-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PT+YwYS7pBYrPg87rw3uHhCrh8IZl6CInzpdEiGFE6QS2m3jCH6Oh9IS3CnxWgwO aG7d9Ry6OxbbpCblXvbuqg== 0000910680-03-000985.txt : 20031114 0000910680-03-000985.hdr.sgml : 20031114 20031114143225 ACCESSION NUMBER: 0000910680-03-000985 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MEDICAL ALERT CORP CENTRAL INDEX KEY: 0000700721 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 112571221 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08635 FILM NUMBER: 031003270 BUSINESS ADDRESS: STREET 1: 3265 LAWSON BLVD CITY: OCEANSIDE STATE: NY ZIP: 11572 BUSINESS PHONE: 5165365850 MAIL ADDRESS: STREET 1: 3265 LAWSON BLVD CITY: OCEANSIDE STATE: NY ZIP: 11572 10QSB 1 f10qsb-09302003.txt SEPTEMBER 30, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 2003 Commission File Number 1-8635 AMERICAN MEDICAL ALERT CORP. (Exact Name of Registrant as Specified in its Charter) New York 11-2571221 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3265 Lawson Boulevard, Oceanside, New York 11572 (Address of principal executive offices) (Zip Code) (516) 536-5850 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 7,499,227 shares of $.01 par value common stock as of November 7, 2003. AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES INDEX PAGE Part I Financial Information Report of Independent Accountants 1 Condensed Consolidated Balance Sheets for September 30, 2003 and December 31, 2002. 2 Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2003 and 2002 4 Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2003 and 2002 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 6 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Part II Other Information 26 Report of Independent Accountants Board of Directors and Shareholders American Medical Alert Corp. and Subsidiaries Oceanside, New York We have reviewed the condensed consolidated balance sheet of American Medical Alert Corp. and Subsidiaries as of September 30, 2003 and the related condensed consolidated statements of income for the nine-month and three-month periods ended September 30, 2003 and 2002, and cash flows for the nine-months ended September 30, 2003 and 2002. These financial statements are the responsibility of the company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. 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 generally accepted auditing standards, 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 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet of American Medical Alert Corp. and subsidiaries as of December 31, 2002, 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 14, 2003, 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, 2002 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 November 7, 2003 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS September 30, 2003 (Unaudited) Dec. 31, 2002 ----------- ----------- CURRENT ASSETS: Cash $ 1,407,710 $ 863,417 Marketable securities -- 2,057,925 Accounts receivable (net of allowance for doubtful accounts of $601,500 and $540,000) 3,120,850 2,984,857 Notes and other receivables 21,804 75,792 Inventory 320,347 373,423 Prepaid and refundable taxes 191,713 271,572 Prepaid expenses and other current assets 266,332 239,168 Deferred income taxes 319,000 292,000 Asset held for sale 352,500 -- ----------- ----------- Total Current Assets 6,000,256 7,158,154 ----------- ----------- FIXED ASSETS: (Net of accumulated depreciation and amortization) 6,770,517 7,221,088 ----------- ----------- OTHER ASSETS: Long-term portion of notes receivable 126,937 143,391 Intangible assets (net of accumulated amortization of $802,503 and $599,304) 2,012,653 1,123,870 Goodwill (net of accumulated amortization of $58,868) 1,970,320 961,731 Other assets 148,651 218,413 Deferred income taxes 186,000 154,000 ----------- ----------- 4,444,561 2,601,405 ----------- ----------- TOTAL ASSETS $17,215,334 $16,980,647 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of notes payable $ 298,312 $ 293,529 Accounts payable 314,661 681,927 Accrued expenses 1,082,053 816,569 Current portion of capital lease obligations 88,341 158,617 Current portion of put warrant obligation 377,750 251,000 Deferred revenue 59,815 150,294 ----------- ----------- Total Current Liabilities 2,220,932 2,351,936
-2- DEFERRED INCOME TAX LIABILITY 676,000 597,000 LONG-TERM PORTION OF NOTES PAYABLE 849,897 1,079,506 LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS 142,728 156,448 LONG-TERM PORTION OF PUT WARRANT OBLIGATION 244,916 181,000 ACCRUED RENTAL OBLIGATION AND OTHER 89,860 55,500 ------------ ------------ TOTAL LIABILITIES 4,224,333 4,421,390 ------------ ------------ COMMITMENTS AND CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY -- -- Preferred stock, $.01 par value - authorized, 1,000,000 shares; none issued and outstanding Common stock, $.01 par value - authorized 20,000,000 shares; issued 7,498,145 and 7,470,649 shares in 2003 and 2002, respectively 74,982 74,706 Additional paid-in capital 9,058,210 8,999,172 Retained earnings 3,963,841 3,591,411 ------------ ------------ 13,097,033 12,665,289 Less treasury stock, at cost (43,910 shares) (106,032) (106,032) ------------ ------------ Total Shareholders' Equity 12,991,001 12,559,257 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,215,334 $ 16,980,647 ============ ============
See accompanying notes to condensed financial statements. -3- AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Nine Months Ended September 30, 2003 2002 ------------ ------------ Revenues: Services $ 11,896,156 $ 10,780,348 Product sales 270,044 234,521 ------------ ------------ 12,166,200 11,014,869 Costs and Expenses (Income): Costs related to services 5,367,579 5,052,523 Costs of products sold 138,366 129,429 Selling, general and administrative expenses 6,200,899 5,492,509 Interest expense 64,746 96,386 Other income (147,820) (333,116) ------------ ------------ Income before Provision for Income Taxes 542,430 577,138 Provision for Income Taxes 170,000 274,000 ------------ ------------ NET INCOME $ 372,430 $ 303,138 ============ ============ Net income per share: Basic $ .05 $ .04 ------------ ------------ Diluted $ .05 $ .04 ------------ ------------ Weighted average number of common shares outstanding (Note 3) Basic 7,436,685 7,108,812 ============ ============ Diluted 7,621,842 7,562,729 ============ ============
