**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


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




**FORM
      10-Q**




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




For
      the
      quarterly period ended September 30, 2008.




**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)





(516)
      536-5850


(Registrant’s
      telephone number, including area code)




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




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


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




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


Yes  ̈ No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 9,504,050 shares of $.01 par value
      common stock as of November 11, 2008.







AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES




INDEX
            
            PAGEPart
                I Financial InformationReport
                of Independent Registered Public Accounting Firm
            
            1Condensed
                Consolidated Balance Sheets for September 30, 2008 and December 31,
                2007
            
            2Condensed
                Consolidated Statements of Income for the Nine Months Ended September
                30,
                2008 and 2007
            
            3Condensed
                Consolidated Statements of Income for the Three Months Ended September
                30,
                2008 and 2007
            
            4Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended September
                30, 2008 and 2007
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            7Management’s
                Discussion and Analysis ofFinancial
                Condition and Results of Operations
            
            16Quantitative
                and Qualitative Disclosures About Market Risks
            
            32Controls
                and Procedures
            
            32Part
                II Other Information
            
            33







Report
      of
      Independent Registered Public Accounting Firm





Board
      of
      Directors and Shareholders


American
      Medical Alert Corp. and Subsidiaries


Oceanside,
      New York





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





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





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





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





/s/
      Margolin, Winer & Evens LLP





Margolin,
      Winer & Evens LLP


Garden
      City, New York





November
      11, 2008


1


**PART
      I - FINANCIAL INFORMATION**




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




AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED BALANCE SHEETS




September 30,
              2008 (Unaudited)
            
            Dec. 31, 2007ASSETSCURRENT
                ASSETSCash
            
            $
            1,856,103
            
            $
            911,525Accounts
                receivable(net
                of allowance for doubtful accounts of $613,000 and
                $554,000)
            
            
            5,793,505
            
            
            5,655,286Note
                receivable
            
            
            27,982
            
            
            26,954Inventory
            
            
            542,487
            
            
            552,736Prepaid
                income taxes
            
            
            182,643
            
            
            309,260Prepaid
                expenses and other current assets
            
            
            944,317
            
            
            941,601Deferred
                income taxes
            
            
            270,000
            
            
            275,000Total
                Current Assets
            
            
            9,617,037
            
            
            8,672,362FIXED
                ASSETS(Net
                of accumulated depreciation and amortization)
            
            
            10,783,945
            
            
            10,799,313OTHER
                ASSETSLong-term
                portion of note receivable
            
            
            -
            
            
            21,117Intangible
                  assets (net of accumulated amortization of
                  $5,326,509****and $4,393,073)
            
            
            3,364,362
            
            
            4,232,226Goodwill
                (net of accumulated amortization of $58,868)
            
            
            9,936,778
            
            
            9,766,194Other
                assets
            
            
            1,844,615
            
            
            1,462,00915,145,755
            
            
            15,481,546TOTAL
                ASSETS
            
            $
            35,546,737
            
            $
            34,953,221LIABILITIES
                AND SHAREHOLDERS’ EQUITYCURRENT
                LIABILITIES:Current
                portion of long-term debt
            
            $
            1,308,206
            
            $
            1,414,419Accounts
                payable
            
            
            1,076,028
            
            
            1,716,179Accounts
                payable – acquisitions
            
            
            40,340
            
            
            73,896Accrued
                expenses
            
            
            2,027,069
            
            
            1,550,283Current
                portion of capital lease obligations
            
            
            42,532
            
            
            42,015Deferred
                revenue
            
            
            397,465
            
            
            274,101Total
                Current Liabilities
            
            
            4,891,640
            
            
            5,070,893DEFERRED
                INCOME TAX LIABILITY
            
            
            942,000
            
            
            947,000LONG-TERM
                DEBT, Net of Current Portion
            
            
            3,620,000
            
            
            4,694,316LONG
                –TERM Portion of Capital Lease Obligations
            
            
            673
            
            
            32,425CUSTOMER
                DEPOSITS
            
            
            103,167
            
            
            81,200ACCRUED
                RENTAL OBLIGATION
            
            
            492,314
            
            
            446,722OTHER
                LIABILITIES
            
            
            10,000
            
            
            10,000TOTAL
                LIABILITIES
            
            
            10,059,794
            
            
            11,282,556COMMITMENTS
                AND CONTINGENT LIABILITIES
            
            
            -
            
            
            -SHAREHOLDERS’
                EQUITYPreferred
                stock, $.01 par value – authorized, 1,000,000 shares; none issued and
                outstandingCommon
                stock, $.01 par value – authorized 20,000,000 shares;****issued****9,491,916
                shares in 2008****and
                9,385,880 shares in 2007
            
            
            94,919
            
            
            93,859Additional
                paid-in capital
            
            
            15,874,770
            
            
            15,421,227Retained
                earnings
            
            
            9,653,831
            
            
            8,281,91425,623,520
            
            
            23,797,000Less
                treasury stock, at cost (48,573 shares in 2008 and 46,798 in
                2007)
            
            
            (136,577
            )
            
            (126,335
            )Total
                Shareholders’ Equity
            
            
            25,486,943
            
            
            23,670,665TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            35,546,737
            
            $
            34,953,221





See
      accompanying notes to condensed financial statements.


2


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


Nine Months Ended September 30,2008
              
              2007Revenues:Services
              
              $
              27,995,628
              
              $
              26,033,534Product
                  sales
              
              
              850,525
              
              
              339,77828,846,153
              
              
              26,373,312Costs
                  and Expenses (Income):Costs
                  related to services
              
              
              13,383,462
              
              
              12,749,276Costs
                  of products sold
              
              
              391,291
              
              
              204,511Selling,
                  general and administrative expenses
              
              
              12,769,764
              
              
              11,805,368Interest
                  expense
              
              
              224,073
              
              
              375,605Other
                  income
              
              
              (247,354
              )
              
              (871,345
              )Income
                  before Provision for Income Taxes
              
              
              2,324,917
              
              
              2,109,897Provision
                  for Income Taxes
              
              
              953,000
              
              
              913,000NET
                  INCOME
              
              $
              1,371,917
              
              $
              1,196,897Net
                  income per share:Basic
              
              $
              .15
              
              $
              .13Diluted
              
              $
              .14
              
              $
              .12Weighted
                  average number of common shares outstanding:Basic
              
              
              9,421,121
              
              
              9,257,776Diluted
              
              
              9,702,142
              
              
              9,708,253




See
      accompanying notes to condensed financial statements.


3


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


Three Months Ended September 30,2008
              
              2007Revenues:Services
              
              $
              9,437,138
              
              $
              8,632,460Product
                  sales
              
              
              233,949
              
              
              139,2109,671,087
              
              
              8,771,670Costs
                  and Expenses (Income):Costs
                  related to services
              
              
              4,438,828
              
              
              4,284,309Costs
                  of products sold
              
              
              80,583
              
              
              83,512Selling,
                  general and administrative expenses
              
              
              4,390,735
              
              
              4,068,605Interest
                  expense
              
              
              57,205
              
              
              120,469Other
                  income
              
              
              (77,798
              )
              
              (525,154
              )Income
                  before Provision for Income Taxes
              
              
              781,534
              
              
              739,929Provision
                  for Income Taxes
              
              
              320,000
              
              
              317,000NET
                  INCOME
              
              $
              461,534
              
              $
              422,929Net
                  income per share:Basic
              
              $
              .05
              
              $
              .05Diluted
              
              $
              .05
              
              $
              .04Weighted
                  average number of common shares outstandingBasic
              
              
              9,439,592
              
              
              9,307,412Diluted
              
              
              9,689,775
              
              
              9,854,059




See
      accompanying notes to condensed financial statements.




