**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C.** **20549**




**FORM
      10-Q**




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




For
      the
      quarter ended June 30, 2007.




**OR**


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


For
      the
      transition period from ____________ to ____________




Commission
      File Number 1-8635




**AMERICAN
      MEDICAL ALERT CORP.**


(Exact
      Name of Registrant as Specified in its Charter)




New
                York
            11-2571221(State
                or other jurisdiction of
            (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
o




Indicate
      by check mark whether registrant is a large accelerated filer, accelerated
      filer
      or non-accelerated filer. See definition of accelerated filer and large
      accelerated filer in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer o  Accelerated
      filer o  Non-accelerated
      filer  x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 on the Exchange Act)  Yes
o
      No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 9,310,430 shares of $.01 par value
      common stock as of August 10, 2007.










AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES




INDEX
            PAGEPart
                I
            Financial
                InformationReport
                of Independent Registered Public Accounting Firm
            1Condensed
                Consolidated Balance Sheets for June 30, 2007 and December 31,
                2006
            2Condensed
                Consolidated Statements of Income for the Six Months Ended June 30,
                2007
                and 2006
            4Condensed
                Consolidated Statements of Income for the Three Months Ended June
                30, 2007
                and 2006
            5Condensed
                Consolidated Statements of Cash Flows for the Six Months Ended June
                30,
                2007 and 2006
            6Notes
                to Condensed Consolidated Financial Statements
            8Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            18Quantitative
                and Qualitative Disclosures About Market Risks
            37Controls
                and Procedures
            37Part II
            Other
                Information
            38







Report
      of
      Independent Registered Public Accounting Firm





Board
      of
      Directors and Shareholders


American
      Medical Alert Corp. and Subsidiaries


Oceanside,
      New York





We
      have
      reviewed the accompanying condensed consolidated balance sheet of American
      Medical Alert Corp. and Subsidiaries (the “Company”) as of June 30, 2007 and the
      related condensed consolidated statements of income for the six-month and
      three-month periods ended June 30, 2007 and 2006 and cash flows for the
      six-months ended June 30, 2007 and 2006. 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, 2006, 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, 2007 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, 2006 is fairly stated,
      in all material respects, in relation to the consolidated balance sheet from
      which it has been derived.




/s/
                Margolin, Winer & Evens LLPMargolin,
                Winer & Evens LLPGarden
                City, New YorkAugust
                13, 2007





1


**PART
      I - FINANCIAL INFORMATION**


**Item
      1.** **Financial
      Statements** **.**




AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED BALANCE SHEETS




June 30, 2007
                (Unaudited)
            
            Dec. 31, 2006ASSETSCURRENT
                ASSETSCash
            
            $
            1,198,740
            
            $
            856,248Accounts
                  receivable(net of allowance for doubtful accounts of
                  $581,000****and $547,000)
            
            
            5,661,937
            
            
            4,920,950Note
                receivable
            
            
            26,290
            
            
            25,642Inventory
            
            
            510,258
            
            
            313,851Prepaid
                expenses and other current assets
            
            
            1,088,955
            
            
            860,863Deferred
                income taxes
            
            
            272,000
            
            
            239,000Total
                Current Assets
            
            
            8,758,180
            
            
            7,216,554FIXED
                ASSETS(Net
                of accumulated depreciation and amortization)
            
            
            9,980,137
            
            
            9,307,912OTHER
                ASSETSLong-term
                portion of note receivable
            
            
            34,762
            
            
            48,071Intangible
                  assets (net of accumulated amortization of
                  $3,801,699****and $3,194,677)
            
            
            4,525,825
            
            
            5,115,961Goodwill
                (net of accumulated amortization of $58,868)
            
            
            9,642,813
            
            
            9,532,961Other
                assets
            
            
            1,066,638
            
            
            1,386,28615,270,038
            
            
            16,083,279TOTAL
                ASSETS
            
            $
            34,008,355
            
            $
            32,607,745LIABILITIES
                AND SHAREHOLDERS' EQUITYCURRENT
                LIABILITIES:Current
                portion of long-term debt
            
            $
            1,529,611
            
            $
            1,527,327Accounts
                payable
            
            
            1,390,398
            
            
            805,002Accounts
                payable - acquisitions
            
            
            408,085
            
            
            477,308Accrued
                expenses
            
            
            1,281,216
            
            
            1,075,256Current
                portion of capital lease obligations
            
            
            40,575
            
            
            39,183Deferred
                revenue
            
            
            177,768
            
            
            104,515Total
                Current Liabilities
            
            
            4,827,653
            
            
            4,028,591DEFERRED
                INCOME TAX LIABILITY
            
            
            1,025,000
            
            
            992,000LONG-TERM
                DEBT, Net of Current Portion
            
            
            5,011,489
            
            
            5,677,068LONG
                -TERM Portion of Capital Lease Obligations
            
            
            53,799
            
            
            74,440CUSTOMER
                DEPOSITS
            
            
            90,600
            
            
            69,200ACCRUED
                RENTAL OBLIGATION
            
            
            413,989
            
            
            381,256OTHER
                LIABILITIES
            
            
            40,000
            
            
            40,000TOTAL
                LIABILITIES
            
            
            11,462,530
            
            
            11,262,555COMMITMENTS
                AND CONTINGENT LIABILITIES
            
            
            -
            
            
            -




2




SHAREHOLDERS’
                EQUITYPreferred
                stock, $.01 par value - authorized, 1,000,000 shares; none issued
                and
                outstandingCommon
                stock, $.01 par value - authorized, 20,000,000 shares; issued 9,319,088
                sharesin 2007 and 9,230,086 shares in 2006
            
            
            93,192
            
            
            92,302Additional
                paid-in capital
            
            
            15,017,015
            
            
            14,591,238Retained
                earnings
            
            
            7,541,650
            
            
            6,767,68222,651,857
            
            
            21,451,222Less
                treasury stock, at cost (43,910 shares)
            
            
            (106,032
            )
            
            (106,032
            )Total
                Shareholders’ Equity
            
            
            22,545,825
            
            
            21,345,190TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            34,008,355
            
            $
            32,607,745


See
        accompanying notes to condensed financial statements.
  3


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME




(Unaudited)




Six
                Months Ended June 30,Revenues:
            
            
            2007
            
            
            2006Services
            
            $
            17,401,074
            
            $
            14,818,137Product
                sales
            
            
            200,568
            
            
            128,39117,601,642
            
            
            14,946,528Costs
                and Expenses (Income):Costs
                related to services
            
            
            8,279,051
            
            
            7,294,260Costs
                of products sold
            
            
            120,999
            
            
            70,528Selling,
                general and administrative expenses
            
            
            7,922,679
            
            
            6,690,746Interest
                expense
            
            
            255,136
            
            
            175,748Other
                income
            
            
            (346,191
            )
            
            (257,297
            )Income
                before Provision for Income Taxes
            
            
            1,369,968
            
            
            972,543Provision
                for Income Taxes
            
            
            596,000
            
            
            448,000NET
                INCOME
            
            $
            773,968
            
            $
            524,543Net
                income per share:Basic
            
            $
            .08
            
            $
            .06Diluted
            
            $
            .08
            
            $
            .06Weighted
                average number of common shares outstanding:Basic
            
            
            9,232,958
            
            
            8,849,678Diluted
            
            
            9,635,350
            
            
            9,350,339




See
      accompanying notes to condensed financial statements.





4




AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME




(Unaudited)




Three
                Months Ended June 30,2007
            
            2006Revenues:Services
            
            $
            8,788,093
            
            $
            7,748,256Product
                sales
            
            
            110,713
            
            
            48,0618,898,806
            
            
            7,796,317Costs
                and Expenses (Income):Costs
                related to services
            
            
            4,129,948
            
            
            3,731,278Costs
                of products sold
            
            
            68,792
            
            
            26,077Selling,
                general and administrative expenses
            
            
            4,021,644
            
            
            3,603,341Interest
                expense
            
            
            128,621
            
            
            113,706Other
                income
            
            
            (176,459
            )
            
            (132,861
            )Income
                before Provision for Income Taxes
            
            
            726,260
            
            
            454,776Provision
                for Income Taxes
            
            
            319,000
            
            
            210,000NET
                INCOME
            
            $
            407,260
            
            $
            244,776Net
                income per share:Basic
            
            $
            .04
            
            $
            .03Diluted
            
            $
            .04
            
            $
            .03Weighted
                average number of common shares outstanding:Basic
            
            
            9,261,738
            
            
            8,924,786Diluted
            
            
            9,692,433
            
            
            9,429,125




See
                accompanying notes to condensed financial statements.





5


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Six
                Months Ended June 302007
            
            
            2006Cash
                Flows From Operating Activities:Net
                income
            
            $
            773,968
            
            $
            524,543Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            1,954,628
            
            
            1,621,483Stock
                compensation charge
            
            
            144,735
            
            
            85,000Decrease
                (increase) in:Accounts
                receivable
            
            
            (740,987
            )
            
            (827,600
            )Inventory
            
            
            (196,407
            )
            
            44,427Prepaid
                expenses and other current assets
            
            
            (228,092
            )
            
            (263,908
            )Increase
                (decrease) in:Accounts
                payable, accrued expenses and other
            
            
            845,489
            
            
            804,094Deferred
                revenue
            
            
            73,253
            
            
            80,975Net
                Cash Provided by Operating Activities
            
            
            2,626,587
            
            
            2,069,014Cash
                Flows From Investing Activities:Expenditures
                for fixed assets
            
            
            (2,014,778
            )
            
            (2,117,013
            )Repayment
                of notes receivable
            
            
            12,661
            
            
            12,045Payment
                of accounts payable - acquisitions
            
            
            (171,532
            )
            
            (310,872
            )Purchase
                of MD OnCall
            
            
            -
            
            
            (2,879,693
            )Purchases
                - other acquisitions
            
            
            (7,542
            )
            
            (80,004
            )Deposit
                on equipment and software
            
            
            -
            
            
            (58,884
            )(Increase)
                decrease in other assets
            
            
            297,708
            
            
            (6,570
            )Payment
                for account acquisitions andlicensing
                agreement
            
            
            -
            
            
            (174,320
            )Net
                Cash (Used In) Investing Activities
            
            
            (1,883,483
            )
            
            (5,615,311
            )Cash
                Flows From Financing Activities:Principal
                payments under capital lease obligations
            
            
            (19,249
            )
            
            (24,082
            )Proceeds
                from long-term debt
            
            
            -
            
            
            2,500,000Repayment
                of long-term debt
            
            
            (663,295
            )
            
            (433,509
            )Proceeds
                upon exercise of stock options and warrants
            
            
            281,932
            
            
            314,938Net
                Cash Provided by (Used In) Financing Activities
            
            
            (400,612
            )
            
            2,357,347


See
        accompanying notes to condensed financial statements.
  6


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)




Six
                  Months Ended June 30,2007
              
              
              2006Net
                  Increase (decrease) in Cash
              
              $
              342,492
              
              $
              (1,188,950
              )Cash,
                  Beginning of Period
              
              
              856,248
              
              
              2,638,984Cash,
                  End of Period
              
              $
              1,198,740
              
              $
              1,450,034SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:CASH
                  PAID DURING THE PERIOD FOR INTEREST
              
              $
              232,199
              
              $
              124,216CASH
                  PAID DURING THE PERIOD FOR INCOME TAXES
              
              **$**
              408,450
              
              **$**
              1,026,575SUPPLEMENTAL
                  SCHEDULE OF NONCASH INVESTING AND
                  FINANCING ACTIVITIES:Common
                  Stock issued in connection with acquisition
              
              $
              -
              
              $
              343,064Accounts
                    payable due seller in connection with acquisition
              
              
              102,309
              
              
              343,064




See
      accompanying notes to condensed financial statements.


