UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q




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




For the
quarterly period ended June 30, 2010.




OR




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




For the
transition period from ____________ to ____________




Commission
File Number 1-8635




AMERICAN
MEDICAL ALERT CORP.


(Exact
Name of Registrant as Specified in its Charter)




New
      York
              
              11-2571221(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              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  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during
the  preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈No  ̈





Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, a 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  ̈
                
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (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  ̈   No
x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 9,515,148 shares of $.01 par value
common stock as of August 13, 2010.







AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES




INDEX
                    
                    PAGEPart
      I  Financial InformationReport
      of Independent Registered Public Accounting Firm
                    
                    1Condensed
      Consolidated Balance Sheets for June 30, 2010 and December 31,
      2009
                    
                    2Condensed
      Consolidated Statements of Income for the Six Months Ended June 30, 2010
      and 2009
                    
                    3Condensed
      Consolidated Statements of Income for the Three Months Ended June 30, 2010
      and 2009
                    
                    4Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2010 and 2009
                    
                    5Notes
      to Condensed Consolidated Financial Statements
                    
                    7Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    15Quantitative
      and Qualitative Disclosures About Market Risk
                    
                    33Controls
      and Procedures
                    
                    34Part
      II  Other Information
                    
                    34





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, 2010 and the
related condensed consolidated statements of income for the six-month and
three-month periods ended June 30, 2010 and 2009 and cash flows for the
six-months ended June 30, 2010 and 2009. 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, 2009, 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, 2010 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, 2009 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
16, 2010


1


PART
I - FINANCIAL INFORMATION


Item
1. Financial
Statements.




AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




June 30, 2010
                                  (Unaudited)
                                
                                
                                Dec. 31, 2009ASSETSCURRENT
      ASSETSCash
                                
                                $
                                4,073,441
                                
                                
                                $
                                5,498,448Accounts
      receivable(net
      of allowance for doubtful accounts of $581,000 and
    $582,500)
                                
                                
                                6,103,717
                                
                                
                                
                                6,277,247Inventory
                                
                                
                                1,140,308
                                
                                
                                
                                1,105,727Prepaid
      income taxes
                                
                                
                                261,150
                                
                                
                                
                                134,081Prepaid
      expenses and other current assets
                                
                                
                                484,387
                                
                                
                                
                                345,465Deferred
      income taxes
                                
                                
                                298,000
                                
                                
                                
                                419,000Total
      Current Assets
                                
                                
                                12,361,003
                                
                                
                                
                                13,779,968FIXED
      ASSETS(net
      of accumulated depreciation and amortization)
                                
                                
                                7,769,189
                                
                                
                                
                                8,756,827OTHER
      ASSETSIntangible
      assets(net
      of accumulated amortization of $6,529,741 and $6,080,825)
                                
                                
                                1,577,095
                                
                                
                                
                                2,026,011Goodwill
      (net of accumulated amortization of $58,868)
                                
                                
                                10,294,281
                                
                                
                                
                                10,255,983Investment
      in limited liability company
                                
                                
                                4,014,604
                                
                                
                                
                                -Other
      assets (including inventory of $281,549 in 2010)
                                
                                
                                1,285,780
                                
                                
                                
                                1,009,83517,171,760
                                
                                
                                
                                13,291,829TOTAL
      ASSETS
                                
                                $
                                37,301,952
                                
                                
                                $
                                35,828,624LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
                                
                                $
                                660,000
                                
                                
                                $
                                1,301,667Accounts
      payable
                                
                                
                                765,885
                                
                                
                                
                                621,235Accounts
      payable – acquisitions
                                
                                
                                -
                                
                                
                                
                                35,048Accrued
      expenses
                                
                                
                                1,650,890
                                
                                
                                
                                1,698,320Dividends
      payable
                                
                                
                                -
                                
                                
                                
                                950,364Deferred
      revenue
                                
                                
                                196,166
                                
                                
                                
                                227,004Total
      Current Liabilities
                                
                                
                                3,272,941
                                
                                
                                
                                4,833,638DEFERRED
      INCOME TAX LIABILITY
                                
                                
                                1,114,000
                                
                                
                                
                                1,235,000LONG-TERM
      DEBT, Net of Current Portion
                                
                                
                                2,510,000
                                
                                
                                
                                1,195,000CUSTOMER
      DEPOSITS
                                
                                
                                117,199
                                
                                
                                
                                126,449ACCRUED
      RENTAL OBLIGATION
                                
                                
                                556,750
                                
                                
                                
                                522,154TOTAL
      LIABILITIES
                                
                                
                                7,570,890
                                
                                
                                
                                7,912,241COMMITMENTS
      AND CONTINGENT LIABILITIES
                                
                                
                                -
                                
                                
                                
                                -SHAREHOLDERS’
      EQUITYPreferred
      stock, $.01 par value – authorized, 1,000,000 shares; none issued and
      outstanding
                                
                                
                                -
                                
                                
                                
                                -Common
      stock, $.01 par value – authorized 20,000,000 shares; issued 9,603,575
      shares in 2010 and 9,568,087 shares in 2009
                                
                                
                                96,036
                                
                                
                                
                                95,681Additional
      paid-in capital
                                
                                
                                16,500,664
                                
                                
                                
                                16,296,615Retained
      earnings
                                
                                
                                13,270,939
                                
                                
                                
                                11,660,66429,867,639
                                
                                
                                
                                28,052,960Less
      treasury stock, at cost (48,573 shares in 2010 and 2009)
                                
                                
                                (136,577
                                )
                                
                                
                                (136,577
                                )Total
      Shareholders’ Equity
                                
                                
                                29,731,062
                                
                                
                                
                                27,916,383TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                                
                                $
                                37,301,952
                                
                                
                                $
                                35,828,624





See
accompanying notes to condensed financial statements.


2


AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)




Six
      Months Ended June 30,2010
                                
                                
                                2009Revenues:Services
                                
                                $
                                19,264,763
                                
                                
                                $
                                19,016,754Product
      sales
                                
                                
                                358,629
                                
                                
                                
                                431,54119,623,392
                                
                                
                                
                                19,448,295Costs
      and Expenses (Income):Costs
      related to services
                                
                                
                                8,878,500
                                
                                
                                
                                8,985,373Costs
      of products sold
                                
                                
                                167,830
                                
                                
                                
                                199,134Selling,
      general and administrative expenses
                                
                                
                                7,765,084
                                
                                
                                
                                7,993,190Interest
      expense
                                
                                
                                26,267
                                
                                
                                
                                44,302Equity
      in net loss from investment in limited liability company
                                
                                
                                116,127
                                
                                
                                
                                -Other
      income
                                
                                
                                (59,691
                                )
                                
                                
                                (116,339
                                )Income
      before Provision for Income Taxes
                                
                                
                                2,729,275
                                
                                
                                
                                2,342,635Provision
      for Income Taxes
                                
                                
                                1,119,000
                                
                                
                                
                                961,000NET
      INCOME
                                
                                $
                                1,610,275
                                
                                
                                $
                                1,381,635Net
      income per share:Basic
                                
                                $
                                .17
                                
                                
                                $
                                .15Diluted
                                
                                $
                                .16
                                
                                
                                $
                                .14Weighted
      average number of common shares outstanding:Basic
                                
                                
                                9,537,894
                                
                                
                                
                                9,461,888Diluted
                                
                                
                                9,835,180
                                
                                
                                
                                9,651,024





See
accompanying notes to condensed financial statements.


3


AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)




Three
      Months Ended June 30,2010
                      
                      
                      2009Revenues:Services
                      
                      $
                      9,556,032
                      
                      
                      $
                      9,358,248Product
      sales
                      
                      
                      156,113
                      
                      
                      
                      159,9589,712,145
                      
                      
                      
                      9,518,206Costs
      and Expenses (Income):Costs
      related to services
                      
                      
                      4,447,545
                      
                      
                      
                      4,469,407Costs
      of products sold
                      
                      
                      75,346
                      
                      
                      
                      78,132Selling,
      general and administrative expenses
                      
                      
                      3,857,251
                      
                      
                      
                      3,940,743Interest
      expense
                      
                      
                      13,836
                      
                      
                      
                      20,620Equity
      in net loss from investment in limited liability company
                      
                      
                      116,127
                      
                      
                      
                      -Other
      income
                      
                      
                      (29,863
                      )
                      
                      
                      (22,081
                      )Income
      before Provision for Income Taxes
                      
                      
                      1,231,903
                      
                      
                      
                      1,031,385Provision
      for Income Taxes
                      
                      
                      509,000
                      
                      
                      
                      423,000NET
      INCOME
                      
                      $
                      722,903
                      
                      
                      $
                      608,385Net
      income per share:Basic
                      
                      $
                      .08
                      
                      
                      $
                      .06Diluted
                      
                      $
                      .07
                      
                      
                      $
                      .06Weighted
      average number of common shares outstandingBasic
                      
                      
                      9,549,355
                      
                      
                      
                      9,469,908Diluted
                      
                      
                      9,828,473
                      
                      
                      
                      9,720,829





See
accompanying notes to condensed financial statements.




