UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-Q
|
ý
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QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the
quarter ended March 31, 2008.
OR
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¨
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
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For
the
transition period from ____________ to ____________
Commission
File Number 1-8635
AMERICAN
MEDICAL ALERT CORP.
(Exact
Name of Registrant as Specified in its Charter)
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New
York
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11-2571221
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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3265
Lawson Boulevard, Oceanside, New York 11572
(Address
of principal executive offices)
(Zip
Code)
(516)
536-5850
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
o
Indicate
by check mark whether registrant is a large accelerated filer, accelerated
filer, non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
(Do not check if a smaller reporting company)
|
Smaller
reporting company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 on the Exchange Act)
Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 9,471,895 shares of $.01 par value
common stock as of May 14, 2008.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
INDEX
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PAGE
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Part
I
Financial
Information
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Report
of Independent Registered Public Accounting Firm
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1
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Condensed
Consolidated Balance Sheets for March 31, 2008
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and
December 31, 2007
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2
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Condensed
Consolidated Statements of Income for the
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3
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Three
Months Ended March 31, 2008 and 2007
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Condensed
Consolidated Statements of Cash Flows for
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the
Three Months Ended March 31, 2008 and 2007
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4
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Notes
to Condensed Consolidated Financial Statements
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6
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Management’s
Discussion and Analysis of
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Financial
Condition and Results of Operations
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13
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Quantitative
and Qualitative Disclosures About Market Risk
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26
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Controls
and Procedures
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27
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Part
II
Other
Information
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27
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Report
of
Independent Registered Public Accounting Firm
Board
of
Directors and Shareholders
American
Medical Alert Corp. and Subsidiaries
Oceanside,
New York
We
have
reviewed the accompanying condensed consolidated balance sheet of American
Medical Alert Corp. and Subsidiaries (the “Company”) as of March 31, 2008 and
the related condensed consolidated statements of income and cash flows for
the
three-months ended March 31, 2008 and 2007. These interim financial statements
are the responsibility of the Company's management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It
is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective
of
which is the expression of an opinion regarding the financial statements
taken
as a whole. Accordingly, we do not express such an opinion.
Based
on
our reviews, we are not aware of any material modifications that should be
made
to the condensed consolidated interim financial statements referred to above
for
them to be in conformity with accounting principles generally accepted in
the
United States of America.
We
have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
American Medical Alert Corp. and Subsidiaries as of December 31, 2007, 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, 2008 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2007 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/
Margolin, Winer & Evens LLP
Margolin,
Winer & Evens LLP
Garden
City, New York
May
14,
2008
PART
I - FINANCIAL INFORMATION
Item
1.
Financial
Statements
.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
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March
31, 2008 (Unaudited)
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Dec. 31,
2007
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CURRENT
ASSETS
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Cash
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$
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1,238,196
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$
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911,525
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Accounts
receivable
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(net
of allowance for doubtful accounts of $575,000 and
$554,000)
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5,840,457
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5,655,286
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Note
receivable
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27,292
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26,954
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Inventory
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689,607
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552,736
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Prepaid
income taxes
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131,368
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309,260
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Prepaid
expenses and other current assets
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962,097
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941,601
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Deferred
income taxes
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265,000
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275,000
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Total
Current Assets
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9,154,017
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8,672,362
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FIXED
ASSETS
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(Net
of accumulated depreciation and amortization)
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10,815,038
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10,799,313
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OTHER
ASSETS
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Long-term
portion of note receivable
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14,166
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21,117
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Intangible
assets
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(net
of accumulated amortization of $4,713,572 and $4,393,073)
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3,935,881
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4,232,226
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Goodwill
(net of accumulated amortization of $58,868)
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9,849,459
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9,766,194
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Other
assets
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1,539,109
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1,462,009
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15,338,615
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15,481,546
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TOTAL
ASSETS
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$
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35,307,670
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$
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34,953,221
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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CURRENT
LIABILITIES:
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Current
portion of long-term debt
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$
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1,416,024
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$
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1,414,419
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Accounts
payable
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1,066,304
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1,716,179
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Accounts
payable - acquisitions
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157,161
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73,896
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Accrued
expenses
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2,214,751
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1,550,283
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Current
portion of capital lease obligations
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42,688
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42,015
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Deferred
revenue
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260,977
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274,101
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Total
Current Liabilities
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5,157,905
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5,070,893
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DEFERRED
INCOME TAX LIABILITY
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937,000
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947,000
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LONG-TERM
DEBT, Net of Current Portion
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4,310,117
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4,694,316
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LONG
-TERM Portion of Capital Lease Obligations
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21,455
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32,425
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CUSTOMER
DEPOSITS
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87,600
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81,200
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ACCRUED
RENTAL OBLIGATION
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461,920
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446,722
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OTHER
LIABILITIES
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10,000
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10,000
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TOTAL
LIABILITIES
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10,985,997
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11,282,556
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COMMITMENTS
AND CONTINGENT LIABILITIES
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-
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-
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SHAREHOLDERS’
EQUITY
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Preferred
stock, $.01 par value - authorized, 1,000,000 shares; none issued
and
outstanding
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Common
stock, $.01 par value - authorized 20,000,000 shares; issued
9,458,991shares in 2008 and 9,385,880 shares in 2007
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94,590
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93,859
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Additional
paid-in capital
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15,629,389
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15,421,227
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Retained
earnings
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8,734,271
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8,281,914
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24,458,250
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23,797,000
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Less
treasury stock, at cost (48,573 shares in 2008 and 46,798 in
2007)
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(136,577
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)
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(126,335
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)
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Total
Shareholders’ Equity
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24,321,673
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23,670,665
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TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
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$
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35,307,670
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$
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34,953,221
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See
accompanying notes to condensed financial statements.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three
Months Ended March 31
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2008
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2007
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Revenues:
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Services
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$
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9,339,112
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$