7




AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES




Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)


1.  General:




These
      financial statements should be read in conjunction with the financial statements
      and notes thereto for the year ended December 31, 2006 included in the Company’s
      Annual Report on Form 10-K.




2.  Results
      of Operations:




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




In
      the
      opinion of management, the accompanying unaudited condensed financial statements
      contain all adjustments (consisting only of normal recurring accruals) necessary
      to present fairly the financial position as of June 30, 2007 and the results
      of
      operations for the six and three months ended June 30, 2007 and 2006, and cash
      flows for the six months ended June 30, 2007 and 2006.




Except
      as
      described in Notes 3, the accounting policies used in preparing these financial
      statements are the same as those described in the December 31, 2006 financial
      statements.




Certain
      amounts in the 2006 condensed consolidated financial statements have been
      reclassified to conform to the 2007 presentation.




The
      results of operations for the six and three months ended June 30, 2007 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
      July 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”) was
      issued, clarifying the accounting for uncertainty in tax positions. This
      Interpretation requires recognition in the financial statements of the impact
      of
      a tax position, if that position is more likely than not of being sustained
      on
      audit, based on the technical merits of the position. The provisions of FIN
      48
      are effective as of the beginning of our 2007 fiscal year, with the cumulative
      effect of the change in accounting principle recorded as an adjustment to
      opening retained earnings. The Company adopted FIN 48 as of January 2007 and
      the
      adoption of this Interpretation did not have a material impact on the
      consolidated results of operations or financial position.





8




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





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin (SAB) No. 108, “Financial Statements - Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements.” SAB No. 108 provides interpretive guidance on how the effects of
      prior year uncorrected misstatements should be considered when quantifying
      misstatements in the current year financial statements. SAB No. 108 is effective
      for years ending after November 15, 2006. The adoption of the provisions of
      SAB
      No. 108 did not have a material impact on the financial position or results
      of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” ("SFAS 159"). SFAS 159 provides
      companies with an option to report selected financial assets and liabilities
      at
      fair value. SFAS 159 also establishes presentation and disclosure requirements
      designed to facilitate comparisons between companies that choose different
      measurement attributes for similar types of assets and liabilities and to
      provide additional information that will help investors and other financial
      statement users to more easily understand the effect of the company's choice
      to
      use fair value on its earnings. Finally, SFAS 159 requires entities to display
      the fair value of those assets and liabilities for which the company has chosen
      to use fair value on the face of the balance sheet. SFAS 159 is effective as
      of
      the beginning of an entity's first fiscal year beginning after November 15,
      2007. Early adoption is permitted as of the beginning of the previous fiscal
      year provided that the entity makes that choice in the first 120 days of that
      fiscal year and also elects to apply the provisions of SFAS 157 (see above).
      The
      Company is currently assessing the impact of SFAS 159.




4. Accounting
      for Stock-Based Compensation:




On
      January 1, 2006, the Company adopted FASB Statement No. 123 (revised
      2004), “Share-Based Payment” ** (“Statement
      No. 123(R)”), which requires the measurement and recognition of
      compensation expense for all share-based payments to employees, including grants
      of stock and employee stock options, based on estimated fair values. Statement
      No. 123(R) supersedes the Company’s previous accounting under APB
      No. 25 for periods beginning in 2006. The Company adopted Statement
      No. 123(R) using the modified prospective transition method. The
      Company’s consolidated financial statements for the year ended December 31,
      2006, reflects the impact of Statement No. 123(R).




Stock-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest during
      the period. Stock-based compensation expense recognized in the Company's
      condensed consolidated statements for the six and three months ended June 30,
      2007 and 2006 includes compensation expense for share-based payment awards
      granted prior to, but not yet vested as of December 31 2005, based on the
      grant date fair value estimated in accordance with the pro forma disclosure
      provisions of Statement No. 123 and compensation expense for the
      share-based payment awards granted subsequent to December 31, 2005 based on
      the grant date fair value estimated in accordance with the provisions of
      Statement No. 123(R).




9




No
      options were granted during either of the six month periods ended June 30,
      2007
      and 2006.




The
      following tables summarize stock option activity for the six months ended June,
      30, 2007 and 2006 .




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





2006WeightedAverage
            
            AggregateWeighted
            
            Remaining
            
            IntrinsicNumber
                of
            
            Average
            
            Contractual
            
            ValueOptions
            
            Option
                Price
            
            Term
                (years)Balance
                at January 1
            
            
            1,287,283
            
            $
            3.56Granted
            
            
            -
            
            
            -Exercised
            
            
            130,062
            
            
            1.67Expired/Forfeited
            
            
            13,652
            
            
            3.00Balance
                at June 30
            
            
            1,143,569
            
            $
            3.79
            
            
            5.40
            
            $
            2,696,223Vested
                and exercisable
            
            
            1,143,569
            
            $
            3.79
            
            
            5.40
            
            $
            2,696,223





10




The
      aggregate intrinsic value of options exercised during the six months ended
      June
      30, 2007 and 2006 was $102,168 and $577,051, respectively. At January 1, 2006
      there were 7,500 nonvested stock options outstanding. During the six months
      ended June 30, 2006, 2,500 options vested and 5,000 options were forfeited.
      There are no nonvested stock options outstanding as of June 30, 2007 and
      2006.





During
      the six months ended June 30, 2007 and 2006 there were 24,750 and 27,750
      warrants exercised, respectively, to purchase common shares of the
      Company.





The
      following table summarizes stock-based compensation expense, which is included
      in selling, general and administrative expense, related to all share-based
      payments recognized in the condensed consolidated statements of
      income.





Three Months
              Ended June 30,
            
            Three
                Months
              Ended June 30,2007
            
            2006Stock
                options
            
            $
            -
            
            $
            1,825Service
                based awards
            
            
            42,137
            
            
            20,000Performance
                based awards
            
            
            48,663
            
            
            20,675Tax
                benefit
            
            
            (39,225
            )
            
            (19,975
            )Stock-based
                compensation expense, net of tax
            
            $
            51,575
            
            $
            22,525




Six Months
              Ended June 30,
            
            Six
                Months
              Ended June 30,2007
            
            2006Stock
                options
            
            $
            -
            
            $
            3,650Service
                based awards
            
            
            62,137
            
            
            40,000Performance
                based awards
            
            
            71,163
            
            
            41,350Tax
                benefit
            
            
            (57,500
            )
            
            (39,100
            )Stock-based
                compensation expense, net of tax
            
            $
            75,800
            
            $
            45,900





Service
      Based Awards





In
      January 2006 and May 2007, the Company granted 60,000 and 22,000 restricted
      shares, respectively, to certain executives at no cost. These shares vest
      ratably over periods ranging from 3 to 5 years, on December 31 of each year.
      As
      of June 30, 2007 there were 12,500 shares vested. As of June 30, 2006 no shares
      were vested. Fair value for restricted stock awards is based on the Company's
      closing common stock price on the date of grant. The aggregate grant date fair
      value of restricted stock was $537,100. As of June 30, 2007 and 2006, the
      Company had $405,350 and $320,000, respectively, of total unrecognized
      compensation costs related to unvested restricted stock units expected to be
      recognized over a weighted average period of 3.29 years.





11




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 is based on the
      closing trading value of the Company’s stock on the date of grant and assumes
      that performance goals will be achieved. The fair value of the shares is
      expensed over the performance period for those shares that are expected to
      ultimately vest. If such objectives are not met, no compensation cost is
      recognized and any recognized compensation cost is reversed. As of June 30,
      2007, 18,000 shares were vested. As of June 30, 2006, no shares were vested.
      As
      of June 30, 2007 and 2006, there was $705,700 and $498,650, respectively, of
      total unrecognized compensation costs related to unvested share awards; that
      cost is expected to be recognized over a period of 3.50 years.




5.  Earnings
      Per Share:




Earnings
      per share data for the six and three months ended June 30, 2007 and 2006 is
      presented in conformity with SFAS No. 128, “Earnings Per Share.”





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





Six
                Months June 30, 2007
            
            Income
              (Numerator)
            
            Shares
              (Denominator)
            
            Per-Share
              AmountsBasic
                EPS - Income available tocommon
                stockholders
            
            $
            773,968
            
            
            9,232,958
            
            $
            .08Effect
                of dilutive securities -Options
                and warrants
            
            
            -
            
            
            402,392Diluted
                EPS - Income available to common stockholders andassumed
                conversions
            
            $
            773,968
            
            
            9,635,350
            
            $
            .08Three
                Months June 30, 2007Basic
                EPS -Income available tocommon
                stockholders
            
            $
            407,260
            
            
            9,261,738
            
            $
            .04Effect
                of dilutive securities - Options and warrants
            
            
            -
            
            
            430,695Diluted
                EPS - Income available to common stockholders andassumed
                conversions
            
            $
            407,260
            
            
            9,692,433
            
            $
            .04




12




Six
                Months June 30, 2006Basic
                EPS - Income available tocommon
                stockholders
            
            $
            524,543
            
            
            8,849,678
            
            $
            .06Effect
                of dilutive securities -Options
                and warrants
            
            
            -
            
            
            500,661Diluted
                EPS - Income available to common stockholders andassumed
                conversions
            
            $
            524,543
            
            
            9,350,339
            
            $
            .06Three
                Months Ended June 30, 2006Basic
                EPS -Income available tocommon
                stockholders
            
            $
            244,776
            
            
            8,924,786
            
            $
            .03Effect
                of dilutive securities -Options
                and warrants
            
            
            -
            
            
            504,339Diluted
                EPS - Income available to common stockholders andassumed
                conversions
            
            $
            244,776
            
            
            9,429,125
            
            $
            .03





6.  Acquisitions:





On
      December 21, 2006, the Company acquired substantially all of the assets
      of American
      Mediconnect, Inc. and PhoneScreen, Inc., Illinois based companies under common
      ownership (collectively “AMI”) .
      American Mediconnect, Inc. is a provider of telephone after-hour answering
      services primarily focused on hospitals, physicians and other health care
      providers. PhoneScreen, Inc. is a provider of call center and compliance
      monitoring services to hospitals, pharmaceutical companies and clinical resource
      organizations. The purchase price was $2,028,830 and consisted of an initial
      cash payment of $1,493,730, common stock valued at $229,324 and a future cash
      payment of $305,776, which is due in December 2007. In addition, for the three
      years following the acquisition, the Company is required to pay Seller an amount
      equal to twenty-five (25%) percent of the cash receipts collected by the
      Company, excluding sales taxes, from the PhoneScreen business. For the period
      ended June 30, 2007, the Company recorded $102,309 due to Seller based on
      PhoneScreen cash receipts. The Company also incurred professional fees of
      approximately $65,000. A potential exists for the payment of additional purchase
      price consideration if certain thresholds concerning revenue and earnings of
      the
      acquired business are met as of December 31, 2007, 2008 and 2009. The results
      of
      operations of AMI are included in the Telephone Based Communications Services
      (“TBCS”) segment as of the date of acquisition.




