Attached files
file | filename |
---|---|
EX-31.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex31-2.htm |
EX-10.4 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-4.htm |
EX-15.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex15-1.htm |
EX-99.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex99-2.htm |
EX-32.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex32-2.htm |
EX-32.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex32-1.htm |
EX-10.3 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-3.htm |
EX-99.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex99-1.htm |
EX-31.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex31-1.htm |
EX-10.1 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-1.htm |
EX-99.3 - AMERICAN MEDICAL ALERT CORP | v194077_ex99-3.htm |
EX-10.5 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-5.htm |
EX-10.2 - AMERICAN MEDICAL ALERT CORP | v194077_ex10-2.htm |
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 June 30, 2010.
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 1-8635
AMERICAN
MEDICAL ALERT CORP.
(Exact
Name of Registrant as Specified in its Charter)
New
York
|
11-2571221
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
|
Identification
Number)
|
3265
Lawson Boulevard, Oceanside, New York 11572
(Address
of principal executive offices)
(Zip
Code)
(516)
536-5850
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No ¨
Indicate
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 ¨ No ¨
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: 9,515,148 shares of $.01 par value
common stock as of August 13, 2010.
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 June 30, 2010 and December 31,
2009
|
2
|
||
Condensed
Consolidated Statements of Income for the Six Months Ended June 30, 2010
and 2009
|
3
|
||
Condensed
Consolidated Statements of Income for the Three Months Ended June 30, 2010
and 2009
|
4
|
||
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2010 and 2009
|
5
|
||
Notes
to Condensed Consolidated Financial Statements
|
7
|
||
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
||
Quantitative
and Qualitative Disclosures About Market Risk
|
33
|
||
Controls
and Procedures
|
34
|
||
Part
II Other Information
|
34
|
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 June 30, 2010 and the
related condensed consolidated statements of income for the six-month and
three-month periods ended June 30, 2010 and 2009 and cash flows for the
six-months ended June 30, 2010 and 2009. 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, 2009, 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, 2010 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, 2009 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
August
16, 2010
1
PART
I - FINANCIAL INFORMATION
Item
1. Financial
Statements.
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
June 30, 2010
(Unaudited)
|
Dec. 31, 2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 4,073,441 | $ | 5,498,448 | ||||
Accounts
receivable
|
||||||||
(net
of allowance for doubtful accounts of $581,000 and
$582,500)
|
6,103,717 | 6,277,247 | ||||||
Inventory
|
1,140,308 | 1,105,727 | ||||||
Prepaid
income taxes
|
261,150 | 134,081 | ||||||
Prepaid
expenses and other current assets
|
484,387 | 345,465 | ||||||
Deferred
income taxes
|
298,000 | 419,000 | ||||||
Total
Current Assets
|
12,361,003 | 13,779,968 | ||||||
FIXED
ASSETS
|
||||||||
(net
of accumulated depreciation and amortization)
|
7,769,189 | 8,756,827 | ||||||
OTHER
ASSETS
|
||||||||
Intangible
assets
|
||||||||
(net
of accumulated amortization of $6,529,741 and $6,080,825)
|
1,577,095 | 2,026,011 | ||||||
Goodwill
(net of accumulated amortization of $58,868)
|
10,294,281 | 10,255,983 | ||||||
Investment
in limited liability company
|
4,014,604 | - | ||||||
Other
assets (including inventory of $281,549 in 2010)
|
1,285,780 | 1,009,835 | ||||||
17,171,760 | 13,291,829 | |||||||
TOTAL
ASSETS
|
$ | 37,301,952 | $ | 35,828,624 | ||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Current
portion of long-term debt
|
$ | 660,000 | $ | 1,301,667 | ||||
Accounts
payable
|
765,885 | 621,235 | ||||||
Accounts
payable – acquisitions
|
- | 35,048 | ||||||
Accrued
expenses
|
1,650,890 | 1,698,320 | ||||||
Dividends
payable
|
- | 950,364 | ||||||
Deferred
revenue
|
196,166 | 227,004 | ||||||
Total
Current Liabilities
|
3,272,941 | 4,833,638 | ||||||
DEFERRED
INCOME TAX LIABILITY
|
1,114,000 | 1,235,000 | ||||||
LONG-TERM
DEBT, Net of Current Portion
|
2,510,000 | 1,195,000 | ||||||
CUSTOMER
DEPOSITS
|
117,199 | 126,449 | ||||||
ACCRUED
RENTAL OBLIGATION
|
556,750 | 522,154 | ||||||
TOTAL
LIABILITIES
|
7,570,890 | 7,912,241 | ||||||
COMMITMENTS
AND CONTINGENT LIABILITIES
|
- | - | ||||||
SHAREHOLDERS’
EQUITY
|
||||||||
Preferred
stock, $.01 par value – authorized, 1,000,000 shares; none issued and
outstanding
|
- | - | ||||||
Common
stock, $.01 par value – authorized 20,000,000 shares; issued 9,603,575
shares in 2010 and 9,568,087 shares in 2009
|
96,036 | 95,681 | ||||||
Additional
paid-in capital
|
16,500,664 | 16,296,615 | ||||||
Retained
earnings
|
13,270,939 | 11,660,664 | ||||||
29,867,639 | 28,052,960 | |||||||
Less
treasury stock, at cost (48,573 shares in 2010 and 2009)
|
(136,577 | ) | (136,577 | ) | ||||
Total
Shareholders’ Equity
|
29,731,062 | 27,916,383 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 37,301,952 | $ | 35,828,624 |
See
accompanying notes to condensed financial statements.
