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 September 30, 2009.




OR




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




For the
transition period from ____________ to ____________




Commission
      File Number 1-8635




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, accelerated
filer, non-accelerated filer, or a smaller reporting company.  See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
                
                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: 9,533,504 shares of $.01 par value
common stock as of November 16, 2009.










AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES




INDEX
                  
                  PAGEPart
      I Financial InformationReport
      of Independent Registered Public Accounting Firm
                  
                  1Condensed
      Consolidated Balance Sheets for September 30, 2009 and December 31,
      2008
                  
                  2Condensed
      Consolidated Statements of Income for the Nine Months Ended September 30,
      2009 and 2008
                  
                  3Condensed
      Consolidated Statements of Income for the Three Months Ended September 30,
      2009 and 2008
                  
                  4Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended September
      30, 2009 and 2008
                  
                  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
                  
                  32Controls
      and Procedures
                  
                  33Part
      II Other Information
                  
                  33









Report of
Independent Registered Public Accounting Firm
 
 Board of
Directors and Shareholders
 American
Medical Alert Corp. and Subsidiaries
 Oceanside,
New York
 
 We have
reviewed the accompanying condensed consolidated balance sheet of American
Medical Alert Corp. and Subsidiaries (the “Company”) as of September 30, 2009
and the related condensed consolidated statements of income for the nine-month
and three-month periods ended September 30, 2009 and 2008 and cash flows for the
nine-months ended September 30, 2009 and 2008. 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, 2008, 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
30, 2009 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, 2008 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
 
 November
16, 2009
  1
  PART
I - FINANCIAL INFORMATION
 Item
1. Financial
Statements.
  AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  September 30,
                                                          2009 (Unaudited)
                                                        
                                                        
                                                        Dec. 31, 2008ASSETSCURRENT
      ASSETSCash
                                                        
                                                        $
                                                        5,546,314
                                                        
                                                        
                                                        $
                                                        2,473,733Accounts
      receivable(net
      of allowance for doubtful accounts of $672,500 and
    $646,000)
                                                        
                                                        
                                                        6,178,050
                                                        
                                                        
                                                        
                                                        6,001,952Note
      receivable
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        21,117Inventory
                                                        
                                                        
                                                        998,057
                                                        
                                                        
                                                        
                                                        547,596Prepaid
      income taxes
                                                        
                                                        
                                                        241,250
                                                        
                                                        
                                                        
                                                        215,427Prepaid
      expenses and other current assets
                                                        
                                                        
                                                        354,908
                                                        
                                                        
                                                        
                                                        436,554Deferred
      income taxes
                                                        
                                                        
                                                        435,000
                                                        
                                                        
                                                        
                                                        358,000Total
      Current Assets
                                                        
                                                        
                                                        13,753,579
                                                        
                                                        
                                                        
                                                        10,054,379FIXED
      ASSETS(Net
      of accumulated depreciation and amortization)
                                                        
                                                        
                                                        9,061,106
                                                        
                                                        
                                                        
                                                        10,169,907OTHER
      ASSETSIntangible
      assets(net
      of accumulated amortization of $6,210,016and
      $5,386,262)
                                                        
                                                        
                                                        2,285,345
                                                        
                                                        
                                                        
                                                        3,085,931Goodwill
      (net of accumulated amortization of $58,868)
                                                        
                                                        
                                                        10,222,292
                                                        
                                                        
                                                        
                                                        9,996,152Other
      assets
                                                        
                                                        
                                                        1,029,608
                                                        
                                                        
                                                        
                                                        1,059,89513,537,245
                                                        
                                                        
                                                        
                                                        14,141,978TOTAL
      ASSETS
                                                        
                                                        $
                                                        36,351,930
                                                        
                                                        
                                                        $
                                                        34,366,264LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
                                                        
                                                        $
                                                        1,501,667
                                                        
                                                        
                                                        $
                                                        1,754,949Accounts
      payable
                                                        
                                                        
                                                        714,936
                                                        
                                                        
                                                        
                                                        749,335Accounts
      payable – acquisitions
                                                        
                                                        
                                                        94,931
                                                        
                                                        
                                                        
                                                        20,390Accrued
      expenses
                                                        
                                                        
                                                        2,212,879
                                                        
                                                        
                                                        
                                                        1,348,823Deferred
      revenue
                                                        
                                                        
                                                        309,987
                                                        
                                                        
                                                        
                                                        294,882Total
      Current Liabilities
                                                        
                                                        
                                                        4,834,400
                                                        
                                                        
                                                        
                                                        4,168,379DEFERRED
      INCOME TAX LIABILITY
                                                        
                                                        
                                                        1,285,000
                                                        
                                                        
                                                        
                                                        1,208,000LONG-TERM
      DEBT, Net of Current Portion
                                                        
                                                        
                                                        1,550,000
                                                        
                                                        
                                                        
                                                        2,815,000CUSTOMER
      DEPOSITS
                                                        
                                                        
                                                        149,441
                                                        
                                                        
                                                        
                                                        106,196ACCRUED
      RENTAL OBLIGATION
                                                        
                                                        
                                                        537,327
                                                        
                                                        
                                                        
                                                        507,512OTHER
      LIABILITIES
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        10,000TOTAL
      LIABILITIES
                                                        
                                                        
                                                        8,356,168
                                                        
                                                        
                                                        
                                                        8,815,087COMMITMENTS
      AND CONTINGENT LIABILITIES
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -SHAREHOLDERS’
      EQUITYPreferred
      stock, $.01 par value – authorized, 1,000,000 shares; none issued and
      outstandingCommon
      stock, $.01 par value – authorized 20,000,000 shares;issued9,550,577 shares
      in 2009and
      9,493,402 shares in 2008
                                                        
                                                        
                                                        95,506
                                                        
                                                        
                                                        
                                                        94,934Additional
      paid-in capital
                                                        
                                                        
                                                        16,189,538
                                                        
                                                        
                                                        
                                                        15,871,305Retained
      earnings
                                                        
                                                        
                                                        11,847,295
                                                        
                                                        
                                                        
                                                        9,721,51528,132,339
                                                        
                                                        
                                                        
                                                        25,687,754Less
      treasury stock, at cost (48,573 shares in 2009 and 2008)
                                                        
                                                        
                                                        (136,577
                                                        )
                                                        
                                                        
                                                        (136,577
                                                        )Total
      Shareholders’ Equity
                                                        
                                                        
                                                        27,995,762
                                                        
                                                        
                                                        
                                                        25,551,177TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                                                        
                                                        $
                                                        36,351,930
                                                        
                                                        
                                                        $
                                                        34,366,264
 
 See
accompanying notes to condensed financial statements.
  2
  AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
  Nine Months Ended September 30,2009
                        
                        
                        2008Revenues:Services
                        
                        $
                        28,812,705
                        
                        
                        $
                        27,995,628Product
      sales
                        
                        
                        723,638
                        
                        
                        
                        850,52529,536,343
                        
                        
                        
                        28,846,153Costs
      and Expenses (Income):Costs
      related to services
                        
                        
                        13,519,360
                        
                        
                        
                        13,484,895Costs
      of products sold
                        
                        
                        335,692
                        
                        
                        
                        428,786Selling,
      general and administrative expenses
                        
                        
                        12,238,349
                        
                        
                        
                        12,630,836Interest
      expense
                        
                        
                        61,632
                        
                        
                        
                        224,073Other
      income
                        
                        
                        (222,470
                        )
                        
                        
                        (247,354
                        )Income
      before Provision for Income Taxes
                        
                        
                        3,603,780
                        
                        
                        
                        2,324,917Provision
      for Income Taxes
                        
                        
                        1,478,000
                        
                        
                        
                        953,000NET
      INCOME
                        
                        $
                        2,125,780
                        
                        
                        $
                        1,371,917Net
      income per share:Basic
                        
                        $
                        .22
                        
                        
                        $
                        .15Diluted
                        
                        $
                        .22
                        
                        
                        $
                        .14Weighted
      average number of common shares outstanding:Basic
                        
                        
                        9,472,938
                        
                        
                        
                        9,421,121Diluted
                        
                        
                        9,689,676
                        
                        
                        
                        9,702,142
 
 See
accompanying notes to condensed financial statements.
  3
  AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
  Three Months Ended September 30,2009
                            
                            
                            2008Revenues:Services
                            
                            $
                            9,829,707
                            
                            
                            $
                            9,437,138Product
      sales
                            
                            
                            292,097
                            
                            
                            
                            233,94910,121,804
                            
                            
                            
                            9,671,087Costs
      and Expenses (Income):Costs
      related to services
                            
                            
                            4,533,987
                            
                            
                            
                            4,472,639Costs
      of products sold
                            
                            
                            136,558
                            
                            
                            
                            80,583Selling,
      general and administrative expenses
                            
                            
                            4,245,159
                            
                            
                            
                            4,356,924Interest
      expense
                            
                            
                            17,330
                            
                            
                            
                            57,205Other
      income
                            
                            
                            (72,375
                            )
                            
                            
                            (77,798
                            )Income
      before Provision for Income Taxes
                            
                            
                            1,261,145
                            
                            
                            
