10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011.

OR

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

For the transition period from ____________ to ____________

Commission File Number 001-08635

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)

36-36 33rd Street, Long Island City, New York 11106

(Address of principal executive offices)

(Zip Code)

(212) 879-5700

 (Registrant’s telephone number, including area code)

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

 Yes x  No ¨

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

Yes xNo ¨

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

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

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

Yes ¨   No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 9,631,777 shares of $.01 par value common stock as of November 9, 2011.

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

INDEX	PAGE
Part I Financial Information
Report of Independent Registered Public Accounting Firm	1
Condensed Consolidated Balance Sheets for September 30, 2011 and December 31, 2010	2
Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2011 and 2010	3
Condensed Consolidated Statements of Income (Loss) for the Three Months Ended September 30, 2011 and 2010	4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	5
Notes to Condensed Consolidated Financial Statements	7
Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Quantitative and Qualitative Disclosures About Market Risk	39
Controls and Procedures	40
Part II Other Information	40

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

American Medical Alert Corp. and Subsidiaries

Long Island City, New York

We have reviewed the accompanying condensed consolidated balance sheet of American Medical Alert Corp. and Subsidiaries (the “Company”) as of September 30, 2011 and the related condensed consolidated statements of income (loss) for the nine-month and three-month periods ended September 30, 2011 and 2010 and cash flows for the nine-months ended September 30, 2011 and 2010. 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 (United States), 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, 2010, and the related consolidated statements of income, shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated March 31, 2011 we expressed an unqualified opinion on those consolidated financial statements based on our audit and the report of other auditors with respect to the Company’s investment in Lifecomm, LLC.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010 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 14, 2011

1

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2011 (Unaudited)			Dec. 31, 2010
ASSETS
CURRENT ASSETS
Cash	$	7,329,277		$	4,090,528
Accounts receivable
(net of allowance for doubtful accounts of $483,800 and $452,000)		8,276,818			7,497,367
Inventory, net of non-current portion		983,137			1,005,488
Prepaid income taxes		208,621			610,479
Prepaid expenses and other current assets		382,795			364,747
Deferred income tax asset		173,000			219,000
Total Current Assets		17,353,648			13,787,609
FIXED ASSETS
(Net of accumulated depreciation and amortization)		6,382,035			7,195,019
OTHER ASSETS
Intangible assets
(net of accumulated amortization of $7,258,278 and $6,864,657)		1,065,314			1,350,936
Goodwill		10,842,352			10,842,352
Investment in limited liability company		1,474,157			2,970,210
Other assets (including inventory of $481,135 and $407,615)		1,602,744			1,371,359
		14,984,567			16,534,857
TOTAL ASSETS	$	38,720,250		$	37,517,485
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	420,000		$	660,000
Accounts payable		1,134,185			732,849
Accrued expense – acquisitions		95,214			105,807
Accrued expenses		2,240,216			2,013,152
Deferred revenue		312,183			231,825
Total Current Liabilities		4,201,798			3,743,633
DEFERRED INCOME TAX LIABILITY		1,182,000			1,228,000
LONG-TERM DEBT, Net of Current Portion		1,850,000			2,150,000
CUSTOMER DEPOSITS		87,574			101,499
ACCRUED RENTAL OBLIGATION		565,603			566,235
ACCRUED EXPENSE - ACQUISITION		0			72,300
TOTAL LIABILITIES		7,886,975			7,861,667
COMMITMENTS AND CONTINGENT LIABILITIES		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 9,675,478 shares in 2011 and 9,618,083 shares in 2010		96,755			96,181
Additional paid-in capital		16,958,016			16,606,018
Retained earnings		13,915,081			13,090,196
		30,969,852			29,792,395
Less treasury stock, at cost (48,573 shares in 2011 and 2010)		(136,577	)		(136,577	)
Total Shareholders’ Equity		30,833,275			29,655,818
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	38,720,250		$	37,517,485

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,
	2011			2010
Revenues:
Services	$	31,599,894		$	29,070,455
Product sales		544,595			562,325
		32,144,489			29,632,780
Costs and Expenses (Income):
Costs related to services		14,739,347			13,342,562
Costs of products sold		259,097			260,253
Selling, general and administrative expenses		13,751,663			12,134,682
Interest expense		40,421			45,258
Equity in net loss from investment in limited liability company		1,496,053			507,512
Other income		(59,977	)		(77,468	)
Income before Provision for Income Taxes		1,917,885			3,419,981
Provision for Income Taxes		1,093,000			1,402,000
NET INCOME	$	824,885		$	2,017,981
Net income per share:
Basic	$	.09		$	.21
Diluted	$	.08		$	.21
Weighted average number of common shares outstanding:
Basic		9,586,143			9,544,931
Diluted		9,830,367			9,842,901

See accompanying notes to condensed financial statements.

3

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

	Three Months Ended September 30,
	2011			2010
Revenues:
Services	$	11,024,917		$	9,805,692
Product sales		168,272			203,696
		11,193,189			10,009,388
Costs and Expenses (Income):
Costs related to services		5,149,730			4,464,062
Costs of products sold		76,353			92,423
Selling, general and administrative expenses		5,321,282			4,369,598
Interest expense		12,413			18,991
Equity in net loss from investment in limited liability company		424,141			391,385
Other income		(36,667	)		(17,777	)
Income before Provision for Income Taxes		245,937			690,706
Provision for Income Taxes		290,000			283,000
NET INCOME (LOSS)	$	(44,063	)	$	407,706
Net income (loss) per share:
Basic	$	(.00	)	$	.04
Diluted	$	(.00	)	$	.04
Weighted average number of common shares outstanding
Basic		9,605,183			9,559,005
Diluted		9,605,183			9,858,343

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,
	2011			2010
Cash Flows From Operating Activities:
Net income	$	824,885		$	2,017,981
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,347,742			2,794,776
Stock compensation charge		146,972			197,990
Equity in net loss from investment in limited liability company		1,496,053			507,512
Decrease (increase) in:
Accounts receivable		(779,451	)		(252,729	)
Inventory		(51,169	)		(277,384	)
Prepaid income taxes		401,858			(163,777	)
Prepaid expenses and other current assets		(18,048	)		(104,251	)
Increase (decrease) in:
Accounts payable, accrued expenses and other		613,844			516,657
Deferred revenue		80,358			38,385
Net Cash Provided by Operating Activities		5,063,044			5,275,160
Cash Flows From Investing Activities:
Expenditures for fixed assets		(1,245,651	)		(913,151	)
Purchase of Alpha Message Center, Inc.		0			(577,977	)
Purchase – account acquisition		(108,000	)		0
Payment of Investment in limited liability company		0			(4,150,336	)
Decrease (increase) in other assets		(53,351	)		4,798
Net Cash Used In Investing Activities		(1,407,002	)		(5,636,666	)
Cash Flows From Financing Activities:
Proceeds from long-term debt		0			2,000,000
Repayment of long-term debt		(540,000	)		(1,506,666	)
Payment of accrued expense - acquisitions		(82,893	)		(73,346	)
Proceeds upon exercise of stock options		205,600			47,394
Payment of loan financing costs		0			(4,370	)
Dividends paid		0			(1,901,879	)
Net Cash Used In Financing Activities		(417,293	)		(1,438,867	)

See accompanying notes to condensed financial statements.

5

AMERICAN MEDICAL ALERT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Nine Months Ended September 30,
	2011		2010
Net Increase (Decrease) in Cash	$	3,238,749	$	(1,800,373	)
Cash, Beginning of Period		4,090,528		5,498,448
Cash, End of Period	$	7,329,277	$	3,698,075
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST	$	43,089	$	42,699
CASH PAID DURING THE PERIOD FOR INCOME TAXES	$	705,963	$	1,551,769
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING  AND FINANCING ACTIVITIES:
Accrued expense – acquisitions / additional goodwill
- American Mediconnect Inc.	$	0	$	38,298
- Alpha Message Center, Inc.	$	0	$	200,000
Other assets, deposits on equipment transferred to fixed asset	$	0	$	21,875
Other assets, deposits on product transferred to inventory	$	0	$	105,476

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, 2010 included in the Annual Report on Form 10-K for the year ended December 31, 2010 of American Medical Alert Corp.

2.  Results of Operations:

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

In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2011 and the results of operations for the nine and three months ended September 30, 2011 and 2010 and cash flows for the nine months ended September 30, 2011 and 2010.

The accounting policies used in preparing these financial statements are the same as those described in the December 31, 2010 financial statements.

The results of operations for the nine and three months ended September 30, 2011 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

3. Recent Accounting Pronouncements:

In 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.

7

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.

4.  Accounting for Stock-Based Compensation:

Stock based compensation is recorded in accordance with ASC Topic 718, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payments to employees, including grants of stock and employee stock options, based on estimated fair values.

The Company granted options to purchase 10,000 shares of common stock during the nine months ended September 30, 2011.  No options were granted during the nine months ended September 30, 2010.

The following tables summarize stock option activity for the nine months ended September 30, 2011 and 2010.

2011
						Weighted
						Average
				Weighted		Remaining		Aggregate
	Number of			Average		Contractual		Intrinsic
	Options			Option Price		Term (years)		Value
Balance at January 1		718,343		$	3.85
Granted		10,000			5.85
Exercised		(40,000	)		5.14
Expired/Forfeited		(25,650	)		6.86
Balance at September 30		662,693		$	3.69		1.32	$	3,117,657
Vested and exercisable		644,419		$	3.62		1.27	$	3,071,789

8

2010
						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		(11,513	)		4.12
Expired/Forfeited		(30,000	)		6.49
Balance at September 30		853,272		$	4.22		1.82	$	1,669,401
Vested and exercisable		825,572		$	4.16		1.74	$	1,662,347

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2011 and September 30, 2010 were $10,400 and $29,074, respectively.  There were 18,274 and 27,700 nonvested stock options outstanding as of September 30, 2011 and 2010, respectively.  See Note 14 regarding the vesting of these options in connection with the merger agreement.

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

	Three Months			Three Months
	Ended September 30,			Ended September 30
	2011			2010
Stock options	$	7,310		$	8,000
Stock grants – other		-			64,663
Service based awards		23,598			32,037
Performance based awards		-			(67,129	)
Tax benefit		(28,016	)		(15,393	)
Stock-based compensation expense, net of tax	$	2,892		$	22,178

	Nine Months			Nine Months
	Ended September 30,			Ended September 30
	2011			2010
Stock options	$	43,411		$	8,000
Stock grants – other		32,765			86,422
Service based awards		70,796			96,109
Performance based awards		-			7,459
Tax benefit		(83,759	)		(81,165	)
Stock-based compensation expense, net of tax	$	63,213		$	116,825

Stock Grants - Other

The non-employee members of the Board of Directors have an option to elect at the beginning of each calendar year to receive either shares of common stock or cash at the end of each quarter as compensation for services provided as members of the Board of Directors and other committees.  Share grants issued vest immediately, but are subject to a one-year restriction on transfer.  In accordance with the merger agreement executed in September 2011 (see Note 14), after June 30, 2011, the non-employee members of the Board of Directors no longer have an option to receive stock as compensation for services.

9

Service Based Awards

In January 2006, May 2007, January 2009 and December 2010 the Company granted 50,000, 22,000, 12,000 (net of 9,500 shares waived by an executive) and 46,500 restricted shares, respectively, to certain executives in respect of services rendered but at no monetary cost.  These shares vest over periods ranging from 2 to 5 years, on December 31 of each year.  The Company records the compensation expense on a straight-line basis over the vesting period.  Fair value for restricted stock awards is based on the Company's closing common stock price on the date of grant.There were 84,000 shares and 63,000 shares vested as of September 30, 2011 and 2010, respectively.  The aggregate grant date fair value of restricted stock grants was $830,845.  The vesting period of the January 2006 and May 2007 grants expired on December 31, 2010.  As of September 30, 2011 and 2010, the Company had approximately $212,000 and $34,000, respectively, of total unrecognized compensation costs related to nonvested restricted stock units expected to be recognized over a weighted average period of 2.25 years.  See Note 14 regarding the vesting of these restricted stock units in connection with the merger agreement.