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8,612,981
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Product
sales
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296,633
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89,855
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9,635,745
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8,702,836
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Costs
and Expenses (Income):
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Costs
related to services
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4,547,389
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4,242,061
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Costs
of products sold
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150,755
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52,207
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Selling,
general and administrative expenses
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4,188,852
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3,808,077
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Interest
expense
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102,055
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126,515
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Other
income
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(120,663
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)
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(169,732
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)
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Income
before Provision for Income Taxes
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767,357
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643,708
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Provision
for Income Taxes
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315,000
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277,000
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NET
INCOME
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$
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452,357
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$
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366,708
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Net
income per share:
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Basic
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$
|
.05
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$
|
.04
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Diluted
|
|
$
|
.05
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|
$
|
.04
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Weighted
average number of common shares outstanding
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Basic
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9,406,070
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9,204,178
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Diluted
|
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9,698,665
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9,578,266
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|
See
accompanying notes to condensed financial statements.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three
Months Ended March 31,
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2008
|
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2007
|
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Cash
Flows From Operating Activities:
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|
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|
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Net
income
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$
|
452,357
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$
|
366,708
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Adjustments
to reconcile net income to net cash provided by operating
activities:
|
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Depreciation
and amortization
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1,036,673
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960,459
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Stock
compensation charge
|
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88,893
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42,500
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Decrease
(increase) in:
|
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Accounts
receivable
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(185,171
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)
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(433,561
|
)
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Inventory
|
|
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(136,871
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)
|
|
(66,332
|
)
|
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Prepaid
income taxes
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177,892
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-
|
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Prepaid
expenses and other current assets
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6,492
|
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(42,363
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)
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Increase
(decrease) in:
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Accounts
payable, accrued expenses and other
|
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36,190
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826,333
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Deferred
revenue
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(13,124
|
)
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48,378
|
|
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|
|
|
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Net
Cash Provided by Operating Activities
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1,463,331
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1,702,122
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Cash
Flows From Investing Activities:
|
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Expenditures
for fixed assets
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(729,371
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)
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(812,801
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)
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Repayment
of notes receivable
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6,613
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6,291
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|
Payment
of accounts payable-acquisitions
|
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|
-
|
|
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(171,532
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)
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Deposit
on equipment and software
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(106,953
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)
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-
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Purchase
- other
|
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|
(24,153
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)
|
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-
|
|
|
Decrease
in other assets
|
|
|
337
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|
|
98,048
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|
|
|
|
|
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Net
Cash Used In Investing Activities
|
|
|
(853,527
|
)
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(879,994
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)
|
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|
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|
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Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Principal
payments under capital lease obligation
|
|
|
(10,297
|
)
|
|
(9,540
|
)
|
|
Purchase
of Treasury Stock
|
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|
(10,242
|
)
|
|
-
|
|
|
Repayment
of long-term debt
|
|
|
(382,594
|
)
|
|
(500,181
|
)
|
|
Proceeds
upon exercise of stock options and warrants
|
|
|
120,000
|
|
|
151,598
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Financing Activities
|
|
|
(283,133
|
)
|
|
(358,123
|
)
|
See
accompanying notes to condensed financial statements.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash
|
|
$
|
326,671
|
|
$
|
464,005
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
Beginning of Period
|
|
|
911,525
|
|
|
856,248
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
End of Period
|
|
$
|
1,238,196
|
|
$
|
1,320,253
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
PAID DURING THE PERIOD FOR INTEREST
|
|
$
|
78,480
|
|
$
|
165,183
|
|
|
|
|
|
|
|
|
|
|
|
CASH
PAID DURING THE PERIOD FOR INCOME TAXES
|
|
$
|
134,240
|
|
$
|
38,625
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING
AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable due sellers in connection with acquisitions
|
|
$
|
83,265
|
|
$
|
-
|
|
See
accompanying notes to condensed financial statements.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
Notes
to
Condensed Consolidated Financial Statements
(Unaudited)
These
financial statements should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 2007 included in the Company’s
Annual Report on Form 10-K.
|
2.
|
Results
of Operations:
|
The
accompanying condensed consolidated financial statements include the accounts
of
American Medical Alert Corp. and its wholly-owned subsidiaries; together
the
“Company”. All material inter-company balances and transactions have been
eliminated.
In
the
opinion of management, the accompanying unaudited condensed financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position as of March 31, 2008 and the results
of
operations and cash flows for the three months ended March 31, 2008 and
2007.
The
accounting policies used in preparing these financial statements are the
same as
those described in the December 31, 2007 financial statements.
Certain
amounts in the 2007 condensed consolidated financial statements have been
reclassified to conform to the 2008 presentation.
The
results of operations for the three months ended March 31, 2008 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
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
defines fair value, establishes guidelines for measuring fair value and expands
disclosure regarding fair value measurements. SFAS No. 157 does not require
new
fair value measurements but rather eliminates inconsistencies in guidance
found
in various prior accounting pronouncements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007.
The adoption of SFAS No. 157 did not have a material effect on the financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R) (revised 2007), “Business
Combinations,” (“SFAS 141(R),”) which replaces SFAS 141. The statement provides
a broader definition of the “Acquirer” and establishes principles and
requirements of how the Acquirer recognizes and measures in its financial
statements the identifiable assets acquired and liabilities assumed as well
as
how the Acquirer recognizes and measures the goodwill acquired in the business
combination. SFAS 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.
|
4.
|
Accounting
for Stock-Based Compensation:
|
On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment”
(“Statement
No. 123(R)”), 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 granted 5,000 stock options during the three month period ended March
31, 2008. No options were granted during the three month period ended March
31,
2007.
The
following tables summarize stock option activity for the first quarter ended
March, 31, 2008 and 2007
.
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Intrinsic
|
|
|
|
|
Number
of
|
|
Average
|
|
Contractual
|
|
Value
|
|
|
|
|
Options
|
|
Option
Price
|
|
Term
(years)
|
|
|
|
|
Balance
at January 1
|
|
|
922,273
|
|
$
|
4.01
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,000
|
|
|
6.51
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(
60,000
|
)
|
|
2.00
|
|
|
|
|
|
|
|
|
Expired/Forfeited
|
|
|
(
9,525
|
)
|
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31
|
|
|
857,748
|
|
$
|
4.18
|
|
|
5.17
|
|
$
|
1,365,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable
|
|
|
855,248
|
|
$
|
4.17
|
|
|
5.17
|
|
$
|
1,367,696
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Intrinsic
|
|
|
|
|
Number
of
|
|
Average
|
|
Contractual
|
|
Value
|
|
|
|
|
Options
|
|
Option
Price
|
|
Term
(years)
|
|
|
|
|
Balance
at January 1
|
|
|
1,052,818
|
|
$
|
4.02
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(
26,400
|
)
|
|
3.66
|
|
|
|
|
|
|
|
|
Expired/Forfeited
|
|
|
(
5,850
|
)
|
|
2.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31
|
|
|
1,020,568
|
|
$
|
4.04
|
|
|
4.92
|
|
$
|
1,987,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable
|
|
|
1,020,568
|
|
$
|
4.04
|
|
|
4.92
|
|
$
|
1,987,416
|
|
The
aggregate intrinsic value of options exercised during the first quarter ended
March 31, 2008 and 2007 was $288,000 and $68,153, respectively. There were
2,500
nonvested stock options outstanding as of March 31, 2008. There were no
nonvested stock options outstanding as of March 31, 2007.
The
following table summarizes stock-based compensation expense related to all
share-based payments recognized in the condensed consolidated statements
of
income.
|
|
|
Three Months Ended March 31
|
|
|
|
|
2008
|
|
2007
|
|
|
Stock
options
|
|
$
|
3,750
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Stock
grants - other
|
|
|
22,878
|
|
|
-
|
|
|
Service
based awards
|
|
|
31,069
|
|
|
20,000
|
|
|
Performance
based awards
|
|
|
31,196
|
|
|
22,500
|
|
|
Tax
benefit
|
|
|
(36,450
|
)
|
|
(18,275
|
)
|
|
Stock-based
compensation expense, net of tax
|
|
$
|
52,443
|
|
$
|
24,225
|
|
Stock
Grants - Other
The
outside members of Board of Directors are granted shares of common stock
at the
end of each quarter as compensation for services provided as members of the
Board of Directors and other committees. These share grants vest immediately.