                            781,534Provision
      for Income Taxes
                            
                            
                            517,000
                            
                            
                            
                            320,000NET
      INCOME
                            
                            $
                            744,145
                            
                            
                            $
                            461,534Net
      income per share:Basic
                            
                            $
                            .08
                            
                            
                            $
                            .05Diluted
                            
                            $
                            .08
                            
                            
                            $
                            .05Weighted
      average number of common shares outstandingBasic
                            
                            
                            9,495,036
                            
                            
                            
                            9,439,592Diluted
                            
                            
                            9,756,468
                            
                            
                            
                            9,689,775
 
 See
accompanying notes to condensed financial statements.
  4
  AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Nine Months Ended September 30,2009
                    
                    
                    2008Cash
      Flows From Operating Activities:Net
      income
                    
                    $
                    2,125,780
                    
                    
                    $
                    1,371,917Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                    
                    
                    3,058,536
                    
                    
                    
                    3,231,637Gain
      on disposal of fixed assets
                    
                    
                    (11,409
                    )
                    
                    
                    -Stock
      compensation charge
                    
                    
                    318,805
                    
                    
                    
                    329,166Decrease
      (increase) in:Accounts
      receivable
                    
                    
                    (176,098
                    )
                    
                    
                    (138,218
                    )Inventory
                    
                    
                    (450,461
                    )
                    
                    
                    10,249Prepaid
      income taxes
                    
                    
                    (25,823
                    )
                    
                    
                    126,617Prepaid
      expenses and other current assets
                    
                    
                    81,646
                    
                    
                    
                    55,374Increase
      (decrease) in:Accounts
      payable, accrued expenses and other liabilities
                    
                    
                    892,717
                    
                    
                    
                    (95,806
                    )Deferred
      revenue
                    
                    
                    15,105
                    
                    
                    
                    123,363Net
      Cash Provided by Operating Activities
                    
                    
                    5,828,798
                    
                    
                    
                    5,014,299Cash
      Flows From Investing Activities:Expenditures
      for fixed assets
                    
                    
                    (897,072
                    )
                    
                    
                    (2,452,409
                    )Repayment
      of notes receivable
                    
                    
                    21,117
                    
                    
                    
                    20,089Increase
      in deposit on equipment and software
                    
                    
                    (142,369
                    )
                    
                    
                    (271,954
                    )Purchases
      – other
                    
                    
                    (23,167
                    )
                    
                    
                    (65,571
                    )Proceeds
      from sales of fixed assets
                    
                    
                    11,800
                    
                    
                    
                    -Decrease
      (increase) in other assets
                    
                    
                    (56,644
                    )
                    
                    
                    833Net
      Cash Used In Investing Activities
                    
                    
                    (1,086,335
                    )
                    
                    
                    (2,769,012
                    )Cash
      Flows From Financing Activities:Proceeds
      from long-term debt
                    
                    
                    -
                    
                    
                    
                    100,000Principal
      payments under capital lease obligation
                    
                    
                    -
                    
                    
                    
                    (31,235
                    )Purchase
      of Treasury Stock
                    
                    
                    -
                    
                    
                    
                    (10,242
                    )Repayment
      of long-term debt
                    
                    
                    (1,518,282
                    )
                    
                    
                    (1,280,529
                    )Payment
      of accounts payable - acquisitions
                    
                    
                    (151,600
                    )
                    
                    
                    (204,140
                    )Proceeds
      upon exercise of stock options and warrants
                    
                    
                    -
                    
                    
                    
                    125,437Net
      Cash Used In Financing Activities
                    
                    
                    (1,669,882
                    )
                    
                    
                    (1,300,709
                    )
 
 See
accompanying notes to condensed financial statements.
  5
  AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 (Unaudited)
 
 Nine
      Months Ended September 30,2009
                              
                              
                              2008Net
      Increase in Cash
                              
                              $
                              3,072,581
                              
                              
                              $
                              944,578Cash,
      Beginning of Period
                              
                              
                              2,473,733
                              
                              
                              
                              911,525Cash,
      End of Period
                              
                              $
                              5,546,314
                              
                              
                              $
                              1,856,103SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:CASH
      PAID DURING THE PERIOD FOR INTEREST
                              
                              $
                              60,473
                              
                              
                              $
                              222,273CASH
      PAID DURING THE PERIOD FOR INCOME TAXES
                              
                              $
                              1,201,969
                              
                              
                              $
                              677,455SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTINGAND
      FINANCING ACTIVITIES:Accounts
      payable – acquisitions/ additional goodwill – American Mediconnect
      Inc.
                              
                              $
                              226,140
                              
                              
                              $
                              170,584Other
      assets, deposits on equipment transferred to fixed assets
                              
                              $
                              221,719
                              
                              
                              $
                              -
 
 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, 2008 included in the Company’s
Annual Report on Form 10-K.
  2.
              Results
      of Operations:
  The
accompanying condensed consolidated financial statements include the accounts of
American Medical Alert Corp. and its wholly-owned subsidiaries; together the
“Company”.  All material inter-company balances and transactions have
been eliminated.
  In the
opinion of management, the accompanying unaudited condensed financial statements
contain all adjustments (consisting only of normal recurring accruals, except
for a partial reduction of the Relocation and Employment Assistance Program
(REAP) benefit accrual recorded in December 31, 2007, which adjustment, included
in other income, had the net effect of a reduction in net income of
approximately $40,000 for the nine months ended September 30, 2008) necessary to
present fairly the financial position as of September 30, 2009 and the results
of operations for the nine and three months ended September 30, 2009 and 2008,
and cash flows for the nine months ended September 30, 2009 and
2008.
  The
accounting policies used in preparing these financial statements are the same as
those described in the December 31, 2008 financial statements.
  Certain
amounts in the 2008 condensed consolidated financial statements have been
reclassified to conform to the 2009 presentation.
  The
results of operations for the nine and three months ended September 30, 2009 are
not necessarily indicative of the results to be expected for any other interim
period or for the full year.
  3.
              Recent
      Accounting Pronouncements:
  In June
2009, the FASB issued FASB ASC Topic 105, Generally Accepted Accounting
Principles,which
establishes the FASB Accounting Standards Codification 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 will supersede all then-existing non-SEC accounting and reporting
standards. The
codification did not change GAAP but reorganizes the
literature.  Pursuant to the provisions of FASB ASC Topic 105, we have
updated references to GAAP in our financial statements issued for the period
ended September
30, 2009.  The adoption of FASB ASC Topic 105 did not impact our
financial position or results of operations.
 
  7
  In
December 2007, the FASB issued ASC Topic 805 (formerly SFAS No. 141(R), Business
Combinations).  ASC Topic 805 provides a broader definition of the
“Acquirer” and establishes principles and requirements of how the Acquirer
recognizes and measures in its financial statements the identifiable assets
acquired and liabilities assumed as well as how the Acquirer recognizes and
measures the goodwill acquired in the business combination.  ASC Topic
805 is effective for fiscal years beginning after December 15,
2008.  ASC Topic 805 will be applied prospectively to business
combinations with an acquisition date on or after the effective
date.
 
 On
January 1, 2009, the Company adopted ASC Topic 350-30-35 (formerly FSP SFAS No.
142-3, Determination of the Useful Life of Intangible Assets), which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible
asset.  The intent of this update is to improve the consistency
between the useful life of a recognized intangible asset under ASC Topic
350, Intangible - Goodwill and Other, and the period of expected cash flows
used to measure the fair value of the asset under business combination
accounting (as currently codified under ASC Topic 805).  ASC Topic
350-30-35 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  The adoption of ASC
Topic 350-30-35 did not have a material impact on the Company’s financial
statements.
 
 In May
2009, the FASB issued ASC Topic 855 (formerly SFAS No. 165, Subsequent
Events).  This statement establishes general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
the financial statements are issued or are available to be issued. ASC Topic 855
provides guidance on the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The Company adopted ASC Topic 855 during
the second quarter of 2009.
  4.
              Accounting
      for Stock-Based Compensation:
  Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly SFAS
Statement No. 123(R), Shared-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.
  The
Company granted 15,000 and 35,000 stock options during the nine month period
ended September 30, 2009 and 2008, respectively.
 