4


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Nine Months Ended September 30,2008
            
            2007Cash
                Flows From Operating Activities:Net
                income
            
            $
            1,371,917
            
            $
            1,196,897Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            3,231,637
            
            
            3,127,300Settlement
                agreement
            
            
            -
            
            
            (425,000
            )Stock
                compensation charge
            
            
            329,166
            
            
            266,608Decrease
                (increase) in:Accounts
                receivable
            
            
            (138,218
            )
            
            (641,180
            )Inventory
            
            
            10,249
            
            
            (274,510
            )Prepaid
                income taxes
            
            
            126,617
            
            
            -Prepaid
                expenses and other current assets
            
            
            55,374
            
            
            (210,905
            )Increase
                (decrease) in:Accounts
                payable, accrued expenses and other
            
            
            (95,806
            )
            
            1,037,524Deferred
                revenue
            
            
            123,363
            
            
            180,747Net
                Cash Provided by Operating Activities
            
            
            5,014,299
            
            
            4,257,481Cash
                Flows From Investing Activities:Expenditures
                for fixed assets
            
            
            (2,275,253
            )
            
            (3,223,272
            )Repayment
                of notes receivable
            
            
            20,089
            
            
            19,111Payment
                of accounts payable - acquisitions
            
            
            (73,896
            )
            
            (171,532
            )Deposit
                on equipment
            
            
            (449,110
            )
            
            -Purchase
                of additional goodwill - American Mediconnect Inc.
            
            
            (130,244
            )
            
            (7,542
            )Purchases
                – other
            
            
            (65,571
            )
            
            (296,100
            )Decrease
                in other assets
            
            
            833
            
            
            312,751Net
                Cash Used In Investing Activities
            
            
            (2,973,152
            )
            
            (3,366,584
            )Cash
                Flows From Financing Activities:Proceeds
                from long-term debt
            
            
            100,000
            
            
            350,000Principal
                payments under capital lease obligation
            
            
            (31,235
            )
            
            (29,129
            )Purchase
                of Treasury Stock
            
            
            (10,242
            )
            
            -Repayment
                of long-term debt
            
            
            (1,280,529
            )
            
            (1,145,120
            )Proceeds
                upon exercise of stock options and warrants
            
            
            125,437
            
            
            386,040Net
                Cash Used In Financing Activities
            
            
            (1,096,569
            )
            
            (438,209
            )





See
      accompanying notes to condensed financial statements.




5


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





Nine Months Ended September 30,2008
            
            2007Net
                Increase in Cash
            
            $
            944,578
            
            $
            452,688Cash,
                Beginning of Period
            
            
            911,525
            
            
            856,248Cash,
                End of Period
            
            $
            1,856,103
            
            $
            1,308,936SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:CASH
                PAID DURING THE PERIOD FOR INTEREST
            
            $
            222,273
            
            $
            367,500CASH
                PAID DURING THE PERIOD FOR INCOME TAXES
            
            $
            677,455
            
            **$**
            719,136SUPPLEMENTAL
                SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Accounts
                payable due sellers in connection with acquisition
            
            $
            40,340
            
            $
            151,160





See
      accompanying notes to condensed financial statements.




6


AMERICAN
      MEDICAL ALERT CORP. AND SUBSIDIARIES




Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




1.  General:




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




2.  Results
      of Operations:




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




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




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




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




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


3.
        Recent
        Accounting Pronouncements:




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




7


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





In
      April 2008, the FASB issued FSP SFAS 142-3,*Determination
      of the Useful Life of Intangible Assets*.
      FSP SFAS 142-3 amends the factors that should be considered in developing
      renewal or extension assumptions used to determine the useful life of a
      recognized intangible asset under SFAS No. 142,*Goodwill
      and Other Intangible Assets*.
      The
      intent of FSP SFAS 142-3 is to improve the consistency between the useful life
      of a recognized intangible asset under SFAS No. 142 and the period of
      expected cash flows used to measure the fair value of the asset under SFAS
      No. 141(R) and other GAAP principles. The provisions of FSP SFAS 142-3 are
      effective for the Company’s fiscal year 2010, and are currently not expected to
      have a material effect on its consolidated financial statements, results of
      operations or cash flows.




4.  Accounting
      for Stock-Based Compensation:




On
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” ** (“Statement
      No. 123(R)”), which requires the measurement and recognition of
      compensation expense for all share-based payments to employees, including grants
      of stock and employee stock options, based on estimated fair values. Stock-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest during
      the period.




The
      Company granted 35,000 stock options during the nine month period ended
      September 30, 2008. No options were granted during the nine month period ended
      September 30, 2007.




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




2008


WeightedAverageWeighted
              
              Remaining
              
              AggregateNumber of
              
              Average
              
              Contractual
              
              IntrinsicOptions
              
              Option Price
              
              Term (years)
              
              ValueBalance
                  at January 1
              
              
              922,273
              
              $
              4.01Granted
              
              
              35,000
              
              
              6.51Exercised
              
              
              (61,600
              )
              
              2.04Expired/Forfeited
              
              
              (17,226
              )
              
              3.68Balance
                  at September 30
              
              
              878,447
              
              $
              4.25
              
              
              3.70
              
              $
              1,030,779Vested
                  and exercisable
              
              
              878,447
              
              $
              4.25
              
              
              3.70
              
              $
              1,030,779




8


2007




WeightedAverageWeighted
              
              Remaining
              
              AggregateNumber of
              
              Average
              
              Contractual
              
              IntrinsicOptions
              
              Option Price
              
              Term (years)
              
              ValueBalance
                  at January 1
              
              
              1,052,818
              
              $
              4.02Granted
              
              
              -
              
              
              -Exercised
              
              
              (71,917
              )
              
              4.19Expired/Forfeited
              
              
              (10,400
              )
              
              3.92Balance
                  at September 30
              
              
              970,501
              
              $
              4.01
              
              
              4.39
              
              $
              4,878,788Vested
                  and exercisable
              
              
              970,501
              
              $
              4.01
              
              
              4.39
              
              $
              4,878,788





The
      aggregate intrinsic value of options exercised during the nine months ended
      September 30, 2008 and 2007 was $291,523 and $267,479, respectively. There
      were
      no nonvested stock options outstanding as of September 30, 2008 and
      2007.