2
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six
Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Revenues:
|
||||||||
Services
|
$ | 19,264,763 | $ | 19,016,754 | ||||
Product
sales
|
358,629 | 431,541 | ||||||
19,623,392 | 19,448,295 | |||||||
Costs
and Expenses (Income):
|
||||||||
Costs
related to services
|
8,878,500 | 8,985,373 | ||||||
Costs
of products sold
|
167,830 | 199,134 | ||||||
Selling,
general and administrative expenses
|
7,765,084 | 7,993,190 | ||||||
Interest
expense
|
26,267 | 44,302 | ||||||
Equity
in net loss from investment in limited liability company
|
116,127 | - | ||||||
Other
income
|
(59,691 | ) | (116,339 | ) | ||||
Income
before Provision for Income Taxes
|
2,729,275 | 2,342,635 | ||||||
Provision
for Income Taxes
|
1,119,000 | 961,000 | ||||||
NET
INCOME
|
$ | 1,610,275 | $ | 1,381,635 | ||||
Net
income per share:
|
||||||||
Basic
|
$ | .17 | $ | .15 | ||||
Diluted
|
$ | .16 | $ | .14 | ||||
Weighted
average number of common shares outstanding:
|
||||||||
Basic
|
9,537,894 | 9,461,888 | ||||||
Diluted
|
9,835,180 | 9,651,024 |
See
accompanying notes to condensed financial statements.
3
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three
Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Revenues:
|
||||||||
Services
|
$ | 9,556,032 | $ | 9,358,248 | ||||
Product
sales
|
156,113 | 159,958 | ||||||
9,712,145 | 9,518,206 | |||||||
Costs
and Expenses (Income):
|
||||||||
Costs
related to services
|
4,447,545 | 4,469,407 | ||||||
Costs
of products sold
|
75,346 | 78,132 | ||||||
Selling,
general and administrative expenses
|
3,857,251 | 3,940,743 | ||||||
Interest
expense
|
13,836 | 20,620 | ||||||
Equity
in net loss from investment in limited liability company
|
116,127 | - | ||||||
Other
income
|
(29,863 | ) | (22,081 | ) | ||||
Income
before Provision for Income Taxes
|
1,231,903 | 1,031,385 | ||||||
Provision
for Income Taxes
|
509,000 | 423,000 | ||||||
NET
INCOME
|
$ | 722,903 | $ | 608,385 | ||||
Net
income per share:
|
||||||||
Basic
|
$ | .08 | $ | .06 | ||||
Diluted
|
$ | .07 | $ | .06 | ||||
Weighted
average number of common shares outstanding
|
||||||||
Basic
|
9,549,355 | 9,469,908 | ||||||
Diluted
|
9,828,473 | 9,720,829 |
See
accompanying notes to condensed financial statements.
4
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six
Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
income
|
$ | 1,610,275 | $ | 1,381,635 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
1,842,231 | 2,041,165 | ||||||
Loss
on write off of fixed assets
|
- | 391 | ||||||
Stock
compensation charge
|
160,419 | 178,507 | ||||||
Equity
in net loss from investment in limited liability company
|
116,127 | - | ||||||
Decrease
(increase) in:
|
||||||||
Accounts
receivable
|
173,530 | 433,424 | ||||||
Inventory
|
(226,445 | ) | 4,351 | |||||
Prepaid
income taxes
|
(127,069 | ) | 26,172 | |||||
Prepaid
expenses and other current assets
|
(206,876 | ) | 127,439 | |||||
Increase
(decrease) in:
|
||||||||
Accounts
payable, accrued expenses and other
|
122,566 | 394,722 | ||||||
Deferred
revenue
|
(30,838 | ) | (22,314 | ) | ||||
Net
Cash Provided by Operating Activities
|
3,433,920 | 4,565,492 | ||||||
Cash
Flows From Investing Activities:
|
||||||||
Expenditures
for fixed assets
|
(400,624 | ) | (707,475 | ) | ||||
Repayment
of notes receivable
|
- | 13,990 | ||||||
Deposit
on equipment
|
(21,875 | ) | - | |||||
Purchase
– other
|
- | (15,099 | ) | |||||
Payment
of Investment in limited liability company
|
(4,130,731 | ) | - | |||||
Decrease
in other assets
|
5,065 | 31,401 | ||||||
Net
Cash Used In Investing Activities
|
(4,548,165 | ) | (677,183 | ) | ||||
Cash
Flows From Financing Activities:
|
||||||||
Proceeds
from long-term debt
|
2,000,000 | - | ||||||
Repayment
of long-term debt
|
(1,326,667 | ) | (1,163,282 | ) | ||||
Payment
of accounts payable - acquisitions
|
(73,346 | ) | (151,600 | ) | ||||
Proceeds
upon exercise of stock options
|
43,985 | - | ||||||
Payment
of loan financing costs
|
(4,370 | ) | - | |||||
Dividends
paid
|
(950,364 | ) | - | |||||
Net
Cash Used In Financing Activities
|
(310,762 | ) | (1,314,882 | ) |
See
accompanying notes to condensed financial statements.