13




The
        following table summarizes the fair values of the assets acquired as of June
        30,
        2007.
  Fixed
                  assets
              
              $
              175,000Non-compete
                  agreement
              
              
              50,000Customer
                  list
              
              
              700,000Goodwill
              
              
              1,270,087Cost
                  to acquire AMI
              
              $
              2,195,087
 
 On
        March
        10, 2006, the Company acquired substantially all of the assets of MD
        OnCall, a Rhode Island based company and Capitol Medical
        Bureau, **** a
        Maryland based company (collectively “MD OnCall”) ,
        providers of telephone after-hour answering services and stand-alone voice
        mail
        services. The purchase price was $3,382,443 and consisted of an initial cash
        payment of $2,696,315, common stock valued at $343,064 and future cash payments
        of $343,064, which were paid in full as of March 2007. The Company also recorded
        finder and professional fees of approximately $181,000. A potential exists
        for
        the payment of additional purchase price consideration if certain thresholds
        concerning revenue and earnings of the acquired business are met as of March
        31,
        2007, 2008 and 2009. The first threshold as of March 31, 2007 was not met.
        The
        results of operations of MD OnCall are included in the TBCS segment as of
        the
        date of acquisition.
 
 The
        following table summarizes the fair values of the assets acquired and
        liabilities assumed at the date of acquisition.
 
 Accounts
                  receivable
              
              $
              138,798Fixed
                  assets
              
              
              260,000Non-compete
                  agreement
              
              
              50,000Customer
                  list
              
              
              1,050,000Goodwill
              
              
              2,255,804Capital
                  lease obligations
              
              
              (142,625
              )Customer
                  deposits
              
              
              (48,200
              )Cost
                  to acquire MD OnCall
              
              $
              3,563,777
  In
        the
        case of each of the acquisitions, the Company received a third party valuation
        from Chartered Capital Advisors, Inc. of certain intangible assets in
        determining the allocation of purchase price.
 
 The
        purchase price of each acquisition exceeded the fair value of the identifiable
        net assets acquired inasmuch as these acquisitions were consummated to enable
        the Company to expand its presence in the telephone answering service business
        into new regions. Furthermore, the acquisitions were done for the business'
        future cash flows and net earnings as opposed to solely for the identifiable
        tangible and intangible assets.
  14
  The
        results of operations for MD OnCall and American Mediconnect, Inc. are included
        in the condensed consolidated statements of income for the six and three
        months
        ended June 30, 2007. Unaudited pro forma results of operations for the six
        and
        three months ended June 30, 2006 as if MD OnCall and American Mediconnect,
        Inc.
        had been acquired as of the beginning of the earliest period presented are
        as
        follows. The pro forma results for the six and three months ended June 30,
        2006
        include estimates which management believes are reasonable.
 
 Six
                  Months Ended June 30,
              
              Three
                  Months Ended June 30,2007
              
              2006
              
              2007
              
              2006Actual
              
              Proforma
              
              Actual
              
              ProformaRevenue
              
              $
              17,602,000
              
              $
              16,905,000
              
              $
              8,899,000
              
              $
              8,514,000Net
                  income
              
              
              774,000
              
              
              523,000
              
              
              407,000
              
              
              240,000Net
                  income per shareBasic
              
              $
              .08
              
              $
              .06
              
              $
              .04
              
              $
              .03Diluted
              
              $
              .08
              
              $
              .06
              
              $
              .04
              
              $
              .03
  The
        unaudited pro forma results of operations for the six and three months ended
        June 30, 2006 do not purport to represent what the Company’s results of
        operations would actually have been had the acquisition been effected for
        the
        period presented, or to predict the Company’s results of operations for any
        future period.
 
 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
        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 the acquisitions of MD OnCall
        and
        American Mediconnect, Inc. 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. 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.
  15
  On
        April
        30, 2007, the Company amended its credit facility whereby the term of the
        revolving credit line was extended through June 2010 and the amount of credit
        available under the revolving credit line was increased to
        $2,500,000.
 
 As
        of
        June 30, 2007 and March 31, 2007, the Company was in compliance with its
        financial covenants in its loan agreement. As of June 30, 2006 and March
        31,
        2006, the Company was not in compliance with one of its financial covenants
        in
        its loan agreement. The lender waived the non-compliance as of such date
        and
        entered into an amendment to the credit facility.
  8.  Major
        Customers:
  Since
        1983, the Company has provided Personal Emergency Response Systems (“PERS”)
        services to the City of New York’s Human Resources Administration Home Care
        Service Program ("HCSP"). The Company has been operating since 1993 with
        a
        contract to provide HCSP with these services, which has been extended for
        1-2
        year periods since 1993, the last such extension through December 31, 2006.
        During the six months ended June 30, 2007 and 2006, the Company’s revenue from
        this contract represented 7 % and
        9%,  respectively,
        of its total revenue.
  In
        November 2002, a new Request for Proposals (“RFP”) was issued by HRA to provide
        emergency response services to HCSP from April 1, 2004 through March 31,
        2007.
        After receiving notification from the City of New York’s Human Resources
        Administration (“HRA”) that the Company was selected as the approved vendor
        under the RFP to provide PERS services to the Home Care Services Program
        to
        Medicaid Eligible individuals, the Company subsequently received notification
        from HRA that it canceled the RFP “in the best interest of the City of New
        York.” The Company was advised that the cancellation of the RFP is not related
        to any performance issue or negative reflection upon the Company. Concurrently,
        the Company was advised of HRA’s decision to issue a new contract extension to
        the Company through June 2005 under the terms of the contract that the Company
        has been operating under since 1993. The Company has since received this
        contract extension and also has received subsequent extensions which went
        through December 31, 2006. There have been no subsequent extensions beyond
        December 31, 2006; however, the Company continues to service this program
        under
        the same terms and conditions. In accordance with the original contract and
        consistent with previous extensions, HRA has the right to terminate the contract
        without cause or “in the best interest of the City of New York” upon thirty days
        written notice. In September 2006, HRA issued a bid proposal relating to
        the
        providing of the PERS services which are the subject of the Company’s contract.
AMAC
        and
        several other companies submitted responses to the bid proposal and
        subsequently, HRA determined that AMAC's bid was the lowest qualified bid.
        On
        August 13, 2007, AMAC was notified that one of the bidders has filed an Article
        78 proceeding in the Supreme Court of the State of New York, seeking a reversal
        of HRA's determination that AMAC was the lowest qualified bidder and that
        this
        bidder be awarded the contract to provide PERS services to HRA. This proceeding
        is further described in Part II-Item 1. As of August 13, 2007, AMAC has not
        been
        informed whether a new contract in favor of AMAC was registered by the City
        Comptroller, which is required in order for the contract to become effective.
        Until the new contract is registered by the Comptroller, the Company expects
        to
        continue servicing the existing contract under its current
        terms.
  As
        of
        June 30, 2007 and December 31, 2006, accounts receivable from the contract
        represented 9% of accounts receivable and medical devices in service under
        the
        contract represented approximately 13% and 14%, respectively, of the total
        medical devices.
  16
  9. Segment
        Reporting:
 
 Effective
        January 1, 2007, the Company has two reportable segments, (i) Health and
        Safety
        Monitoring Systems (“HSMS”) and (ii) Telephone Based Communication Services
        (“TBCS”). Prior to January 1, 2007, the Company reported three reportable
        segments; HSMS, TBCS and Safe Com. In order to streamline the financial
        reporting, the Company included the activities of its Safe Com segment in
        its
        HSMS segment.
  The
        table
        below provides a reconciliation of segment information to total consolidated
        information for the six and three months ended June 30, 2007 and
        2006:
  2007HSMS
              
              TBCS
              
              ConsolidatedSix
                  Months Ended June 30, 2007Revenue
              
              $
              8,508,792
              
              $
              9,092,850
              
              $
              17,601,642Income
                  before provision for income taxes
              
              
              538,841
              
              
              831,127
              
              
              1,369,968Total
                  assets
              
              
              15,447,480
              
              
              18,460,875
              
              
              33,008,355
  HSMS
              
              TBCS
              
              ConsolidatedThree
                  Months Ended June 30, 2007Revenue
              
              $
              4,409,487
              
              $
              4,489,319
              
              $
              8,898,806Income
                  before provision for income taxes
              
              
              360,605
              
              
              365,655
              
              
              726,260
  2006HSMS
              
              
              TBCS
              
              
              ConsolidatedSix
                Months Ended June 30, 2006Revenue
              
              $
              7,979,617
              
              $
              6,966,911
              
              $
              14,946,528Income
                  before provision for income taxes
              
              
              412,369
              
              
              560,174
              
              
              972,543Total
                  assets
              
              
              13,745,928
              
              
              17,181,824
              
              
              30,927,752
  Three
                  Months Ended June 30, 2006
              
              
              HSMS
              
              
              TBCS
              
              
              ConsolidatedRevenue
              
              $
              4,065,547
              
              $
              3,730,770
              
              $
              7,796,317Income
                  before provision for income taxes
              
              
              242,576
              
              
              212,200
              
              
              454,776
  17
  10.  Commitments and Contingencies:
  The
        Company is aware of various threatened or pending litigation claims against
        the
        Company relating to its products and services and other claims arising in
        the
        ordinary course of its business. The Company has given its insurance carrier
        notice of such claims and it believes there is sufficient insurance coverage
        to
        cover any such claims. Currently, there are no litigation claims for which
        an
        estimate of loss, if any, can be reasonably made as they are in the preliminary
        stages and therefore, no liability or corresponding insurance receivable
        has
        been recorded.
 
