-----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, FPFKyXboja8fIyCfQ0H+/gz5ULdZcuJVcxdmrkDbcVUzK3yuZKKiAs5rJnZE0oej lGPDV4C/W/LDHMZmEjRa+g== 0001104659-05-055403.txt : 20051114 0001104659-05-055403.hdr.sgml : 20051111 20051114153804 ACCESSION NUMBER: 0001104659-05-055403 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 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: 051201119 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 a05-20193_110qsb.htm QUARTERLY AND TRANSITION REPORTS OF SMALL BUSINESS ISSUERS

 

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, 2005

 

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  ý No o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 8,694,092 shares of $.01 par value common stock as of November 9, 2005.

 

 



 

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

 

INDEX

 

Part I

Financial Information

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

 

 

 

Condensed Consolidated Balance Sheets for September 30, 2005 and December 31, 2004

 

 

 

 

 

Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2005 and 2004

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

Controls and Procedures

 

 

 

 

Part II

Other Information

 

 



 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Shareholders

American Medical Alert Corp. and Subsidiaries

Oceanside, New York

 

We have reviewed the accompanying condensed consolidated balance sheet of American Medical Alert Corp. and Subsidiaries (the “Company”) as of September 30, 2005 and the related condensed consolidated statements of income for the nine-month and three-month periods ended September 30, 2005 and 2004 and cash flows for the nine-months ended September 30, 2005 and 2004. 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, 2004, 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 25, 2005, except for Notes 3 and 5, as to which the date is March 30, 2005, 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, 2004 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

/s/ Margolin, Winer & Evens LLP

 

 

Margolin, Winer & Evens LLP

Garden City, New York

 

November 9, 2005

 

1



 

PART I - - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,
2005 (Unaudited)

 

Dec. 31, 2004

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash

 

$

4,072,273

 

$

3,186,852

 

Accounts receivable (net of allowance for doubtful accounts of $743,000 and $728,000)

 

4,127,625

 

3,389,076

 

Note receivable

 

23,793

 

23,207

 

Inventory

 

493,494

 

696,736

 

Prepaid expenses and other current assets

 

746,463

 

434,057

 

Deferred income taxes

 

397,000

 

448,000

 

 

 

 

 

 

 

Total Current Assets

 

9,860,648

 

8,177,928

 

 

 

 

 

 

 

FIXED ASSETS

 

 

 

 

 

(Net of accumulated depreciation and amortization)

 

7,164,882

 

7,046,925

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

Long-term portion of note receivable

 

79,926

 

98,107

 

Intangible assets (net of accumulated amortization of $2,136,262 and $1,685,646)

 

1,480,035

 

1,492,389

 

Goodwill (net of accumulated amortization of $58,868)

 

2,794,559

 

2,563,864

 

Other assets

 

379,431

 

121,803

 

Deferred income taxes

 

163,000

 

138,000

 

 

 

4,896,951

 

4,414,163

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

21,922,481

 

$

19,639,016

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current portion of notes payable

 

$

293,760

 

$

300,814

 

Accounts payable

 

707,130

 

559,453

 

Accrued expenses and taxes payable

 

1,270,166

 

1,354,857

 

Current portion of capital lease obligations

 

48,398

 

94,743

 

Current portion of put warrant obligation

 

 

10,000

 

Deferred revenue

 

113,082

 

15,834

 

Total Current Liabilities

 

2,432,536

 

2,335,701

 

 

 

 

 

 

 

DEFERRED INCOME TAX LIABILITY

 

1,100,000

 

1,099,000

 

LONG-TERM PORTION OF NOTES PAYABLE

 

258,558

 

496,444

 

LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS

 

 

24,458

 

ACCRUED RENTAL OBLIGATION

 

181,130

 

143,630

 

OTHER LIABILITIES

 

205,000

 

261,884

 

TOTAL LIABILITIES

 

4,177,224

 

4,361,117

 

 

 

 

 

 

 

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 8,692,552 shares in 2005 and 8,078,043 shares in 2004

 

86,925

 

80,780

 

Additional paid-in capital

 

12,486,466

 

10,730,434

 

Retained earnings

 

5,277,898

 

4,572,717

 

 

 

17,851,289

 

15,383,931

 

Less treasury stock, at cost (43,910 shares)

 

(106,032

)

(106,032

)

Total Shareholders’ Equity

 

17,745,257

 

15,277,899

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

21,922,481

 

$

19,639,016

 

 

See accompanying notes to condensed financial statements.

 

2



 

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2005

 

2004

 

Revenues:

 

 

 

 

 

Services

 

$

15,947,129

 

$

14,048,534

 

Product sales

 

214,017

 

221,579

 

 

 

16,161,146

 

14,270,113

 

Costs and Expenses (Income):

 

 

 

 

 

Costs related to services

 

7,626,323

 

6,530,238

 

Costs of products sold

 

117,835

 

128,721

 

Selling, general and administrative expenses

 

7,303,891

 

6,627,392

 

Interest expense

 

32,695

 

44,985

 

Other income

 

(275,779

)

(214,355

)

 

 

 

 

 

 

Income before Provision for Income Taxes

 

1,356,181

 

1,153,132

 

 

 

 

 

 

 

Provision for Income Taxes

 

651,000

 

543,000

 

 

 

 

 

 

 

NET INCOME

 

$

705,181

 

$

610,132

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

Basic

 

$

.08

 

$

.08

 

Diluted

 

$

.08

 

$

.07

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

Basic

 

8,370,315

 

7,862,958

 

 

 

 

 

 

 

Diluted

 

9,067,566

 

8,425,940

 

 

See accompanying notes to condensed financial statements.

 

3



 

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

 

2005

 

2004

 

Revenues:

 

 

 

 

 

Services

 

$

5,437,236

 

$

4,866,217

 

Product sales

 

58,016

 

78,967

 

 

 

5,495,252

 

4,945,184

 

Costs and Expenses (Income):

 

 

 

 

 

Costs related to services

 

2,751,447

 

2,300,113

 

Costs of products sold

 

33,152

 

50,504

 

Selling, general and administrative expenses

 

2,414,347

 

2,243,053

 

Interest expense

 

9,607

 

13,734

 

Other income

 

(104,202

)

(60,030

)

 

 

 

 

 

 

Income before Provision for Income Taxes

 

390,901

 

397,810

 

 

 

 

 

 

 

Provision for Income Taxes

 

188,000

 

168,000

 

 

 

 

 

 

 

NET INCOME

 

$

202,901

 

$

229,810

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

Basic

 

$

.02

 

$

.03

 

Diluted

 

$

.02

 

$

.03

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

Basic

 

8,616,542

 

7,990,632

 

 

 

 

 

 

 

Diluted

 

9,277,566

 

8,564,184

 

 

See accompanying notes to condensed financial statements.

 

4



 

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30

 

 

 

2005

 

2004

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

705,181

 

$

610,132

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for deferred income taxes

 

27,000

 

7,000

 

Depreciation and amortization

 

2,193,377

 

2,236,289

 

Provision (credit) for valuation of put warrant

 

(10,000

)

40,000

 

Decrease (increase) in:

 

 

 

 

 

Accounts receivable

 

(725,601

)

(803,877

)

Inventory

 

203,242

 

49,620

 

Prepaid and refundable taxes

 

 

155,093

 

Prepaid expenses and other current assets

 

(312,406

)

(126,043

)

Other assets

 

 

(3,868

)

Increase (decrease) in:

 

 

 

 

 

Accounts payable, accrued expenses and other

 

43,602

 

191,030

 

Deferred revenue

 

97,248

 

(2,397

)

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

2,221,643

 

2,352,979

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Expenditures for fixed assets

 

(1,849,055

)

(1,983,089

)

Purchase of alphaconnect

 

 

(767,956

)

Purchase of Long Island Message Center, Inc.

 

(443,643

)

 

Repayment of notes receivable

 

17,595

 

16,454

 

Deposit on equipment and software

 

(232,625

)

 

Increase in goodwill

 

 

(103,855

)

Security deposit on property

 

(36,666

)

 

Payment for account acquisitions and licensing agreement

 

(238,262

)

(90,934

)

 

 

 

 

 

 

Net Cash (Used In) Investing Activities

 

(2,782,656

)

(2,929,380

)

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Principal payments under capital lease obligation

 

(70,803

)

(67,356

)

Proceeds from notes payable

 

 

62,065

 

Repayment of notes payable

 

(244,940

)

(248,296

)

Proceeds upon exercise of stock options

 

1,762,177

 

972,434

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

1,446,434

 

718,847

 

 

See accompanying notes to condensed financial statements.

 

5



 

 

 

Nine Months Ended September 30,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Net Increase in Cash

 

$

885,421

 

$

142,446

 

 

 

 

 

 

 

Cash, Beginning of Period

 

3,186,852

 

2,192,113

 

 

 

 

 

 

 

Cash, End of Period

 

$

4,072,273

 

$

2,334,559

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

CASH PAID DURING THE PERIOD FOR INTEREST

 

$

35,468

 

$

41,235

 

 

 

 

 

 

 

CASH PAID DURING THE PERIOD FOR INCOME TAXES

 

$

211,521

 

$

92,960

 

 

See accompanying notes to condensed financial statements.

 

6



 

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.                                       General:

 

These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2004 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, 2005 and the results of operations for the nine and three months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005 and 2004.

 

The accounting policies used in preparing these financial statements are the same as those described in the December 31, 2004 financial statements.

 

The results of operations for the nine and three months ended September 30, 2005 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

 

3.                                       New Pronouncements:

 

In June 2005, the FASB issued SFAS No. 154, a replacement of APB No. 20 and SFAS No. 3.  SFAS No. 154 applies to all voluntary changes in accounting principle and changes the requirements for accounting for and reporting of a change in accounting principle to be applied retrospectively with all prior period financial statements presented on the new accounting principle.  SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.  The Company’s results of operations and financial condition will only be impacted by SFAS No. 154 if it implements changes in accounting principle that are addressed by the standard or discovers in future periods, errors which require correction.

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. The statement supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123R requires all entities to recognize compensation expense in an amount equal to the fair-value of share-based payments. Upon adoption, the fair value of all employee stock option awards will be expensed in the Company’s statement of income, typically, over the related vesting period of the options. SFAS No. 123R requires the use

 

7



 

of fair value to measure share-based awards issued to employees, computed at the date of grant. Additionally, SFAS No. 123R requires companies to record compensation expense for the unvested portion of previously granted awards as they continue to vest, as calculated previously and included in the companies prior period pro forma disclosures under SFAS No. 123. SFAS No. 123R also requires the tax benefit of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. The Company will adopt SFAS No. 123R beginning with the fiscal 2006 first quarter, as required. The impact of adoption of SFAS 123R cannot be determined at this time because it will partially depend on levels of share based payment granted in the future.  However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as shown in Note 5 (see discussion on Accounting for Stock Based Compensation).

 

In November 2004, the FASB issued SFAS 151, Inventory Costs – An Amendment of ARB No. 43, Chapter 4 (“SFAS 151”), which is the result of its effort to converge U.S. accounting standards for inventories with International Accounting Standards. SFAS 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized as current-period charges and not included in overhead. It also requires that allocation of fixed production overhead cost to inventory be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company has not determined the effect of adopting SFAS 151.

 

4.                                       Fixed Assets:

 

The Company’s PERS equipment is subject to approval from the Federal Communications Commission (“FCC”). In November 2004, the Company received an inquiry from the Federal Communications Commission. In response to that inquiry the Company has determined that certain versions of its PERS equipment emit levels of radio frequency energy that exceed applicable standards designed to reduce the possibility of interference with radio communications.  Although this issue poses no safety or functionality risk to subscribers, the Company is in the process of establishing a corrective action plan with the FCC.

 

The Company is currently working with the FCC to determine an action plan to establish a timeframe to complete an upgrade program for the affected PERS equipment and the amount of a potential payment to the FCC.  At this time the Company is unable to determine whether it is probable that a liability has been incurred; accordingly, no estimate of the potential payment to the FCC has been recorded.  However, the Company believes the payment could range between $50,000 and $160,000, although substantially higher amounts are possible based on the discretion of the FCC.  The Company believes the FCC will allow the upgrade program to run substantially parallel with the normal recycling of the Company’s PERS equipment. Under this assumption the only additional cost to be incurred will be the incremental cost to bring the units into compliance with the FCC regulations.  However, in certain instances, the Company has accelerated the exchange of PERS equipment in programs and has thus incurred additional cost.