 8
  The following tables summarize stock
option activity for the nine months ended September 30, 2009 and
2008.
  2009
 WeightedAverage
                            
                            
                            AggregateWeighted
                            
                            
                            Remaining
                            
                            
                            IntrinsicNumber
      of
                            
                            
                            Average
                            
                            
                            Contractual
                            
                            
                            ValueOptions
                            
                            
                            Option
      Price
                            
                            
                            Term
      (years)Balance
      at January 1
                            
                            
                            877,235
                            
                            
                            $
                            4.25Granted
                            
                            
                            15,000
                            
                            
                            
                            5.72Exercised
                            
                            
                            -
                            
                            
                            
                            -Expired/Forfeited
                            
                            
                            (6,975
                            )
                            
                            
                            5.30Balance
      at September 30
                            
                            
                            885,260
                            
                            
                            $
                            4.27
                            
                            
                            
                            2.73
                            
                            
                            $
                            1,553,992Vested
      and exercisable
                            
                            
                            874,260
                            
                            
                            $
                            4.25
                            
                            
                            
                            2.70
                            
                            
                            $
                            1,552,122
 
 2008
 WeightedAverage
                            
                            
                            AggregateWeighted
                            
                            
                            Remaining
                            
                            
                            IntrinsicNumber
      of
                            
                            
                            Average
                            
                            
                            Contractual
                            
                            
                            ValueOptions
                            
                            
                            Option
      Price
                            
                            
                            Term
      (years)Balance
      at January 1
                            
                            
                            922,273
                            
                            
                            $
                            4.01Granted
                            
                            
                            35,000
                            
                            
                            
                            6.51Exercised
                            
                            
                            (61,600
                            )
                            
                            
                            2.04Expired/Forfeited
                            
                            
                            (17,226
                            )
                            
                            
                            3.68Balance
      at September 30
                            
                            
                            878,447
                            
                            
                            $
                            4.25
                            
                            
                            
                            3.70
                            
                            
                            $
                            1,030,779Vested
      and exercisable
                            
                            
                            878,447
                            
                            
                            $
                            4.25
                            
                            
                            
                            3.70
                            
                            
                            $
                            1,030,779
 
 The
aggregate intrinsic value of options exercised during the nine months ended
September 30, 2008 was $291,523.  No options were exercised during the
nine months ended September 30, 2009.  There were 11,000 nonvested
stock options outstanding as of September 30, 2009.  There were no
nonvested stock options outstanding as of September 30, 2008.
 
 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
      Sept 30,
                          
                          
                          Ended
      Sept 30,2009
                          
                          
                          2008Stock
      options
                          
                          $
                          -
                          
                          
                          $
                          20,000Stock
      grants – other
                          
                          
                          77,053
                          
                          
                          
                          75,956Service
      based awards
                          
                          
                          33,845
                          
                          
                          
                          31,069Performance
      based awards
                          
                          
                          29,400
                          
                          
                          
                          (4,394
                          )Tax
      benefit
                          
                          
                          (57,526
                          )
                          
                          
                          (50,300
                          )Stock-based
      compensation expense, net of tax
                          
                          $
                          82,772
                          
                          
                          $
                          72,331
  9
  Nine
      Months
                          
                          
                          Nine
      MonthsEnded
      Sept 30,
                          
                          
                          Ended
      Sept 30,2009
                          
                          
                          2008Stock
      options
                          
                          $
                          6,250
                          
                          
                          $
                          56,250Stock
      grants – other
                          
                          
                          122,820
                          
                          
                          
                          121,712Service
      based awards
                          
                          
                          101,535
                          
                          
                          
                          93,206Performance
      based awards
                          
                          
                          88,200
                          
                          
                          
                          57,998Tax
      benefit
                          
                          
                          (130,750
                          )
                          
                          
                          (135,000
                          )Stock-based
      compensation expense, net of tax
                          
                          $
                          188,055
                          
                          
                          $
                          194,166
 
 Stock
Grants - Other
 
 The
outside Board of Directors are granted shares of common stock at the end of each
quarter as compensation for services provided as members of the Board of
Directors and other committees.  These share grants vest
immediately.  In addition, stock grants may be issued to employees at
the Board of Directors’ discretion.
 
 Service
Based Awards
 
 In
January 2006, May 2007 and January 2009 the Company granted 50,000, 22,000 and
21,500 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 September 30, 2009 and 2008 there were 41,000 and 31,500 shares vested,
respectively.  The aggregate grant date fair value of restricted stock
grants was $570,410.As
of September 30, 2009 and 2008, the Company had $200,326 and $239,619,
respectively, of total unrecognized compensation costs related to nonvested
restricted stock units expected to be recognized over a weighted average period
of 1.70 years.
  On
November 13, 2009 one of the executives waived 9,500 shares of common stock,
that had not yet vested, as the executive was inadvertently issued shares in
excess of those that could be allocated to him under the 2005 Stock Plan.
Simultaneously, this executive was granted, as approved by the Board of
Directors, stock options to purchase 21,700 shares of common stock from the
Company’s
2000 Plan at the fair market value of the common stock on the date of grant,
which was deemed to be comparable value, with a similar vesting
schedule.
  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 September 30, 2009 and 2008, 29,750 shares were vested.  As of
September 30, 2009 and 2008, there was $177,000 and $543,137, respectively, of
total unrecognized compensation costs related to nonvested share awards; that
cost is expected to be recognized over a period of 1.25 years.
  10
  5.
              Earnings
      Per Share:
  Earnings
per share data for the nine and three months ended September 30, 2009 and 2008
is presented in conformity with ASC Topic 260 (formerly SFAS No. 128, Earnings
Per Share.)
 
 The
following table is a reconciliation of the numerators and denominators in
computing earnings per share:
 
 Income
                                                                                
                                                                                
                                                                                Shares
                                                                                
                                                                                
                                                                                Per-Share(Numerator)
                                                                                
                                                                                
                                                                                (Denominator)
                                                                                
                                                                                
                                                                                AmountsNine
      Months Ended September 30, 2009Basic
      EPS - Income available to common shareholders
                                                                                
                                                                                $
                                                                                2,125,780
                                                                                
                                                                                
                                                                                
                                                                                9,472,938
                                                                                
                                                                                
                                                                                $
                                                                                .22Effect
      of dilutive securities - Options
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                216,738Diluted
      EPS - Income available to common shareholders and assumed
      conversions
                                                                                
                                                                                $
                                                                                2,125,780
                                                                                
                                                                                
                                                                                
                                                                                9,689,676
                                                                                
                                                                                
                                                                                $
                                                                                .22Three
      Months Ended September 30, 2009Basic
      EPS -Income available to common shareholders
                                                                                
                                                                                $
                                                                                744,145
                                                                                
                                                                                
                                                                                
                                                                                9,495,036
                                                                                
                                                                                
                                                                                $
                                                                                .08Effect
      of dilutive securities - Options
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                261,432Diluted
      EPS - Income available to common shareholders and assumed
      conversions
                                                                                
                                                                                $
                                                                                744,145
                                                                                
                                                                                
                                                                                
                                                                                9,756,468
                                                                                
                                                                                
                                                                                $
                                                                                .08Nine
      Months Ended September 30, 2008Basic
      EPS - Income available to common shareholders
                                                                                
                                                                                $
                                                                                1,371,917
                                                                                
                                                                                
                                                                                
                                                                                9,421,121
                                                                                
                                                                                
                                                                                $
                                                                                .15Effect
      of dilutive securities - Options
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                281,021Diluted
      EPS - Income available to common shareholders and assumed
      conversions
                                                                                
                                                                                $
                                                                                1,371,917
                                                                                
                                                                                
                                                                                
                                                                                9,702,142
                                                                                
                                                                                
                                                                                $
                                                                                .14Three
      Months Ended September 30, 2008Basic
      EPS -Income available to common shareholders
                                                                                
                                                                                $
                                                                                461,534
                                                                                
                                                                                
                                                                                
                                                                                9,439,592
                                                                                
                                                                                
                                                                                $
                                                                                .05Effect
      of dilutive securities - Options
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                250,183Diluted
      EPS - Income available to common shareholders and assumed
      conversions
                                                                                
                                                                                $
                                                                                461,534
                                                                                
                                                                                
                                                                                
                                                                                9,689,775
                                                                                
                                                                                
                                                                                $
                                                                                .05
  11
  6.         Goodwill
 
 Changes
in the carrying amount of goodwill, all of which relates to the Company’s TBCS
segment, for the nine months ended September 30, 2009 and 2008 are as
follows:
 
 Nine
      Months Ended September 30, 2009Balance
      as of January 1, 2009
                                                          
                                                          $
                                                          9,996,152Additional
      Goodwill
                                                          
                                                          
                                                          226,140Balance
      as of September 30, 2009
                                                          
                                                          $
                                                          10,222,292Nine
      Months Ended September 30, 2008Balance
      as of January 1, 2008
                                                          
                                                          $
                                                          9,766,194Additional
      Goodwill
                                                          
                                                          
                                                          170,584Balance
      as of September 30, 2008
                                                          
                                                          $
                                                          9,936,778
 
 The
addition to goodwill during the nine months ended September 30, 2009 and 2008
relates to the additional purchase price of American Mediconnect, Inc. based on
the cash receipts from the clinical trials portion of the business.
  12
  7.           Long-term
Debt:
 
 As of
January 1, 2006 the Company had a credit facility arrangement for $4,500,000
which included a revolving credit line which permitted borrowings of $1,500,000
(based on eligible receivables as defined) and a $3,000,000 term loan payable.
The term loan is payable in equal monthly principal installments of $50,000 over
five years commencing January 2006.  The revolving credit line was set
to mature in May 2008.
  In March
2006 and December 2006, the credit facility was amended whereby the Company
obtained an additional $2,500,000 and $1,600,000 of term loans, the proceeds of
which were utilized to finance certain acquisitions.  These term loans
are payable over five years in equal monthly principal installments of
$41,666.67 and $26,666.67, respectively. Additionally, certain of the covenants
were amended.
  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 August
13, 2009 the Company amended its credit facility whereby the term of the
revolving credit line was extended through June 2011.  On April 30,
2007, the Company had amended its credit facility whereby the term of the
revolving credit line was extended through June 2010 and the amount of credit
available under the revolving credit line was increased to
$2,500,000.
  As of
September 30, 2009, June 30, 2009 and March 31, 2009, the Company was in
compliance with its financial covenants in its loan agreement. As of September
30, 2008, June 30, 2008 and March 31, 2008, the Company was in compliance with
its financial covenants in its loan agreement.
 