Performance Based Awards

In January 2006 and May 2007, respectively, the Company granted share awards for up to 90,000 shares (up to 18,000 shares per year through December 31, 2010) and 46,000 shares (up to 11,500 shares per year through December 31, 2010) to certain executives.  Vesting of such shares was contingent upon the Company achieving certain specified consolidated gross revenue and Earnings before Interest and Taxes (“EBIT”) objectives in each of the fiscal years ending December 31, 2006 through December 31, 2010.  The fair value of the performance shares (aggregate value of $909,400) was based on the closing trade value of the Company’s stock on the date of grant and assumed that performance goals would be achieved.  The fair value of the shares was expensed over the performance period for those shares that were expected to ultimately vest.  If such objectives were not met, no compensation cost was recognized and any recognized compensation cost was reversed.  All performance based awards were either earned or forfeited as of December 31, 2010.  During 2011, there were no performance shares vesting and there were no unrecognized compensation costs related to performance share awards.  As of September 30, 2010, 57,250 shares were vested and there was approximately $37,000 of total unrecognized compensation costs related to nonvested share awards.

5.  Earnings Per Share:

Earnings per share data for the nine and three months ended September 30, 2011 and 2010 is presented in conformity with ASC Topic 250, Earnings Per Share.

10

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

	Income (Loss)			Shares		Per-Share
Nine Months Ended September 30, 2011	(Numerator)			(Denominator)		Amounts
Basic EPS - Income available to common stockholders	$	824,885			9,586,143	$	.09
Effect of dilutive securities -
Options and warrants		-			244,224
Diluted EPS - Income available to common stockholders and assumed conversions	$	824,885			9,830,367	$	.08
Three Months Ended September 30, 2011
Basic EPS -Income available /(loss) attributable to common stockholders	$	(44,063	)		9,605,183	$	(.00	)
Effect of dilutive securities -
Options and warrants		-			-
Diluted EPS - Income available to common stockholders and assumed conversions	$	(44,063	)		9,605,183	$	(.00	)
Nine Months Ended September 30, 2010
Basic EPS - Income available to common stockholders	$	2,017,981			9,544,931	$	.21
Effect of dilutive securities -
Options and warrants		-			297,970
Diluted EPS - Income available to common stockholders and assumed conversions	$	2,017,981			9,842,901	$	.21
Three Months Ended September 30, 2010
Basic EPS -Income available to common stockholders	$	407,706			9,559,005	$	.04
Effect of dilutive securities -
Options and warrants		-			299,338
Diluted EPS - Income available to common stockholders and assumed conversions	$	407,706			9,858,343	$	.04

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6.  Goodwill

Changes in the carrying amount of goodwill, all of which relates to the Company’s TBCS segment, for the nine months ended September 30, 2011 and 2010 are as follows:

Nine Months Ended September 30, 2011
Balance as of January 1, 2011	$	10,842,352
Additional Goodwill		-
Balance as of September 30, 2011	$	10,842,352
Nine Months Ended September 30, 2010
Balance as of January 1, 2010	$	10,255,983
Additional Goodwill		486,510
Balance as of September 30, 2010	$	10,742,493

The addition to goodwill during the nine months ended September 30, 2010 consists of $448,212 which relates to the acquisition of Alpha Message Center, Inc. in September 2010 and $38,298 which relates to the additional purchase price of American Mediconnect, Inc. based on the cash receipts from the clinical trials portion of the business.

7.  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 September 30, 2011, $104,786 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 nine months ended September 30, 2010.  The results of operations of Alpha are included in the Telephone Based Communications Services (“TBCS”) segment as of the date of acquisition.

12

The following table summarizes the adjusted estimated fair values of the assets acquired at the date of 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

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 (loss) for the nine and three months ended September 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 nine and three months ended September 30, 2010 would not have been materially affected.

8.  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 September 30, 2011, the Company’s exposure to loss is limited to the recorded equity investment balance of $1,474,157 and its share ($200,000) of a stand-by equity commitment, if required.

Hughes Telematics, Inc. (“HTI”), 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 $6,595,242 and $2,282,762 during the nine and three months ended September 30, 2011 ($10,217,134 during the period from inception, May 12, 2010 to September 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.

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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 nine and three months ended September 30, 2011, the Company recorded a pre-tax net loss of $1,496,053 and $424,141, respectively ($2,676,179 during the period from inception, May 12, 2010 to September 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.

9.  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.

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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 September 30, 2011, June 30, 2011 and March 31, 2011, the Company was in compliance with its financial covenants in its loan agreement.  As of September 30, 2010, June 30, 2010 and March 31, 2010, the Company was in compliance with its financial covenants in its loan agreement.

10.  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 nine and three months ended September 30, 2011 the Company increased the estimated effective tax rate to reflect the impact of certain non-deductible expenses incurred in connection with the merger agreement described in Note 14.

11.  Dividends:

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

On July 19, 2010, the Company declared a dividend in the amount of $0.10 per share, or $951,515, which was payable to the shareholders of record as of September 13, 2010. The dividend was paid on September 29, 2010.

12.  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 nine and three months ended September 30, 2011 and 2010:

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2011
	HSMS			TBCS		Consolidated
Nine Months Ended September 30, 2011
Revenue	$	15,756,852		$	16,387,637	$	32,144,489
Income (loss) before provision for income taxes*		(24,153	)		1,942,038		1,917,885
Total assets		16,886,040			21,834,210		38,720,250
	HSMS			TBCS		Consolidated
Three Months Ended September 30, 2011
Revenue	$	5,327,687		$	5,865,502	$	11,193,189
Income (loss) before provision for income taxes*		(574,374	)		820,311		245,937

2010
	HSMS		TBCS		Consolidated
Nine Months Ended September 30, 2010
Revenue	$	15,412,503	$	14,220,277	$	29,632,780
Income before provision for income taxes*		2,148,705		1,271,276		3,419,981
Total assets		17,823,172		19,409,266		37,232,438
	HSMS		TBCS		Consolidated
Three Months Ended September 30, 2010
Revenue	$	5,178,607	$	4,830,781	$	10,009,388
Income before provision for income taxes*		242,563		448,143		690,706

* 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 and merger-related expenses as follows:

Equity in net loss from investment in limited liability company	September 30, 2011		September 30, 2010
Nine Months Ended	$	1,496,053	$	507,512
Three Months Ended	$	424,141	$	391,385

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Merger-related expense	September 30, 2011		September 30, 2010
Nine Months Ended	$	980,000		-
Three Months Ended	$	625,950		-

13.  Commitments and Contingencies:

The Company is aware of various threatened or pending litigation claims against the Company relating to its products and services and other claims arising in the ordinary course of its business.  At September 30, 2011 and 2010, no material liabilities have been recorded in the accompanying financial statements.  The Company has given its insurance carrier notice of such claims and it believes there is sufficient insurance coverage to cover any such claims.   In any event, the Company believes the disposition of these matters will not have a material adverse effect on the results of operations and financial condition of the Company.

In connection with the merger agreement described in Note 14, the Company is aware of three, as of now, uncertified class action lawsuits that have been filed against the Company and its Board of Directors.  The Company has given its insurance carrier notice of such claims, counsel has been retained to defend the lawsuits, and the Company believes that there is sufficient insurance coverage to pay any damages awarded as a result of the asserted claims.  At this time, it cannot be determined if the Company will be deemed liable for any damages as a result of the lawsuits.  However, the Company believes that the claims in the lawsuits have no merit.

14.  Merger Agreement with Tunstall:

On September 22, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tunstall Healthcare Group Limited (“Tunstall”), and Monitor Acquisition Corp., an indirect wholly owned subsidiary of Tunstall (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company and the Company will become a wholly-owned subsidiary of Tunstall (the “Merger”).

On the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of the Company (the “Common Stock”), issued and outstanding immediately prior to the Effective Time (other than treasury shares of the Company and any shares of the Company’s Common Stock owned by Tunstall, Merger Sub or any wholly owned subsidiary of the Company) will be converted into the right to receive (i) an amount in cash, without interest, equal to $8.55, less the amount of any required withholding tax, and (ii) one contingent payment right (a “CPR”) issued by Tunstall subject to and in accordance with the CPR Agreement, which provides for payments under certain circumstances relating to the Company’s investment in Lifecomm.

All outstanding stock options (“Options”) and restricted stock units (“RSUs”) of the Company will be canceled at the Effective Time.  Holders of Options, whether vested or unvested, with an exercise price below the Cash Consideration will receive, for each share of the Company’s Common Stock subject to such Option: (i) a cash payment equal to the difference between the Cash Consideration and the exercise price of the Option, less the amount of any required withholding tax, and (ii) one CPR.  Holders of Options with an exercise price at or above the Cash Consideration, if any, will not receive any consideration in the Merger.

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Holders of RSUs, whether vested or unvested, will receive, for each share of the Company’s Common Stock subject to such RSU: (i) a cash payment equal to the Cash Consideration less the amount of any required withholding tax, and (ii) one CPR.

Outstanding shares of restricted stock for which restrictions have not otherwise lapsed or expired and are outstanding will have their associated restrictions accelerate and expire immediately prior to the Effective Time.  Holders of shares of restricted stock will receive, for each such share: (i) a cash payment equal to the Cash Consideration less the amount of any required withholding tax, and (ii) one CPR.

All outstanding warrants will be redeemed at the Black-Scholes Value (as defined in the Merger Agreement) of such warrant at the Effective Time.

The Company and Tunstall’s respective obligations to complete the Merger are subject to customary closing conditions, including (i) the approval of the Merger by the holders of at least two-thirds of the outstanding shares of the Company’s Common Stock, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and (iii) the absence of any legal prohibition on completion of the Merger or the other transactions contemplated by the Merger Agreement.  Completion of the Merger is not subject to any financing contingency.

The Merger Agreement also provides for certain other termination rights for both Tunstall and the Company. The Company may be required to pay Tunstall a termination fee of $3,500,000 upon termination of the Merger Agreement under specified circumstances.  In addition, in the event that the Merger Agreement is terminated by either the Company or Tunstall following a failure to obtain approval of the Company’s shareholders of the Merger, the Company is required to pay Tunstall’s costs and expenses in an amount not to exceed $500,000, which amount will be offset against the amount of any termination fee paid thereafter.

During the nine months and three months ended September 30, 2011, the Company recorded approximately $980,000 and $716,000, respectively, of merger-related costs that were included in the selling, general and administrative expenses of the Company’s condensed consolidated statement of income (loss).

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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 our unaudited condensed consolidated financial statements and related notes thereto appearing elsewhere in this report and our audited consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2010.

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

You should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements. Readers should carefully review the risk factors and any other cautionary statements contained in the Company’s Annual Report on Form 10-K, this Quarterly Report on Form 10-Q (see Part II, Other Information, Item 1A, Risk Factors” 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 consists of two operating segments. The first segment, Health Safety and Monitoring Services (“HSMS”), is comprised of the development and marketing of Remote Patient Monitoring (“RPM”) technologies that include personal emergency response systems (“PERS”), medication reminder and dispensing systems, telehealth/disease management technologies and safety monitoring systems to pharmacies.  The second segment, Telephony Based Communication Services (“TBCS”), provides centralized call center solutions primarily to the healthcare community, including traditional after hours services, daytime services applications, and pharmaceutical support and clinical trial recruitment call center services.  The Company markets its offerings directly to healthcare providers, pharmaceutical companies, managed care organizations and through a network of distributors.  The Company also offers certain products and services directly to consumers.

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On September 22, 2011, AMAC entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tunstall Healthcare Group Limited (“Tunstall’), and Monitor Acquisition Corp., an indirect wholly owned subsidiary of Tunstall (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company and the Company will become a wholly-owned subsidiary of Tunstall (the “Merger”).  Under the terms of the agreement, each share of our common stock will be converted into the right to receive a cash payment of $8.55.  Each share will also receive one Contingent Payment Right (CPR) which provides for payments under certain circumstances relating to the Company’s investment in Lifecomm.