 

8



 

Through September 30, 2005, the Company has expensed approximately $670,000 in connection with this matter, of which approximately $190,000, primarily relating to costs associated with the replacement of equipment, legal fees and other professional fees, was recorded in 2005.  The remaining $480,000 was charged to expense in the fourth quarter of 2004, which primarily related to costs to be incurred in excess of normal repair and refurbishment costs.

 

If the Company is required to complete the PERS and related equipment modifications in a shorter period of time than is anticipated, significant additional costs will be incurred inasmuch as unscheduled service calls will be required.

 

5.                                       Accounting for Stock-Based Compensation:

 

The Company has three stock-based employee compensation plans and additional outstanding options under a fourth plan which has expired.  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 and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based compensation.

 

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net income, as reported

 

$

705,181

 

$

610,132

 

$

202,901

 

$

229,810

 

Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax

 

(42,048

)

(97,537

)

(21,270

)

(15,897

)

Pro forma net income

 

$

663,133

 

$

512,595

 

$

181,631

 

$

213,913

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic - as reported

 

$

0.08

 

$

0.08

 

$

0.02

 

$

0.03

 

Basic - pro forma

 

$

0.08

 

$

0.07

 

$

0.02

 

$

0.03

 

Diluted - as reported

 

$

0.08

 

$

0.07

 

$

0.02

 

$

0.03

 

Diluted - pro forma

 

$

0.07

 

$

0.06

 

$

0.02

 

$

0.02

 

 

The weighted average grant date fair value of options granted during the nine months ended September 30, 2005 and 2004 was $49,900 and $110,492, respectively.  During the three months ended September 30, 2005 and 2004 the fair value of options granted was $38,400 and $24,443, respectively.

 

The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:

 

9



 

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Expected life (years)

 

2

 

2

 

2

 

2

 

Risk free interest rate

 

3.95

%

2.42

%

4.01

%

2.68

%

Expected volatility

 

19.45

%

42.75

%

19.38

%

43.07

%

Expected dividend yield

 

 

 

 

 

 

6.                                       Earnings Per Share:

 

Earnings per share data for the nine and three months ended September 30, 2005 and 2004 is presented in conformity with SFAS No. 128, “Earnings Per Share”.

 

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

 

 

 

Income
(Numerator)

 

Shares
(Denominator)

 

Per-Share
Amounts

 

 

 

 

 

 

 

 

 

Nine Months September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS - Income available to common stockholders

 

$

705,181

 

8,370,315

 

$

.08

 

Effect of dilutive securities - Options and warrants

 

 

697,251

 

 

 

Diluted EPS - Income available to common stockholders and assumed conversions

 

$

705,181

 

9,067,566

 

$

.08

 

 

 

 

 

 

 

 

 

Three Months September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS - Income available to common stockholders

 

$

202,901

 

8,616,542

 

$

.02

 

Effect of dilutive securities - Options and warrants

 

 

661,024

 

 

 

Diluted EPS - Income available to common stockholders and assumed conversions

 

$

202,901

 

9,277,566

 

$

.02

 

 

 

 

 

 

 

 

 

Nine Months September 30, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS - Income available to common stockholders

 

$

610,132

 

7,862,958

 

$

.08

 

Effect of dilutive securities - Options and warrants

 

 

562,982

 

 

 

Diluted EPS - Income available tocommon stockholders and assumed conversions

 

$

610,132

 

8,425,940

 

$

.07

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS - Income available to common stockholders

 

$

229,810

 

7,990,632

 

$

.03

 

Effect of dilutive securities - Options and warrants

 

 

573,552

 

 

 

Diluted EPS - Income available to common stockholders and assumed conversions

 

$

229,810

 

8,564,184

 

$

.03

 

 

10



 

7.                                       Acquisitions:

 

On May 17, 2005, the Company acquired substantially all of the assets of Long Island Message Center, Inc., a Long Island, New York based provider of telephone after-hour answering services.  The purchase price was $397,712 and consisted of an initial cash payment of $318,170 and future cash payments of $79,542 to be paid to the Seller after nine months from the date of the executed agreement.  The Company also recorded broker and professional fees of approximately $28,000 and $19,000, respectively.  The purchase price exceeded the fair value of the net assets acquired as the Company acquired this entity with the intention of consolidating this entity with HCI Acquisition Corp’s call center operation and expanding its presence in this geographical area.  The results of operations of Long Island Message Center, Inc. are included in the TAS segment as of the date of acquisition.

 

The following table summarizes the fair values of the assets acquired 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

 

$

12,948

 

Non-compete agreement

 

25,000

 

Customer list

 

175,000

 

Goodwill

 

230,695

 

 

 

 

 

Cost to acquire Long Island Message Center, Inc.

 

$

443,643

 

 

On April 12, 2004, the Company acquired substantially all of the assets of alphaCONNECT, Inc., a New Jersey based provider of telephone after-hour answering services and stand-alone voice mail services.  The purchase price was $691,956 and consisted of an initial cash payment of $563,816 and future cash payments of $51,256 and $76,884 to be paid to the Seller after the first and second year anniversaries from the date of the executed agreement, respectively.  The Company also paid professional fees of approximately $76,000.  A potential exists for the payment of additional purchase price consideration if certain thresholds concerning revenue are met by the acquired business.  The first measurement date for this potential additional purchase

 

11



 

price consideration was April 1, 2005 and no additional purchase price consideration was required.  The second measurement date is April 1, 2006.  The purchase price exceeded the fair value of the net assets acquired as the Company acquired this entity with the intention of consolidating this entity with Live Message America, Inc., its previously acquired New Jersey based provider of telephone answering services, and expanding its presence in this geographical area.  The consolidation of this entity with Live Message America, Inc. was completed in the third quarter of 2004.  The results of operations of alphaCONNECT, Inc. are included in the TAS segment as of the date of acquisition.

 

The following table summarizes the fair values of the assets acquired 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

 

$

19,762

 

Fixed assets

 

25,000

 

Non-compete agreement

 

25,000

 

Customer list

 

325,000

 

Goodwill

 

373,194

 

 

 

 

 

Cost to acquire alphaCONNECT, Inc.

 

$

767,956

 

 

Unaudited pro forma results of operations for the nine and three months ended September 30, 2005 and 2004 as if Long Island Message Center, Inc and alphaCONNECT, Inc. had been consolidated as of the beginning of the earliest period presented follow.  The pro forma results include estimates which management believes are reasonable.

 

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Revenue

 

$

16,339,000

 

$

14,761,000

 

$

5,495,000

 

$

5,064,000

 

Net income

 

722,000

 

656,000

 

203,000

 

241,000

 

Net income per share

 

 

 

 

 

 

 

 

 

Basic

 

$

.09

 

$

.08

 

$

.02

 

$

.03

 

Diluted

 

$

.08

 

$

.08

 

$

.02

 

$

.03

 

 

The unaudited pro forma results of operations for the nine and three months ended September 30, 2005 and 2004 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”).  The Company has been operating since 1993 with a contract to provide HCSP with these services, which has been extended for 1-2 year periods since 1993, the last such extension through June 30, 2006.  During the nine months ended September 30, 2005 and 2004,

 

12



 

the Company’s revenue from this contract represented 13% and 15%, respectively, of its total revenue.

 

In November 2002, a new Request for Proposals (“RFP”) was issued by HRA to provide emergency response services to HCSP from April 1, 2004 through March 31, 2007.  After receiving notification from the City of New York’s Human Resources Administration (“HRA”) that the Company was selected as the approved vendor under the RFP to provide PERS services to the Home Care Services Program to Medicaid Eligible individuals, the Company subsequently received notification from HRA that it canceled the RFP “in the best interest of the City of New York.”  The Company was advised that the cancellation of the RFP is not related to any performance issue or negative reflection upon the Company.  Concurrently, the Company was advised of HRA’s decision to issue a new contract extension to the Company through June 2005 under the terms of the contract that the Company has been operating under since 1993.  The Company has since received this contract extension and also has received a subsequent extension which goes through June 2006.  In accordance with the original contract and consistent with previous extensions, HRA has the right to terminate the contract without cause or “in the best interest of the City of New York” upon thirty days written notice.  HRA has also advised the Company that HRA plans to issue a new RFP with respect to PERS services in the future.  As of November 9, 2005, a new RFP has not been issued.

 

The Company cannot determine (i) when the terms of the new RFP will be published, (ii) what the terms of the new RFP will be, (iii) how long the current contract terms will remain in effect or (iv) whether AMAC will be the successful bidder on the new RFP (and if so, under what terms and conditions).  While the Company has reduced its dependence on revenue from HCSP, if the Company does not maintain this contract, a significant amount of the Company’s revenue could be lost, albeit over a protracted period, which could have a material adverse effect on operating results and cash flows. The Company continues to implement a variety of operational efficiencies, as well as continuing to enhance and diversify its other revenue streams, to offset the impact, if any, in the event of this occurrence.

 

As of September 30, 2005 and December 2004, accounts receivable from the contract represented 18% of accounts receivable. Medical devices in service under the contract represented approximately 16% and 18%, respectively, of the total medical devices used for primary monitoring.

 

13



 

9.                                       Segment Reporting:

 

The Company has three reportable segments, (i) Health and Safety Monitoring Systems (“HSMS”), (ii) Telephone Answering Services and Solutions for the Healthcare Community (“TAS”), and (iii) Safe Com.

 

The table below provides a reconciliation of segment information to total consolidated information for the nine and three months ended September 30, 2005 and 2004:

 

2005

 

 

 

HSMS

 

TAS

 

Safe Com

 

Consolidated

 

Nine Months Ended September 30, 2005

 

 

 

 

 

 

 

 

 

Revenue

 

$

10,857,159

 

$

4,965,407

 

$

338,580

 

$

16,161,146

 

Income before provision for income taxes

 

584,769

 

742,231

 

29,181

 

1,356,181

 

Total assets

 

12,872,812

 

8,128,008

 

921,661

 

21,922,481

 

 

 

 

 

 

 

 

 

 

 

 

 

HSMS

 

TAS

 

Safe Com

 

Consolidated

 

Three Months Ended September 30, 2005

 

 

 

 

 

 

 

 

 

Revenue

 

$

3,635,677

 

$

1,748,455

 

$

111,120

 

$

5,495,252

 

Income before provision for income taxes

 

206,376

 

168,992

 

15,533

 

390,901

 

 

2004

 

 

 

HSMS

 

TAS

 

Safe Com

 

Consolidated

 

Nine Months Ended September 30, 2004

 

 

 

 

 

 

 

 

 

Revenue

 

$

10,025,417

 

$

3,967,386

 

$

277,310

 

$

14,270,113

 

Income before provision for income taxes

 

473,267

 

617,601

 

62,264

 

1,153,132

 

Total assets

 

12,300,412

 

6,538,481

 

623,365

 

19,462,258

 

 

 

 

 

 

 

 

 

 

 

 

 

HSMS

 

TAS

 

Safe Com

 

Consolidated

 

Three Months Ended September 30, 2004

 

 

 

 

 

 

 

 

 

Revenue

 

$

3,413,430

 

$

1,434,755

 

$

96,999

 

$

4,945,184

 

Income before provision for income taxes

 

172,341

 

210,299

 

15,170

 

397,810

 

 

14



 

10.                                 Commitments and Contingencies:

 

In addition to the FCC inquiry described in Note 4, 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.

 

The Company entered into two operating lease agreements for additional space in Long Island City, New York.  The leases shall commence upon the landlord delivering possession of the premises and will run through March 31, 2018.  The leases call for minimum annual rentals of $220,000 and $115,000, respectively, subject to annual increases.  This space will be used to expand the Company’s telephone answering service operation and PERS customer service and emergency response center and house the Company’s distribution center and accounting department.

 

11.                                 Subsequent Events:

 

On October 3, 2005, the Company acquired substantially all of the assets of North Shore Answering Service, a provider of telephone after-hour answering services and stand-alone voice mail services, for approximately $2.7 million.  Of the total purchase price, 80% was paid at closing and the remaining 20% will be paid to Seller on the first year anniversary of the agreement.

 

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-KSB dated December 31, 2004.

 

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, our contract with the City of New York and product liability risks.  Such forward-looking statements generally are based upon the Company’s best estimates of future

 

15



 

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-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.