 **Item
                2.**
              ******Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations**.
  The
        following discussion and analysis provides information which management believes
        is relevant to an assessment and understanding of the Company’s results of
        operations and financial condition. This discussion and analysis should be
        read
        in conjunction with the consolidated financial statements contained in the
        latest Annual Report on Form 10-K dated December 31, 2006.
  *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, our contract with the City of
        New
        York 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.*
  18
  **Overview:**
 
 The
        Company’s primary business is the provision of healthcare communication services
        through (1) the development, marketing and monitoring of health and safety
        monitoring systems ( “ HSMS **”** )
        that
        include personal emergency response systems, telehealth/disease management
        monitoring systems, medication management systems and pharmacy security
        monitoring systems; (2) telephony based communication services and solutions
        primarily for the healthcare community (“TBCS”). The Company’s products and
        services are primarily marketed to the healthcare community, including home
        care, durable medical equipment, medical facility, hospice, pharmacy, managed
        care and other healthcare oriented organizations. The Company also offers
        certain products and services directly to consumers. Until 2000, the Company’s
        principal business was the marketing of personal emergency response systems
        ( “ PERS ” ),
        a
        device that allows a patient to signal an emergency response center for help
        in
        the event of a debilitating illness or accident. The Company provides PERS
        nationwide to private pay customers, Medicaid programs as well as to healthcare
        related entities. In 2003, the Company initiated a relationship with a large,
        west coast managed care organization that recognized the value associated
        with
        provisioning PERS to its senior population and contracted AMAC to roll out
        its
        PERS product to its subscribers. Today, the number of PERS units in service
        under that program has more than doubled and continues to expand throughout
        the
        west coast. In February of 2007, the Company announced it had entered into
        an
        exclusive relationship with Walgreen Co. to provide the Company’s flagship
        personal emergency response systems under the Walgreen’s brand. Walgreens Ready
        ResponseTM Medical Alert system is currently being offered at Walgreens stores in
        the United States and Puerto Rico. The Company believes the Walgreen
        relationship will provide a significant opportunity to increase its PERS
        market
        share through Walgreen’s direct to consumer distribution channel.
 
 In
        2001,
        the Company entered the emerging telehealth market, an industry in its embryonic
        stage, recognizing the opportunity to provide new monitoring technologies
        to
        assist healthcare professionals in home-based, health management activities.
        The
        Company has made a significant investment in its initial endeavors in the
        disease management monitoring market. This market focuses on various
        technologies to permit chronic disease management through remote patient
        monitoring. During the last several years, the Company has learned how this
        market functions and has explored a variety of methods of making a meaningful
        entry into this market. The Company has also experienced technological
        difficulties with the products provided by its primary vendor, Health Hero
        Networks, Inc. ("HHN").  The Company commenced arbitration in April 2007
        against HHN in connection with these difficulties.  Subsequent to June 30,
        2007, the arbitration was settled and has been withdrawn.  AMAC has since
        begun working constructively with HHN, which has recently appointed a new
        chief
        executive officer.  AMAC is optimistic that, with this change in management
        at HHN, and HHN having committed to a plan to correct certain technical issues
        in its products, the Company's relationship with HHN will progress on a more
        positive note going forward. The Company continues to focus efforts on other
        alternatives to exploit this promising market. The Company believes that
        it is
        uniquely positioned to be successful in this market.
 
 Beginning
        in 2000, the Company began a program of product diversification and customer
        base **** expansion
        to decrease its reliance on a single product line by marketing complementary
        call center and monitoring services to the healthcare community.
  19
  The
        Company diversified its products/service mix to include telephony based
        communication services ( “ TBCS ” )
        for
        professionals in the healthcare community. The rationale to enter this segment
        had several components. These include targeting existing customer relationships,
        leveraging existing infrastructure capability, and establishing an additional
        significant revenue source. T he
        Company’s entry into the TBCS market was
        accomplished initially **** through
        acquisition and later
        through internally generated sales growth coupled
        with acquisitions .
  The
        Company has since further expanded its communication infrastructure and capacity
        and now operates a total of eight communication centers in Long Island City
        and
        Port Jefferson, New York, New Jersey, Maryland, Connecticut, Massachusetts,
        Rhode Island and Illinois. The TBCS segment now accounts for 52% of the
        Company’s revenues for the six months ended June 30, 2007.
 
 In
        December 2006 the Company acquired PhoneScreen, Inc (“PhoneScreen”). PhoneScreen
        is a company founded 15 years ago that specializes in the recruitment of
        patients for clinical trials. PhoneScreen’s customers are pharmaceutical
        companies and Contract Research Organizations (“CRO”). CRO’s are organizations
        that offer pharmaceutical companies and medical entities a wide range of
        pharmaceutical research services which include the development and execution
        of
        clinical trials.
 
 The
        Company believes it has identified other communication needs as expressed
        by the
        expanded TBCS **** client
        base. In response to these expressed needs, the Company has developed
        specialized healthcare communication solutions. These solutions are creating
        additional opportunities for long-term revenue enhancement. The Company has
        broadened its service offerings and is in the process of significantly expanding the
        TBCS reporting segment.
 
 The
        Company believes that the overall mix of cash flow generating businesses
        from
        PERS and TBCS, combined with its emphasis on developing products and services
        in
        the telehealth field, provides the correct blend of stability and growth
        opportunity. The Company believes this strategy will enable it to maintain
        and
        increase its role in the healthcare communications field.
  20
 
 **Components
        of Statements of Income by Operating Segment**
 The
        following table shows the components of the Statement of Income for the six
        and
        three months ended June 30, 2007 and 2006.
  In
                  thousands (000’s)
              
              Three
                  Months Ended June 30,
              
              Six
                  Months Ended June 30,2007
              
              %
              
              2006
              
              %
              
              2007
              
              %
              
              2006
              
              %RevenuesHSMS
              
              
              4,410
              
              
              **50**
              **%**
              
              4,065
              
              
              **52**
              **%**
              
              8,509
              
              
              **48**
              **%**
              
              7,980
              
              
              **53**
              **%**TBCS
              
              
              4,489
              
              
              **50**
              **%**
              
              3,731
              
              
              **48**
              **%**
              
              9,093
              
              
              **52**
              **%**
              
              6,967
              
              
              **47**
              **%**Total
                  Revenues
              
              
              8,899
              
              
              **100**
              **%**
              
              7,796
              
              
              **100**
              **%**
              
              17,602
              
              
              **100**
              **%**
              
              14,947
              
              
              **100**
              **%**Cost
                  of Services and Goods SoldHSMS
              
              
              1,885
              
              
              **43**
              **%**
              
              1,791
              
              
              **44**
              **%**
              
              3,724
              
              
              **44**
              **%**
              
              3,601
              
              
              **45**
              **%**TBCS
              
              
              2,314
              
              
              **52**
              **%**
              
              1,967
              
              
              **53**
              **%**
              
              4,676
              
              
              **51**
              **%**
              
              3,764
              
              
              **54**
              **%**Total
                  Cost of Services and Goods Sold
              
              
              4,199
              
              
              **47**
              **%**
              
              3,758
              
              
              **48**
              **%**
              
              8,400
              
              
              **48**
              **%**
              
              7,365
              
              
              **49**
              **%**Gross
                  ProfitHSMS
              
              
              2,525
              
              
              **57**
              **%**
              
              2,274
              
              
              **56**
              **%**
              
              4,785
              
              
              **56**
              **%**
              
              4,379
              
              
              **55**
              **%**TBCS
              
              
              2,175
              
              
              **48**
              **%**
              
              1,764
              
              
              **47**
              **%**
              
              4,417
              
              
              **49**
              **%**
              
              3,203
              
              
              **46**
              **%**Total
                  Gross Profit
              
              
              4,700
              
              
              **53**
              **%**
              
              4,038
              
              
              **52**
              **%**
              
              9,202
              
              
              **52**
              **%**
              
              7,582
              
              
              **51**
              **%**Selling,
                  General & Administrative
              
              
              4,021
              
              
              **45**
              **%**
              
              3,603
              
              
              **46**
              **%**
              
              7,923
              
              
              **45**
              **%**
              
              6,691
              
              
              **45**
              **%**Interest
                  Expense
              
              
              129
              
              
              **1**
              **%**
              
              113
              
              
              **1**
              **%**
              
              255
              
              
              **1**
              **%**
              
              176
              
              
              **1**
              **%**Other
                  Income
              
              
              (176
              )
              
              **(2**
              **)%**
              
              (133
              )
              
              **(2**
              **)%**
              
              (346
              )
              
              **(2**
              **)%**
              
              (258
              )
              
              **(2**
              **)%**Income
                  before Income Taxes
              
              
              726
              
              
              **8**
              **%**
              
              455
              
              
              **6**
              **%**
              
              1,370
              
              
              **8**
              **%**
              
              973
              
              
              **7**
              **%**Provision
                  for Income Taxes
              
              
              319
              
              
              
              
              
              210
              
              
              
              
              
              596
              
              
              
              
              
              448Net
                  Income
              
              
              407
              
              
              
              
              
              245
              
              
              
              
              
              774
              
              
              
              
              
              525
 **Note:** The
        percentages for Cost of Services and Goods Sold and Gross Profit are calculated
        based on a percentage of revenue.
  **Results
        of Operations:**
 
 The
        Company has two distinct operating business segments, which are HSMS and
        TBCS.
        Prior to January 1, 2007, the Company reported three reportable segments;
        HSMS,
        TBCS and Safe Com. In order to streamline the financial reporting the Company
        included the activities of its Safe Com segment in its HSMS segment.
 
 **Three
        Months Ended June 30, 2007 Compared to Three Months Ended June 30,
        2006**
 
 **Revenues** **:**
 
 **HSMS**
 
 Revenues,
        which consist primarily of monthly rental revenues, increased approximately
        $345,000, or 8%, for the three months ended June 30, 2007 as compared to
        the
        same period in 2006. Monthly rental revenues represent revenues that are
        generated from the leasing and monitoring of the medical devices placed in
        subscribers’ residences. The increase is primarily attributed to the following
        factor:
 
 §
              The
                  Company continues to experience growth primarily in its existing
                  customer
                  base. The largest growth continues to be as a result of an agreement
                  with
                  a west coast management organization, which was executed in November
                  2003.
                  The number of Personal Emergency Response Systems (“PERS”) in service
                  under this agreement has more than doubled since its inception
                  and has
                  resulted in approximately $75,000 more revenue in 2007 as compared
                  to the
                  same period in 2006. The Company anticipates that the growth in
                  this
                  account will continue for the balance of
                  2007.
  21
 
 §
              In
                  late 2006, the Company initiated and executed a new agreement with
                  an
                  agency whereby PERS were placed online. Since inception in the
                  fourth
                  quarter of 2006, this account has grown to approximately 1,700
                  subscribers
                  and accounted for an approximate $100,000 increase in revenue during
                  2007
                  as compared to the same period in the prior year. The Company anticipates
                  that the growth in this account will continue for the balance of
                  2007.
 