4


AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2010
                  
                  
                  2009Cash
      Flows From Operating Activities:Net
      income
                  
                  $
                  1,610,275
                  
                  
                  $
                  1,381,635Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  1,842,231
                  
                  
                  
                  2,041,165Loss
      on write off of fixed assets
                  
                  
                  -
                  
                  
                  
                  391Stock
      compensation charge
                  
                  
                  160,419
                  
                  
                  
                  178,507Equity
      in net loss from investment in limited liability company
                  
                  
                  116,127
                  
                  
                  
                  -Decrease
      (increase) in:Accounts
      receivable
                  
                  
                  173,530
                  
                  
                  
                  433,424Inventory
                  
                  
                  (226,445
                  )
                  
                  
                  4,351Prepaid
      income taxes
                  
                  
                  (127,069
                  )
                  
                  
                  26,172Prepaid
      expenses and other current assets
                  
                  
                  (206,876
                  )
                  
                  
                  127,439Increase
      (decrease) in:Accounts
      payable, accrued expenses and other
                  
                  
                  122,566
                  
                  
                  
                  394,722Deferred
      revenue
                  
                  
                  (30,838
                  )
                  
                  
                  (22,314
                  )Net
      Cash Provided by Operating Activities
                  
                  
                  3,433,920
                  
                  
                  
                  4,565,492Cash
      Flows From Investing Activities:Expenditures
      for fixed assets
                  
                  
                  (400,624
                  )
                  
                  
                  (707,475
                  )Repayment
      of notes receivable
                  
                  
                  -
                  
                  
                  
                  13,990Deposit
      on equipment
                  
                  
                  (21,875
                  )
                  
                  
                  -Purchase
      – other
                  
                  
                  -
                  
                  
                  
                  (15,099
                  )Payment
      of Investment in limited liability company
                  
                  
                  (4,130,731
                  )
                  
                  
                  -Decrease
      in other assets
                  
                  
                  5,065
                  
                  
                  
                  31,401Net
      Cash Used In Investing Activities
                  
                  
                  (4,548,165
                  )
                  
                  
                  (677,183
                  )Cash
      Flows From Financing Activities:Proceeds
      from long-term debt
                  
                  
                  2,000,000
                  
                  
                  
                  -Repayment
      of long-term debt
                  
                  
                  (1,326,667
                  )
                  
                  
                  (1,163,282
                  )Payment
      of accounts payable - acquisitions
                  
                  
                  (73,346
                  )
                  
                  
                  (151,600
                  )Proceeds
      upon exercise of stock options
                  
                  
                  43,985
                  
                  
                  
                  -Payment
      of loan financing costs
                  
                  
                  (4,370
                  )
                  
                  
                  -Dividends
      paid
                  
                  
                  (950,364
                  )
                  
                  
                  -Net
      Cash Used In Financing Activities
                  
                  
                  (310,762
                  )
                  
                  
                  (1,314,882
                  )





See
accompanying notes to condensed financial statements.




5


AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





Six
      Months Ended June 30,2010
                          
                          
                          2009Net
      Increase (decrease) in Cash
                          
                          $
                          (1,425,007
                          )
                          
                          $
                          2,573,427Cash,
      Beginning of Period
                          
                          
                          5,498,448
                          
                          
                          
                          2,473,733Cash,
      End of Period
                          
                          $
                          4,073,441
                          
                          
                          $
                          5,047,160SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:CASH
      PAID DURING THE PERIOD FOR INTEREST
                          
                          $
                          26,014
                          
                          
                          $
                          44,693CASH
      PAID DURING THE PERIOD FOR INCOME TAXES
                          
                          $
                          1,274,617
                          
                          
                          $
                          819,830SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTINGAND
      FINANCING ACTIVITIES:Accounts
      Payable – acquisitions / additional goodwill-
      American Mediconnect Inc.
                          
                          $
                          38,298
                          
                          
                          $
                          203,148Other
      assets, deposits on equipment transferred tofixed
      assets
                          
                          
                          -
                          
                          
                          
                          195,103Other
      assets, deposits on product transferred to inventory
                          
                          $
                          89,685
                          
                          
                          
                          -





See
accompanying notes to condensed financial statements.




6


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, 2009 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) necessary
to present fairly the financial position as of June 30, 2010 and the results of
operations and cash flows for the six months ended June 30, 2010 and
2009.




The
accounting policies used in preparing these financial statements are the same as
those described in the December 31, 2009 financial statements except as noted
below.




The
Company owns a minority interest of approximately 10% in an unconsolidated
limited liability company.  The Company’s investment in the
unconsolidated limited liability company is recorded using the equity method of
accounting, whereby the original investment is recorded at cost and subsequently
adjusted for contributions, distributions, and net income (loss) attributable to
such limited liability company.  All income and loss are allocated to
the limited liability company members in accordance with the terms of the
limited liability company agreement.




Certain
amounts in the 2009 condensed consolidated financial statements have been
reclassified to conform to the 2010 presentation.




The
results of operations for the six and three months ended June 30, 2010 are not
necessarily indicative of the results to be expected for any other interim
period or for the full year.




3.
            Recent
      Accounting Pronouncements:




During
the third quarter of 2009, the Company adopted ASC Topic 105, Generally Accepted
Accounting Principles, which establishes the FASB Accounting Standards
Codification (“ASC”) as the sole source of authoritative generally accepted
accounting principles ("GAAP") to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission ("SEC")
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The codification did not change GAAP but reorganizes
the literature. References for FASB guidance throughout this document have been
updated for the codification.


7




4.
            Accounting
      for Stock-Based Compensation:




Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly SFAS
No. 123 (R), Share-Based Payment), 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.




No
options were granted during thesix month period ended June 30, 2010 and the Company granted options to
purchase 15,000 shares of common stock during the six month period ended June
30, 2009.




The following tables summarize stock
option activity for the six months ended June 30, 2010 and 2009.




2010WeightedAverageWeighted
                      
                      
                      Remaining
                      
                      
                      AggregateNumber
      of
                      
                      
                      Average
                      
                      
                      Contractual
                      
                      
                      IntrinsicOptions
                      
                      
                      Option
      Price
                      
                      
                      Term
      (years)
                      
                      
                      ValueBalance
      at January 1
                      
                      
                      894,785
                      
                      
                      $
                      4.29Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      (10,325
                      )
                      
                      
                      4.26Expired/Forfeited
                      
                      
                      -
                      
                      
                      
                      -Balance
      at June 30
                      
                      
                      884,460
                      
                      
                      $
                      4.29
                      
                      
                      
                      2.00
                      
                      
                      $
                      1,565,633Vested
      and exercisable
                      
                      
                      851,760
                      
                      
                      $
                      4.23
                      
                      
                      
                      1.92
                      
                      
                      $
                      1,561,911


8




2009WeightedAverageWeighted
                      
                      
                      Remaining
                      
                      
                      AggregateNumber
      of
                      
                      
                      Average
                      
                      
                      Contractual
                      
                      
                      IntrinsicOptions
                      
                      
                      Option
      Price
                      
                      
                      Term
      (years)
                      
                      
                      ValueBalance
      at January 1
                      
                      
                      877,235
                      
                      
                      $
                      4.25Granted
                      
                      
                      15,000
                      
                      
                      
                      5.72Exercised
                      
                      
                      -
                      
                      
                      
                      -Expired/Forfeited
                      
                      
                      (6,650
                      )
                      
                      
                      5.35Balance
      at June 30
                      
                      
                      885,585
                      
                      
                      $
                      4.27
                      
                      
                      
                      2.98
                      
                      
                      $
                      1,387,149Vested
      and exercisable
                      
                      
                      870,585
                      
                      
                      $
                      4.24
                      
                      
                      
                      2.95
                      
                      
                      $
                      1,387,149





The
aggregate intrinsic value of options exercised during the six months ended June
30, 2010 was $24,560. No options were exercised during the six months ended June
30, 2009.  There were 32,700 and 15,000 nonvested stock options
outstanding as of June 30, 2010 and 2009, respectively.