See accompanying notes to condensed financial statements. -4- AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended September 30, 2003 2002 ----------- ----------- Revenues: Services $ 4,233,025 $ 3,637,613 Product sales 78,323 114,034 ----------- ----------- 4,311,348 3,751,647 Costs and Expenses (Income): Costs related to services 1,821,873 1,733,670 Costs of products sold 39,331 66,184 Selling, general and administrative expenses 2,219,663 1,944,303 Interest expense 25,923 25,929 Other expense (income) 2,029 (161,562) ----------- ----------- Income before Provision for Income Taxes 202,529 143,123 Provision for Income Taxes 45,000 59,000 ----------- ----------- NET INCOME $ 157,529 $ 84,123 =========== =========== Net income per share: Basic $ .02 $ .01 ----------- ----------- Diluted $ .02 $ .01 ----------- ----------- Weighted average number of common shares outstanding (Note 3) Basic 7,448,854 7,426,739 =========== =========== Diluted 7,769,737 7,796,499 =========== ===========
See accompanying notes to condensed financial statements. -5- AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 2003 2002 ----------- ----------- Cash Flows From Operating Activities: Net income $ 372,430 $ 303,138 Adjustments to reconcile net income to net cash provided by operating activities: Provision for deferred income taxes 20,000 -- Depreciation and amortization 1,780,545 1,504,512 Valuation of put warrants 190,666 90,000 Accrued interest income -- (46,827) Decrease (increase) in: Accounts receivables 1,544 (159,513) Inventory 53,076 (5,078) Prepaid and refundable taxes 79,859 21,547 Prepaid expenses and other current assets (27,164) (141,320) Other assets 17,779 (51,044) (Decrease) in: Accounts payable, accrued expenses and other (85,809) (380,340) Deferred revenue (90,479) (51,341) ----------- ----------- Net Cash Provided by Operating Activities 2,312,447 1,083,734 ----------- ----------- Cash Flows From Investing Activities: Expenditures for fixed assets (1,242,613) (571,838) Purchase of LMA (1,686,720) -- Investments in marketable securities 2,057,925 (2,041,929) Deposit on medical devices 40,320 20,355 Repayment of notes receivable 70,442 196,895 Increase in goodwill (116,019) -- Payment for account acquisitions, licensing agreement and deferred charges (566,982) (440,803) ----------- ----------- Net Cash Used In Investing Activities (1,443,647) (2,837,320) ----------- ----------- Cash Flows From Financing Activities: Principal payments under capital lease obligation (158,995) (157,654) Proceeds from notes payable 16,049 1,787,054 Repayment of notes payable (240,875) (2,266,121) Proceeds from private equity placement -- 2,730,000 Payment of fees relating to private equity placement -- (208,061) Proceeds upon exercise of stock options 59,314 129,284 ----------- ----------- Net Cash (Used in) Provided by Financing Activities (324,507) 2,014,502 ----------- -----------
See accompanying notes to condensed financial statements. -6- AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Nine Months Ended September 30, 2003 2002 ---------- ---------- Net Increase in Cash $ 544,293 $ 260,916 Cash, Beginning of Period 863,417 818,696 ---------- ---------- Cash, End of Period $1,407,710 $1,079,612 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR INTEREST $ 64,746 $ 90,980 ========== ========== CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 66,065 $ 253,410 ========== ========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY: Fixed assets recorded under capital lease obligations $ 75,000 $ -- See Note 7 for assets and liabilities acquired in connection with the purchase of LMA.
See accompanying notes to condensed financial statements. -7- AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. General: These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2002 included in the Company's Annual Report on Form 10-KSB. 2. Results of Operations: 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 September 30, 2003 and the results of operations for the nine and three months ended September 30, 2003 and 2002, and cash flows for the nine months ended September 30, 2003 and 2002. The accounting policies used in preparing these financial statements are the same as those described in the December 31, 2002 financial statements, except as described in Note 3. The results of operations for the nine and three months ended September 30, 2003 are not necessarily indicative of the results to be expected for any other interim period or for the full year. 3. New Pronouncements: In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued. This statement (i) eliminates extraordinary accounting treatment for a gain or loss reported on the extinguishment of debt, (ii) eliminates inconsistencies in the accounting required for sale-leaseback transactions and certain lease modifications with similar economic effects, and (iii) amends other existing authoritative pronouncements to make technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted SFAS No. 145 effective January 1, 2003. The adoption of this statement has not had a material impact on the consolidated results of operations or financial position. In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued. This statement nullifies existing guidance related to the accounting and reporting for costs associated with exit or disposal activities and requires that the fair value of a liability associated with an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, certain exit costs were permitted to be accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of this statement are required to be -8- adopted for all exit or disposal activities initiated after December 31, 2002. This statement will not impact any liabilities recorded prior to adoption. The Company adopted SFAS No. 146 effective January 1, 2003. The adoption of this statement has not had a material impact on the consolidated results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB Statement 123". SFAS No. 148 provides new transition alternatives for companies adopting the fair value method of accounting for stock-based compensation prescribed by SFAS No. 123. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in tabular format. Additionally, SFAS No. 148 requires disclosures of the pro forma effect in interim financial statements. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. The Company adopted the annual disclosure provisions of SFAS No. 148 in its financial report for the year ended December 31, 2002 and adopted the interim disclosure provisions for its financial reports for the quarter ended March 31, 2003. 4. Accounting for Stock-Based Compensation: The Company has three stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based compensation.