 §
              In
                  December 2006, the Company purchased approximately 1,200 subscribers
                  utilizing PERS from a third party who previously was a customer
                  of the
                  Company. As a result of this transaction, the Company has generated
                  approximately $48,000 of additional revenue for the three months
                  ended
                  June 30, 2007 as compared to the same period last year.
 
 §
              In
                  the second half of 2006, the Company increased its product sales
                  to
                  retirement communities. During 2006, the Company developed new
                  software
                  and is now selling this in conjunction with hardware to retirement
                  communities for the purposes of monitoring their residents. This
                  resulted
                  in approximately a $55,000 increase in product sales for the three
                  month
                  period in 2007 as compared to the same period in 2006.
 
 **TBCS**
 
 The
        increase in revenues of approximately $758,000, or 20%, for the three months
        ended June 30, 2007 as compared to the same period in 2006 was primarily
        due to
        the following:
 
 §
              In
                  December 2006, the Company purchased the assets ofAmerican
                  Mediconnect, Inc. and PhoneScreen, Inc.As
                  a result of this acquisition, the Company realized approximately
                  $615,000
                  of revenue in the three months ended June 30, 2007. The Company
                  completed
                  this acquisition to further facilitate its expansion of its telephone
                  answering services businesses and allow them to increase its market
                  base
                  outside the Northeast geographical
                  area.
 
 Looking
        at 2007 with regard to the TBCS segment, the Company has shifted its
        focus
        from an acquisition driven growth strategy, to one that will place primary
        emphasis on internally driven business development efforts. For 2008, the
        Company is looking to pursue additional acquisitions in the TBCS segment
        which
        will compliment its existing call center infrastructure.
  22
  **Costs
        Related to Services and Goods Sold:**
 
 **HSMS**
 
 Costs
        related to services and goods increased by approximately $94,000 for the
        three
        months ended June 30, 2007 as compared to the same period in 2006, an increase
        of 5%, primarily due to the following:
  §
              The
                  relocation of the Company’s fulfillment and warehouse distribution center
                  into Long Island City from Mt. Laurel, New Jersey during the second
                  quarter of 2006 resulted in increased rent expense due to the Company
                  leasing more space and paying a higher rate per square foot for
                  rent. As
                  part of this relocation process, the Company also transitioned
                  the upgrade
                  and repairs of its PERS units in-house, which required the Company
                  to hire
                  additional employees, including a Manager of Engineering and Fulfillment.
                  These items accounted for approximately $45,000 of increased costs
                  as
                  compared to the same period in the prior year, which were primarily
                  offset
                  by the reduction in costs related to repairs and upgrades.
 
 §
              During
                  2006 and into 2007, the Company has increased the number of personnel
                  working in its Emergency Response Center (“ERC”) department which
                  accounted for increased costs of approximately $40,000 in 2007
                  as compared
                  to the same period in 2006. The Company hired additional personnel
                  due to
                  the increased volume of calls which is directly correlated to the
                  increased subscriber base, as well as to prepare for the rollout
                  of the
                  Walgreen’s Ready ResponseTM Program, which is now in progress.
 
 **TBCS:**
 
 Costs
        related to services and goods increased by approximately $347,000 for the
        three
        months ended June 30, 2007 as compared to the same period in 2006, an increase
        of 18%, primarily due to the following:
 
 §
              During
                  2006, as discussed above, the Company purchased the assets of a
                  telephone
                  answering service businesses which resulted in additional costs
                  related to
                  services for the three months ended June 30, 2007 of approximately
                  $331,000.
  **Selling,
        General and Administrative Expenses:**
 
 Selling,
        general and administrative expenses increased by approximately $418,000 for
        the
        three months ended June 30, 2007 as compared to the same period in 2006,
        an
        increase of 12%. The increase is primarily attributable to the
        following:
 
 §
              The
                  Company incurred approximately $232,000 of additional selling,
                  general and
                  administrative expenses, as compared to the same period in 2006,
                  as a
                  result of the acquisition of a telephone answering service businesses
                  in
                  December 2006. The largest expenses relate to salaries and related
                  payroll
                  taxes and amortization relating to customer lists and non-compete
                  agreements.
  23
  §
              The
                  Company incurred approximately $65,000 of additional costs relating
                  to
                  advertising/marketing expense, as compared to the same period in
                  2006.
                  This is primarily due to costs incurred with regard to an internet
                  advertising campaign through one of its TBCS segments and costs
                  related to
                  the production of private labeling and marketing materials associated
                  with
                  the Walgreen’s Ready ResponseTM
Program.
 
 §
              An
                  increase in the commission expense of approximately $32,000 is
                  primarily
                  due to the Company purchasing approximately 1,200 subscribers utilizing
                  PERS from a third party in December 2006. As part of this transaction,
                  it
                  was agreed that the third party would continue to manage and service
                  these
                  accounts on behalf of the Company. As a result of this arrangement,
                  the
                  Company pays a commission to this third party.
 
 There
        were other increases in selling, general and administrative expenses which
        arose
        out of the normal course of business such as sales and marketing salaries
        and
        travel and entertainment expense, which were partially offset by a reduction
        in
        legal fees.
 
 **Interest
        Expense:**
 
 Interest
        expense for the three months ended June 30, 2007 and 2006 was approximately
        $129,000 and $113,000, respectively. The increase was primarily due to the
        Company borrowing additional funds in December 2006 of $1,600,000 for the
        purpose of financing its acquisitions of AMI.
 
 **Other
        Income:**
 
 Other
        income for the three months ended June 30, 2007 and 2006 was approximately
        $176,000 and $133,000, respectively. Other Income for the three months ended
        June 30, 2007 and 2006 includes a Relocation and Employment Assistance Program
        (“REAP”) credit in the approximate amounts of $118,000 and $104,000,
        respectively. In connection with the relocation of certain operations to
        Long
        Island City, New York in April 2003, the Company became eligible for the
        REAP
        credit which is based upon the number of employees relocated to this designated
        REAP area. The REAP is in effect for a twelve year period; during the first
        five
        years the Company will be refunded the full amount of the eligible credit
        and,
        thereafter, the benefit will be available only as a credit against New York
        City
        income taxes.
 
 **Income
        Before Provision for Income Taxes:**
 
 The
        Company’s income before provision for income taxes for the three months ended
        June 30, 2007 was approximately $726,000 as compared to $455,000 for the
        same
        period in 2006. The increase of $271,000 for the three months ended June
        30,
        2007 primarily resulted from an increase in the Company's service revenues
        offset by an increase in the Company’s costs related to services and selling,
        general and administrative costs.
  24
 
 **Six
        Months Ended June 30, 2007 Compared to Six Months Ended June 30,
        2006**
 
 **Revenues** **:**
 
 **HSMS**
 
 Revenues,
        which consist primarily of monthly rental revenues, increased approximately
        $529,000, or 7%, for the six months ended June 30, 2007 as compared to the
        same
        period in 2006. Monthly rental revenues represent revenues that are generated
        from the leasing and monitoring of the medical devices placed in subscriber’s
        residences. The increase is primarily attributed to the following
        factors:
 
 §
              The
                  Company continues to experience growth primarily in its existing
                  customer
                  base. The largest growth continues to be as a result of an agreement
                  with
                  a west coast management organization, which was executed in November
                  2003.
                  The number of Personal Emergency Response Systems (“PERS”) in service
                  under this agreement has more than doubled since its inception
                  and has
                  resulted in approximately $160,000 more revenue in 2007 as compared
                  to the
                  same period in 2006. The Company anticipates that the growth in
                  this
                  account will continue for the balance of
                  2007.
 
 §
              In
                  late 2006, the Company initiated and executed a new agreement with
                  an
                  agency whereby PERS were placed online. Since inception in the
                  fourth
                  quarter of 2006, this account has grown to approximately 1,700
                  subscribers
                  and accounted for an approximate $170,000 increase in revenue during
                  2007
                  as compared to the same period in the prior year. The Company anticipates
                  that the growth in this account will continue at the same levels
                  for the
                  balance of 2007.
 
 §
              In
                  December 2006, the Company purchased approximately 1,200 subscribers
                  utilizing PERS from a third party who previously was a customer
                  of the
                  Company. As a result of this transaction, the Company has generated
                  approximately $95,000 of additional revenue for the six months
                  ended June
                  30, 2007 as compared to the same period last year.
 
 §
              In
                  the second half of 2006, the Company increased its product sales
                  to
                  retirement communities. During 2006, the Company developed new
                  software
                  and is now selling this in conjunction with hardware to retirement
                  communities for the purposes of monitoring their residents. This
                  resulted
                  in approximately a $70,000 increase in product sales in 2007 as
                  compared
                  to the same period in 2006.
  **** **TBCS**
 
 The
        increase in revenues of approximately $2,126,000, or 31%, for the six months
        ended June 30, 2007 as compared to the same period in 2006 was primarily
        due to
        the following:
 
 §
              During
                  2006, the Company purchased the assets of two separate telephone
                  answering
                  service businesses which resulted in additional revenue for the
                  six months
                  ended June 30, 2007, as compared to the same period in 2006, of
                  approximately $2,025,000. The acquisitions were as follows:
  25
 
 o
              In
                  March 2006, the Company purchased the assets of MD OnCall and Capitol
                  Medical Bureau (collectively “MD OnCall”). As a result of this
                  acquisition, the Company realized approximately $640,000 of additional
                  revenue in the first half of 2007 as compared to the same period
                  in 2006.
                  The Company completed this acquisition to facilitate its expansion
                  into
                  the Northeast geographical area.
 
 o
              In
                  December 2006, the Company purchased the assets ofAmerican
                  Mediconnect, Inc. and PhoneScreen, Inc.As
                  a result of this acquisition, the Company realized approximately
                  $1,385,000 of revenue in the first half of 2007. The Company completed
                  this acquisition to further facilitate its expansion of its telephone
                  answering services businesses and allow them to increase its market
                  base
                  outside the Northeast geographical
                  area.
 
 Looking
        at 2007 with regard to the TBCS segment, the Company has shifted its
        focus
        from an acquisition driven growth strategy, to one that will place primary
        emphasis on internally driven business development efforts. For 2008, the
        Company is looking to pursue additional acquisitions in the TBCS segment
        which
        will compliment its existing call center infrastructure.
  **Costs
        Related to Services and Goods Sold:**
 
 **HSMS**
 
 Costs
        related to services and goods increased by approximately $123,000 for the
        six
        months ended June 30, 2007 as compared to the same period in 2006, an increase
        of 3%, primarily due to the following:
 
 §
              The
                  relocation of the Company’s fulfillment and warehouse distribution center
                  into Long Island City from Mt. Laurel, New Jersey during the second
                  quarter of 2006 resulted in increased rent expense due to the Company
                  leasing more space and paying a higher rate per square foot for
                  rent. As
                  part of this relocation process, the Company also took the upgrade
                  and
                  repairs of its PERS units in-house, which required the Company
                  to hire
                  additional employees, including a Manager of Engineering and Fulfillment.
                  These items accounted for approximately $115,000 of increased costs
                  as
                  compared to the same period in the prior year, which were offset
                  by the
                  reduction in costs related to repairs and upgrades of approximately
                  $90,000.
 
