x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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New York
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11-2571221
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification Number)
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company x
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PAGE
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Part I Financial Information
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||
Report of Independent Registered Public Accounting Firm
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1
|
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Condensed Consolidated Balance Sheets for June 30, 2011 and December 31, 2010
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2
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Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2011 and 2010
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3
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Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2011 and 2010
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4
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010
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5
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Notes to Condensed Consolidated Financial Statements
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7
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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17
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Quantitative and Qualitative Disclosures About Market Risk
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36
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Controls and Procedures
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37
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Part II Other Information
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37
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June 30, 2011
(Unaudited)
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Dec. 31, 2010
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|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
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$ | 7,193,332 | $ | 4,090,528 | ||||
Accounts receivable
|
||||||||
(net of allowance for doubtful accounts of $453,800 and $452,000)
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6,986,432 | 7,497,367 | ||||||
Inventory, net of non-current portion
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928,943 | 1,005,488 | ||||||
Prepaid income taxes
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467,905 | 610,479 | ||||||
Prepaid expenses and other current assets
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339,173 | 364,747 | ||||||
Deferred income tax asset
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187,000 | 219,000 | ||||||
Total Current Assets
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16,102,785 | 13,787,609 | ||||||
FIXED ASSETS
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||||||||
(Net of accumulated depreciation and amortization)
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6,623,057 | 7,195,019 | ||||||
OTHER ASSETS
|
||||||||
Intangible assets
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||||||||
(net of accumulated amortization of $7,124,593 and $6,864,657)
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1,090,999 | 1,350,936 | ||||||
Goodwill
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10,842,352 | 10,842,352 | ||||||
Investment in limited liability company
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1,898,298 | 2,970,210 | ||||||
Other assets (including inventory of $481,135 and $407,615)
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1,380,647 | 1,371,359 | ||||||
15,212,296 | 16,534,857 | |||||||
TOTAL ASSETS
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$ | 37,938,138 | $ | 37,517,485 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Current portion of long-term debt
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$ | 500,000 | $ | 660,000 | ||||
Accounts payable
|
710,985 | 732,849 | ||||||
Accrued expense – acquisitions
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98,625 | 105,807 | ||||||
Accrued expenses
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1,901,732 | 2,013,152 | ||||||
Deferred revenue
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259,153 | 231,825 | ||||||
Total Current Liabilities
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3,470,495 | 3,743,633 | ||||||
DEFERRED INCOME TAX LIABILITY
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1,196,000 | 1,228,000 | ||||||
LONG-TERM DEBT, Net of Current Portion
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1,950,000 | 2,150,000 | ||||||
CUSTOMER DEPOSITS
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90,899 | 101,499 | ||||||
ACCRUED RENTAL OBLIGATION
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565,814 | 566,235 | ||||||
ACCRUED EXPENSE - ACQUISITION
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24,100 | 72,300 | ||||||
TOTAL LIABILITIES
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7,297,308 | 7,861,667 | ||||||
COMMITMENTS AND CONTINGENT LIABILITIES
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0 | 0 | ||||||
SHAREHOLDERS’ EQUITY
|
||||||||
Preferred stock, $.01 par value – authorized, 1,000,000 shares; none issued and outstanding
|
||||||||
Common stock, $.01 par value – authorized 20,000,000 shares; issued 9,631,603 shares in 2011 and 9,618,083 shares in 2010
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96,316 | 96,181 | ||||||
Additional paid-in capital
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16,721,947 | 16,606,018 | ||||||
Retained earnings
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13,959,144 | 13,090,196 | ||||||
30,777,407 | 29,792,395 | |||||||
Less treasury stock, at cost (48,573 shares in 2011 and 2010)
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(136,577 | ) | (136,577 | ) | ||||
Total Shareholders’ Equity
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30,640,830 | 29,655,818 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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$ | 37,938,138 | $ | 37,517,485 |
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Services
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$ | 20,574,977 | $ | 19,264,763 | ||||
Product sales
|
376,323 | 358,629 | ||||||
20,951,300 | 19,623,392 | |||||||
Costs and Expenses (Income):
|
||||||||
Costs related to services
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9,589,617 | 8,878,500 | ||||||
Costs of products sold
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182,744 | 167,830 | ||||||
Selling, general and administrative expenses
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8,430,381 | 7,765,084 | ||||||
Interest expense
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28,008 | 26,267 | ||||||
Equity in net loss from investment in limited liability company
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1,071,912 | 116,127 | ||||||
Other income
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(23,310 | ) | (59,691 | ) | ||||
Income before Provision for Income Taxes
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1,671,948 | 2,729,275 | ||||||
Provision for Income Taxes
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803,000 | 1,119,000 | ||||||
NET INCOME
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$ | 868,948 | $ | 1,610,275 | ||||
Net income per share:
|
||||||||
Basic
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$ | .09 | $ | .17 | ||||
Diluted
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$ | .09 | $ | .16 | ||||
Weighted average number of common shares outstanding:
|
||||||||
Basic
|
9,576,622 | 9,537,894 | ||||||
Diluted
|
9,824,536 | 9,835,180 |
Three Months Ended June 30,
|
||||||||
2011
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2010
|
|||||||
Revenues:
|
||||||||
Services
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$ | 10,177,103 | $ | 9,556,032 | ||||
Product sales
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142,464 | 156,113 | ||||||
10,319,567 | 9,712,145 | |||||||
Costs and Expenses (Income):
|
||||||||
Costs related to services
|
4,844,008 | 4,447,545 | ||||||
Costs of products sold
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66,809 | 75,346 | ||||||