Nine Months Ended September 30, Three Months Ended September 30, 2003 2002 2003 2002 ----------- ----------- ----------- ---------- Net income, as reported $ 372,430 $ 303,138 $ 157,529 $ 84,123 Deduct: Total stock-based employee compensation expense determined under fair value based method (183,585) (414,101) -- (97,683) ----------- ----------- ----------- ---------- Pro forma net income (loss) $ 188,845 $ (110,963) $ 157,529 $ (13,560) Earnings (loss) per share: Basic - as reported $ 0.05 $ 0.04 $ 0.02 $ 0.01 Basic - pro forma $ 0.03 $ (0.02) $ 0.02 $ 0.00 Diluted - as reported $ 0.05 $ 0.04 $ 0.02 $ 0.01 Diluted - pro forma $ 0.02 $ (0.01) $ 0.02 $ 0.00
-9- The weighted average grant date fair value of options granted during the nine months ended September 30, 2003 and 2002 was $103,352 and $532,701, respectively. During the three months ended September 30, 2003 and 2002 the fair value of options granted was $-0- and $3,653, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
Nine Months Ended September 30, Three Months Ended September 30, 2003 2002 2003 2002 ---- ---- ---- ---- Expected life (years) 2 2 -- 2 Risk free interest rate 2.02% 2.95% -- 2.04% Expected volatility 38.83% 37.32% -- 39.34% Expected dividend yield -- -- -- --
5. Earnings Per Share: Earnings per share data for the nine and three months ended September 30, 2003 and 2002 is presented in conformity with SFAS No. 128, "Earnings Per Share". The following table is a reconciliation of the numerators and denominators in computing earnings per share:
Income Shares Per-Share Nine Months Ended September 30, 2003 (Numerator) (Denominator) Amounts - ------------------------------------ ------------- ------------- ------------ Basic EPS - Income available to common stockholders $ 372,430 7,436,685 $.05 ==== Effect of dilutive securities - Options and warrants -- 185,157 --------- --------- Diluted EPS - Income available to common stockholders and assumed conversions $ 372,430 7,621,842 $.05 ========= ========= ==== Three Months Ended September 30, 2003 - ------------------------------------- Basic EPS -Income available to common stockholders $ 157,529 7,448,854 $.02 ==== Effect of dilutive securities - Options and warrants -- 320,883 --------- --------- Diluted EPS - Income available to common stockholders and assumed conversions $ 157,529 7,769,737 $.02 ========= ========= ====
-10-
Nine Months Ended September 30, 2002 - ------------------------------------ Basic EPS - Income available to common stockholders $ 303,138 7,108,812 $.04 ==== Effect of dilutive securities - Options and warrants -- 453,917 --------- --------- Diluted EPS - Income available to common stockholders and assumed conversions $ 303,138 7,562,729 $.04 ========= ========= ==== Three Months Ended September 30, 2002 - ------------------------------------- Basic EPS - Income available to common stockholders $ 84,123 7,426,739 $.01 ==== Effect of dilutive securities - Options and warrants -- 369,760 --------- --------- Diluted EPS - Income available to common stockholders and assumed conversions $ 84,123 7,796,499 $.01 ========= ========= ====
6. Asset Held for Sale: As of June 30, 2003 the Company reclassified from fixed assets to assets held for sale, a condominium previously used in the telephone after-hours answering service ("TAS") operation. In April 2003, the Company relocated its TAS employees from the condominium to its new facility in Long Island City, New York. The Company anticipates selling this asset, which is stated at historical cost, during 2003. 7. Acquisition: On June 30, 2003, the Company acquired substantially all of the assets of Live Message America, Inc. ("LMA"), a provider of telephone after-hour answering services and stand-alone voice mail services. The purchase price consisted of a cash payment of $1,607,818 plus professional fees of $78,902. A potential exists for the payment of additional purchase price consideration based on a percentage of gross revenue of the acquired business if certain thresholds concerning revenue and earnings are met. The results of operations of LMA are included in the TAS segment as of the date of acquisition. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The Company received a third party valuation of certain intangible assets in determining the allocation of the purchase price. Accounts receivable $ 137,537 Property and equipment 75,000 Non-compete agreement 50,000 Customer List 550,000 Goodwill 892,570 Customer deposits (18,387) --------------- Cash paid to acquire LMA $ 1,686,720 =============== -11- Unaudited pro forma results of operations for the nine months ended September 30, 2003 and 2002 and for the three months ended September 30, 2002 as if LMA had been consolidated as of the beginning of the year, include estimates which management believes are reasonable, are as follows:
Nine Months Ended September 30, Three Months Ended September 30, ------------------------------------ ---------------------------------- 2003 2002 2003 2002 -------------- -------------- ------------- ------------- Revenue $ 12,910,000 $ 12,120,000 $ 4,310,000 $ 4,120,000 Net income 427,000 393,000 158,000 117,000 Net income per share Basic $ .06 $ .06 $ .02 $ .02 ============== ============== ============= ============= Diluted $ .06 $ .05 $ .02 $ .02 ============== ============== ============= =============
The unaudited pro forma results of operations for the nine and three months ended September 30, 2003 and 2002 do not purport to represent what the Company's results of operations would actually have been had the acquisition been effected for the period presented, or to predict the Company's results of operations for any future period. 8. Major Customers: Since 1983, the Company has provided Personal Emergency Response Systems ("PERS") services to the City of New York's Human Resources Administration Home Care Service Program ("HCSP"). Since January 1999, the Company has provided services to the City of New York under extensions and contracts issued periodically. The most recent one-year contract extension, which reflects terms and conditions present in the original contract will remain in effect until June 30, 2004 unless an earlier determination is made in the RFP process described below. During the nine months ended September 30, 2003 and 2002, the Company's revenues from this contract represented 18% and 24%, respectively, of its total revenue. In November 2002, in response to a Request For Proposal ("RFP") issued by HCSP, AMAC and several other companies submitted proposals to provide PERS services on behalf of the City of New York for the period July 1, 2003 through June 30, 2006. As of November 7, 2003, HCSP has not awarded the contract to any vendor under the submitted proposal and AMAC continues to service the City of New York under the same terms and conditions present in the original contract. During any contract RFP process, there can be no assurance that the same level of revenues will be sustained due to a variety of factors, including pricing, number of subscribers to be serviced, and the amount of time that passes before the renewal agreement is acted upon by HCSP. While the Company has reduced its dependence on revenue from HCSP, a significant amount of the Company's revenue could be lost, albeit over a protracted period, if the contract with HCSP is not maintained or is maintained at a significantly lower level of revenue. This -12- could have a material adverse effect on operating results and cash flows. In addition, it is possible that significant adjustments to leased medical devices associated with the contract would occur. The extent and significance of the adjustments will be dependent upon the length of the transition period subject to management's ability to place these devices with other providers. As of September 30, 2003 and December 2002, accounts receivable from the contract represented 31% and 41%, respectively, of accounts receivable and leased medical devices in service under the contract represented approximately 19% and 20%, respectively, of leased medical devices. 9. Segment Reporting: The Company has two reportable segments, Personal Emergency Response Systems ("PERS") and Telephone After-Hours Answering Services ("TAS"), which is provided through the Company's HCI subsidiary, which acquired the assets of Harriet Campbell Inc. on November 21, 2000 and acquired the assets of Live Message America, Inc. (LMA) on June 30, 2003. The table below provides a reconciliation of segment information to total consolidated information for the nine and three months ended September 30, 2003 and 2002:
2003 ---- PERS TAS Other Consolidated ----------- ------------ ------------ ------------ Nine Months Ended September 30, 2003 - ------------------------------------ Revenue $ 9,346,212 $ 2,591,355 $ 228,633 $ 12,166,200 Income before provision for income taxes 95,512 446,685 233 542,430 Total assets 12,461,954 4,444,210 309,170 17,215,334 PERS TAS Other Consolidated ----------- ------------ ------------ ------------ Three Months Ended September 30, 2003 - ------------------------------------- Revenue $ 3,117,435 $ 1,111,892 $ 82,021 $ 4,311,348 Income (loss) before provision for income taxes (1,719) 196,567 7,681 202,529
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2002 ---- PERS TAS Other Consolidated ----------- ------------ ------------ ------------ Nine Months Ended September 30, 2002 - ------------------------------------ Revenue $ 8,988,425 $ 1,904,124 $ 122,320 $ 11,014,869 Income (loss) before provision for income taxes 286,759 295,352 (4,973) 577,138 Total assets 13,847,601 2,288,150 224,724 16,360,475 PERS TAS Other Consolidated ----------- ------------ ------------ ------------ Three Months Ended September 30, 2002 - ------------------------------------- Revenue $ 3,028,969 $ 675,407 $ 47,271 $ 3,751,647 Income (loss) before provision for income taxes 41,146 108,210 (6,233) 143,123
10. Commitments and Contingencies: On January 14, 2002, the Company entered into an operating lease agreement for space in Long Island City, New York in an effort to consolidate its HCI and Oceanside ERC and Customer Service facilities. The Company believes that centralization of the ERC, Customer Service and H-Link OnCall operations will provide additional efficiencies and facilitate the projected growth of the H-Link and Disease Management Monitoring operations. The lease term is fifteen (15) years and commenced in April 2003 when the property was first occupied by the Company. The lease calls for minimum annual rentals of $269,500, subject to a 3% annual increase plus reimbursement for real estate taxes. The Company anticipates receiving significant Relocation and Employment Assistance Program (REAP) and other tax incentive and cost savings benefits from the City of New York in connection with the occupancy of this facility. The Company also plans to consolidate certain other facilities and is offering for sale the condominium previously occupied by HCI Acquisition Corp. 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. In any event, the Company believes the disposition of these matters will not have a material adverse effect on the financial condition of the Company. On March 2, 2001 American Medical Alert Corp. was served with a Summons and Complaint by a former employee seeking to recover damages for discrimination and harassment in connection with her employment and the associated termination thereof. The plaintiff seeks to recover the sum of $750,000 for compensatory damages and $750,000 for punitive damages. In June 2003 the Company entered into a settlement agreement with this former employee for a nominal amount which was previously accrued. -14- 11. Employment Agreement On August 12, 2003, the Company entered into an employment agreement with Mr. Howard M. Siegel pursuant to which he is employed full-time as the Company's Chairman of the Board, President and Chief Executive Officer. The agreement has a term of three years four and a half months and expires on December 2006. The agreement provides for an annual base salary of $300,000 per annum during the period beginning June 1, 2003 and ending December 31, 2003, with a 5% increase in each of the subsequent three fiscal years. Mr. Siegel will receive additional compensation based on the Company meeting certain criteria relating to Net Income before Provision for Income Taxes. 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 dated December 31, 2002. Statements contained in this Quarterly Report on Form 10-QSB include "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, in particular and without limitation, statements contained herein under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance and achievements, whether expressed or implied by such forward-looking statements, not to occur or be realized. These include uncertainties relating to government regulation, technological changes, our expansion plans and product liability risks. Such forward-looking statements generally are based upon the Company's best estimates of future results, performance or achievement, based upon current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "believe," "estimate," "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-KSB and other public filings. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. -15- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- In April 2002, the Company raised $2,521,939, after expenses of $208,061, in a private equity placement of the Company's common stock and warrants. Several investors purchased an aggregate of 910,000 shares of the Company's common stock and warrants to purchase 227,500 shares of the Company's common stock at an exercise price of $3.80 per share and exercisable until April 2007. As part of this transaction, the Company registered for resale the common stock and the common stock underlying the warrants sold in the private placement. The Company has been utilizing a majority of the proceeds from this offering to further execute its business expansion and diversification strategy into the remote patient monitoring and medical contact center industries, including its initiative with HHN. In connection with the private placement, the Company issued to the placement agent two warrants to purchase 91,000 and 22,750 shares of common stock at an exercise price of $3.83 per share and $4.17 per share, respectively. These warrants have the same terms as the warrants issued with the common stock. On May 20, 2002, the Company entered into an agreement with a bank, pursuant to which it received a credit facility of $3,000,000, which includes a term loan of $1,500,000 and a revolving credit line that permits maximum borrowings of $1,500,000 (based on eligible receivables, as defined in the agreement). Borrowings under the term loan will bear interest at either (a) LIBOR plus 3.5% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater, plus 1.0% and the revolving credit line will bear interest at either (a) LIBOR plus 3.0% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater, plus .5%. The Company has the option to choose between the two interest rate options under the term loan and revolving credit line. The term loan is payable in equal monthly principal payments of $25,000 over five years while the revolving credit line is available for three years. The outstanding balance on the term loan at September 30, 2003 was $1,100,000. There were no amounts outstanding on the revolving credit line at September 30, 2003. At September 30, 2003, the Company was in compliance with its loan covenants under the agreement dated May 20, 2002 and as amended on August 11, 2003. The following table is a summary of the Company's contractual obligations as of September 30, 2003:
Payments Due by Period - ------------------------------------------------------------------------------------------------------------------------- Contractual Obligations Total Less than 1-3 years 4-5 years After 5 years 1 year - ------------------------------------------------------------------------------------------------------------------------- Revolving Credit Line $ -0- - ------------------------------------------------------------------------------------------------------------------------- Debt $ 1,148,209 $ 298,312 $ 849,897 - ------------------------------------------------------------------------------------------------------------------------- Capital Leases $ 231,069 $ 88,341 $ 142,728 - ------------------------------------------------------------------------------------------------------------------------- Operating Leases $ 5,845,476 $ 532,522 $ 1,579,697 $ 624,985 $ 3,108,272 - ------------------------------------------------------------------------------------------------------------------------- Put Warrant Obligation $ 820,000 $ 400,000 $ 420,000 - ------------------------------------------------------------------------------------------------------------------------- Total Contractual Obligations $ 8,044,754 $ 1,319,175 $ 2,992,322 $ 624,985 $ 3,108,272 - -------------------------------------------------------------------------------------------------------------------------