 

Overview:

 

The Company’s primary business is the provision of call center monitoring services and solutions through (1) the development and marketing of healthcare solutions and monitoring systems (“HSMS”) that include personal emergency response systems, telehealth/disease management monitoring systems and medication management systems; (2) telephone answering services and solutions for the healthcare community; (3) pharmacy security monitoring systems.  The Company’s products and services are primarily marketed to the healthcare community, including home care, durable medical equipment, medical facility, hospice, pharmacy, managed care and other healthcare oriented organizations.  The Company also offers certain products and services directly to consumers.  Until 2000, the Company’s principal business was the marketing of personal emergency response systems (“PERS”), a device that allows a patient to signal an emergency response center for help in the event of a debilitating illness or accident.  Beginning in 2000, the Company began a program of product diversification and customer base expansion to decrease its reliance on a single product line by marketing complementary call center and monitoring services to the healthcare community.

 

In November 2000, the Company diversified its products/service mix to include telephone answering services (“TAS”) for professionals in the healthcare community when the Company’s HCI Acquisition Corp. subsidiary acquired the assets of a telephone answering service.  The rationale to enter this segment had several components, including targeting the market functioning as the intermediary for the PERS customer base, leveraging existing infrastructure capability, and establishing an additional significant revenue source.  Growth in the TAS market has been accomplished through internally generated sales coupled with three additional acquisitions.  The TAS segment now accounts for approximately 32% of the Company’s revenues.  The Company believes that TAS will continue to be a significant business segment going forward and intends to pursue further acquisitions in this area. The TAS business provided revenue of approximately $6.5 million per year, based on trailing twelve months revenue, and is currently  the Company’s most profitable segment.

 

During 2004, the Company broadened its capabilities to service specialized allied healthcare providers including home care, hospice and other healthcare subspecialties. The Company believes it identified other communication needs as expressed by the expanded TAS client base and has developed specialized healthcare communication solutions to meet these needs.

 

16



 

The Company intends to increase its service offerings to significantly expand the TAS reporting segment.

 

In April 2003, the Company opened a one hundred seat communications center in Long Island City, NY. The center is equipped with state-of-the-art telephony and computer equipment which is driven by proprietary software platforms designed specifically for AMAC’s 24 hour emergency monitoring and customer service activities (PERS) and its TAS business.  The center is capable of accommodating significant future growth.

 

In 2001, the Company identified a new market opportunity approaching based on emerging demographic trends.  The aging and significant baby boomer population as well as increased life expectancies will manifest a large, fragile and chronically ill older population with an expressed preference for accessing healthcare services from home.  New technologies available and under continuous refinement permit the reporting of certain vital signs and indices of a patient’s well-being without the presence and cost of a visiting nurse or other home healthcare personnel.  With an established presence in the home from our PERS product, the Company entered into a marketing and technology agreement with Health Hero Network, Inc. in 2001 to embark on a research and development project.  The result of the project was the Company’s entrance into the telehealth/disease management monitoring market and the commercial introduction in the fourth quarter of 2003 of a device known as the PERS Buddy®.  This appliance combines the Company’s traditional PERS device with Health Hero’s interactive dialogues which allows patients to self-report on various conditions to enable daily monitoring and proactive intervention by the healthcare community.  The PERS Buddy® is designed for patients with chronic conditions such as congestive heart failure, diabetes, asthma and coronary artery disease. The Company believes that the new field of reporting and monitoring, which is becoming widely known as “telehealth”, will continue to expand based on increasing acceptance by the medical profession and government reimbursement policies, as well as further clinical and econometric studies concluding that telehealth is both clinically effective and reduces cost.  The Company is focusing research and development efforts to broaden its offerings of products and services in the telehealth field.

 

To round out the Company’s portfolio of home monitoring offerings, the Company secured certain exclusive rights to a medication reminder appliance in 1999, which is marketed under the name Med-Time®. The Company sells its device to the same customer base utilizing PERS services as well as through web retailers and directly to consumers.  The Company is in the process of redesigning and upgrading this appliance.

 

The Company continues to view its two core business segments, HSMS and TAS, as the main contributors to the Company’s cash flow from operations.

 

The Company’s third reporting segment, Safe Com pharmacy security monitoring systems, offers equipment and security monitoring to pharmacies and other 24/7 retail organizations.  Safe Com’s monitoring services are provided at the Company’s communication center in Long Island City, New York.  The Safe

 

17



 

Com platform utilizes the basic PERS technology with a modified application.  Although currently providing a small annual revenue contribution, the Company believes a significant opportunity exists and will continue to test the market potential into 2006.

 

The Company believes that the overall mix of cash flow generating from HSMS and TAS services, combined with its emphasis on developing products and services in the telehealth field, provides the correct blend of stability and growth opportunity.  The Company believes this strategy will enable it to maintain and increase its role in the healthcare communications field.

 

Components of Statements of Income by Operating Segment

 

The following table shows the components of the Statement of Income for the nine and three months ended September 30, 2005 and 2004.

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

In thousands (000’s)

 

2005

 

%

 

2004

 

%

 

2005

 

%

 

2004

 

%

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HSMS

 

3,636

 

66

%

3,413

 

69

%

10,857

 

67

%

10,026

 

70

%

TAS

 

1,748

 

32

%

1,435

 

29

%

4,965

 

31

%

3,967

 

28

%

Safe Com

 

111

 

2

%

97

 

2

%

339

 

2

%

277

 

2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

5,495

 

100

%

4,945

 

100

%

16,161

 

100

%

14,270

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Services and Goods Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HSMS

 

1,699

 

47

%

1,546

 

45

%

4,946

 

46

%

4,495

 

45

%

TAS

 

1,017

 

58

%

747

 

52

%

2,596

 

52

%

2,024

 

51

%

Safe Com

 

68

 

61

%

57

 

59

%

202

 

60

%

140

 

51

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Cost of Services and Goods Sold

 

2,784

 

51

%

2,350

 

48

%

7,744

 

48

%

6,659

 

47

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HSMS

 

1,937

 

53

%

1,867

 

55

%

5,911

 

54

%

5,531

 

55

%

TAS

 

731

 

42

%

688

 

48

%

2,369

 

48

%

1,943

 

49

%

Safe Com

 

43

 

39

%

40

 

41

%

137

 

40

%

137

 

49

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gross Profit

 

2,711

 

49

%

2,595

 

52

%

8,417

 

52

%

7,611

 

53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, General & Administrative

 

2,414

 

44

%

2,243

 

45

%

7,304

 

45

%

6,627

 

46

%

Interest Expense

 

10

 

0

%

14

 

0

%

33

 

0

%

45

 

0

%

Other Income

 

(105

)

(2

)%

(60

)

(1

)%

(276

)

(2

)%

(214

)

(2

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

391

 

7

%

398

 

8

%

1,356

 

8

%

1,153

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

188

 

 

 

168

 

 

 

651

 

 

 

543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

203

 

 

 

230

 

 

 

705

 

 

 

610

 

 

 

 

Note: The percentages for Cost of Services and Goods Sold and Gross Profit are calculated based on a percentage of revenue.

 

18



 

Results of Operations:

 

The Company has three distinct operating business segments, which are HSMS, TAS and Safe Com.  The HSMS and TAS are the two significant segments which generate and produce approximately 98% of the Company’s revenue and net income, while Safe Com has a minimal impact on these areas; therefore, the operations of Safe Com are not further analyzed below.

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Revenues:

 

HSMS

 

Revenues, which consist primarily of monthly rental revenues, increased approximately $223,000, or 7%, for the three months ended September 30, 2005 as compared to the same period in 2004.  Monthly rental revenues represent revenues that are generated from the leasing and monitoring of the medical devices placed in subscribers’ residences. The increase is primarily attributed to the following factor:

 

                  The Company continues to experience growth in its customer base. This has largely been accomplished through subscriber growth within its existing customer base. The largest growth continues to be as a result of an agreement, which was executed in November 2003, whereby over 3,000 Personal Emergency Response Systems (PERS) were placed online from December 2003 through the first quarter of 2004.  The Company continues to service this account which now has grown to approximately 5,100 PERS online.  This resulted in approximately $100,000 increase in revenue as compared to the same period last year.  The remaining increase in revenue is from the execution of new agreements as well as monthly fee increases to certain subscribers. The Company anticipates that it will continue to grow its subscriber base and corresponding revenue through its continued sales and marketing efforts.

 

TAS

 

The increase in revenues of approximately $313,000, or 22%, for the three months ended September 30, 2005 as compared to the same period in 2004 was primarily due to the following:

 

                  The Company continues to experience revenue growth within its existing telephone answering service businesses of approximately $198,000, as compared to the same period in 2004.  This growth is due to the execution of new agreements with healthcare and hospital organizations in conjunction with new daytime communication service offerings, as well as increases in its physician base. The Company has experienced strong growth

 

19



 

and anticipates that it will continue to grow this business segment with further expansion into healthcare and hospital organizations and to physicians through its marketing strategies.

 

                  In May 2005, the Company purchased the assets of a telephone answering service business, Long Island Message Center, Inc. (“LIMC”).  As a result of this acquisition, the Company earned approximately $115,000 of revenue during the three months ended September 30, 2005.  The Company believes this acquisition will help facilitate growth within the Long Island/New York metro area.

 

Costs Related to Services and Goods Sold:

 

HSMS

 

Costs related to services and goods increased by approximately $153,000 for the three months ended September 30, 2005 as compared to the same period in 2004, an increase of 10%, primarily due to the following:

 

                  The Company incurred increased costs of approximately $45,000 relating to repairs and upgrades associated with its PERS and related equipment, as compared to the same period in 2004, when only minimal charges for repairs and upgrades were incurred. In 2004, as a result of the Company having a significant number of units, including the enhanced PERS device, manufactured, only minimal repairs and upgrades were performed.   As the Company has determined not to manufacture the enhanced PERS device in 2005, the Company has concentrated on repairs and upgrades of its existing PERS units which have been returned from the field.

 

                  In response to an FCC inquiry, the Company has determined that certain versions of its PERS and related equipment emit levels of radio frequency energy that exceed applicable standards designed to reduce the possibility of interference with radio communications.  Although this issue poses no safety or functionality risk to subscribers, the Company is in the process of establishing a corrective action plan with the FCC to satisfy this matter.  With this process still underway, the Company has accelerated the exchange of units in certain programs.  The Company incurred approximately $55,000 associated with this exchange of units during the three months ended September 30, 2005, whereas no such costs were incurred for the same period in 2004.

 

                  The Company incurred increased payroll costs of approximately $30,000 within its distribution facility.  This was primarily due to the Company hiring additional personnel and incurring overtime due to the high volume of units passing through the facility, which was partially a result of the accelerated exchange of units in certain programs.

 

TAS:

 

Costs related to services and goods increased by approximately $270,000 for the three months ended September 30, 2005 as compared to the same period in 2004, an increase of 36%, primarily due to the following:

 

20



 

                  With the continued increase in business in its existing telephone answering services, specifically in its new daytime answering service offerings, the Company continues to hire additional telephone answering service supervisors and operators in its Long Island City location.  In addition, the Company initiated a pay rate increase to all its supervisors and operators in an effort to stabilize employee tenure with the Company.  These personnel additions along with general pay rate increases and associated payroll taxes has accounted for approximately $210,000 of increased costs as compared to the same period in 2004.  As the Company continues to grow its customer base and revenues, it will continue to evaluate personnel levels and determine if additional personnel are necessary.

 

                  In May 2005, the Company purchased the assets of a telephone answering service business, Long Island Message Center, Inc. (“LIMC”).  As a result of this acquisition, the Company incurred operational expenses of approximately $50,000 during the three months ended September 30, 2005.  On October 3, 2005 the Company acquired substantially all of the assets of North Shore Answering Service and plans to consolidate the LIMC operation with this newly acquired telephone answering service in an effort to reduce labor costs.

 

Selling, General and Administrative Expenses:

 

Selling, general and administrative expenses increased by approximately $171,000 for the three months ended September 30, 2005 as compared to the same period in 2004, an increase of 8%.  The increase is primarily attributable to the following:

 

                  The Company’s legal expenses increased by approximately $75,000 as compared to the same period in the prior year.  This was attributed to an increase in general corporate matters.

 

                  Marketing expenses increased by approximately $40,000 due to the Company hiring additional sales personnel to assist in the marketing of its PERS and disease management offerings and increased commissions were paid to in-house sales personnel, which are directly related to increased revenues in 2005.

 

                  In conjunction with the Company’s increased service offerings and revenue growth in the TAS area, the Company, in 2004, established a separate department for personnel to train operators on an ongoing basis relating to its existing and its new service offerings.  This additional personnel resulted in approximately $40,000 increase in expense as compared to the prior year.  The Company has now fully established this department and believes it is contributing significantly to the economic leveraging of its operational infrastructure.