5
AMERICAN
MEDICAL ALERT CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six
Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Net
Increase (decrease) in Cash
|
$ | (1,425,007 | ) | $ | 2,573,427 | |||
|
||||||||
Cash,
Beginning of Period
|
5,498,448 | 2,473,733 | ||||||
Cash,
End of Period
|
$ | 4,073,441 | $ | 5,047,160 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
CASH
PAID DURING THE PERIOD FOR INTEREST
|
$ | 26,014 | $ | 44,693 | ||||
CASH
PAID DURING THE PERIOD FOR INCOME TAXES
|
$ | 1,274,617 | $ | 819,830 | ||||
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING
|
||||||||
AND
FINANCING ACTIVITIES:
|
||||||||
Accounts
Payable – acquisitions / additional goodwill
|
||||||||
-
American Mediconnect Inc.
|
$ | 38,298 | $ | 203,148 | ||||
Other
assets, deposits on equipment transferred to
|
||||||||
fixed
assets
|
- | 195,103 | ||||||
Other
assets, deposits on product transferred to inventory
|
$ | 89,685 | - |
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, 2009 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 June 30, 2010 and the results of
operations and cash flows for the six months ended June 30, 2010 and
2009.
The
accounting policies used in preparing these financial statements are the same as
those described in the December 31, 2009 financial statements except as noted
below.
The
Company owns a minority interest of approximately 10% 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.
Certain
amounts in the 2009 condensed consolidated financial statements have been
reclassified to conform to the 2010 presentation.
The
results of operations for the six and three months ended June 30, 2010 are not
necessarily indicative of the results to be expected for any other interim
period or for the full year.
3.
|
Recent
Accounting Pronouncements:
|
During
the third quarter of 2009, the Company adopted ASC Topic 105, Generally Accepted
Accounting Principles, which establishes the FASB Accounting Standards
Codification (“ASC”) as the sole source of authoritative generally accepted
accounting principles ("GAAP") to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission ("SEC")
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The codification did not change GAAP but reorganizes
the literature. References for FASB guidance throughout this document have been
updated for the codification.
7
4.
|
Accounting
for Stock-Based Compensation:
|
Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly SFAS
No. 123 (R), Share-Based Payment), 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.
No
options were granted during the
six month period ended June 30, 2010 and the Company granted options to
purchase 15,000 shares of common stock during the six month period ended June
30, 2009.
The following tables summarize stock
option activity for the six months ended June 30, 2010 and 2009.
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
|
(10,325 | ) | 4.26 | |||||||||||||
Expired/Forfeited
|
- | - | ||||||||||||||
Balance
at June 30
|
884,460 | $ | 4.29 | 2.00 | $ | 1,565,633 | ||||||||||
Vested
and exercisable
|
851,760 | $ | 4.23 | 1.92 | $ | 1,561,911 |
8
2009
|
||||||||||||||||
Weighted
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted
|
Remaining
|
Aggregate
|
||||||||||||||
Number
of
|
Average
|
Contractual
|
Intrinsic
|
|||||||||||||
Options
|
Option
Price
|
Term
(years)
|
Value
|
|||||||||||||
Balance
at January 1
|
877,235 | $ | 4.25 | |||||||||||||
Granted
|
15,000 | 5.72 | ||||||||||||||
Exercised
|
- | - | ||||||||||||||
Expired/Forfeited
|
(6,650 | ) | 5.35 | |||||||||||||
Balance
at June 30
|
885,585 | $ | 4.27 | 2.98 | $ | 1,387,149 | ||||||||||
Vested
and exercisable
|
870,585 | $ | 4.24 | 2.95 | $ | 1,387,149 |
The
aggregate intrinsic value of options exercised during the six months ended June
30, 2010 was $24,560. No options were exercised during the six months ended June
30, 2009. There were 32,700 and 15,000 nonvested stock options
outstanding as of June 30, 2010 and 2009, respectively.