-16- The Company's working capital on September 30, 2003 was $3,779,324 as compared to $4,806,218 on December 31, 2002. The Company believes that its present cash and working capital position combined with its borrowing availability under its credit facility and future anticipated cash flow generated from operations will be sufficient to meet its cash and working capital needs for at least the next 12 months. During 2003, the Company anticipates it will make capital expenditures of approximately $1,500,000 - $1,750,000 for the enhancement of its management information systems, leasehold improvements in its Long Island City, New York premises, and the production and purchase of the PERS Buddy and additional PERS. For the nine months ended September 30, 2003, approximately $1,250,000 was spent on capital expenditures. Other Factors: On June 30, 2003, the Company acquired substantially all of the assets of Live Message America, Inc. ("LMA"), a provider of telephone after-hour answering services and stand-alone voice mail services. The purchase price consisted of a cash payment of $1,607,818 plus professional fees of $78,902. A potential exists for the payment of additional purchase price consideration based on a percentage of gross revenue of the acquired business if certain thresholds concerning revenue and earnings are met. The results of operations of LMA are included in the TAS segment as of the date of acquisition. On January 14, 2002, the Company entered into an operating lease agreement for space in Long Island City, New York in an effort to consolidate its HCI and Oceanside ERC and Customer Service facilities. The Company believes that centralization of the ERC, Customer Service and H-Link OnCall operations will provide additional efficiencies and facilitate the projected growth of the H-Link and Disease Management Monitoring operations. The lease term is fifteen (15) years and commenced in April 2003 when the property was first occupied by the Company. The lease calls for minimum annual rentals of $269,500, subject to a 3% annual increase plus reimbursement for real estate taxes. The Company anticipates receiving significant Relocation and Employment Assistance Program (REAP) and other tax incentive and cost savings benefits from the City of New York in connection with the occupancy of this facility. The Company also plans to consolidate certain other facilities and is offering for sale the condominium previously occupied by HCI Acquisition Corp. -17- On November 1, 2001, the Company entered into a Cooperative Licensing, Development, Services and Marketing Agreement with HHN (the "HHN Agreement") pursuant to which the Company has developed, with the assistance of HHN, a new integrated appliance combining the features of the Company's PERS product with HHN's technology. Pursuant to the HHN Agreement, the Company is the exclusive manufacturer and distributor (based on achievement of certain sales milestones), in the United States, of an enhanced PERS system that combines the Company's traditional safety monitoring features with HHN's internet based disease management monitoring technology. The HHN Agreement has a minimum five-year term, and also provides for the payment by the Company of certain fees based on the service revenue derived from the enhanced PERS product. The Company anticipates the costs associated with the licensing, research and development and marketing with respect to the HHN Agreement to approximate $2,000,000. The cost of the licensing component will aggregate $1,000,000, the full amount which was recorded when certain milestones under the HHN agreement were met by the Company in July 2003. The cost is being amortized over the remaining portion of the initial five year term of the HHN agreement. As of November 7, 2003, $689,310 has been paid towards the licensing component and the remaining balance of $310,690 has been accrued. Related professional fees of approximately $115,000 have been capitalized. Since 1983, the Company has provided Personal Emergency Response Systems ("PERS") services to the City of New York's Human Resources Administration Home Care Service Program ("HCSP"). Since January 1999, the Company has provided services to the City of New York under extensions and contracts issued periodically. The most recent one-year contract extension, which reflects terms and conditions present in the original contract will remain in effect until June 30, 2004 unless an earlier determination is made in the RFP process described below. During the nine months ended September 30, 2003 and 2002, the Company's revenues from this contract represented 18% and 24%, respectively, of its total revenue. In November 2002, in response to a Request For Proposal ("RFP") issued by HCSP, AMAC and several other companies submitted proposals to provide PERS services on behalf of the City of New York for the period July 1, 2003 through June 30, 2006. As of November 7, 2003, HCSP has not awarded the contract to any vendor under the submitted proposal and AMAC continues to service the City of New York under the same terms and conditions present in the original contract. During any contract RFP process, there can be no assurance that the same level of revenues will be sustained due to a variety of factors, including pricing, number of subscribers to be serviced, and the amount of time that passes before the renewal agreement is acted upon by HCSP. While the Company has reduced its dependence on revenue from HCSP, a significant amount of the Company's revenue could be lost, albeit over a protracted period, if the contract with HCSP is not maintained or is maintained at a significantly lower level of revenue. This could have a material adverse effect on operating results and cash flows. In addition, it is possible that significant adjustments to leased medical devices associated with the contract would occur. The extent and significance of the adjustments will be dependent upon the length of the transition period subject to management's ability to place these devices with other providers. -18- The Company's management has developed and implemented a business plan to minimize its reliance on HCSP. The Company's business plan, which has been implemented over the last two years, is focused on building the subscriber base outside of the New York City contract, through consumers, healthcare agencies, health maintenance organizations, retirement communities, hospitals and other governmental agencies. In addition, the Company has expanded its product offering to physician based telephone answering services, disease management monitoring and other products, which now constitute approximately 23% of the Company's gross revenue. The Company has acquired an additional physician based telephone answering service business which will further reduce its reliance on HCSP. The Company is also continuing to expand its product offerings in the disease management and monitoring area and is continuing to invest in research and development for further product and service diversification. RESULTS OF OPERATIONS - --------------------- THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED - -------------------------------------------------------------------- SEPTEMBER 30, 2002: - ------------------- The Company's gross revenue, which consists primarily of monthly rental revenues ("MRR"), increased $559,701 for the three months ended September 30, 2003 as compared to the same period in 2002, an increase of 15%. Revenue increased due to two primary factors. On June 30, 2003 the Company acquired substantially all of the assets of LMA, a telephone answering service, which generated approximately $350,000. The Company realized approximately $100,000 from the rental of the Health Buddy unit, whereas for the same period in 2002, the Company only generated minimal revenue from the Health Buddy unit as the product was launched in the second quarter of 2002. The balance of the increase is due to a variety of other items including revenues generated from the existing OnCall telephone answering service and security monitoring business. Costs related to services increased by $88,203 for the three months ended September 30, 2003 as compared to the same period in 2002, an increase of 5%. Costs related to services, as a percentage of service revenues, for the three months ended September 30, 2003 and 2002 were 43% and 48%, respectively. Although costs related to services has increased, the Company has effectively managed these costs thereby achieving a reduction in costs as a percentage of revenue which has resulted in a higher gross profit percentage. An increase of approximately $145,000 was primarily due to additional personnel costs resulting from the acquisition of LMA on June 30, 2003. This increase was offset by a reduction of personnel in the customer service and telephone answering service departments, which is directly attributable to the relocation of the monitoring center and telephone answering service into one facility, generating a reduction of approximately $70,000. Selling, general and administrative expenses increased by $275,360 for the three months ended September 30, 2003 as compared to the same period in 2002, an increase of 14%. Selling, general, and administrative expenses expressed as a percentage of total revenues for the three months ended September 30, 2003 and 2002 was 52%. The increase in selling, general and administrative expenses for the three months ended September 30, 2003 is primarily due the following items: o Rent Expense Rent expense