Selling, general and administrative expenses
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4,401,965 | 3,857,251 | ||||||
Interest expense
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13,348 | 13,836 | ||||||
Equity in net loss from investment in limited liability company
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512,030 | 116,127 | ||||||
Other income
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(10,962 | ) | (29,863 | ) | ||||
Income before Provision for Income Taxes
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492,369 | 1,231,903 | ||||||
Provision for Income Taxes
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333,000 | 509,000 | ||||||
NET INCOME
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$ | 159,369 | $ | 722,903 | ||||
Net income per share:
|
||||||||
Basic
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$ | .02 | $ | .08 | ||||
Diluted
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$ | .02 | $ | .07 | ||||
Weighted average number of common shares outstanding
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||||||||
Basic
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9,580,005 | 9,549,355 | ||||||
Diluted
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9,816,209 | 9,828,473 |
Six Months Ended June 30,
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||||||||
2011
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2010
|
|||||||
Cash Flows From Operating Activities:
|
||||||||
Net income
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$ | 868,948 | $ | 1,610,275 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
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1,540,028 | 1,842,231 | ||||||
Stock compensation charge
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116,064 | 160,419 | ||||||
Equity in net loss from investment in limited liability company
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1,071,912 | 116,127 | ||||||
Decrease (increase) in:
|
||||||||
Accounts receivable
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510,935 | 173,530 | ||||||
Inventory
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3,025 | (226,445 | ) | |||||
Prepaid income taxes
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142,574 | (127,069 | ) | |||||
Prepaid expenses and other current assets
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25,574 | (206,876 | ) | |||||
Increase (decrease) in:
|
||||||||
Accounts payable, accrued expenses and other
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(144,304 | ) | 122,566 | |||||
Deferred revenue
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27,328 | (30,838 | ) | |||||
Net Cash Provided by Operating Activities
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4,162,084 | 3,433,920 | ||||||
Cash Flows From Investing Activities:
|
||||||||
Expenditures for fixed assets
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(695,389 | ) | (400,624 | ) | ||||
Deposit on equipment
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0 | (21,875 | ) | |||||
Payment of Investment in limited liability company
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0 | (4,130,731 | ) | |||||
Decrease in other assets
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51,491 | 5,065 | ||||||
Net Cash Used In Investing Activities
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(643,898 | ) | (4,548,165 | ) | ||||
Cash Flows From Financing Activities:
|
||||||||
Proceeds from long-term debt
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0 | 2,000,000 | ||||||
Repayment of long-term debt
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(360,000 | ) | (1,326,667 | ) | ||||
Payment of accrued expense - acquisitions
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(55,382 | ) | (73,346 | ) | ||||
Proceeds upon exercise of stock options
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0 | 43,985 | ||||||
Payment of loan financing costs
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0 | (4,370 | ) | |||||
Dividends paid
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0 | (950,364 | ) | |||||
Net Cash Used In Financing Activities
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(415,382 | ) | (310,762 | ) |
Six Months Ended June 30,
|
||||||||
2011
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2010
|
|||||||
Net Increase (Decrease) in Cash
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$ | 3,102,804 | $ | (1,425,007 | ) | |||
Cash, Beginning of Period
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4,090,528 | 5,498,448 | ||||||
Cash, End of Period
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$ | 7,193,332 | $ | 4,073,441 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
CASH PAID DURING THE PERIOD FOR INTEREST
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$ | 30,495 | $ | 26,014 | ||||
CASH PAID DURING THE PERIOD FOR INCOME TAXES
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$ | 675,204 | $ | 1,274,617 | ||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
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||||||||
Accrued expense – acquisitions / additional goodwill
|
||||||||
- American Mediconnect Inc.
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$ | 0 | $ | 38,298 | ||||
Other assets, deposits on product transferred to inventory
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$ | 0 | $ | 89,685 |
1.
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General:
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2.
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Results of Operations:
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3.
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Recent Accounting Pronouncements:
|
4.
|
Accounting for Stock-Based Compensation:
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Weighted
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted
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Remaining
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Aggregate
|
||||||||||||||
Number of
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Average
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Contractual
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Intrinsic
|
|||||||||||||
Options
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Option Price
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Term (years)
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Value
|
|||||||||||||
Balance at January 1
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718,343 | $ | 3.85 | |||||||||||||
Granted
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10,000 | 5.85 | ||||||||||||||
Exercised
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- | - | ||||||||||||||
Expired/Forfeited
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(25,650 | ) | 6.86 | |||||||||||||
Balance at June 30
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702,693 | $ | 3.77 | 1.49 | $ | 1,339,659 | ||||||||||
Vested and exercisable
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678,419 | $ | 3.69 | 1.42 | $ | 1,339,659 |
Weighted
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted
|
Remaining
|
Aggregate
|
||||||||||||||
Number of
|
Average
|
Contractual
|
Intrinsic
|
|||||||||||||
Options
|
Option Price
|
Term (years)
|
Value
|
|||||||||||||
Balance at January 1
|
894,785 | $ | 4.29 | |||||||||||||
Granted
|
- | - | ||||||||||||||
Exercised
|
(10,325 | ) | 4.26 | |||||||||||||
Expired/Forfeited
|
- | - | ||||||||||||||
Balance at June 30
|
884,460 | $ | 4.29 | 2.00 | $ | 1,565,633 | ||||||||||
Vested and exercisable
|
851,760 | $ | 4.23 | 1.92 | $ | 1,561,911 |
Three Months
|
Three Months
|
|||||||
Ended June 30,
|
Ended June 30,
|
|||||||
2011
|
2010
|
|||||||
Stock options
|
$ | 7,310 | $ | - | ||||
Stock grants – other
|
16,384 | 10,882 | ||||||
Service based awards
|
23,599 | 32,037 | ||||||
Performance based awards
|
- | 37,294 | ||||||
Tax benefit
|
(28,341 | ) | (33,098 | ) | ||||
Stock-based compensation expense, net of tax
|
$ | 18,952 | $ | 47,115 |
Six Months
|
Six Months
|
|||||||
Ended June 30,
|
Ended June 30,
|
|||||||
2011
|
2010
|
|||||||
Stock options
|
$ | 36,101 | $ | - | ||||
Stock grants – other
|
32,765 | 21,759 | ||||||
Service based awards
|
47,198 | 64,072 | ||||||
Performance based awards
|
- | 74,588 | ||||||
Tax benefit
|
(55,743 | ) | (65,772 | ) | ||||
Stock-based compensation expense, net of tax
|
$ | 60,321 | $ | 94,647 |
5.