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







Three
      Months
                    
                    
                    Three
      MonthsEnded
      June 30,
                    
                    
                    Ended
      June 30,2010
                    
                    
                    2009Stock
      options
                    
                    $
                    -
                    
                    
                    $
                    6,250Stock
      grants – other
                    
                    
                    10,882
                    
                    
                    
                    22,880Service
      based awards
                    
                    
                    32,037
                    
                    
                    
                    33,845Performance
      based awards
                    
                    
                    37,294
                    
                    
                    
                    29,400Tax
      benefit
                    
                    
                    (33,098
                    )
                    
                    
                    (37,909
                    )Stock-based
      compensation expense, net of tax
                    
                    $
                    47,115
                    
                    
                    $
                    54,466





Six
      Months
                    
                    
                    Six
      MonthsEnded
      June 30,
                    
                    
                    Ended
      June 30,2010
                    
                    
                    2009Stock
      options
                    
                    $
                    -
                    
                    
                    $
                    6,250Stock
      grants – other
                    
                    
                    21,759
                    
                    
                    
                    45,767Service
      based awards
                    
                    
                    64,072
                    
                    
                    
                    67,690Performance
      based awards
                    
                    
                    74,588
                    
                    
                    
                    58,800Tax
      benefit
                    
                    
                    (65,772
                    )
                    
                    
                    (73,224
                    )Stock-based
      compensation expense, net of tax
                    
                    $
                    94,647
                    
                    
                    $
                    105,283





Stock
Grants - Other





Effective
January 1, 2010, the non-employee members of the Board of Directors have an
option to elect either shares of common stock or cash at the end of each quarter
as compensation for services provided as members of the Board of Directors and
other committees.    Prior to 2010, the non-employee members
of the Board of Directors were 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.  Share grants issued vest immediately,
but are subject to a one year restriction on transfer.  In addition,
stock grants may be issued to employees at the Board of Directors’
discretion.


9


Service
Based Awards





In
January 2006, May 2007 and January 2009 the Company granted 50,000, 22,000 and
12,000 (net of 9,500 shares waived by an executive) 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, 2010 and 2009 there were 63,000 and 41,000 shares vested,
respectively.  The aggregate grant date fair value of restricted stock
grants was $547,660.As
of June 30, 2010 and 2009, the Company had $68,308 and $234,171, respectively,
of total unrecognized compensation costs related to nonvested restricted stock
units expected to be recognized over a weighted average period of six
months.





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, 2010 and 2009, 57,250 and 29,750 shares were vested,
respectively.  As of June 30, 2010 and 2009, there was $74,588 and
$300,593, respectively, of total unrecognized compensation costs related to
nonvested share awards; that cost is expected to be recognized over a period of
six months.




5.
            Earnings
      Per Share:




Earnings
per share data for the six and three months ended June 30, 2010 and 2009 is
presented in conformity with ASC Topic 250 (formerly SFAS No. 128, Earnings Per
Share).





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




10





Income
                                                                  
                                                                  
                                                                  Shares
                                                                  
                                                                  
                                                                  Per-ShareSix
      Months Ended June 30, 2010
                                                                  
                                                                  (Numerator)
                                                                  
                                                                  
                                                                  (Denominator)
                                                                  
                                                                  
                                                                  AmountsBasic
      EPS - Income available tocommon
      stockholders
                                                                  
                                                                  $
                                                                  1,610,275
                                                                  
                                                                  
                                                                  
                                                                  9,537,894
                                                                  
                                                                  
                                                                  $
                                                                  .17Effect
      of dilutive securities -Options
      and warrants
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  297,286Diluted
      EPS - Income available tocommon
      stockholders andassumed
      conversions
                                                                  
                                                                  $
                                                                  1,610,275
                                                                  
                                                                  
                                                                  
                                                                  9,835,180
                                                                  
                                                                  
                                                                  $
                                                                  .16Three
      Months Ended June 30, 2010Basic
      EPS -Income available tocommon
      stockholders
                                                                  
                                                                  $
                                                                  722,903
                                                                  
                                                                  
                                                                  
                                                                  9,549,355
                                                                  
                                                                  
                                                                  $
                                                                  .08Effect
      of dilutive securities -Options
      and warrants
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  279,118Diluted
      EPS - Income available tocommon
      stockholders andassumed
      conversions
                                                                  
                                                                  $
                                                                  722,903
                                                                  
                                                                  
                                                                  
                                                                  9,828,473
                                                                  
                                                                  
                                                                  $
                                                                  .07Six
      Months Ended June 30, 2009Basic
      EPS - Income available tocommon
      stockholders
                                                                  
                                                                  $
                                                                  1,381,635
                                                                  
                                                                  
                                                                  
                                                                  9,461,888
                                                                  
                                                                  
                                                                  $
                                                                  .15Effect
      of dilutive securities -Options
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  189,136Diluted
      EPS - Income available tocommon
      stockholders andassumed
      conversions
                                                                  
                                                                  $
                                                                  1,381,635
                                                                  
                                                                  
                                                                  
                                                                  9,651,024
                                                                  
                                                                  
                                                                  $
                                                                  .14Three
      Months Ended June 30, 2009Basic
      EPS -Income available tocommon
      stockholders
                                                                  
                                                                  $
                                                                  603,385
                                                                  
                                                                  
                                                                  
                                                                  9,469,908
                                                                  
                                                                  
                                                                  $
                                                                  .06Effect
      of dilutive securities -Options
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  250,921Diluted
      EPS - Income available tocommon
      stockholders andassumed
      conversions
                                                                  
                                                                  $
                                                                  603,385
                                                                  
                                                                  
                                                                  
                                                                  9,720,829
                                                                  
                                                                  
                                                                  $
                                                                  .06




11


6.
            Goodwill





Changes
in the carrying amount of goodwill, all of which relates to the Company’s TBCS
segment, for the six months ended June 30, 2010 and 2009 are as
follows:





Six Months Ended June 30,
    2010Balance
      as of January 1, 2010
                            
                            $
                            10,255,983Additional
      Goodwill
                            
                            
                            38,298Balance
      as of June 30, 2010
                            
                            $
                            10,294,281Six Months Ended June 30,
    2009Balance
      as of January 1, 2009
                            
                            $
                            9,996,152Additional
      Goodwill
                            
                            
                            203,148Balance
      as of June 30, 2009
                            
                            $
                            10,199,300





The
addition to goodwill during the six months ended June 30, 2010 and 2009 relates
to the additional purchase price of American Mediconnect, Inc. based on the cash
receipts from the clinical trials portion of the business.





7.
            Investment
      in limited liability company





On May
12, 2010, the Company entered into a limited liability company agreement with
Hughes Telematics, Inc. and Qualcomm Incorporated to design, develop, finance
and operate a mobile PERS system.  The Company invested $4,000,000 and
incurred $130,731 in professional fees to acquire a minority interest in the new
company, Lifecomm LLC (“Lifecomm”). As part of this transaction, the Company
borrowed $2,000,000 from its bank to partially finance this
transaction.  See Note 8 below.









In
addition, pursuant to the limited liability company agreement, the Company has
agreed to fund its share ($200,000) of a stand-by equity commitment for
Lifecomm’s benefit, if required.





In
connection with the formation of Lifecomm, the Company entered into a Value
Added Reseller Agreement (“VAR Agreement”) with Lifecomm.  Under the
VAR Agreement, the Company will be a reseller of the Mobile PERS Solution in the
United States, as well as a preferred provider of the emergency assistance call
center (“EACC”) component of the Mobile PERS Solution provided by Lifecomm to
customers.  The Company will be the sole provider of the EACC to the
customers to whom it resells the Mobile PERS Solution.  The term of
the VAR Agreement is perpetual, subject to termination as set forth
therein.  The VAR Agreement contains standard indemnification
provisions for agreements of this nature.


12


8.
            Long-term
      Debt:





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.  This term
loan was paid in full during the second quarter of 2010 without any prepayment
charge.  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.  The term
loan which was entered into in March 2006 was paid in full during the second
quarter of 2010 without any prepayment charge.




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.  In June 2010, the term of the revolving credit line was
extended through June 2013.




On May
12, 2010, the Company’s credit facility was amended whereby the Company obtained
an additional $2,000,000 in the form of a term loan, the proceeds of which were
utilized to partially finance an investment relating to the development of a
mobile PERS system.  See Note 7 above.  This term loan is payable
over five years in equal monthly principal installments of $33,333.33,
commencing June 1, 2010.  The interest rate is consistent with the
previous term loans secured by the Company.





As of
June 30, 2010 and March 31, 2010, the Company was in compliance with its
financial covenants in its loan agreement.  As of June 30, 2009 and
March 31, 2009, the Company was in compliance with its financial covenants in
its loan agreement.





9.
            Dividends:





On
December 16, 2009, the Company declared a dividend in the amount of $0.10 per
share, or $950,364, which was accrued as of December 31, 2009.  The
dividend was payable to the shareholders of record as of December 28,
2009.  The dividend was paid on January 15, 2010.





On July
19, 2010, the Company declared a dividend in the amount of $0.10 per share which
will be payable to the shareholders of record as of September 13,
2010.  The dividend will be paid on or about October 1,
2010.