increased by approximately $100,000 for the three months ended September 30, 2003, as compared to the same period in 2002, primarily due to the Company occupying a new facility effective April 1, 2003. The Company anticipates receiving significant Relocation and Employment Assistance Program (REAP) and other tax incentive and cost savings benefits from the City of New York which will mitigate the increase in rent expense. See Provision for Income Taxes below. o Amortization Expense Amortization primarily increased due to the Company commencing amortization of its costs associated with its cooperative licensing agreement with HHN. This resulted in a $75,000 expense for the three months ended September 30, 2003. Additionally, with the acquisition of LMA, the Company recorded certain intangible assets which are being amortized that resulted in a $30,000 expense. o Put Warrant Obligation In connection with the HCI acquisition, the Company issued to the selling stockholder two warrants to purchase 133,333.33 and 105,000 shares, respectively, of the Company's common stock at an exercise price of $2 per share. The warrants are exercisable until November 20, 2005 and December 20, 2005, respectively. In addition, the selling stockholder has the option, only during a period of ten trading days, beginning on November 21, 2003 and 2005, respectively, to require the Company, under certain circumstances, to redeem the warrants (the Put Option) at $5 or $6, respectively, less the exercise price per share of $2. Based on a valuation of the warrants and the right of redemption of the warrantholder, the Company recorded $40,000 more expense during the three months ended September 30, 2003, as compared to the same period in 2002. o Expenses - LMA In connection with the acquisition of LMA, the Company has incurred certain selling and administrative costs. This resulted in an expense of approximately $153,000 for the three months ended September 30, 2003. These increases were partially offset by a reduction in research & development and consulting costs for the three months ended September 30, 2003 which aggregated approximately $100,000. Interest expense for the three months ended September 30, 2003 and 2002 was $25,923 and $25,929, respectively. The Company continued to reduce its bank borrowing levels for the three months ended 2003, as compared to the same period in 2002, however, the corresponding savings in interest on these borrowings were offset by increased interest relating to a new capital lease and financing of certain insurance costs for 2003. -19- Other income (expense) for the three months ended September 30, 2003 and 2002 was $(2,029) and $161,562, respectively. The decrease of $163,591 in other income was primarily due to the Company being reimbursed by a vendor during 2002 for costs incurred in connection with the replacement of activators of approximately $127,000. As of March 31, 2003, the replacement program was substantially completed and the vendor paid all costs incurred by the Company in connection with this program. Additionally, the Company realized interest income in 2002 of approximately $23,000 on funds placed in short-term marketable securities. These funds were used towards the acquisition in LMA on June 30, 2003. The Company's income before provision for income taxes for the three months ended September 30, 2003 was $202,529 as compared to $143,123 for the same period in 2002. The increase of $59,406 for the three months ended September 30, 2003 primarily resulted from an increase in revenues from services and gross profit offset by an increase in selling, general and administrative costs and a decrease in other income. The Company's provision for income taxes for the three months ended September 30, 2003 was $45,000 as compared to $59,000 for the same period in 2002. The decrease of $14,000 for the three months ended September 30, 2003 is primarily due to the fact that the Company anticipates receiving significant REAP and other tax incentive and cost savings benefits from the City of New York. The REAP benefit is calculated based on the number of hours worked by employees relocated to this facility from other Company locations. These benefits are estimated to be approximately $180,000 for 2003. NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED - ------------------------------------------------------------------ SEPTEMBER 30, 2002: - ------------------- The Company's gross revenue, which consists primarily of monthly rental revenues ("MRR"), increased by $1,151,331 for the nine months ended September 30, 2003 as compared to the same period in 2002, an increase of 10%. Revenue increased due to several factors. On June 30, 2003 the Company acquired substantially all of the assets of LMA, a telephone answering service, which generated approximately $350,000. Revenue from the Company's existing OnCall telephone answering service business increased approximately $300,000 primarily due to revenue realized from an entity involved in cost management and purchasing of services on behalf of hundreds of healthcare and hospital organizations. The Company generated approximately $240,000 in 2003 from the rental of the Health Buddy unit, whereas for the same period in 2002, the Company only generated minimal revenue from the Health Buddy unit as the product was launched in the second quarter of 2002. The Company has also experienced continued growth in its customer base outside the contract with the City of New York (which experienced a reduction in the number of subscribers and revenue as compared to the same period in 2002) through a variety of marketing efforts that have continued to contribute to increasing MRR. These efforts include expansion into new regions, competitive conversions, strategic partnerships with healthcare provider systems, and additional entry into Medicaid reimbursed marketplaces. This growth resulted in a net increase of approximately $150,000. The remaining increase is due to a variety of other smaller items including revenues generated from the security monitoring business. -20- Costs related to services increased by $315,056 for the nine months ended September 30, 2003 as compared to the same period in 2002, an increase of 6%. Costs related to services, as a percentage of service revenues, for each of the nine months ended September 30, 2003 and 2002 was 45% and 47%, respectively. The increase was due to a variety of factors. An increase of approximately $145,000 was primarily due to additional personnel costs resulting from the acquisition of LMA on June 30, 2003. Additionally, the increase is due to the Company adding personnel in its existing OnCall telephone answering service division to handle the current and future growth of that business which has resulted in approximately $150,000 of additional expense as compared to the same period in 2002. The Company incurred expenses related to the rental of the Health Buddy unit in accordance with its Cooperative Licensing, Development, Services and Marketing Agreement with HHN, which represented approximately $130,000 of the increase. In addition, depreciation for the nine months ended September 30, 2003 increased by approximately $100,000 as compared to the same period in 2002. These increases were partially offset by a reduction of personnel in the ERC and customer service departments, which is directly attributed to the relocation of the PERS monitoring center and telephone answering service into one facility, generating a reduction of approximately $70,000. This increase was also offset by a reduction in compensation to installers, which is directly related to the replacement of activators in 2002, resulting in a reduction of approximately $70,000. Telephone expense decreased by approximately $40,000 as compared to the same period in 2002. Selling, general and administrative expenses increased by $708,390 for the nine months ended September 30, 2003 as compared to the same period in 2002, an increase of 13%. Selling, general, and administrative expenses, as a percentage of total revenue, for the nine months ended September 30, 2003 and 2002 were 51% and 50%, respectively. The increase in selling, general and administrative expenses for the nine months ended September 30, 2003 is primarily due the following items: o Personnel and Related Benefits: As part of its plan to continue to grow its business, the Company increased the number of personnel throughout 2002. This, along with general increases in compensation levels, increased payroll and related benefits by approximately $95,000, as compared to the same period in 2002. The Company believes the additional personnel is a necessary prerequisite to facilitate the Company's growth, and the resulting revenues are expected to be realized in later months. Additionally, with the acquisition of LMA, the Company incurred approximately $70,000 of expense towards administrative