 

There were other smaller increases in selling, general and administrative expenses which arose out of the normal course of business such as commissions and freight, which were partially offset by a reduction in rent and amortization expense.

 

Interest Expense:

 

Interest expense for the three months ended September 30, 2005 and 2004 was approximately $10,000 and $14,000, respectively.  The decrease of $4,000, or 29%, was primarily due to the Company continuing to pay down its term loan and its capital lease obligations.

 

21



 

Other Income:

 

Other income for the three months ended September 30, 2005 and 2004 was approximately $105,000 and $60,000, respectively. Other Income for the three months ended September 30, 2005 and 2004 includes a Relocation and Employment Assistance Program (“REAP”) credit in the approximate amounts of $82,500 and $57,000, respectively.  In connection with the relocation of certain operations to Long Island City, New York in April 2003, the Company became eligible for the REAP credit which is based upon the number of employees relocated to this designated REAP area. The REAP is in effect for a twelve year period; during the first five years the Company will be refunded the full amount of the eligible credit and, thereafter, the benefit will be available only as a credit against New York City income taxes.

 

Income Before Provision for Income Taxes:

 

The Company’s income before provision for income taxes for the three months ended September 30, 2005 was approximately $391,000 as compared to $398,000 for the same period in 2004. The decrease of $7,000 for the three months ended September 30, 2005 primarily resulted from an increase in the Company’s costs related to services and selling, general and administrative costs offset by an increase in the Company’s service revenues.

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Revenues:

 

HSMS

 

Revenues, which consist primarily of monthly rental revenues, increased approximately $831,000, or 8%, for the nine months ended September 30, 2005 as compared to the same period in 2004.  Monthly rental revenues represent revenues that are generated from the leasing and monitoring of the medical devices placed in subscriber’s residences. The increase is primarily attributed to the following factors:

 

                  The Company continues to experience growth in its customer base. This has largely been accomplished through subscriber growth within its existing customer base which accounted for approximately $625,000 of the increased revenue. The largest growth continues to be as a result of an Agreement, which was executed in November 2003, whereby over 3,000 Personal Emergency Response Systems (PERS) were placed online from December 2003 through the first quarter of 2004.  The Company continues to service this account which now has grown to approximately 5,100 PERS online.  This resulted in approximately $305,000 increase in revenue as compared to the same period last year.

 

                  In 2004, the Company initiated and executed a new agreement with a home healthcare agency whereby PERS were placed online.  Since inception, this account has grown to approximately 800 subscribers and accounts for approximately $85,000 increase in revenue as compared to the same period in the prior year.

 

22



 

The remaining increase in revenue is from the execution of other new agreements as well as monthly fee increases to certain subscribers. The Company anticipates that it will continue to grow its subscriber base and corresponding revenue through its continued sales and marketing efforts.

 

TAS

 

The increase in revenues of approximately $998,000, or 25%, for the nine months ended September 30, 2005 as compared to the same period in 2004 was primarily due to the following:

 

                  The Company experienced revenue growth within its existing telephone answering service businesses of approximately $833,000, as compared to the same period in 2004.  This growth is due to the execution of new agreements with healthcare and hospital organizations in conjunction with new daytime communication service offerings, as well as increases in its physician base. The Company has experienced strong growth and anticipates that it will continue to grow this business segment with further expansion into healthcare and hospital organizations and to physicians through its marketing strategies.

 

                  In May 2005, the Company purchased the assets of a telephone answering service business, Long Island Message Center, Inc. (“LIMC”).  As a result of this acquisition, the Company earned approximately $165,000 of revenue through September 30, 2005.  The Company believes this acquisition will help facilitate its growth within the Long Island/New York geographical area.

 

Costs Related to Services and Goods Sold:

 

HSMS

 

Costs related to services and goods increased by approximately $451,000 for the nine months ended September 30, 2005 as compared to the same period in 2004, an increase of 10%, primarily due to the following:

 

                  The Company has incurred approximately $150,000 more of costs relating to repairs and upgrades associated with its PERS and related equipment, as compared to the same period in 2004, when only minimal charges for repairs and upgrades were incurred.  In 2004, as a result of the Company having a significant number of units, including the enhanced PERS device, manufactured, only minimal repairs and upgrades were performed.   As the Company has determined not to manufacture the enhanced PERS device in 2005, the Company has concentrated on repairs and upgrades of its existing PERS units which have been returned from the field.

 

                  With the purchase of a minimal number of enhanced PERS devices in 2005, the Company capitalized less overhead costs as compared to the same period in 2004.  In 2004, the Company purchased a significant number of enhanced PERS devices and, therefore, capitalized a greater amount of overhead costs.  The Company only purchased a minimal number of enhanced PERS devices in 2005 as it was evaluating enhanced technology with respect to the disease management product and determined not to produce any more of the current enhanced PERS devices.  On June 30, 2005, the Company amended its agreement with Health Hero Network whereby the Company will

 

23



 

purchase an upgraded disease management product moving forward.  As a result, the Company had approximately $110,000 more unabsorbed overhead in 2005 as compared to the same period in 2004.

 

                  During the latter part of 2004 and during the course of 2005, the Company has hired additional IT personnel to assist in the managing of the Company’s network systems, implementation of new systems and developing enhancements of service applications to its customers.  As a result of these additional personnel, the Company incurred approximately $60,000 of increased costs during the nine month period ended September 30, 2005 as compared to the same period in the prior year.

 

                  In response to an FCC inquiry, the Company has determined that certain versions of its PERS and related equipment emit levels of radio frequency energy that exceed applicable standards designed to reduce the possibility of interference with radio communications.  Although this issue poses no safety or functionality risk to subscribers, the Company is in the process of establishing a corrective action plan with the FCC to satisfy this matter.  With this process still underway, the Company has accelerated the exchange of units in certain programs.  The Company incurred approximately $55,000 associated with this exchange of units during the nine months ended September 30, 2005, whereas no such costs were incurred for the same period in 2004.

 

These increases were partially offset by a reduction of personnel and overtime in both the ERC and customer service departments.  This is primarily the result of the Company commencing cross training its customer service and ERC personnel in 2005, within the call center.  Also, additional personnel and overtime was required in 2004, as a result of the Company executing an agreement whereby over 3,000 PERS were placed online from December 2003 through the first quarter of 2004. This reduction amounted to approximately $110,000.

 

TAS:

 

Costs related to services and goods increased by approximately $572,000 for the nine months ended September 30, 2005 as compared to the same period in 2004, an increase of 28%, primarily due to the following:

 

                  With the continued increase in business in its existing telephone answering services, specifically in its new daytime answering service offerings, the Company continues to hire additional telephone answering service supervisors and operators in its Long Island City location.  In addition, the Company initiated a pay rate increase to all its supervisors and operators in an effort to stabilize employee tenure with the Company.  These personnel additions along with general pay rate increases and associated payroll taxes has accounted for approximately $410,000 of increased costs as compared to the same period in 2004.  As the Company continues to grow its customer base and revenues, it will continue to evaluate personnel levels and determine if additional personnel are necessary.

 

                  In May 2005, the Company purchased the assets of a telephone answering service business, Long Island Message Center, Inc. (“LIMC”).  As a result of this acquisition, the Company incurred operational expenses of approximately $80,000 through September 30, 2005.  On October 3, 2005 the Company acquired substantially all of the assets of North Shore Answering Service and plans to consolidate the LIMC operation with this newly acquired telephone answering service in an effort to reduce labor costs.

 

24



 

Selling, General and Administrative Expenses:

 

Selling, general and administrative expenses increased by approximately $677,000 for the nine months ended September 30, 2005 as compared to the same period in 2004, an increase of 10%.  The increase is primarily attributable to the following:

 

                  The Company’s legal expenses increased by approximately $255,000 as compared to the same period in the prior year.  The Company incurred approximately $55,000 of legal expense with respect to working with the FCC to determine an action plan to establish a timeframe to complete an upgrade program for certain PERS units which did not meet applicable FCC standards.  In response to an FCC inquiry, the Company determined that certain versions of its PERS equipment emitted levels of radio frequency energy that exceeded applicable standards designed to reduce the possibility of interference with radio communications. In addition, the Company has incurred approximately $60,000 of legal expenses related to negotiations and the execution of an amendment to a supplier agreement.  The Company has also incurred additional legal expense for other general corporate matters of approximately $140,000 as compared to the same period in the prior year.

 

                  Marketing expenses increased by approximately $140,000 due to the Company hiring additional sales personnel to assist in the marketing of its PERS and disease management offerings and increased commissions were paid to in-house sales personnel, which are directly related to increased revenues in 2005.

 

                  In conjunction with the Company’s increased daytime answering service offerings and revenue growth in the TAS area, the Company, in 2004, established a separate division for personnel to train operators on an ongoing basis relating to its existing and its new daytime service offerings.  This additional personnel resulted in approximately $200,000 increase in expense as compared to the prior year.  The Company has now fully established this department and believes it is contributing significantly to the economic leveraging of its operational infrastructure.

 

There were other smaller increases in selling, general and administrative expenses which arose out of the normal course of business such as administrative salaries, bad debt expense and depreciation, which were offset by a reduction in rent and warrant expense.

 

Interest Expense:

 

Interest expense for the nine months ended September 30, 2005 and 2004 was approximately $33,000 and $45,000, respectively.  The decrease of $12,000, or 27%, was primarily due to the Company continuing to pay down its term loan and its capital lease obligations.

 

Other Income:

 

Other income for the nine months ended September 30, 2005 and 2004 was approximately $276,000 and $214,000, respectively. Other Income for the nine months ended September 30, 2005 and 2004 includes a Relocation and Employment Assistance Program (“REAP”) credit in the approximate amounts of $240,000 and $171,000, respectively.  In connection with the relocation of certain operations to Long Island City, New York in April 2003, the Company became eligible for the REAP credit which is based upon the number of employees relocated to

 

25



 

this designated REAP area. The REAP is in effect for a twelve year period; during the first five years the Company will be refunded the full amount of the eligible credit and, thereafter, the benefit will be available only as a credit against New York City income taxes.

 

Income Before Provision for Income Taxes:

 

The Company’s income before provision for income taxes for the nine months ended September 30, 2005 was approximately $1,356,000 as compared to $1,153,000 for the same period in 2004. The increase of $203,000 for the nine months ended September 30, 2005 primarily resulted from an increase in the Company’s service revenues and other income offset by an increase in the Company’s costs related to services and selling, general and administrative costs.

 

Liquidity and Capital Resources

 

The Company has 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).  Prior to an amendment of the credit facility agreement in March 2005, borrowings under the term loan bore 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, as amended, is now available through May 2008.  The outstanding balance on the term loan at September 30, 2005 was $500,000.  There were no amounts outstanding on the revolving credit line at September 30, 2005.

 

On March 28, 2005, the Company amended its loan documents whereby the borrowings under the term loan will bear interest at either (a) LIBOR plus 2.25% 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 2.0% or (b) the prime rate or the federal funds effective rate plus .5%, whichever is greater.  The revolving credit line has also been extended for an additional three (3) years and is now available through May 2008.  Additionally, certain of the covenants were amended.

 

At September 30, 2005, the Company was in compliance with its loan covenants under the agreement dated May 20, 2002 and as amended on August 11, 2003 and March 28, 2005.

 

26



 

The following table is a summary of contractual obligations as of September 30, 2005:

 

 

 

Payments Due by Period

 

Contractual Obligations

 

Total

 

Less than 1
year

 

1-3 years

 

4-5 years

 

After 5 years

 

Revolving Credit Line

 

$

- 0 -

 

 

 

 

 

 

 

 

 

Debt (a)

 

$

552,318

 

$

293,760

 

$

258,558

 

 

 

 

 

Capital Leases (b)

 

$

48,398

 

$

48,398

 

 

 

 

 

 

 

Operating Leases (c)

 

$

9,356,089

 

$

613,488

 

$

2,124,815

 

$

1,411,846

 

$

5,205,940

 

Total Contractual Obligations

 

$

9,956,805

 

$

955,646

 

$

2,383,373

 

$

1,411,846

 

$

5,205,940

 

 


(a)          – Debt includes the Company’s term loan of $500,000 which matures in June 2007, as well as loans associated with the purchase of automobiles.

 

(b)         – Capital lease obligations relate to the purchase of the Company’s new Customer Service/Emergency Response software and the purchase of telephone answering service equipment.  Both of these capital leases mature in January 2006.