 8.            Major
Customers:
 
 Since
1983, the Company has provided Personal Emergency Response Systems (“PERS”)
services to the City of New York’s Human Resources Administration Home Care
Service Program ("HCSP").  The contract term with the HCSP is for two
years, commencing September 21, 2007, with two options to renew in favor of
Human Resources Administration (“HRA”) for two additional two year
terms.  During the nine months ended September 30, 2009 and 2008, the
Company’s revenue from this contract represented 6% of its total revenue.
As of September 30, 2009 and December 31, 2008, accounts receivable from the
contract represented 8% of accounts receivable.
  9.Segment
Reporting:
 
 The
Company has two reportable segments, (i) Health and Safety Monitoring Systems
(“HSMS”) and (ii) Telephone Based Communication Services (“TBCS”).
  13
  The table
below provides a reconciliation of segment information to total consolidated
information for the nine and three months ended September 30, 2009 and
2008:
  2009
  HSMS
                      
                      
                      TBCS
                      
                      
                      ConsolidatedNine Months Ended September 30,
      2009Revenue
                      
                      $
                      15,439,122
                      
                      
                      $
                      14,097,221
                      
                      
                      $
                      29,536,343Income
      before provision for income taxes
                      
                      
                      2,433,580
                      
                      
                      
                      1,170,200
                      
                      
                      
                      3,603,780Total
      assets
                      
                      
                      15,509,415
                      
                      
                      
                      20,842,515
                      
                      
                      
                      36,351,930HSMS
                      
                      
                      TBCS
                      
                      
                      ConsolidatedThree Months Ended September 30,
      2009Revenue
                      
                      $
                      5,303,770
                      
                      
                      $
                      4,818,034
                      
                      
                      $
                      10,121,804Income
      before provision for income taxes
                      
                      
                      788,403
                      
                      
                      
                      472,742
                      
                      
                      
                      1,261,145
 
 2008
  HSMS
                        
                        
                        TBCS
                        
                        
                        ConsolidatedNine Months Ended September 30,
      2008Revenue
                        
                        $
                        14,744,046
                        
                        
                        $
                        14,102,107
                        
                        
                        $
                        28,846,153Income
      before provision for income taxes
                        
                        
                        1,315,923
                        
                        
                        
                        1,008,994
                        
                        
                        
                        2,324,917Total
      assets
                        
                        
                        16,186,596
                        
                        
                        
                        19,360,141
                        
                        
                        
                        35,546,737HSMS
                        
                        
                        TBCS
                        
                        
                        ConsolidatedThree Months Ended September 30,
      2008Revenue
                        
                        $
                        4,965,448
                        
                        
                        $
                        4,705,639
                        
                        
                        $
                        9,671,087Income
      before provision for income taxes
                        
                        
                        383,412
                        
                        
                        
                        398,122
                        
                        
                        
                        781,534
  14
  10.
              Commitments
      and Contingencies:
  The
Company is aware of various threatened or pending litigation claims against the
Company relating to its products and services and other claims arising in the
ordinary course of its business.  The Company has given its insurance
carrier notice of such claims and it believes there is sufficient insurance
coverage to cover any such claims.   Currently, there are no
litigation claims for which an estimate of loss, if any, can be reasonably made
as they are in the preliminary stages and therefore, no liability or
corresponding insurance receivable has been recorded.
 
 11.
              Subsequent
      Event:
 
 In
October 2009, the Company issued time-vested and performance warrants to an
independent third party in connection with a strategic business
relationship.
  The
Company has performed an evaluation of subsequent events through November 16,
2009, the date the financial statements were filed, for potential recognition or
disclosure in the financial statements.
 
 Item 2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
  The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company’s results of
operations and financial condition.  This discussion and analysis
should be read in conjunction with the consolidated financial statements
contained in the latest Annual Report on Form 10-K for the year ended December
31, 2008.
  Statements
contained in this Quarterly Report on Form 10-Q include “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, including, in particular and without limitation,
statements contained herein under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.”  Forward-looking statements involve known and unknown
risks, uncertainties and other factors which could cause the Company’s actual
results, performance and achievements, whether expressed or implied by such
forward-looking statements, not to occur or be realized. These include
uncertainties relating to government regulation, technological changes, our
expansion plans and product liability risks.  Such forward-looking
statements generally are based upon the Company’s best estimates of future
results, performance or achievement, based upon current conditions and the most
recent results of operations.  Forward-looking statements may be
identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “believe,” “estimate,” “project,” “anticipate,” “continue” or similar
terms, variations of those terms or the negative of those terms.
  You
should carefully consider such risks, uncertainties and other information,
disclosures and discussions which contain cautionary statements identifying
important factors that could cause actual results to differ materially from
those provided in the forward-looking statements. Readers should carefully
review the risk factors and any other cautionary statements contained in the
Company’s Annual Report on Form 10-K and other public filings.  The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
  15
  Overview:
 
 American
Medical Alert Corp. (“AMAC” or the “Company”) was formed in 1981 as a New York
corporation. The Company’s principal business is the provision of healthcare
communication and monitoring services.  These services are reported
through two operating segments. The first segment, Health Safety and Monitoring
Services (“HSMS”), is comprised of the development and marketing of remote
patient monitoring technologies that include personal emergency response
systems, medication reminder and dispensing systems, telehealth/disease
management technologies and safety monitoring systems to pharmacies. The second
segment, Telephony Based Communication Services (“TBCS”), includes the provision
of centralized call center solutions primarily to the healthcare community
including traditional after hours services, “Daytime Services” applications, and
clinical trial recruitment call center services and
administration.  The Company’s products and services are primarily
marketed to the healthcare community, including hospitals, home care, durable
medical equipment, medical facility, hospice, pharmacy, managed care and other
healthcare oriented organizations.  The Company also offers certain
products and services directly to consumers.
 
 HSMS
 Until
2000, the Company’s principal business was the marketing of personal emergency
response systems (“PERS”), a device that allows a
patient to signal an emergency response center for help in the event of a
debilitating illness or accident.  The PERS business was the entry
point for the Company into the healthcare field, permitting the Company to
establish a network of customers and strategic alliances which served as the
foundation for the Company's expansion remote patient
monitoring.
  As part
of its expansion strategy, in 1999, the Company secured certain exclusive rights
to a medication reminder appliance which is marketed by the Company under the
name Med-Time®. This natural adjunct to PERS proved to be strategically
advantageous. Medication non-adherence currently costs an estimated $100 billion
annually in the United States and accounts for 10 percent of hospital
admissions.  The Company marketed an early version of Med-Time for
several years.  Realizing the greater opportunity to expand upon our
monitoring capabilities, the Company embarked upon the development of a new
system that would allow for greater medication adherence
oversight.  In 2009, the Company launched MedSmartTM its next
generation solution. MedSmart improves adherence to medication regimens and
reduces the risk of dosing errors improving clinical outcomes and quality of
life.
 
 Rounding
out AMAC’s remote patient monitoring portfolio, in 2001, the Company entered the
telehealth market, a market in its embryonic stage, after consideration of the
opportunity to provide new technologies to assist healthcare professionals in
home-based, health management activities. As a distributor of the Health Buddy®
System, many of the Company’s customers have successfully demonstrated the value
proposition associated with incorporating disease management technologies into a
patient’s plan of care.  The Company believes the telehealth market
will continue to provide opportunities for AMAC’s expansion as a full source
provider of remote patient monitoring technologies and first line support
services.
  16
  TBCS
 Beginning
in 2000, the Company began a program of product diversification and customer
baseexpansion to
decrease its reliance on a single product line by marketing complementary call
center and monitoring services to the healthcare community.  This
diversification program began with the acquisition of the Company's first
telephone answering service business, known as HCI in 2000.  Since
that time the Company has expanded its telephone answering service business
through nine (9) acquisitions and internally generated growth.
 
 In order
to accommodate the planned growth of this business, the Company has built or
acquired eight communication centers. The Company has since consolidated its
TBCS operation onto three equipment hubs and six satellite offices. The purpose
of this effort is to link each of the locations in order to leverage the
Company’s overall scope, scale and capability.  The Company’s
acquisition strategy has allowed it to become a national provider of healthcare
communication services.
 
 In 2006,
the Company broadened its capabilities to service specialized allied healthcare
providers including hospitals, home care, hospice and other healthcare
subspecialties. The Company believes it has identified other communication needs
as expressed by its TBCSclient base. In response
to these expressed needs, the Company developed and implemented various
specialized healthcare communication solutions that have resulted in the
execution of numerous multi-year service contracts for the provision of these
services. These non-traditional business solutions continue to create
significant opportunities for long-term revenue growth.
 
