UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q




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




For the
quarter ended March 31, 2010.




OR




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




For the
transition period from ____________ to ____________




Commission
File Number 1-8635




AMERICAN
MEDICAL ALERT CORP.


(Exact
Name of Registrant as Specified in its Charter)




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




3265
Lawson Boulevard, Oceanside, New York 11572


(Address
of principal executive offices)


(Zip
Code)




(516)
536-5850


(Registrant’s
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes xNo o




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




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





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





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


Yes oNo x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 9,558,045 shares of $.01 par value
common stock as of May 14, 2010.









AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES




INDEX




PAGEPart
      I Financial InformationReport
      of Independent Registered Public Accounting Firm
            
            1Condensed
      Consolidated Balance Sheets for March 31, 2010 and December 31,
      2009
            
            2Condensed
      Consolidated Statements of Income for the Three Months Ended March 31,
      2010 and 2009
            
            3Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2010 and 2009
            
            4Notes
      to Condensed Consolidated Financial Statements
            
            6Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            13Quantitative
      and Qualitative Disclosures About Market Risks
            
            27Controls
      and Procedures
            
            28Part
      II Other Information
            
            28





i




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 March 31, 2010 and
the related condensed consolidated statements of income and cash flows for the
three-months ended March 31, 2010 and 2009. These interim financial statements
are the responsibility of the Company's management.





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





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





We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
American Medical Alert Corp. and Subsidiaries as of December 31, 2009, and the
related consolidated statements of income, shareholders’ equity and cash flows
for the year then ended (not presented herein), and in our report dated March
31, 2010 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2009 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.







/s/
Margolin, Winer & Evens LLP





Margolin,
Winer & Evens LLP


Garden
City, New York





May 17,
2010





1




PART
I - FINANCIAL INFORMATION




Item
1. Financial
Statements.




AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




March
      31,
              2010
            
            
            Dec. 31,
              2009(Unaudited)ASSETSCURRENT
      ASSETSCash
            
            $
            6,712,796
            
            
            $
            5,498,448Accounts
      receivable (net of allowance for doubtful accounts of $611,000 and
      $582,500)
            
            
            6,052,020
            
            
            
            6,277,247Inventory,
      including finished goods of $571,235 and $441,114
            
            
            1,238,021
            
            
            
            1,105,727Prepaid
      income taxes
            
            
            150,625
            
            
            
            134,081Prepaid
      expenses and other current assets
            
            
            341,818
            
            
            
            345,465Deferred
      income taxes
            
            
            361,000
            
            
            
            419,000Total
      Current Assets
            
            
            14,856,280
            
            
            
            13,779,968FIXED
      ASSETS(Net
      of accumulated depreciation and amortization)
            
            
            8,270,384
            
            
            
            8,756,827OTHER
      ASSETSIntangible
      assets (net of accumulated amortization of $6,308,564 and
      $6,080,825)
            
            
            1,798,272
            
            
            
            2,026,011Goodwill
      (net of accumulated amortization of $58,868)
            
            
            10,294,281
            
            
            
            10,255,983Other
      assets
            
            
            1,025,401
            
            
            
            1,009,83513,117,954
            
            
            
            13,291,829TOTAL
      ASSETS
            
            $
            36,244,618
            
            
            $
            35,828,624LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt
            
            $
            1,151,665
            
            
            $
            1,301,667Accounts
      payable
            
            
            626,401
            
            
            
            621,235Accounts
      payable – acquisitions
            
            
            73,346
            
            
            
            35,048Accrued
      expenses
            
            
            2,400,705
            
            
            
            1,698,320Dividends
      payable
            
            
            -
            
            
            
            950,364Deferred
      revenue
            
            
            269,053
            
            
            
            227,004Total
      Current Liabilities
            
            
            4,521,170
            
            
            
            4,833,638DEFERRED
      INCOME TAX LIABILITY
            
            
            1,177,000
            
            
            
            1,235,000LONG-TERM
      DEBT, Net of Current Portion
            
            
            990,002
            
            
            
            1,195,000CUSTOMER
      DEPOSITS
            
            
            120,477
            
            
            
            126,449ACCRUED
      RENTAL OBLIGATION
            
            
            552,008
            
            
            
            522,154TOTAL
      LIABILITIES
            
            
            7,360,657
            
            
            
            7,912,241COMMITMENTS
      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 9,580,543
      shares in 2010 and 9,568,087 shares in 2009
            
            
            95,805
            
            
            
            95,681Additional
      paid-in capital
            
            
            16,376,697
            
            
            
            16,296,615Retained
      earnings
            
            
            12,548,036
            
            
            
            11,660,66429,020,538
            
            
            
            28,052,960Less
      treasury stock, at cost (48,573 shares in 2010 and 2009)
            
            
            (136,577
            )
            
            
            (136,577
            )Total
      Shareholders’ Equity
            
            
            28,883,961
            
            
            
            27,916,383TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            36,244,618
            
            
            $
            35,828,624





See
accompanying notes to condensed financial statements.




2





AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME




(Unaudited)






Three
      Months Ended
                March
      31,2010
              
              
              2009Revenues:Services
              
              $
              9,708,731
              
              
              $
              9,658,506Product
      sales
              
              
              202,516
              
              
              
              271,5839,911,247
              
              
              
              9,930,089Costs
      and Expenses (Income):Costs
      related to services
              
              
              4,430,955
              
              
              
              4,515,966Costs
      of products sold
              
              
              92,484
              
              
              
              121,002Selling,
      general and administrative expenses
              
              
              3,907,833
              
              
              
              4,052,447Interest
      expense
              
              
              12,431
              
              
              
              23,682Other
      income
              
              
              (29,828
              )
              
              
              (94,258
              )Income
      before Provision for Income Taxes
              
              
              1,497,372
              
              
              
              1,311,250Provision
      for Income Taxes
              
              
              610,000
              
              
              
              538,000NET
      INCOME
              
              $
              887,372
              
              
              $
              773,250Net
      income per share:Basic
              
              $
              .09
              
              
              $
              .08Diluted
              
              $
              .09
              
              
              $
              .08Weighted
      average number of common shares outstandingBasic
              
              
              9,526,434
              
              
              
              9,453,868Diluted
              
              
              9,841,887
              
              
              
              9,581,219




See
accompanying notes to condensed financial statements.