13


10.
            Segment  Reporting:





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, 2010 and
2009:




2010HSMS
                        
                        
                        TBCS
                        
                        
                        ConsolidatedSix Months Ended June 30,
    2010Revenue
                        
                        $
                        10,233,896
                        
                        
                        $
                        9,389,496
                        
                        
                        $
                        19,623,392Income
      before provision for income taxes
                        
                        
                        1,906,142
                        
                        
                        
                        823,133
                        
                        
                        
                        2,729,275Total
      assets
                        
                        
                        18,840,211
                        
                        
                        
                        18,461,741
                        
                        
                        
                        37,301,952HSMS
                        
                        
                        TBCS
                        
                        
                        ConsolidatedThree Months Ended June 30,
      2010Revenue
                        
                        $
                        5,083,836
                        
                        
                        $
                        4,628,309
                        
                        
                        $
                        9,712,145Income
      before provision for income taxes
                        
                        
                        846,764
                        
                        
                        
                        385,139
                        
                        
                        
                        1,231,903





2009HSMS
                        
                        
                        TBCS
                        
                        
                        ConsolidatedSix Months Ended June 30,
    2009Revenue
                        
                        $
                        10,135,352
                        
                        
                        $
                        9,312,943
                        
                        
                        $
                        19,448,295Income
      before provision for income taxes
                        
                        
                        1,645,177
                        
                        
                        
                        697,458
                        
                        
                        
                        2,342,635Total
      assets
                        
                        
                        14,870,915
                        
                        
                        
                        20,370,168
                        
                        
                        
                        35,241,083HSMS
                        
                        
                        TBCS
                        
                        
                        ConsolidatedThree Months Ended June 30,
      2009Revenue
                        
                        $
                        5,045,867
                        
                        
                        $
                        4,472,339
                        
                        
                        $
                        9,518,206Income
      before provision for income taxes
                        
                        
                        873,147
                        
                        
                        
                        158,238
                        
                        
                        
                        1,031,385




14


11.
            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 our latest Annual Report
on Form 10-K for the year ended December 31, 2009, as well as the quarterly Condensed
Consolidated Financial Statements and notes thereto which appear elsewhere in
this Quarterly Report on Form 10-Q.




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, Quarterly Reports on Form 10-Q 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.


15


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,
medication management systems and objective and subjective data/ telehealth/
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, pharmaceutical companies and other healthcare
oriented organizations.  The Company also offers certain products and
services directly to consumers.





About
HSMS:





Personal
Emergency Response Systems (PERS)





The
Company’s core business is the sales and marketing of our Personal Emergency
Response System. The system consists of a console unit and a wireless activator
generally worn as a pendant or on the wrist by the client. In the event of an
emergency, the client is able to summon immediate assistance via the two-way
voice system that connects their home telephone with the Company’s Response
Center. The Company sells three PERS devices for use in either private homes or
independent and assisted living facilities. The Company’s PERS is sold through
its primary brand VoiceCare® and direct to consumer under Walgreens Ready
ResponseTM, Response CallTM, and most recently ApriaAlertTM.





MedSmart





The
second component of AMAC’s remote patient monitoring (“RPM”) platform addresses
another serious healthcare need-medication adherence. During 2009, the Company
commercially released AMAC’s new monitored medication management tool,
MedSmartTM. MedSmart is a system that organizes, reminds and dispenses pills in
accordance with prescribed treatment regimens. With MedSmart‘s event reporting
and notification option, family caregivers and healthcare professionals can
monitor a client’s adherence to their medication regimen. MedSmart’s docking
base serves as the gateway for remote programming and event reporting. When
connected to a household phone, MedSmart transmits device and dispensing history
to a secure server supported with a web application for review by authorized
individuals. Through AMAC’s personalized notification system, alerts can be sent
to track adherence, address dosing errors and predict refill requirements. The
Company plans to market MedSmart directly to consumers and through its national
business to business network.


Telehealth
systems





Rounding
out AMAC’s RPM portfolio is AMAC’s telehealth delivery capability. As a
distributor of the Health Buddy® System, many of the Company’s customers have
successfully demonstrated the value proposition of incorporating telehealth
technologies into a patient’s plan of care.  Later this year, AMAC
plans to release a new low-cost telehealth solution that combines vital sign
reporting and personalized questions about the patient’s health.  This
AMAC operated telehealth platform is directed toward providers who require a
low-cost solution, easy installation, reliable transmission of vital sign data
in real-time and ease of use on the patient side. Moving forward, AMAC plans to
integrate its telehealth monitoring and medication management reporting feature
sets to deliver the most robust solution for our customers.


16


About
TBCS





Telephony
Based Communication Services (TBCS)




AMAC’s
TBCS division offers call center solutions that enhance the patient/provider
communication experience. As part of our business development strategy,
management continues to employ advanced telephony technology and information
systems to develop services. In addition to technology, a critical component for
expansion is the Company’s professionally trained call agent
staff.  The overall infrastructure has allowed AMAC to expand its
services beyond traditional telephone answering services to provide more
innovative, clinically oriented call center offerings.  For the six
months ended June 30, 2010, the TBCS segment accounted for 48% of the Company’s
gross revenues.  The Company’s TBCS division is comprised of three
service offerings:





After
Hours Answering Services




AMAC’s
after hours services are classified as essential call center services. Basic
services in this offering include traditional after hour answer and customized
message delivery options, contact lists and on-call schedule management, all of
which can be updated at the client’s conveniences using the OnCall web
portal.  Through this portal, clients can also access the account’s
call history, specifications and messages. Enhanced ala carte services including
daytime overflow and broadcast messaging services which have proven to enhance
value and facilitate stronger patient provider relations.





Concierge
Services/Daytime Solutions




AMAC’s
Concierge Services focus on the delivery of enhanced communications and help to
streamline workflow within provider organizations. These solutions primarily
serve hospitals and health plans. Services range from supporting insurance
eligibility verification programs; to enhancing patient self care activities via
post discharge follow-up programs, to specialized Emergency Department programs
with strict reach guidelines to facilitate better treatment and care. Through
more efficient and effective call processing, these solutions improve patient
satisfaction, reduce cost, and increase revenue by maximizing the ratio of
patients to available resources.





Pharmaceutical
Support and Clinical Trial Recruitment Services





Our
PhoneScreen clinical trial solutions service is an integral component of our
overall growth strategy to drive revenue enhancement and expand our visibility.
PhoneScreen is a leader in the field of patient recruitment, retention and
contact center services.  Using centralized telephone screening of
potential clinical trial study subjects, PhoneScreen provides valuable data to
inform advertising and patient recruitment strategies.


17


In 2009,
the TBCS division commenced new relationships with two premiere pharmaceutical
companies. We anticipate our pharmaceutical support programs will be utilized to
deliver enhanced patient-centric healthcare communication experiences on behalf
of certain brands. Based upon new demand, we are recruiting for nurses, health
educators and other healthcare professionals that will allow us to provide
additional turn-key solutions for our clients.





The
Company has completed ten acquisitions to date to facilitate growth within the
TBCS division. For the remainder of 2010, the Company will focus on growing this
segment through internally driven sales and marketing efforts and will also
continue to search for additional acquisition opportunities.




Operating
Segments




For the
six months ended June 30, 2010, HSMS accounted for 52% of the Company’s revenue
and TBCS accounted for 48% of the Company’s revenue.  The Company
believes that the overall mix of cash flow generating businesses from HSMS and
TBCS, combined with its emphasis on developing products and services to support
demand from customers and the emerging, home-based monitoring market, provides
the correct blend of stability and growth opportunity. The Company believes this
strategy will enable it to maintain and increase its role as a national
healthcare communications provider.  Based on the Company’s growth
strategy and the complementary nature of if its operating divisions, management
believes the Company’s outlook is very positive. Management also believes that
while the details of the newly enacted healthcare legislation is awaiting
regulation, the Company’s products and services should be in greater demand over
the next several years.





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, 2010 and 2009.