 In 2008,
the Company focused special attention to revamp its PhoneScreen clinical trial
operation and business development efforts. This effort resulted in embedding
this operation into the Company’s consolidated call center and IT
infrastructure. This service specialty is now poised to accept greater volumes
of work and is being well received by large pharmaceutical companies and
clinical trial recruitment organizations.
 
 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
in the healthcare communications field.  Moreover, based on the
Company’s growth strategy, management believes its TBCS business will allow the
Company to become the largest provider of these specialized healthcare
communication services in the United States.
  17
  Components of Statements of
Income by Operating Segment
  The
following table shows the components of the Statement of Income for the nine and
three months ended September 30, 2009 and 2008.
  In
      thousands (000’s)
                                  
                                  Three
      Months Ended September 30,
                                  
                                  
                                  Nine
      Months Ended September 30,2009
                                  
                                  
                                  %
                                  
                                  
                                  2008
                                  
                                  
                                  %
                                  
                                  
                                  2009
                                  
                                  
                                  %
                                  
                                  
                                  2008
                                  
                                  
                                  %RevenuesHSMS
                                  
                                  
                                  5,304
                                  
                                  
                                  
                                  52
                                  %
                                  
                                  
                                  4,965
                                  
                                  
                                  
                                  51
                                  %
                                  
                                  
                                  15,439
                                  
                                  
                                  
                                  52
                                  %
                                  
                                  
                                  14,744
                                  
                                  
                                  
                                  51
                                  %TBCS
                                  
                                  
                                  4,818
                                  
                                  
                                  
                                  48
                                  %
                                  
                                  
                                  4,706
                                  
                                  
                                  
                                  49
                                  %
                                  
                                  
                                  14,097
                                  
                                  
                                  
                                  48
                                  %
                                  
                                  
                                  14,102
                                  
                                  
                                  
                                  49
                                  %Total
      Revenues
                                  
                                  
                                  10,122
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  
                                  9,671
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  
                                  29,536
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  
                                  28,846
                                  
                                  
                                  
                                  100
                                  %Cost
      of Services and Goods SoldHSMS
                                  
                                  
                                  2,152
                                  
                                  
                                  
                                  41
                                  %
                                  
                                  
                                  2,097
                                  
                                  
                                  
                                  42
                                  %
                                  
                                  
                                  6,438
                                  
                                  
                                  
                                  42
                                  %
                                  
                                  
                                  6,432
                                  
                                  
                                  
                                  44
                                  %TBCS
                                  
                                  
                                  2,519
                                  
                                  
                                  
                                  52
                                  %
                                  
                                  
                                  2,456
                                  
                                  
                                  
                                  52
                                  %
                                  
                                  
                                  7,417
                                  
                                  
                                  
                                  53
                                  %
                                  
                                  
                                  7,481
                                  
                                  
                                  
                                  53
                                  %Total
      Cost of Services and Goods Sold
                                  
                                  
                                  4,671
                                  
                                  
                                  
                                  46
                                  %
                                  
                                  
                                  4,553
                                  
                                  
                                  
                                  47
                                  %
                                  
                                  
                                  13,855
                                  
                                  
                                  
                                  47
                                  %
                                  
                                  
                                  13,913
                                  
                                  
                                  
                                  48
                                  %Gross
      ProfitHSMS
                                  
                                  
                                  3,152
                                  
                                  
                                  
                                  59
                                  %
                                  
                                  
                                  2,868
                                  
                                  
                                  
                                  58
                                  %
                                  
                                  
                                  9,001
                                  
                                  
                                  
                                  58
                                  %
                                  
                                  
                                  8,312
                                  
                                  
                                  
                                  56
                                  %TBCS
                                  
                                  
                                  2,299
                                  
                                  
                                  
                                  48
                                  %
                                  
                                  
                                  2,250
                                  
                                  
                                  
                                  48
                                  %
                                  
                                  
                                  6,680
                                  
                                  
                                  
                                  47
                                  %
                                  
                                  
                                  6,621
                                  
                                  
                                  
                                  47
                                  %Total
      Gross Profit
                                  
                                  
                                  5,451
                                  
                                  
                                  
                                  54
                                  %
                                  
                                  
                                  5,118
                                  
                                  
                                  
                                  53
                                  %
                                  
                                  
                                  15,681
                                  
                                  
                                  
                                  53
                                  %
                                  
                                  
                                  14,933
                                  
                                  
                                  
                                  52
                                  %Selling,
      General & Administrative
                                  
                                  
                                  4,245
                                  
                                  
                                  
                                  42
                                  %
                                  
                                  
                                  4,357
                                  
                                  
                                  
                                  45
                                  %
                                  
                                  
                                  12,238
                                  
                                  
                                  
                                  41
                                  %
                                  
                                  
                                  12,631
                                  
                                  
                                  
                                  44
                                  %Interest
      Expense
                                  
                                  
                                  17
                                  
                                  
                                  
                                  -
                                  %
                                  
                                  
                                  57
                                  
                                  
                                  
                                  1
                                  %
                                  
                                  
                                  62
                                  
                                  
                                  
                                  -
                                  %
                                  
                                  
                                  224
                                  
                                  
                                  
                                  1
                                  %Other
      Income
                                  
                                  
                                  (72
                                  )
                                  
                                  
                                  (1
                                  )%
                                  
                                  
                                  (78
                                  )
                                  
                                  
                                  (1
                                  )%
                                  
                                  
                                  (223
                                  )
                                  
                                  
                                  (1
                                  )%
                                  
                                  
                                  (247
                                  )
                                  
                                  
                                  (1
                                  )%Income
      before Income Taxes
                                  
                                  
                                  1,261
                                  
                                  
                                  
                                  12
                                  %
                                  
                                  
                                  782
                                  
                                  
                                  
                                  8
                                  %
                                  
                                  
                                  3,604
                                  
                                  
                                  
                                  12
                                  %
                                  
                                  
                                  2,325
                                  
                                  
                                  
                                  8
                                  %Provision
      for Income Taxes
                                  
                                  
                                  517
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  320
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,478
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  953Net
      Income
                                  
                                  
                                  744
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  462
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,126
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,372
 
 Results of
Operations:
 
 The
Company has two distinct operating business segments, which are HSMS and
TBCS.
 
 Three Months Ended September
30, 2009 Compared to Three Months Ended September 30, 2008
 
 Revenues:
 
 HSMS
  18
  Revenues,
which consist primarily of monthly recurring revenues, increased approximately
$339,000, or 7%, for the three months ended September 30, 2009 as compared to
the same period in 2008.  The increase is primarily attributed to the
following factors:
 
 §
              The
      Company experienced revenue growth under its exclusive arrangement with
      Walgreen whereby the Company markets the PERS product directly to the
      consumer.  In the three months ended September 30, 2009, the
      Company recognized increased revenues of approximately $70,000, as
      compared to the same period in 2008, from this
  arrangement.
 
 §
              Through
      the execution of new agreements as well as growth within its existing PERS
      subscriber base, the Company’s PERS service revenue increased
      approximately $174,000 as compared to the same period in
      2008.  The Company anticipates that it will continue to grow its
      subscriber base and corresponding revenue through its continued sales and
      marketing efforts.
 
 §
              The
      Company recognized increased revenue in product sales of approximately
      $58,000.  This was facilitated through the commercialization of
      its MedSmart medication management system during 2009 and the Company
      generated revenue of approximately $68,000 in the third quarter of 2009
      from this product.
 
 TBCS
 
 The
increase in revenues of approximately $112,000, or 2%, for the three months
ended September 30, 2009 as compared to the same period in 2008 was primarily
due to:
 
 §
              The
      Company experienced revenue growth within its non-traditional day-time
      service offering of approximately $126,000 mainly as a result of a
      customer, which is a hospital organization, expanding their services with
      the Company.  Further expansion is anticipated within the
      non-traditional day-time service offering for the remainder of 2009 and
      into 2010.
 
 §
              Additionally,
      the Company continues to experience growth within its traditional
      telephone answering service business due to additions of new customers as
      well as increased business from its existing customer
  base.
 
 These
increases were partially offset by a decrease in revenue at one of the call
center locations due to customer attrition as a result of certain account
realignments.  The Company has since modified its action plan and has
stabilized the client base at this location.
 
 Costs Related to Services
and Goods Sold:
 
 HSMS
  19
  Costs
related to services and goods sold increased by approximately $55,000, or 3%,
for the three months ended September 30, 2009 as compared to the same period in
2008 primarily due to the following:
 
 ·
              The
      Company incurred increased costs of goods sold of approximately $56,000
      related to increased product sales.  This was primarily
      facilitated by the sales of its MedSmart medication management system, as
      noted above.
 
 TBCS:
 
 Costs
related to services and goods sold increased by approximately $63,000 for the
three months ended September 30, 2009 as compared to the same period in 2008, an
increase of 3%, primarily due to the following:
 
 §
              The
      Company hired additional personnel for its non-traditional day-time
      service offering which resulted in an increase of approximately
      $148,000.  This was facilitated by the execution of an agreement
      with a customer, which is a hospital organization, whereby the Company was
      required to hire additional personnel prior to the agreement taking effect
      so they could be properly trained and prepared for the required
      work.  The service offering under this agreement have commenced
      and the Company is generating
revenue.
 
