same period in the prior year. The Company anticipates that the growth from this new agreement will continue throughout 2008.

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These increases were partially offset by a decrease of approximately $130,000 of revenues related to a contract executed with the Human Resource Administration (HRA) in 2007 whereby a downward rate adjustment was made.

TBCS

The increase in revenues of approximately $303,000, or 3%, for the six months ended June 30, 2008 as compared to the same period in 2007 was primarily due to the following:

· The Company continues to experience revenue growth within its existing telephone answering service businesses and realized increased revenue of approximately $329,000, as compared to the same period in 2007. This growth is due to the diversification of the Company’s customer base to provide business process improvements to the healthcare sector. This increase was partially offset by a shortfall of revenue relating to the project based clinical trials business in the amount of approximately $26,000.

Based on the demand for US based healthcare communication services and on some of the work which is currently in process, the Company anticipates that there will be continued growth in this business segment with further expansion into healthcare and hospital organizations and to physicians through its marketing strategies.

Costs Related to Services and Goods Sold:

HSMS

Costs related to services and goods sold increased by approximately $321,000 for the six months ended June 30, 2008 as compared to the same period in 2007, an increase of 8%, primarily due to the following:

· The Company has incurred additional depreciation expense of approximately $117,000 primarily due to the increased purchases of PERS related products during 2007. The increased purchases are a result of the increase in the number of subscribers online.

· In relation to the increase in the sales of its enhanced senior living products to retirement communities the Company incurred costs of approximately $160,000.

TBCS:

Costs related to services and goods sold increased by approximately $348,000 for the six months ended June 30, 2008 as compared to the same period in 2007, an increase of 7%, primarily due to the following:

· In the first half of 2008, the Company incurred additional labor and telephone service costs of approximately $373,000 with the majority of these costs relating to the consolidation of its call center infrastructure. As part of operating nine call centers, in 2007 the Company engaged in a consolidation strategy to leverage its call center infrastructure in an effort to maximize operational efficiencies. During the first half of 2008, the Company substantially completed the consolidation. As part of this initiative, the Company was incurred these additional costs to ensure a seamless transition. Moving forward, the Company believes this call center consolidation strategy will produce operational and financial efficiencies.

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This increase was partially offset by the Company receiving a reduction in the cost of pagers during the first half of 2008 as compared to the same period in 2007, which in an approximate $50,000 expense savings.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased by approximately $642,000 for the six months ended June 30, 2008 as compared to the same period in 2007, an increase of 8%. The increase is primarily attributable to the following:

· In conjunction with various new programs and agreements, the Company has hired additional marketing and sales personnel, increased its internet and television advertising and incurred additional travel expense. As a result of this, the Company recorded an increase in these expenses of approximately $604,000. In an effort to grow and expand these programs, the Company anticipates increased marketing, advertising and travel expenses throughout 2008.

· The Company incurred increased commissions of approximately $82,000 as a result of two factors. First, in conjunction with the project based clinical trials business, the Company utilizes an outside consulting firm to assist in the generation of customers. As part of this arrangement, the consultant earned approximately $43,000 more in the first quarter of 2008 as compared to 2007. Secondly, the Company incurred approximately $39,000 of increased commissions relating to the HSMS segment as it continues to look to expand its reach in the market place.

There were other increases in selling, general and administrative expenses which arose out of the normal course of business such as executive and administrative salaries, depreciation and amortization expense which were partially offset by decreases in insurance expense.

Interest Expense:

Interest expense for the six months ended June 30, 2008 and 2007 was approximately $167,000 and $255,000, respectively. The decrease of $88,000 was primarily due to the Company continuing to pay down its term loan as well as a reduction in the interest rate.

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Other Income:

Other income for the six months ended June 30, 2008 and 2007 was approximately $169,000 and $346,000, respectively. Other income for the six months ended June 30, 2008 includes a training incentive received from the State of New Mexico for hiring and training employees within the State and an economic development incentive through the City of Clovis. In 2007, the Company opened a network operating call center in New Mexico and hired employees to serve as operators for the telephone answering service. In 2008, the Company plans on continuing its further expansion into this facility by also hiring employees to serve as emergency response operators for the HSMS segment. These amounts were partially offset by an adjustment to the Relocation and Employment Assistance Program credit due from New York City. Other income for the six months ended June 30, 2007 includes a Relocation and Employment Assistance Program (“REAP”) credit in the approximate amount of $237,000. In connection with the relocation of certain operations to Long Island City, New York in April 2003, the Company became eligible for the REAP credit which is based upon the number of employees relocated to this designated REAP area. The REAP is in effect for a twelve year period commencing in April 2003; during the first five years the Company will be refunded the full amount of the eligible credit and, thereafter, the benefit will be available only as a credit against New York City income taxes. As of 2008, the Company is eligible to only receive a credit against New York City income taxes, which is reflected within the Company’s tax provision.