In
      thousands (000’s)
                          
                          Three
      Months Ended June 30,
                          
                          
                          Six
      Months Ended June 30,2010
                          
                          
                          %
                          
                          
                          2009
                          
                          
                          %
                          
                          
                          2010
                          
                          
                          %
                          
                          
                          2009
                          
                          
                          %RevenuesHSMS
                          
                          
                          5,084
                          
                          
                          
                          52
                          %
                          
                          
                          5,046
                          
                          
                          
                          53
                          %
                          
                          
                          10,234
                          
                          
                          
                          52
                          %
                          
                          
                          10,135
                          
                          
                          
                          52
                          %TBCS
                          
                          
                          4,628
                          
                          
                          
                          48
                          %
                          
                          
                          4,472
                          
                          
                          
                          47
                          %
                          
                          
                          9,389
                          
                          
                          
                          48
                          %
                          
                          
                          9,314
                          
                          
                          
                          48
                          %Total
      Revenues
                          
                          
                          9,712
                          
                          
                          
                          100
                          %
                          
                          
                          9,518
                          
                          
                          
                          100
                          %
                          
                          
                          19,623
                          
                          
                          
                          100
                          %
                          
                          
                          19,449
                          
                          
                          
                          100
                          %Cost
      of Services and Goods SoldHSMS
                          
                          
                          2,058
                          
                          
                          
                          40
                          %
                          
                          
                          2,083
                          
                          
                          
                          41
                          %
                          
                          
                          4,067
                          
                          
                          
                          40
                          %
                          
                          
                          4,286
                          
                          
                          
                          42
                          %TBCS
                          
                          
                          2,465
                          
                          
                          
                          53
                          %
                          
                          
                          2,464
                          
                          
                          
                          55
                          %
                          
                          
                          4,979
                          
                          
                          
                          53
                          %
                          
                          
                          4,899
                          
                          
                          
                          53
                          %Total
      Cost of Services and Goods Sold
                          
                          
                          4,523
                          
                          
                          
                          47
                          %
                          
                          
                          4,547
                          
                          
                          
                          48
                          %
                          
                          
                          9,046
                          
                          
                          
                          46
                          %
                          
                          
                          9,185
                          
                          
                          
                          47
                          %Gross
      ProfitHSMS
                          
                          
                          3,026
                          
                          
                          
                          60
                          %
                          
                          
                          2,963
                          
                          
                          
                          59
                          %
                          
                          
                          6,167
                          
                          
                          
                          60
                          %
                          
                          
                          5,849
                          
                          
                          
                          58
                          %TBCS
                          
                          
                          2,163
                          
                          
                          
                          47
                          %
                          
                          
                          2,008
                          
                          
                          
                          45
                          %
                          
                          
                          4,410
                          
                          
                          
                          47
                          %
                          
                          
                          4,415
                          
                          
                          
                          47
                          %Total
      Gross Profit
                          
                          
                          5,189
                          
                          
                          
                          53
                          %
                          
                          
                          4,971
                          
                          
                          
                          52
                          %
                          
                          
                          10,577
                          
                          
                          
                          54
                          %
                          
                          
                          10,264
                          
                          
                          
                          53
                          %Selling,
      General & Administrative
                          
                          
                          3,857
                          
                          
                          
                          40
                          %
                          
                          
                          3,941
                          
                          
                          
                          41
                          %
                          
                          
                          7,765
                          
                          
                          
                          40
                          %
                          
                          
                          7,993
                          
                          
                          
                          41
                          %Interest
      Expense
                          
                          
                          14
                          
                          
                          
                          -
                          %
                          
                          
                          21
                          
                          
                          
                          -
                          %
                          
                          
                          26
                          
                          
                          
                          -
                          %
                          
                          
                          44
                          
                          
                          
                          -
                          %Equity
      in net loss from investment in limited liability
    company
                          
                          
                          116
                          
                          
                          
                          1
                          %
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          116
                          
                          
                          
                          1
                          %
                          
                          
                          -
                          
                          
                          
                          -Other
      Income
                          
                          
                          (30
                          )
                          
                          
                          -
                          %
                          
                          
                          (22
                          )
                          
                          
                          -
                          %
                          
                          
                          (59
                          )
                          
                          
                          -
                          %
                          
                          
                          (116
                          )
                          
                          
                          (1
                          )%Income
      before Income Taxes
                          
                          
                          1,232
                          
                          
                          
                          13
                          %
                          
                          
                          1,031
                          
                          
                          
                          11
                          %
                          
                          
                          2,729
                          
                          
                          
                          14
                          %
                          
                          
                          2,343
                          
                          
                          
                          12
                          %Provision
      for Income Taxes
                          
                          
                          509
                          
                          
                          
                          
                          
                          
                          
                          423
                          
                          
                          
                          
                          
                          
                          
                          1,119
                          
                          
                          
                          
                          
                          
                          
                          961Net
      Income
                          
                          
                          723
                          
                          
                          
                          
                          
                          
                          
                          608
                          
                          
                          
                          
                          
                          
                          
                          1,610
                          
                          
                          
                          
                          
                          
                          
                          1,382


18


Results of
Operations:





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





Three Months Ended June 30,
2010 Compared to Three Months Ended June 30, 2009





Revenues:





HSMS





Revenues,
which consist primarily of monthly rental revenues, increased approximately
$38,000, or 1%, for the three months ended June 30, 2010 as compared to the same
period in 2009.  The increase is primarily attributed to the following
factors:





§
            The
      Company experienced revenue growth in its PERS business to business
      service of approximately $144,000 primarily from its existing long-tem
      care programs as well as execution of new agreements.  This
      increase in service revenue was partially offset by a decrease of
      approximately $132,000 in service revenue from a managed care organization
      as a result of State funding being cancelled under their
      program.  Nevertheless, the Company was able to maintain many of
      the existing subscribers who were associated with this organization at
      reduced rates.





§
            The
      Company continued to realize increased revenue from its agreement with
      Walgreen to provide the Company’s PERS product under the Walgreen brand
      name directly to the consumers.  The revenue increase from this
      program accounted for approximately $51,000 during the three months ended
      June 30, 2010 as compared to the same period in 2009.  Commencing
      in the third quarter of 2010, the Company plans to launch an advertising
      campaign under the Walgreen brand name to generate increased revenue from
      this program.  The Company entered into another similar
      private label program with Apria Healthcare during 2009 and continues to
      pursue other opportunities within this area as the Company believes
      private label marketing channels facilitate greater revenue
      growth.


19


§
            In
      2009, the Company commercialized its MedSmart medication and management
      system and for the three months ended June 30, 2010, the Company generated
      approximately $24,000 of increased product sales as compared to the same
      period in 2009.  The Company plans to launch an aggressive
      advertising campaign to promote its MedSmart medication and management
      system commencing in the second half of 2010 and as a result anticipates
      increased revenue being generated from this
  product.





These
increases in service and product sales revenue were partially offset by a
decrease in product sales of its enhanced senior living products of
approximately $28,000 as a result of the housing and credit crisis encountered
in the economy.





TBCS





The
increase in revenues of approximately $156,000, or 3%, for the three months
ended June 30, 2010 as compared to the same period in 2009 was primarily due
to:





§
            The
      Company realized an increase in revenue within its non-traditional
      day-time service offering of approximately $433,000 for the three months
      ended June 30, 2010 as compared to the same period in prior year primarily
      due to certain hospital organizations expanding their services with
      us.  In addition to a recently executed agreement with a new
      hospital organization and through further service expansion from existing
      hospital solution customers, the Company anticipates it will continue to
      realize growth in this area throughout 2010 and into
  2011.





This
increase in revenue was partially offset by a decrease in revenue from its
traditional after hours service of approximately $335,000 for the three months
ended June 30, 2010 as compared to the same period in prior year due to customer
attrition.  The customer attrition was primarily the result of the
general economic conditions and certain service issues whereby certain customers
moved their service in-house or to other alternatives.  The Company
has been performing certain re-structuring and re-organizational procedures and
strategies to reduce and stabilize the attrition.





Additionally,
in the second quarter of 2010, the Company executed agreements with a customer
relating to pharmaceutical support service projects. The Company realized
approximately $62,000 of revenue in the second quarter of 2010 from one of the
projects which commenced in June 2010.  As a result of these agreements,
increased revenue within the pharmaceutical support area is anticipated in the
third quarter of 2010.  20


Costs Related to Services
and Goods Sold:





HSMS





Costs
related to services and goods sold decreased by approximately $25,000 for the
three months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 1%, primarily due to the following:





§
            The
      Company recorded a decrease in depreciation expense by approximately
      $31,000 primarily as a result of the Company purchasing its PERS equipment
      at reduced prices through an alternative supplier as well as purchasing
      less PERS equipment as compared to prior
years.




TBCS





Costs
related to services and goods sold increased by approximately $1,000 for the
three months ended June 30, 2010 as compared to the same period in 2009, an
increase of less than 1%, primarily due to the following:





§
            The
      Company recognized an increase in payroll and related expenses associated
      with non-traditional after-hours service of approximately $122,000 during
      the three months ended June 30, 2010 primarily due to a corresponding
      increase in revenue in this area. As the Company continues to grow
      revenues in this area, it will continue closely monitor the personnel
      requirements to perform these services effectively.  The Company
      also incurred increased payroll with respect to account programming which
      was partially offset by a decrease in the payroll associated with the
      traditional day time service.




This
increase was partially offset by a decrease in communication expense of
approximately $57,000 which primarily due to the Company performing a detail
analysis with respect to its Pager services which resulted in reduced
costs.  In addition, TBCS recorded a decrease in rent expense of
approximately $25,000 during the second quarter of 2010 as compared to the same
period in the prior year as a result of the TBCS allocating a portion of its
rent expense to the HSMS division.   In the last quarter of 2009,
the Company relocated the HSMS Customer Service and Emergency Response Center
(“ERC”) employees to floor space within the TBCS rented space.  The
space previously occupied by the HSMS employees was sublet to an independent
third party.