 §
              This
      increase was partially offset by a decrease in labor and telephone cost of
      approximately $79,000.  This was a result of the Company
      incurring additional labor and telephone service costs in 2008 in
      association with the consolidation of its call center infrastructure in
      order to maximize operational efficiencies.  With this
      consolidation effort being substantially completed during 2008 and the
      Company realigning its personnel and structuring its telephone system more
      efficiently, the Company has realized the operational and financial
      benefits of this effort.  The Company anticipates it will
      continue to realize these benefits throughout the remainder of
      2009.
  Selling, General and
Administrative Expenses:
 
 Selling,
general and administrative expenses decreased by approximately $112,000 for the
three months ended September 30, 2009 as compared to the same period in 2008, a
decrease of 3%.  The decrease was primarily attributable to the
following:
 
 §
              The
      Company incurred approximately $193,000 less internet and television
      advertising expenses as compared to the same period in 2008 due to
      management’s determination relating to the efficiency of the advertising
      program. The Company continues to evaluate the cost benefit of such
      advertising.
 
 §
              The
      Company recorded less amortization expense in the amount of approximately
      $36,000.  This was primarily the result of certain intangible
      assets associated with previous telephone answering service acquisitions
      being fully amortized as of March 31,
2009.
  20
  §
              These
      decreases were partially offset by an increase in consulting expense of
      approximately $106,000.  This increase was primarily due to the
      Company utilizing outside consultants to assist in expanding its sales and
      promotion efforts of its MedSmart medication management
      system.
 
 There
were other decreases in selling, general and administrative expenses which arose
out of the normal course of business such as utility expense which was partially
offset by an increase in bad debt expense.
 
 Interest
Expense:
 
 Interest
expense for the three months ended September 30, 2009 and 2008 was approximately
$17,000 and $57,000, respectively.  The decrease of $40,000 was
primarily due to the Company continuing to pay down its term loan as well as a
reduction in the interest rate.
 
 Other
Income:
 
 Other
income for the three months ended September 30, 2009 and 2008 was approximately
$72,000 and $78,000, respectively. Other income for the three months ended
September 30, 2009 includes an insurance recovery of approximately $45,000 as a
result of fire damage incurred at one of the call center
locations.  Other income for the three months ended September 30, 2008
includes an economic development incentive received from the City of Clovis, New
Mexico, in the amount of $50,000 associated with the opening of a call center in
this location.
 
 Income Before Provision for
Income Taxes:
 
 The
Company’s income before provision for income taxes for the three months ended
September 30, 2009 was approximately $1,261,000 as compared to $782,000 for the
same period in 2008. The increase of $479,000 for the three months ended
September 30, 2009 primarily resulted from an increase in the Company's service
and product revenues as well as a decrease in selling and administrative costs
and interest expense offset by an increase in the Company’s costs related to
services and product sales.
 
 Nine Months Ended September
30, 2009 Compared to Nine Months Ended September 30, 2008
 
 Revenues:
 
 HSMS
 
 Revenues,
which consist primarily of monthly recurring revenues, increased approximately
$695,000, or 5%, for the nine months ended September 30, 2009 as compared to the
same period in 2008.  The increase is primarily attributed to the
following factors:
  21
 
 §
              The
      Company experienced revenue growth under its exclusive arrangement with
      Walgreen whereby the Company markets the PERS product directly to the
      consumer.  In the nine months ended September 30, 2009, the
      Company recognized increased revenues of approximately $260,000, as
      compared to the same period in 2008, from this
  arrangement.
 
 §
              The
      Company has increased its subscriber base with respect to its telehealth
      offering which has resulted in increased revenues.  In the nine
      months ended September 30, 2009, the Company recognized increased revenues
      of approximately $105,000, as compared to the same period in
      2008.
 
 §
              The
      Company increased revenues from the agreement with a third party agency
      whereby PERS are placed online.  The subscriber base associated
      with this agreement has grown and accounted for an approximate $94,000
      increase in revenue during the nine months ended September 30, 2009 as
      compared to the same period in the prior
year.
 
 §
              Through
      the execution of new agreements as well as growth within its existing PERS
      subscriber base, the Company’s service revenue increased approximately
      $345,000 as compared to the same period in 2008.  The Company
      anticipates that it will continue to grow its subscriber base and
      corresponding revenue through its continued sales and marketing
      efforts.
 
 These
increases were partially offset by a decrease in product sales of approximately
$127,000. As a result of a decrease in sales of its enhanced senior living
product portfolio to retirement facilities, the Company realized approximately
$195,000 less revenue during 2009 as compared to the same period in
2008.  This decrease within product sales was partially offset by
approximately $68,000 of revenue generated from its MedSmart medication
management system which was commercialized during 2009.
 
 TBCS
 
 The
decrease in revenues of approximately $5,000 for the nine months ended September
30, 2009 as compared to the same period in 2008 was primarily due
to:
 
 §
              The
      Company experienced customer attrition at one of the call center locations
      as a result of certain account realignments, which took place as part of
      Company’s overall consolidation process.  This resulted in
      approximately a $286,000 decrease in revenue for the nine months ended
      September 30, 2009 as compared to the same period in 2008.  The
      Company has since modified its action plan and has stabilized the client
      base at this location.
 
 §
              This
      decrease in revenues was partially offset by the
  following:
  22
  o
              An
      increase in revenues from our non-traditional day-time service offering of
      approximately $217,000 as compared to the nine months ended September 30,
      2008.  This was a result of increased services provided to
      existing customers as well as additional service offering engaged with one
      of the hospital organizations.  Further expansion is anticipated
      within the non-traditional day-time service offering for the remainder of
      2009 and into 2010.
  o
              The
      Company continues to experience revenue growth within its traditional
      telephone answering service business due to addition of new customers as
      well as increased business from its existing customer
  base.
 
 Costs Related to Services
and Goods Sold:
 
 HSMS
 
 Costs
related to services and goods sold increased by approximately $6,000 for the
nine months ended September 30, 2009 as compared to the same period in 2008, an
increase of less than 1%, primarily due to the following:
 
 §
              The
      Company capitalized less labor and overhead costs in the nine months ended
      September 30, 2009 as compared to the same period in 2008 resulting in an
      increase in expense of approximately $138,000.  The Company
      incurred less capitalized labor and overhead to prepare products for
      shipment as a result of decreased purchases and improved efficiency within
      the fulfillment and engineering department.  The related
      personnel have then been utilized in other capacities within the
      fulfillment and engineering department including repair and upgrade of
      services and increased oversight of the Company’s leased medical devices
      and inventory.
 
 §
              The
      Company incurred increased payroll costs related to services of
      approximately $62,000 in association with the overall revenue growth
      within its HSMS segment.
 
 §
              These
      increases were partially offset by the
  following:
 
 o
              A
      decrease in the Company’s cost of goods sold of approximately $93,000
      primarily due to a decrease in sales of its enhanced senior living product
      portfolio to retirement facilities.
 
 o
              A
      decrease in the Company’s depreciation expense of approximately $89,000
      primarily as a result of the Company obtaining an alternative supplier to
      purchase its PERS equipment at reduced prices, purchasing fewer devices in
      2008 and 2009, as compared with past years as well as improved tracking
      systems relating to the PERS
equipment.
  23
  TBCS:
 
 Costs
related to services and goods sold decreased by approximately $64,000 for the
nine months ended September 30, 2009 as compared to the same period in 2008, a
decrease of 1%, primarily due to the following:
 
 §
              In
      2008, the Company incurred additional labor and telephone service costs in
      association with the consolidation of its call center infrastructure in
      order to maximize operational efficiencies. With this consolidation effort
      being substantially completed during 2008, the Company is realizing the
      operational and financial benefits of this effort.  During the
      first nine months of 2009, the Company was able to reduce its labor and
      telephone costs by approximately $333,000.  The Company
      anticipates it will continue to realize these benefits throughout the
      remainder of 2009.
  §
              There
      was a decrease in the Company’s depreciation expense of approximately
      $47,000 primarily due to certain assets related to the build-out of one of
      the call centers being fully depreciated at December 31,
    2008.
  §
              These
      decreases were partially offset by the Company hiring additional personnel
      for its non-traditional day-time service offering which resulted in an
      increase of approximately $299,000.  This was partially
      facilitated by the execution of an agreement with a customer, which is a
      hospital organization, whereby the Company was required to hire additional
      personnel prior to the agreement taking effect so they could be properly
      trained and prepared for the required work.  The service
      offering under this agreement has commenced and the Company is generating
      revenue.
 
 Selling, General and
Administrative Expenses:
 
 Selling,
general and administrative expenses decreased by approximately $393,000 for the
nine months ended September 30, 2009 as compared to the same period in 2008, a
decrease of 3%.  The decrease is primarily attributable to the
following:
 
 §
              The
      Company incurred approximately $525,000 less internet and television
      advertising expenses as compared to the same period in 2008 due to
      management’s determination relating to the efficiency of the advertising
      program. The Company continues to evaluate the cost benefit of such
      advertising.
 
 §
              As
      a result of the Company’s effort in consolidating its call center
      infrastructure, the Company has benefited from a reduction of
      approximately $55,000 in administrative payroll and related payroll taxes
      in the first nine months of 2009 as compared to the same period in
      2008.
 