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




Three Months
              Ended Sept 30,
            
            Three Months
              Ended Sept 30,2008
            
            2007Stock
                options
            
            $
            20,000
            
            $
            -Stock
                grants – other
            
            
            75,956
            
            
            23,260Service
                based awards
            
            
            31,069
            
            
            31,069Performance
                based awards
            
            
            (4,394
            )
            
            35,468Tax
                benefit
            
            
            (50,300
            )
            
            (38,000
            )Stock-based
                compensation expense, net of tax
            
            $
            72,331
            
            $
            51,297




9




Nine Months
            
            Nine MonthsEnded Sept 30,
            
            Ended Sept 30,****2008
            
            2007Stock
                options
            
            $
            56,250
            
            $
            -Stock
                grants – other
            
            
            121,712
            
            
            66,771Service
                based awards
            
            
            93,206
            
            
            93,206Performance
                based awards
            
            
            57,998
            
            
            106,631Tax
                benefit
            
            
            (135,000
            )
            
            (114,700
            )Stock-based
                compensation expense, net of tax
            
            $
            194,166
            
            $
            151,908





Stock
      Grants - Other





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





Service
      Based Awards





In
      January 2006 and May 2007, the Company granted 60,000 and 22,000 restricted
      shares, respectively, to certain executives in respect of services rendered
      but
      at no monetary cost. These shares vest over periods ranging from 3 to 5 years,
      on December 31 of each year. The Company records the compensation expense on
      a
      straight-line basis over the vesting period. Fair value for restricted stock
      awards is based on the Company's closing common stock price on the date of
      grant.  As
      of
      September 30, 2008 and 2007 there were 31,500 and 12,500 shares vested,
      respectively. The aggregate grant date fair value of restricted stock grants
      was
      $537,100.  As
      of
      September 30, 2008 and 2007, the Company had $239,619 and $363,896,
      respectively, of total unrecognized compensation costs related to nonvested
      restricted stock units expected to be recognized over a weighted average period
      of 2.20 years.





Performance
      Based Awards





In
      January 2006 and May 2007, respectively, the Company granted share awards for
      90,000 shares (up to 18,000 shares per year through December 31, 2010) and
      46,000 shares (up to 11,500 shares per year through December 31, 2010) to
      certain executives. Vesting of such shares is contingent upon the Company
      achieving certain specified consolidated gross revenue and Earnings Before
      Interest and Taxes (“EBIT”) objectives in each of the next four fiscal years
      ending December 31. The fair value of the performance shares (aggregate value
      of
      $909,400) is based on the closing trading value of the Company’s stock on the
      date of grant and assumes that performance goals will be achieved. The fair
      value of the shares is expensed over the performance period for those shares
      that are expected to ultimately vest. If such objectives are not met, no
      compensation cost is recognized and any recognized compensation cost is
      reversed.  As
      of
      September 30, 2008 and 2007, 29,750 and 18,000 shares were vested, respectively.
      As of September 30, 2008 and 2007, there was $543,137 and $599,069,
      respectively, of total unrecognized compensation costs related to nonvested
      share awards; that cost is expected to be recognized over a period of 2.25
      years.


10


5.  Earnings
      Per Share:




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





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


Income
                (Numerator)
              
              Shares
                (Denominator)
              
              Per-Share
                AmountsNine
                  Months Ended September 30, 2008Basic
                  EPS - Income available to common shareholders
              
              $
              1,371,917
              
              
              9,421,121
              
              $
              .15Effect
                  of dilutive securities - Options and warrants
              
              
              -
              
              
              281,021Diluted
                  EPS - Income available to common shareholders and assumed
                  conversions
              
              $
              1,371,917
              
              
              9,702,142
              
              $
              .14Three
                  Months Ended September 30, 2008Basic
                  EPS -Income available to common shareholders
              
              $
              461,534
              
              
              9,439,592
              
              $
              .05Effect
                  of dilutive securities - Options and warrants
              
              
              -
              
              
              250,183Diluted
                  EPS - Income available to common shareholders and assumed
                  conversions
              
              $
              461,534
              
              
              9,689,775
              
              $
              .05Nine
                  Months Ended September 30, 2007Basic
                  EPS - Income available to common shareholders
              
              $
              1,196,897
              
              
              9,257,776
              
              $
              .13Effect
                  of dilutive securities - Options and warrants
              
              
              -
              
              
              450,477Diluted
                  EPS - Income available to common shareholders and assumed
                  conversions
              
              $
              1,196,897
              
              
              9,708,253
              
              $
              .12Three
                  Months Ended September 30, 2007Basic
                  EPS -Income available to common shareholders
              
              $
              422,929
              
              
              9,307,412
              
              $
              .05Effect
                  of dilutive securities - Options and warrants
              
              
              -
              
              
              546,647Diluted
                  EPS - Income available to common shareholders and assumed
                  conversions
              
              $
              422,929
              
              
              9,854,059
              
              $
              .04




11




6.  Other
      Assets







Included
      in the Company’s other assets are prepaid licensing fees and other associated
      costs related to a telehealth based technology initiative to provide the Company
      with a next generation telehealth platform, which were paid in 2005 and 2006.
      The technology provider on this initiative has experienced a funding shortfall
      and will likely not complete the project. Under the Company’s agreement with the
      technology provider, the Company has the right to take control over the project
      and complete it, either directly or through a third party entity. If the
      Company moves forward, the project would require significant capital outlay,
      which the Company estimates would range between $1,000,000 and $1,500,000 in
      2009. The Company has not yet determined if it would provide the capital
      directly or with contributions from a third party. Under the Company's agreement
      with the technology provider, the Company shall be credited, against any future
      royalties due to the technology provider, an amount equal to the Company’s
      incremental payments to complete the project. While the Company is confident
      it
      can complete the project, it may choose to forego the continuation of the
      project if it determines that it has a superior alternative opportunity to
      pursue its telehealth interests based on competitive and funding criteria.
      Since
      the Company has previously capitalized these costs, if the Company does choose
      to forego the continuation of the project or the Company determines it
      cannot market or sell the products, the Company would realize a one-time pre-tax
      write-down of approximately $815,000. The Company does not expect this
      write-down would have a material adverse impact on the Company’s revenue
      streams, working capital or liquidity.




12







7.
      Goodwill





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





Nine
      Months Ended September 30, 2008





Balance
                as of January 1, 2008
            
            $
            9,766,194Additional
                Goodwill
            
            
            170,584Balance
                as of September 30, 2008
            
            $
            9,936,778





Nine
      Months Ended September 30, 2007





Balance
                as of January 1, 2007
            
            $
            9,532,961Additional
                Goodwill
            
            
            158,702Balance
                as of September 30, 2007
            
            $
            9,691,663





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





8.  Long-term
      Debt:





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




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




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




On
      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.


13


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





9.
      Other
      Income:





In
      August
      2007 the Company entered into a settlement agreement whereby a third party
      has
      agreed to reimburse the Company a net amount of $425,000 for matters related
      to
      certain product and warranty disputes . This
      reimbursement was associated with costs that had primarily been incurred in
      previous years relating to engineering, payroll and related costs and
      depreciation pertaining to the affected assets. The Company anticipates
      receiving this reimbursement over approximately two years. As a result of this
      agreement, the Company has recorded an amount of $425,000 to Other Income in
      the
      third quarter of 2007.  As
      of
      September 30, 2008, the Company had a balance of $169,912 due from the third
      party. During the third quarter 2007, the Company recorded a write-down on
      the
      assets affected of approximately $111,000 which is reflected in the Cost of
      Services.