Selling, General and
Administrative Expenses:





Selling,
general and administrative expenses decreased by approximately $84,000 for the
three months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 2%.  The decrease is primarily attributable to the
following:


21


§
            The
      Company realized a decrease in consulting expense of approximately $98,000
      during the second quarter of 2010 as compared to the same period in
      2009.  This was primarily as a result of the Company incurring
      consulting expense relating to the upgrade of existing websites and
      accounting system as well as utilizing sales and public relation
      consulting firms in prior year.





§
            The
      Company recorded a decrease in amortization expense of approximately
      $36,000 during the second quarter of 2010 as compared to the same period
      in 2009 primarily due to certain intangible assets associated with
      previous telephone answering service acquisitions and a license agreement
      being fully amortized.





§
            These
      decreases were partially offset by an increase in sales and marketing
      salaries of approximately $84,000 during the second quarter of 2010 as
      compared to the same period in 2009 primarily due to the Company expanding
      its sales and marketing team during 2010 in an effort to facilitate sales
      growth.





There
were other decreases in selling, general and administrative expenses which arose
out of the normal course of business such as repairs and maintenance as well as
research and development expense which were partially offset by increases in
advertising and convention expenses.  Commencing
in the third quarter of 2010, the Company plans to launch an advertising
campaign under the PERS and MedSmart products and anticipates that advertising
expense will increase significantly in the second half of 2010 and into
2011.





Interest
Expense:





Interest
expense for the three months ended June 30, 2010 and 2009 was approximately
$14,000 and $21,000, respectively.  The decrease of $7,000 was as a
result of the Company’s loan balance being less in the current year than in
the prior year primarily due to the Company continuing to pay down its term
loan.  The Company obtained an additional loan in May 2010 for the
partial funding of the investment in a limited liability company and as a result
interest expense is expected to increase.





Equity in Net Loss from
Investment in Limited Liability Company:





Equity in
net loss from investment in limited liability company for the three months ended
June 30, 2010 of approximately $116,000 was related to the Company’s investment
in Lifecomm LLC in May 2010 which represents the Company’s share of research and
development cost as well as other selling, general and administrative expenses
incurred for the development of the next generation mobile PERS for the
quarter.  The
Company anticipates it will continue to incur losses, at an increased level,
over the next twelve to eighteen months, at which time it is anticipated that
the next generation mobile PERS will be completed and
commercialized.




Other
Income:





Other
income for the three months ended June 30, 2010 and 2009 was approximately
$30,000 and $22,000, respectively, which primarily consists of miscellaneous
non-operational income.


22


Income Before Provision for
Income Taxes:





The
Company’s income before provision for income taxes for the three months ended
June 30, 2010 was approximately $1,232,000 as compared to $1,031,000 for the
same period in 2009. The increase of $201,000 for the three months ended June
30, 2010 primarily resulted from an increase in the Company's revenue as well as
a decrease in the Company’s costs related to services and product sales,
selling, general and administrative costs and interest expense which was
partially offset by the equity in net loss from investment in limited liability
company.





Six Months Ended June 30,
2010 Compared to Six Months Ended June 30, 2009





Revenues:





HSMS





Revenues,
which consist primarily of monthly rental revenues, increased approximately
$99,000, or 1%, for the six months ended June 30, 2010 as compared to the same
period in 2009.  The increase is primarily attributed to the following
factors:





§
            The
      Company experiencing revenue growth in its PERS business to business
      service of approximately $339,000 primarily from its existing third party
      reimbursement and long-term care programs as well as execution of new
      agreements.  This increase in service revenue was primarily
      partially offset by a decrease of approximately $267,000 in service
      revenue from a managed care organization as a result of State funding
      being cancelled under their program.  Nevertheless, the Company
      was able to maintain many of the existing subscribers who were associated
      with this organization at reduced
rates.





§
            The
      Company continued to realize increased revenue from its agreement with
      Walgreen to provide the Company’s PERS product under the Walgreen brand
      name directly to the consumers.  The revenue increase from this
      program accounted for approximately $113,000 during the six months ended
      June 30, 2010 as compared to the same period in 2009.  Commencing
      in the third quarter of 2010, the Company plans to launch an advertising
      campaign under the Walgreen brand name to generate increased revenue from
      this program.  The Company entered into another similar
      private label program with Apria Healthcare during 2009 and continues to
      pursue other opportunities within this area as the Company believes
      private label marketing channels facilitate greater revenue
      growth.





§
            In
      2009, the Company commercialized its MedSmart medication and management
      system and for the six months ended June 30, 2010, the Company generated
      approximately $62,000 of increased product sales as compared to the same
      period in 2009.  The Company plans to launch an aggressive
      advertising campaign to promote its MedSmart medication and management
      system, commencing in the second half of 2010 and as a result anticipates
      increased revenue being generated from this
  product


23


These
increases in service and product revenue were partially offset by a
decrease in product sales of its enhanced senior living products of
approximately $126,000 as a result of the housing and credit crisis encountered
in the economy.





TBCS





The
increase in revenues of approximately $75,000, or 1%, for the six months ended
June 30, 2010 as compared to the same period in 2009 was primarily due
to:





§
            The
      Company realized an increase in revenue within its non-traditional
      day-time service offering of approximately $753,000 for the six months
      ended June 30, 2010 as compared to the same period in the prior year
      primarily due to certain hospital organizations expanding their services
      with us.  In addition to a recently executed agreement with a
      hospital organization, the Company anticipates further service expansion
      from the existing hospital solution customers throughout 2010 and into
      2011.





This
increase in revenue was partially offset by a decrease in revenue from its
traditional after hours service of approximately $554,000 for the six months
ended June 30, 2010 as compared to the same period in the prior year due to
customer attrition. The customer attrition was primarily the result of the
general economic conditions and certain service issues whereby certain customers
moved their service in-house or to other alternatives.  The Company
has been performing certain re-structuring and re-organizational procedures and
strategies to reduce and stabilize the attrition.  In addition, the
Company was awarded a one-time project from a State program in the prior year
whereby the Company generated approximately $119,000 in revenue which the
Company did not perform in the current year.





Additionally,
in the second quarter of 2010, the Company executed agreements with a customer
relating to pharmaceutical support services projects.  The Company realized
approximately $62,000 of revenue in the second quarter of 2010 from one of the
projects which commenced in June 2010.  As a result of these agreements,
increased revenue within the pharmaceutical support area is anticipated in the
third quarter of 2010.




Costs Related to Services
and Goods Sold:





HSMS





Costs
related to services and goods sold decreased by approximately $219,000 for the
six months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 5%, primarily due to the following:





§
            The
      Company recorded a decrease in depreciation expense by approximately
      $85,000 primarily as a result of the Company purchasing its PERS equipment
      at reduced prices through an alternative supplier as well as purchasing
      less PERS equipment as compared to prior
years.


24


·
            The
      Company recognized a decrease in product costs of approximately $31,000
      primarily due to a corresponding reduction in sales of enhanced senior
      living products.  This decrease in cost of products sold was
      partially offset by an increase in cost of products sold related to
      MedSmart medication and management systems which was commercialized in
      2009.





·
            The
      Company realized a decrease of approximately $57,000 in costs primarily
      related to testing, repairs and upgrades associated with the Company’s
      PERS and MedSmart devices and associated
  components.





TBCS:





Costs
related to services increased by approximately $80,000 for the six months ended
June 30, 2010 as compared to the same period in 2009, an increase of 2%,
primarily due to the following:





§
            The
      Company recognized an increase in payroll and related expenses associated
      with non-traditional after hours service of approximately $196,000 during
      the six months ended June 30, 2010 primarily due to a corresponding
      increase in revenue in this area in 2010 as compared to the same period in
      prior year.  As the Company continues to grow in this area, we
      will continue closely monitor the personnel requirements to perform these
      services effectively.  The Company also incurred increased
      payroll with respect to account programming which was partially offset by
      a decrease in the payroll associated with the traditional day time
      service.




This
increase was partially offset by a decrease in communication expense of
approximately $72,000 which primarily due to the Company performing a detail
analysis with respect to its Pager services which resulted in reduced
costs.  In addition, the TBCS division recorded a decrease in rent
expense of approximately $50,000 during the first half of 2010 as compared to
the same period in the prior year as a result of the TBCS allocating a portion
of its rent expense to the HSMS division.   In the last quarter
of 2009, the Company relocated the HSMS Customer Service and Emergency Response
Center (“ERC”) employees to floor space within the TBCS rented
space.  The space previously occupied by the HSMS employees was sublet
to an independent third party.