Income Before Provision for Income Taxes:

The Company’s income before provision for income taxes for the six months ended June 30, 2008 was approximately $1,543,000 as compared to $1,370,000 for the same period in 2007. The increase of $173,000 for the six months ended June 30, 2008 primarily resulted from an increase in the Company's service and product revenues offset by an increase in the Company’s costs related to services and product sales and selling, general and administrative costs.

Liquidity and Capital Resources

As of January 1, 2006 the Company had a credit facility arrangement for $4,500,000 which included a revolving credit line which permitted borrowings of $1,500,000 (based on eligible receivables as defined) and a $3,000,000 term loan payable in equal monthly principal installments of $50,000 over five years commencing January 2006. The revolving credit line was set to mature in May 2008.

In March 2006 and December 2006, the Company’s credit facility was amended whereby the Company obtained an additional $2,500,000 and $1,600,000 of term loans, the proceeds of which were utilized to finance certain acquisitions. These term loans are payable over five years in equal monthly principal installments of $41,666.67 and $26,666.67, respectively. Additionally, certain of the covenants were amended.

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In December 2006, the credit facility was amended to reduce the interest rates charged by the bank such that borrowings under the term loan will bear interest at either (a) LIBOR plus 2.00% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater, and the revolving credit line will bear interest at either (a) LIBOR plus 1.75% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater.  The LIBOR interest rate charge shall be adjusted in .25% intervals based on the Company’s ratio of Consolidated Funded Debt to Consolidated EBITDA. In the third quarter of 2007, the interest rate was reduced by .25% based on this ratio. The Company has the option to choose between the two interest rate options under the amended term loan and revolving credit line. Borrowings under the credit facility are collateralized by substantially all of the assets of the Company.

On April 30, 2007, the Company amended its credit facility whereby the term of the revolving credit line was extended through June 2010 and the amount of credit available under the revolving credit line was increased to $2,500,000.

As of June 30, 2008 and 2007, the Company was in compliance with its financial covenants in its loan agreement.

The following table is a summary of contractual obligations as of June 30, 2008:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Revolving Credit Line	$	1,400,000			$	1,400,000
Debt (a)	$	3,886,438	$	1,311,438	$	2,575,000
Capital Leases (b)	$	53,799	$	43,508	$	10,291
Operating Leases (c)	$	8,201,105	$	983,367	$	2,529,854	$	1,566,546	$	3,121,338
Purchase Commitments (d)	$	1,270,983	$	1,270,983
Interest Expense (e)	$	422,296	$	230,809	$	191,487
Acquisition related Commitment (f)	$	50,140	$	50,140
Total Contractual Obligations	$	15,284,761	$	3,890,245	$	6,706,632	$	1,566,546	$	3,121,338

(a) - Debt includes the Company’s aggregate outstanding term loans which mature in 2010 and 2011, as well as loans associated with the purchase of automobiles.

(b) - Capital lease obligations related to telephone answering service equipment.  These capital lease obligations expire in the second quarter of 2009.

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(c)   - Operating leases include rental of facilities at various locations within the United States. These operating leases include the rental of the Company’s call center, warehouse and the office facilities. These operating leases have various maturity dates. The Company currently leases office space from the Chairman and principal shareholder and certain telephone answering service managers pursuant to leases.

(d) - Purchase commitments relate to orders for the Company’s traditional PERS.

(e) - Interest expense relates to interest on the Company’s revolving credit line and debt at the Company’s current rate of interest.

(f) - Acquisition related commitment involving payments due based on collections of the clinical trial business relating to the American Mediconnect, Inc acquisition in December 2006.