 §
              During
                  2006 and into 2007, the Company has increased the number of personnel
                  working in its Emergency Response Center (“ERC”) department which
                  accounted for increased costs of approximately $73,000 in 2007
                  as compared
                  to the same period in 2006. The Company hired additional personnel
                  due to
                  the increased volume of calls which is directly correlated to the
                  increased subscriber base, as well as to prepare for the rollout
                  of the
                  Walgreen’s Ready ResponseTM Program, which is now in progress.
  26
 
 **** **TBCS:**
 
 Costs
        related to services and goods increased by approximately $912,000 for the
        six
        months ended June 30, 2007 as compared to the same period in 2006, an increase
        of 24%, primarily due to the following:
 
 §
              During
                  2006, as discussed above, the Company purchased the assets of two
                  separate
                  telephone answering service businesses which resulted in additional
                  costs
                  related to services for the six months ended June 30, 2007 of
                  approximately $1,015,000. The increased costs related to services
                  in
                  regard to the acquisitions were as follows: MD OnCall approximated
                  $287,000 and AMI approximated
                  $728,000.
  §
              During
                  the latter part of 2006 and into 2007, the Company reduced the
                  number of
                  telephone answering service operators. This has been accomplished
                  through
                  overall efficiencies which are being realized by the Company throughout
                  its TBCS segment. This accounted for a reduction in costs of approximately
                  $103,000 for the period ended June 30, 2007 as compared to the
                  same period
                  in 2006. As the Company continues to realize these operational
                  efficiencies, it will continue to evaluate personnel levels and
                  continue
                  to evaluate the consolidation strategy of its communications
                  infrastructure, yielding greater per seat through-put with an associated
                  reduction in overall labor expense.
  **Selling,
        General and Administrative Expenses:**
 
 Selling,
        general and administrative expenses increased by approximately $1,232,000
        for
        the six months ended June 30, 2007 as compared to the same period in 2006,
        an
        increase of 18%. The increase is primarily attributable to the
        following:
 
 §
              The
                  Company incurred approximately $725,000 of additional selling,
                  general and
                  administrative expenses, as compared to the same period in 2006,
                  as a
                  result of the acquisition of two telephone answering service businesses
                  during 2006. The largest expenses relate to salaries and related
                  payroll
                  taxes and amortization relating to customer lists and non-compete
                  agreements.
 
 §
              The
                  Company incurred approximately $100,000 of additional costs relating
                  to
                  advertising/marketing expense, as compared to the same period in
                  2006.
                  This is primarily due to costs incurred with regard to an internet
                  advertising campaign through one of its TBCS segments and costs
                  related to
                  the production of private labeling and marketing materials associated
                  with
                  the Walgreen’s Ready ResponseTM
Program.
  27
 
 §
              In
                  the third quarter of 2006, the Company expanded its health benefit
                  options
                  to its employees. As a result of these expanded benefits, the Company
                  experienced an increase in the number of employees participating
                  in these
                  plans. This, along with increased benefits costs, resulted in
                  approximately a $75,000 increase as compared to the same period
                  in the
                  prior year. Although the Company believed this would reduce employee
                  turnover, it only had a minimal impact on the rate of employee
                  turnover.
                  Effective July 1, 2007, the Company has modified its health benefit
                  options and believes this will help reduce costs without impacting
                  employee turnover.
 
 §
              During
                  the second quarter of 2006, the Company hired a Controller and
                  Human
                  Resources director. During this period the Company also relocated
                  its
                  accounting department from its Oceanside, New York location to
                  its Long
                  Island City, New York facility. As part of this process, the Company
                  hired
                  personnel for the LIC location while winding down operations in
                  Oceanside
                  and, therefore incurred additional payroll costs while transitioning
                  this
                  change in location. These items along with general rate increases
                  for
                  existing personnel accounted for approximately $125,000 of increased
                  payroll and associated payroll tax costs as compared to the same
                  period in
                  the prior year. The Company believes the hiring of these employees
                  was
                  necessary to handle the increased workload in both the accounting
                  and
                  human resources departments.
 
 §
              The
                  Company incurred increased costs of approximately $65,000, as compared
                  to
                  the same period in 2006, associated with the research and development.
                  These costs primarily associated with the new generation Med-Time
                  dispenser, smoke detector and retirement community flush mount
                  console
                  unit. The Company continues to move forward with the development
                  of these
                  new generation products and anticipates having them available within
                  the
                  next three to nine months.
  There
        were other increases in selling, general and administrative expenses which
        arose
        out of the normal course of business such as accounting expense, sales and
        marketing salaries and travel and entertainment expense which were partially
        offset by decreases in legal and bad debt expense.
 
 **Interest
        Expense:**
 
 Interest
        expense for the six months ended June 30, 2007 and 2006 was approximately
        $255,000 and $176,000, respectively. The increase was primarily due to the
        Company borrowing additional funds in March 2006 of $2,500,000 and December
        2006
        of $1,600,000 for the purpose of financing its acquisitions of MD OnCall
        and
        AMI, respectively.
 
 **Other
        Income:**
 
 Other
        income for the six months ended June 30, 2007 and 2006 was approximately
        $346,000 and $258,000, respectively. Other Income for the six months ended
        June
        30, 2007 and 2006 includes a Relocation and Employment Assistance Program
        (“REAP”) credit in the approximate amounts of $237,000 and $202,000,
        respectively. In connection with the relocation of certain operations to
        Long
        Island City, New York in April 2003, the Company became eligible for the
        REAP
        credit which is based upon the number of employees relocated to this designated
        REAP area. The REAP is in effect for a twelve year period; during the first
        five
        years the Company will be refunded the full amount of the eligible credit
        and,
        thereafter, the benefit will be available only as a credit against New York
        City
        income taxes.
  28
  **Income
        Before Provision for Income Taxes:**
 
 The
        Company’s income before provision for income taxes for the six months ended June
        30, 2007 was approximately $1,370,000 as compared to $973,000 for the same
        period in 2006. The increase of $397,000 for the six months ended June 30,
        2007
        primarily resulted from an increase in the Company's service revenues offset
        by
        an increase in the Company’s costs related to services and selling, general and
        administrative costs.
 
 **Liquidity
        and Capital Resources**
  As
        of
        January 1, 2006 the Company had a credit facility arrangement for $4,500,000
        which included a revolving credit line which permitted borrowings of $1,500,000
        (based on eligible receivables as defined) and a $3,000,000 term loan payable
        in
        equal monthly principal installments of $50,000 over five years commencing
        January 2006.
  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 the acquisitions of MD OnCall
        and
        AMI. 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. 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.
  As
        of
        June 30, 2007 and March 31, 2007, the Company was in compliance with its
        financial covenants in its loan agreement. As of June 30, 2006 and March
        31,
        2006, the Company was not in compliance with one of its financial covenants
        in
        its loan agreement. The lender waived the non-compliance as of such date
        and
        entered into an amendment to the credit facility.
 
 On
        April
        30, 2007, the Company amended its credit facility whereby the term of the
        revolving credit line was extended through June 2010 and the amount of credit
        available under the revolving credit line was increased to
        $2,500,000.
  29
 
 The
        following table is a summary of contractual obligations as of June 30,
        2007:
  Payments
                  Due by PeriodContractual
                  Obligations
              
              Total
              
              Less than 1
                year
              
              1-3 years
              
              4-5 years
              
              After 5 yearsRevolving
                  Credit Line
              
              $
              850,000
              
              
              
              
              $
              850,000Debt
                  (a)
              
              $
              5,691,100
              
              $
              1,529,611
              
              $
              4,001,489
              
              $
              160,000Capital
                  Leases (b)
              
              $
              94,374
              
              $
              40,575
              
              $
              53,799Operating
                  Leases (c)
              
              $
              8,669,334
              
              $
              953,697
              
              $
              2,333,578
              
              $
              1,484,766
              
              $
              3,897,293Total
                  Contractual Obligations
              
              $
              15,304,808
              
              $
              2,523,883
              
              $
              7,238,866
              
              $
              1,644,766
              
              $
              3,897,293
  (a)
              -
                  Debt includes the Company’s aggregate term loans of $7,100,000 which
                  mature in 2010 and 2011, as well as loans associated with the purchase
                  of
                  automobiles.
 