Selling, General and
Administrative Expenses:





Selling,
general and administrative expenses decreased by approximately $228,000 for the
six months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 3%.  The decrease is primarily attributable to the
following:


25


§
            The
      Company realized a decrease in consulting expense of approximately
      $217,000 for the first six months of 2010 as compared to the same period
      in 2009.  This was primarily as a result of the Company
      incurring consulting expense relating to the upgrade of existing websites
      and accounting system as well as utilizing sales and public relation
      consulting firms in prior year.





§
            The
      Company recognized a decrease in commission expense of approximately
      $86,000 for the first six months of 2010 as compared to the same period in
      2009 primarily due to less commission related referrals incurred in 2010
      as compared to prior year.





§
            The
      Company recorded a decrease in amortization expense of approximately
      $118,000 for the first six months of 2010 as compared to the same period
      in 2009 primarily due to certain intangible assets associated with
      previous telephone answering service acquisitions and a license agreement
      being fully amortized.





§
            The
      Company recorded a decrease in research and development expense of
      approximately $121,000 primarily as a result of the Company incurring
      charges relating to the research and development with respect to its
      MedSmart medication and management system during 2009. No such costs were
      recorded in 2010 as such research and development work had been completed
      in 2009 and MedSmart has been
commercialized.





§
            These
      decreases were partially offset by an increase in sales and marketing
      salaries of approximately $270,000 during the first six months of 2010 as
      compared to the same period in 2009 primarily due to the Company expanding
      its sales and marketing team during 2010 in an effort to facilitate sales
      growth.





There
were other decreases in selling, general and administrative expenses which arose
out of the normal course of business such as utility expense as well as repair
and maintenance expense which were partially offset by increases in advertising
and convention expenses.  Commencing
in the third quarter of 2010, the Company palns to launch an advertising
campaign for its PERS and MedSmart products and anticipates that advertising
expense will increase significantly in the second half of 2010 and into
2011.





Interest
Expense:





Interest
expense for the six months ended June 30, 2010 and 2009 was approximately
$26,000 and $44,000, respectively.  The decrease of $18,000 was as a
result of the Company’s loan balance being less in the current year than in the
prior year primarily due to the Company continuing to pay down its term
loan.  The Company obtained an additional loan in May 2010 for the
partial funding of the investment in a limited liability company and as a result
interest expense is expected to increase.





Equity in Net Loss from
Investment in Limited Liability Company:





Equity in
net loss from investment in limited liability company for the six months ended
June 30, 2010 of approximately $116,000 was related to the Company’s investment
in Lifecomm LLC in May 2010 which represents the Company’s share of research and
development cost as well as other selling, general and administrative expenses
incurred for the development of the next generation mobile PERS for the six
months ended June 30, 2010.  The
Company anticipates it will continue to incur losses, at an increased level,
over the next twelve to eighteen months, at which time it is anticipated that
the next generation mobile PERS will be completed and
commercialized.


26


Other
Income:





Other
income for the six months ended June 30, 2010 and 2009 was approximately $59,000
and $116,000, respectively. The decrease in other income was primarily the
result of the Company receiving approximately $73,000 with respect to a training
incentive from the State of New Mexico for hiring and training employees within
the State and an economic development incentive through the City of Clovis
during the first six months of 2009.  These incentives were not
provided for in the first six months of 2010.





Income Before Provision for
Income Taxes:





The
Company’s income before provision for income taxes for the six months ended June
30, 2010 was approximately $2,729,000 as compared to $2,343,000 for the same
period in 2009. The increase of $386,000 for the six months ended June 30, 2010
primarily resulted from an increase in the Company's revenue as well as a
decrease in the Company’s costs related to services and product sales, selling,
general and administrative costs and interest expense which were partially
offset by an increase in equity in net loss from investment in limited liability
company and a decrease in other income.





Liquidity and Capital
Resources




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.  This term
loan was paid in full during the second quarter of 2010 without any prepayment
charge.




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.  The term
loan which was entered into in March 2006 was paid in full during the second
quarter of 2010 without any prepayment charge.




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.




27


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.  In June 2010, the term of the revolving credit line was
extended through June 2013.





On May
12, 2010, the Company’s credit facility was amended whereby the Company obtained
an additional $2,000,000 in the form of a term loan, the proceeds of which were
utilized to partially finance the Company’s investment in Lifecomm, as described
in more detail under Part II, Item 5 of this Form 10-Q.  This term
loan is payable over five years in equal monthly principal installments of
$33,333.33, commencing June 1, 2010.  The interest rate is consistent
with the previous term loans secured by the Company.





As of
June 30, 2010 and 2009, 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,
2010:




Payments Due by PeriodContractual  Obligations
                      
                      Total
                      
                      
                      Less than 1
                        year
                      
                      
                      1-3 years
                      
                      
                      4-5 years
                      
                      
                      After 5 yearsRevolving
      Credit Line
                      
                      $
                      750,000
                      
                      
                      
                      
                      
                      $
                      750,000Debt  (a)
                      
                      $
                      2,420,000
                      
                      
                      $
                      660,000
                      
                      
                      $
                      1,360,000
                      
                      
                      $
                      400,000Operating
      Leases (b)
                      
                      $
                      7,558,667
                      
                      
                      $
                      1,134,098
                      
                      
                      $
                      3,029,032
                      
                      
                      $
                      1,808,083
                      
                      
                      $
                      1,587,454Purchase
      Commitments (c)
                      
                      $
                      639,801
                      
                      
                      $
                      639,801Interest
      Expense (d)
                      
                      $
                      245,196
                      
                      
                      $
                      70,081
                      
                      
                      $
                      159,503
                      
                      
                      $
                      15,612Total
      Contractual Obligations
                      
                      $
                      11,613,664
                      
                      
                      $
                      2,503,980
                      
                      
                      $
                      5,298,535
                      
                      
                      $
                      2,223,695
                      
                      
                      $
                      1,587,454




(a)
            –
      Debt includes the Company’s aggregate outstanding term loans which mature
      in 2011 and 2015.




(b)
            –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 office facilities.  These
      operating leases have various maturity dates.  The Company
      currently leases office space from the Chairman and principal shareholder
      pursuant to a lease. This lease expires in December 2012.  The
      Company also leases office space from certain telephone answering service
      managers.  The leases with these managers expire in December
      2012 and December 2014,
respectively.




(c)
            –Purchase commitments
      relate to orders for the Company’s traditional PERS system and its
      MedSmart pill dispenser.




28


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




The
primary sources of liquidity are cash flows from operating activities.  Net
cash provided by operating activities was approximately $3.4 million for the six
months ended June 30, 2010, as compared to approximately $4.6 million for the
same period in 2009.  During 2010, the cash provided by operating
activities was primarily from net earnings of approximately $1.6 million and
depreciation and amortization of approximately $1.8 million.  The
components of depreciation and amortization primarily relate to the purchases of
the Company’s traditional PERS equipment and the customer lists associated with
the acquisition of telephone answering service businesses.  During
2009, the cash provided by operating activities was primarily from net earnings
of approximately $1.4 million, depreciation and amortization of approximately
$2.0 million, an increase in accounts payable and accrued expenses of
approximately $0.4 million and a decrease in accounts receivable of
approximately $0.4 million. The components of depreciation and amortization
primarily relate to the purchases of the Company’s traditional PERS equipment
and the customer lists associated with the acquisition of telephone answering
service businesses.




Net cash
used in investing activities was approximately $4.5 million for the six months
ended June 30, 2010 as compared to approximately $0.7 million for the same
period in 2009.  The primary component of net cash used in investing
activities in 2010 was the $4.1 million investment in a limited liability
company for the development of the next generation mobile PERS system and
capital expenditures of approximately $0.4 million.  The primary
component of net cash used in investing activities in 2009 was capital
expenditures of approximately $.07 million, net of deposits on equipment being
transferred to fixed assets.  Capital expenditures for both 2010 and
2009 primarily related to the continued production and purchase of the
traditional PERS systems.




Cash
flows used in financing activities for the six months ended June 30, 2010 were
approximately $0.3 million compared to $1.3 million for the same period in
2009.  The components of cash flow used in financing activities in
2010 were the payment of long-term debt of approximately $1.3 million and the
payment of a special dividend, which was declared on December 16, 2009, of
approximately $0.9 million.  These financing cash outflow in 2010 were
partially offset by the proceeds from long-term debt of $2.0 million which was
obtained for the purpose of partially funding the investment in a limited
liability company.  The primary component of cash flow used in
financing activities in 2009 was the payment of long-term debt of approximately
$1.2 million.




During
the next twelve months, the Company anticipates it will make capital
expenditures of approximately $1.25 – $1.75 million for the production and
purchase of traditional PERS systems, MedSmart medication and management
systems, and telehealth systems, as well as enhancements to its computer
operating systems.  This amount is subject to fluctuations based on
customer demand.  The Company plans to incur approximately $1.0 - $1.5
million of advertising expense for promotional campaigns related to its PERS and
MedSmart medication and management systems.  The Company also
anticipates incurring approximately $0.1 - $0.2 million of costs primarily
relating to research and development of its telehealth products.