The primary sources of liquidity are cash flows from operating activities.  Net cash provided by operating activities was approximately $3.3 million for the six months ended June 30, 2008, as compared to approximately $2.6 million for the same period in 2007. During 2008, the cash provided by operating activities was primarily from depreciation and amortization of approximately $2.1 million and net earnings of approximately $0.9 million. The components of depreciation and amortization primarily relate to the purchases of the Company’s traditional PERS product and the customer lists associated with the acquisition of telephone answering service businesses. Cash provided by operating activities during 2007 were the result of depreciation and amortization of approximately $2.0 million, increase in liabilities of $0.8 million and net earnings of approximately $0.8 million. These amounts were partially offset by an increase in trade receivables of approximately $0.7 million.

Net cash used in investing activities for the six months ended June 30, 2008 and 2007 were approximately $2.4 million and $1.9 million, respectively. The primary component of net cash used in investing activities in 2008 was capital expenditures of approximately $1.9 million. Capital expenditures for 2008 primarily related to the continued production and purchase of the traditional PERS system and the build-out of the Company’s new call center in New Mexico. The primary components of net cash used in investing activities in 2007 were capital expenditures of approximately $2.0 million.

Cash flows for the six months ended June 30, 2008 used in financing activities were approximately $0.7 million compared to $0.4 million for the same period in 2007. The primary component of cash flow used in financing activities in 2008 was the payment of long-term debt of approximately $0.9 million. This was partially offset by the proceeds received from long-term debt of $0.1 million and the exercise of stock options of approximately $0.1 million. The primary component of cash flow used in financing activities in 2007 was the payment of long-term debt of approximately $0.7 million, which was partially offset by the proceeds received on the exercise of stock options of approximately $0.3 million. Capital expenditures for 2007 primarily related to the continued production and purchase of the traditional PERS system.

During the next twelve months, the Company anticipates it will make capital expenditures of approximately $3.25 - $3.75 million for the production and purchase of the traditional PERS systems, and telehealth systems and enhancements to its computer operating systems. This amount is subject to fluctuations based on customer demand. The Company also anticipates incurring approximately $0.1 - $0.3 million of costs relating to research and development of its telehealth product and enhanced pill dispenser. In July 2005, the Company entered into a technology, licensing, development, distribution and marketing agreement with a supplier for its HSMS sector. Pursuant to this agreement the Company anticipates expending approximately $0.2 - $0.4 million over the next twelve to eighteen months.

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As of June 30, 2008, the Company had approximately $1.1 million in cash and the Company’s working capital was approximately $3.9 million. The Company believes that with its present cash balance and with operations of the business generating positive cash flow, it will be able to meet its cash, working capital and capital expenditure needs for at least the next twelve months. The Company also has a revolving credit line, which expires in June 2010 that permits borrowings up to $2.5 million, of which $1,400,000 was outstanding at June 30, 2008.

Off-Balance Sheet Arrangements:

As of June 30, 2008, the Company has not entered into any off-balance sheet arrangements that are reasonably likely to have an impact on the Company’s current and future financial condition.

Other Factors:

In August 2007 the Company entered into a settlement agreement whereby a third party has agreed to reimburse the Company in a net amount of $425,000 for matters related to certain product and warranty disputes. This reimbursement is associated with costs that have primarily been incurred in previous years relating to engineering, payroll and related costs and depreciation pertaining to the affected assets. The Company anticipates receiving this reimbursement over approximately two years. The Company also recorded a write-down o the assets affected of approximately $111,000 in the third quarter of 2007.  Through June 30, 2008, the Company has been reimbursed $194,978.

During 2005, the Company entered into two operating lease agreements for additional space at its Long Island City, New York location in order to consolidate its warehouse and distribution center and accounting department into this location. The leases, which commenced in January 2006 and expire in March 2018, call for minimum annual rentals of $220,000 and $122,000, respectively, and are subject to increases in accordance with the term of the agreements. The Company is also responsible for the reimbursement of real estate taxes.

On January 14, 2002, the Company entered into an operating lease agreement for space in Long Island City, New York in order to consolidate its HCI TBCS and PERS ERC/ Customer Service facilities.  The centralization of the ERC, Customer Service and H-LINK® OnCall operations has provided certain operating efficiencies and allowed for continued growth of the H-LINK and PERS divisions.  The fifteen (15) year lease term commenced in April 2003.  The lease calls for minimum annual rentals of $307,900, subject to a 3% annual increase plus reimbursement for real estate taxes.  