Service
Based Awards
In
January 2006 and May 2007, the Company granted 60,000 and 22,000 restricted
shares, respectively, to certain executives in respect of services rendered
but
at no monetary cost. These shares vest over periods ranging from 3 to 5 years,
on December 31 of each year. The Company records the compensation expense
on a
straight-line basis over the vesting period. Fair value for restricted stock
awards is based on the Company's closing common stock price on the date of
grant.
As
of
March 31, 2008 and 2007 there were 31,500 and 12,500 shares vested,
respectively. The aggregate grant date fair value of restricted stock grants
was
$537,100.
As
of
March 31, 2008 and 2007, the Company had $301,756 and $260,000, respectively,
of
total unrecognized compensation costs related to nonvested restricted stock
units expected to be recognized over a weighted average period of 2.62
years.
Performance
Based Awards
In
January 2006 and May 2007, respectively, the Company granted share awards
for
90,000 shares (up to 18,000 shares per year through December 31, 2010) and
46,000 shares (up to 11,500 shares per year through December 31, 2010) to
certain executives. Vesting of such shares is contingent upon the Company
achieving certain specified consolidated gross revenue and Earnings before
Interest and Taxes (“EBIT”) objectives in each of the next four fiscal years
ending December 31. The fair value of the performance shares (aggregate value
of
$909,400) is based on the closing trading value of the Company’s stock on the
date of grant and assumes that performance goals will be achieved. The fair
value of the shares is expensed over the performance period for those shares
that are expected to ultimately vest. If such objectives are not met, no
compensation cost is recognized and any recognized compensation cost is
reversed.
As
of
March 31, 2008 and 2007, 29,750 and 18,000 shares were vested, respectively.
As
of March 31, 2008 and 2007, there was $569,939 and $409,500, respectively,
of
total unrecognized compensation costs related to nonvested share awards;
that
cost is expected to be recognized over a period of 2.75 years.
Earnings
per share data for the three months ended March 31, 2008 and 2007 is presented
in conformity with SFAS No. 128, “Earnings Per Share.”
The
following table is a reconciliation of the numerators and denominators in
computing earnings per share:
|
March
31, 2008
|
|
Income
(Numerator)
|
|
Shares
(Denominator)
|
|
Per-Share
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS - Income available to common shareholders
|
|
$
|
452,357
|
|
|
9,406,070
|
|
$
|
.05
|
|
|
Effect
of dilutive securities - Options and warrants
|
|
|
-
|
|
|
292,596
|
|
|
|
|
|
Diluted
EPS - Income available to common shareholders and assumed
conversions
|
|
$
|
452,357
|
|
|
9,698,665
|
|
$
|
.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS -Income available to common shareholders
|
|
$
|
366,708
|
|
|
9,204,178
|
|
$
|
.04
|
|
|
Effect
of dilutive securities - Options and warrants
|
|
|
-
|
|
|
374,088
|
|
|
|
|
|
Diluted
EPS - Income available to common shareholders and assumed
conversions
|
|
$
|
366,708
|
|
|
9,578,266
|
|
$
|
.04
|
|
Changes
in the carrying amount of goodwill, all of which relate to the Company’s TBCS
segment, for the three months ended March 31, 2008 and 2007 are as
follows:
|
Three
Months Ended March 31, 2008
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
$
|
9,766,194
|
|
|
Additional
Goodwill
|
|
|
83,265
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2008
|
|
$
|
9,849,459
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$
|
9,532,961
|
|
|
Additional
Goodwill
|
|
|
-
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2007
|
|
$
|
9,532,961
|
|
The
addition to goodwill during the three months ended March 31, 2008 relates
to
additional purchase price of American Mediconnect, Inc. based on the cash
receipts from the clinical trials portion of the business. There were no
additions to goodwill for the three months ended March 31, 2007.
As
of
January 1, 2006 the Company had a credit facility arrangement for $4,500,000
which included a revolving credit line which permitted borrowings of $1,500,000
(based on eligible receivables as defined) and a $3,000,000 term loan payable.
The term loan is payable in equal monthly principal installments of $50,000
over
five years commencing January 2006. The revolving credit line was set to
mature
in May 2008.
In
March
2006 and December 2006, the credit facility was amended whereby the Company
obtained an additional $2,500,000 and $1,600,000 of term loans, the proceeds
of
which were utilized to finance certain acquisitions. These term loans are
payable over five years in equal monthly principal installments of $41,666.67
and $26,666.67, respectively. Additionally, certain of the covenants were
amended.
In
December 2006, the credit facility was amended to reduce the interest rates
charged by the bank such that borrowings under the term loan will bear interest
at either (a) LIBOR plus 2.00% or (b) the prime rate or the federal funds
effective rate plus .5%, whichever is greater, and the revolving credit line
will bear interest at either (a) LIBOR plus 1.75% or (b) the prime rate or
the
federal funds effective rate plus .5%, whichever is greater. The LIBOR
interest rate charge shall be adjusted in .25% intervals based on the Company’s
ratio of Consolidated Funded Debt to Consolidated EBITDA. In the third quarter
of 2007, the interest rate was reduced by .25% based on this ratio. The Company
has the option to choose between the two interest rate options under the
amended
term loan and revolving credit line. Borrowings under the credit facility
are
collateralized by substantially all of the assets of the Company.
On
April
30, 2007, the Company amended its credit facility whereby the term of the
revolving credit line was extended through June 2010 and the amount of credit
available under the revolving credit line was increased to
$2,500,000.
As
of
March 31, 2008 and 2007, the Company was in compliance with its financial
covenants in its loan agreement.
Since
1983, the Company has provided Personal Emergency Response Systems (“PERS”)
services to the City of New York’s Human Resources Administration Home Care
Service Program ("HCSP"). The Company has been operating since 1993 with
a
contract, and related extensions, to provide HCSP with these
services.
During
the three months ended March 31, 2008 and 2007, the Company’s revenue from this
contract represented 6
%
and
7%,
respectively,
of its total revenue. As of March 31, 2008 and December 2007, accounts
receivable from the contract represented 10% of accounts receivable and medical
devices in service under the contract represented approximately 13% of medical
devices.
In
September 2006, Human Resource Administration (“HRA”) issued a bid proposal
relating to the providing of the PERS services which are the subject of the
Company’s contract. In October 2007, the Company was informed they were awarded
the contract with respect to this proposal and executed such contract. The
contract term is two years, commencing September 21, 2007, with two options
to
renew in favor of HRA for two additional two year terms. Under the terms
of the
agreement, a downward rate adjustment was made in conjunction with reduced
equipment requirements from previous years. The estimated impact of this
lower
rate is to reduce this contract’s contribution to gross revenues by
approximately $270,000 and its contribution to net income by approximately
$150,000 on an annual basis. For the quarter ended March 31, 2008, the Company’s
revenue from this contract decreased by approximately $65,000 and this
contract’s contribution to net income decreased by approximately $37,000 as a
result of this reduced rate.