3





AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)






Three
      Months Ended
              March
      31,2010
            
            
            2009Cash
      Flows From Operating Activities:Net
      income
            
            $
            887,372
            
            
            $
            773,250Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            919,611
            
            
            
            1,050,972Stock
      compensation charge
            
            
            80,206
            
            
            
            86,132Decrease
      (increase) in:Accounts
      receivable
            
            
            225,227
            
            
            
            330,704Inventory
            
            
            (87,090
            )
            
            
            75,257Prepaid
      income taxes
            
            
            (16,544
            )
            
            
            93,740Prepaid
      expenses and other current assets
            
            
            (40,309
            )
            
            
            46,678Increase  in:Accounts
      payable, accrued expenses and other
            
            
            731,436
            
            
            
            667,284Deferred
      revenue
            
            
            42,048
            
            
            
            62,532Net
      Cash Provided by Operating Activities
            
            
            2,741,957
            
            
            
            3,186,549Cash
      Flows From Investing Activities:Expenditures
      for fixed assets
            
            
            (224,778
            )
            
            
            (311,508
            )Repayment
      of notes receivable
            
            
            -
            
            
            
            6,951Purchase
      – other
            
            
            -
            
            
            
            (15,099
            )Decrease
      in other assets
            
            
            2,533
            
            
            
            1,682Net
      Cash Used In Investing Activities
            
            
            (222,245
            )
            
            
            (317,974
            )Cash
      Flows From Financing Activities:Repayment
      of long-term debt
            
            
            (355,000
            )
            
            
            (808,282
            )Payment
      of accounts payable - acquisitions
            
            
            -
            
            
            
            (19,034
            )Dividends
      paid
            
            
            (950,364
            )
            
            
            -Net
      Cash Used In Financing Activities
            
            
            (1,305,364
            )
            
            
            (827,316
            )




See
accompanying notes to condensed financial statements.




4





AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





Three
      Months Ended
                  March
      31,2010
                
                
                2009Net
      Increase in Cash
                
                $
                1,214,348
                
                
                $
                2,041,259Cash,
      Beginning of Period
                
                
                5,498,448
                
                
                
                2,473,733Cash,
      End of Period
                
                $
                6,712,796
                
                
                $
                4,514,992SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:CASH
      PAID DURING THE PERIOD FOR INTEREST
                
                $
                12,447
                
                
                $
                23,682CASH
      PAID DURING THE PERIOD FOR INCOME TAXES
                
                $
                247,612
                
                
                $
                119,098SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Accounts
      payable – acquisitions /additional goodwill – American Mediconnect
      Inc.
                
                $
                38,298
                
                
                $
                132,566Other
      assets, deposits on equipment transferred to fixed assets
                
                
                -
                
                
                
                160,184Other
      assets, deposits on product transferred to inventory
                
                
                45,204
                
                
                
                29,162





See
accompanying notes to condensed financial statements.




5




AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES




Notes to
Condensed Consolidated Financial Statements


(Unaudited)




1.
General:




These
financial statements should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 2009 included in the Company’s
Annual Report on Form 10-K.




2. Results
of Operations:




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




In the
opinion of management, the accompanying unaudited condensed financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position as of March 31, 2010 and the results of
operations and cash flows for the three months ended March 31, 2010 and
2009.




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




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




The
results of operations for the three months ended March 31, 2010 are not
necessarily indicative of the results to be expected for any other interim
period or for the full year.




3. Recent
Accounting Pronouncements:




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





The
Company adopted ASC Topic 855 (formerly SFAS No. 165, Subsequent Events) during
the second quarter of 2009 which establishes general standards of accounting for
and disclosures of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. ASC Topic 855
provides guidance on the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This guidance was amended by Accounting
Standards Update ("ASU") 2010-9 in February 2010. The adoption of ASC Topic 855
(including the updated guidance) did not have a material impact on the results
of operations and financial condition of the Company.





6




4. Accounting
for Stock-Based Compensation:




Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly SFAS
No. 123 (R), Share-Based Payment), which requires the measurement and
recognition of compensation expense for all share-based payments to employees,
including grants of stock and employee stock options, based on estimated fair
values.




No
options were granted during the three month periods ended March 31, 2010 and
2009.




The following tables summarize stock
option activity for the first quarter ended March, 31, 2010 and 2009.




2010Number
      of
              Options
            
            
            Weighted
              Average
              Option
      Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Term
      (years)
            
            
            Aggregate
              Intrinsic
              ValueBalance
      at January 1
            
            
            894,785
            
            
            $
            4.29Granted
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired/Forfeited
            
            
            -
            
            
            
            -Balance
      at March 31
            
            
            894,785
            
            
            $
            4.29
            
            
            
            2.28
            
            
            $
            2,322,058Vested
      and exercisable
            
            
            862,085
            
            
            $
            4.23
            
            
            
            2.19
            
            
            $
            2,287,598




7




2009Number of
                  Options
                
                
                Weighted
                  Average
                  Option
      Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term
      (years
                
                
                Aggregate
                  Intrinsic
                  ValueBalance
      at January 1
                
                
                877,235
                
                
                $
                4.25Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Expired/Forfeited
                
                
                (4,150
                )
                
                
                5.31Balance
      at March 31
                
                
                873,085
                
                
                $
                4.25
                
                
                
                3.20
                
                
                $
                1,063,653Vested
      and exercisable
                
                
                873,085
                
                
                $
                4.25
                
                
                
                3.20
                
                
                $
                1,063,653





No
options were exercised during the first quarter ended March 31, 2010 and
2009.  There were 32,700 nonvested stock options outstanding as of
March 31, 2010.  There were no nonvested stock options outstanding as
of March 31, 2009.