10.  Major
      Customers:





Since
      1983, the Company has provided Personal Emergency Response Systems (“PERS”)
      services to the City of New York’s Human Resources Administration Home Care
      Service Program ("HCSP"). The Company has been operating since 1993 with a
      contract, and related extensions, to provide HCSP with these
      services.  During
      the nine months ended September 30, 2008 and 2007, the Company’s revenue from
      this contract represented 6% and 7%, respectively, of its total revenue. As
      of
      September 30, 2008 and December 2007, accounts receivable from the contract
      represented 9% and 10%, respectively, of total accounts receivable. Medical
      devices in service under the contract represented approximately 11% of medical
      devices.




In
      September 2006, Human Resource Administration (“HRA”) issued a bid proposal
      relating to the providing of the PERS services which are the subject of the
      Company’s contract. In October 2007, the Company was informed they were awarded
      the contract with respect to this proposal and executed such contract. The
      contract term is two years, commencing September 21, 2007, with two options
      to
      renew in favor of HRA for two additional two year terms. Under the terms of
      the
      agreement, a downward rate adjustment was made in conjunction with reduced
      equipment requirements from previous years. The estimated impact of this lower
      rate is to reduce this contract’s annual contribution to gross revenues by
      approximately $270,000 and its annual contribution to net income by
      approximately $150,000. For the nine months ended September 30, 2008, the
      Company’s revenue from this contract decreased by approximately $200,000 and
      this contract’s contribution to net income decreased by approximately $115,000
      as a result of this reduced rate.




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


14




11. Segment
      Reporting:





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




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




2008




HSMS
            
            TBCS
            
            ConsolidatedNine
                Months Ended September 30, 2008Revenue
            
            $
            14,744,046
            
            $
            14,102,107
            
            $
            28,846,153Income
                before provision for income taxes
            
            
            1,315,923
            
            
            1,008,994
            
            
            2,324,917Total
                assets
            
            
            16,186,596
            
            
            19,360,141
            
            
            35,546,737HSMS
            
            
            TBCS
            
            
            ConsolidatedThree
                Months Ended September 30, 2008Revenue
            
            $
            4,965,448
            
            $
            4,705,639
            
            $
            9,671,087Income
                before provision for income taxes
            
            
            383,412
            
            
            398,122
            
            
            781,534





2007




HSMS
            
            TBCS
            
            ConsolidatedNine
                Months Ended September 30, 2007Revenue
            
            $
            12,848,791
            
            $
            13,524,521
            
            $
            26,373,312Income
                before provision for income taxes (*)
            
            
            1,075,845
            
            
            1,034,052
            
            
            2,109,897Total
                assets
            
            
            16,393,630
            
            
            18,819,221
            
            
            35,212,851HSMS
            
            
            TBCS
            
            
            ConsolidatedThree
                Months Ended September 30, 2007Revenue
            
            $
            4,339,999
            
            $
            4,431,671
            
            $
            8,771,670Income
                before provision for income taxes (*)
            
            
            537,004
            
            
            202,925
            
            
            739,929


*
      -
      Amount in HSMS segment includes approximately $314,000 from a settlement
      agreement described in Note 9 above.


15


12.  Commitments and Contingencies:





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





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




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




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




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


16


**Overview:**





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





In
      2001,
      the Company entered the emerging telehealth market recognizing the opportunity
      to provide new monitoring technologies to assist healthcare professionals in
      home-based, health management activities. The Company has made a significant
      investment in its initial endeavors in the disease management monitoring market.
      This market focuses on various technologies to permit chronic disease management
      through remote patient monitoring. During the last several years, the Company
      has learned how this market functions and has explored a variety of methods
      of
      making a meaningful entry into this market. The Company has experienced
      technical difficulties with certain products supplied by its primary vendor,
      Health Hero Network, Inc.  In 2007, the Company reached a financial
      settlement with respect to the technical difficulties associated with the
      products.





Beginning
      in 2000, the Company began a program of service 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.





The
      Company diversified its products/service mix to include telephony based
      communication services (previously defined as “ 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 initially accomplished through acquisition and later
      through internally generated sales growth coupled
      with acquisitions .


17





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





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





The
      Company believes it has identified other communication needs as expressed by
      the
      expanded 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
      HSMS and TBCS divisions, combined with its emphasis on developing products
      and
      services in the remote patient monitoring industry, provides the correct blend
      of stability and growth opportunity. The Company believes this strategy will
      enable it to maintain and increase its role in the healthcare communications
      field.







**Components
      of Statements of Income by Operating Segment**


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




In
                thousands (000’s)
            
            Three Months Ended September 30,
            
            Nine Months Ended September 30,2008
            
            %
            
            2007
            
            %
            
            2008
            
            %
            
            2007
            
            %RevenuesHSMS
            
            
            4,965
            
            
            **51**
            **%**
            
            4,340
            
            
            **49**
            **%**
            
            14,744
            
            
            **51**
            **%**
            
            12,849
            
            
            **49**
            **%**TBCS
            
            
            4,706
            
            
            **49**
            **%**
            
            4,431
            
            
            **51**
            **%**
            
            14,102
            
            
            **49**
            **%**
            
            13,524
            
            
            **51**
            **%**Total
                Revenues
            
            
            9,671
            
            
            **100**
            **%**
            
            8,771
            
            
            **100**
            **%**
            
            28,846
            
            
            **100**
            **%**
            
            26,373
            
            
            **100**
            **%**Cost
                of Services and Goods SoldHSMS
            
            
            2,063
            
            
            **42**
            **%**
            
            1,970
            
            
            **45**
            **%**
            
            6,294
            
            
            **43**
            **%**
            
            5,881
            
            
            **46**
            **%**TBCS
            
            
            2,456
            
            
            **52**
            **%**
            
            2,397
            
            
            **54**
            **%**
            
            7,481
            
            
            **53**
            **%**
            
            7,073
            
            
            **52**
            **%**Total
                Cost of Services and Goods Sold
            
            
            4,519
            
            
            **47**
            **%**
            
            4,367
            
            
            **50**
            **%**
            
            13,775
            
            
            **48**
            **%**
            
            12,954
            
            
            **49**
            **%**Gross
                ProfitHSMS
            
            
            2,902
            
            
            **58**
            **%**
            
            2,370
            
            
            **55**
            **%**
            
            8,450
            
            
            **57**
            **%**
            
            6,968
            
            
            **54**
            **%**TBCS
            
            
            2,250
            
            
            **48**
            **%**
            
            2,034
            
            
            **46**
            **%**
            
            6,621
            
            
            **47**
            **%**
            
            6,451
            
            
            **48**
            **%**Total
                Gross Profit
            
            
            5,152
            
            
            **53**
            **%**
            
            4,404
            
            
            **50**
            **%**
            
            15,071
            
            
            **52**
            **%**
            
            13,419
            
            
            **51**
            **%**Selling,
                General & Administrative
            
            
            4,391
            
            
            **45**
            **%**
            
            4,069
            
            
            **46**
            **%**
            
            12,769
            
            
            **44**
            **%**
            
            11,805
            
            
            **42**
            **%**Interest
                Expense
            
            
            57
            
            
            **1**
            **%**
            
            121
            
            
            **1**
            **%**
            
            224
            
            
            **1**
            **%**
            
            376
            
            
            **1**
            **%**Other
                Income
            
            
            (78
            )
            
            **(1**
            **)%**
            
            (525
            )
            
            **(6**
            **)%**
            
            (247
            )
            
            **(1**
            **)%**
            
            (872
            )
            