The
Company was notified by HRA that one of the bidders has filed an Article
78
proceeding seeking a reversal of HRA's determination that the Company was
the
lowest qualified bidder. In April 2008, the Company was notified that the
proceeding was completed and it was determined that the Company was the lowest
qualified bidder.
Effective
January 1, 2007, the Company has two reportable segments, (i) Health and
Safety
Monitoring Systems (“HSMS”) and (ii) Telephone Based Communication Services
(“TBCS”).
The
table
below provides a reconciliation of segment information to total consolidated
information for the three months ended March 31, 2008 and 2007:
2008
|
|
|
HSMS
|
|
TBCS
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,836,955
|
|
$
|
4,798,790
|
|
$
|
9,635,745
|
|
|
Income
before provision for income taxes
|
|
|
520,261
|
|
|
247,096
|
|
|
767,357
|
|
|
Total
assets
|
|
|
16,778,179
|
|
|
18,529,491
|
|
|
35,307,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
HSMS
|
|
TBCS
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,099,305
|
|
$
|
4,603,531
|
|
$
|
8,702,836
|
|
|
Income
before provision for income taxes
|
|
|
178,236
|
|
|
465,472
|
|
|
643,708
|
|
|
Total
assets
|
|
|
14,611,896
|
|
|
18,737,114
|
|
|
33,349,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Commitments
and Contingencies:
|
The
Company is aware of various threatened or pending litigation claims against
the
Company relating to its products and services and other claims arising in
the
ordinary course of its business. The Company has given its insurance carrier
notice of such claims and it believes there is sufficient insurance coverage
to
cover any such claims. Currently, there are no litigation claims for which
an
estimate of loss, if any, can be reasonably made as they are in the preliminary
stages and therefore, no liability or corresponding insurance receivable
has
been recorded.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
.
The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company’s results of
operations and financial condition. This discussion and analysis should be
read
in conjunction with the consolidated financial statements contained in the
latest Annual Report on Form 10-K for the year ended December 31,
2007.
Statements
contained in this Quarterly Report on Form 10-Q include “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, including, in particular and without limitation,
statements contained herein under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which could cause the Company’s actual results, performance and achievements,
whether expressed or implied by such forward-looking statements, not to occur
or
be realized. These include uncertainties relating to government regulation,
technological changes, our expansion plans and product liability risks. Such
forward-looking statements generally are based upon the Company’s best estimates
of future results, performance or achievement, based upon current conditions
and
the most recent results of operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “believe,” “estimate,” “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 and other public filings. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Overview:
The
Company’s primary business is the provision of healthcare communication services
through (1) the development, marketing and monitoring of health and safety
monitoring systems (
“
HSMS
”
)
that
include personal emergency response systems, telehealth/disease management
monitoring systems, medication management systems and pharmacy security
monitoring systems, and (2) telephony based communication services and solutions
primarily for the healthcare community (“TBCS”). The Company’s products and
services are primarily marketed to the healthcare community, including
hospitals, home care, durable medical equipment, medical facility, hospice,
pharmacy, managed care and other healthcare oriented organizations. The Company
also offers certain products and services directly to consumers. Until 2000,
the
Company’s principal business was the marketing of personal emergency response
systems (
“
PERS
”
),
a
device that allows a patient to signal an emergency response center for help
in
the event of a debilitating illness or accident. The Company provides PERS
nationwide to private pay customers, Medicaid programs and healthcare related
entities. In 2003, the Company initiated a relationship with a large, west
coast
managed care organization that recognized the value associated with provisioning
PERS to its senior population and contracted with AMAC to roll out its PERS
product to its subscribers. Today, the number of PERS units in service under
that program has more than doubled. In February of 2007, the Company announced
it had entered into an exclusive relationship with Walgreen Co. (“Walgreen”) to
provide the Company’s flagship personal emergency response systems under the
Walgreen brand. Walgreens Ready Response™ Medical Alert system is currently
being offered at Walgreen stores throughout the United States and Puerto
Rico.
The Company believes the Walgreen relationship will provide a significant
opportunity for AMAC to increase its PERS market share through Walgreen’s direct
to consumer distribution channel.
In
2001,
the Company entered the emerging telehealth market, a market in its embryonic
stage, recognizing the opportunity to provide new monitoring technologies
to
assist healthcare professionals in home-based, health management activities.
The
Company has made a significant investment in its initial endeavors in the
disease management monitoring market. This market focuses on various
technologies to permit chronic disease management through remote patient
monitoring. During the last several years, the Company has learned how this
market functions and has explored a variety of methods of making a meaningful
entry into this market. The Company has experienced technical difficulties
with
certain products supplied by its primary vendor, Health Hero Networks,
Inc. The Company has since reached a financial settlement with respect to
the technical difficulties associated with the products.
Beginning
in 2000, the Company began a program of product diversification and
customer
base
expansion
to decrease its reliance on a single product line by marketing complementary
call center and monitoring services to the healthcare community.
The
Company diversified its products/service mix to include telephony based
communication services (
“
TBCS
”
)
for
professionals in the healthcare community. The rationale to enter this segment
had several components. These include targeting existing customer relationships,
leveraging existing infrastructure capability, and establishing an additional
significant revenue source. T
he
Company’s entry into the TBCS market
was
accomplished
initially
through
acquisition and
later
through internally
generated sales growth
coupled
with acquisitions
.
The
Company has since further expanded its communication infrastructure and capacity
and now operates a total of nine communication centers in Long Island City
and
Port Jefferson, New York, New Jersey, Maryland, Connecticut, Massachusetts,
Rhode Island, Illinois and New Mexico.
In
December 2006 the Company acquired the PhoneScreen brand (“PhoneScreen”) through
the acquisition of AMI. PhoneScreen specializes in the recruitment of patients
for clinical trials. PhoneScreen’s customers are pharmaceutical companies and
Contract Research Organizations (“CROs”). CROs are organizations that
offer pharmaceutical companies and medical entities a wide range of
pharmaceutical research services which include the development and execution
of
clinical trials.
The
Company believes it has identified other communication needs as expressed
by the
expanded
TBCS
client
base. In response to these expressed needs, the Company has developed
specialized healthcare communication solutions. These solutions are creating
additional opportunities for long-term revenue enhancement. The Company has
broadened its service offerings and is in the process of significantly expanding
the
TBCS
reporting segment.
The
Company believes that the overall mix of cash flow generating businesses
from
PERS and TBCS, combined with its emphasis on developing products and services
in
the telehealth field, provides the correct blend of stability and growth
opportunity. The Company believes this strategy will enable it to maintain
and
increase its role in the healthcare communications field.