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
              March 31,2010
            
            
            2009Stock
      options
            
            $
            -
            
            
            $
            -Stock
      grants – other
            
            
            10,877
            
            
            
            22,887Service
      based awards
            
            
            32,035
            
            
            
            33,845Performance
      based awards
            
            
            37,294
            
            
            
            29,400Tax
      benefit
            
            
            (32,674
            )
            
            
            (35,315
            )Stock-based
      compensation expense, net of tax
            
            $
            47,532
            
            
            $
            50,817





Stock
Grants - Other





Effective
January 1, 2010, the outside Board of Directors have an option to elect either
shares of common stock or cash at the end of each quarter as compensation for
services provided as members of the Board of Directors and other
committees.    Prior to 2010, the outside Board of Directors
were granted shares of common stock at the end of each quarter as compensation
for services provided as members of the Board of Directors and other
committees.  Share grants issued vest immediately.  In
addition, stock grants may be issued to employees at the Board of Directors’
discretion.





Service
Based Awards





In
January 2006, May 2007 and January 2009 the Company granted 50,000, 22,000 and
12,000 (net of 9,500 shares waived by an executive) restricted shares,
respectively, to certain executives in respect of services rendered but at no
monetary cost.  These shares vest over periods ranging from 3 to 5
years, on December 31 of each year.  The Company records the
compensation expense on a straight-line basis over the vesting
period.  Fair value for restricted stock awards is based on the
Company's closing common stock price on the date of grant.As
of March 31, 2010 and 2009 there were 63,000 and 41,000 shares vested,
respectively.  The aggregate grant date fair value of restricted stock
grants was $547,660.As
of March 31, 2010 and 2009, the Company had $96,109 and $268,015, respectively,
of total unrecognized compensation costs related to nonvested restricted stock
units expected to be recognized over a weighted average period of nine
months.




8





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 March 31, 2010 and 2009, 57,250 and 29,750 shares were vested,
respectively.  As of March 31, 2010 and 2009, there was $111,881 and
$350,691, respectively, of total unrecognized compensation costs related to
nonvested share awards; that cost is expected to be recognized over a weighted
average period of nine months.





5.
Earnings Per Share:




Earnings
per share data for the three months ended March 31, 2010 and 2009 is presented
in conformity with ASC Topic 250 (formerly SFAS No. 128, Earnings Per
Share).




9





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




Income
              (Numerator)
            
            
            Shares
              (Denominator)
            
            
            Per-Share
              AmountsMarch
      31, 2010Basic
      EPS - Income available tocommon
      shareholders
            
            $
            887,372
            
            
            
            9,526,434
            
            
            $
            .09Effect
      of dilutive securities -Options
      and warrants
            
            
            -
            
            
            
            315,453Diluted
      EPS - Income available to common shareholders andassumed
      conversions
            
            $
            887,372
            
            
            
            9,841,887
            
            
            $
            .09March
      31, 2009Basic
      EPS -Income available tocommon
      shareholders
            
            $
            773,250
            
            
            
            9,453,868
            
            
            $
            .08Effect
      of dilutive securities - Options
            
            
            -
            
            
            
            127,351Diluted
      EPS - Income available to  common shareholders andassumed
      conversions
            
            $
            773,250
            
            
            
            9,581,219
            
            
            $
            .08




6.
Goodwill





Changes
in the carrying amount of goodwill, all of which relate to the Company’s TBCS
segment, for the three months ended March 31, 2010 and 2009 are as
follows:




Three
      Months Ended March 31, 2010Balance
      as of January 1, 2010
            
            $
            10,255,983Additional
      Goodwill
            
            
            38,298Balance
      as of March 31, 2010
            
            $
            10,294,281Three
      Months Ended March 31, 2009Balance
      as of January 1, 2009
            
            $
            9,996,152Additional
      Goodwill
            
            
            132,566Balance
      as of March 31, 2009
            
            $
            10,128,718




10




The
addition to goodwill during the three months ended March 31, 2010 and 2009
relates to additional purchase price of American Mediconnect, Inc. based on the
cash receipts from the clinical trials portion of the business.





7. Long-term
Debt:





The
Company had a credit facility arrangement for $4,500,000 which included a
revolving credit line which permitted borrowings of $1,500,000 (based on
eligible receivables as defined) and a $3,000,000 term loan payable. The term
loan is payable in equal monthly principal installments of $50,000 over five
years commencing January 2006.  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.  In 2009, the term of the revolving credit line was
extended through June 2011.




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





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




11





8. Dividends:





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




9.Segment  Reporting:





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




The table
below provides a reconciliation of segment information to total consolidated
information for the three months ended March 31, 2010 and 2009:




2010HSMS
            
            
            TBCS
            
            
            ConsolidatedRevenue
            
            $
            5,150,060
            
            
            $
            4,761,187
            
            
            $
            9,911,247Income
      before provision for income taxes
            
            
            1,059,378
            
            
            
            437,994
            
            
            
            1,497,372Total
      assets
            
            
            15,643,011
            
            
            
            20,601,607
            
            
            
            36,244,618




2009HSMS
            
            
            TBCS
            
            
            ConsolidatedRevenue
            
            $
            5,089,485
            
            
            $
            4,840,604
            
            
            $
            9,930,089Income
      before provision for income taxes
            
            
            772,030
            
            
            
            539,220
            
            
            
            1,311,250Total
      assets
            
            
            14,896,742
            
            
            
            20,388,970
            
            
            
            35,285,712





10. Commitments
and Contingencies:





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




12





11. Subsequent
Event:





On May
12, 2010, the Company entered into a limited liability company agreement with
Hughes Telematics, Inc. and Qualcomm Incorporated to design, develop, finance
and operate a mobile PERS system.  The Company invested $4,000,000 to
acquire a minority interest in the new company, Lifecomm LLC (“Lifecomm”). As
part of this transaction, the Company borrowed $2,000,000 from its bank to
partially finance this transaction.  See Note 7 above.





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





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





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, 2009.




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 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, this Quarterly Report on Form 10-Q and
other public filings.  The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.