personnel costs. o Rent Expense Rent expense increased by approximately $180,000 in 2003, as compared to the same period in 2002, primarily due to the Company occupying a new facility effective April 1, 2003. The Company anticipates receiving significant Relocation and Employment Assistance Program (REAP) and other tax incentive and cost savings benefits from the City of New York which will mitigate the increase in rent expense. See Provision for Income Taxes below. -21- o Put Warrant Obligation In connection with the HCI acquisition, the Company issued to the selling stockholder two warrants to purchase 133,333.33 and 105,000 shares, respectively, of the Company's common stock at an exercise price of $2 per share. The warrants are exercisable until November 20, 2005 and December 20, 2005, respectively. In addition, the selling stockholder has the option, only during a period of ten trading days, beginning on November 21, 2003 and 2005, respectively, to require the Company, under certain circumstances, to redeem the warrants (the Put Option) at $5 or $6, respectively, less the exercise price per share of $2. Based on a valuation of the warrants and the right of redemption of the warrantholder, the Company recorded $190,000 of expense in 2003, as compared to $90,000 for the same period in 2002. o Insurance Expense Insurance expense increased by approximately $75,000 as compared to the same period in 2002, primarily due to the current insurance environment. o Legal Expense Legal fees increased due to a several factors, including fees incurred with regard to the City of New York Request for Proposal, fees associated with an acquisition which was not consummated and fees associated in completing the application for tax benefits associated with the new premises. These factors resulted in legal expense increasing during the first nine months of 2003 by approximately $75,000 as compared to the same period in 2002. o Amortization Expense Amortization primarily increased due to the Company commencing amortization of its costs associated with its cooperative licensing agreement with HHN in 2003, whereby resulting in a $75,000 expense for 2003. Additionally, with the acquisition of LMA on June 30, 2003, the Company recorded certain intangible assets which are being amortized that resulted in a $30,000 expense. Other increases in selling, general and administrative expenses, including lobbying expense, trade shows, travel and entertainment and depreciation aggregating approximately $150,000 were offset by reductions in research and development, consulting and bad debt expense totaling approximately $175,000. Interest expense decreased by $31,640 for the nine months ended September 30, 2003 as compared to the same period in 2002, a decrease of 33%. Such decrease was due to reduced borrowing levels during the first nine months of 2003, as compared to the same period in 2002, as well as a decrease in interest rates. Other income for the nine months ended September 30, 2003 and 2002 was $147,820 and 333,116, respectively. Other income decreased by $185,296 for the nine months ended September 30, 2003 as compared to the same period in 2002, a decrease of 56%. The decrease in other income is due to an insurance reimbursement of $100,000 received in 2002. Additionally, the Company was reimbursed from a vendor for costs incurred in connection with the replacement of activators. Early in 2002, it was found that certain activators supplied by a vendor may be subject to battery failure, necessitating the replacement of all potentially affected activators. As of March 31, 2003, the replacement program was substantially completed and the vendor paid all costs incurred by the Company in connection with this program. The Company recorded additional income relating to this item in 2002, as compared to the same period in 2003, in the amount of approximately $57,000. The Company also recorded approximately $47,000 of income associated with an officer's loan in 2002, as compared to approximately $6,000 in 2003. -22- The Company's income before provision for income taxes for the nine months ended September 30, 2003 was $542,430 as compared to $577,138 for the same period in 2002. The decrease of $34,708 for the nine months ended September 30, 2003 primarily resulted from an increase in the Company's selling, general and administrative costs and decrease in other income offset by an increase in revenues from services and gross profit. The Company's provision for income taxes for the nine months ended September 30, 2003 was $170,000 as compared to $274,000 for the same period in 2002. The decrease of $104,000 for the nine months ended September 30, 2003 is due to the fact that the Company anticipates receiving significant REAP and other tax incentive and cost savings benefits from the City of New York. The REAP benefit is calculated based on the number of hours worked by employees relocated to this facility from other Company locations. These benefits are estimated to be approximately $180,000 for 2003. RECENT ACCOUNTING PRONOUNCEMENTS: In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued. This statement (i) eliminates extraordinary accounting treatment for a gain or loss reported on the extinguishment of debt, (ii) eliminates inconsistencies in the accounting required for sale-leaseback transactions and certain lease modifications with similar economic effects, and (iii) amends other existing authoritative pronouncements to make technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted SFAS No. 145 effective January 1, 2003. The Company does not expect that the adoption of this statement will have a material impact on its consolidated results of operations or financial position. In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued. This statement nullifies existing guidance related to the accounting and reporting for costs associated with exit or disposal activities and requires that the fair value of a liability associated with an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, certain exit costs were permitted to be accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of this statement are required to be adopted for all exit or disposal activities initiated after December 31, 2002. This statement will not impact any liabilities recorded prior to adoption. The Company adopted SFAS No. 146 effective January 1, 2003. The Company does not expect that the adoption of this statement will have a material impact on its consolidated results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB Statement 123" (SFAS 148). SFAS 148 provides new transition alternatives for companies adopting -23- the fair value method of accounting for stock-based compensation prescribed by SFAS 123. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in tabular format. Additionally, SFAS No. 148 requires disclosures of the pro forma effect in interim financial statements. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. The Company adopted the annual disclosure provisions of SFAS No. 148 in its financial report for the year ended December 31, 2002 and adopted the interim disclosure provisions for its financial reports for the quarter ended March 31, 2003. 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, so it considers these to be its critical accounting policies. Estimates in each of these areas are based on historical experience and a variety of assumptions that the Company believes are appropriate. Actual results may differ from these estimates. RESERVES FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE The Company makes ongoing assumptions relating to the collectibility of its accounts receivable. The accounts receivable amount on the balance sheet includes a reserve for accounts that might not be paid. In determining the amount of the reserve, the Company considers its historical level of credit losses. The Company also makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and it assesses current economic trends that might impact the level of credit losses in the future. The Company recorded reserves for uncollectible accounts receivable of $601,500 and $540,000 as of September 30, 2003 and December 31, 2002, respectively. 