            **(3**
            **)%**Income
                before Income Taxes
            
            
            782
            
            
            **8**
            **%**
            
            740
            
            
            **8**
            **%**
            
            2,325
            
            
            **8**
            **%**
            
            2,110
            
            
            **8**
            **%**Provision
                for Income Taxes
            
            
            320
            
            
            
            
            
            317
            
            
            
            
            
            953
            
            
            
            
            
            913Net
                Income
            
            
            462
            
            
            
            
            
            423
            
            
            
            
            
            1,372
            
            
            
            
            
            1,197


**Note:** The
      percentages are calculated based on a percentage of revenue.


18





**Results
      of Operations:**





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





**Three
      Months Ended September 30, 2008 Compared to Three Months Ended September 30,
      2007**





**Revenues** **:**





**** **HSMS**





Revenues,
      which consist primarily of monthly rental revenues, increased approximately
      $625,000, or 14%, for the three months ended September 30, 2008 as compared
      to
      the same period in 2007. The increase is primarily attributed to the following
      factors:





§
            In
                2007, the Company entered into an exclusive arrangement with Walgreen
                to
                market the Company’s PERS product directly to the consumer. This
                arrangement has positively impacted the revenues generated from the
                HSMS
                services being provided directly to the consumer. In the three months
                ended September 30, 2008, the Company recognized increased revenues
                of
                approximately $413,000, as compared to the same period in 2007, from
                this
                arrangement. The Company anticipates it will continue to see increased
                growth under this arrangement with
                Walgreen.





§
            The
                Company continues to realize increased revenues from the sale of
                its
                enhanced senior living products to retirement communities. During
                the
                three months ended September 30, 2008, the Company generated an increase
                of approximately $68,000 of product sales to retirement communities.
                In
                the same period of 2007, the enhanced senior living product generated
                minimal sales as the product was just introduced into the market.
                The
                Company anticipates it will continue to see growth from these product
                sales for the remainder of
                2008.


19





The
      remaining increase in revenue is from the execution of other new agreements,
      growth within its existing customer base as well as the acquisition of certain
      subscriber bases from companies which were providing the PERS service. These
      increases were partially offset by a decrease of approximately $70,000 in
      revenues related to a contract executed with the Human Resource Administration
      (HRA) in 2007 in which a downward rate adjustment was made.





**** **TBCS**





The
      increase in revenues of approximately $275,000, or 6%, for the three months
      ended September 30, 2008 as compared to the same period in 2007 was primarily
      due to the following:





§
            The
                Company experienced revenue growth within its existing telephone
                answering
                service businesses for the three months ended September 30, 2008
                and
                realized increased revenue of approximately $275,000, as compared
                to the
                same period in 2007. This growth is due to the diversification of
                the
                Company’s customer base to provide business process improvements to the
                healthcare sector as well as increased business from its existing
                customer
                base. The Company believes that it will see increased growth from
                this
                segment in the early part of 2009, primarily through its patient
                appointment concierge solutions and its clinical trial recruitment
                call
                center services.





**Costs
      Related to Services and Goods Sold:**





**HSMS**





Costs
      related to services and goods sold increased by approximately $93,000 for the
      three months ended September 30, 2008 as compared to the same period in 2007,
      an
      increase of 5%, primarily due to the following:





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





§
            In
                relation to the increase in the sales of its enhanced senior living
                products to retirement communities the Company incurred costs of
                approximately $37,000.


20





**** **TBCS:**





Costs
      related to services and goods sold increased by approximately $59,000 for the
      three months ended September 30, 2008 as compared to the same period in 2007,
      an
      increase of 2%, primarily due to the following:





§
            The
                Company incurred additional telephone service costs of approximately
                $51,000 with the majority of these costs relating to an increase
                of its
                bandwith capacity at its call centers. As a result of the consolidation
                to
                leverage its call center infrastructure and to handle the increased
                volume, the Company has determined this expansion is necessary to
                allow
                for maximized operational efficiencies.




**Selling,
      General and Administrative Expenses:**





Selling,
      general and administrative expenses increased by approximately $322,000 for
      the
      three months ended September 30, 2008 as compared to the same period in 2007,
      an
      increase of 8%. The increase is primarily attributable to the
      following:





§
            In
                conjunction with various new programs and agreements, the Company
                increased its internet and television advertising. As a result of
                this,
                the Company recorded an increase in these expenses of approximately
                $290,000. The Company plans to reduce the level of advertising during
                the
                fourth quarter of 2008 and will re-evaluate the advertising levels
                for
                2009.





There
      were increases in selling, general and administrative expenses which arose
      out
      of the normal course of business such as consulting expense and utility expenses
      which were partially offset by a decrease in bad debt expense and travel and
      entertainment expenses.





**Interest
      Expense:**





Interest
      expense for the three months ended September 30, 2008 and 2007 was approximately
      $57,000 and $121,000, respectively. The decrease of $64,000 was primarily due
      to
      the Company continuing to pay down its term loan as well as a reduction in
      the
      interest rate.





**Other
      Income:**





Other
      income for the three months ended September 30, 2008 and 2007 was approximately
      $78,000 and $525,000, respectively. Other income for the three months ended
      September 30, 2008 includes an economic development incentive received from
      the
      City of Clovis, New Mexico, in the amount of $50,000 associated with the opening
      of a call center in this location **.** Other
      income for the three months ended September 30, 2007 includes a Relocation
      and
      Employment Assistance Program (“REAP”) credit in the approximate amount of
      $118,000. In connection with the relocation of certain operations to Long Island
      City, New York in April 2003, the Company became eligible for the REAP credit
      which is based upon the number of employees relocated to this designated REAP
      area. The REAP is in effect for a twelve year period commencing in April 2003;
      during the first five years the Company will be refunded the full amount of
      the
      eligible credit and, thereafter, the benefit will be available only as a credit
      against New York City income taxes. As of 2008, the Company is eligible to
      only
      receive a credit against New York City income taxes, which is reflected within
      the Company’s tax provision. Additionally, Other Income for the three months
      ended September 30, 2007 included approximately $425,000 with respect to a
      settlement agreement for matters related to certain product and warranty
      disputes.


21





**Income
      Before Provision for Income Taxes:**





The
      Company’s income before provision for income taxes for the three months ended
      September 30, 2008 was approximately $782,000 as compared to $740,000 for the
      same period in 2007. The increase of $42,000 for the three months ended
      September 30, 2008 primarily resulted from an increase in the Company's service
      and product revenues offset by an increase in the Company’s costs related to
      services, product sales and selling, general and administrative costs and a
      decrease in other income due to a REAP credit and one-time non-recurring credit
      recognized in 2007.





**Nine
      Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
      2007**





**Revenues** **:**





**** **HSMS**





Revenues,
      which consist primarily of monthly rental revenues, increased approximately
      $1,895,000, or 15%, for the nine months ended September 30, 2008 as compared
      to
      the same period in 2007. The increase is primarily attributed to the following
      factors:





§
            In
                2007, the Company entered into an exclusive arrangement with Walgreen
                to
                market the Company’s PERS product directly to the consumer. This
                arrangement has positively impact the revenues generated from the
                HSMS
                services being provided directly to the consumer. In the first nine
                months
                of 2008, as compared to the same period in 2007, the Company recognized
                increased revenues of approximately $1,102,000 from this arrangement.
                The
                Company anticipates it will continue to see increased growth under
                this
                arrangement with Walgreen.