13




Overview:





The
Company’s primary business is the provision of healthcare communication services
through (1) the development, marketing and monitoring of health and safety
monitoring systems (HSMS) that include personal emergency response systems,
medication management systems and objective and subjective data/ telehealth/
monitoring systems; and (2) telephony based communication services and solutions
primarily for the healthcare community (“TBCS”).  The Company’s
products and services are primarily marketed to the healthcare community,
including hospitals, home care, durable medical equipment, medical facility,
hospice, pharmacy, managed care, pharmaceutical companies and other healthcare
oriented organizations.  The Company also offers certain products and
services directly to consumers.





About
HSMS:





Personal
Emergency Response Systems (PERS)





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





MedSmart





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





14




Telehealth
systems





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





About
TBCS





Telephony
Based Communication Services (TBCS)




AMAC’s
TBCS division offers call center solutions that enhance the patient/provider
communication experience. As part of our business development strategy,
management continues to employ advanced telephony technology and information
systems to develop services. In addition to technology, a critical component for
expansion is the Company’s professionally trained call agent
staff.  The overall infrastructure has allowed AMAC to expand its
services beyond traditional telephone answering services to provide more
innovative, clinically oriented call center offerings.  For the first
quarter ended March 31, 2010,  the TBCS segment accounted for 48% of
the Company’s gross revenues.  The Company’s TBCS division is
comprised of three service offerings:





After
Hours Answering Services




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





Concierge
Services/Daytime Solutions




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




15





Pharmaceutical
Support and Clinical Trial Recruitment Services





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





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





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




Operating
Segments




For the
quarter ended March 31, 2010, HSMS accounted for 52% of the Company’s revenue
and TBCS accounted for 48% of the Company’s revenue.  The Company
believes that the overall mix of cash flow generating businesses from HSMS and
TBCS, combined with its emphasis on developing products and services to support
demand from customers and the emerging, home-based monitoring market, provides
the correct blend of stability and growth opportunity. The Company believes this
strategy will enable it to maintain and increase its role as a national
healthcare communications provider.  Based on the Company’s growth
strategy and the complementary nature of if its operating divisions, management
believes the Company’s outlook is very positive. Management also believes that
while the details of the newly enacted healthcare legislation is awaiting
regulation, the Company’s products and services should be in greater demand over
the next several years.





16





Components of Statements of
Income by Operating Segment




The
following table shows the components of the Statement of Income for the three
months ended March 31, 2010 and 2009.





Three
      Months Ended March 31,In
      thousands (000’s)
            
            2010
            
            
            %
            
            
            2009
            
            
            %RevenuesHSMS
            
            
            5,150
            
            
            
            52
            %
            
            
            5,089
            
            
            
            51
            %TBCS
            
            
            4,761
            
            
            
            48
            %
            
            
            4,841
            
            
            
            49
            %Total
      Revenues
            
            
            9,911
            
            
            
            100
            %
            
            
            9,930
            
            
            
            100
            %Cost
      of Services and Goods SoldHSMS
            
            
            2,009
            
            
            
            39
            %
            
            
            2,204
            
            
            
            43
            %TBCS
            
            
            2,514
            
            
            
            53
            %
            
            
            2,433
            
            
            
            50
            %Total
      Cost of Services and Goods Sold
            
            
            4,523
            
            
            
            46
            %
            
            
            4,637
            
            
            
            47
            %Gross
      ProfitHSMS
            
            
            3,141
            
            
            
            61
            %
            
            
            2,885
            
            
            
            57
            %TBCS
            
            
            2,247
            
            
            
            47
            %
            
            
            2,408
            
            
            
            50
            %Total
      Gross Profit
            
            
            5,388
            
            
            
            54
            %
            
            
            5,293
            
            
            
            53
            %Selling,
      General & Administrative
            
            
            3,909
            
            
            
            39
            %
            
            
            4,052
            
            
            
            41
            %Interest
      Expense
            
            
            12
            
            
            
            -
            %
            
            
            24
            
            
            
            -
            %Other
      Income
            
            
            (30
            )
            
            
            -
            %
            
            
            (94
            )
            
            
            (1
            )%Income
      before Income Taxes
            
            
            1,497
            
            
            
            15
            %
            
            
            1,311
            
            
            
            13
            %Provision
      for Income Taxes
            
            
            610
            
            
            
            
            
            
            
            538Net
      Income
            
            
            887
            
            
            
            
            
            
            
            773





Results of
Operations:





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





Three Months Ended March 31,
2010 Compared to Three Months Ended March 31, 2009





Revenues:





HSMS





Revenues,
which consist primarily of monthly rental revenues, increased approximately
$61,000, or 1%, for the three months ended March 31, 2010 as compared to the
same period in 2009.  The increase is primarily attributed to the
following factors:





·
            The
      Company recognized a net increase in its PERS business to business service
      revenue of approximately $60,000 in the first quarter of 2010 as compared
      to the same period in prior year.  The Company realized revenue
      growth from its existing third party reimbursement and long-term care
      programs as well as the execution of new agreements of approximately
      $195,000. This increase in service revenue was partially offset by a
      decrease in revenue of approximately $135,000 from a managed care
      organization as a result of State funding being cancelled under their
      program.  Nevertheless, the Company was able to maintain many of
      the existing subscribers who were associated with this organization at a
      reduced rate.




17




·
            The
      Company continued to realize increased revenue from its agreement with
      Walgreen to provide the Company’s PERS product under the Walgreen brand
      name directly to the consumer.  The revenue increase from this program accounted for
      approximately $62,000 in the first quarter of 2010 as compared to same
      period in 2009.  During 2009, the Company entered into another
      similar private label programwith Apria Healthcare and continues to
      pursue other opportunities within this area as the Company believes
      private label marketing channels will help to facilitate greater revenue
      growth.





These
increases were partially offset by a decrease in product sales of approximately
$69,000.  The Company recognized a decrease in sales of approximately
$81,000 of its enhanced senior living products as a result of the housing and
credit crisis encountered in the economy.  This decrease of product
sales was partially offset by approximately $24,000 of sales generated from the
MedSmart medication and management system which was commercialized in late
2009.