|
Earnings Per Share:
|
Income
|
Shares
|
Per-Share
|
||||||||||
(Numerator)
|
(Denominator)
|
Amounts
|
||||||||||
Six Months Ended June 30, 2011
|
||||||||||||
Basic EPS - Income available to common stockholders
|
$ | 868,948 | 9,576,622 | $ | .09 | |||||||
Effect of dilutive securities - Options and warrants
|
- | 247,914 | ||||||||||
Diluted EPS - Income available to common stockholders and assumed conversions
|
$ | 868,948 | 9,824,536 | $ | .09 | |||||||
Three Months Ended June 30, 2011
|
||||||||||||
Basic EPS -Income available to common stockholders
|
$ | 159,369 | 9,580,005 | $ | .02 | |||||||
Effect of dilutive securities - Options and warrants
|
- | 236,204 | ||||||||||
Diluted EPS - Income available to common stockholders and assumed conversions
|
$ | 159,369 | 9,816,209 | $ | .02 | |||||||
Six Months Ended June 30, 2010
|
||||||||||||
Basic EPS - Income available to common stockholders
|
$ | 1,610,275 | 9,537,894 | $ | .17 | |||||||
Effect of dilutive securities - Options and warrants
|
- | 297,286 | ||||||||||
Diluted EPS - Income available to common stockholders and assumed conversions
|
$ | 1,610,275 | 9,835,180 | $ | .16 | |||||||
Three Months Ended June 30, 2010
|
||||||||||||
Basic EPS -Income available to common stockholders
|
$ | 722,903 | 9,549,355 | $ | .08 | |||||||
Effect of dilutive securities - Options and warrants
|
- | 279,118 | ||||||||||
Diluted EPS - Income available to common stockholders and assumed conversions
|
$ | 722,903 | 9,828,473 | $ | .07 |
6.
|
Goodwill
|
Six Months Ended June 30, 2011
|
||||
Balance as of January 1, 2011
|
$ | 10,842,352 | ||
Additional Goodwill
|
- | |||
Balance as of June 30, 2011
|
$ | 10,842,352 | ||
Six Months Ended June 30, 2010
|
||||
Balance as of January 1, 2010
|
$ | 10,255,983 | ||
Additional Goodwill
|
38,298 | |||
Balance as of June 30, 2010
|
$ | 10,294,281 |
7.
|
Acquisition:
|
Accounts receivable
|
$ | 4,906 | ||
Fixed assets
|
25,000 | |||
Non-compete agreement
|
15,000 | |||
Customer list
|
185,000 | |||
Goodwill
|
548,071 | |||
Cost to acquire Alpha
|
$ | 777,977 |
8.
|
Investment in Limited Liability Company
|
9.
|
Long-term Debt:
|
10.
|
Provision for Income Taxes:
|
11.
|
Dividends:
|
12.
|
Segment Reporting:
|
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Six Months Ended June 30, 2011
|
||||||||||||
Revenue
|
$ | 10,429,165 | $ | 10,522,135 | $ | 20,951,300 | ||||||
Income before provision for income taxes*
|
550,221 | 1,121,727 | 1,671,948 | |||||||||
Total assets
|
17,300,149 | 20,637,989 | 37,938,138 |
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Three Months Ended June 30, 2011
|
||||||||||||
Revenue
|
$ | 5,180,396 | $ | 5,139,171 | $ | 10,319,567 | ||||||
Income before provision for income taxes*
|
70,087 | 422,282 | 492,369 |
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Six Months Ended June 30, 2010
|
||||||||||||
Revenue
|
$ | 10,233,896 | $ | 9,389,496 | $ | 19,623,392 | ||||||
Income before provision for income taxes*
|
1,906,142 | 823,133 | 2,729,275 | |||||||||
Total assets
|
18,840,211 | 18,461,741 | 37,301,952 | |||||||||
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Three Months Ended June 30, 2010
|
||||||||||||
Revenue
|
$ | 5,083,836 | $ | 4,628,309 | $ | 9,712,145 | ||||||
Income before provision for income taxes*
|
846,764 | 385,139 | 1,231,903 |
June 30, 2011
|
June 30, 2010
|
|||||||
Six Months Ended
|
$ | 1,071,912 | $ | 116,127 | ||||
Three Months Ended
|
$ | 512,030 | $ | 116,127 |
13.