 

(c)          – Operating leases include rental of facilities at various locations within the United States.  These operating leases include the rental of the Company’s call center, warehouse and the office facilities.  These operating leases have various maturity dates.  The Company currently leases office space from the Chief Executive Officer and principal shareholder pursuant to a lease which expires in September 2007.  The Company leased a second building from the Chief Executive Officer and principal shareholder until October 2004, at which time the Company was released from its obligation.  The lease obligations include two recently executed leases which will commence rent payments upon the Landlord delivering possession of the premises.  It is estimated that rent will commence in April 2006.

 

Net cash provided by operating activities was approximately $2.2 million for the nine months ended September 30, 2005, as compared to approximately $2.4 million for the same period in 2004. During 2005, increases in cash provided by operating activities from depreciation and amortization of approximately $2.2 million and net earnings of approximately $0.7 million were offset by an increase in trade receivables of approximately $0.7 million. The increase in trade receivables is primarily due to the expansion of the Company’s customer base, specifically as it relates to TAS, and a slow down of collections as result of a select number of customers processing payments in a slower manner.   As the Company has expanded its customer base with its new daytime service offerings, receivables related to these customers now exist.  The Company has also experienced a slow down in collections, primarily as a result in system updates made by certain customers which has impacted the Company’s billing and collection process.  The Company continues to update its systems and processes accordingly in an attempt to collect these amounts on a more timely basis.

 

Net cash used in investing activities for the nine months ended September 30, 2005 was approximately $2.8 million as compared to $2.9 million in the same period in 2004.  The primary components of net cash used in investing activities in 2005 and 2004 were capital expenditures and the acquisition of telephone answering service businesses.  Net cash used in investing activities for capital expenditures for 2005 and 2004 were approximately $1.8 and $2.0 million,

 

27



 

respectively, and for acquisitions of telephone answering service businesses was approximately $0.4 for $0.8 million, respectively.  Additionally, 2005 also includes approximately 0.2 million of a deposit on equipment and software.  Capital expenditures for 2005 primarily relate to the continued production and purchase of the traditional PERS system.  In 2004, capital expenditures primarily related to the production and purchase of its traditional PERS and enhanced PERS systems and the enhancement of its telephony equipment.

 

Cash flows for the nine months ended September 30, 2005 provided by financing activities were approximately $1.4 million compared to cash provided by financing activities of $.7 million for the same period in 2004.  The primary components of cash flow provided by financing activities in 2005 and 2004 were proceeds received from the exercise of stock options and warrants.  The proceeds from the exercise of both stock options and warrants were approximately $1.8 and $1.0 million in 2005 and 2004, respectively.  The primary components of cash used in financing activities during 2005 and 2004 were the repayment of debt of approximately $0.3 million in each year.

 

During the next twelve months, the Company anticipates it will make capital expenditures of approximately $2.5 – $3.0 million for the production and purchase of the enhanced PERS and traditional PERS systems and enhancements to its computer operating systems.  This amount is subject to fluctuations based on customer demand. The Company also anticipates incurring approximately $0.4 - $0.6 million of costs relating to research and development of its enhanced PERS and Med-Time dispenser.  In July 2005, the Company has entered into a technology, licensing, development, distribution and marketing agreement with a supplier for its HSMS sector.  Pursuant to this agreement the Company will expend approximately $0.4 million over the next twelve to eighteen months.  In addition, assuming the upgrade program which the Company is working with the FCC to finalize is to run substantially parallel with the normal recycling of the Company’s PERS equipment, the Company anticipates paying approximately $0.3 million relating to the FCC matter over the next twelve months.

 

As of September 30, 2005, the Company had approximately $4.1 million in cash and the Company’s working capital was approximately $7.4 million.  The Company believes that with its present cash balance and with operations of the business generating positive cash flow, it will be able to meet its cash, working capital and capital expenditure needs for at least the next twelve months. The Company also has a revolving credit line, which expires in May 2008 that permits borrowings up to $1.5 million of which no amounts were outstanding at September 30, 2005.

 

Off-Balance Sheet Arrangements:

 

As of September 30, 2005, the Company has not entered into any off-balance sheet arrangements that are reasonably likely to have an impact on the Company’s current and future financial condition.

 

28



 

Other Factors:

 

On October 3, 2005, the Company acquired substantially all of the assets of North Shore Answering Service, a provider of telephone after-hour answering services and stand-alone voice mail services, for approximately $2.7 million.  Of the total purchase price, 80% was paid at closing and the remaining 20% will be paid to Seller on the first year anniversary of the agreement.

 

The Company entered into two operating lease agreements for additional space in Long Island City, New York.  The leases shall commence upon the landlord delivering possession of the premises and will run through March 31, 2018.  The leases call for minimum annual rentals of $220,000 and $115,000, respectively, subject to a annual increase.  This space will be used to expand the Company’s telephone answering service operation and PERS customer service and emergency response center and house the Company’s distribution center and accounting department.

 

On May 17, 2005, the Company acquired substantially all of the assets of Long Island Message Center, Inc., a Long Island New York based provider of telephone after-hour answering services and stand-alone voice mail services.  The purchase price was $397,712 and consisted of an initial cash payment of $318,170 and future cash payments of $79,542 to be paid to the Seller after nine months from the date of the executed agreement.  The Company also recorded broker and professional fees of approximately $28,000 and $19,000, respectively.

 

On April 12, 2004, the Company acquired substantially all of the assets of alphaCONNECT, Inc., a New Jersey based provider of telephone after-hour answering services and stand-alone voice mail services.  The purchase price was $691,956 and consisted of an initial cash payment of $563,816 and future cash payments of $51,256 and $76,884 to be paid to the Seller after the first and second year anniversaries from the date of the executed agreement, respectively.  The Company also paid professional fees of $76,000.  A potential exists for the payment of additional purchase price consideration if certain thresholds concerning revenue are met by the acquired business.  The first measurement date for this potential additional purchase price consideration was April 1, 2005 and no additional purchase price consideration was required. The second measurement date is April 1, 2006.

 

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 continued projected growth of the H-LINK and PERS divisions.  The fifteen (15) year lease term 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.

 

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 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 was the exclusive manufacturer and distributor in the United States, of

 

29



 

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, which had a minimum five-year term (“initial term”), and provided for the payment by the Company of certain fees based on the service revenue derived from the enhanced PERS product, was amended on June 30, 2005.  The amendment includes an extension of the initial term for an additional three years, and converted the exclusive license to a non-exclusive one.  The cost of the licensing component of $1,115,000, including $115,000 of professional fees, which has been paid in full, was being amortized over a 40-month period which commenced in July 2003 upon the Company meeting certain milestones under the agreement.  With this extension of the initial term, the Company is amortizing the remaining value of the licensing component as of June 30, 2005 over the revised initial term of the Agreement.  Additionally, if certain acceptance criteria are met, the Company will be required to purchase a minimum of 1,500 devices over the term of the Agreement at an estimated aggregate cost of $450,000.

 

Since 1983, the Company has provided Personal Emergency Response Systems (“PERS”) services to the City of New York’s Human Resources Administration Home Care Service Program (“HCSP”).  The Company has been operating since 1993 with a contract to provide HCSP with these services, which has been extended for 1-2 year periods since 1993, the last such extension through June 30, 2006.  During the nine months ended September 30, 2005 and 2004, the Company’s revenues from this contract represented 13% and 15%, respectively, of its total revenue.

 

In November 2002, a new Request for Proposals (“RFP”) was issued by HRA to provide emergency response services to HCSP from April 1, 2004 through March 31, 2007.  After receiving notification from the City of New York’s Human Resources Administration (“HRA”) that the Company was selected as the approved vendor under the RFP to provide PERS services to the Home Care Services Program to Medicaid Eligible individuals, the Company subsequently received notification from HRA that it canceled the RFP “in the best interests of the City of New York.”  The Company was advised that the cancellation of the RFP is not related to any performance issue or negative reflection upon the Company.  Concurrently, the Company was advised of HRA’s decision to issue a new contract extension to the Company through June 2005 under the terms of the contract that the Company has been operating under since 1993.  The Company has since received this contract extension and also has received a subsequent extension which goes through June 2006.  In accordance with the original contract and consistent with previous extensions, HRA has the right to terminate the contract without cause or “in the best interest of the City of New York” upon thirty days written notice.  HRA has also advised the Company that they plan to issue a new RFP with respect to PERS services in the future. As of November 9, 2005, a new RFP has not been issued.

 

The Company cannot determine (i) when the terms of the new RFP will be published, (ii) what the terms of the new RFP will be, (iii) how long the current contract terms will remain in effect or (iv) whether AMAC will be the successful bidder on the new RFP (and if so, under what terms and conditions).  While the Company has reduced its dependence on revenue from HCSP, if the Company does not maintain this contract, a significant amount of the Company’s revenue could be lost, albeit over a protracted period, which could have a material adverse effect on

 

30



 

operating results and cash flows. The Company continues to implement a variety of operational efficiencies, as well as continuing to enhance and diversify its other revenue streams, to offset the impact, if any, in the event of this occurrence.

 

As of September 30, 2005 and December 2004, accounts receivable from the contract represented 18%, of accounts receivable.  Medical devices in service under the contract represented approximately 16% and 18%, respectively, of the total medical devices in service for primary monitoring.

 

No other single contract or customer represents more than 6% of the Company’s revenue.

 

The Company’s PERS and related equipment is subject to approvals under the rules of the Federal Communication Commission (“FCC”). In November 2004, the Company received an inquiry from the Federal Communications Commission. In response to that inquiry the Company has determined that certain versions of its PERS and related equipment emit levels of radio frequency energy that exceed applicable standards designed to reduce the possibility of interference with radio communications.  Although this issue poses no safety or functionality risk to subscribers, the Company is in the process of establishing a corrective action plan with the FCC to satisfy this matter.

 

The Company is currently working with the FCC to determine an action plan to establish a timeframe to complete an upgrade program for the affected PERS and related equipment and the amount of a payment to the FCC. At this time the Company is unable to determine whether it is probable that a liability has been incurred; accordingly, no estimate of the potential payment to the FCC has been recorded.  However, the Company believes the payment could range between $50,000 and $160,000, although substantially higher amounts are possible based on the discretion of the FCC.  The Company believes the FCC will allow the upgrade program to run substantially parallel with the normal recycling of the Company’s PERS equipment. Under this assumption the only additional cost to be incurred will be the incremental cost to bring the units into compliance with the FCC regulations.  However, in certain instances, the Company has accelerated the exchange of the PERS equipment.

 

Through September 30, 2005, the Company has expensed approximately $670,000 in connection with this matter, of which approximately $190,000, primarily relating to costs associated with the replacement of equipment, legal fees and other professional fees, was recorded in 2005.  The remaining $480,000 was charged to expense in the fourth quarter of 2004, which primarily related to costs to be incurred in excess of normal repair and refurbishment costs.

 

Recent Accounting Pronouncements:

 

In June 2005, the FASB issued SFAS No. 154, a replacement of APB No. 20 and SFAS No. 3.  SFAS No. 154 applies to all voluntary changes in accounting principle and changes the requirements for accounting for and reporting of a change in accounting principle to be applied

 

31



 

retrospectively with all prior period financial statements presented on the new accounting principle.  SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.  The Company’s results of operations and financial condition will only be impacted by SFAS No. 154 if it implements changes in accounting principle that are addressed by the standard or discovers in future periods, errors which require correction.

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. The statement supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123R requires all entities to recognize compensation expense in an amount equal to the fair-value of share-based payments. Upon adoption, the fair value of all employee stock option awards will be expensed in the Company’s statement of income, typically, over the related vesting period of the options. SFAS No. 123R requires the use of fair value to measure share-based awards issued to employees, computed at the date of grant. Additionally, SFAS No. 123R requires companies to record compensation expense for the unvested portion of previously granted awards as they continue to vest, as calculated previously and included in the companies prior period pro forma disclosures under SFAS No. 123. SFAS No. 123R also requires the tax benefit of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. The Company will adopt SFAS No. 123R beginning with the fiscal 2006 first quarter, as required. The impact of adoption of SFAS 123R cannot be determined at this time because it will partially depend on levels of share based payment granted in the future.  However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as shown in Note 5 (see discussion on Accounting for Stock Based Compensation).