TBCS





The
decrease in revenues of approximately $80,000, or 2%, for the three months ended
March 31, 2010 as compared to the same period in 2009 was primarily due to the
following:





·
            The
      Company recognized a decrease in revenue in its traditional after hours
      service of approximately $218,000 as a result of customer
      attrition.  The customer attrition was primarily the result of
      the general economic conditions whereby customers chose to provide for
      this service in-house or moved to less expensive alternatives. In
      addition, at one location, the Company experienced system issues which
      also impacted customer attrition.  These system issues have been
      addressed and the Company believes that they will be avoided moving
      forward.





·
            The
      Company experienced a decrease in revenue in its clinical trial
      recruitment service of approximately $63,000 primarily due to reduced
      spending in this area by certain customers.  The Company has
      executed agreements with a new customer for service, which is to commence
      in the second half of 2010 and continue into 2011, and believes this will
      facilitate improved results within this business
  component.




18




·
            In
      the first quarter of 2009, the Company was awarded a one-time project from
      a State program whereby the Company generated approximately $119,000 in
      revenue.  In 2010, the Company did not perform this or any
      similar special project.





These
decreases were partially offset by an increase in revenue within its
non-traditional day-time service offering of approximately $320,000 primarily
due to hospital organizations expanding their services with
us.  Further expansion by this and other hospital organizations is
anticipated to continue throughout 2010.





Costs Related to Services
and Goods Sold:





HSMS





Costs
related to services and goods sold decreased by approximately $195,000 for the
three months ended March 31, 2010 as compared to the same period in 2009, a
decrease of 9%, primarily due to the following:





·
            The
      Company realized a decrease in depreciation expense of approximately
      $53,000 in the first quarter of 2010 as compared to the same period in
      the prior year as a result of the Company purchasing its PERS
      equipment at reduced prices through an alternative supplier as well as
      purchasing less PERS equipment as compared to the past
    years.





·
            The
      Company recognized a decrease in product costs of approximately $29,000
      primarily due to a corresponding reduction in sales of enhanced senior
      living products.  This decrease in cost of products sold was
      partially offset by an increase in cost of products sold related to
      MedSmart medication and management systems which was commercialized in
      late 2009.





·
            The
      Company realized a decrease of approximately $83,000 in costs primarily
      related to testing, repairs and upgrades associated with the Company’s
      PERS and MedSmart devices and associated
  components.





TBCS:





Costs
related to services increased by approximately $81,000 for the three months
ended March 31, 2010 as compared to the same period in 2009, an increase of 3%,
primarily due to the following:





·
            The
      Company recognized an increase in payroll and related expenses associated
      with non-traditional after hours service of approximately $84,000 due to a
      corresponding increase in revenue in this area in the first quarter of
      2010 as compared to the same period in prior year.  As the
      Company continues to grow in this area, we will closely monitor the
      personnel requirements to perform these services
    effectively.




19




·
            The
      Company realized an increase in telephone and related communication
      expenses of approximately $21,000 primarily due to the Company incurring
      additional monthly charges as a result of upgrading its communication
      technology and networking systems.




These
increases were partially offset by the decrease in rent expense of approximately
$25,000 as compared to the same period in the prior year as a result of the
Company allocating a portion of its rent expense to the HSMS
division.   In the last quarter of 2009, the Company relocated
the HSMS Customer Service and Emergency Response Center (“ERC”) employees to
floor space within the TBCS rented space.  The space previously
occupied by the HSMS employees was sublet to an independent third
party.




Selling, General and
Administrative Expenses:





Selling,
general and administrative expenses decreased by approximately $143,000 for the
three months ended March 31, 2010 as compared to the same period in 2009, a
decrease of 4%.  The decrease is primarily attributable to the
following:





·
            The
      Company realized a decrease in consulting expense of approximately
      $119,000 in the first quarter of 2010 as compared to the same period in
      2009.  This was primarily as a result of the Company incurring
      consulting fees relating to the upgrade of existing websites and
      accounting system as well as utilizing sales and public relation
      consulting firms in the first quarter of the prior
  year.





·
            The
      Company recognized a decrease in commission expense of approximately
      $73,000 primarily due to less commission related referrals incurred in the
      first quarter of 2010 as compared to the same period in
    2009.





·
            As
      a result of certain intangible assets related to the acquisition of
      certain telephone business answering services and a license agreement
      being fully amortized, the Company realized a decrease in amortization
      expense of approximately $82,000 in the first quarter of 2010 as compared
      to the same period in 2009.





These
decreases were partially offset by an increase in sales and marketing salaries
of approximately $127,000.  This was primarily due to the Company
expanding its sales and marketing team in the first quarter of 2010 in an effort
to increase its revenue in both HSMS and TBCS segments.





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





Interest
Expense:





Interest
expense for the three months ended March 31, 2010 and 2009 was approximately
$12,000 and $24,000, respectively.  The decrease of $12,000 was
primarily due to the Company continuing to pay down its term loan.




20





Other
Income:





Other
income for the three months ended March 31, 2010 and 2009 was approximately
$30,000 and $94,000, respectively.  The decrease in other income was
primarily the result of the Company receiving approximately $73,000 with respect
to a training incentive from the State of New Mexico for hiring and training
employees within the State and an economic development incentive through the
City of Clovis in the first quarter of 2009.  These incentives were
not provided for in the first quarter of 2010.





Income Before Provision for
Income Taxes:





The
Company’s income before provision for income taxes for the three months ended
March 31, 2010 was approximately $1,497,000 as compared to $1,311,000 for the
same period in 2009. The increase of $186,000 for the three months ended March
31, 2010 primarily resulted from a decrease in the Company’s costs related to
services and product sales and selling, general and administrative costs which
were partially offset by a decrease in other income.





Liquidity and Capital
Resources




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




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.  In 2009, the term of the revolving credit line was
extended through June 2011.