|
Commitments and Contingencies:
|
In thousands (000’s)
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||||||
2011
|
%
|
2010
|
%
|
2011
|
%
|
2010
|
%
|
|||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||||||
HSMS
|
5,180 | 50 | % | 5,084 | 52 | % | 10,429 | 50 | % | 10,234 | 52 | % | ||||||||||||||||||||
TBCS
|
5,139 | 50 | % | 4,628 | 48 | % | 10,522 | 50 | % | 9,389 | 48 | % | ||||||||||||||||||||
Total Revenues
|
10,319 | 100 | % | 9,712 | 100 | % | 20,951 | 100 | % | 19,623 | 100 | % | ||||||||||||||||||||
Cost of Services and Goods Sold
|
||||||||||||||||||||||||||||||||
HSMS
|
2,080 | 40 | % | 2,058 | 40 | % | 4,036 | 39 | % | 4,067 | 40 | % | ||||||||||||||||||||
TBCS
|
2,831 | 55 | % | 2,465 | 53 | % | 5,736 | 55 | % | 4,979 | 53 | % | ||||||||||||||||||||
Total Cost of Services and Goods Sold
|
4,911 | 48 | % | 4,523 | 47 | % | 9,772 | 47 | % | 9,046 | 46 | % | ||||||||||||||||||||
Gross Profit
|
||||||||||||||||||||||||||||||||
HSMS
|
3,100 | 60 | % | 3,026 | 60 | % | 6,393 | 61 | % | 6,167 | 60 | % | ||||||||||||||||||||
TBCS
|
2,308 | 45 | % | 2,163 | 47 | % | 4,786 | 45 | % | 4,410 | 47 | % | ||||||||||||||||||||
Total Gross Profit
|
5,408 | 52 | % | 5,189 | 53 | % | 11,179 | 53 | % | 10,577 | 54 | % | ||||||||||||||||||||
Selling, General & Administrative
|
4,402 | 43 | % | 3,857 | 40 | % | 8,430 | 40 | % | 7,765 | 40 | % | ||||||||||||||||||||
Interest Expense
|
13 | - | % | 14 | - | % | 28 | - | % | 26 | - | % | ||||||||||||||||||||
Equity in net loss from investment in limited liability company
|
512 | 5 | % | 116 | 1 | % | 1,072 | 5 | % | 116 | 1 | % | ||||||||||||||||||||
Other Income
|
(11 | ) | - | % | (30 | ) | - | % | (23 | ) | - | % | (59 | ) | - | % | ||||||||||||||||
Income before Income Taxes
|
492 | 5 | % | 1,232 | 13 | % | 1,672 | 8 | % | 2,729 | 14 | % | ||||||||||||||||||||
Provision for Income Taxes
|
333 | 509 | 803 | 1,119 | ||||||||||||||||||||||||||||
Net Income
|
159 | 723 | 869 | 1,610 |
§
|
The Company recognized an increase in its PERS service revenue of approximately $88,000 primarily from its long-term care programs and execution of a new agreement with a hospital organization. By aligning itself with long-term care organizations in the interests of improving the business and operational efficiencies of such organizations, the Company experienced growth in the number of subscribers utilizing its PERS units under these programs.
|
§
|
The Company recently entered into an agreement with a major multi-national conglomerate to provide the Company’s PERS product under a private label arrangement. The Company is currently in the process of preparing for this endeavor which is anticipated to start generating revenue during fourth quarter of 2011.
|
·
|
The Company recognized an increase in its non-traditional daytime service revenue of approximately $125,000 primarily due to hospital organizations expanding services with the Company. The Company recently executed a contract with another hospital organization whereby services are expected to commence in the second half of 2011. With this latest agreement and the continued expansion from existing hospitals, the Company anticipates that revenue growth from this offering will continue through the remainder of 2011.
|
·
|
The Company recognized an increase in revenue within its pharmaceutical support services of approximately $319,000 primarily as a result of a significant agreement being executed with a large pharmaceutical company in 2010. Under this agreement, the Company has been awarded with new projects which have continued to provide revenue into the second quarter of 2011. Revenue growth in this offering is anticipated to continue throughout the year of 2011 as additional new projects under this agreement are scheduled to begin in the second half of 2011.
|
·
|
The Company increased its revenue by approximately $202,000 as a result of the acquisition of a telephone answering service company in September 2010. In 2011, the Company continues to consider acquisition opportunities that will benefit the Company.
|
·
|
Payroll from service operations and telephone expense increased by approximately $37,000 primarily due to a corresponding increase in revenue.
|
·
|
Service fees with respect to the Company’s use of a third party’s telehealth software increased by approximately $37,000 due to an increase in the monthly fee effective in late 2010.
|
§
|
The Company recognized an increase in payroll and related expenses associated with pharmaceutical support services and non-traditional daytime services of approximately $293,000 primarily due to a corresponding increase in revenue in these areas. As the Company continues to grow in this area, it will continue to closely monitor the personnel requirements to perform these services efficiently.
|
§
|
As a result of acquiring a telephone answering service company in September 2010, costs related services increased by approximately $97,000 from the operation of this newly acquired subsidiary. These expenses primarily consisted of operators’ payroll and rent expense.
|
§
|
Administrative payroll expense increased by approximately $99,000 primarily due to the Company hiring additional management and support level personnel to assist in expanding its business. While the Company continues to grow, it will closely monitor the personnel requirements necessary to facilitate, manage and oversee this expansion effectively.
|
§
|
Professional fees increased by approximately $331,000 in relation to certain business activities. These fees are also expected to be a factor in the third quarter of 2011.
|
§
|
Travel and entertainment as well as consulting expense increased by approximately $107,000 primarily due to increased marketing and sales activities as well as expansion of business.
|
§
|
Research and development expense increased by approximately $64,000 primarily due to research relating to the development of a home-based cellular PERS device. The Company anticipates it will continue to incur additional research and development costs as it continues to enhance to its PERS device.