 §
              The
      Company recorded less amortization expense in the amount of
      $110,000.  This was primarily the result of certain intangible
      assets associated with previous telephone answering service acquisitions
      being fully amortized as of June 30, 2008 and March 31,
    2009.
  24
  §
              These
      decreases were partially offset by an increase in consulting expense of
      approximately $295,000.  This increase was primarily due to the
      Company utilizing outside consultants to assist in expanding its sales and
      promoting efforts of its MedSmart medication management system as well as
      incurring fees for the upgrade of existing websites and accounting
      systems.
  There
were other decreases in selling, general and administrative expenses which arose
out of the normal course of business such as minor purchase and legal expense
which were partially offset by an increase in depreciation expense and bad debt
expense.
 
 Interest
Expense:
 
 Interest
expense for the nine months ended September 30, 2009 and 2008 was approximately
$62,000 and $224,000, respectively.  The decrease of $162,000 was
primarily due to the Company continuing to pay down its term loan as well as a
reduction in the interest rate.
 
 Other
Income:
 
 Other
income for the nine months ended September 30, 2009 and 2008 was approximately
$223,000 and $247,000, respectively. This includes a training incentive received
from the State of New Mexico for hiring and training employees within the State
and an economic development incentive through the City of
Clovis.  These incentives accounted for approximately $73,000 and
$240,000 for the nine months ended September 30, 2009 and 2008,
respectively.  In 2007, the Company opened a network operating call
center in New Mexico and hired employees to serve as operators for the telephone
answering service.  In 2008, the Company continued its further
expansion into this facility by also hiring employees to serve as emergency
response operators for the HSMS segment.  Other income for the nine
months ended September 30, 2009 and 2008 also includes late fees from customers
of approximately $51,000 and $45,000, respectively.  In addition, in
2009, the Company received an insurance reimbursement of approximately $45,000
as a result of fire damage incurred at one of its call center
locations.  In 2008, the economic development incentive through the
City of Clovis was partially offset by an adjustment to the Relocation and
Employment Assistance Program credit due from New York City in the amount of
$73,000.
 
 Income Before Provision for
Income Taxes:
 
 The
Company’s income before provision for income taxes for the nine months ended
September 30, 2009 was approximately $3,604,000 as compared to $2,325,000 for
the same period in 2008. The increase of $1,279,000 for the nine months ended
September 30, 2009 primarily resulted from an increase in the Company's service
and product revenues as well as a decrease in selling, general and
administrative cost as well as interest expense.
  25
  Liquidity and Capital
Resources
  As of
January 1, 2006 the Company had a credit facility arrangement with a bank in the
amount of $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.
  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.
  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 August
13, 2009 the Company amended its credit facility whereby the term of the
revolving credit line was extended through June 2011.  On April 30,
2007, the Company had amended its credit facility whereby the term of the
revolving credit line was extended through June 2010 and the amount of credit
available under the revolving credit line was increased to
$2,500,000.
 
 As of
September 30, 2009 and 2008, the Company was in compliance with its financial
covenants in its loan agreement.
 
 The
following table is a summary of contractual obligations as of September 30,
2009:
  Payments
      Due by PeriodContractual  Obligations
                              
                              Total
                              
                              
                              Less
      than1
                                year
                              
                              
                              1-3
      years
                              
                              
                              4-5
      years
                              
                              
                              After
      5 yearsRevolving
      Credit Line
                              
                              $
                              950,000
                              
                              
                              $
                              200,000
                              
                              
                              $
                              750,000Debt  (a)
                              
                              $
                              2,101,667
                              
                              
                              $
                              1,301,667
                              
                              
                              $
                              800,000Operating
      Leases (b)
                              
                              $
                              7,599,893
                              
                              
                              $
                              1,010,119
                              
                              
                              $
                              2,599,265
                              
                              
                              $
                              1,728,883
                              
                              
                              $
                              2,261,626Purchase
      Commitments (c)
                              
                              $
                              646,515
                              
                              
                              $
                              646,515Interest
      Expense (d)
                              
                              $
                              81,159
                              
                              
                              $
                              54,553
                              
                              
                              $
                              26,606Acquisition
      related Commitment (e)
                              
                              $
                              94,931
                              
                              
                              $
                              94,931Total
      Contractual Obligations
                              
                              $
                              11,474,165
                              
                              
                              $
                              3,307,785
                              
                              
                              $
                              4,175,871
                              
                              
                              $
                              1,728,883
                              
                              
                              $
                              2,261,626
  26
 (a)–
      Debt includes the Company’s aggregate outstanding term loans which mature
      in 2010 and 2011.
  (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 2009.  The
      Company also leases office space from certain telephone answering service
      managers.  The leases with these managers expire in December
      2009 and December 2012,
respectively.
  — On August 12, 2009, the Company entered into an agreement with an
      independent third party to sublet a portion of the office space in its New
      York location.  The sublease commenced in August 2009 with a
      rent abatement through October 2009 and expires in March
      2018.  The minimum annual rental income, which is not reflected
      in the table above, is $125,000 subject to a 3% annual
      increase.
  (c)–Purchase commitments relate to orders for the Company’s traditional
      PERS system and its MedSmart pill
dispenser.
  (d)  –
      Interest expense relates to interest on the Company’s revolving credit
      line and debt at the Company’s current rate of
  interest.
  (e)  –
      Acquisition related commitment represents payments due based on
      collections of the clinical trial business relating to the American
      Mediconnect, Inc acquisition in December
2006.
  The
primary sources of liquidity are cash flows from operating activities.  Net
cash provided by operating activities was approximately $5.8 million for the
nine months ended September 30, 2009, as compared to approximately $5.0 million
for the same period in 2008. During 2009, the cash provided by operating
activities was primarily from net earnings of approximately $2.1 million as well
as depreciation and amortization of approximately $3.1 million, and increase in
accounts payable and accrued expenses of $0.9 million.. The components of
depreciation and amortization primarily relate to the purchases of the Company’s
traditional PERS product and the customer lists associated with the acquisition
of telephone answering service businesses.  The increase in accounts
payable and accrued expenses is primarily due to the timing of payments of
expenses in the ordinary course of business.  Cash provided by
operating activities during 2008 were the result of net earnings of
approximately $1.4 million as well as depreciation and amortization of
approximately $3.2 million.. The components of depreciation and amortization
primarily relate to the purchases of the Company’s traditional PERS product and
the customer lists associated with the acquisition of telephone answering
service businesses.
  Net cash
used in investing activities for the nine months ended September 30, 2009 and
2008 were approximately $1.1 million and $2.8 million,
respectively.  The primary component of net cash used in investing
activities in 2009 was capital expenditures of approximately $0.9
million.  Capital expenditures for 2009 primarily related to the
continued production and purchase of the traditional PERS system.  The
primary components of net cash used in investing activities in 2008 were capital
expenditures of approximately $2.5 million.  Capital expenditures for
2008 primarily related to the continued production and purchase of traditional
PERS equipment and the build-out of the Company’s new call center in New
Mexico.
  27
  Cash
flows for the nine months ended September 30, 2009 used in financing activities
were approximately $1.7 million compared to $1.3 million for the same period in
2008.  The primary component of cash flow used in financing activities
in 2009 and 2008 was the payment of long-term debt of approximately $1.5 million
and $1.3 million, respectively.
  During
the next twelve months, the Company anticipates it will make capital
expenditures and purchase of inventory items of approximately $1.75 – $2.0
million for the production and purchase of the traditional PERS equipment,
MedSmart pill dispensers and telehealth systems as well as enhancements to its
computer operating systems (this includes outstanding purchase orders issued to
purchase approximately $0.6 million of the traditional PERS equipment and the
MedSmart pill dispenser).  This amount is subject to fluctuations
based on customer demand.  The Company also anticipates incurring
approximately $0.1 - $0.3 million of costs relating to research and development
of its telehealth product and enhanced pill dispenser.
  As of
September 30, 2009, the Company had approximately $5.5 million in cash and the
Company’s working capital was approximately $8.9 million.  The Company
believes that with its present cash balance and with operations of the business
generating positive cash flow, it will be able to meet its cash, working capital
and capital expenditure needs for at least the next twelve months. The Company
also has a revolving credit line, which expires in June 2011 that permits
borrowings up to $2.5 million, of which $950,000 was outstanding at September
30, 2009. In October 2009, the Company paid down $200,000 on the revolving
credit line leaving a balance of $750,000.
  Off-Balance
Sheet Arrangements:
  As of
September 30, 2009, 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:
  During
2008, the Company recorded a loss on abandonment of $886,504, which represents
the write-off of assets encompassing prepaid licensing fees and associated
products paid or acquired in connection with a technology provider obtaining and
completing certain new remote telehealth monitoring products and
services.  The technology provider on this initiative experienced a
funding shortfall and filed for bankruptcy protection and was not be able to
complete the project.  Although the Company has abandoned this
particular project, the Company plans to continue its efforts within the
telehealth sector.  The Company believes the telehealth market will
continue to provide opportunities for AMAC’s expansion as a full source provider
of remote patient monitoring technologies and first line support
services.
  28
  During
2005, the Company entered into two operating lease agreements for additional
space at its Long Island City, New York location in order to consolidate its
warehouse and distribution center and accounting department into this
location.  The leases, which commenced in January 2006 and expire in
March 2018, call for minimum annual rentals of $220,000 and $122,000,
respectively, and are subject to increases in accordance with the term of the
agreements.  The Company is also responsible for the reimbursement of
real estate taxes.  On August 12, 2009, the Company entered into an
agreement with an independent third party to sublet a portion of the additional
space occupied in its Long Island City, New York location.  The
sublease commenced on August 17, 2009 and expires in March 2018. The sublease
calls for minimum annual rentals of $125,000 subject to a 3% annual
increase.  The sublease agreement also calls for a rent abatement
through October 31, 2009.
 