29


As of
June 30, 2010, the Company had approximately $4.0 million in cash and the
Company’s working capital was approximately $9.0 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 flow needs for
working capital and capital expenditures for at least the next twelve months.
The Company also has a revolving credit line, which expires in June 2013 that
permits borrowings up to $2.5 million, of which $750,000 was outstanding at June
30, 2010.




Off-Balance
Sheet Arrangements:




As of
June 30, 2010, the Company has not entered into any off-balance sheet
arrangements that are reasonably likely to have a current or future effect on
the Company’s financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources  that is material to investors.




Other
Factors:




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.





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.





In
September 2009, the Company sublet a portion of its space under its operating
lease which was entered into in 2005.  The space is being sublet to an
independent third party and calls for minimum annual rentals of $125,000 and is
subject to annual increases in accordance with the terms of the
agreement.  The sublease expires in March 2018.





On May
12, 2010, the Company entered into a limited liability company agreement with
Hughes Telematics, Inc. and Qualcomm Incorporated to design, develop, finance
and operate a mobile PERS system.  The Company invested $4,000,000 to
acquire a minority interest in the new company, Lifecomm LLC. As part of this
transaction, the Company borrowed $2,000,000 from its bank to partially finance
this transaction.




The
Company recorded a loss from investment in limited liability company of $116,
127 as of June 30, 2010.  This represents the Company's share, based
on the equity method, of loss relating to this investment.  The loss
primarily relates to research and development as well as other selling general
and administrative fees incurred for the development of the next generation
mobile PERS.  As the development continue to progress, the Company
expects it will continue to incur looses at greater levels over the next twelve
to eighteen months, at which time it is anticipated the next generation mobile
PERS will be completed and commercialized.


30


In
addition, pursuant to the limited liability company agreement, the Company has
agreed to fund its share ($200,000) of a stand-by equity commitment for
Lifecomm’s benefit, if required.





In
connection with the formation of Lifecomm, the Company entered into a Value
Added Reseller Agreement (“VAR Agreement”) with Lifecomm.  Under the
VAR Agreement, the Company will be a reseller of the Mobile PERS Solution in the
United States, as well as a preferred provider of the emergency assistance call
center (“EACC”) component of the Mobile PERS Solution provided by Lifecomm to
customers.  The Company will be the sole provider of the EACC to the
customers to whom it resells the Mobile PERS Solution.  The term of
the VAR Agreement is perpetual, subject to termination as set forth
therein.  The VAR Agreement contains standard indemnification
provisions for agreements of this nature





Recent
Accounting Pronouncements:




During
the third quarter of 2009, the Company adopted ASC Topic 105, Generally Accepted
Accounting Principles, which establishes the FASB Accounting Standards
Codification (“ASC”) as the sole source of authoritative generally accepted
accounting principles ("GAAP") to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission ("SEC")
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The codification did not change GAAP but reorganizes
the literature. References for FASB guidance throughout this document have been
updated for the codification.





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 collectability 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 $581,000 as of June 30, 2010, which is equal to 8.7% 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 $67,000. 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
$67,000.


31


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 $160,000 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 $155,000 per annum.





Valuation of Goodwill


Goodwill
and indefinite life intangible assets 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 $10,294,281 and
$10,255,983 at June 30, 2010 and December 31, 2009, 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


Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly FASB
Statement No. 123(R), Share-Based Payment), 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.




32


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 recorded a pre-tax stock-based compensation
expense which is included in selling, general and administrative expense in its
consolidated financial statements of approximately $160,000 and $179,000 for the
six months ended June 30, 2010 and 2009, respectively.




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
Disclosures About Market Risk.





Market
Risk Disclosure





The
Company does not hold market risk-sensitive instruments entered into for trading
purposes, nor does it hold market risk sensitive instruments entered into for
other than 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, 2010 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 the outstanding balances on our
term loans and revolving credit line under our credit facility accrues at a rate
of LIBOR plus 1.75% and LIBOR plus 1.50%, respectively.  As of June
30, 2010, we had outstanding debt with an aggregate face amount of approximately
$3,170,000, all of which is variable rate borrowings.  As of June 30,
2010, the hypothetical impact of a one percentage point increase in interest
rates related to our outstanding variable rate debt would be to increase annual
interest expense for the remainder of fiscal 2010 by approximately $15,000. Our
ability to carry out our business plan to finance future working capital
requirements may be impacted if the cost of carrying debt fluctuates to the
point where it becomes a burden on our resources.


33


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.





There
were no changes in the Company’s internal control over financial reporting that
occurred during the quarter ended June 30, 2010 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 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.





Item1A.  Risk
Factors.





Management
believes that there have been no material changes in the Company’s risk factors
as reported in the Annual Report on Form 10-K for the year ended December 31,
2009, which was filed on March 31, 2010 with the Securities and Exchange
Commission and the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, which was filed with the Commission on  May 17,
2010.





Item
5. Other Information


34


On August
11, 2010, the Company issued a press release announcing its financial results
for the quarter ended June 30, 2010.  A copy of such press release is
attached hereto as Exhibit 99.1.





On August
11, 2010, the Company issued a press release announcing guidance for the fiscal
years ending December 31, 2010 and December 31, 2011.  A copy of such
press release is attached hereto as Exhibit 99.2.





Also on
August 11, 2010, the Company hosted a conference call and webcast (the "Call")
to discuss its financial results for the quarter ended June 30, 2010, guidance
for fiscal 2010, longer term outlook for 2011, and other business
trends.  A copy of the transcript of the Call is attached hereto as
Exhibit 99.3.





In
accordance with General Instruction B.2., the foregoing information is furnished
pursuant to Item 2.02 and Item 8.01 of Form 8-K and shall not be deemed “filed”
for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that Section.  The
information disclosed under Item 2.02 and Item 8.01 of Form 8-K shall not be
incorporated by reference into any registration statement or other document
pursuant to the Securities Act of 1933, as amended, except as shall be expressly
set forth by a specific reference in such filing.


On June
29, 2010, the Company entered into Amendment No. 14 and Waiver to the Credit
Agreement, dated as of May 20, 2002, as thereafter amended from time to time, by
and between the Company and JPMorgan Chase Bank, N.A., as successor-in-interest
to The Bank of New York.   Under the terms of this amendment, the
term of the revolving credit line under this credit agreement was extended
through June 30, 2013.




Item
6.  Exhibits.





No.
              
              Description10.1
              
              Limited
      Liability Company Agreement of Lifecomm LLC (confidential treatment will
      be requested for certain portions of this exhibit pursuant to Rule 24b-2
      under the Securities Exchange Act of 1934, as amended, which portions have
      been omitted and will be filed separately with the Securities and Exchange
      Commission)10.2
              
              Value
      Added Reseller Agreement made and entered into as of the 12th day of May,
      2010 by and between American Medical Alert Corp. and Lifecomm LLC.
      (confidential treatment will be requested for certain portions of this
      exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
      as amended, which portions have been omitted and will be filed separately
      with the Securities and Exchange Commission)10.3
              
              Amendment
      No. 13 and Waiver, dated as of May 12, 2010, to the Credit Agreement,
      dated as of May 20, 2002, as thereafter amended from time to time, by and
      between American Medical Alert Corp. and JPMorgan Chase Bank, N.A., as
      successor-in-interest to The Bank of New
York.




35




10.4
              
              Amendment
      No. 14 and Waiver, dated June 29, 2010, to the Credit Agreement, dated as
      of May 20, 2002, as thereafter amended from time to time, by and between
      American Medical Alert Corp. and JPMorgan Chase Bank, N.A., as
      successor-in-interest to The Bank of New York.10.5
              
              Waiver,
      dated as of July 12, 2010 to the Credit Agreement, dated as of May 20,
      2002, as thereafter amended from time to time, by and between American
      Medical Alert Corp. and JPMorgan Chase Bank, N.A., as
      successor-in-interest to The Bank of New York.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
      200231.2
              
              Certification
      of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of
      200232.1
              
              Certification
      of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of
      200232.2
              
              Certification
      of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of
      200299.1
              
              Press
      release of American Medical Alert Corp., issued on August 11,
      2010.99.2
              
              Press
      release of American Medical Alert Corp., issued on August 11,
      2010.99.3
              
              Transcript
      of conference call and webcast held on August 11,
  2010.


36





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 16, 2010
                By:
                /s/  Jack
RhianName:
      Jack RhianTitle:
      Chief Executive Officer and
                  PresidentBy:
                /s/  Richard
  RalloName:
      Richard RalloTitle:
      Chief Financial
Officer


37