|
§
|
As a result of acquiring a telephone answering service company in September 2010, selling, general and administrative expenses increased by approximately $101,000 from the operation of this newly acquired subsidiary. These expenses primarily consisted of administrative payroll and consulting expense.
|
§
|
The Company recognized an increase in its PERS service revenue of approximately $180,000 primarily from its long-term care programs and execution of new agreements with hospital organizations. By aligning itself with long-term care organizations in the interests of improving the business and operational efficiencies of such organizations, the Company experienced growth in the number of subscribers utilizing its PERS units under these programs.
|
§
|
The Company recently entered into an agreement with a major multi-national conglomerate to provide the Company’s PERS product under a private label arrangement. The Company is currently in the process of preparing for this endeavor which is anticipated to start generating revenue during fourth quarter of 2011.
|
·
|
The Company recognized an increase in its non-traditional daytime service revenue of approximately $428,000 primarily due to hospital organizations expanding services with the Company. The Company recently executed a contract with another hospital organization whereby services are expected to commence in the second half of 2011. With this latest agreement and the continued expansion from existing hospitals, the Company anticipates that revenue growth from this offering will continue through the remainder of 2011.
|
·
|
The Company recognized an increase in revenue within its pharmaceutical support services of approximately $592,000 primarily as a result of a significant agreement being executed with a large pharmaceutical company in 2010. Under this agreement, the Company has been awarded new projects which have continued to provide revenue into the second quarter of 2011. Revenue growth in this offering is anticipated to continue throughout the year of 2011 as additional new projects under this agreement are scheduled to begin in the second half of 2011.
|
·
|
The Company increased its revenue by approximately $424,000 as a result of the acquisition of a telephone answering service company in September 2010. In 2011, the Company continues to consider acquisition opportunities that will benefit the Company.
|
·
|
Depreciation expense decreased by approximately $99,000 primarily due to the Company purchasing its PERS devices at reduced prices through an alternative supplier in the past three years. This decrease was partially offset by an increase in service fees with respect to the Company’s use of a third party’s telehealth software of approximately $62,000 due to an increase in the monthly fee effective in late 2010.
|
§
|
The Company recognized an increase in payroll and related expenses associated with pharmaceutical support service and non-traditional daytime services of approximately $656,000 primarily due to a corresponding increase in revenue in these areas. As the Company continues to grow in this area, it will continue to closely monitor the personnel requirements to perform these services efficiently.
|
§
|
The Company incurred costs of approximately $65,000 in the development and modification of certain project specific reports for pharmaceutical support service customers, whereby the projects commenced in late 2010 and during 2011.
|
§
|
As a result of acquiring a telephone answering service company in September 2010, costs related services increased by approximately $196,000 from the operation of this newly acquired subsidiary. These expenses primarily consisted of operators’ payroll and rent expense.
|
§
|
Administrative payroll expense increased by approximately $224,000 primarily due to the Company hiring additional management and support level personnel to assist in expanding its business. While the Company continues to grow, it will closely monitor the personnel requirements necessary to facilitate, manage and oversee this expansion effectively.
|
§
|
Professional fees increased by approximately $351,000 in relation to certain business activities. These fees are also expected to be a factor in the third quarter of 2011.
|
§
|
Travel and entertainment as well as consulting expense increased by approximately $132,000 primarily due to increased marketing and sales activities as well as expansion of business.
|
§
|
Research and development expense increased by approximately $71,000 primarily due to research relating to the development of a home-based cellular PERS device. The Company anticipates it will continue to incur additional research and development costs as it continues to enhance to its PERS device.
|
§
|
As a result of acquiring a telephone answering service company in September 2010, selling, general and administrative expenses increased by approximately $181,000 from the operation of this newly acquired subsidiary. These expenses primarily consisted of administrative payroll and consulting expense.
|
Payments Due by Period
|
||||||||||||||||||||
Contractual Obligations
|
Total
|
Less than 1 year
|
1-3 years
|
4-5 years
|
After 5 years
|
|||||||||||||||
Revolving Credit Line
|
$ | 750,000 | $ | 750,000 | ||||||||||||||||
Debt (a)
|
$ | 1,700,000 | $ | 500,000 | $ | 1,200,000 | ||||||||||||||
Operating Leases (b)
|
$ | 8,194,240 | $ | 1,526,163 | $ | 3,867,471 | $ | 2,130,935 | $ | 669,671 | ||||||||||
Purchase Commitments (c)
|
$ | 1,767,720 | $ | 1,767,720 | ||||||||||||||||
Interest Expense (d)
|
$ | 120,745 | $ | 55,924 | $ | 64,821 | ||||||||||||||
Acquisition Related
Commitment (e)
|
$ | 122,725 | $ | 98,625 | $ | 24,100 | ||||||||||||||
Total Contractual Obligations
|
$ | 12,655,430 | $ | 3,948,432 | $ | 5,906,392 | $ | 2,130,935 | $ | 669,671 |
|
(a) – Debt includes the Company’s aggregate outstanding term loans which mature in 2011 and 2015.
|
|
(b) – Operating leases include rental of facilities at various locations within the United States. These leases include the rental of the Company’s call centers, warehouse and office facilities with various expiration dates. The Company currently leases office space from the Chairman and principal shareholder pursuant to a lease. This lease expires in December 2012. The Company also leases office space from certain telephone answering service managers with expirations through March 2015.
|
|
(c) – Purchase commitments relate to orders for the Company’s traditional PERS system and its MedSmart medication medical system.