 On
January 14, 2002, the Company entered into an operating lease agreement for
space in Long Island City, New York in order to consolidate its HCI TBCS and
PERS ERC/ Customer Service facilities.  The centralization of the ERC,
Customer Service and H-LINK® OnCall operations has provided certain operating
efficiencies and allowed for continued growth of the H-LINK and PERS
divisions.  The fifteen (15) year lease term commenced in April 2003. 
The lease calls for minimum annual rentals of $307,900, subject to a 3% annual
increase plus reimbursement for real estate taxes.
 
 Since
1983, the Company has provided Personal Emergency Response Systems (“PERS”)
services to the City of New York’s Human Resources Administration Home Care
Service Program ("HCSP").  The contract term with the HCSP is for two
years, commencing September 21, 2007, with two options to renew in favor of
Human Resources Administration (“HRA”) for two additional two year
terms.  During the nine months ended September 30, 2009 and 2008, the
Company’s revenue from this contract represented 6% of its total revenue.
As of September 30, 2009 and December 31, 2008, accounts receivable from the
contract represented 8% of accounts receivable.
 
 Recent
Accounting Pronouncements:
  In June
2009, the FASB issued FASB ASC Topic 105, Generally Accepted Accounting
Principles,which
establishes the FASB Accounting Standards Codification 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 will
supersede all then-existing non-SEC accounting and reporting standards. The
codification did not change GAAP but reorganizes the
literature.  Pursuant to the provisions of FASB ASC Topic 105, we have
updated references to GAAP in our financial statements issued for the period
ended September
30, 2009.  The adoption of FASB ASC Topic 105 did not impact our
financial position or results of operations.
 
 In
December 2007, the FASB issued ASC Topic 805 (formerly SFAS No. 141(R), Business
Combinations).  ASC Topic 805 provides a broader definition of the
“Acquirer” and establishes principles and requirements of how the Acquirer
recognizes and measures in its financial statements the identifiable assets
acquired and liabilities assumed as well as how the Acquirer recognizes and
measures the goodwill acquired in the business combination.  ASC Topic
805 is effective for fiscal years beginning after December 15,
2008.  ASC Topic 805 will be applied prospectively to business
combinations with an acquisition date on or after the effective
date.
  29
  On
January 1, 2009, the Company adopted ASC Topic 350-30-35 (formerly FSP SFAS No.
142-3, Determination of the Useful Life of Intangible Assets), which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible
asset.  The intent of this update is to improve the consistency
between the useful life of a recognized intangible asset under ASC Topic 350,
Intangible - Goodwill and Other, and the period of expected cash flows used to
measure the fair value of the asset under business combination accounting (as
currently codified under ASC Topic 805).  ASC Topic 350-30-35 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  The adoption of ASC
Topic 350-30-35 did not have a material impact on the Company’s financial
statements.
 
 In May
2009, the FASB issued ASC Topic 855 (formerly SFAS No. 165, Subsequent
Events).  This statement establishes general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
the financial statements are issued or are available to be issued. ASC Topic 855
provides guidance on the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The Company adopted ASC Topic 855 during
the second quarter of 2009.
 
 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 $672,500 as of September 30, 2009, which is equal to 9.8% 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
pre-tax net income of approximately $69,000. 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 pre-tax net income
by approximately $69,000.
  30
  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 pre-tax net income would decrease
by approximately $175,000 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 pre-tax net income would increase
by approximately $130,000 per annum.
 
 Valuation of Goodwill
 Pursuant
to ASC Topic 350 (formerly SFAS No. 142, Intangibles – Goodwill and other,
goodwill and indefinite life intangible assets are no longer amortized, but are
subject to annual impairment tests.  To date, the Company has not been
required to recognize an impairment of goodwill. The Company tests goodwill for
impairment annually or more frequently when events or circumstances occur
indicating goodwill might be impaired. This process involves estimating fair
value using discounted cash flow analyses. Considerable management judgment is
necessary to estimate discounted future cash flows. Assumptions used for these
estimated cash flows were based on a combination of historical results and
current internal forecasts.  The Company cannot predict certain events
that could adversely affect the reported value of goodwill, which totaled
$10,222,292 and $9,996,152 at September 30, 2009 and December 31, 2008,
respectively.  If the Company were to experience a significant adverse
impact on goodwill, it would negatively impact the Company’s net
income.
  31
  Accounting
for Stock-Based Awards
 On
January 1, 2006, the Company adopted ASC Topic 718 (formerly SFAS Statement
No. 123(R), Share-Based Payments), which requires the measurement and
recognition of compensation expense for all share-based payments to employees,
including grants of stock and employee stock options, based on estimated fair
values. Stock-based compensation expense recognized during the period is based
on the value of the portion of share-based payment awards that is ultimately
expected to vest during the period.As a result of adopting
ASC Topic 718, the Company recorded a pre-tax expense of approximately $319,000
and $329,000 for stock-based compensation for the nine months ended September
30, 2009 and 2008, 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
 
 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 September 30, 2009 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 loan and revolving credit line under our credit facility accrues at a rate
of LIBOR plus 1.75% and LIBOR plus 1.50%, respectively.  Our ability
to carry out our business plan to finance future working capital requirements
and acquisitions of TBCS businesses may be impacted if the cost of carrying debt
fluctuates to the point where it becomes a burden on our resources.
  32
  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 September 30, 2009 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.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 On
October 26, 2009, the Company issued to one accredited investor, in connection
with a strategic business relationship, (i) a warrant to purchase 10,000 shares
of the Company’s common stock (“Common Stock”), par value $.01 per share, of
which 5,000 shares vested immediately and 5,000 shares vest one year from the
grant date subject to certain conditions, and exercisable for a five year term
from the applicable vesting date, and (ii) a warrant to purchase a number of
shares of Common Stock determined by a formula based on future levels of
business activity in connection with such strategic business relationship, and
exercisable for a five year term from the grant date subject to earlier
termination in the event of the termination of the strategic business
relationship.  Each warrant has a per share exercise price of
$5.93.
  33
  The
issuance of these securities was made without registration in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act of 1933, as amended (the “Securities Act”), and
corresponding provisions of state securities laws, which exempts transactions by
an issuer not involving any public offering, based on the fact that the
aforementioned securities were not sold or offered pursuant to general
solicitation, and in reliance upon the representations of the holder as to its
status as an accredited investor, that it was purchasing such securities for its
own account and not with a view to resale or distribution or any part thereof in
violation of the Securities Act and an acknowledgement by the holder that resale
of such securities may not be made unless registered under the Securities Act or
another exemption is available.  In addition, such securities bear a
legend indicating such restrictions on transferability.
 
 Item
5.  Other Information.
 
 On
November 13, 2009, the Board of Directors of the Company approved a grant to
Richard Rallo, the Company’s Chief Financial Officer, under the Company’s 2000
Stock Option Plan (the “2000 SOP”), of options to purchase 3,426 shares of
Common Stock, vesting on December 31, 2010, and options to purchase 18,274
shares of the Company’s Common Stock, vesting on December 31, 2011 (which
vesting shall be subject to continued employment on the date of vesting, in
accordance with the 2000 SOP and the other terms and conditions of the
previously disclosed employment agreement (the “Employment Agreement”) between
the Company and Mr. Rallo dated as of January 1, 2009.  These options
have a per share exercise price of $5.88.  The grant of these options
was made to replace, and to provide incentive compensation with equivalent value
to, 9,500 restricted shares of Common Stock that the Company recently discovered
it had inadvertently granted in excess of Mr. Rallo’s individual 50,000 share
limit under the Company’s 2005 Stock Incentive Plan, of which 1,500 shares were
to vest on December 31, 2010 and 8,000 shares were to vest on December 31, 2011
(the “Excess Shares”). The 2000 SOP does not contain any individual grant
limits. The grant of the Excess Shares has been cancelled and Mr. Rallo has
agreed in writing to waive any and all rights with respect to the Excess
Shares.
 
 Item
6.  Exhibits.
  No.
                      
                      Description15.1
                      
                      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 report31.1
                      
                      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
      2002
  34


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.Date:
      November 16, 2009
                            
                            By:
                            /s/
      Jack RhianName:
      Jack RhianTitle:
      Chief Executive Officer and
                              PresidentBy:
                            /s/
      Richard RalloName:
      Richard RalloTitle:
      Chief Financial
Officer
  35