21





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





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





The
following table is a summary of contractual obligations as of March 31,
2010:




Payments
      Due by PeriodContractual 
      Obligations
            
            Total
            
            
            Less
      than
              1
      year
            
            
            1-3
              years
            
            
            4-5
              years
            
            
            More
      than
              5
      yearsRevolving
      Credit Line
            
            $
            750,000
            
            
            $
            -
            
            
            $
            750,000Debt (a)
            
            $
            1,391,667
            
            
            $
            1,151,665
            
            
            $
            240,002Operating
      Leases (b)
            
            $
            7,770,169
            
            
            $
            1,144,376
            
            
            $
            3,001,758
            
            
            $
            1,808,490
            
            
            $
            1,815,545Purchase
      Commitments (c)
            
            $
            717,166
            
            
            $
            717,166Interest
      Expense (d)
            
            $
            47,964
            
            
            $
            40,743
            
            
            $
            7,221Acquisition
      Related Commitment (e)
            
            $
            73,346
            
            
            $
            73,346Total
      ContractualObligations
            
            $
            10,750,312
            
            
            $
            3,127,296
            
            
            $
            3,998,981
            
            
            $
            1,808,490
            
            
            $
            1,815,545







(a)
              – Debt includes the
      Company’s aggregate outstanding term loans which mature in 2010 and
      2011.(b)
              –Operating leases
      include rental of facilities at various locations within the United
      States.  These operating leases include the rental of the
      Company’s call center, warehouse and office facilities.  These
      operating leases have various maturity dates.  The Company
      currently leases office space from the Chairman and principal shareholder
      pursuant to a lease. This lease expires in December 2012.  The
      Company also leases office space from certain telephone answering service
      managers.  The leases with these managers expire in December
      2012 and December 2014, respectively.(c)
              –
      Purchase commitments relate to orders for the Company’s traditional PERS
      system and its MedSmart pill dispenser.(d)
              –
      Interest expense relates to interest on the Company’s revolving credit
      line and debt at the Company’s current rate of interest.(e)
              –
      Acquisition related commitment represents payments due based on
      collections of the clinical trial business relating to the American
      Mediconnect, Inc acquisition in December
2006.




22


The
primary sources of liquidity are cash flows from operating activities.  Net
cash provided by operating activities was approximately $2.7 million for the
three months ended March 31, 2010, as compared to approximately $3.2 million for
the same period in 2009.  During the first quarter of 2010, the cash
provided by operating activities was primarily from net earnings of
approximately $0.9 million, depreciation and amortization of approximately $0.9
million and an increase in accounts payable and accrued expenses of
approximately $0.7 million. The components of depreciation and amortization
primarily relate to the purchases of the Company’s traditional PERS product and
the customer lists associated with the acquisition of telephone answering
service businesses.  The increase in accounts payable and accrued
expenses is primarily due to the timing of payments of expenses and taxes in the
ordinary course of business.  During the first quarter of 2009, the
cash provided by operating activities was primarily from net earnings of
approximately $0.8 million, depreciation and amortization of approximately $1.0
million and an increase in accounts payable and accrued expenses of
approximately $0.7 million. The components of depreciation and amortization
primarily relate to the purchases of the Company’s traditional PERS product and
the customer lists associated with the acquisition of telephone answering
service businesses.  The increase in accounts payable and accrued
expenses was primarily due to the timing of payments of expenses in the ordinary
course of business.




Net cash
used in investing activities was approximately $0.2 million for the three months
ended March 31, 2010 as compared to approximately $0.3 million for the same
period in 2009.  The primary component of net cash used in investing
activities in the first quarter of 2010 and 2009 was capital expenditures of
approximately $0.2 and $0.3 million, net of deposits on equipment being
transferred to fixed assets, respectively.  Capital expenditures for
the first quarter of 2010 and 2009 primarily related to the continued production
and purchase of the traditional PERS systems.




Cash
flows used in financing activities for the three months ended March 31, 2010
were approximately $1.3 million compared to $0.8 million for the same period in
2009.  The components of cash flow used in financing activities in the
first quarter of 2010 were the payment of long-term debt of approximately $0.4
million and the payment of a one-time dividend, which was declared on December
16, 2009, of approximately $0.9 million..  The primary component of
cash flow used in financing activities in the first quarter of 2009 was the
payment of long-term debt of approximately $0.8 million.




During
the next twelve months, the Company anticipates it will make capital
expenditures of approximately $2.0 – $2.5 million for the production and
purchase of traditional PERS systems, MedSmart medication and management
systems, and telehealth systems, as well as enhancements to its computer
operating systems.  This amount is subject to fluctuations based on
customer demand.  The Company plans to incur approximately $1.0 - $1.5
million of advertising expense for promotional campaigns related to its PERS and
MedSmart medication and management systems.  The Company also
anticipates incurring approximately $0.1 - $0.2 million of costs primarily
relating to research and development of its telehealth products.




23




On May
12, 2010, the Company entered into a limited liability company agreement with
Hughes Telematics, Inc. and Qualcomm Incorporated to design, develop, finance
and operate a mobile PERS system, as described in more detail under Part II,
Item 5 of this Form 10-Q.  The Company invested $4,000,000 to acquire
a minority interest in the new company, Lifecomm LLC (“Lifecomm”). As part of
this transaction, the Company borrowed $2,000,000 from its bank in the form of a
term loan to partially finance this transaction.   This term loan
is payable over five years in equal monthly installments of $33,333.33,
commencing June 1, 2010.  The interest rate is consistent with the
previous term loans secured by the Company.




As of
March 31, 2010, the Company had approximately $6.7 million in cash and the
Company’s working capital was approximately $10.3 million.  The
Company believes that with its present cash balance and with operations of the
business generating positive cash flow, it will be able to meet its cash flow
needs for working capital and capital expenditures for at least the next twelve
months. The Company also has a revolving credit line, which expires in June 2011
that permits borrowings up to $2.5 million, of which $750,000 was outstanding at
March 31, 2010.