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. If actual credit losses are significantly greater than the reserves established, that would increase the general and administrative expenses and reduce the reported net income. Conversely, if actual credit losses are significantly less than the reserve, this would eventually decrease the Company's general and administrative expenses and increase the reported net income. VALUATION OF LONG-LIVED ASSETS The Company reviews long-lived assets for impairment, principally fixed assets, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of the long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be greater than the carrying amount of its assets. Impairment is measured based on the difference between the carrying amount of the assets and their estimated fair value. -24- VALUATION OF GOODWILL Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Under this new standard, goodwill and indefinite life intangible assets are no longer amortized, but are subject to annual impairment tests. The Company completed the transitional and annual impairment tests required by SFAS 142 and was not 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 $1,970,320 at September 30, 2003 and $961,731 at December 31, 2002. DEFERRED INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment and records a valuation allowance to reduce the deferred tax assets to the amount that is expected to be realized in future periods. ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES. ----------------------------------- Based on their evaluation as of September 30, 2003, the Company and the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective. There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to affect, the Company's internal control over financial reporting. -25- 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. In any event, the Company believes the disposition of these matters will not have a material adverse effect on the financial condition of the Company. On March 2, 2001 American Medical Alert Corp. was served with a Summons and Complaint by a former employee seeking to recover damages for discrimination and harassment in connection with her employment and the associated termination thereof. In June 2003 the Company entered into a settlement agreement with this former employee for a nominal amount which was previously accrued. ITEM 5. OTHER INFORMATION. On November 5, 2003, the Board of Directors of the Company adopted an amendment to the Company's bylaws, pursuant to which certain provisions relating to director nominations and shareholder proposals were added to the bylaws. In general, the new bylaw provisions will require shareholders to submit director nominations and shareholder proposals to the Company no more than 150 days and no less than 120 days prior to the date on which the previous year's proxy was mailed to the shareholders. A copy of the amendment to the bylaws of the Company as filed herewith as Exhibit 3.1 to this Quarterly Report. -26- ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K. (a) Exhibits: No. Description - --- ----------- 3.1 Bylaw Amendment adopted November 5, 2003. 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002. 32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002. 32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002. (b) Reports on Form 8-K: On August 14, 2003, the Company filed a Current Report on Form 8-K relating to Item 12, Results of Operations and Financial Conditions, reporting the issuance of a press release announcing the Company's results for the quarter ended June 30, 2003. On August 25, 2003, the Company filed a Current Report on Form 8-K relating to Item 9, Regulation FD Disclosure, reporting the issuance of a press release announcing the Company's guidance for 2003 On November 13, 2003, the Company filed a Current Report on Form 8-K relating to Item 9, Regulation FD Disclosure and Item 12, Results of Operations and Financial Condition, reporting the issuance of a press release announcing the results for the quarter ended September 30, 2003. 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: November 14, 2003 By: /s/ Howard M. Siegel ------------------------------------- Howard M. Siegel President and Chief Executive Officer By: /s/ Richard Rallo ------------------------------------- Richard Rallo Controller (chief financial officer) -27- EX-3 3 ex3_f10qsb-09302003.txt BYLAW AMENDMENT Exhibit 3.1 Bylaw Amendment The following Section 14 was added to Article II of the Company's bylaws pursuant to resolutions adopted by the Board of Directors on November 5, 2003: Section 14. Nominations and Business at Meetings: At any annual meeting of shareholders, only persons who are nominated in accordance with the procedures set forth in this Section 14 shall be eligible for election as Directors, and only business which is proposed in accordance with the procedures set forth in this Section 14 shall be considered for action by shareholders. Nominations of persons for election to the Board of Directors of the Company may be made (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Company entitled to vote at the meeting who complies with the notice and other procedures set forth in this Section 14. Business to be considered at a meeting of shareholders may be proposed (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Company entitled to vote at the meeting who complies with the notice and other procedures set forth in this Section 14. Such nominations or business proposals, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Company and such business proposals must, under applicable law, be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than 120 days nor more than 150 days in advance of the date which is the anniversary of the date the Company's proxy statement was released to security holders in connection with the previous year's annual meeting; provided, that, if the Company did not hold such previous year's annual meeting or if the anniversary date of the current year's annual meeting has been changed by more than 30 days from the date of the previous year's annual meeting, then such shareholder's notice shall be so delivered or mailed and received not less than 30 days in advance of the anticipated date of mailing (as publicly announced by the Company) of the Company's proxy statement for the next annual meeting of stockholders. Such shareholder's notice shall set forth (a) as to each person whom such shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to serving as a Director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of the shareholder making such proposal or such other person on whose behalf such proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such shareholder, as they appear on the Company's books, and the name and address of the beneficial owner, if any, on whose behalf the nomination or proposal is made, and (ii) the class and number of shares of the Company which are owned by such shareholder or person, either beneficially or of record. No person shall be eligible for election as a Director of the Company and no business shall be conducted at the annual meeting of shareholders unless nominated or proposed in accordance with the procedures set forth in this Section 14. Except as may otherwise be required by applicable law, nothing herein shall obligate the Company to include in the Company's proxy statement any nominee for Director nominated by a shareholder or any other shareholder proposal. In addition, nothing herein shall require the Company to submit to the shareholders any proposal which is otherwise excludable or improper under applicable law. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination or proposal was not made in accordance with the provisions of this Section 14 and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination or proposal shall be disregarded. -2- EX-31 4 ex31_f10qsb-09302003.txt SIEGEL 302 CERTIFICATION Exhibit 31.1 CERTIFICATION I, Howard M. Siegel, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of American Medical Alert Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Howard M. Siegel ----------------------------------- Howard M. Siegel President and Chief Executive Officer -29- EX-31 5 ex31b_f10qsb-09302003.txt RALLO 302 CERTIFICATION Exhibit 31.2 CERTIFICATION I, Richard Rallo, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of American Medical Alert Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ Richard Rallo --------------------------- Richard Rallo Chief Financial Officer -30- EX-32 6 ex32_f10qsb-09302003.txt SEIGEL 906 CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 2003 (the "Report") by American Medical Alert Corp. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. /s/ Howard M. Siegel ----------------------- Howard M. Siegel Chief Executive Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO AMERICAN MEDICAL ALERT CORP. AND WILL BE RETAINED BY AMERICAN MEDICAL ALERT CORP. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -31- EX-32 7 ex32b_f10qsb-09302003.txt RALLO 906 CERTIFICATION Exhibit 33.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 2003 (the "Report") by American Medical Alert Corp. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. /s/ Richard Rallo ---------------------- Richard Rallo Chief financial officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO AMERICAN MEDICAL ALERT CORP. AND WILL BE RETAINED BY AMERICAN MEDICAL ALERT CORP. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -32- -----END PRIVACY-ENHANCED MESSAGE-----