Since 1983, the Company has provided Personal Emergency Response Systems (“PERS”) services to the City of New York’s Human Resources Administration Home Care Service Program ("HCSP"). The Company has been operating since 1993 with a contract, and related extensions, to provide HCSP with these services. During the six months ended June 30, 2008 and 2007, the Company’s revenue from this contract represented 6% and 7%, respectively, of its total revenue. As of June 30, 2008 and December 2007, accounts receivable from the contract represented 12% and 10% of accounts receivable, respectively, of total accounts receivable. Medical devices in service under the contract represented approximately 12% of medical devices.

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In September 2006, Human Resource Administration (“HRA”) issued a bid proposal relating to the providing of the PERS services which are the subject of the Company’s contract. In October 2007, the Company was informed they were awarded the contract with respect to this proposal and executed such contract. The contract term is two years, commencing September 21, 2007, with two options to renew in favor of HRA for two additional two year terms. Under the terms of the agreement, a downward rate adjustment was made in conjunction with reduced equipment requirements from previous years. The estimated impact of this lower rate is to reduce this contract’s contribution to gross revenues by approximately $270,000 and its contribution to net income by approximately $150,000 on an annual basis. For the six months ended June 30, 2008, the Company’s revenue from this contract decreased by approximately $130,000 and this contract’s contribution to net income decreased by approximately $74,000 as a result of this reduced rate.

The Company was notified that one of the bidders has filed an Article 78 proceeding seeking a reversal of HRA's determination that the Company was the lowest qualified bidder. In April 2008, the Company was notified that the proceeding was completed and it was determined that the Company was the lowest qualified bidder.

The Company has paid approximately $825,000 in licensing fees and associated products in connection with the Company obtaining certain new remote monitoring products. While the Company is confident in the successful completion and sale of these new remote monitoring products, there has been a delay in the manufacturing of these products. Since the Company has capitalized the these costs, if the Company does not obtain these products or the Company cannot market or sell the products, the Company would be required to write down all or some of the value of these costs.

Recent Accounting Pronouncements:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes guidelines for measuring fair value and expands disclosure regarding fair value measurements. SFAS No. 157 does not require new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 did not have a material effect on our financial statements or results of operations.

In December 2007, the FASB issued SFAS No. 141(R) (revised 2007), “SFAS 141(R),” “Business Combinations,” which replaces SFAS 141. The statement provides a broader definition of the “Acquirer” and establishes principles and requirements of how the Acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed as well as how the acquirer recognizes and measures the goodwill acquired in the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or the beginning of the first annual reporting period beginning on or after December 15, 2008.

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In May 2008, the FASB issued SFAS 162 “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The adoption of SFAS 162 will be effective 60 days following the Securities and Exchange Commission (SEC) approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We donot expect that the adoption of this statement will have a material impact on our financial position or results of operations.

Critical Accounting Policies:

In preparing the financial statements, the Company makes estimates, assumptions and judgments that can have a significant impact on our revenue, operating income and net income, as well as on the reported amounts of certain assets and liabilities on the balance sheet. The Company believes that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on its financial statements due to the materiality of the accounts involved, and therefore, considers these to be its critical accounting policies. Estimates in each of these areas are based on historical experience and a variety of assumptions that the Company believes are appropriate. Actual results may differ from these estimates.

Reserves for Uncollectible Accounts Receivable

The Company makes ongoing assumptions relating to the collectibility of its accounts receivable. The accounts receivable amount on the balance sheet includes a reserve for accounts that might not be paid. In determining the amount of the reserve, the Company considers its historical level of credit losses. The Company also makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and it assesses current economic trends that might impact the level of credit losses in the future. The Company recorded reserves for uncollectible accounts receivable of $598,000 as of June 30, 2008, which is equal to 9.7% of total accounts receivable. While the Company believes that the current reserves are adequate to cover potential credit losses, it cannot predict future changes in the financial stability of its customers and the Company cannot guarantee that its reserves will continue to be adequate. For each 1% that actual credit losses exceed the reserves established, there would be an increase in general and administrative expenses and a reduction in reported net income of approximately $62,000. Conversely, for each 1% that actual credit losses are less than the reserve, this would decrease the Company’s general and administrative expenses and increase the reported net income by approximately $62,000.