§
            The
                Company continues to realize increased revenues from the sale of
                its
                enhanced senior living products to retirement communities. During the
                first nine months of 2008, the Company generated an increase in
                approximately $475,000 of product sales to retirement communities.
                The
                sale of the enhanced senior living product did not commence until
                the
                third quarter of 2007 and the Company only generated minimal sales.
                The
                Company anticipates it will continue to see growth from these product
                sales for the remainder of 2008.





§
            In
                late 2006, the Company executed a new agreement with a third party
                Agency
                whereby PERS were placed online. Since inception, the subscriber
                base
                associated with this agreement has grown and accounted for an approximate
                $240,000 increase in revenue during the first nine months of 2008
                as
                compared to the same period in the prior year.


22





These
      increases were partially offset by a decrease of approximately $200,000 in
      revenues related to a contract executed with the Human Resource Administration
      (HRA) in 2007 in which a downward rate adjustment was made.





**** **TBCS**





The
      increase in revenues of approximately $578,000, or 4%, for the nine months
      ended
      September 30, 2008 as compared to the same period in 2007 was primarily due
      to
      the following:





§
            The
                Company continues to experience revenue growth within its existing
                telephone answering service businesses and realized increased revenue
                of
                approximately $603,000, as compared to the same period in 2007. This
                growth is due to the diversification of the Company’s customer base to
                provide business process improvements to the healthcare sector as
                well as
                increased business from its existing customer base. This increase
                was
                partially offset by a shortfall of revenue relating to the project
                based
                clinical trials business in the amount of approximately $24,000.





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





**Costs
      Related to Services and Goods Sold:**





**HSMS**





Costs
      related to services and goods sold increased by approximately $413,000 for
      the
      nine months ended September 30, 2008 as compared to the same period in 2007,
      an
      increase of 7%, primarily due to the following:





§
            The
                Company has incurred additional depreciation expense of approximately
                $137,000 primarily due to the increased purchases of PERS related
                products
                during 2007. The increased purchases are a result of the increase
                in the
                number of subscribers online.





§
            In
                relation to the increase in the sales of its enhanced senior living
                products to retirement communities the Company incurred costs of
                approximately $206,000.





§
            The
                Company incurred increased payroll costs and associated costs of
                approximately $150,000. The increase in these costs was primarily
                due to
                the increase in service and call volume. As the Company subscriber
                base
                continues to increase, the Company has experienced corresponding
                increases
                in the level of services, including installations and removals, and
                call
                volume.


23


This
      increase in costs was partially offset by a write down of fixed assets related
      to the PERS Buddy device in the amount of approximately $111,000 in the third
      quarter of 2007. No such write-down was recorded in 2008.





**** **TBCS:**





Costs
      related to services and goods sold increased by approximately $408,000 for
      the
      nine months ended September 30, 2008 as compared to the same period in 2007,
      an
      increase of 6%, primarily due to the following:





§
            In
                the first nine months of 2008, the Company incurred additional labor
                and
                telephone service costs of approximately $444,000 with the majority
                of
                these costs relating to an increase of its bandwith capacity and
                to
                non-recurring charges incurred in the consolidation of its call center
                infrastructure. As part of operating nine call centers, in 2007 the
                Company engaged in a consolidation strategy to leverage its call
                center
                infrastructure in an effort to maximize operational efficiencies.
                During
                the first half of 2008, the Company substantially completed the
                consolidation. As part of this initiative, the Company incurred these
                additional costs to ensure a seamless transition. Moving forward,
                the
                Company believes this call center consolidation strategy will produce
                operational and financial
                efficiencies.




This
      increase was partially offset by the Company receiving a reduction in the cost
      of pagers during the first half of 2008 as compared to the same period in 2007,
      which in an approximate $46,000 expense savings.




**Selling,
      General and Administrative Expenses:**





Selling,
      general and administrative expenses increased by approximately $964,000 for
      the
      nine months ended September 30, 2008 as compared to the same period in 2007,
      an
      increase of 8%. The increase is primarily attributable to the
      following:





§
            In
                conjunction with various new programs and agreements, the Company
                increased its internet and television advertising. As a result of
                this,
                the Company recorded an increase in these expenses of approximately
                $683,000. The Company plans to reduce the level of advertising during
                the
                fourth quarter of 2008 and will re-evaluate the advertising levels
                for
                2009.





§
            In
                conjunction with the continued further development of the Company’s next
                generation pill dispenser, the Company has incurred approximately
                $98,000
                of increased costs. The Company is in the final stages of development
                and
                anticipates that the product will be ready for commercialization
                in either
                late 2008 or the early 2009.


24





§
            The
                Company has recorded approximately $106,000 of increased depreciation
                as
                compared to the same period in the prior year. This is primarily
                the
                result of the build out of its new call center in New Mexico as well
                as
                additional purchases of new telephone systems and computer hardware
                and
                software.





There
      were other increases in selling, general and administrative expenses which
      arose
      out of the normal course of business such as consulting and utility expense
      which were partially offset by decreases in bad debt expense.





**Interest
      Expense:**





Interest
      expense for the nine months ended September 30, 2008 and 2007 was approximately
      $224,000 and $376,000, respectively. The decrease of $152,000 was primarily
      due
      to the Company continuing to pay down its term loan as well as a reduction
      in
      the interest rate.





**Other
      Income:**





Other
      income for the nine months ended September 30, 2008 and 2007 was approximately
      $247,000 and $872,000, respectively. Other income for the nine months ended
      September 30, 2008 includes a training incentive received from the State of
      New
      Mexico for hiring and training employees within the State and an economic
      development incentive through the City of Clovis aggregating approximately
      $240,000. In 2007, the Company opened a network operating call center in New
      Mexico and hired employees to serve as operators for the telephone answering
      service. In 2008, the Company plans on continuing its further expansion into
      this facility by also hiring employees to serve as emergency response operators
      for the HSMS segment. These amounts were partially offset by an adjustment
      to
      the Relocation and Employment Assistance Program credit due from New York City.
      Other income for the nine months ended September 30, 2007 includes a Relocation
      and Employment Assistance Program (“REAP”) credit in the approximate amount of
      $237,000. In connection with the relocation of certain operations to Long Island
      City, New York in April 2003, the Company became eligible for the REAP credit
      which is based upon the number of employees relocated to this designated REAP
      area. The REAP is in effect for a twelve year period commencing in April 2003;
      during the first five years the Company will be refunded the full amount of
      the
      eligible credit and, thereafter, the benefit will be available only as a credit
      against New York City income taxes. As of 2008, the Company is eligible to
      only
      receive a credit against New York City income taxes, which is reflected within
      the Company’s tax provision. Additionally, Other Income for the nine months
      ended September 30, 2007 includes approximately $425,000 with respect to a
      settlement agreement for matters related to certain product and warranty
      disputes.





**Income
      Before Provision for Income Taxes:**





The
      Company’s income before provision for income taxes for the nine months ended
      September 30, 2008 was approximately $2,325,000 as compared to $2,110,000 for
      the same period in 2007. The increase of $215,000 for the nine months ended
      September 30, 2008 primarily resulted from an increase in the Company's service
      and product revenues offset by an increase in the Company’s costs related to
      services and product sales, selling, general and administrative costs and a
      decrease in other income due to a REAP credit and one-time non-recurring credit
      recognized in 2007.