Off-Balance
Sheet Arrangements:




As of
March 31, 2010, the Company has not entered into any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on the Company’s financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to investors.




Other
Factors:




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





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





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




24





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





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





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




Recent
Accounting Pronouncements:




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





The
Company adopted ASC Topic 855 (formerly SFAS No. 165, Subsequent Events) during
the second quarter of 2009 which establishes general standards of accounting for
and disclosures of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. ASC Topic 855
provides guidance on the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This guidance was amended by Accounting
Standards Update ("ASU") 2010-9 in February 2010. The adoption of ASC Topic 855
(including the updated guidance) did not have a material impact on the results
of operations and financial condition of the Company.





25





Critical
Accounting Policies:





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





Reserves for Uncollectible Accounts
Receivable




The
Company makes ongoing assumptions relating to the collectability of its accounts
receivable.  The accounts receivable amount on the balance sheet
includes a reserve for accounts that might not be paid.  In
determining the amount of the reserve, the Company considers its historical
level of credit losses.  The Company also makes judgments about the
creditworthiness of significant customers based on ongoing credit evaluations,
and it assesses current economic trends that might impact the level of credit
losses in the future. The Company recorded reserves for uncollectible accounts
receivable of $611,000 as of March 31, 2010, which is equal to 9.2% of the total
accounts receivable.  While the Company believes that the current
reserves are adequate to cover potential credit losses, it cannot predict future
changes in the financial stability of its customers and the Company cannot
guarantee that its reserves will continue to be adequate.  For each 1%
that actual credit losses exceed the reserves established, there would be an
increase in general and administrative expenses and a reduction in reported net
income of approximately $67,000. Conversely, for each 1% that actual credit
losses are less than the reserve, this would decrease the Company’s general and
administrative expenses and increase the reported net income by approximately
$67,000.





Fixed
Assets




Fixed
assets are stated at cost.  Depreciation for financial reporting
purposes is being provided by the straight-line method over the estimated useful
lives of the related assets.  The valuation and classification of
these assets and the assignment of useful depreciable lives involves significant
judgments and the use of estimates.  Fixed assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Historically,
impairment losses have not been required.  Any change in the
assumption of estimated useful lives could either result in a decrease or
increase to the Company’s financial results.  A decrease in estimated
useful life would reduce the Company’s net income and an increase in estimated
useful life would increase the Company’s net income.  If the estimated
useful lives of the PERS medical device were decreased by one year, the cost of
goods related to services would increase and net income would decrease by
approximately $165,000 per annum.  Conversely, if the estimated useful
lives of the PERS medical device were increased by one year, the cost of goods
related to services would decrease and net income would increase by
approximately $130,000 per annum.




26





Valuation of Goodwill




Goodwill
and indefinite life intangible assets are subject to annual impairment
tests.  To date, the Company has not been required to recognize an
impairment of goodwill. The Company tests goodwill for impairment annually or
more frequently when events or circumstances occur indicating goodwill might be
impaired. This process involves estimating fair value using discounted cash flow
analyses. Considerable management judgment is necessary to estimate discounted
future cash flows. Assumptions used for these estimated cash flows were based on
a combination of historical results and current internal
forecasts.  The Company cannot predict certain events that could
adversely affect the reported value of goodwill, which totaled $10,294,281 and
$10,255,983 at March 31, 2010 and December 31, 2009, respectively.  If
the Company were to experience a significant adverse impact on goodwill, it
would negatively impact the Company’s net income.





Accounting
for Stock-Based Awards




Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly FASB
Statement No. 123(R), Share-Based Payment), which requires the measurement and
recognition of compensation expense for all share-based payments to employees,
including grants of stock and employee stock options, based on estimated fair
values.




Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period.  The Company recorded a pre-tax stock-based compensation
expense which is included in selling, general and administrative expense in its
consolidated financial statements of approximately $80,000 and $86,000 for the
three months ended March 31, 2010 and 2009, respectively.




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





Item
3. Quantitative
and Qualitative Disclosure About Market Risk.





Market
Risk Disclosure





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




27





In the
ordinary course of its business the Company enters into commitments to purchase
raw materials and finished goods over a period of time, generally six months to
one year, at contracted prices. At March 31, 2010 these future commitments were
not at prices in excess of current market, or in quantities in excess of normal
requirements. The Company does not utilize derivative contracts either to hedge
existing risks or for speculative purposes.





Interest
Rate Risk





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





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 March 31, 2010 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.





PART
II - OTHER INFORMATION





Item
1. Legal
Proceedings.





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




28





Item1A. 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,
2009, which was filed on March 31, 2010 with the Securities and Exchange
Commission.





We have invested $4 million in Lifecomm, a new limited
liability company formed for the purpose of developing a mobile PERS
solution.  The failure of Lifecomm to successfully develop the mobile
PERS solution at all, or in a timely and cost-effective manner, or the
unwillingness of customers to accept it could adversely affect the value of this
investment.  In addition, we entered into this investment in part to secure
an adaptive technology due to technological changes in the PERS market and there
is no assurance that this decision will result in this goal being
achieved.




We have invested $4 million in Lifecomm, a new limited
liability company formed for the purpose of developing a mobile PERS
solution.The success of this initiative will be dependent upon,
among other things:





·
            the ability of Lifecomm to successfully develop
      the technology to support the mobile PERS solution;





·
            the ability of Lifecomm to develop and
      commercialize the mobile PERS solution in a cost-effective and timely
      manner:





·
            consumer interest in and acceptance of Lifecomm’s
      mobile PERS solution;





·
            changes in the competitive or regulatory
      environment in which Lifecomm operates;
  and





·
            risks associated with prosecuting or defending
      allegations or claims of infringement of intellectual property rights.





If a sufficient market does not emerge for the
Lifecomm’s products and services, or we are not successful in marketing such
products and services, our growth could be adversely affected and our investment
in Lifecomm may be lost.  In addtion, if the Company’s decision to invest
in cellular technology as the likely adaptive technology to replace POTS (plain
old telephone systems) technology proves to be incorrect, other adaptive
technologies may emerge which the Company has not focused on and the Company
would be at a competitive disadvantage as a result of its focus on celluar
technology.