|
|
(d) – Interest expense relates to interest on the Company’s revolving credit line and debt at the Company’s current rate of interest.
|
|
(e) – Acquisition related commitment represents estimated payments due based on collections of trade receivables relating to the acquisition of Alpha Message Center, Inc in September 2010.
|
No.
|
Description
|
10.1
|
Lease Modification II, dated June 24, 2011, to the Lease, dated as of January 4, 2002, between CityView Plaza, LLC and American Medical Alert Corp.
|
10.2
|
Restricted Stock Unit Award Agreement, dated June 23, 2011, between American Medical Alert Corp. and Jack Rhian.
|
10.3
|
Restricted Stock Unit Award Agreement, dated June 23, 2011, between American Medical Alert Corp. and Frederic Siegel.
|
15.1
|
Letter from Margolin, Winer & Evens LLP, the independent accountant of the Company, acknowledging awareness of the use in a registration statement of a report on the unaudited interim financial information in this quarterly report.
|
31.1
|
Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
31.2
|
Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
32.1
|
Certification of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
|
32.2
|
Certification of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
|
AMERICAN MEDICAL ALERT CORP.
|
|||
Dated: August 15, 2011
|
By:
|
/s/ Jack Rhian | |
Name: Jack Rhian | |||
Title: Chief Executive Officer and President | |||
|
By:
|
/s/ Richard Rallo | |
Name: Richard Rallo | |||
Title: Chief Financial Officer | |||
LEASE YEAR
|
ANNUAL RENT
|
MONTHLY RENT
|
||||||
1st
|
$ | 215,375.00 | $ | 17,947.92 | ||||
2nd
|
$ | 215,375.00 | $ | 17,947.92 | ||||
3rd
|
$ | 215,375.00 | $ | 17,947.92 | ||||
4th
|
$ | 221,836.25 | $ | 18,486.35 | ||||
5th
|
$ | 228,469.80 | $ | 19,039.08 |
Witness for Landlord:
|
CityView Plaza, LLC | ||
/s/ Peter Kosteas
|
by: |
/s/ Steve Valiotis
|
|
Name: Steve Valioits | |||
Witness for Tenant:
|
American Medical Alert Corp. | ||
/s/ Marie T. Mueller
|
by: |
/s/ Jack Rhian
|
|
Name: Jack Rhian | |||
Title: President/Chief Executive Officer |
GRANTEE:
|
AMERICAN MEDICAL ALERT CORP.
|
|
/s/ Jack Rhian
|
/s/ Richard Rallo
|
|
Signature
|
Name: Richard Rallo
|
|
Title: Chief Operating Officer
|
||
Jack Rhian
|
||
Print Name
|
|
Residence Address:
|
|
GRANTEE:
|
AMERICAN MEDICAL ALERT CORP.
|
|
/s/ Frederic Siegel
|
/s / Richard Rallo
|
|
Signature
|
Name: Richard Rallo
|
|
Title:Chief Operating Officer
|
||
Frederic Siegel
|
||
Print Name
|
|
Residence Address:
|
|
·
|
Registration
Statement No. 33-48385 on Form S-8;
|
·
|
Registration
Statement No. 33-91806 on Form S-8;
|
·
|
Registration
Statement No. 333-53029 on Form
S-8;
|
·
|
Registration
Statement No. 333-70626 on Form
S-8;
|
·
|
Registration
Statement No. 333-130811 on Form S-8;
and
|
·
|
Registration
Statement No. 333-88192 on Form
S-3.
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of American Medical Alert
Corp.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
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
principles;
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
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 registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
August 15, 2011
|
/s/
Jack
Rhian
|
|||
|
Jack
Rhian
|
|||
|
President
and
Chief
Executive Officer
(Principal
Executive Officer)
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of American Medical Alert
Corp.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
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
principles;
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
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 registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: August
15, 2011
|
/s/
Richard
Rallo
|
|||
|
Richard
Rallo
|
|||
|
Chief
Financial Officer
(Principal
Financial Officer)
|
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
|
|||
|
Chief Executive Officer and President
|
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
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Accounts receivable, allowance for doubtful accounts | $ 453,800 | $ 452,000 |
Intangible assets, accumulated amortization | 7,124,593 | 6,864,657 |
Other assets, inventory | $ 481,135 | $ 407,615 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, authorized | 1,000,000 | 1,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized | 20,000,000 | 20,000,000 |
Common stock, issued | 9,631,603 | 9,618,083 |
Treasury stock, shares | 48,573 | 48,573 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Revenues: | Â | Â | Â | Â |
Services | $ 10,177,103 | $ 9,556,032 | $ 20,574,977 | $ 19,264,763 |
Product sales | 142,464 | 156,113 | 376,323 | 358,629 |
Revenues, Total | 10,319,567 | 9,712,145 | 20,951,300 | 19,623,392 |
Costs and Expenses (Income): | Â | Â | Â | Â |
Costs related to services | 4,844,008 | 4,447,545 | 9,589,617 | 8,878,500 |
Costs of products sold | 66,809 | 75,346 | 182,744 | 167,830 |
Selling, general and administrative expenses | 4,401,965 | 3,857,251 | 8,430,381 | 7,765,084 |
Interest expense | 13,348 | 13,836 | 28,008 | 26,267 |
Equity in net loss from investment in limited liability company | 512,030 | 116,127 | 1,071,912 | 116,127 |
Other income | (10,962) | (29,863) | (23,310) | (59,691) |
Income before Provision for Income Taxes | 492,369 | 1,231,903 | 1,671,948 | 2,729,275 |
Provision for Income Taxes | 333,000 | 509,000 | 803,000 | 1,119,000 |
NET INCOME | $ 159,369 | $ 722,903 | $ 868,948 | $ 1,610,275 |
Net income per share: | Â | Â | Â | Â |
Basic | $ 0.02 | $ 0.08 | $ 0.09 | $ 0.17 |
Diluted | $ 0.02 | $ 0.07 | $ 0.09 | $ 0.16 |
Weighted average number of common shares outstanding: | Â | Â | Â | Â |
Basic | 9,580,005 | 9,549,355 | 9,576,622 | 9,537,894 |
Diluted | 9,816,209 | 9,828,473 | 9,824,536 | 9,835,180 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 10, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Trading Symbol | AMAC | Â |
Entity Registrant Name | AMERICAN MEDICAL ALERT CORP | Â |
Entity Central Index Key | 0000700721 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 9,615,280 |
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Acquisition
|
6 Months Ended | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||
Acquisition |
On
September 29, 2010, the Company acquired substantially all of the
assets of Alpha Message Center, Inc.