 

In November 2004, the FASB issued SFAS Statement No. 151, Inventory Costs – An Amendment of ARB No. 43, Chapter 4 (“SFAS 151”), which is the result of its effort to converge U.S. accounting standards for inventories with International Accounting Standards. SFAS 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized as current-period charges and not included in overhead. It also requires that allocation of fixed production overhead cost to inventory be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company has not determined the effect of adopting SFAS 151.

 

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

 

32



 

materiality of the accounts involved, and therefore, considers these to be its critical accounting policies.  Estimates in each of these areas are based on historical experience and a variety of assumptions that the Company believes are appropriate. Actual results may differ from these estimates.

 

Reserves for Uncollectible Accounts Receivable

 

The Company makes ongoing assumptions relating to the collectibility of its accounts receivable.  The accounts receivable amount on the balance sheet includes a reserve for accounts that might not be paid.  In determining the amount of the reserve, the Company considers its historical level of credit losses.  The Company also makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and it assesses current economic trends that might impact the level of credit losses in the future. The Company recorded reserves for uncollectible accounts receivable of $743,000 as of September 30, 2005, which is equal to 15.25% of total accounts receivable.  While the Company believes that the current reserves are adequate to cover potential credit losses, it cannot predict future changes in the financial stability of its customers and the Company cannot guarantee that its reserves will continue to be adequate.  For each 1% that actual credit losses exceed the reserves established, there would be an increase in general and administrative expenses and a reduction in reported net income of approximately $49,000. 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 $49,000.

 

Fixed Assets

 

Fixed assets are stated at cost.  Depreciation for financial reporting purposes is being provided by the straight-line method over the estimated useful lives of the related assets.  The valuation and classification of these assets and the assignment of useful depreciable lives involves significant judgments and the use of estimates.  Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Historically, impairment losses have not been required.  Any change in the assumption of estimated useful lives could either result in a decrease or increase the Company’s financial results.  A decrease in estimated useful life would reduce the Company’s net income and an increase in estimated useful life would increase the Company’s net income.  If the estimated useful lives of the PERS medical device were decreased by one year, the cost of goods related to services would increase and net income would decrease by approximately $175,000 per annum.  Conversely, if the estimated useful lives of the PERS medical device were increased by one year, the cost of goods related to services would decrease and net income would increase by approximately $140,000 per annum.

 

Valuation of Goodwill

 

Pursuant to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite life intangible assets are no longer amortized, but are subject to annual impairment tests.  To date, the Company has not been required to recognize an impairment of goodwill. The Company tests goodwill for impairment

 

33



 

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 $2,794,559 and $2,563,864 at September 30, 2005 and December 31, 2004, respectively.  If the Company were to experience a significant adverse impact on goodwill, it would negatively impact the Company’s net income.

 

Item 3.  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, President and the 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, President and the Chief Financial Officer concluded that the Company’s controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer, President and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

 

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2005 that has materially affected, or is reasonably likely to 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.

 

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

On September 13, 2005, the Company issued 7,500 shares of Common Stock to an investor of the Company, pursuant to an exercise of a warrant, for a total purchase price of $28,500.  The shares were issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, and in reliance on the purchaser’s representation as to its status as an accredited investor, and that it was acquiring the shares for investment purposes and not with a view to any sale or distribution.  In addition, the shares bore a 1933 Act restrictive legend.

 

On October 14, 2005, the Company issued 250 shares of Common Stock to an investor of the Company, pursuant to an exercise of a warrant, for a total purchase price of $950.  The shares were issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, and in reliance on the purchaser’s representation as to its status as an accredited investor, and that it was acquiring the shares for investment purposes and not with a view to any sale or distribution.  In addition, the shares bore a 1933 Act restrictive legend.

 

On October 14, 2005, the Company issued 5,000 shares of Common Stock to an investor of the Company, pursuant to an exercise of a warrant, for a total purchase price of $19,000.  The shares were issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, and in reliance on the purchaser’s representation as to its status as an accredited investor, and that it was acquiring the shares for investment purposes and not with a view to any sale or distribution.  In addition, the shares bore a 1933 Act restrictive legend.

 

On October 25, 2005, the Company issued 22,750 shares of Common Stock to a consultant of the Company, pursuant to an exercise of a warrant, for a total purchase price of $94,867.50.  The shares were issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, and in reliance on the purchaser’s representation as to its status as an accredited investor, and that it was acquiring the shares for investment purposes and not with a view to any sale or distribution.  In addition, the shares bore a 1933 Act restrictive legend.

 

Item 4.           Submission of Matters to a Vote of Security Holders

 

On August 18, 2005, the Company held its 2005 Annual Meeting of Shareholders (the “2005 Meeting”).

 

At the 2005 Meeting, the Company’s shareholders (i) elected seven directors to serve until the 2005 Annual Meeting of Shareholders and until their successors shall be elected and qualified, (ii) approved the Company’s 2005 Stock Incentive Plan, and (iii) ratified the selection of Margolin, Winer & Evens LLP as the Company’s independent auditors for the fiscal year ending December 31, 2005.

 

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1.                                      The vote with respect to the election of directors was as follows:

 

Name

 

For

 

Authority Withheld

 

(a)

 

Howard M. Siegel

 

7,939,144

 

49,700

 

 

(b)

 

James LaPolla

 

7,928,644

 

60,200

 

 

(c)

 

Jack Rhian

 

7,939,144

 

49,700

 

 

(d)

 

Frederick Siegel

 

7,928,644

 

60,200

 

 

(e)

 

Ronald Levin

 

6,119,303

 

1,869,541

 

 

(f)

 

Yacov Shamash

 

7,938,944

 

49,900

 

 

(g)

 

John S.T. Gallagher

 

7,938,644

 

50,200

 

 

 

2.                                      The proposal to approve the Company’s 2005 Stock Incentive Plan was approved by the following vote:

 

For

 

Against

 

Abstain

 

Broker Non-Votes

 

5,240,213

 

594,467

 

14,670

 

2,139,494

 

 

3.                                      The proposal to ratify the selection of Margolin, Winer & Evens LLP as the Company’s independent auditors for the fiscal year ending December 31, 2004, was approved by the following vote:

 

For

 

Against

 

Abstain

 

7,882,582

 

22,242

 

84,020

 

 

Item 5.  Other Information.

 

On November 11, 2005, the Company entered into an employment agreement (the “Employment Agreement”) with Jack Rhian, whereby Mr. Rhian will be employed for a period of 5 years beginning on January 1, 2006 as the Company’s President and Chief Operating Officer.  Mr. Rhian is currently a director, the President and Chief Operating Officer of the Company. Mr. Rhian will be entitled to receive the following base salary amounts: 240,000 per annum, for the period beginning January 1, 2006 and ending December 31, 2006; $260,000 per annum, for the period beginning January 1, 2007 and ending December 31, 2007; $280,000 per annum, for the period beginning January 1, 2008 and ending December 31, 2008; $300,000 per annum, for the period beginning January 1, 2009 and ending December 31, 2009; and $300,000 per annum, for the period beginning January 1, 2010 and ending December 31, 2010.

 

In addition, Mr. Rhian will be granted the following bonus compensation stock grants: (i) 50,000 shares, to vest in 5 equal installments of 10,000 on each of December 31, 2006, 2007, 2008, 2009 and 2010, subject to the condition that Mr. Rhian remains employed by the Company on each such applicable date; provided, however, that in the event of a change in control (as defined in the Employment Agreement) if the Company or its successor pursuant to such change in control, as applicable, and Mr. Rhian either agree to continue the Employment Agreement or to enter into a new employment agreement mutually acceptable to the Company or its successor and Mr. Rhian in lieu of the Employment Agreement, then any such shares which remain

 

36



 

unvested, shall vest immediately upon the mutual agreement of the Company or its successor and Mr. Rhian to continue this Agreement or to enter into a new agreement, (ii) up to 80,000 shares based on the Company’s earnings before deduction of interest and taxes (“EBIT”), as set forth in the Company’s audited financial statements for the applicable fiscal year, meeting or exceeding the EBIT performance goals set forth below, and (iii) 2,000 shares of common stock per year, for a total of up to 10,000 shares of common stock over the employment period, based on the Company’s total revenues, as set forth in the Company’s audited financial statements for the applicable fiscal year, meeting or exceeding an amount equal to at least 115% of the Company’s total revenues for the prior fiscal year.

 

EBIT Targets For 2006 – 2010

 

EBIT growth over prior fiscal year

 

# of Shares

 

 

 

 

 

15.0 – 17.49%

 

8,000 shares

 

17.5 – 19.99%

 

9,000 shares

 

20.0 – 22.49%

 

10,500 shares

 

22.5 – 24.99%

 

13,000 shares

 

25.0% - or more

 

16,000 shares

 

 

In the event that the minimum EBIT growth percentage is not met for a particular fiscal year, Employee will have the opportunity to earn back the minimum performance bonus grant for such fiscal year as follows: if the EBIT growth percentage in the subsequent fiscal year combined with the EBIT growth percentage of the prior fiscal year exceeds 30%, then the number of percentage points needed to be added to the prior fiscal year’s EBIT growth percentage to equal 15%, shall be deducted from the subsequent fiscal year EBIT growth percentage and added to the prior fiscal year EBIT growth percentage, and Employee shall be granted 8,000 shares of common stock for the prior fiscal year, and an additional number of shares of common stock for the subsequent fiscal year shall be granted determined based on the above formula taking into account the reduced subsequent year EBIT growth percentage.

 

To the extent shares to be granted pursuant to (ii) or (iii) above exceed 50,000, they will only be granted if shareholder approval of such grant is obtained. If such shareholder approval is not obtained prior to the time any such shares are earned by Mr. Rhian, then Mr. Rhian shall not be entitled to and shall not be granted any such shares.  In addition, all of the above grants are subject to the execution of a stock grant agreement evidencing the terms of such grants.

 

Unless Mr. Rhian is terminated for Cause (as defined in the Employment Agreement), in the event that the Company does not offer Mr. Rhian to enter into a written employment agreement with terms and conditions no less favorable than substantially the same terms and conditions as the Employment Agreement to begin immediately following the expiration of the Employment Agreement, Mr. Rhian shall receive payment of base salary, based on the then applicable salary level, for a period of twelve (12) months from the date of the expiration of the Employment Agreement.

 

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In the event that Mr. Rhian should become disabled and be unable to perform his duties for a period of one hundred eighty (180) consecutive days or an aggregate of more than one hundred eighty (180) consecutive days in any 12 month period, the Company may terminate the Employment Agreement after the expiration of such period.

 

In the event of his death during the term of the Employment Agreement, Mr. Rhian’s estate or such other person as he designated will be entitled to receive his base salary for a period of one year from the date of his death.

 

In addition, in the event there is a change in control (as defined in the Employment Agreement) and Mr. Rhian’s employment with the Company is terminated within 180 days following such change in control under certain conditions, Mr. Rhian will be entitled to a lump sum payment equal to 2.99 times his average annual total compensation, as measured for the past 5 years, in lieu of any remaining obligations of the Company under the Employment Agreement.

 

A copy of the Employment Agreement is attached to this Form 10-QSB as Exhibit 10.1.

 

On August 10, 2005 and October 25, 2005, respectively, the Company entered into operating leases with Garden Spires Associates LP for approximately 17,500 square feet of additional space at the Company’s Long Island City, New York location. The leases will, commence upon the landlord delivering possession of the premises, which is expected to occur in early 2006, and will run through March 31, 2018. The leases call for minimum annual rentals of $220,000 and $115,000, respectively, payable monthly and subject to annual increases. The Company currently leases space at this location through an operating lease agreement with Garden Spires Associates LP which was executed in 2002.

 

Item 6.  Exhibits.

 

No.

 

Description

 

 

 

10.1

 

Employment Agreement between the Company and Jack Rhian, dated November 11, 2005

10.2

 

2005 Stock Incentive Plan (incorporated by reference to the Company’s Proxy Statement filed with the SEC on June 30, 2005).

31.1

 

Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2

 

Certification of President Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.3

 

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 President Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

32.3

 

Certification of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

 

38



 

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, 2005

 

By:

   /s/ Howard M. Siegel

 

 

 

Name:

Howard M. Siegel

 

 

Title:

Chairman of the Board,
Chief Executive Officer

 

 

 

 

 

 

By:

 /s/ Richard Rallo

 

 

 

Name: Richard Rallo

 

 

Title: Chief Financial Officer

 

39


EX-10.1 2 a05-20193_1ex10d1.htm EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND JACK RHIAN, DATED 11/11/05

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

EMPLOYMENT AGREEMENT dated as of November 11, 2005 between AMERICAN MEDICAL ALERT CORP., a New York corporation (the “Company”), with offices located at 3265 Lawson Boulevard, Oceanside, New York 11572 and JACK RHIAN, an individual having an address at 32 Everdell Drive, East Rockaway New York, NY 11515 (“Employee”).