The transaction has been approved by our Board of Directors and is subject to customary closing conditions, including the approval of the acquisition by our shareholders and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”).  The Company received confirmation of early termination of the initial waiting period under the HSR Act effective as of October 28, 2011.

In connection with the transaction, the Company filed with the SEC a preliminary proxy statement on November 2, 2011 and other documents, and intends to file other relevant materials with the SEC concerning the proposed Merger, including a definitive proxy statement.  The Company’s shareholders are advised to read the definitive proxy statement when it becomes available because it will contain important information regarding the Company and the Merger.  Shareholders may obtain a free copy of the definitive proxy statement (when it becomes available) and other relevant documents filed by the Company with the SEC at the SEC’s website at http://www.sec.gov.  In addition, shareholders may obtain free copies of the documents filed with the SEC relating to the transaction by directing a written request to: American Medical Alert Corp., 36-36 33rd Street, Suite 103, Long Island City, NY 11106, Attention: Corporate Secretary or from the Company’s website: http://amac.com.

The Company is working toward completing the Merger as quickly as possible.  The Merger could be completed as early as the fourth quarter of 2011.  However, we cannot assure you when or if the Merger will occur.

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About HSMS:

Personal Emergency Response Systems (PERS)

PERS is the Company’s core product and service offering.  The system consists of a console unit and a wireless transmitter generally worn as a pendant or on the wrist by the client.  In the event of an emergency, the client is able to summon immediate assistance via a two-way voice system that connects the client’s home telephone with the Company’s emergency response center.  The ability to access and obtain assistance, particularly after a fall or during a medical emergency, has been proven to reduce overall healthcare costs and increase the ability of an individual to remain independent at home.  AMAC’s PERS is marketed directly to consumers, providers and by third party resellers under multiple brands, including VoiceCare®, Walgreens Ready Response™, Response Call®, ApriaAlert™ and most recently VNSNYAssist™ .

MedSmart

MedSmart is a powerful solution that organizes, reminds and dispenses pills in accordance with prescribed treatment regimens. Easy to set up and use, MedSmart improves adherence to medication regimens and reduces the risk of missed doses and overdosing errors to improve clinical outcomes and quality of life.  With MedSmart’s innovative event reporting and notification capability, family caregivers and healthcare professionals can proactively support independent living. MedSmart’s docking base serves as the gateway for remote programming and event reporting. When connected to a household phone, MedSmart transmits device and dispensing history to a secure server supported with a web application for review by authorized individuals, such as relatives or medical professionals. Through AMAC’s personalized notification system, alerts can be sent to track adherence, address dosing errors and predict refill requirements.  The ability to communicate these events creates a new capability to easily track adherence, proactively modify behavior and improve compliance.

MedTime

MedTime is an electronic medication reminder and dispensing unit marketed under an exclusive licensing, manufacturing and distribution agreement which began in 1999.  This agreement originates from PharmaCell AB, a Swedish company, with licensing rights extending throughout the United States, Canada and Mexico. The initial term of the agreement was five years requiring the Company to achieve certain purchase minimums in order to maintain exclusivity.  Thereafter, the agreement converted to an evergreen with annual purchase minimums of 1,500 units. The Company has met all minimums with PharmaCell to date and continues to maintain exclusivity.

Telehealth Systems

Rounding out AMAC’s RPM portfolio is AMAC’s telehealth delivery capability. As a distributor of the Health Buddy® System, many of the Company’s customers have successfully demonstrated the value proposition of incorporating disease management technologies into a patient’s plan of care.  This AMAC operated telehealth platform is directed toward providers who require a low-cost solution, easy installation, reliable transmission of vital sign data in real-time and ease of use on the patient side.  The Company believes the telehealth market will continue to provide opportunities for AMAC’s expansion as a full source provider of remote patient monitoring technologies and first line support services.

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About TBCS:

AMAC’s TBCS segment offers value added, customizable call center solutions that enhance the patient/provider communication experience. As part of our business development strategy, management continues to employ the most advanced telephony technology and information systems to develop services to respond to shifting market factors that affect healthcare client needs. In addition to technology, a critical component for successful expansion is the Company’s professionally trained call agent staff.  The Company allocates resources to enhance contact agent training and staff development, new communication technology, and continuous quality control to support TBCS’ expansion efforts. The overall infrastructure has allowed AMAC to expand its footprint of services beyond traditional telephone answering services to provide more innovative, clinically oriented call center offerings.

After Hours Answering Services

AMAC’s after hours services are classified as essential call center services with a fully customizable approach to communications support.  Basic services in this offering include traditional after hour answer and customized message delivery options, contact lists and on-call schedule management, all of which can be updated at the client’s convenience using the OnCall web portal.  Through this portal, clients can also access the account’s call history, specifications and messages.

Concierge Services/Daytime Solutions

AMAC’s Concierge Services focus on the delivery of enhanced communications and help to streamline workflow within provider organizations. These solutions primarily serve hospitals and health plans in the Northeast seeking to address staffing constraints in a variety of areas while extending first-class patient experience.  Services range from providing skilled contact agents to support insurance eligibility verification programs; enhancing patient self care activities through post discharge follow-up programs, and providing specialized emergency department programs with strict reach guidelines to facilitate better treatment and care. Through more efficient and effective call processing, these solutions improve patient satisfaction, reduce cost, and increase revenue by maximizing the ratio of patients to available resources.

Pharmaceutical Support and Clinical Trial Recruitment Services

Our clinical trial solutions service is an integral component of our overall growth strategy to drive revenue enhancement and expand our visibility. AMAC’s PhoneScreen is a leader in the field of patient recruitment, retention and contact center services.  Using centralized telephone screening of potential clinical trial study subjects, PhoneScreen provides valuable data to inform advertising and patient recruitment strategies.  As the trend towards more individualized healthcare communication becomes the norm, AMAC is leading this transformation with innovative contact solutions.  We anticipate that our pharmaceutical support programs will be increasingly utilized to deliver enhanced patient-centric healthcare communication experiences on behalf of certain brands.  Based upon new demand, we are recruiting nurses, health educators and other healthcare professionals that will allow us to provide additional turn-key solutions for our clients.

The Company has completed eleven acquisitions to date to facilitate growth within the TBCS division.  For the remainder of 2011, the Company will focus on growing this segment through internally driven sales and marketing efforts as well as continue to search for additional acquisition opportunities.

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Operating Segments

For the nine months ended September 30, 2011, HSMS accounted for 48% of the Company’s revenue and TBCS accounted for 52% of the Company’s revenue.  The Company believes that the overall mix of cash flow generating businesses from HSMS and TBCS, combined with its emphasis on developing products and services to support demand from customers and the emerging, home-based monitoring market, provides the correct blend of stability and growth opportunity. The Company believes this strategy will enable it to maintain and increase its role as a national healthcare communications provider.  Based on the Company’s growth strategy and the complementary nature of if its operating divisions, management believes the Company’s outlook is very positive.

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, 2011 and 2010.

In thousands (000’s)	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			%			2010			%			2011			%			2010			%
Revenues
HSMS		5,328			48	%		5,178			52	%		15,757			49	%		15,413			52	%
TBCS		5,865			52	%		4,831			48	%		16,387			51	%		14,220			48	%
Total Revenues		11,193			100	%		10,009			100	%		32,144			100	%		29,633			100	%
Cost of Services and Goods Sold
HSMS		2,096			39	%		1,969			38	%		6,132			39	%		6,037			39	%
TBCS		3,130			53	%		2,587			54	%		8,866			54	%		7,566			53	%
Total Cost of Services and Goods Sold		5,226			47	%		4,556			46	%		14,998			47	%		13,603			46	%
Gross Profit
HSMS		3,232			61	%		3,209			62	%		9,625			61	%		9,376			61	%
TBCS		2,735			47	%		2,244			46	%		7,521			46	%		6,654			47	%
Total Gross Profit		5,967			53	%		5,453			54	%		17,146			53	%		16,030			54	%
Selling, General & Administrative		5,321			48	%		4,370			44	%		13,752			43	%		12,135			41	%
Interest Expense		12			-	%		19			-	%		40			-	%		45			-	%
Equity in net loss from investment in    limited liability company		424			4	%		391			4	%		1,496			5	%		507			2	%
Other Income		(36	)		-	%		(18	)		-	%		(60	)		-	%		(77	)		-	%
Income before Income Taxes		246			2	%		691			7	%		1,918			6	%		3,420			12	%
Provision for Income Taxes		290						283						1,093						1,402
Net Income (Loss)		(44	)					408						825						2,018

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Results of Operations:

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

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

Revenues:

HSMS

Revenues, which consist primarily of monthly rental revenues, increased approximately $150,000, or 3%, for the three months ended September 30, 2011 as compared to the same period in 2010.  The increase was primarily attributable to the following:

§   The Company recognized an increase in its PERS service revenue of approximately $70,000 from its long-term and managed long-term care programs.  By aligning the Company 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 recognized an increase in its PERS service revenue of approximately $75,000 from execution and commencement of a new agreement with a hospital organization.  The Company has focused part of its strategy to pursue hospital organizations in the utilization of PERS.  The Company is currently working with other hospital organizations and anticipates that it will enter into additional agreements in the fourth quarter of 2011 and early 2012.

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 in early 2012.

TBCS

The increase in revenues of approximately $1,034,000, or 21%, for the three months ended September 30, 2011 as compared to the same period in 2010 was primarily due to:

·   The Company recognized an increase in revenue within its pharmaceutical support services of approximately $858,000 primarily as a result of the execution of a significant agreement with a large pharmaceutical company whereby service commenced during the second half of 2010.  Under this agreement, the Company has been awarded multiple new projects that have continued to provide additional revenue throughout 2011.  Revenue growth in this offering is anticipated to continue for the remainder of 2011 and into 2012.

·   The Company recognized an increase in its non-traditional daytime service revenue of approximately $240,000 primarily due to existing hospital organizations expanding services with the Company as well as entering into a contract with a new hospital organization whereby services commenced during third quarter 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 and into 2012.

·   The Company increased its revenue by approximately $206,000 as a result of the acquisition of a telephone answering service company in late September 2010.

These increases were partially offset by a decrease in revenue within the Company’s traditional after hours services of approximately $269,000 primarily due to customer attrition.  While the Company has been working on strategies to minimize this attrition, it is anticipated that some attrition will continue in this area as a result of current economic conditions and physicians looking to bring these services in-house.

Costs Related to Services and Goods Sold:

HSMS

Costs related to services and goods sold increased by approximately $127,000 for the three months ended September 30, 2011 as compared to the same period in 2010, an increase of 6%, primarily due to the following:

·   Payroll and related expense in association with the information technology personnel increased by approximately $55,000 primarily due to programming and modification of systems for the Company’s clients and its internal service-related software.

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·   Service fees incurred in connection with the Company’s use of a third party’s telehealth software increased by approximately $42,000 due to an increase in the monthly fee paid by the Company under such arrangement effective in late 2010.

·   The Company realized an increase of approximately $42,000 in costs primarily related to testing, repairs and upgrades associated with the Company’s PERS devices and its associated components.

These increases were partially offset by a decrease in depreciation expense of approximately $52,000 primarily due to the Company purchasing its PERS devices at reduced prices through an alternative supplier during the past three years.

TBCS

Costs related to services increased by approximately $543,000 for the three months ended September 30, 2011 as compared to the same period in 2010, an increase of 21%, primarily due to the following:

§   The Company recognized an increase in payroll and related expenses associated with pharmaceutical support services and non-traditional daytime services of approximately $737,000 primarily due to increased business in these areas as well as preparation, including training and programming, for new clients and new projects that required additional personnel.  As the Company continues to grow in these areas, it will continue to evaluate the personnel requirements to perform these services efficiently.