25




**Liquidity
      and Capital Resources**




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




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




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




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





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


26


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




Payments Due by PeriodContractual Obligations
            
            Total
            
            Less than 1
              year
            
            1-3 years
            
            4-5 years
            
            After 5 yearsRevolving
                Credit Line
            
            $
            1,400,000
            
            
            
            
            $
            1,400,000Debt
                (a)
            
            $
            3,528,206
            
            $
            1,308,206
            
            $
            2,220,000Capital
                Leases (b)
            
            $
            43,205
            
            $
            42,532
            
            $
            673Operating
                Leases (c)
            
            $
            8,105,308
            
            $
            1,082,986
            
            $
            2,540,239
            
            $
            1,559,327
            
            $
            2,922,756Purchase
                Commitments (d)
            
            $
            1,195,442
            
            $
            1,195,442Interest
                Expense (e)
            
            $
            323,896
            
            $
            191,483
            
            $
            132,413Acquisition
                related Commitment (f)
            
            $
            40,340
            
            $
            40,340Total
                Contractual Obligations
            
            $
            14,636,397
            
            $
            3,860,989
            
            $
            6,293,325
            
            $
            1,559,327
            
            $
            2,922,756




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




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




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




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




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




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






The
      primary sources of liquidity are cash flows from operating activities.  Net
      cash provided by operating activities was approximately $5.0 million for the
      nine months ended September 30, 2008, as compared to approximately $4.3 million
      for the same period in 2007. During 2008, the cash provided by operating
      activities was primarily from depreciation and amortization of approximately
      $3.2 million and net earnings of approximately $1.4 million. The components
      of
      depreciation and amortization primarily relate to the purchases of the Company’s
      traditional PERS product and the customer lists associated with the acquisition
      of telephone answering service businesses. Cash provided by operating activities
      during 2007 were the result of depreciation and amortization of approximately
      $3.1 million, increase in liabilities of $1.0 million and net earnings of
      approximately $1.2 million. These amounts were partially offset by an increase
      in trade receivables of approximately $0.6 million and the execution of a
      settlement agreement of approximately $0.4 million.


27




Net
      cash
      used in investing activities for the nine months ended September 30, 2008 and
      2007 were approximately $3.0 million and $3.4 million, respectively. The primary
      component of net cash used in investing activities in 2008 was capital
      expenditures of approximately $2.3 million. Capital expenditures for 2008
      primarily related to the continued production and purchase of the traditional
      PERS system and the build-out of the Company’s new call center in New Mexico.
      The primary components of net cash used in investing activities in 2007 were
      capital expenditures of approximately $3.2 million.




Cash
      flows for the nine months ended September 30, 2008 used in financing activities
      were approximately $1.1 million compared to $0.4 million for the same period
      in
      2007. The primary component of cash flow used in financing activities in 2008
      was the payment of long-term debt of approximately $1.3 million. This was
      partially offset by the proceeds received from long-term debt of $0.1 million
      and the exercise of stock options of approximately $0.1 million. The primary
      component of cash flow used in financing activities in 2007 was the payment
      of
      long-term debt of approximately $1.1 million, which was partially offset by
      the
      proceeds received on the exercise of stock options of approximately $0.4 million
      and the proceeds received from long-term debt of approximately $0.4 million.




During
      the next twelve months, the Company anticipates it will make capital
      expenditures of approximately $3.00 – $3.50 million for the production and
      purchase of the traditional PERS systems, and telehealth systems and
      enhancements to its computer operating systems. This amount is subject to
      fluctuations based on customer demand. The Company also anticipates incurring
      approximately $0.1 - $0.3 million of costs relating to research and development
      of its telehealth product and enhanced pill dispenser.




As
      of
      September 30, 2008, the Company had approximately $1.9 million in cash and
      the
      Company’s working capital was approximately $4.7 million. The Company believes
      that with its present cash balance and with operations of the business
      generating positive cash flow, it will be able to meet its cash, working capital
      and capital expenditure needs for at least the next twelve months. The Company
      also has a revolving credit line, which expires in June 2010 that permits
      borrowings up to $2.5 million, of which $1.4 million was outstanding at
      September 30, 2008.




Off-Balance
      Sheet Arrangements:




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




Other
      Factors:




In
      August
      2007 the Company entered into a settlement agreement whereby a third party
      has
      agreed to reimburse the Company in a net amount of $425,000 for matters related
      to certain product and warranty disputes. This reimbursement is associated
      with
      costs that have primarily been incurred in previous years relating to
      engineering, payroll and related costs and depreciation pertaining to the
      affected assets. The Company anticipates receiving this reimbursement over
      approximately two years. The Company also recorded a write-down on the assets
      affected of approximately $111,000 in the third quarter of 2007. Through
      September 30, 2008, the Company has been reimbursed $255,192.




28




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





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




Since
      1983, the Company has provided Personal Emergency Response Systems (“PERS”)
      services to the City of New York’s Human Resources Administration Home Care
      Service Program ("HCSP"). The Company has been operating since 1993 with a
      contract, and related extensions, to provide HCSP with these
      services.  During
      the nine months ended September 30, 2008 and 2007, the Company’s revenue from
      this contract represented 6% and 7%, respectively, of its total revenue. As
      of
      September 30, 2008 and December 2007, accounts receivable from the contract
      represented 9% and 10% of accounts receivable, respectively, of total accounts
      receivable. Medical devices in service under the contract represented
      approximately 11% of medical devices.




In
      September 2006, Human Resource Administration (“HRA”) issued a bid proposal
      relating to the providing of the PERS services which are the subject of the
      Company’s contract. In October 2007, the Company was informed they were awarded
      the contract with respect to this proposal and executed such contract. The
      contract term is two years, commencing September 21, 2007, with two options
      to
      renew in favor of HRA for two additional two year terms. Under the terms of
      the
      agreement, a downward rate adjustment was made in conjunction with reduced
      equipment requirements from previous years. The estimated impact of this lower
      rate is to reduce this contract’s annual contribution to gross revenues by
      approximately $270,000 and its annual contribution to net income by
      approximately $150,000. For the nine months ended September 30, 2008, the
      Company’s revenue from this contract decreased by approximately $200,000 and
      this contract’s contribution to net income decreased by approximately $115,000
      as a result of this reduced rate.




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




**Recent
      Accounting Pronouncements:**




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





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




29




In
      April 2008, the FASB issued FSP SFAS 142-3, *Determination
      of the Useful Life of Intangible Assets* .
      FSP SFAS 142-3 amends the factors that should be considered in developing
      renewal or extension assumptions used to determine the useful life of a
      recognized intangible asset under SFAS No. 142, *Goodwill
      and Other Intangible Assets* .
      The
      intent of FSP SFAS 142-3 is to improve the consistency between the useful life
      of a recognized intangible asset under SFAS No. 142 and the period of
      expected cash flows used to measure the fair value of the asset under SFAS
      No. 141(R) and other GAAP principles. The provisions of FSP SFAS 142-3 are
      effective for the Company’s fiscal year 2010, and are currently not expected to
      have a material effect on its consolidated financial statements, results of
      operations or cash flows.