 

W I T N E S S E T H:

 

WHEREAS, the Company desires to retain the services of Employee upon the terms and conditions stated herein; and

 

WHEREAS, Employee desires to continue to be employed by the Company upon the terms and conditions stated herein.

 

NOW, THEREFORE, in consideration of the mutual covenants, conditions and promises contained herein, the parties hereby agree as follows:

 

1.     Employment.  The Company hereby employs Employee for the period beginning as of January 1, 2006 and ending December 31, 2010 (the “Expiration Date”), unless earlier terminated pursuant hereto (the “Employment Period”).

 

2.    Duties.  Subject to the authority of the Board of Directors of the Company, Employee shall be employed as the Company’s President and Chief Operating Officer.  Employee will perform such duties and services of an executive nature, commensurate with his position as the President and Chief Operating Officer, as may from time to time be assigned to him by the Board of Directors.

 

3.     Full Time.  Employee agrees that he will devote his full time and attention during regular business hours to the business and affairs of the Company.  The foregoing shall not prevent the purchase, ownership or sale by Employee of investments or securities of publicly held companies and any other business that is not competitive with the Company or any subsidiary of the Company so long as such investment does not require active participation of Employee in the management of the business of such publicly held companies, does not interfere or conflict with the performance of Employee’s duties hereunder and does not otherwise violate any of the provisions of this Agreement, or Employee’s participation in philanthropic organizations to the extent that such participation does not interfere or conflict with the performance of Employee’s duties hereunder and does not otherwise violate any provision of this Agreement.

 

4.     Compensation.  In consideration of the duties and services to be performed by Employee hereunder, the Company agrees to pay, and Employee agrees to accept the amounts set forth below:

 

 



 

(a)   A base salary, to be paid on a bi weekly basis, at the rate of:

 

(i)            $240,000 per annum, for the period beginning January 1, 2006 and ending December 31, 2006;

 

(ii)           $260,000 per annum, for the period beginning January 1, 2007 and ending December 31, 2007;

 

(iii)          $280,000 per annum, for the period beginning January 1, 2008 and ending December 31, 2008;

 

(iv)          $300,000 per annum, for the period beginning January 1, 2009 and ending December 31, 2009; and

 

(v)           $300,000 per annum, for the period beginning January 1, 2010 and ending December 31, 2010.

 

(b)   In addition to the base salary payable pursuant to Section 4(a) above, and subject to subparagraph (c) below, the Employee shall be eligible for the following stock grants payable in the Company’s common stock:

 

(i)            Up to 80,000 shares over the Employment Period based on the Company’s earnings before deduction of interest and taxes (“EBIT”), as set forth in the Company’s audited financial statements for the applicable fiscal year, meeting or exceeding the following targets:

 

For 2006 — 2010

 

EBIT growth over prior fiscal year

 

# of Shares

 

 

 

 

 

15.0 — 17.49%

 

8,000 shares

 

17.5 — 19.99%

 

9,000 shares

 

20.0 — 22.49%

 

10,500 shares

 

22.5 — 24.99%

 

13,000 shares

 

25.0% - or more

 

16,000 shares

 

 

In the event that the minimum EBIT growth percentage is not met for a particular fiscal year, Employee will have the opportunity to earn back the minimum performance bonus grant for such fiscal year as follows: if the EBIT growth percentage in the subsequent fiscal year combined with the EBIT growth percentage of the prior fiscal year meets or exceeds 30%, then the number of percentage points needed to be added to the prior fiscal year’s EBIT growth percentage to equal 15%, shall be deducted from the subsequent fiscal year EBIT growth percentage and added to the prior fiscal year EBIT growth percentage, and Employee shall be granted 8,000 shares of common stock for the prior fiscal year, and an additional number of shares of common stock determined based on the above formula and the reduced subsequent year EBIT growth percentage.  For example, if in 2006, 2007 and 2008 EBIT growth percentage was 14%, 13% and 20%, respectively, then Employee would be deemed (i) not to have met the fiscal year 2006 EBIT growth percentage,

 

 

2



 

(ii) to have met the minimum (15%) EBIT growth percentage (by virtue of deducting 2% percentage points from the fiscal year 2008 EBIT growth percentage and adding those to the 2007 fiscal year EBIT growth percentage), and (iii) to have met the 17.5 — 19.99% EBIT growth percentage for fiscal 2008 (20% - 2% =18%), thereby earning a total 17,000 shares of common stock (8,000 shares relating to 2007 and 9,000 shares relating to 2008); and

 

(ii)           2,000 shares of common stock per year, for a total of up to 10,000 shares of common stock over the Employment Period, based on the Company’s total revenues, as set forth in the Company’s audited financial statements for the applicable fiscal year, meeting or exceeding an amount equal to at least 115% of the Company’s total revenues for the prior fiscal year.

 

In addition, to the extent that the number of shares of common stock earned by Employee pursuant to subparagraphs (b)(i) and (ii) above exceeds a total of 50,000 shares, the grant of such shares shall be subject to obtaining shareholder approval.  If such shareholder approval is not obtained prior to the time any such shares are earned by Employee, then Employee shall not be entitled to and shall not be granted any such shares.  Any shares to be issued under (b)(i) or (b)(ii) shall be issued on April 15 of the year following the fiscal year for which the shares were earned.

 

(iii)          50,000 shares of common stock, to vest, subject to the condition that Employee is employed by the Company at the applicable date, as follows: 10,000 shares on December 31, 2006, 10,000 shares on December 31, 2007, 10,000 shares on December 31, 2008, 10,000 shares on December 31, 2009 and 10,000 shares on December 31, 2010; provided, however, that in the event of a Change in Control (as hereinafter defined), if the Company or its successor pursuant to such Change in Control, as applicable, and the Employee either agree to continue this Agreement or to enter into a new employment agreement mutually acceptable to the Company or its successor and the Employee in lieu of this Agreement, then any such shares which remain unvested, shall vest immediately upon the mutual agreement of the Company or its successor and the Employee to continue this Agreement or to enter into a new agreement.

 

(c)   The bonus stock grant provided for in subparagraph (b)(iii) above shall be issued to the Employee following the negotiation and execution of a stock grant agreement between the Company and the Employee, and shall only be issued after an applicable Form S-8 registration statement has been filed by the Company with the U.S. Securities and Exchange Commission. The bonus stock issued pursuant to subparagraph (b)(iii) shall be subject to forfeiture to the extent such shares do not vest.  The bonus stock grants provided for in subparagraphs (b)(i) and b(ii) above shall also be subject to such stock grant agreement and shall be issued when earned. All shares to be issued pursuant to such stock grant agreement shall be issued out of the Company’s 2005 Stock Incentive Plan (the “Plan”), except that to the extent the shares to be issued under b(i) and b(ii) exceed 50,000 shares, such shares shall be issued as a separate individual grant to Employee and not out of the Plan.  The adjustment features of Section 10 of the Plan shall also be applied in the stock grant agreement to the separate grant.

 

 

3



 

(d)   The compensation provided for herein shall be in addition to any retirement, profit sharing, insurance or similar benefit which may at any time be payable to Employee pursuant to any plan or policy of the Company relating to such benefits, which additional benefits shall be made available to Employee on the same basis as they are generally made available to other executive officers of the Company.

 

(e)   The Company shall reimburse Employee in accordance with the Company’s normal policies for all reasonable travel, hotel, meal and other expenses properly incurred by him in the performance of his duties hereunder.

 

(f)    The Company shall provide Employee with the use of an automobile stipend to cover expenses of operation such as insurance, gas, oil and repair Company not to exceed [1,000.00] monthly.

 

5.     Vacation.  Employee shall be entitled to three (3) weeks vacation each fiscal year, to be taken at such time as is mutually convenient to the Company and Employee.

 

6.     Death.  In the event of the death of Employee during the Employment Period, this Agreement and the employment of Employee hereunder shall terminate on the date of the death of Employee.  The estate of Employee (or such person(s) as Employee shall designate in writing) shall be entitled to receive, and the Company agrees to continue to pay, in accordance with the normal pay practice of the Company, the base salary of Employee provided by paragraph 4(a) and the additional benefits, if any, provided by paragraph 4(d), in each instance for a period of one (1) year following the date of death of Employee.

 

7.     Disability.  In the event that Employee shall be unable to perform because of illness or incapacity, physical or mental, the duties and services to be performed by him hereunder for a period of one hundred and eighty (180) consecutive days or an aggregate period of more than one hundred and eighty (180) days in any 12-Month period, the Company may terminate this Agreement after the expiration of such period.  Upon such termination, Employee shall be entitled to receive the base salary provided by paragraph 4(a) and the additional benefits, if any, provided by paragraph 4(d), in each instance through the date of such termination.

 

8.     NonCompetition and NonDisclosure.  (a) Employee covenants and agrees that throughout the Employment Period and for a period of twelve (12) months thereafter, he will not, directly or indirectly, own, manage, operate or control, or participate in the ownership, management, operation or control of, any business competing directly in the United States of America with the business conducted by the Company or any subsidiary of the Company during the Employment Period; provided, however, that Employee may own not more than 5% of the outstanding securities of any class of any corporation engaged in any such business, if such securities are listed on a national securities exchange or the NASDAQ Stock Market regularly traded in the Over the Counter market by a member of a national securities association.

 

(b)   Employee covenants and agrees that, (i) throughout the Employment Period, he will not directly or indirectly solicit, entice or induce any person (collectively,

 

4



 

“Solicit”) who during the Employment Period is associated with, employed by or is a customer of the Company or any subsidiary, and (ii) for a period of twenty-four (24) months following the Employment Period, he will not Solicit any person who is, or within the last three months of Employee’s employment by the Company was, associated with, employed by, or was a customer of the Company or any subsidiary of the Company, in each case, to leave the employ of, terminate his association or its relationship with the Company, or any subsid­iary of the Company, or solicit the employment or business of any such person on his own behalf or on behalf of any other business enterprise.

 

(c)   Employee covenants and agrees that, throughout the Employment Period and at all times thereafter, he will not use, or disclose to any third party, trade secrets or confidential information of the Company, including, but not limited to, confidential information or trade secrets belonging or relating to the Company, its subsidiaries, affiliates, customers and clients or proprietary processes or procedures of the Company, its subsidiaries, affiliates, customers and clients, or the Company’s or its subsidiaries’ business, business plans, investments, customers, strategies, operations, records, financial information, assets, technology, data and information that reveals the processes, methodologies, technology or know-how of the Company or its subsidiaries.  Trade secrets and confidential information shall include, but shall not be limited to, all information which is known or intended to be known only by employees of the Company, its respective subsidiaries and affiliates or others in a confidential relationship with the Company or its respective subsidiaries and affiliates which relates to business matters.

 

(d)   If any term of this paragraph 8 is found by any court having jurisdiction to be too broad, then and in that case, such term shall nevertheless remain effective, but shall be considered amended (as to the time or area or otherwise, as the case may be) to a point considered by said court as reason­able, and as so amended shall be fully enforceable.

 

(e)   In the event that Employee shall breach or threaten to breach any provision of this Agreement (including but not limited to the provisions of this paragraph 8), then Employee hereby consents to the granting of a temporary or permanent injunction against him by a court of competent jurisdiction prohibiting him from violating any provision of this Agreement.  In any proceeding for an injunction and upon any motion for a temporary or permanent injunction, Employee agrees that his ability to answer in damages shall not be a bar or interposed as a defense to the granting of such temporary or permanent injunction against Employee.  Employee further agrees that the Company will not have an adequate remedy at law in the event of any breach or threatened breach by Employee hereunder and that the Company will suffer irreparable damage and injury if Employee breaches any of the provisions of this Agreement.