§   Costs related to services increased by approximately $112,000 from the operation of a new telephone answering service company acquired in late September 2010.  These expenses primarily consisted of operators’ payroll, communication and rent expense.

These increases were partially offset by a decrease in the payroll associated with the traditional after hours services of approximately $324,000 primarily due to a corresponding decrease in revenue in these areas as well as the Company implementing certain cost efficient strategies.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased by approximately $951,000 for the three months ended September 30, 2011 as compared to the same period in 2010, an increase of 22%.  The increase was primarily attributable to the following:

§   Professional fees increased by approximately $785,000 primarily as a result of various corporate matters as well as the negotiation and execution of a Merger Agreement under which Tunstall proposes to acquire the Company.  The Company incurred $626,000 of legal and other professional fees relating to the Merger Agreement for the three months ended September 30, 2011.  The Company also anticipates that it will incur additional fees in the fourth quarter of 2011 with respect to the Merger Agreement.

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§   Administrative payroll and associated expense as well as recruiting fees increased by approximately $138,000 primarily due to the hiring of additional training, managerial and support 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.

§   Payroll and related expense for sales and marketing increased by approximately $96,000 primarily due to the Company hiring addition personnel to strengthen its sales and marketing effort within HSMS and TBCS segments.  Various sales personnel also earned additional commissions as a result of generating additional revenue.

§   Travel and entertainment as well as marketing expenses increased by approximately $119,000 primarily due to increased sales and marketing activities as well as the expansion of business..

§   As a result of acquiring a telephone answering service company in late September 2010, selling, general and administrative expenses increased by approximately $99,000 from the operation of this acquired subsidiary.  These expenses primarily consisted of administrative payroll and consulting expense.

These increases were partially offset by a decrease in amortization expense of approximately $93,000 due to certain intangible assets being fully amortized and a decrease in advertising expense of approximately $346,000. The Company does not anticipate any significant advertising expense in the fourth quarter of 2011, therefore, the decrease in advertising expense is expected to continue in the remainder of 2011.

Equity in Net Loss from Investment in Limited Liability Company:

Equity in net loss from investment in limited liability company for the three months ended September 30, 2011 and 2010 of approximately $424,000 and $391,000, respectively, was related to the Company’s investment in Lifecomm in May 2010.  This equity loss represents the Company’s share of Lifecomm’s loss, which consists of research and development cost as well as other selling, general and administrative expenses incurred for the development of the next generation mobile PERS.  This equity loss, which is not related to the Company’s current business operations, is expected to continue throughout 2011 until the next generation mobile PERS is completed and commercialized, which is anticipated to be in early 2012.

Income Before Provision for Income Taxes:

The Company’s income before provision for income taxes for the three months ended September 30, 2011 was approximately $246,000 as compared to $691,000 for the same period in 2010. The decrease of $445,000 for the three months ended September 30, 2011 primarily resulted from an increase in the Company's costs related to services and product sales and an increase in selling, general and administrative costs, which were partially offset by an increase in the Company’s revenue.

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Provision for Income Taxes:

The Company’s provision for income taxes for the three months ended September 30, 2011 was approximately $290,000 as compared to $283,000 for the same period in 2010.  The estimated effective tax rate for the three months ended September 30, 2011 was approximately 118% as compared to 41% for the same period in 2010.  The increase in the Company’s estimated effective rate was due to the impact of certain non-deductible expenses incurred in connection with the Merger Agreement under which Tunstall proposes to acquire the Company.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

Revenues:

HSMS

Revenues, which consist primarily of monthly rental revenues, increased approximately $344,000, or 2%, for the nine months ended September 30, 2011 as compared to the same period in 2010.  The increase was primarily attributable to the following:

§   The Company recognized an increase in its PERS service revenue of approximately $185,000 from its long-term and managed long-term care programs.  By aligning the Company 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 recognized an increase in its PERS service revenue of approximately $140,000 from execution and commencement of new agreements with hospital organizations.  The Company has focused part of its strategy to pursue hospital organizations in the utilization of PERS.  The Company is currently working with other hospital organizations and anticipates that it will enter into additional agreements in the fourth quarter of 2011 and early 2012.

§   The Company realized an increase in its PERS service revenue of approximately $62,000 from one of the largest national home care companies whereby the Company entered an agreement with in late 2010.  The Company will generate additional revenue from this agreement, as it will provide services to more end users through additional care centers under this national home care company that has several hundreds of care centers throughout the country.

These increases were partially offset by a decrease of service revenue from the Company’s telehealth business of approximately $52,000.  The Company believes that the decrease in this area has been stabilized.

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In addition, 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 in early 2012.

TBCS

The increase in revenues of approximately $2,167,000, or 15%, for the nine months ended September 30, 2011 as compared to the same period in 2010 was primarily due to:

·   The Company recognized an increase in revenue within its pharmaceutical support services of approximately $1,450,000 primarily as a result of the execution of a significant agreement with a large pharmaceutical company whereby service commenced during the second half of 2010.  Under this agreement, the Company has been awarded with multiple new projects that have continued to provide additional revenue throughout 2011.  Revenue growth in this offering is anticipated to continue in the remainder of 2011 and into 2012 as additional revenue will be generated from these new projects.

·   The Company recognized an increase in its non-traditional daytime service revenue of approximately $668,000 primarily due to existing hospital organizations expanding services with the Company as well as a contract with a new hospital organization being executed whereby services commenced during third quarter 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 and into 2012.

·   The Company increased its revenue by approximately $630,000 as a result of the acquisition of a telephone answering service company in late September 2010.

These increases were partially offset by a decrease in revenue within the Company’s traditional after hours services of approximately $580,000 primarily due to customer attrition.  While the Company has been working on strategies to minimize this attrition, it is anticipated that some attrition will continue in this area as a result of current economic conditions and physicians looking to bring these services in-house.

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Costs Related to Services and Goods Sold:

HSMS

Costs related to services and goods sold increased by approximately $95,000 for the nine months ended September 30, 2011 as compared to the same period in 2010, an increase of 2%, primarily due to the following:

·   Payroll and related expense in association with the information technology personnel increased by approximately $106,000 primarily due to programming and modification of systems for the Company’s clients and its internal service-related software.

·   Service fees incurred in connection with the Company’s use of a third party’s telehealth software increased by approximately $104,000 due to an increase in the monthly fee paid by the Company under such arrangement effective in late 2010.

These increases were partially offset by a decrease in depreciation expense of approximately $151,000 primarily due to the Company purchasing its PERS devices at reduced prices through an alternative supplier during the past three years

TBCS:

Costs related to services increased by approximately $1,300,000 for the nine months ended September 30, 2011 as compared to the same period in 2010, an increase of 17%, primarily due to the following:

§   The Company recognized an increase in payroll and related expenses associated with pharmaceutical support service and non-traditional daytime services of approximately $1,529,000 primarily due to increased business in these areas as well as preparation including training and programming for new clients and new projects that required additional personnel.  As the Company continues to grow in this area, it will continue to evaluate the personnel requirements to perform these services efficiently.

§   Costs related to services increased by approximately $308,000 from the operation of a telephone answering service company acquired in late September 2010.  These expenses primarily consisted of operators’ payroll and rent expense.

These increases were partially offset by a decrease in the payroll associated with the traditional after hours services of approximately $685,000 primarily due to a corresponding decrease in revenue in these areas as well as the Company implementing certain cost efficient strategies.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased by approximately $1,617,000 for the nine months ended September 30, 2011 as compared to the same period in 2010, an increase of 13%.  The increase was primarily attributable to the following:

§   Professional fees increased by approximately $1,136,000 primarily due to various corporate matters as well as the execution of a Merger Agreement under which Tunstall proposes to acquire the Company.  The Company incurred $930,000 of legal and other professional fees specifically relating to the Merger Agreement for the nine months ended September 30, 2011.  The Company also anticipates that it will incur additional fees in the fourth quarter of 2011 with respect to the Merger Agreement.

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§   Administrative payroll and associated expense as well as recruiting fees increased by approximately $380,000 primarily due to hiring by the Company of additional training, managerial and support 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.

§   Payroll and related expense for sales and marketing increased by approximately $146,000 primarily due to the Company hiring addition marketing personnel to strengthen its sales and marketing effort within HSMS and TBCS segments.  Various sales personnel also earned additional commissions as a result of generating additional revenue.

 

§   Travel and entertainment as well as marketing expenses increased by approximately $240,000 primarily due to increased sales and marketing activities as well as the expansion of business.

§   As a result of acquiring a telephone answering service company in late September 2010, selling, general and administrative expenses increased by approximately $280,000 from the operation of this acquired subsidiary.  These expenses primarily consisted of administrative payroll and consulting expense.

These increases were partially offset by a decrease in amortization expense of approximately $297,000 due to certain intangible assets being fully amortized and a decrease in advertising expense of approximately $465,000. The Company does not anticipate any significant advertising expense in the fourth quarter of 2011, therefore, the decrease in advertising expense is expected to continue in the remainder of 2011.

Equity in Net Loss from Investment in Limited Liability Company:

Equity in net loss from investment in limited liability company for the nine months ended September 30, 2011 and 2010 of approximately $1,496,000 and $507,000, respectively, was related to the Company’s investment in Lifecomm in May 2010.  This equity loss represents the Company’s share of Lifecomm’s loss, which consists of research and development cost as well as other selling, general and administrative expenses incurred for the development of the next generation mobile PERS.  This equity loss, which is not related to the Company’s current business operations, is expected to continue throughout 2011 until the next generation mobile PERS is completed and commercialized, which is anticipated to be in early 2012.

Income Before Provision for Income Taxes:

The Company’s income before provision for income taxes for the nine months ended September 30, 2011 was approximately $1,918,000 as compared to $3,420,000 for the same period in 2010. The decrease of $1,502,000 for the nine months ended September 30, 2011 primarily resulted from an increase in the Company's costs related to services and product sales, an increase in selling, general and administrative costs and an increase in equity in net loss from the investment in a limited liability company which were partially offset by an increase in the Company’s revenue.

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Provision for Income Taxes:

The Company’s provision for income taxes for the nine months ended September 30, 2011 was approximately $1,093,000 as compared to $1,402,000 for the same period in 2010.  The estimated effective tax rate for the nine months ended September 30, 2011 was approximately 57% as compared to 41% for the same period in 2010.  The increase in the Company’s estimated effective rate was due to the impact of certain non-deductible expenses incurred in connection with the Merger Agreement under which Tunstall proposes to acquire the Company.

Liquidity and Capital Resources

The Company had a credit facility arrangement for $4,500,000 which included a revolving credit line which permitted borrowings of $1,500,000 (based on eligible receivables as defined in the credit agreement) 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 a $2,500,000 and a $1,600,000 term loan, the proceeds of which were utilized to finance the acquisitions of MD OnCall and American Mediconnect, Inc.  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 0.5%, whichever is greater, and the revolving credit line bears interest at either (a) LIBOR plus 1.75% or (b) the prime rate or the federal funds effective rate plus 0.5%, whichever is greater.  The LIBOR interest rate charge shall be adjusted in 0.25% 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 0.25% 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 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.

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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 the 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 of September 30, 2011 and 2010, the Company was in compliance with its financial covenants in its credit agreement.

The following table is a summary of contractual obligations as of September 30, 2011:

	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)	$	1,520,000	$	420,000	$	1,100,000
Operating Leases (b)	$	8,075,288	$	1,676,508	$	3,874,013	$	2,079,573	$	445,194
Purchase Commitments (c)	$	1,557,296	$	1,362,602	$	194,694
Interest Expense (d)	$	106,065	$	52,365	$	53,700
Acquisition Related Commitment (e)	$	95,214	$	95,214
Total Contractual Obligations	$	12,103,863	$	3,801,383	$	5,777,713	$	2,079,573	$	445,194

(a)– Debt includes the Company’s aggregate outstanding term loans which mature in 2013 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.