(“Alpha”), a
New Jersey based company that provides telephone after-hours
answering and pager services. The purchase price of this
acquisition consisted of an initial cash payment of $577,977 and an
accrual of $200,000, which represented the estimated fair value
(derived using significant unobservable inputs categorized within
Level 3 of the fair value hierarchy) of the contingent
consideration expected to be paid through September 2012. The
contingent consideration is based on the acquisition agreement that
calls for the Company to pay the former owner of Alpha fourteen
percent (14%) of the cash expected to be collected by the Company,
excluding sales taxes, from certain revenue generated by Alpha
through September 2012. The Company estimated the future
contingent consideration expected to be paid based upon
Alpha’s historic revenue data. As of June 30, 2011,
$77,275 has been paid to the former owner based on cash
receipts. The Company also incurred finder and professional
fees of approximately $57,000, which were included in selling,
general and administrative expenses for the year ended December 31,
2010. The results of operations of Alpha are included in the
Telephone Based Communications Services (“TBCS”)
segment as of the date of acquisition.
The
following table summarizes the estimated fair values of the assets
acquired at the date of acquisition.
The
purchase price of the acquisition exceeded the fair value of the
identifiable net assets acquired inasmuch as the acquisition was
consummated to enable the Company to strengthen its position in the
area where it was already operating. Furthermore, the
acquisition was for the business' future cash flows and net
earnings as opposed to solely for the identifiable tangible and
intangible assets.
The
results of operations for Alpha are included in the condensed
consolidated statements of income for the six and three months
ended June 30, 2011. On a pro forma basis, had the Alpha
acquisition taken place as of the beginning of 2010, the
Company’s results of operations for the six and three
months ended June 30, 2010 would not have been materially
affected.
|
Segment Reporting
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting |
The
Company has two reportable segments, (i) Health and Safety
Monitoring Systems (“HSMS”) and (ii) Telephone Based
Communication Services (“TBCS”).
The
table below provides a reconciliation of segment information to
total consolidated information for the six and three months ended
June 30, 2011 and 2010:
2011
2010
*
Income before provision for income taxes within the HSMS segment
includes the Company’s share of equity in net loss from its
investment in limited liability company as follow:
|
Recent Accounting Pronouncements
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Recent Accounting Pronouncements |
In
December 2010, the FASB issued Update 2010-29, “Disclosure of
Supplementary Pro Forma Information for Business
Combinations”. The amendments in Update 2010-29 specify that
if a public entity presents comparative financial statements, the
entity should disclose revenue and earnings of the combined entity
as though the business combination that occurred during the current
year had occurred as of the beginning of the comparable prior
annual reporting period only. Update 2010-29 also expands the
supplemental pro forma disclosures to include a description of the
nature and amount of material, nonrecurring pro forma adjustments
directly attributed to the business combination included in the pro
forma financial data. The Company is required to adopt all the
provisions of Update 2010-29 for any business combinations for
which the acquisition date is on or after January 1, 2011. The
impact of the provisions of this guidance on the Company’s
consolidated financial statements depends upon the nature, terms
and size of the acquisitions it will consummate in the
future.
In December 2010, the FASB issued Update
2010-28, “Intangibles - Goodwill and Other (Topic
350)”. Update 2010-28 modifies the first step of the
goodwill impairment test to include reporting units with zero or
negative carrying amounts. For these reporting units, the second
step of the goodwill impairment test shall be performed to measure
the amount of impairment loss, if any; when it is more likely than
not that a goodwill impairment exists. Update 2010-28 is effective
for fiscal years and interim periods beginning after December 15,
2010. The adoption of this guidance did not have a material
impact on the consolidated financial statements of the
Company.
|
Long-term Debt
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Long-term Debt |
The
Company had a credit facility arrangement for $4,500,000 which
included a revolving credit line which permitted borrowings of
$1,500,000 (based on eligible receivables as defined) and a
$3,000,000 term loan payable. The term loan was payable in equal
monthly principal installments of $50,000 over five years
commencing January 2006. This term loan was paid in full
during the second quarter of 2010 without any prepayment
charge.
During
2006, the credit facility was amended whereby the Company obtained
an additional $2,500,000 and $1,600,000 of term loans, the proceeds
of which were utilized to finance certain acquisitions. These
term loans are payable over five years in equal monthly principal
installments of $41,666.67 and $26,666.67, respectively.
Additionally, certain of the covenants were amended. The
$2,500,000 term loan was paid in full during the second quarter of
2010 without any prepayment charge.