Components
of Statements of Income by Operating Segment
The
following table shows the components of the Statement of Income for the three
months ended March 31, 2008 and 2007.
|
In
thousands (000’s)
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
|
|
%
|
|
2007
|
|
%
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
HSMS
|
|
|
4,837
|
|
|
50
|
%
|
|
4,100
|
|
|
47
|
%
|
|
TBCS
|
|
|
4,799
|
|
|
50
|
%
|
|
4,603
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
9,636
|
|
|
100
|
%
|
|
8,703
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Services and Goods Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSMS
|
|
|
2,082
|
|
|
43
|
%
|
|
1,932
|
|
|
47
|
%
|
|
TBCS
|
|
|
2,616
|
|
|
55
|
%
|
|
2,362
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Services and Goods Sold
|
|
|
4,698
|
|
|
49
|
%
|
|
4,294
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSMS
|
|
|
2,755
|
|
|
57
|
%
|
|
2,168
|
|
|
53
|
%
|
|
TBCS
|
|
|
2,183
|
|
|
45
|
%
|
|
2,241
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Gross Profit
|
|
|
4,938
|
|
|
51
|
%
|
|
4,409
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General & Administrative
|
|
|
4,189
|
|
|
43
|
%
|
|
3,808
|
|
|
44
|
%
|
|
Interest
Expense
|
|
|
102
|
|
|
1
|
%
|
|
127
|
|
|
1
|
%
|
|
Other
Income
|
|
|
(120
|
)
|
|
(1
|
)%
|
|
(170
|
)
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Income Taxes
|
|
|
767
|
|
|
8
|
%
|
|
644
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
315
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
452
|
|
|
|
|
|
367
|
|
|
|
|
Note:
The
percentages for Cost of Services and Goods Sold, Gross Profit and Selling,
General & Administrative are calculated based on a percentage of revenue.
Results
of Operations:
The
Company has two distinct operating business segments, which are HSMS and
TBCS.
Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007
Revenues
:
HSMS
Revenues,
which consist primarily of monthly rental revenues, increased approximately
$737,000, or 18%, for the three months ended March 31, 2008 as compared to
the
same period in 2007. The increase is primarily attributed to the following
factors:
|
|
§
|
In
2007, the Company entered into an exclusive arrangement with Walgreen
to
provide the Company’s PERS product which the Company believes will
positively impact the revenues generated from the HSMS services
being
provided directly to the consumer. In the first quarter of 2008,
the
Company recognized revenue of approximately $255,000 from this
arrangement. The Company anticipates it will continue to see increased
growth under this arrangement with
Walgreen.
|
|
|
§
|
The
Company continues to realize increased revenue from the sale of
its
enhanced senior living products to retirement communities. During
the
first quarter of 2008, the Company generated approximately $143,000
of
product sales to retirement communities. In the first quarter of
2007, the
enhanced senior living product was still in development and no
sales were
generated. The Company anticipates it will continue to see growth
from
these product sales in 2008.
|
|
|
§
|
In
late 2006, the Company executed a new agreement with a third party
Agency
whereby PERS were placed online. Since inception, the subscriber
base
associated with this agreement has grown and accounted for an approximate
$125,000 increase in revenue during 2008 as compared to the same
period in
the prior year. The Company anticipates that the growth from this
new
agreement will continue throughout
2008.
|
The
remaining increase in revenue is from the execution of other new agreements,
growth within its existing customer base as well as the acquisition of certain
subscriber bases from companies which were providing the PERS service. This
increase was partially offset by approximately $65,000 as a result of the
contract executed with the Human Resource Administration (HRA) in 2007 whereby
a
downward rate adjustment was made.
The
Company anticipates that it will continue to grow its subscriber base and
corresponding revenue through its continued sales and marketing
efforts.
TBCS
The
increase in revenues of approximately $196,000, or 4%, for the three months
ended March 31, 2008 as compared to the same period in 2007 was primarily
due to
the following:
|
|
§
|
The
Company continues to experience revenue growth within its existing
telephone answering service businesses and realized increased revenue
of
approximately $286,000, as compared to the same period in 2007.
This
growth is due to the diversification of the Company’s customer base to
provide business process improvements to the healthcare sector.
This
increase was partially offset by a shortfall of revenue relating
to the
project based clinical trials business in the amount of approximately
$90,000.
|
Based
on
the demand for US based healthcare communication services and on some of
the
work which is currently in process, the Company anticipates that there will
be
continued growth in this business segment with further expansion into healthcare
and hospital organizations and to physicians through its marketing strategies.
Costs
Related to Services and Goods Sold:
HSMS
Costs
related to services and goods sold increased by approximately $150,000 for
the
three months ended March 31, 2008 as compared to the same period in 2007,
an
increase of 8%, primarily due to the following:
|
|
§
|
During
2007, the Company increased the number of personnel working in
its
Emergency Response Center (“ERC”) department, specifically as it relates
to the Walgreen’s Ready Response™ Program which accounted for increased
costs of approximately $53,000 in 2008 as compared to the same
period in
2007. The Company hired additional personnel due to the increased
volume
of calls which is directly correlated to the increased subscriber
base
within the Walgreen’s Ready Response™ Program. The Company will continue
to monitor the growth and call volume received from subscribers
under the
Walgreen’s Ready Response™ Program and evaluate employee
levels.
|
|
|
§
|
The
Company has incurred additional depreciation expense of approximately
$62,000 primarily due to the increased purchases of PERS related
products
during 2007. The increased purchases are a result of the increase
in the
number of subscribers online.
|
|
|
§
|
In
relation to the increase in the sales of its enhanced senior living
products to retirement communities the Company incurred costs of
approximately $65,000.
|
TBCS:
Costs
related to services and goods sold increased by approximately $254,000 for
the
three months ended March 31, 2008 as compared to the same period in 2007,
an
increase of 11%, primarily due to the following:
|
|
§
|
In
the first quarter of 2008, the Company incurred additional labor
and
telephone service costs of approximately $235,000 with the majority
of
these costs relating to the consolidation of its call center
infrastructure. As part of operating nine call centers, in 2007
the
Company engaged in a consolidation strategy to leverage its call
center
infrastructure in an effort to maximize operational efficiencies.
During
the first quarter of 2008, the Company substantially completed
the
consolidation. As part of this initiative, the Company was incurred
these
additional costs to ensure a seamless transition. Moving forward,
the
Company believes this call center consolidation strategy will produce
operational and financial
efficiencies.
|
Selling,
General and Administrative Expenses:
Selling,
general and administrative expenses increased by approximately $381,000 for
the
three months ended March 31, 2008 as compared to the same period in 2007,
an
increase of 10%. The increase is primarily attributable to the
following:
|
|
§
|
In
conjunction with various new programs and agreements, the Company
has
hired additional marketing and sales personnel, increased its advertising
and incurred additional travel expense. As a result of this, the
Company
recorded an increase in these expenses of approximately $286,000.