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The primary source of liquidity is cash flows from operating activities.  Net cash provided by operating activities was approximately $5.1 million for the nine months ended September 30, 2011, as compared to approximately $5.3 million for the same period in 2010.  During 2011, the cash provided by operating activities was primarily from net earnings of approximately $0.8 million, depreciation and amortization of approximately $2.3 million, equity in net loss from investment in limited liability company of approximately $1.5 million, a decrease in prepaid income taxes of approximately $0.4 million, and an increase in accounts payable and accrued expenses of approximately $0.6 million, which are partially offset by an increase in accounts receivable of approximately $0.8 million.  The components of depreciation and amortization primarily relate to the purchases of the Company’s traditional PERS equipment and the customer lists associated with the acquisition of telephone answering service businesses.  The net loss from investment in limited liability company represents the Company’s equity share of Lifecomm’s loss which consists of research and development cost as well as other selling, general and administrative expense incurred for the development of the next generation mobile PERS.  The decrease in prepaid income taxes was primarily due to the timing of the estimated tax payment as compared to the estimated tax provision.  The increase in accounts payable and accrued expenses as well as the increase in accounts receivable was primarily as due to the timing of payment of expenses as well as receipt of revenues in the ordinary course of business.  During 2010, the cash provided by operating activities was primarily from net earnings of approximately $2.0 million, depreciation and amortization of approximately $2.8 million and equity in net loss from investment in limited liability company of approximately $0.5 million.

Net cash used in investing activities for the nine months ended September 30, 2011 was approximately $1.4 million compared to $5.6 million for the same period in 2010.  The primary component of net cash used in investing activities in 2011 was capital expenditures of approximately $1.2 million.  The primary component of net cash used in investing activities in 2010 was the $4.1 million investment in a limited liability company for the development of the next generation mobile PERS system; capital expenditures of approximately $0.9 million, net of deposits on equipment being transferred to fixed assets; and $0.6 million for the acquisition of Alpha, a telephone answering company.  Capital expenditures for both 2011 and 2010 primarily related to the continued production and purchase of the traditional PERS systems.

Cash flows used in financing activities for the nine months ended September 30, 2011 were approximately $0.4 million compared to $1.4 million for the same period in 2010.  The primarily component of cash flow used in financing activities in 2011 was the repayments of long-term debt of approximately $0.5 million that was partially offset by the proceeds upon exercise of stock options of approximately $0.2 million.  The components of cash flow used in financing activities in 2010 were the payment of long-term debt of approximately $1.5 million and the payment of two special dividends, which were declared on December 16, 2009 and July 19, 2010, aggregating approximately $1.9 million.  These financing cash outflows in 2010 were partially offset by the proceeds from long-term debt of $2.0 million that was obtained for the purpose of partially funding the investment in a limited liability company.

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During the next twelve months, the Company anticipates it will make capital expenditures of approximately $2.00 – $2.50 million for the production and purchase of the traditional PERS systems, telehealth systems, Mobile PERS, enhancements to its computer operating systems and build-out of its additional call center space.  Part of this amount is subject to fluctuations primarily based on customer demand.  The Company anticipates incurring approximately $0.1 - $0.3 million of costs primarily relating to research and development of its home-based cellular PERS and telehealth products.  The Company also plans to incur approximately $1.0 - $1.5 million of advertising expense for promotional campaigns related to its PERS system.  The Company is also considering acquisition initiatives which may require additional cash outlay.

As of September 30, 2011, the Company had approximately $7.3 million in cash and the Company’s working capital was approximately $13.2 million.  The Company believes that with its present cash balance and with operations of the business generating positive cash flow, it will be able to meet its cash flow needs for working capital and capital expenditures for at least the next twelve months. The Company also has a revolving credit line, which expires in June 2013 that permits borrowings up to $2.5 million, of which $750,000 was outstanding at September 30, 2011.

Off-Balance Sheet Arrangements:

As of September 30, 2011, the Company has not entered into any off-balance sheet arrangements that are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources  that is material to investors.

Other Factors:

Lease Commitments

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

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

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

During 2010, the Company entered into an operating lease agreement for additional space at its Long Island City, New York location in order to provide space for the operation of its non traditional day-time services.  The lease, which commenced in January 2011 and expires in December 2015, calls for minimum annual rent of $65,000, subject to increases in accordance with the term of the agreement.  The Company is also responsible for the reimbursement of certain real estate taxes.

In June 2011, the Company entered into an operating lease agreement for additional space at its Long Island City, New York location in order to provide space primarily for the expansion of its non-traditional day-time services and its pharmaceutical support services.  The lease commenced in November 2011 and will expire after five years.  The lease calls for minimum annual rent of $215,375 and is subject to increases in accordance with the term of the agreement.  The Company is also responsible for the reimbursement of real estate taxes.

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 September 30, 2011, the Company’s exposure to loss is limited to the recorded equity investment balance of $1,474,157 and its share ($200,000) of a stand-by equity commitment, if required.

Hughes Telematics, Inc. (“HTI”), 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.  If HTI is unable to provide the financial and operating support that it is obligated to under the agreement, Lifecomm and the successful development of the next generation mobile PERS would likely be negatively impacted.

Lifecomm is a development stage company that has yet to generate any revenue, and has generated a pre-tax net loss of $6,595,242 and $2,282,762 during the nine and three months ended September 30, 2011 ($10,217,134 during the period from inception, May 12, 2010 to September 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.  There is no assurance that Lifecomm will complete, in a cost effective or timely manner, the development of the operating systems to specifications that will allow it to successfully generate revenue.

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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 nine and three months ended September 30, 2011, the Company recorded a pre-tax net loss of $1,496,053 and $424,141, respectively ($2,676,179 during the period from inception, May 12, 2010 to September 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.

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 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.  The results of operations of Alpha are included in the Telephone Based Communications Services segment as of the date of acquisition.

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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 our consolidated financial statements depends upon the nature, terms and size of the acquisitions we 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.

Critical Accounting Policies:

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

Reserves for Uncollectible Accounts Receivable

The Company makes ongoing assumptions relating to the collectability of its accounts receivable.  The accounts receivable amount on the balance sheet includes a reserve for accounts that might not be paid.  In determining the amount of the reserve, the Company considers its historical level of credit losses.  The Company also makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations, and it assesses current economic trends that might impact the level of credit losses in the future. The Company recorded reserves for uncollectible accounts receivable of $483,800 as of September 30, 2011, which is equal to 6% of the total accounts receivable.  While the Company believes that the current reserves are adequate to cover potential credit losses, it cannot predict future changes in the financial stability of its customers and the Company cannot guarantee that its reserves will continue to be adequate.  For each 1% that actual credit losses exceed the reserves established, there would be an increase in general and administrative expenses and a reduction in reported net income of approximately $88,000. 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 $88,000.

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Fixed Assets

Fixed assets are stated at cost.  Depreciation for financial reporting purposes is being provided by the straight-line method over the estimated useful lives of the related assets.  The valuation and classification of these assets and the assignment of useful depreciable lives involves significant judgments and the use of estimates.  Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Historically, impairment losses have not been required.  Any change in the assumption of estimated useful lives could either result in a decrease or increase to the Company’s financial results.  A decrease in estimated useful life would reduce the Company’s net income and an increase in estimated useful life would increase the Company’s net income.  If the estimated useful lives of the PERS medical device were decreased by one year, the cost of goods related to services would increase and net income would decrease by approximately $176,000 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 $135,000 per annum.

Valuation of Goodwill

Goodwill and indefinite life intangible assets are subject to annual impairment tests.  To date, the Company has not been required to recognize an impairment of goodwill. The Company tests goodwill for impairment annually or more frequently when events or circumstances occur indicating goodwill might be impaired. This process involves estimating fair value using discounted cash flow analyses. Considerable management judgment is necessary to estimate discounted future cash flows. Assumptions used for these estimated cash flows were based on a combination of historical results and current internal forecasts.  The Company cannot predict certain events that could adversely affect the reported value of goodwill, which totaled $10,842,352 at September 30, 2011 and December 31, 2010.  If the Company were to experience a significant adverse impact on goodwill, it would negatively impact the Company’s net income.

Investment in limited liability company

The Company owns a minority interest of approximately 10% and is not the primary beneficiary in an unconsolidated limited liability company.  The Company's investment in the unconsolidated limited liability company is recorded using the equity method of accounting, whereby the original investment is recorded at cost and subsequently adjusted for contributions, distributions, and net income (loss) attributable to such limited liability company.  All income and loss are allocated to the limited liability company members in accordance with the terms of the limited liability company agreement.  An impairment charge is recognized for an investment accounted for under the equity method when an other than temporary decline in its carrying value has occurred.  As of September 30, 2011, the equity investment balance was $1,474,157 and the Company has not recorded any impairment charges on its equity investment in the limited liability company.

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Accounting for Stock-Based Awards

Stock based compensation is recorded in accordance with ASC Topic 718, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payments to employees, including grants of stock and employee stock options, based on estimated fair values.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.  The Company recorded a pre-tax stock-based compensation expense which is included in selling, general and administrative expense in its consolidated financial statements of approximately $147,000 and $198,000 for the six months ended September 30, 2011 and 2010, respectively.

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

Market Risk Disclosure

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

In the ordinary course of its business, the Company enters into commitments to purchase raw materials and finished goods over a period of time, generally six months to one year, at contracted prices.  At September 30, 2011, these future commitments were not at prices in excess of current market, or in quantities in excess of normal requirements. The Company does not utilize derivative contracts either to hedge existing risks or for speculative purposes.

Interest Rate Risk

We are exposed to market risk from changes in interest rates primarily through our financing activities.  Interest on the outstanding balances on our term loans and revolving credit line under our credit facility accrues at a rate of LIBOR plus 1.75% and LIBOR plus 1.50%, respectively.  To date, the impact from interest rate fluctuations has not been material.  Our ability to carry out our business plan to finance future working capital requirements may be impacted if the cost of carrying debt fluctuates to the point where it becomes a burden on our resources.

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Item 4.  Controls and Procedures.

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

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

Following the September 22, 2011 announcement of the Merger Agreement under which Tunstall proposes to acquire the Company, on or about September 28, 2011, a putative class action lawsuit was filed against the Company and the members of its board of directors by Joseph Weiss, on behalf of himself and all similarly situated shareholders.  The complaint was filed in the Supreme Court of the State of New York, County of Nassau.  The lawsuit asserts claims for breach of fiduciary duty against the Company’s directors, some of whom are also officers.  The lawsuit seeks injunctive relief preventing the Merger, recovery of damages as a result of the alleged actions of the Company’s directors, and costs, and disbursements of the lawsuit, including attorneys', accountants’ and experts’ fees.

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On or about September 30, 2011, a putative shareholder’s class action complaint was filed against the Company, the members of its board of directors, Tunstall and Merger Sub by Diane Kent, on behalf of herself and all similarly situated shareholders.  The complaint was filed in the Supreme Court of the State of New York, County of Queens.  The lawsuit asserts claims for breach of fiduciary duty against the members of our board of directors and aiding and abetting breach of fiduciary duty against the Company, Tunstall and Merger Sub.  The lawsuit seeks to enjoin the defendants from completing the Merger, commencement of an unspecified sales process, imposition of a constructive trust, attorneys' and experts’ fees and costs and other equitable relief.

On or about October 24, 2011, a putative shareholder’s class action complaint was filed against the Company and the members of its board of directors by Joyce Fauci, on behalf of herself and all similarly situated shareholders.  The complaint was filed in the Supreme Court of the State of New York, County of Queens.  The lawsuit asserts claims for breach of fiduciary duty against the members of our board of directors and aiding and abetting breach of fiduciary duty against the Company.  The lawsuit seeks to enjoin the defendants from completing the Merger, rescission or rescissory damages, an accounting for damages caused by the defendants and all profits and special benefits obtained as a result of the alleged breach of fiduciary duty, and costs of the lawsuit, including attorneys', and experts’ fees.