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Fixed Assets

Fixed assets are stated at cost. Depreciation for financial reporting purposes is being provided by the straight-line method over the estimated useful lives of the related assets. The valuation and classification of these assets and the assignment of useful depreciable lives involves significant judgments and the use of estimates. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Historically, impairment losses have not been required. Any change in the assumption of estimated useful lives could either result in a decrease or increase to the Company’s financial results. A decrease in estimated useful life would reduce the Company’s net income and an increase in estimated useful life would increase the Company’s net income. If the estimated useful lives of the PERS medical device were decreased by one year, the cost of goods related to services would increase and net income would decrease by approximately $185,000 per annum. Conversely, if the estimated useful lives of the PERS medical device were increased by one year, the cost of goods related to services would decrease and net income would increase by approximately $145,000 per annum.

Valuation of Goodwill

Pursuant to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite life intangible assets are no longer amortized, but are subject to annual impairment tests. To date, the Company has not been required to recognize an impairment of goodwill. The Company tests goodwill for impairment annually or more frequently when events or circumstances occur indicating goodwill might be impaired. This process involves estimating fair value using discounted cash flow analyses. Considerable management judgment is necessary to estimate discounted future cash flows. Assumptions used for these estimated cash flows were based on a combination of historical results and current internal forecasts. The Company cannot predict certain events that could adversely affect the reported value of goodwill, which totaled $9,896,438 and $9,766,194 at June 30, 2008 and December 31, 2007, respectively. If the Company were to experience a significant adverse impact on goodwill, it would negatively impact the Company’s net income.

Accounting for Stock-Based Awards

On January 1, 2006, the Company adopted FASB Statement No. 123 (revised 2004), “Share-Based Payment”(“Statement No. 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payments to employees, including grants of stock and employee stock options, based on estimated fair values. 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. As a result of adopting SFAS No. 123R, the Company recorded a pre-tax expense of approximately $207,000 and $133,000 for stock-based compensation for the six months ended June 30, 2008 and 2007, respectively.

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The determination of fair value of share-based payment awards to employees and directors on the date of grant using the Black-Scholes model is affected by the Company's stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Market Risk Disclosure

The Company does not hold market risk-sensitive financial instruments, nor does it trade financial instruments for trading purposes. All sales, operating items and balance sheet data are denominated in U.S. dollars; therefore, the Company has no significant foreign currency exchange rate risk.

In the ordinary course of its business the Company enters into commitments to purchase raw materials and finished goods over a period of time, generally six months to one year, at contracted prices. At June 30, 2008 these future commitments were not at prices in excess of current market, or in quantities in excess of normal requirements. The Company does not utilize derivative contracts either to hedge existing risks or for speculative purposes.

Interest Rate Risk

We are exposed to market risk from changes in interest rates primarily through our financing activities. Interest on our outstanding balances on our term loan and revolving credit line under our credit facility accrues at a rate of LIBOR plus 1.75% and LIBOR plus 1.50%, respectively. Our ability to carry out our business plan to finance future working capital requirements and acquisitions of TBCS businesses may be impacted if the cost of carrying debt fluctuates to the point where it becomes a burden on our resources.

Item 4T. Controls and Procedures.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and President and its Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and President and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the Chief Executive Officer and President and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

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There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings.

The Company was notified that one of the bidders for the contract it was awarded with HRA, New York Merchants Protective Co., Inc. (“Merchants”) filed an Article 78 proceeding on or about August 13, 2007. Merchants was moving to annul the HRA’s disqualification of Merchants as a bidder to provide PERS and to therefore annul the HRA’s contract with the Company. The Article 78 proceeding was filed in the Supreme Court of the State of New York, County of New York. In April 2008, the Company was notified that the proceeding was completed and it was determined that the Company was the lowest qualified bidder.

The Company is aware of various threatened or pending litigation claims against the Company relating to its products and services and other claims arising in the ordinary course of its business. The Company has given its insurance carrier notice of such claims and it believes there is sufficient insurance coverage to cover any such claims. Currently, there are no litigation claims for which an estimate of loss, if any, can be reasonably made as they are in the preliminary stages and therefore, no liability or corresponding insurance receivable has been recorded.

Item 6. Exhibits .

No.	Description
15.1	Letter from Margolin, Winer & Evens LLP, the independent accountant of the Company, acknowledging awareness of the use in a registration statement of a report on the unaudited interim financial information in this quarterly report
31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1	Certification of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2	Certification of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN MEDICAL ALERT CORP.
Dated: August 14, 2008	By:	/s/ Jack Rhian
		Name: Jack Rhian
		Title: Chief Executive Officer and President

By:	/s/ Richard Rallo
	Name: Richard Rallo
	Title: Chief Financial Officer

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