29




Item 5. Other Information.




On May
12, 2010, the Company, HUGHES Telematics, Inc. (“HTI”) and QUALCOMM Incorporated
(“QC”) entered into a limited liability company agreement (the “Lifecomm LLC
Agreement”) forming LIFECOMM LLC, a venture to design, develop, finance and
operate a mobile personal emergency response service (“Mobile PERS Solution”)
which will permit subscribers to initiate requests for emergency assistance
services through a wearable device that is able to communicate information to
and support voice interactions between the subscriber and an emergency
assistance call center for purposes of dispatching first responders to the
subscriber’s location.  Lifecomm will be a majority owned subsidiary
of HTI.
 
 Under the
terms of the Lifecomm LLC Agreement, each of the parties agreed to provide cash
and/or immediate and future in-kind contributions to
Lifecomm.  Specifically, AMAC contributed $4.0 million in cash, in
exchange for 10.2% of the membership interests of Lifecomm.  AMAC has
no other capital contribution obligations other than its pro rata portion of the
stand-by equity commitment described below.  In exchange for 54.3% of
the membership interests of Lifecomm, HTI has provided access to its telematics
platform and infrastructure  to enable Lifecomm to service its
customers, and has agreed to contribute $10.9 million of selling, general,
administrative and other services over the next six years to support the
venture.  In exchange for 35.5% of the membership interests of
Lifecomm, QC contributed $6.0 million in cash, entered into know-how license
agreement pursuant to which it licensed to Lifecomm certain “know-how”
related to the Mobile PERS Solution and provided Lifecomm access to the LIFECOMM
name and has agreed to contribute a portion of the value of certain future
engineering and project management services, up to an agreed upon aggregate
value.
 
 In
addition, pursuant to the Lifecomm LLC Agreement, each of the Company, HTI and
QC has agreed to fund its pro rata share of a $2.0 million stand-by equity
commitment for Lifecomm’s benefit.  If Lifecomm draws the entire
commitment, AMAC will be required to provide approximately $200,000 of cash,
based on its current percentage ownership of Lifecomm.
 
 Each of
AMAC, HTI and QC have preemptive rights with respect to future issuances of
securities by Lifecomm, as well as rights of first offer, drag-along rights and
tag-along rights on transfers of securities by the other members.  In
addition, for a two year period beginning on the May 12, 2014, any
member (or group of members) holding at least 25% of the membership
interests in Lifecomm will have the right to demand either an auction for the
sale of Lifecomm  or an initial public offering.  Should
Lifecomm fail to achieve either of these liquidity events within 180 days of the
demand, then to the extent that at such time HTI remains a 50% or greater owner
and is publicly traded, each other member will be entitled on a one-time basis
to exchange all of its membership interests in Lifecomm for shares of common
stock of HTI, on a pro rata  basis.


30




The
initial Board of Directors of Lifecomm will have six directors, three designated
by HTI, two designated by QC and one designated by the Company.  HTI
and QC generally will control the management and affairs of Lifecomm, although
the approval of each of QC, HTI and AMAC is required for a dissolution of
Lifecomm during the first 18 months of its existence.
 
 In
connection with the formation of Lifecomm, on May 12, 2010, the Company entered
into a Value Added Reseller Agreement with Lifecomm (the “Lifecomm VAR
Agreement”).  Under the Lifecomm VAR Agreement, AMAC will be a
preferred reseller of the Mobile PERS Solution in the United States, as well as
a preferred provider of the EACC component of the Mobile PERS Solution provided
by Lifecomm to customers.  The Company will be the sole provider of
the EACC to the customers to whom it resells the Mobile PERS
Solution.  The term of the VAR Agreement is perpetual, subject to
termination as set forth therein.  The VAR Agreement contains standard
indemnification provisions for agreements of this nature.


On May 12, 2010, the Company entered into an amendment
and waiver agreement of its Credit Agreement, dated as of May 20, 2002 (as
amended, the “Credit Agreement”), with JPMorgan Chase Bank, N.A., as
successor-in-interest to The Bank of New York (the
“Lender”).  Pursuant to this amendment, the Lender agreed to fund a $2
million term loan to the Company for purposes of funding a portion of the
Company’s capital contribution to Lifecomm under the Lifecomm LLC Agreement (the
“Lifecomm Term Loan”).  The Lifecomm Term Loan matures on May 1, 2015,
and is payable as to principal in sixty (60) consecutive monthly principal
installments of $33,333.33 each, commencing June 1, 2010.  Interest
will accrue on unpaid principal at a rate equal to LIBOR plus 1.75%, subject to
adjustment under the Credit Agreement, as described above under Management’s
Discussion and Analysis – “Liquidity and Capital Resources.”  Interest
will be payable monthly, at the same time that principal payments are made,
subject to adjustment under the Credit Agreement.





Pursuant to the Credit Agreement, the Company is
required to comply with affirmative and negative covenants customary for
facilities of this nature, including financial covenants, restrictions on the
incurrence of liens (other than certain permitted liens) and certain additional
indebtedness, information requirements, and compliance with
laws.  Failure to pay principal and interest when due under the Credit
Agreement or to comply with the other terms and conditions of indebtedness under
the Credit Agreement, as well as breaches of the affirmative and negative
covenants and other representations made by the Company in the Credit Agreement
and other events of default customary for facilities of this nature, will
constitute an event of default under the Credit Agreement, following which the
Lender may declare all principal and interest under all outstanding indebtedness
to the Lender immediately due and payable.  If certain bankruptcy
events occur, principal and interest payments will automatically
accelerate.





31





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





32





SIGNATURES




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




AMERICAN
      MEDICAL ALERT CORP.Dated:
      May 17, 2010
              By:
              /s/
      Jack RhianName:
      Jack RhianTitle:
      Chief Executive Officer and President




By:
              /s/
      Richard RalloName:
      Richard RalloTitle:
      Chief Financial Officer




33