On October 27, 2011, the plaintiffs in the actions commenced in Queens, Diane Kent and Joyce Fauci (together, the “Queens Plaintiffs”), filed a motion seeking to consolidate the actions they commenced, as well as any subsequently filed related actions, under the index number for the action commenced by Diane Kent, designating the caption of the requested resulting consolidated action as In re American Medical Alert Corp. Shareholder Litigation and appointing the law firms of Robbins Umeda LLP and Levi & Korsinsky LLP as Co-Lead Counsel in the requested consolidated action.  The Queens Plaintiffs advise the Court in their motion that Joseph Weiss, who commenced the action pending in Nassau County, supports the motion and has agreed to coordinate efforts and jointly prosecute a consolidated action in Queens County.  The Queens Plaintiffs' motion is pending.

At this time, it cannot be determined if the Company will be deemed liable for any damages as a result of these lawsuits.  The Company has given its insurance carrier notice of such claims, and it believes that there is sufficient insurance coverage to pay any damages awarded as a result of the asserted claims.  The Company and its board of directors believe that these lawsuits are without merit and intend to defend them vigorously.

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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, no material liabilities have been recorded and in any event, the Company believes the disposition of these matters will not have a material adverse effect on the results of operations and financial condition of the Company.

Item 1A.  Risk Factors

Except as described below, management believes that there have been no material changes in the Company’s risk factors as reported in the Annual Report on Form 10-K for the year ended December 31, 2010, as amended, and the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011.

Our inability to complete the Merger with Tunstall may result in adverse consequences to the Company.

We signed the Merger Agreement with Tunstall on September 22, 2011, under which Tunstall proposes to acquire the Company.  The Merger Agreement includes a number of closing conditions which must be met to close the Merger, some of which are beyond our control.  In the event that the proposed Merger is not completed:

·   our relationships with customers, suppliers and vendors may be substantially disrupted as a result of uncertainties with regard to our business and prospects;

·   we must pay costs and expenses related to the proposed acquisition, such as legal fees, whether or not the proposed merger is completed;

·   under certain circumstances, we may be required to pay a termination (break-up) fee of $3.5 million if the proposed Merger is not completed; and

·   the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed Merger will be completed.

Any of these events could have a material negative impact on our financial results and our business and could adversely affect the price of our common stock.

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The impact of the Merger on our business relationships, operating results and business generally is unknown and may negatively impact our business.

Our customer relationships are critical to the operating and financial results of the Company.  It is unclear what, if any, impact the Merger may have on our customer relationships.  The loss of one or more significant customers or the inability to continue operating under existing customer contracts with terms favorable to us could materially and adversely affect our financial results and our business.

The costs, delay and management time and attention associated with the Merger and litigation related to the Merger could negatively affect the Merger or result in a negative impact to our financial results.

Management’s and our employees’ attention from our day-to-day business may be diverted because matters related to the proposed Merger require substantial commitments of time and resources.  In addition, current legal proceedings have been brought against the Company and other actions may be subsequently initiated relating to the pending Merger.  Such litigation could result in significant potential costs, diversion of management’s attention from ongoing business concerns and delay the completion of the Merger.  Additionally, as is the case with any such litigation, we cannot predict the outcome of such proceedings.

There is the possibility that competing offers will be made which could result in the termination of the Merger Agreement as well as additional cost, delay and potential diversion of management’s attention.

If we receive competing offers, our Board of Directors, consistent with its duties and the Merger Agreement, may need to consider such competing offers which could result in the termination of the Merger Agreement as well as additional cost, delay and potential diversion of management’s attention from the business during the pendency or consummation of a proposed transaction.  Any such delays and increased costs may harm our business and operations.

Item 6.  Exhibits

No.                      Description

2.1 Agreement and Plan of Merger, dated as of September 22, 2011, by and among Tunstall Healthcare Group Limited, Monitor Acquisition Corp, and American Medical Alert Corp.  (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 23, 2011). Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  The registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission.

2.2 Contingent Payment Rights Agreement, dated as of September 22, 2011, by and among Tunstall Healthcare Group Limited, American Medical Alert Corp. and each of Howard Siegel and Gregory Fortunoff, serving jointly as Shareholder Representative (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed September 23, 2011).  Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  The registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission.

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10.1 Form of Voting Agreement, dated as of September 22, 2011, entered into by and between Tunstall Healthcare Group Limited and the executive officers and directors of American Medical Alert Corp. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 23, 2011).

10.2 Stock Option Contract, dated September 7, 2011, between American Medical Alert Corp. and Richard Rallo.

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

101 The following financial information from American Medical Alert Corp’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets for September 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Income (Loss) for the Three Months Ended September 30, 2011 and 2010, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010, and (v) the Notes to Condensed Consolidated Financial Statements.

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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, 2011	By:	/s/ Jack Rhian
		Name: Jack Rhian
		Title: Chief Executive Officer and President
	By:	/s/ Richard Rallo
		Title: Chief Financial Officer
		Name: Richard Rallo

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EX-10.2

Exhibit 10.2

STOCK OPTION CONTRACT

This Stock Option Contract (this “Contract”), entered into on September 7, 2011 and effective as of November 13, 2009 (the “Grant Date”), is between American Medical Alert Corporation, a New York Corporation (the “Company”), and Richard Rallo (the “Optionee”).

W I T N E S S E T H:

1.           The Company, pursuant to that certain Employment Agreement, dated as of January 1, 2009 (as amended, the “Employment Agreement”), between the Company and the Optionee, and subject to the terms and conditions of the 2000 Stock Option Plan (the “Plan”), grants as of the date hereof to the Optionee an option to purchase an aggregate of 21,700 shares of the Common Stock, $.01 par value per share, of the Company (“Common Stock”) at an exercise price of $5.88 per share.  Subject to any acceleration provisions contained in the Plan, this option vested with respect to 3,426 shares of Common Stock on December 31, 2010, and shall vest with respect to 18,274 shares of Common Stock on December 31, 2011, which vesting shall be subject to continued employment on the date of vesting, in accordance with the Plan; 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 the Optionee, either agree to continue the Employment Agreement or to enter into a new employment agreement mutually acceptable to the Company or its successor and the Optionee in lieu of the Employment Agreement, then any portion of this option which remain unvested, shall vest immediately upon the mutual agreement of the Company or its successor and the Optionee to continue the Employment Agreement or to enter into a new agreement.  Unless otherwise defined in this Contract, the terms used in this Contract shall have the meanings defined in the Plan.  This option is intended to be an incentive stock option constituted within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), although the Company makes no representations or warranties as to such qualifications.

2.           Subject to earlier termination as provided herein and in the Plan, the option to purchase 3,426 shares of Common Stock which vested on December 31, 2010 shall be exercisable until and including December 31, 2015, and the option to purchase 18,274 shares of Common Stock vesting on December 31, 2011 shall be exercisable until and including December 31, 2016.  This option shall be exercised by giving written notice to the Company at its principal office, presently at 36-36 33rd Street, Long Island City, NY 11106 Attention: Compensation Committee, stating that the Optionee is exercising this incentive stock option, specifying the number of shares being purchased and accompanied by payment in full of the aggregate purchase price therefore (a) in cash and/or by certified check, (b) with previously acquired shares of Common Stock; provided, however, that in no case may shares be tendered if such tender would require the Company to incur the imposition of “liability accounting” for financial accounting purposes, (c) by delivery by the Optionee of a properly executed notice, together with a copy of the Optionee's  irrevocable instructions to a broker acceptable to the Committee to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay such exercise price, or (d) a combination of the foregoing.

3.                Notwithstanding the foregoing, this option shall not be exercisable by the Optionee unless (a) a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Common Stock to be issued upon such exercise shall be effective and current at the time of exercise, or (b) there is an exemption from registration under the Securities Act for the issuance of the shares of Common Stock upon such exercise.  At the request of the Committee, the Optionee shall execute and deliver to the Company his representation and warranty, in form, substance and scope satisfactory to the Committee, which the Committee determines is necessary or convenient  to facilitate the perfection  of an exemption from the registration  requirements of the Securities Act, applicable state securities laws or other legal requirements, including without limitation, that (a) the shares of Common Stock to be issued upon exercise of the option are being acquired by the Optionee for the Optionee's own account, for investment only and not with a view to the resale or distribution thereof, and (b) any subsequent resale or distribution of shares of Common Stock by the Optionee will be made only pursuant to (i) a Registration  Statement under the Securities Act which is effective and current  with respect to the shares of Common Stock being sold, or (ii) a specific exemption from the registration  requirements of the Securities Act, but in claiming such exemption, the Optionee, prior to any offer of sale or sale of such shares of Common Stock, shall provide the Company with a favorable written  opinion of counsel  satisfactory to the Company, in form, substance and scope satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution.

4.           Notwithstanding anything herein to the contrary, if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to this option on any securities exchange or under any applicable law, or that the consent or approval of any governmental agency or regulatory body, is necessary or desirable as a condition to, or in connection with, the granting of an option or the issuance of shares of Common  Stock thereunder,  such  option may not be exercised in whole or in part, unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

5.           Nothing in the Plan or herein shall confer upon the Optionee any right to continue in the employ of the Company, its Parent or any of its Subsidiaries, or interfere in any way with the right of the Company, its Parent or its Subsidiaries to terminate such employment at any time for any reason whatsoever without liability to the Company, its Parent or any of its Subsidiaries.

6.           The Company may affix such legends upon the certificates for shares of Common Stock issued upon exercise of this option and may issue such “stop transfer” instructions to its transfer agent in respect of such shares as it determines, in its sole discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, applicable state securities laws or other legal requirements, (b) implement the provisions of the Plan or any agreement between the Company and the Optionee with respect to such shares of Common Stock, or (c) permit the Company to determine the occurrence of a “disqualifying disposition,” as described in Section 421(b) of the Code, of the shares of Common Stock  transferred upon the exercise of this option.

7.           As provided in the Plan, the Company may withhold (a) cash or (b) shares of Common  Stock to be issued upon exercise of this option or a combination of cash and shares, having an aggregate fair market value (determined in accordance with the Plan) equal to the amount which the Committee determines is necessary to satisfy the obligation of the Company to withhold taxes or other amounts incurred by reason of the grant, vesting, exercise or disposition of an option or the disposition of the underlying shares of Common Stock.  Alternatively, the Company may require the Optionee to pay the Company such amount, in cash, promptly upon demand.  In the event of any disposition of the shares of Common Stock acquired pursuant to the exercise of this option within two years from the Grant Date or one year from the date of transfer of such shares to her, the Optionee shall notify the Company thereof in writing within 30 days after such disposition.  In addition, the Optionee shall provide the Company on demand with such information as the Company shall reasonably request in connection with determining its obligation to withhold any Federal, state and local income taxes or other taxes incurred by reason of such disqualifying disposition, including the amount thereof, and shall pay the Company in cash on demand the amount, if any, which the Company determines is necessary to satisfy such obligation.

8.           The Company and the Optionee agree that they will both be subject to and bound by all of the terms and conditions of the Plan.  In the event the employment of the Optionee terminates or in the event of his death or disability (as defined in the Employment Agreement, and if not defined therein, as defined in the Plan), his rights hereunder shall be governed by and be subject to the provisions of the Plan.  In the event of a conflict between the terms of this Contract and the terms of the Plan, the terms of the Plan shall govern.

9.           The Optionee represents and agrees that he will comply with all applicable laws relating to the Plan and the grant and exercise of the option and the disposition of the shares of Common Stock acquired upon exercise of the option, including without limitation, federal and state securities and “blue sky” laws.

10.           (a)           If the Optionee violates any provision of Section 8 “Non-Compete, Non-Solicitation and Non-Disclosure” of the Employment Agreement, this option shall be cancelled immediately.  Further, any profit realized from the grant of the option, or its exercise, or from the sale of shares underlying this option, shall be forfeited by Optionee to the Company, and the Optionee shall be liable to the Company to return any such profit upon demand by the Company.