In an
effort to grow and expand these programs, the Company anticipates
to incur
increased marketing, advertising and travel expenses throughout
2008.
|
|
|
§
|
The
Company incurred increased commissions of approximately $68,000
as a
result of two factors. First, in conjunction with the project based
clinical trials business, the Company utilizes an outside consulting
firm
to assist in the generation of customers. As part of this arrangement,
the
consultant earned approximately $40,000 more in the first quarter
of 2008
as compared to 2007. Secondly, the Company incurred approximately
$28,000
of increased commissions relating to the HSMS segment as it continues
to
look to expand its reach in the market place.
|
There
were other increases in selling, general and administrative expenses which
arose
out of the normal course of business such as executive and administrative
salaries, legal and amortization expense which were partially offset by
decreases in consulting and insurance expense.
Interest
Expense:
Interest
expense for the three months ended March 31, 2008 and 2007 was approximately
$102,000 and $127,000, respectively. The decrease of $25,000 was primarily
due
to the Company continuing to pay down its term loan as well as a reduction
in
the interest rate.
Other
Income:
Other
income for the three months ended March 31, 2008 and 2007 was approximately
$120,000 and $170,000, respectively. Other income for the three months ended
March 31, 2008 includes a training incentive received from the State of New
Mexico for hiring and training employees within the State. In 2007, the Company
opened a network operating call center in New Mexico and hired employees
to
serve as operators for the telephone answering service. In 2008, the Company
plans on continuing its further expansion into this facility by also hiring
employees to serve as emergency response operators for the HSMS segment.
This
incentive accounted for approximately $80,000. Other income for the three
months
ended March 31, 2007 includes a Relocation and Employment Assistance Program
(“REAP”) credit in the approximate amount of $118,000. In connection with the
relocation of certain operations to Long Island City, New York in April 2003,
the Company became eligible for the REAP credit which is based upon the number
of employees relocated to this designated REAP area. The REAP is in effect
for a
twelve year period commencing in April 2003; during the first five years
the
Company will be refunded the full amount of the eligible credit and, thereafter,
the benefit will be available only as a credit against New York City income
taxes. As of 2008, the Company is available to only receive a credit against
New
York City income taxes, which is reflected within the Company’s tax
provision.
Income
Before Provision for Income Taxes:
The
Company’s income before provision for income taxes for the three months ended
March 31, 2008 was approximately $767,000 as compared to $644,000 for the
same
period in 2007. The increase of $123,000 for the three months ended March
31,
2008 primarily resulted from an increase in the Company's service and product
revenues offset by an increase in the Company’s costs related to services and
product sales and selling, general and administrative costs.
Liquidity
and Capital Resources
As
of
January 1, 2006 the Company had a credit facility arrangement for $4,500,000
which included a revolving credit line which permitted borrowings of $1,500,000
(based on eligible receivables as defined) and a $3,000,000 term loan payable
in
equal monthly principal installments of $50,000 over five years commencing
January 2006. The revolving credit line was set to mature in May
2008.
In
March
2006 and December 2006, the Company’s credit facility was amended whereby the
Company obtained an additional $2,500,000 and $1,600,000 of term loans, the
proceeds of which were utilized to finance certain acquisitions. These term
loans are payable over five years in equal monthly principal installments
of
$41,666.67 and $26,666.67, respectively. Additionally, certain of the covenants
were amended.
In
December 2006, the credit facility was amended to reduce the interest rates
charged by the bank such that borrowings under the term loan will bear interest
at either (a) LIBOR plus 2.00% or (b) the prime rate or the federal funds
effective rate plus .5%, whichever is greater, and the revolving credit line
will bear interest at either (a) LIBOR plus 1.75% or (b) the prime rate or
the
federal funds effective rate plus .5%, whichever is greater. The LIBOR
interest rate charge shall be adjusted in .25% intervals based on the Company’s
ratio of Consolidated Funded Debt to Consolidated EBITDA. In the third quarter
of 2007, the interest rate was reduced by .25% based on this ratio. The Company
has the option to choose between the two interest rate options under the
amended
term loan and revolving credit line. Borrowings under the credit facility
are
collateralized by substantially all of the assets of the Company.
On
April
30, 2007, the Company amended its credit facility whereby the term of the
revolving credit line was extended through June 2010 and the amount of credit
available under the revolving credit line was increased to
$2,500,000.
As
of
March 31, 2008 and 2007, the Company was in compliance with its financial
covenants in its loan agreement.
The
following table is a summary of contractual obligations as of March 31,
2008:
|
|
|
Payments
Due by Period
|
|
|
Contractual
Obligations
|
|
Total
|
|
Less
than 1 year
|
|
1-3
years
|
|
4-5
years
|
|
After
5 years
|
|
|
Revolving
Credit Line
|
|
$
|
1,300,000
|
|
|
|
|
$
|
1,300,000
|
|
|
|
|
|
|
|
|
Debt
(a)
|
|
$
|
4,426,141
|
|
$
|
1,416,024
|
|
$
|
3,010,117
|
|
|
|
|
|
|
|
|
Capital
Leases (b)
|
|
$
|
64,143
|
|
$
|
42,688
|
|
$
|
21,455
|
|
|
|
|
|
|
|
|
Operating
Leases (c)
|
|
$
|
8,115,519
|
|
$
|
1,006,244
|
|
$
|
2,216,553
|
|
$
|
1,573,824
|
|
$
|
3,318,898
|
|
|
Purchase
Commitments (d)
|
|
$
|
811,630
|
|
$
|
811,630
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense (e)
|
|
$
|
486,926
|
|
$
|
252,232
|
|
$
|
234,694
|
|
|
|
|
|
|
|
|
Acquisition
related Commitment (f)
|
|
$
|
157,161
|
|
$
|
157,161
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations
|
|
$
|
15,361,520
|
|
$
|
3,685,979
|
|
$
|
6,782,819
|
|
$
|
1,573,824
|
|
$
|
3,318,898
|
|
|
|
(a)
|
-
Debt includes the Company’s aggregate outstanding term loans which mature
in 2010 and 2011, as well as loans associated with the purchase
of
automobiles.
|
|
|
(b)
|
-
Capital lease obligations related to telephone answering service
equipment. These capital lease obligations expire in the second
quarter of 2009.
|
|
|
(c)
|
-
Operating leases include rental of facilities at various locations
within
the United States. These operating leases include the rental of
the
Company’s call center, warehouse and the office facilities. These
operating leases have various maturity dates. The Company currently
leases
office space from the Chairman and principal shareholder and certain
telephone answering service managers pursuant to leases.
|
|
|
(d)
|
-
Purchase
commitments relate to orders for the Company’s traditional
PERS.
|
|
|
(e)
|
-
Interest expense relates to interest on the Company’s revolving credit
line and debt at the Company’s current rate of
interest.
|
|
|
(f)
|
-
Acquisition related commitment involving payments due based on
collections
of the clinical trial business relating to the American Mediconnect,
Inc
acquisition in December 2006.
|
The
primary sources of liquidity are cash flows from operating activities. Net
cash provided by operating activities was approximately $1.5 million for
the
three months ended March 31, 2008, as compared to approximately $1.7 million
for
the same period in 2007. During the first quarter of 2008, the cash provided
by
operating activities was primarily from depreciation and amortization of
approximately $1.0 million and net earnings of approximately $0.5 million.