In
December 2006, the credit facility was amended to reduce the
interest rates charged by the bank such that borrowings under the
term loan will bear interest at either (a) LIBOR plus 2.00% or (b)
the prime rate or the federal funds effective rate plus .5%,
whichever is greater, and the revolving credit line will bear
interest at either (a) LIBOR plus 1.75% or (b) the prime rate or
the federal funds effective rate plus .5%, whichever is
greater. The LIBOR interest rate charge shall be adjusted in
..25% intervals based on the Company’s ratio of Consolidated
Funded Debt to Consolidated EBITDA. In the third quarter of 2007,
the interest rate was reduced by .25% based on this ratio.
The Company has the option to choose between the two interest rate
options under the amended term loan and revolving credit
line. Borrowings under the credit facility are collateralized
by substantially all of the assets of the Company.
On
April 30, 2007, the Company amended its credit facility whereby the
term of the revolving credit line was extended through June 2010
and the amount of credit available under the revolving credit line
was increased to $2,500,000. In June 2010, the term of the
revolving credit line was extended through June 2013.
On
May 12, 2010, the Company’s credit facility was amended
whereby the Company obtained an additional $2,000,000 in the form
of a term loan, the proceeds of which were utilized to partially
finance its investment in Lifecomm relating to the development of a
mobile PERS system. This term loan is payable over five years
in equal monthly principal installments of $33,333.33, commencing
June 1, 2010. The interest rate is the same as the previous
term loans secured by the Company, as described above.
As
of June 30, 2011 and March 31, 2011, the Company was in compliance
with its financial covenants in its loan agreement. As of
June 30, 2010 and March 31, 2010, the Company was in compliance
with its financial covenants in its loan agreement.
|
Provision for Income Taxes
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Provision for Income Taxes |
The
Company records its tax provision (or benefit) on an interim basis
using an estimated annual effective
tax rate. For the six
and three months ended June 30, 2011 the Company increased the
estimated effective tax rate to reflect the impact of certain
non-deductible expenses.
|
Investment in Limited Liability Company
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Investment in Limited Liability Company |
On
May 12, 2010, the Company entered into a limited liability company
agreement with Hughes Telematics, Inc. and Qualcomm Incorporated to
design, develop, finance and operate a mobile PERS system.
The Company invested $4,000,000 and incurred $150,336 in
professional fees to acquire a minority interest (approximately
10%) in the new company, Lifecomm, LLC (“Lifecomm”). As
part of this transaction, the Company borrowed $2,000,000 from its
bank to partially finance this transaction. In addition, pursuant to the limited liability
company agreement, the Company has agreed to fund its share
($200,000) of a stand-by equity commitment for Lifecomm’s
benefit, if required. As of June 30, 2011, the
Company’s exposure to loss is limited to the recorded equity
investment balance of $1,898,298 and its share ($200,000) of a
stand-by equity commitment, if required.
Hughes
Telematics, Inc., parent of Lifecomm and the party who has a
controlling financial interest in Lifecomm, has determined that
Lifecomm is a variable interest entity and that HTI is the primary
beneficiary.
Lifecomm
is a development stage company that has yet to generate any
revenue, and has generated a pre-tax net loss of $4,312,480 and
$2,356,758 during the six and three months ended June 30, 2011
($7,934,372 during the period from inception, May 12, 2010 to June
30, 2011). Lifecomm will continue to generate losses until
the next generation mobile PERS is completed and commercialized,
which is anticipated to be in early 2012.
In
accordance with the limited liability company agreement, profits
are generally allocated to members in the amount of and in
proportion to their ownership of the outstanding membership
units. Losses are generally allocated to members in the
amount of and in proportion to their unreturned capital
contributions, which for the purposes of determining the allocation
of losses is defined as the aggregate of (i) cash contributions,
(ii) the fair value of other contributed assets and (iii) the value
of in-kind services contributed by the members through the date of
determination, less (iv) the fair value of any assets distributed
to the members; provided, however, that any losses generated
through May 12, 2012 will be generally allocated to the members
first in the amount of and in proportion to the unreturned capital
contributions attributable to only the cash contributions and the
value of in-kind services contributed by the members through the
date of determination and then in the amount of and in proportion
to the unreturned capital contributions attributable to the fair
value of other contributed assets.
During
the six and three months ended June 30, 2011, the Company recorded
a pre-tax net loss of $1,071,912 and $512,030, respectively
($2,252,038 during the period from inception, May 12, 2010 to June
30, 2011) for its share of losses from the equity investment in
Lifecomm. The equity loss primarily relates to research and
development costs as well as other selling, general and
administrative expenses incurred for the development of the next
generation mobile PERS. As the development continues to
progress, the Company expects that its share of equity loss will
continue throughout 2011 until the next generation mobile PERS is
completed and commercialized, which is anticipated to be in early
2012.
In connection with the formation of Lifecomm, the Company entered
into a Value Added Reseller Agreement (“VAR Agreement”)
with Lifecomm. Under the VAR Agreement, the Company will be a
reseller of the Mobile PERS Solution in the United States, as well
as a preferred provider of the emergency assistance call center
(“EACC”) component of the Mobile PERS Solution provided
by Lifecomm to customers. The Company will be the sole
provider of the EACC to the customers to whom it resells the Mobile
PERS Solution. The term of the VAR Agreement is perpetual,
subject to termination as set forth therein. The VAR
Agreement contains standard indemnification provisions for
agreements of this nature.
|
General
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
General |
These
financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December
31, 2010 included in the Annual Report on Form 10-K for the year
ended December 31, 2010 of American Medical Alert
Corp.
|
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