(b)           In the event that the Optionee shall violate any provision of this Contract, then the Optionee hereby consents to the granting of a temporary or permanent injunction against him by any court of competent jurisdiction prohibiting him from violating any provision of this Contract.  In any proceeding for an injunction and upon any motion for a temporary or permanent injunction, the Optionee 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 the Optionee.  The Optionee further agrees that the Company will not have an adequate remedy at law in the event of any breach by the Optionee hereunder and that the Company will suffer irreparable damage and injury if the Optionee breaches any of the provisions of this Contract.

11.           This option is not transferable otherwise than by will or the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by his legal representatives.  After the death of Optionee, the option may be exercised by the Optionee’s legal representative to the extent provided for in the Plan.

12.           This Contract shall be binding upon and inure to the benefit of any successor or assign of the Company and to any heir, distributee, executor, administrator or legal representative entitled by law to the Optionee's rights hereunder.

13.           This Contract shall be governed by and construed in accordance with the laws of the State of New York.

14.            The invalidity or illegality of any provision herein shall not affect the validity of any other provision.

15.           The Optionee agrees that the Company may amend the Plan and the options granted to the Optionee under the Plan, subject to the limitations contained in the Plan.

IN WITNESS WHEREOF, the parties hereto have executed this Contract on the day and year first above written.

AMERICAN MEDICAL ALERT CORP.
By:	/s/ Jack Rhian
	Jack Rhian, President & CEO
	/s/ Richard Rallo
	Richard Rallo, Optionee

EX-15.1

Exhibit 15.1

November 14, 2011

American Medical Alert Corp.

Long Island City, New York

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of American Medical Alert Corp. and Subsidiaries for the fiscal periods ended September 30, 2011 and September 30, 2010, as indicated in our report dated November 14, 2011.  Because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, is

● 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.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, as amended, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.

/s/ Margolin, Winer & Evens LLP

Margolin, Winer & Evens LLP

Garden City, New York

EX-31.1

Exhibit 31.1

Certification

I, Jack Rhian, certify that:

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: November 14, 2011	By:	/s/ Jack Rhian
		Jack Rhian President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, Richard Rallo, certify that:

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: November 14, 2011	By:	/s/ Richard Rallo
		Richard Rallo Chief Financial Officer (Principal Financial Officer)

EX-32.1

    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-Q for the Quarter Ended September 30, 2011 (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.

Date: November 14, 2011	By:	/s/ Jack Rhian
		Jack Rhian President and Chief Executive Officer (Principal 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.

EX-32.2

Exhibit 32.2

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

In connection with the filing of the Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2011 (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.

Date: November 14, 2011	By:	/s/ Richard Rallo
		Richard Rallo Chief Financial Officer (Principal 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.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Accounts receivable, allowance for doubtful accounts	$ 483,800	$ 452,000
Intangible assets, accumulated amortization	7,258,278	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	9,675,478	9,618,083
Treasury stock, shares	48,573	48,573

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Services	$ 11,024,917	$ 9,805,692	$ 31,599,894	$ 29,070,455
Product sales	168,272	203,696	544,595	562,325
Revenues, Total	11,193,189	10,009,388	32,144,489	29,632,780
Costs and Expenses (Income):
Costs related to services	5,149,730	4,464,062	14,739,347	13,342,562
Costs of products sold	76,353	92,423	259,097	260,253
Selling, general and administrative expenses	5,321,282	4,369,598	13,751,663	12,134,682
Interest expense	12,413	18,991	40,421	45,258
Equity in net loss from investment in limited liability company	424,141	391,385	1,496,053	507,512
Other income	(36,667)	(17,777)	(59,977)	(77,468)
Income before Provision for Income Taxes	245,937	690,706	1,917,885	3,419,981
Provision for Income Taxes	290,000	283,000	1,093,000	1,402,000
NET INCOME (LOSS)	$ (44,063)	$ 407,706	$ 824,885	$ 2,017,981
Net income (loss) per share:
Basic	$ 0.00	$ 0.04	$ 0.09	$ 0.21
Diluted	$ 0.00	$ 0.04	$ 0.08	$ 0.21
Weighted average number of common shares outstanding:
Basic	9,605,183	9,559,005	9,586,143	9,544,931
Diluted	9,605,183	9,858,343	9,830,367	9,842,901

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Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Nov. 09, 2011
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Trading Symbol	AMAC
Entity Registrant Name	AMERICAN MEDICAL ALERT CORP
Entity Central Index Key	0000700721
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		9,631,777

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Acquisition

9 Months Ended

Sep. 30, 2011

Acquisition

7.  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 September 30, 2011, $104,786 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 nine months ended September 30, 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 adjusted estimated fair values of the assets acquired at the date of 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

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 (loss) for the nine and three months ended September 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 nine and three months ended September 30, 2010 would not have been materially affected.

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Segment Reporting

9 Months Ended

Sep. 30, 2011

Segment Reporting

12.  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 nine and three months ended September 30, 2011 and 2010:

2011
	HSMS			TBCS		Consolidated
Nine Months Ended September 30, 2011
Revenue	$	15,756,852		$	16,387,637	$	32,144,489
Income (loss) before provision for income taxes*		(24,153	)		1,942,038		1,917,885
Total assets		16,886,040			21,834,210		38,720,250
	HSMS			TBCS		Consolidated
Three Months Ended September 30, 2011
Revenue	$	5,327,687		$	5,865,502	$	11,193,189
Income (loss) before provision for income taxes*		(574,374	)		820,311		245,937

2010
	HSMS		TBCS		Consolidated
Nine Months Ended September 30, 2010
Revenue	$	15,412,503	$	14,220,277	$	29,632,780
Income before provision for income taxes*		2,148,705		1,271,276		3,419,981
Total assets		17,823,172		19,409,266		37,232,438
	HSMS		TBCS		Consolidated
Three Months Ended September 30, 2010
Revenue	$	5,178,607	$	4,830,781	$	10,009,388
Income before provision for income taxes*		242,563		448,143		690,706

* 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 and merger-related expenses as follows:

Equity in net loss from investment in limited liability company	September 30, 2011		September 30, 2010
Nine Months Ended	$	1,496,053	$	507,512
Three Months Ended	$	424,141	$	391,385

Merger-related expense	September 30, 2011		September 30, 2010
Nine Months Ended	$	980,000		-
Three Months Ended	$	625,950		-

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2011

Recent Accounting Pronouncements

3. 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.

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Long-term Debt

9 Months Ended

Sep. 30, 2011

Long-term Debt

9.  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 September 30, 2011, June 30, 2011 and March 31, 2011, the Company was in compliance with its financial covenants in its loan agreement.  As of September 30, 2010, June 30, 2010 and March 31, 2010, the Company was in compliance with its financial covenants in its loan agreement.

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Merger Agreement with Tunstall

9 Months Ended

Sep. 30, 2011

Merger Agreement with Tunstall

14.  Merger Agreement with Tunstall:

On September 22, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tunstall Healthcare Group Limited (“Tunstall”), and Monitor Acquisition Corp., an indirect wholly owned subsidiary of Tunstall (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company and the Company will become a wholly-owned subsidiary of Tunstall (the “Merger”).

On the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of the Company (the “Common Stock”), issued and outstanding immediately prior to the Effective Time (other than treasury shares of the Company and any shares of the Company’s Common Stock owned by Tunstall, Merger Sub or any wholly owned subsidiary of the Company) will be converted into the right to receive (i) an amount in cash, without interest, equal to $8.55, less the amount of any required withholding tax, and (ii) one contingent payment right (a “CPR”) issued by Tunstall subject to and in accordance with the CPR Agreement, which provides for payments under certain circumstances relating to the Company’s investment in Lifecomm.

All outstanding stock options (“Options”) and restricted stock units (“RSUs”) of the Company will be canceled at the Effective Time.  Holders of Options, whether vested or unvested, with an exercise price below the Cash Consideration will receive, for each share of the Company’s Common Stock subject to such Option: (i) a cash payment equal to the difference between the Cash Consideration and the exercise price of the Option, less the amount of any required withholding tax, and (ii) one CPR.  Holders of Options with an exercise price at or above the Cash Consideration, if any, will not receive any consideration in the Merger.

Holders of RSUs, whether vested or unvested, will receive, for each share of the Company’s Common Stock subject to such RSU: (i) a cash payment equal to the Cash Consideration less the amount of any required withholding tax, and (ii) one CPR.

Outstanding shares of restricted stock for which restrictions have not otherwise lapsed or expired and are outstanding will have their associated restrictions accelerate and expire immediately prior to the Effective Time.  Holders of shares of restricted stock will receive, for each such share: (i) a cash payment equal to the Cash Consideration less the amount of any required withholding tax, and (ii) one CPR.

All outstanding warrants will be redeemed at the Black-Scholes Value (as defined in the Merger Agreement) of such warrant at the Effective Time.

The Company and Tunstall’s respective obligations to complete the Merger are subject to customary closing conditions, including (i) the approval of the Merger by the holders of at least two-thirds of the outstanding shares of the Company’s Common Stock, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and (iii) the absence of any legal prohibition on completion of the Merger or the other transactions contemplated by the Merger Agreement.  Completion of the Merger is not subject to any financing contingency.

The Merger Agreement also provides for certain other termination rights for both Tunstall and the Company. The Company may be required to pay Tunstall a termination fee of $3,500,000 upon termination of the Merger Agreement under specified circumstances.  In addition, in the event that the Merger Agreement is terminated by either the Company or Tunstall following a failure to obtain approval of the Company’s shareholders of the Merger, the Company is required to pay Tunstall’s costs and expenses in an amount not to exceed $500,000, which amount will be offset against the amount of any termination fee paid thereafter.

During the nine months and three months ended September 30, 2011, the Company recorded approximately $980,000 and $716,000, respectively, of merger-related costs that were included in the selling, general and administrative expenses of the Company’s condensed consolidated statement of income (loss).

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Provision for Income Taxes

9 Months Ended

Sep. 30, 2011

Provision for Income Taxes

10.  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 nine and three months ended September 30, 2011 the Company increased the estimated effective tax rate to reflect the impact of certain non-deductible expenses incurred in connection with the merger agreement described in Note 14.

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Investment in Limited Liability Company

9 Months Ended

Sep. 30, 2011

Investment in Limited Liability Company

8.  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 September 30, 2011, the Company’s exposure to loss is limited to the recorded equity investment balance of $1,474,157 and its share ($200,000) of a stand-by equity commitment, if required.

Hughes Telematics, Inc. (“HTI”), 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 $6,595,242 and $2,282,762 during the nine and three months ended September 30, 2011 ($10,217,134 during the period from inception, May 12, 2010 to September 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 nine and three months ended September 30, 2011, the Company recorded a pre-tax net loss of $1,496,053 and $424,141, respectively ($2,676,179 during the period from inception, May 12, 2010 to September 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.

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General

9 Months Ended

Sep. 30, 2011

General

1.  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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Accounting for Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Accounting for Stock-Based Compensation

4.  Accounting for Stock-Based Compensation:

Stock based compensation is recorded in accordance with ASC Topic 718, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payments to employees, including grants of stock and employee stock options, based on estimated fair values.

The Company granted options to purchase 10,000 shares of common stock during the nine months ended September 30, 2011.  No options were granted during the nine months ended September 30, 2010.

The following tables summarize stock option activity for the nine months ended September 30, 2011 and 2010.

2011
						Weighted
						Average
				Weighted		Remaining		Aggregate
	Number of			Average		Contractual		Intrinsic
	Options			Option Price		Term (years)		Value
Balance at January 1		718,343		$	3.85
Granted		10,000			5.85
Exercised		(40,000	)		5.14
Expired/Forfeited		(25,650	)		6.86
Balance at September 30		662,693		$	3.69		1.32	$	3,117,657
Vested and exercisable		644,419		$	3.62		1.27	$	3,071,789

2010
						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		(11,513	)		4.12
Expired/Forfeited		(30,000	)		6.49
Balance at September 30		853,272		$	4.22		1.82	$	1,669,401
Vested and exercisable		825,572		$	4.16		1.74	$	1,662,347

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2011 and September 30, 2010 were $10,400 and $29,074, respectively.  There were 18,274 and 27,700 nonvested stock options outstanding as of September 30, 2011 and 2010, respectively.  See Note 14 regarding the vesting of these options in connection with the merger agreement.