 

9.     Termination; Non-Renewal.

 

(a)   The Company may terminate this Agreement without liability (other than for the base salary and any other compensation pro­vided in paragraph 4 accrued to the date of termination) in the event of (i) a material breach by Employee of the provisions of this Agreement, which breach shall not have been cured by Employee within one hundred twenty

 

5



 

(120) days following notice thereof by the Company to Employee, (ii) the commission of gross negligence or bad faith by Employee in the course of his employment hereunder, which commission has a material adverse effect on the Company, (iii) the commission by Employee of a criminal act of fraud, theft or dishonesty causing material damages to the Company or any of its subsidiaries, (iv) the conviction of Employee of (or plead nolo contendere to) any felony, or misdemeanor involving moral turpitude if such misdemeanor results in material financial harm to or materially adversely affects the goodwill of the Company, or (v) any violation by Employee of the Company’s Code of Business Conduct and Ethics or the Company’s sexual harassment and other forms of harassment policy or drug and alcohol abuse policy, as set forth in the Company’s employee handbook.  The circumstances specified in (i) through (v) above shall be defined as “Cause.”

 

(b)   Unless the Employee is terminated for Cause pursuant to Section 9(a) above on or prior to the Expiration Date, and other than in the circumstances described in Section 9(d), in the event that the Company does not offer Employee to enter into a written employment agreement with terms and conditions no less favorable than substantially the same terms and conditions as this Agreement to begin immediately following the Expiration Date, Employee shall receive, in consideration of his continuing obligations under Section 8 hereof, payment of base salary, based on the then applicable salary level, for a period of twelve (12) months, commencing seven months following the date of the expiration of the Employment Period.  Employee’s right to any payments pursuant to this Section 9(b) shall be in addition to, and not in lieu of, any damages for the termination by the Company of this Agreement prior to the Expiration Date for any reason other than those set forth in Section 9(a) above.

 

(c)   After a Change in Control (as hereinafter defined) has occurred, Employee may terminate his employment upon thirty (30) days’ written notice to the Company within one hundred and eighty (180) days following such a Change in Control and after he has obtained actual knowledge of the occurrence of any of the following events:

 

(i)            Failure to elect or appoint, or re-elect or re-appoint, Employee to, or removal of Employee from, his office and/or position with the Company as constituted prior to the Change in Control, except in connection with the termination of Employee’s employment pursuant to Section 9(a) hereof;

 

(ii)           A reduction in Employee’s overall compensation (including any reduction in pension or other benefit programs or perquisites) or a material adverse change in the nature or scope of the authorities, powers, functions or duties normally attached to Employee’s position with the Company as referred to in Section 2 hereof;

 

(iii)          A determination by Employee made in good faith that, as a result of a Change in Control, he is unable effectively to carry out the authorities, powers, functions or duties attached to his position with the Company as referred to in Section 2 hereof, and the situation is not remedied within thirty (30) days after receipt by the Company of written notice from Employee of such determination;

 

6



 

(iv)          A breach by the Company of any provision of this Agreement not covered by clauses (i), (ii) or (iii) of this Section 9(c), which is not remedied within thirty (30) days after receipt by the Company of written notice from Employee of such breach;

 

(v)           A change in the location at which substantially all of Employee’s duties with the Company are to be performed to a location which is not within a 50-mile radius of the address of the place where Employee is performing services prior to the date of the Change in Control; or

 

(vi)          failure by the Company or its successor pursuant to such Change in Control, as applicable, and the Employee to either agree to continue this Agreement or to enter into a new employment agreement mutually acceptable to the Company or its successor and the Employee in lieu of this Agreement.

 

An election by Employee to terminate his employment under the provisions of this paragraph 9(c) shall not be deemed a voluntary termination of employment by Employee for the purpose of interpreting the provisions of any of the Company’s employee benefit plans, programs or policies.  Employee’s right to terminate his employment pursuant to this paragraph 9(c) shall not be affected by his illness or incapacity, whether physical or mental, unless the Company shall at the time be entitled to terminate his employment under paragraph 7 of this Agreement.  Employee’s continued employment with the Company for any period of time less than one hundred and eighty (180) days after a Change in Control shall not be considered a waiver of any right he may have to terminate his employment pursuant to this paragraph 9(c).  A termination by Employee under this paragraph 9(c) shall be deemed a termination by the Company of this Agreement without Cause.

 

(d)   After a Change in Control has occurred, in the event that this Agreement is terminated by the Company or its successor without Cause or by the Employee pursuant to Section 9(c), and if the Company or its successor and the Employee do not agree  to enter into a new employment agreement in lieu hereof, then Employee shall be entitled to be paid in a lump sum, within thirty days of such termination, an amount of cash (to be computed, at the expense of the Company or its successor, by the independent certified public accountants utilized by the Company immediately prior to the Change of Control (the “Accountants”), whose computation shall be conclusive and bind­ing upon Employee and the Company or its successor) equal to 2.99 times Employ­ee’s “base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”).  Any such payment shall be in full satisfaction of all of the Company’s or its successor’s obligations hereunder, and upon payment made pursuant to this paragraph 9(d), all of the Company’s or its successor’s obligations pursuant to this Agreement shall terminate in full and Employee shall have no further rights hereunder or recourse against the Company or its successor pursuant to this Agreement; provided, however, nothing in this paragraph 9(d) shall be interpreted to preclude the Employee receiving his accrued salary and other compensation payable pursuant to paragraph 4 through the date of termination.  Such lump sum payment is hereinafter referred to as the “Termination Compensation.”

 

7



 

It is intended that the “present value” of the payments and benefits to Employee, whether under this Agree­ment or otherwise, which are includable in the computation of “parachute payments” shall not, in the aggregate, exceed 2.99 times the “base amount” (the terms “present value”, “parachute payments” and “base amount” being determined in accordance with Section 280G of the Code).  Accordingly, if Employee receives payments or benefits from the Company prior to payment of the Termination Compensation which, when added to the Termination Compensation, would, in the opinion of the Accountants, subject any of the payments or benefits to Employee to the excise tax imposed by Section 4999 of the Code, the Termination Compensation shall be reduced by the smallest amount necessary, in the opinion of the Accountants, to avoid such tax.  In addition, the Company shall have no obligation to make any payment or provide any benefit to Employee subsequent to payment of the Termination Compensation which, in the opinion of the Accountants, would subject any of the payments or benefits to Employee to the excise tax imposed by Section 4999 of the Code. No reduction in Termination Compensation or release of the Company from any payment or benefit obligation in reliance upon any aforesaid opinion of the Accountants shall be permitted unless the Company shall have provided to Employee a copy of any such opinion that specifically entitles Employee to rely thereon, no later than the date otherwise required for payment of the Termination Compensation or any such later payment or benefit.

 

(e)   “Change in Control” as used in this Agree­ment shall mean the occurrence of any of the following:

 

(i)            any “person” or “group” (as such terms are used in Section 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Act”)), except for an employee stock ownership trust (or any of the trustees thereof), becomes a “beneficial owner” (as such term in used in Rule 13d-3 promulgated under the Act), after the date hereof, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities;

 

(ii)           during any twelve (12) month period during the Employment Period, individuals who at the beginning of such period constitute the entire Board of Directors cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election, by shareholders of the Company of each new director was approved or ratified by a vote of at least a majority of the directors then still in office who were directors at the beginning of the Employment Period or who were new directors approved by such a vote;

 

(iii)          the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iv)          the consummation of a merger or consolidation of the Company with any other company, other than a merger or consolidation which would result in the combined voting power of the Company’s voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent company of such surviving entity) 50% or more of the combined voting power of the voting securities of the Company or such

 

8



 

surviving entity or the parent company of such surviving entity outstanding immediately after such merger or consolidation.  Notwithstanding the foregoing, any transaction involving a leveraged buyout or other acquisition of the Company which would otherwise constitute a Change in Control, in which Employee participates in the surviving or successor entity (other than solely as an employee or consultant), shall not constitute a Change in Control.

 

10.   No Impediments.  Employee warrants and represents that he is free to enter into this Agreement and to perform the services contemplated thereby and that such actions will not constitute a breach of, or default under, any existing agreement.

 

11.   No Waiver.  The failure of any of the parties hereto to enforce any provision hereof on any occasion shall not be deemed to be a waiver of any preceding or succeeding breach of such provision or of any other provision.

 

12.   Entire Agreement.  This Agreement constitutes the entire agreement and understanding of the parties hereto and no amendment, modification or waiver of any provision herein shall be effective unless in writing, executed by the party charged therewith.

 

13.   Governing Law.  This Agreement shall be con­strued, interpreted and enforced in accordance with and shall be governed by the laws of the State of New York applicable to agreements to be wholly performed therein, other than those which would defer to the substantive laws of another jurisdiction.

 

14.   Binding Effect.  This Agreement shall bind and inure to the benefit of the parties, their successors and assigns.

 

15.   Assignment and Delegation of Duties.  This Agreement may not be assigned by the parties hereto except that the Company shall have the right to assign this Agreement to any successor in connection with a sale or transfer of all or sub­stantially all of its assets, a merger or consolidation.  This Agreement is in the nature of a personal services contract and the duties imposed hereby are non-delegable.

 

16.   Paragraph Headings.  The paragraph headings herein have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms or provi­sions hereof.

 

17.   Notices.  Any notice under the provisions of this Agreement shall be in writing, shall be sent by one of the following means, directed to the address set forth on the first page of this Agreement or to such other address as shall be designated hereunder by notice to the other party, effective upon actual receipt and shall be deemed conclusively to have been given: (i) on the first business day following the day timely deposited for overnight delivery with Federal Express (or other equivalent national overnight courier service) or United States Express Mail, with the cost of delivery prepaid or for the account of the sender; (ii) on the fifth business day following the day duly sent by certified or registered United States mail, postage prepaid and return receipt requested; or (iii) when otherwise actually received by the addressee on a business day (or on the next business day if received after the close of normal business hours or on any nonbusiness day).

 

9



 

18.   Unenforceability; Severability.  If any provision of this Agreement is found to be void or unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall, nevertheless, be binding upon the parties with the same force and effect as though the unenforceable part has been severed and deleted.

 

10



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above writ­ten.

 

 

EMPLOYEE:

 

 

 

 

 

/s/ Jack Rhian

 

Jack Rhian

 

 

 

 

 

 

 

 

 

COMPANY:

 

 

 

AMERICAN MEDICAL ALERT CORP.

 

 

 

 

 

By:

/s/ Howard M. Siegel

 

 

Name: Howard M. Siegel

 

 

Title: Chairman of the Board,

 

 

Chief Executive Officer

 

 

 

11


EX-31.1 3 a05-20193_1ex31d1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 302

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 small business issuer as of, and for, the periods presented in this report;

 

4.               The small business issuer’s other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, 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)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

c)              Evaluated the effectiveness of the small business issuer’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

 

d)             Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

5.               The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

 

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 small business issuer’s ability to record, process, summarize and report financial information; and

 

1



 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

 

Date: November 14, 2005

 /s/ Howard M. Siegel

 

 

Howard M. Siegel

 

Chief Executive Officer

 

2


EX-31.2 4 a05-20193_1ex31d2.htm CERTIFICATION OF PRESIDENT PURSUANT TO SECTION 302

Exhibit 31.2

 

Certification

 

I, Jack Rhian, 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 small business issuer as of, and for, the periods presented in this report;

 

4.         The small business issuer’s other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, 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)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

c)        Evaluated the effectiveness of the small business issuer’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

 

d)       Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

5.         The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

 

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 small business issuer’s ability

 

1



 

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 small business issuer’s internal control over financial reporting.

 

 

Date: November 14, 2005

 /s/ Jack Rhian

 

 

Jack Rhian

 

President and

 

Chief Operating Officer

 

2


EX-31.3 5 a05-20193_1ex31d3.htm CERTIFICATION OF CFO PURSUANT TO SECTION 302

Exhibit 31.3

 

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 small business issuer as of, and for, the periods presented in this report;

 

4.               The small business issuer’s other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, 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)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

c)              Evaluated the effectiveness of the small business issuer’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

 

d)             Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

5.               The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

 

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 small business issuer’s ability to record, process, summarize and report financial information; and

 

1



 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

 

Date: November 14, 2005

 /s/ Richard Rallo

 

 

Richard Rallo

 

Chief Financial Officer

 

2


EX-32.1 6 a05-20193_1ex32d1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 906

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, 2005 (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.

 

1


EX-33.2 7 a05-20193_1ex33d2.htm REPORT OF COMPLIANCE WITH SERVICING CRITERIA FOR ASSET-BACKED SECURITIES

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, 2005 (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/ Jack Rhian

 

 

Jack Rhian

 

President and

 

Chief Operating 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.

 

1


EX-33.3 8 a05-20193_1ex33d3.htm REPORT OF COMPLIANCE WITH SERVICING CRITERIA FOR ASSET-BACKED SECURITIES

Exhibit 33.3

 

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, 2005 (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.

 

1


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