 (b)
              -
                  Capital lease obligations relate to the telephone answering service
                  equipment.  These capital leases mature in the second quarter of
                  2009.
  (c)
              -
                  Operating leases include rental of facilities at various locations
                  within
                  the United States. These operating leases include the rental of
                  the
                  Company’s call center, warehouse and the office facilities. These
                  operating leases have various maturity dates. The Company currently
                  leases
                  office space from the Chairman and principal shareholder pursuant
                  to a
                  lease which expires in March 2008. The Company leased a second
                  building
                  from the Chairman and principal shareholder until October 2004,
                  at which
                  time the Company was released from its obligation.
  Net
        cash
        provided by operating activities was approximately $2.6 million for the six
        months ended June 30, 2007, as compared to approximately $2.1 million for
        the
        same period in 2006. During 2007, increases in cash provided by operating
        activities from depreciation and amortization of approximately $2.0 million,
        increase in liabilities of $0.8 million and net earnings of approximately
        $0.8
        million were partially offset by an increase in trade receivables of
        approximately $0.7 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 liabilities is due to an increase in
        the
        purchase of its PERS product not paid for at June 30, 2007, accrual of 2007
        taxes and timing of payments of other expenses in the ordinary course of
        business. The increase in trade receivables is primarily due to the Company
        consummating an acquisition in December 2006, which resulted in approximately
        $0.4 million of increased receivables through the normal course of business.
        Increases in cash provided by operating activities during 2006 were the result
        of depreciation and amortization of approximately $1.6 million, increase
        in
        liabilities of $0.8 million and net earnings of approximately $0.5 million.
        These increases were partially offset by an increase in trade receivables
        of
        approximately $0.8 million.
  30
  Net
        cash
        used in investing activities for the six months ended June 30, 2007 was
        approximately $1.9 million as compared to $5.6 million in the same period
        in
        2006. The primary component of net cash used in investing activities in 2007
        was
        capital expenditures of approximately $2.0 million. Capital expenditures
        in 2007
        primarily related to the continued production and purchase of the traditional
        PERS system. The primary components of net cash used in investing activities
        in
        2006 were the acquisition of telephone answering service businesses and capital
        expenditures of $3.3 and $2.1 million, respectively.
  Cash
        flows for the six months ended June 30, 2007 used in financing activities
        were
        approximately $0.4 million compared to cash flows provided by financing
        activities of $2.4 million for the same period in 2006. The primary component
        of
        cash flow used in financing activities in 2007 was the payments of long-term
        debt of approximately $0.7 million. This was partially offset by proceeds
        received from the exercise of the Company’s stock options and warrants of
        approximately $0.3 million. The primary component of cash flow provided by
        financing activities in 2006 was proceeds received from additional borrowings
        of
        $2.5 million which were primarily used for the acquisition of a telephone
        answering service.
  During
        the next twelve months, the Company anticipates it will make capital
        expenditures of approximately $3.5 - $4.0 million for the production and
        purchase of the traditional PERS systems and telehealth systems, enhancements
        to
        its computer operating systems and the production of its Med-Time pill dispenser
        (this includes outstanding purchase orders issued to purchase approximately
        $2,150,000 of the traditional PERS systems). This amount is subject to
        fluctuations based on customer demand. The Company also anticipates incurring
        approximately $0.2 - $0.4 million of costs relating to research and development
        of its telehealth product, Med-Time dispenser and retirement community flush
        mount console unit. In July 2005, the Company entered into a technology,
        licensing, development, distribution and marketing agreement with a supplier
        for
        its HSMS sector. Pursuant to this agreement the Company anticipates expending
        approximately $0.3 - $0.5 million over the next twelve to eighteen months.
  As
        of
        June 30, 2007, the Company had approximately $1.2 million in cash and the
        Company’s working capital was approximately $3.9 million. The Company believes
        that with its present cash balance and with operations of the business
        generating positive cash flow, it will be able to meet its cash, working
        capital
        and capital expenditure needs for at least the next twelve months. The Company
        also has a revolving credit line, which expires in June 2010 that permits
        borrowings up to $2.5 million, of which $850,000 was outstanding at June
        30,
        2007.
  **Off-Balance
        Sheet Arrangements** :
  As
        of
        June 30, 2007, the Company has not entered into any off-balance sheet
        arrangements that are reasonably likely to have an impact on the Company’s
        current and future financial condition.
  31
  **Other
        Factors** :
  On
        December 21, 2006, the Company acquired substantially all of the assets
        of American
        Mediconnect, Inc. and PhoneScreen, Inc., **** Illinois
        based companies under common ownership (collectively “AMI”) .
        American Mediconnect, Inc. is a provider of telephone after-hour answering
        services primarily focused on hospitals, physicians and other health care
        providers. PhoneScreen, Inc. is a provider of call center and compliance
        monitoring services to hospitals, pharmaceutical companies and clinical resource
        organizations. The purchase price was $2,028,830 and consisted of an initial
        cash payment of $1,493,730, common stock valued at $229,324 and a future
        cash
        payment of $305,776, which is due in December 2007. In addition, for the
        three
        years following the acquisition, the Company is required to pay AMI an amount
        equal to twenty-five (25%) percent of the cash receipts collected by the
        Company, excluding sales taxes, from the PhoneScreen business. For the period
        ended June 30, 2007, the Company recorded $102,309 due to Seller based on
        PhoneScreen cash receipts. The Company also incurred professional fees of
        approximately $65,000. A potential exists for the payment of additional purchase
        price consideration if certain thresholds concerning revenues and earnings
        of
        the acquired business are met as of December 31, 2007, 2008 and 2009.
 
 On
        March
        10, 2006, the Company acquired substantially all of the assets of MD
        OnCall, a Rhode Island based company and Capitol Medical
        Bureau, **** a
        Maryland based company (collectively "MD OnCall") ,
        providers of telephone after-hour answering services and stand-alone voice
        mail
        services. The purchase price was $3,382,443 and consisted of an initial cash
        payment of $2,696,315, common stock valued at $343,064, and future cash payments
        of $343,064, which was paid in full as of March 2007. The Company also recorded
        finder and professional fees of approximately $181,000. A potential exists
        for
        payments of additional purchase price consideration if certain thresholds
        concerning revenue and earnings of the acquired business are met as of March
        31,
        2007, 2008 and 2009. The first threshold as of March 31, 2007 was not
        met.
 
 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 $115,000, respectively, and are subject
        to increases in accordance with the term of the agreements. The Company is
        also
        responsible for the reimbursement of real estate taxes.
 
 On
        January 14, 2002, the Company entered into an operating lease agreement for
        space in Long Island City, New York in order to consolidate its HCI TBCS
        and
        PERS ERC/ Customer Service facilities.  The centralization of the ERC,
        Customer Service and H-LINK® OnCall operations has provided certain operating
        efficiencies and allowed for continued growth of the H-LINK and PERS
        divisions.  The fifteen (15) year lease term commenced in April 2003. 
The lease calls for minimum annual rentals of $269,500, subject to a 3% annual
        increase plus reimbursement for real estate taxes.
  On
        November 1, 2001, the Company entered into a five-year Cooperative Licensing,
        Development, Services and Marketing Agreement with HHN (the “HHN Agreement”)
        pursuant to which the Company developed, with the
        assistance of HHN , a
        new
        integrated appliance combining the features of the Company’s PERS product with
        HHN’s technology .
        The
        agreement was amended on June 30, 2005 and includes an extension of the initial
        term for an additional three years, through October 31, 2009.
  32
 
 Since
        1983, the Company has provided Personal Emergency Response Systems (“PERS”)
        services to the City of New York’s Human Resources Administration Home Care
        Service Program ("HCSP"). The Company has been operating since 1993 with
        a
        contract to provide HCSP with these services, which has been extended for
        1-2
        year periods since 1993, the last such extension through December 31, 2006.
        During the six months ended June 30, 2007 and 2006, the Company’s revenue from
        this contract represented 7% and 9% respectively, of its total revenue.
  In
        November 2002, a new Request for Proposals (“RFP”) was issued by HRA to provide
        emergency response services to HCSP from April 1, 2004 through March 31,
        2007.
        After receiving notification from the City of New York’s Human Resources
        Administration (“HRA”) that the Company was selected as the approved vendor
        under the RFP to provide PERS services to the Home Care Services Program
        to
        Medicaid Eligible individuals, the Company subsequently received notification
        from HRA that it canceled the RFP “in the best interest of the City of New
        York.” The Company was advised that the cancellation of the RFP is not related
        to any performance issue or negative reflection upon the Company. Concurrently,
        the Company was advised of HRA’s decision to issue a new contract extension to
        the Company through June 2005 under the terms of the contract that the Company
        has been operating under since 1993. The Company has since received this
        contract extension and also has received subsequent extensions which go through
        December 31, 2006. There have been no subsequent extensions beyond December
        31,
        2006; however, the Company continues to service this program under the same
        terms and conditions. In accordance with the original contract and consistent
        with previous extensions, HRA has the right to terminate the contract without
        cause or “in the best interest of the City of New York” upon thirty days written
        notice. HRA had also advised the Company that HRA plans to issue a new RFP
        with
        respect to PERS services in the future. In September 2006, HRA issued a bid
        proposal relating to the providing of the PERS services which are the subject
        of
        the Company’s contract. AMAC
        and
        several other companies submitted responses to the bid proposal and
        subsequently, HRA determined that AMAC's bid was the lowest qualified bid.
        On
        August 13, 2007, AMAC was notified that one of the bidders has filed an Article
        78 proceeding in the Supreme Court of the State of New York, seeking a reversal
        of HRA's determination that AMAC was the lowest qualified bidder and that
        this
        bidder be awarded the contract to provide PERS services to HRA. This proceeding
        is further described in Part II-Item 1. As of August 13, 2007, AMAC has not
        been
        informed whether a new contract in favor of AMAC was registered by the City
        Comptroller, which is required in order for the contract to become effective.
        Until the new contract is registered by the Comptroller, the Company expects
        to
        continue servicing the existing contract under its current
        terms.
  The
        Company cannot determine (i) how long the current contract terms will remain
        in
        effect or (ii) when or whether the new contract will be registered by the
        City
        Comptroller. While the Company has greatly reduced its dependence on revenue
        from HCSP, if subsequent to June 30, 2007, the Company does not maintain
        this
        contract, approximately 7% of the Company’s revenue could be lost, albeit over a
        protracted period, which could have a material adverse effect on operating
        results and cash flows. The Company continues to implement a variety of
        operational efficiencies, as well as continuing to enhance and diversify
        its
        other revenue streams, to offset the impact, if any, of this
        occurrence.
  As
        of
        June 30, 2007 and December 31, 2006, accounts receivable from the contract
        represented 9% of accounts receivable and medical devices in service under
        the
        contract represented approximately 13% and 14% of medical devices, respectively.
  33
 
 **Recent
        Accounting Pronouncements:**
  In
        July 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”) was
        issued, clarifying the accounting for uncertainty in tax positions. This
        Interpretation requires that we recognize in our financial statements, the
        impact of a tax position, if that position is more likely than not of being
        sustained on audit, based on the technical merits of the position. The
        provisions of FIN 48 are effective as of the beginning of our 2007 fiscal
        year,
        with the cumulative effect of the change in accounting principle recorded
        as an
        adjustment to opening retained earnings. The Company adapted FIN 48 as of
        January 2007 and the adoption of this Interpretation did not have a material
        impact on the consolidated results of operations or financial position.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
        defines fair value, establishes guidelines for measuring fair value and expands
        disclosure regarding fair value measurements. SFAS No. 157 does not require
        new
        fair value measurements but rather eliminates inconsistencies in guidance
        found
        in various prior accounting pronouncements. SFAS No. 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007.
        We do not expect the adoption of SFAS No. 157 to have a material effect on
        our
        financial statements.
 
 In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin (SAB) No. 108, “Financial Statements - Considering the Effects of Prior
        Year Misstatements when Quantifying Misstatements in Current Year Financial
        Statements”. SAB No. 108 provides interpretive guidance on how the effects of
        prior year uncorrected misstatements should be considered when quantifying
        misstatements in the current year financial statements. SAB No. 108 is effective
        for years ending after November 15, 2006. The adoption of the provisions
        of SAB
        No. 108 did not have a material impact on the financial position or results
        of
        operations.
 