The
components of depreciation and amortization primarily relate to the purchases
of
the Company’s traditional PERS product and the customer lists associated with
the acquisition of telephone answering service businesses. Cash provided
by
operating activities during the first quarter of 2007 were the result of
depreciation and amortization of approximately $1.0 million, increase in
liabilities of $0.8 million and net earnings of approximately $0.4 million.
These amounts were partially offset by an increase in trade receivables of
approximately $0.4 million.
Net
cash
used in investing activities for the three months ended March 31, 2008 and
2007
were approximately $0.9 million. The primary component of net cash used in
investing activities in the first quarter of 2008 was capital expenditures
of
approximately $0.7 million. Capital expenditures for the first quarter of
2008
primarily related to the continued production and purchase of the traditional
PERS system and the build-out of the Company’s new call center in New Mexico.
The primary components of net cash used in investing activities in the first
quarter of 2007 were capital expenditures of approximately $0.8 million.
Cash
flows for the three months ended March 31, 2008 used in financing activities
were approximately $0.3 million compared to $0.4 million for the same period
in
2007. The primary component of cash flow used in financing activities in
the
first quarter of 2008 was the payment of long-term debt of approximately
$0.4
million. This was partially offset by the proceeds received on the exercise
of
stock options of approximately $0.1 million. The primary component of cash
flow
used in financing activities in the first quarter of 2007 was the payment
of
long-term debt of approximately $0.5 million, which was partially offset
by the
proceeds received on the exercise of stock options of approximately $0.2
million. Capital expenditures for the first quarter of 2007 primarily related
to
the continued production and purchase of the traditional PERS system.
During
the next twelve months, the Company anticipates it will make capital
expenditures of approximately $3.25 - $3.75 million for the production and
purchase of the traditional PERS systems, and telehealth systems, enhancements
to its computer operating systems and the production of its pill dispensers
(this includes outstanding purchase orders issued to purchase approximately
$1.1
million of the traditional PERS systems). This amount is subject to fluctuations
based on customer demand. The Company also anticipates incurring approximately
$0.2 - $0.4 million of costs relating to research and development of its
telehealth product and enhanced pill dispenser. In July 2005, the Company
entered into a technology, licensing, development, distribution and marketing
agreement with a supplier for its HSMS sector. Pursuant to this agreement
the
Company anticipates expending approximately $0.2 - $0.4 million over the
next
twelve to eighteen months.
As
of
March 31, 2008, the Company had approximately $1.2 million in cash and the
Company’s working capital was approximately $4.0 million. The Company believes
that with its present cash balance and with operations of the business
generating positive cash flow, it will be able to meet its cash, working
capital
and capital expenditure needs for at least the next twelve months. The Company
also has a revolving credit line, which expires in June 2010 that permits
borrowings up to $2.5 million, of which $1,300,000 was outstanding at March
31,
2008.
Off-Balance
Sheet Arrangements:
As
of
March 31, 2008, the Company has not entered into any off-balance sheet
arrangements that are reasonably likely to have an impact on the Company’s
current and future financial condition.
Other
Factors:
In
August
2007 the Company entered into a settlement agreement whereby a third party
has
agreed to reimburse the Company in a net amount of $425,000 for matters related
to certain product and warranty disputes. This reimbursement is associated
with
costs that have primarily been incurred in previous years relating to
engineering, payroll and related costs and depreciation pertaining to the
affected assets. The Company anticipates receiving this reimbursement over
approximately two years. The Company also recorded a write-down on the assets
affected of approximately $111,000 in the third quarter of 2007.
During
2005, the Company entered into two operating lease agreements for additional
space at its Long Island City, New York location in order to consolidate
its
warehouse and distribution center and accounting department into this location.
The leases, which commenced in January 2006 and expire in March 2018, call
for
minimum annual rentals of $220,000 and $122,000, respectively, and are subject
to increases in accordance with the term of the agreements. The Company is
also
responsible for the reimbursement of real estate taxes.
On
January 14, 2002, the Company entered into an operating lease agreement for
space in Long Island City, New York in order to consolidate its HCI TBCS
and
PERS ERC/ Customer Service facilities. The centralization of the ERC,
Customer Service and H-LINK® OnCall operations has provided certain operating
efficiencies and allowed for continued growth of the H-LINK and PERS
divisions. The fifteen (15) year lease term commenced in April 2003.
The lease calls for minimum annual rentals of $307,900, subject to a 3% annual
increase plus reimbursement for real estate taxes.
Since
1983, the Company has provided Personal Emergency Response Systems (“PERS”)
services to the City of New York’s Human Resources Administration Home Care
Service Program ("HCSP"). The Company has been operating since 1993 with
a
contract, and related extensions, to provide HCSP with these
services.
During
the three months ended March 31, 2008 and 2007, the Company’s revenue from this
contract represented 6
%
and
7%,
respectively,
of its total revenue. As of March 31, 2008 and December 2007, accounts
receivable from the contract represented 10% of accounts receivable and medical
devices in service under the contract represented approximately 13% of medical
devices.
In
September 2006, Human Resource Administration (“HRA”) issued a bid proposal
relating to the providing of the PERS services which are the subject of the
Company’s contract. In October 2007, the Company was informed they were awarded
the contract with respect to this proposal and executed such contract. The
contract term is two years, commencing September 21, 2007, with two options
to
renew in favor of HRA for two additional two year terms. Under the terms
of the
agreement, a downward rate adjustment was made in conjunction with reduced
equipment requirements from previous years. The estimated impact of this
lower
rate is to reduce this contract’s contribution to gross revenues by
approximately $270,000 and its contribution to net income by approximately
$150,000 on an annual basis. For the quarter ended March 31, 2008, the Company’s
revenue from this contract decreased by approximately $65,000 and this
contract’s contribution to net income decreased by approximately $37,000 as a
result of this reduced rate.
The
Company was notified that one of the bidders has filed an Article 78 proceeding
seeking a reversal of HRA's determination that the Company was the lowest
qualified bidder. In April 2008, the Company was notified that the proceeding
was completed and it was determined that the Company was the lowest qualified
bidder.
The
Company has paid approximately $815,000 in licensing fees and associated
products in connection with the Company obtaining certain new remote monitoring
products. While the Company is confident in the successful completion and
sale
of these new remote monitoring products, there has been a delay in the
manufacturing of these products. Since the Company has capitalized these
costs,
if the Company does not obtain these products or the Company cannot market
or
sell the products, the Company would be required to write down all or some
of
the value of these costs.
Recent
Accounting Pronouncements:
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
defines fair value, establishes guidelines for measuring fair value and expands
disclosure regarding fair value measurements. SFAS No. 157 does not require
new
fair value measurements but rather eliminates inconsistencies in guidance
found
in various prior accounting pronouncements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007.