**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 $613,000 as of September
      30,
      2008, which is equal to 10% of total accounts receivable. While the Company
      believes that the current reserves are adequate to cover potential credit
      losses, it cannot predict future changes in the financial stability of its
      customers and the Company cannot guarantee that its reserves will continue
      to be
      adequate. For each 1% that actual credit losses exceed the reserves established,
      there would be an increase in general and administrative expenses and a
      reduction in reported pre-tax net income of approximately $64,000. Conversely,
      for each 1% that actual credit losses are less than the reserve, this would
      decrease the Company’s general and administrative expenses and increase the
      reported pre-tax net income by approximately $64,000.




30




**Fixed
      Assets**


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




**Valuation
      of Goodwill**


Pursuant
      to Statement of Financial Accounting Standards No. 142, “Goodwill and Other
      Intangible Assets,” goodwill and indefinite life intangible assets are no longer
      amortized, but are subject to annual impairment tests. To date, the Company
      has
      not been required to recognize an impairment of goodwill. The Company tests
      goodwill for impairment annually or more frequently when events or circumstances
      occur indicating goodwill might be impaired. This process involves estimating
      fair value using discounted cash flow analyses. Considerable management judgment
      is necessary to estimate discounted future cash flows. Assumptions used for
      these estimated cash flows were based on a combination of historical results
      and
      current internal forecasts. The Company cannot predict certain events that
      could
      adversely affect the reported value of goodwill, which totaled $9,936,778 and
      $9,766,194 at September 30, 2008 and December 31, 2007, respectively. If the
      Company were to experience a significant adverse impact on goodwill, it would
      negatively impact the Company’s net income.





**Accounting
      for Stock-Based Awards**


On
      January 1, 2006, the Company adopted FASB Statement No. 123 (revised
      2004), “Share-Based Payment” ** (“Statement
      No. 123(R)”), which requires the measurement and recognition of
      compensation expense for all share-based payments to employees, including grants
      of stock and employee stock options, based on estimated fair values. Stock-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest during
      the period.  As
      a
      result of adopting SFAS No. 123R, the Company recorded a pre-tax expense of
      approximately $329,000 and $266,000 for stock-based compensation for the nine
      months ended September 30, 2008 and 2007, 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.




31




**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk.**





**Market
      Risk**





The
      Company does not hold market risk-sensitive instruments for trading or other
      than trading purposes. All sales, operating items and balance sheet data are
      denominated in U.S. dollars; therefore, the Company has no significant foreign
      currency exchange rate risk.





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





**Interest
      Rate Risk**





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





**Item
      4T.** **Controls
      and Procedures** **.**




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





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




32




**PART
      II - OTHER INFORMATION**





**Item
      1.**  **** **Legal
      Proceedings** **.**





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




**Item
      1A.** **Risk
      Factors** **.**


Other
        than the risk factors set forth below, management believes that there have
        been
        no material changes in the Company’s risk factors as reported in the Annual
        Report on Form 10-K for the year ended December 31, 2007, which was filed
        on
        March 31, 2008 with the Securities and Exchange Commission.
 
 Our
        business may be adversely impacted by our investment in the licensing of
        new
        remote monitoring products .
 
 In
        2005
        and 2006, the Company paid and capitalized prepaid licensing fees and other
        associated costs related to a telehealth based technology initiative to provide
        the Company with a next generation telehealth platform. These fees and costs
        are
        included on the Company’s balance sheet under “Other Assets.” The technology
        provider on this initiative has experienced a funding shortfall and will
        likely
        not complete the project. Under the Company’s agreement with the technology
        provider, the Company has the right to take over the project and complete
        it,
        either directly or through a third party entity. If the Company moves forward,
        the project would require a significant capital outlay in 2009, which the
        Company estimates to be between $1,000,000 and $1,500,000. The Company has
        not
        yet determined whether it will provide the capital directly or with
        contributions from a third party. Under the Company’s agreement with the
        technology provider, the Company shall be credited, against any future royalties
        due to the technology provider, an amount equal to the Company’s incremental
        payments to complete the project. While the Company is confident that it
        could
        complete the project, the Company may choose to forego the continuation of
        the project if it has a superior alternative opportunity to pursue its
        telehealth interests, based on competitive and funding criteria. Since the
        Company has previously capitalized these costs, if the Company foregoes
        the continuation of the project or the Company determines it cannot market
        or sell the products, the Company would realize a one-time pre-tax write-down
        of
        approximately $815,000. The Company does not expect this write-down would
        have a
        material adverse impact on the Company’s revenue streams, working capital or
        liquidity. This disclosure updates a risk factor in the Company’s Annual Report
        on Form 10-K for the year ended December 31, 2007.
 
 Changes
        in the general economic environment may impact our future business and results
        of operations .
 
 Current
        economic conditions, including the credit crisis affecting global financial
        markets and the possibility of a global recession, could adversely impact
        the
        Company’s future business and financial results. These conditions could result
        in reduced demand for some of the Company’s products, increased order
        cancellations and returns, increased pressure on the prices of the Company’s
        products, increased number of days to collect outstanding receivables and/or
        increased bad debts on outstanding receivables, and greater difficulty in
        obtaining necessary financing on favorable terms.
 Item
        4.Submission
        of Matters to a Vote of Security Holders.





On
      August
      26, 2008, the Company held its 2008 Annual Meeting of Shareholders (the “2008
      Meeting”).





At
      the
      2008 Meeting, the Company’s shareholders (i) elected seven (7) directors to
      serve until the 2009 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, 2008.




1.
            The
                vote with respect to the election of seven (7) directors was as
                follows:




Name
            
            For
            
            Authority
                Withheld(a) Howard
                M. Siegel
            
            
            8,296,705
            
            
            42,289(b) Jack
                Rhian
            
            
            8,297,183
            
            
            44,811(c) Frederick
                S. Siegel
            
            
            8,297,983
            
            
            44,011(d) Ronald
                Levin
            
            
            8,262,183
            
            
            79,811(e) Yacov
                Shamash
            
            
            8,297,183
            
            
            44,811(f) John
                S.T. Gallagher
            
            
            8,297,183
            
            
            44,811(g) Gregory
                Fortunoff
            
            
            8,296,583
            
            
            45,411





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,
                2008, was approved by the following
                vote:




For
            
            Against
            
            Abstain8,284,542
            
            
            46,966
            
            
            10,486




33




**Item
      6.**  **Exhibits.**





No.
            
            Description15.1
            
            Letter
                from Margolin, Winer & Evens LLP, the independent accountant of the
                Company, acknowledging awareness of the use in a registration statement
                of
                a report on the unaudited interim financial information in this quarterly
                report31.1
            
            Certification
                of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of
                200231.2
            
            Certification
                of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of
                200232.1
            
            Certification
                of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of
                200232.2
            
            Certification
                of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of
                2002




34





**SIGNATURES**




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




**AMERICAN MEDICAL
              ALERT
              CORP.**Date:
                November 13, 2008
            By:
            /s/
                Jack RhianName:
                Jack RhianTitle:
                Chief Executive Officer andPresidentBy:
            /s/
                Richard RalloName:
                Richard RalloTitle:
                Chief Financial Officer




35