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

	Three Months			Three Months
	Ended September 30,			Ended September 30
	2011			2010
Stock options	$	7,310		$	8,000
Stock grants – other		-			64,663
Service based awards		23,598			32,037
Performance based awards		-			(67,129	)
Tax benefit		(28,016	)		(15,393	)
Stock-based compensation expense, net of tax	$	2,892		$	22,178

	Nine Months			Nine Months
	Ended September 30,			Ended September 30
	2011			2010
Stock options	$	43,411		$	8,000
Stock grants – other		32,765			86,422
Service based awards		70,796			96,109
Performance based awards		-			7,459
Tax benefit		(83,759	)		(81,165	)
Stock-based compensation expense, net of tax	$	63,213		$	116,825

Stock Grants - Other

The non-employee members of the Board of Directors have an option to elect at the beginning of each calendar year to receive either shares of common stock or cash at the end of each quarter as compensation for services provided as members of the Board of Directors and other committees.  Share grants issued vest immediately, but are subject to a one-year restriction on transfer.  In accordance with the merger agreement executed in September 2011 (see Note 14), after June 30, 2011, the non-employee members of the Board of Directors no longer have an option to receive stock as compensation for services.

Service Based Awards

In January 2006, May 2007, January 2009 and December 2010 the Company granted 50,000, 22,000, 12,000 (net of 9,500 shares waived by an executive) and 46,500 restricted shares, respectively, to certain executives in respect of services rendered but at no monetary cost.  These shares vest over periods ranging from 2 to 5 years, on December 31 of each year.  The Company records the compensation expense on a straight-line basis over the vesting period.  Fair value for restricted stock awards is based on the Company's closing common stock price on the date of grant.There were 84,000 shares and 63,000 shares vested as of September 30, 2011 and 2010, respectively.  The aggregate grant date fair value of restricted stock grants was $830,845.  The vesting period of the January 2006 and May 2007 grants expired on December 31, 2010.  As of September 30, 2011 and 2010, the Company had approximately $212,000 and $34,000, respectively, of total unrecognized compensation costs related to nonvested restricted stock units expected to be recognized over a weighted average period of 2.25 years.  See Note 14 regarding the vesting of these restricted stock units in connection with the merger agreement.

Performance Based Awards

In January 2006 and May 2007, respectively, the Company granted share awards for up to 90,000 shares (up to 18,000 shares per year through December 31, 2010) and 46,000 shares (up to 11,500 shares per year through December 31, 2010) to certain executives.  Vesting of such shares was contingent upon the Company achieving certain specified consolidated gross revenue and Earnings before Interest and Taxes (“EBIT”) objectives in each of the fiscal years ending December 31, 2006 through December 31, 2010.  The fair value of the performance shares (aggregate value of $909,400) was based on the closing trade value of the Company’s stock on the date of grant and assumed that performance goals would be achieved.  The fair value of the shares was expensed over the performance period for those shares that were expected to ultimately vest.  If such objectives were not met, no compensation cost was recognized and any recognized compensation cost was reversed.  All performance based awards were either earned or forfeited as of December 31, 2010.  During 2011, there were no performance shares vesting and there were no unrecognized compensation costs related to performance share awards.  As of September 30, 2010, 57,250 shares were vested and there was approximately $37,000 of total unrecognized compensation costs related to nonvested share awards.

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Earnings Per Share

9 Months Ended

Sep. 30, 2011

Earnings Per Share

5.  Earnings Per Share:

Earnings per share data for the nine and three months ended September 30, 2011 and 2010 is presented in conformity with ASC Topic 250, Earnings Per Share.

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

	Income (Loss)			Shares		Per-Share
Nine Months Ended September 30, 2011	(Numerator)			(Denominator)		Amounts
Basic EPS - Income available to common stockholders	$	824,885			9,586,143	$	..09
Effect of dilutive securities -
Options and warrants		-			244,224
Diluted EPS - Income available to common stockholders and assumed conversions	$	824,885			9,830,367	$	..08
Three Months Ended September 30, 2011
Basic EPS -Income available /(loss) attributable to common stockholders	$	(44,063	)		9,605,183	$	(.00	)
Effect of dilutive securities -
Options and warrants		-			-
Diluted EPS - Income available to common stockholders and assumed conversions	$	(44,063	)		9,605,183	$	(.00	)
Nine Months Ended September 30, 2010
Basic EPS - Income available to common stockholders	$	2,017,981			9,544,931	$	..21
Effect of dilutive securities -
Options and warrants		-			297,970
Diluted EPS - Income available to common stockholders and assumed conversions	$	2,017,981			9,842,901	$	..21
Three Months Ended September 30, 2010
Basic EPS -Income available to common stockholders	$	407,706			9,559,005	$	..04
Effect of dilutive securities -
Options and warrants		-			299,338
Diluted EPS - Income available to common stockholders and assumed conversions	$	407,706			9,858,343	$	..04

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies

13.  Commitments and Contingencies:

The Company is aware of various threatened or pending litigation claims against the Company relating to its products and services and other claims arising in the ordinary course of its business.  At September 30, 2011 and 2010, no material liabilities have been recorded in the accompanying financial statements.  The Company has given its insurance carrier notice of such claims and it believes there is sufficient insurance coverage to cover any such claims.   In any event, the Company believes the disposition of these matters will not have a material adverse effect on the results of operations and financial condition of the Company.

In connection with the merger agreement described in Note 14, the Company is aware of three, as of now, uncertified class action lawsuits that have been filed against the Company and its Board of Directors.  The Company has given its insurance carrier notice of such claims, counsel has been retained to defend the lawsuits, and the Company believes that there is sufficient insurance coverage to pay any damages awarded as a result of the asserted claims.  At this time, it cannot be determined if the Company will be deemed liable for any damages as a result of the lawsuits.  However, the Company believes that the claims in the lawsuits have no merit.

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Goodwill

9 Months Ended

Sep. 30, 2011

Goodwill

6.  Goodwill

Changes in the carrying amount of goodwill, all of which relates to the Company’s TBCS segment, for the nine months ended September 30, 2011 and 2010 are as follows:

Nine Months Ended September 30, 2011
Balance as of January 1, 2011	$	10,842,352
Additional Goodwill		-
Balance as of September 30, 2011	$	10,842,352
Nine Months Ended September 30, 2010
Balance as of January 1, 2010	$	10,255,983
Additional Goodwill		486,510
Balance as of September 30, 2010	$	10,742,493

The addition to goodwill during the nine months ended September 30, 2010 consists of $448,212 which relates to the acquisition of Alpha Message Center, Inc. in September 2010 and $38,298 which relates to the additional purchase price of American Mediconnect, Inc. based on the cash receipts from the clinical trials portion of the business.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash Flows From Operating Activities:
Net income	$ 824,885	$ 2,017,981
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,347,742	2,794,776
Stock compensation charge	146,972	197,990
Equity in net loss from investment in limited liability company	1,496,053	507,512
Decrease (increase) in:
Accounts receivable	(779,451)	(252,729)
Inventory	(51,169)	(277,384)
Prepaid income taxes	401,858	(163,777)
Prepaid expenses and other current assets	(18,048)	(104,251)
Increase (decrease) in:
Accounts payable, accrued expenses and other	613,844	516,657
Deferred revenue	80,358	38,385
Net Cash Provided by Operating Activities	5,063,044	5,275,160
Cash Flows From Investing Activities:
Expenditures for fixed assets	(1,245,651)	(913,151)
Purchase of Alpha Message Center, Inc.	0	(577,977)
Purchase - account acquisition	(108,000)	0
Payment of Investment in limited liability company	0	(4,150,336)
Decrease (increase) in other assets	(53,351)	4,798
Net Cash Used In Investing Activities	(1,407,002)	(5,636,666)
Cash Flows From Financing Activities:
Proceeds from long-term debt	0	2,000,000
Repayment of long-term debt	(540,000)	(1,506,666)
Payment of accrued expense - acquisitions	(82,893)	(73,346)
Proceeds upon exercise of stock options	205,600	47,394
Payment of loan financing costs	0	(4,370)
Dividends paid	0	(1,901,879)
Net Cash Used In Financing Activities	(417,293)	(1,438,867)
Net Increase (Decrease) in Cash	3,238,749	(1,800,373)
Cash, Beginning of Period	4,090,528	5,498,448
Cash, End of Period	7,329,277	3,698,075
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST	43,089	42,699
CASH PAID DURING THE PERIOD FOR INCOME TAXES	705,963	1,551,769
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Other assets, deposits on equipment transferred to fixed asset	0	21,875
Other assets, deposits on product transferred to inventory	0	105,476
American Mediconnect Inc.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued expense - acquisitions / additional goodwill	0	38,298
Alpha Message Center, Inc.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued expense - acquisitions / additional goodwill	$ 0	$ 200,000

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Results of Operations

9 Months Ended

Sep. 30, 2011

Results of Operations

2.  Results of Operations:

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

In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2011 and the results of operations for the nine and three months ended September 30, 2011 and 2010 and cash flows for the nine months ended September 30, 2011 and 2010.

The accounting policies used in preparing these financial statements are the same as those described in the December 31, 2010 financial statements.

The results of operations for the nine and three months ended September 30, 2011 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

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Dividends

9 Months Ended

Sep. 30, 2011

Dividends

11.  Dividends:

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

On July 19, 2010, the Company declared a dividend in the amount of $0.10 per share, or $951,515, which was payable to the shareholders of record as of September 13, 2010. The dividend was paid on September 29, 2010.

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Sep. 30, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash	$ 7,329,277	$ 4,090,528
Accounts receivable (net of allowance for doubtful accounts of $483,800 and $452,000)	8,276,818	7,497,367
Inventory, net of non-current portion	983,137	1,005,488
Prepaid income taxes	208,621	610,479
Prepaid expenses and other current assets	382,795	364,747
Deferred income tax asset	173,000	219,000
Total Current Assets	17,353,648	13,787,609
FIXED ASSETS (Net of accumulated depreciation and amortization)	6,382,035	7,195,019
OTHER ASSETS
Intangible assets (net of accumulated amortization of $7,258,278 and $6,864,657)	1,065,314	1,350,936
Goodwill	10,842,352	10,842,352
Investment in limited liability company	1,474,157	2,970,210
Other assets (including inventory of $481,135 and $407,615)	1,602,744	1,371,359
Total Other Assets, Total	14,984,567	16,534,857
TOTAL ASSETS	38,720,250	37,517,485
CURRENT LIABILITIES:
Current portion of long-term debt	420,000	660,000
Accounts payable	1,134,185	732,849
Accrued expense - acquisitions	95,214	105,807
Accrued expenses	2,240,216	2,013,152
Deferred revenue	312,183	231,825
Total Current Liabilities	4,201,798	3,743,633
DEFERRED INCOME TAX LIABILITY	1,182,000	1,228,000
LONG-TERM DEBT, Net of Current Portion	1,850,000	2,150,000
CUSTOMER DEPOSITS	87,574	101,499
ACCRUED RENTAL OBLIGATION	565,603	566,235
ACCRUED EXPENSE - ACQUISITION	0	72,300
TOTAL LIABILITIES	7,886,975	7,861,667
COMMITMENTS AND CONTINGENT LIABILITIES	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 9,675,478 shares in 2011 and 9,618,083 shares in 2010	96,755	96,181
Additional paid-in capital	16,958,016	16,606,018
Retained earnings	13,915,081	13,090,196
Stockholders' Equity before Treasury Stock, Total	30,969,852	29,792,395
Less treasury stock, at cost (48,573 shares in 2011 and 2010)	(136,577)	(136,577)
Total Shareholders' Equity	30,833,275	29,655,818
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 38,720,250	$ 37,517,485