The adoption of SFAS No. 157 did not have a material effect on our financial
statements or results of operations.
In
December 2007, the FASB issued SFAS No. 141(R) (revised 2007), “SFAS 141(R),”
“Business Combinations,” which replaces SFAS 141. The statement provides a
broader definition of the “Acquirer” and establishes principles and requirements
of how the Acquirer recognizes and measures in its financial statements the
identifiable assets acquired and liabilities assumed as well as how the acquirer
recognizes and measures the goodwill acquired in the business combination.
SFAS
141(R) applies prospectively to business combinations for which the acquisition
date is on or the beginning of the first annual reporting period beginning
on or
after December 15, 2008.
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 collectibility of its accounts
receivable. The accounts receivable amount on the balance sheet includes
a
reserve for accounts that might not be paid. In determining the amount of
the
reserve, the Company considers its historical level of credit losses. The
Company also makes judgments about the creditworthiness of significant customers
based on ongoing credit evaluations, and it assesses current economic trends
that might impact the level of credit losses in the future. The Company recorded
reserves for uncollectible accounts receivable of $575,000 as of March 31,
2008,
which is equal to 9.0% of total accounts receivable. While the Company believes
that the current reserves are adequate to cover potential credit losses,
it
cannot predict future changes in the financial stability of its customers
and
the Company cannot guarantee that its reserves will continue to be adequate.
For
each 1% that actual credit losses exceed the reserves established, there
would
be an increase in general and administrative expenses and a reduction in
reported net income of approximately $64,000. 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 $64,000.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation for financial reporting purposes
is
being provided by the straight-line method over the estimated useful lives
of
the related assets. The valuation and classification of these assets and
the
assignment of useful depreciable lives involves significant judgments and
the
use of estimates. Fixed assets are reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable. Historically, impairment losses have not been required. Any
change in the assumption of estimated useful lives could either result in
a
decrease or increase to the Company’s financial results. A decrease in estimated
useful life would reduce the Company’s net income and an increase in estimated
useful life would increase the Company’s net income. If the estimated useful
lives of the PERS medical device were decreased by one year, the cost of
goods
related to services would increase and net income would decrease by
approximately $185,000 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 $145,000
per annum.
Valuation
of Goodwill
Pursuant
to Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” goodwill and indefinite life intangible assets are no longer
amortized, but are subject to annual impairment tests. To date, the Company
has
not been required to recognize an impairment of goodwill. The Company tests
goodwill for impairment 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 $9,849,459
and
$9,766,194 at March 31, 2008 and December 31, 2007, respectively. If the
Company
were to experience a significant adverse impact on goodwill, it would negatively
impact the Company’s net income.
Accounting
for Stock-Based Awards
On
January 1, 2006, the Company adopted FASB Statement No. 123 (revised
2004), “Share-Based Payment”
(“Statement
No. 123(R)”), 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.
As
a
result of adopting SFAS No. 123R, the Company recorded a pre-tax expense
of
approximately $89,000 and $42,500 for stock-based compensation for the three
months ended March 31, 2008 and 2007, 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 financial instruments, nor does
it
trade financial instruments for 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 March 31, 2008 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 our outstanding balances on our term loan
and
revolving credit line under our credit facility accrues at a rate of LIBOR
plus
1.75% and LIBOR plus 1.50%, respectively. Our ability to carry out our business
plan to finance future working capital requirements and acquisitions of TBCS
businesses may be impacted if the cost of carrying debt fluctuates to the
point
where it becomes a burden on our resources.
Item
4T.
Controls
and Procedures
.
As
of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of its Chief Executive Officer
and President and its Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on
this
evaluation, the Chief Executive Officer and President and the Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company
in
the reports filed by it under the Securities and Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time
periods
specified in the SEC's rules and forms, and include controls and procedures
designed to ensure that information required to be disclosed by the Company
in
such reports is accumulated and communicated to the Company's management,
including the Chief Executive Officer and President and Chief Financial Officer
of the Company, as appropriate to allow timely decisions regarding required
disclosure.
There
were no changes in the Company’s internal control over financial reporting that
occurred during the quarter ended March 31, 2008 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART
II - OTHER INFORMATION
Item
1.
Legal
Proceedings
.
The
Company was notified that one of the bidders for the contract it was awarded
with HRA, New York Merchants Protective Co., Inc. (“Merchants”) filed an Article
78 proceeding on or about August 13, 2007. Merchants was moving to annul
the
HRA’s disqualification of Merchants as a bidder to provide PERS and to therefore
annul the HRA’s contract with the Company. The Article 78 proceeding was filed
in the Supreme Court of the State of New York, County of New York. In April
2008, the Company was notified that the proceeding was completed and it was
determined that the Company was the lowest qualified bidder.
The
Company is aware of various threatened or pending litigation claims against
the
Company relating to its products and services and other claims arising in
the
ordinary course of its business. The Company has given its insurance carrier
notice of such claims and it believes there is sufficient insurance coverage
to
cover any such claims. Currently, there are no litigation claims for which
an
estimate of loss, if any, can be reasonably made as they are in the preliminary
stages and therefore, no liability or corresponding insurance receivable
has
been recorded.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
(c)
Purchases of Equity Securities by the Issuer
During
the period covered by this report, the Company purchased an aggregate
of 4,663
shares of common stock from certain executives to effect tax withholding
from
such executives in connection with tax liabilities arising from stock
grants.
The purchases are delineated by month in the table below.
|
Period
|
|
Total
number of shares (or units) purchased
|
|
Average
price paid per share (or unit)
|
|
Total
number of shares (or units) purchased as part of publicly announced
plans
or programs
|
|
Maximum
number (or approximate dollar value) of shares (or units) that
may yet be
purchased under the plans or programs
|
|
|
January
1, 2008 - January 31, 2008
|
|
|
2,888
(1
|
)
|
$
|
7.03
|
|
|
0
|
|
|
0
|
|
|
March
1, 2008 - March 31, 2008
|
|
|
1,775
(2
|
)
|
$
|
5.77
|
|
|
0
|
|
|
0
|
|
(1)
(i)
1,029
shares were repurchased by the Company from an executive of the Company
in
connection with the executive’s payment of tax liability arising from a bonus
stock grant and (ii) 1,859 shares were repurchased by the Company from
an
executive of the Company in connection with the executive’s payment of tax
liability arising from a non-performance stock grant.
(2)
These
shares were repurchased by the Company from an executive of the Company
in
connection with the executive’s payment of tax liability arising from a
performance-related stock grant.
Item
6.
Exhibits
.
|
No
.
|
Description
|
|
|
|
|
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
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has
duly
caused this report to be signed on its behalf by the undersigned thereunto
duly
authorized.
|
|
AMERICAN
MEDICAL ALERT CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
May 15, 2008
|
By:
|
/s/
Jack Rhian
|
|
|
|
|
Name:
|
Jack
Rhian
|
|
|
|
|
Title:
|
Chief
Executive Officer and President
|
|