 In
        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities ("SFAS 159"). SFAS 159 provides companies
        with
        an option to report selected financial assets and liabilities at fair value.
        SFAS 159 also establishes presentation and disclosure requirements designed
        to
        facilitate comparisons between companies that choose different measurement
        attributes for similar types of assets and liabilities and to provide additional
        information that will help investors and other financial statement users
        to more
        easily understand the effect of the company's choice to use fair value on
        its
        earnings. Finally, SFAS 159 requires entities to display the fair value of
        those
        assets and liabilities for which the company has chosen to use fair value
        on the
        face of the balance sheet. SFAS 159 is effective as of the beginning of an
        entity's first fiscal year beginning after November 15, 2007. Early adoption
        is
        permitted as of the beginning of the previous fiscal year provided that the
        entity makes that choice in the first 120 days of that fiscal year and also
        elects to apply the provisions of SFAS 157 (see above). The Company is currently
        assessing the impact of SFAS 159.
  34
  **Critical
        Accounting Policies:**
 
 In
        preparing the financial statements, the Company makes estimates, assumptions
        and
        judgments that can have a significant impact on our revenue, operating income
        and net income, as well as on the reported amounts of certain assets and
        liabilities on the balance sheet. The Company believes that the estimates,
        assumptions and judgments involved in the accounting policies described below
        have the greatest potential impact on its financial statements due to the
        materiality of the accounts involved, and therefore, considers these to be
        its
        critical accounting policies. Estimates in each of these areas are based
        on
        historical experience and a variety of assumptions that the Company believes
        are
        appropriate. Actual results may differ from these estimates.
 
 **Reserves
        for Uncollectible Accounts Receivable**
 The
        Company makes ongoing assumptions relating to the collectibility of its accounts
        receivable. The accounts receivable amount on the balance sheet includes
        a
        reserve for accounts that might not be paid. In determining the amount of
        the
        reserve, the Company considers its historical level of credit losses. The
        Company also makes judgments about the creditworthiness of significant customers
        based on ongoing credit evaluations, and it assesses current economic trends
        that might impact the level of credit losses in the future. The Company recorded
        reserves for uncollectible accounts receivable of $581,000 as of June 30,
        2007,
        which is equal to 9.5% of total accounts receivable. While the Company believes
        that the current reserves are adequate to cover potential credit losses,
        it
        cannot predict future changes in the financial stability of its customers
        and
        the Company cannot guarantee that its reserves will continue to be adequate.
        For
        each 1% that actual credit losses exceed the reserves established, there
        would
        be an increase in general and administrative expenses and a reduction in
        reported net income of approximately $62,000. Conversely, for each 1% that
        actual credit losses are less than the reserve, this would decrease the
        Company’s general and administrative expenses and increase the reported net
        income by approximately $62,000.
 
 **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 the Company’s financial results. A decrease in estimated
        useful life would reduce the Company’s net income and an increase in estimated
        useful life would increase the Company’s net income. If the estimated useful
        lives of the PERS medical device were decreased by one year, the cost of
        goods
        related to services would increase and net income would decrease by
        approximately $185,000 per annum. Conversely, if the estimated useful lives
        of
        the PERS medical device were increased by one year, the cost of goods related
        to
        services would decrease and net income would increase by approximately $145,000
        per annum.
  35
  **Valuation
        of Goodwill**
 Pursuant
        to Statement of Financial Accounting Standards No. 142, “Goodwill and Other
        Intangible Assets,” goodwill and indefinite life intangible assets are no longer
        amortized, but are subject to annual impairment tests. To date, the Company
        has
        not been required to recognize an impairment of goodwill. The Company tests
        goodwill for impairment annually or more frequently when events or circumstances
        occur indicating goodwill might be impaired. This process involves estimating
        fair value using discounted cash flow analyses. Considerable management judgment
        is necessary to estimate discounted future cash flows. Assumptions used for
        these estimated cash flows were based on a combination of historical results
        and
        current internal forecasts. The Company cannot predict certain events that
        could
        adversely affect the reported value of goodwill, which totaled $9,642,813
        and
        $9,532,961 at June 30, 2007 and December 31, 2006, respectfully. If the Company
        were to experience a significant adverse impact on goodwill, it would negatively
        impact the Company’s net income.
 
 **Accounting
        for Stock-Based Awards**
 On
        January 1, 2006, the Company adopted Statement of Financial Accounting Standards
        No. 123R, "Share-Based Payment." Prior to January 1, 2006, the Company had
        applied the intrinsic value method of accounting for stock options granted
        to
        our employees and directors under the provisions of Accounting Principles
        Board
        Opinion No. 25, "Accounting for Stock Issued to Employees," and related
        interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based
        Compensation." Accordingly, employee and director compensation expense was
        recognized only for those options whose exercise price was less than the
        market
        value of our common stock at the measurement date.
 
 The
        Company adopted the fair value recognition provisions of SFAS No. 123R, using
        the modified prospective transition method. Under the modified prospective
        method, (i) compensation expense for share-based awards granted prior to
        January
        1, 2006 are recognized over the remaining service period using the compensation
        cost calculated for pro forma disclosure purposes under SFAS No. 123 and
        (ii)
        compensation expense for all share-based awards granted subsequent to December
        31, 2005 are based on the grant date fair value estimated in accordance with
        the
        provisions of SFAS No. 123R. Results for periods prior to January 1, 2006
        have
        not been restated. As a result of adopting SFAS No. 123R, the Company recorded
        a
        pre-tax expense of approximately $133,000 and $85,000 for stock-based
        compensation for the six months ended June 30, 2007 and 2006,
        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.
  36
  **Item
                3.**
              ******Quantitative
                  and Qualitative Disclosure About Market
                  Risk.**
 
 **Market
        Risk Disclosure**
 
 The
        Company does not hold market risk-sensitive trading instruments, nor does
        it use
        financial instruments for trading purposes. Except as disclosed below in
        this
        item, all sales, operating items and balance sheet data are denominated in
        U.S.
        dollars; therefore, the Company has no significant foreign currency exchange
        rate risk.
 
 In
        the
        ordinary course of its business the Company enters into commitments to purchase
        raw materials and finished goods over a period of time, generally six months
        to
        one year, at contracted prices. At June 30, 2007 these future commitments
        were
        not at prices in excess of current market, or in quantities in excess of
        normal
        requirements. The Company does not utilize derivative contracts either to
        hedge
        existing risks or for speculative purposes.
 
 **Interest
        Rate Risk**
 
 We
        are
        exposed to market risk from changes in interest rates primarily through our
        financing activities. Interest on our outstanding balances on our term loan
        and
        revolving credit line under our credit facility accrues at a rate of LIBOR
        plus
        2.00% and LIBOR plus 1.75%, respectively. Our ability to carry out our business
        plan to finance future working capital requirements and acquisitions of TBCS
        businesses may be impacted if the cost of carrying debt fluctuates to the
        point
        where it becomes a burden on our resources.
 
 **Item
                4.**
              ******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 controls and procedures are effective
        to
        ensure that information required to be disclosed by the Company in the reports
        filed by it under the Securities and Exchange Act of 1934, as amended, is
        recorded, processed, summarized and reported within the time periods specified
        in the SEC's rules and forms, and include controls and procedures designed
        to
        ensure that information required to be disclosed by the Company in such reports
        is accumulated and communicated to the Company's management, including the
        Chief
        Executive Officer and President and Chief Financial Officer of the Company,
        as
        appropriate to allow timely decisions regarding required
        disclosure.
 
 There
        were no changes in the Company’s internal control over financial reporting that
        occurred during the quarter ended June 30, 2007 that has materially affected,
        or
        is reasonably likely to affect, the Company’s internal control over financial
        reporting.
  37
  **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.
 On
          April
          20, 2007, the Company commenced an arbitration proceeding before the American
          Arbitration Association against its primary vendor of telehealth products,
          Health Hero Networks, Inc. (“HHN”). The Company was seeking $2.3 million in
          damages in connection with its claim that the products and services provided
          by
          HHN do not meet contractual specifications. In connection with these claims,
          the
          Company also sought an order compelling HHN to correct the technical defects
          in
          its products and services and honor its product warranty. On July 25, 2007,
          the
          Company and HHN agreed to
          resolve all claims with respect to the arbitration proceeding, and the
          proceeding was withdrawn .
  On
          August
          13, 2007, the Company was served with an Article 78 proceeding. The proceeding
          was filed by New York Merchants Protective Co., Inc. (the "Petitioner")
          in the
          Supreme Court of the State of New York County of New York, naming the City
          of
          New York Human Resources Administration ("HRA"), The City of New York and
          other
          city officials, as well as the Company as respondents. The Petitioner is
          claiming that it was the lowest qualified bidder pursuant to HRA's September
          2006 PERS services bid proposal and that HRA, when disqualifying Petitioner's
          bid based on HRA's determination of Petitioner's qualifications, did not
          properly consider its experience and capacity to service the required number
          of
          PERS customers. AMAC and several other companies submitted responses to
          the bid
          proposal and subsequently, HRA determined that AMAC's bid was the lowest
          qualified bid. The Petitioner is seeking a judgment (i) vacating HRA's
          determination that the Petitioner was not a qualified bidder, (ii) annulling
          HRA's determination that AMAC was the lowest qualified bidder, and (iii)
          directing HRA to award the contract to Petitioner.
 **Item
                2.**
              ******Unregistered
                  Sales of Equity Securities and Use of Proceeds****.**
 
 None.
 
 **Item
                4.**
              ******Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 On
        July
        31, 2007, the Company held its 2007 Annual Meeting of Shareholders (the “2007
        Meeting”).
 
 At
        the
        2007 Meeting, the Company’s shareholders (i) elected seven directors to serve
        until the 2008 Annual Meeting of Shareholders and until their successors
        shall
        be elected and qualified, and (ii) ratified the selection of Margolin, Winer
        & Evens LLP as the Company’s independent auditors for the fiscal year ending
        December 31, 2007.
 
 **1.**
              The
                  vote with respect to the election of directors was as
                  follows:
  **Name**
              
              **For**
              
              **Authority Withheld**(a)Howard
                  M. Siegel
              
              8,365,991
              
              37,870(b) Jack
                  Rhian
              
              8,369,991
              
              33,870(c)Frederick
                  Siegel
              
              8,064,091
              
              339,770(d)Ronald
                  Levin
              
              8,365,991
              
              37,870(e)Yacov
                  Shamash
              
              8,357,991
              
              45,870(f)John
                  S.T. Gallagher
              
              8,357,991
              
              45,870(g) Gregory
                  Fortunoff
              
              8,350,191
              
              53,670
 
 **2.**
              The
                  proposal to ratify the selection of Margolin, Winer & Evens LLP as the
                  Company’s independent auditors for the fiscal year ending December 31,
                  2007, was approved by the following
                  vote:
  **For**
              
              **Against**
              
              **Abstain**8,328,795
              
              49,673
              
              25,393
  38
  **Item
        6.** **Exhibits.**
  No.
              
              Description31.1
              
              Certification
                  of President and 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 President and 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
  39
 
 **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Company has
        duly
        caused this report to be signed on its behalf by the undersigned thereunto
        duly
        authorized.
 **AMERICAN
                MEDICAL ALERT CORP.**Dated:
                August 14, 2007
              By:
              /s/ Jack
                RhianName:
                Jack RhianTitle:
                Chief Executive Officer and
                President
 By:
              /s/ Richard
                RalloName:
                Richard RalloTitle:
                Chief Financial Officer
  40