The
following table summarizes stock-based compensation expense related to all
share-based payments recognized in the condensed consolidated statements of
income.
Three
Months
|
Three
Months
|
|||||||
Ended
June 30,
|
Ended
June 30,
|
|||||||
2010
|
2009
|
|||||||
Stock
options
|
$ | - | $ | 6,250 | ||||
Stock
grants – other
|
10,882 | 22,880 | ||||||
Service
based awards
|
32,037 | 33,845 | ||||||
Performance
based awards
|
37,294 | 29,400 | ||||||
Tax
benefit
|
(33,098 | ) | (37,909 | ) | ||||
Stock-based
compensation expense, net of tax
|
$ | 47,115 | $ | 54,466 |
Six
Months
|
Six
Months
|
|||||||
Ended
June 30,
|
Ended
June 30,
|
|||||||
2010
|
2009
|
|||||||
Stock
options
|
$ | - | $ | 6,250 | ||||
Stock
grants – other
|
21,759 | 45,767 | ||||||
Service
based awards
|
64,072 | 67,690 | ||||||
Performance
based awards
|
74,588 | 58,800 | ||||||
Tax
benefit
|
(65,772 | ) | (73,224 | ) | ||||
Stock-based
compensation expense, net of tax
|
$ | 94,647 | $ | 105,283 |
Stock
Grants - Other
Effective
January 1, 2010, the non-employee members of the Board of Directors have an
option to elect 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. Prior to 2010, the non-employee members
of the Board of Directors were 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. Share grants issued vest immediately,
but are subject to a one year restriction on transfer. In addition,
stock grants may be issued to employees at the Board of Directors’
discretion.
9
Service
Based Awards
In
January 2006, May 2007 and January 2009 the Company granted 50,000, 22,000 and
12,000 (net of 9,500 shares waived by an executive) 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 June 30, 2010 and 2009 there were 63,000 and 41,000 shares vested,
respectively. The aggregate grant date fair value of restricted stock
grants was $547,660. As
of June 30, 2010 and 2009, the Company had $68,308 and $234,171, respectively,
of total unrecognized compensation costs related to nonvested restricted stock
units expected to be recognized over a weighted average period of six
months.
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 June 30, 2010 and 2009, 57,250 and 29,750 shares were vested,
respectively. As of June 30, 2010 and 2009, there was $74,588 and
$300,593, respectively, of total unrecognized compensation costs related to
nonvested share awards; that cost is expected to be recognized over a period of
six months.
5.
|
Earnings
Per Share:
|
Earnings
per share data for the six and three months ended June 30, 2010 and 2009 is
presented in conformity with ASC Topic 250 (formerly SFAS No. 128, Earnings Per
Share).
The
following table is a reconciliation of the numerators and denominators in
computing earnings per share:
10
|
Income
|
Shares
|
Per-Share
|
|||||||||
Six
Months Ended June 30, 2010
|
(Numerator)
|
(Denominator)
|
Amounts
|
|||||||||
Basic
EPS - Income available to
|
||||||||||||
common
stockholders
|
$ | 1,610,275 | 9,537,894 | $ | .17 | |||||||
Effect
of dilutive securities -
|
||||||||||||
Options
and warrants
|
- | 297,286 | ||||||||||
Diluted
EPS - Income available to
|
||||||||||||
common
stockholders and
|
||||||||||||
assumed
conversions
|
$ | 1,610,275 | 9,835,180 | $ | .16 | |||||||
Three
Months Ended June 30, 2010
|
||||||||||||
Basic
EPS -Income available to
|
||||||||||||
common
stockholders
|
$ | 722,903 | 9,549,355 | $ | .08 | |||||||
Effect
of dilutive securities -
|
||||||||||||
Options
and warrants
|
- | 279,118 | ||||||||||
Diluted
EPS - Income available to
|
||||||||||||
common
stockholders and
|
||||||||||||
assumed
conversions
|
$ | 722,903 | 9,828,473 | $ | .07 | |||||||
Six
Months Ended June 30, 2009
|
||||||||||||
Basic
EPS - Income available to
|
||||||||||||
common
stockholders
|
$ | 1,381,635 | 9,461,888 | $ | .15 | |||||||
Effect
of dilutive securities -
|
||||||||||||
Options
|
- | 189,136 | ||||||||||
Diluted
EPS - Income available to
|
||||||||||||
common
stockholders and
|
||||||||||||
assumed
conversions
|
$ | 1,381,635 | 9,651,024 | $ | .14 | |||||||
Three
Months Ended June 30, 2009
|
||||||||||||
Basic
EPS -Income available to
|
||||||||||||
common
stockholders
|
$ | 603,385 | 9,469,908 | $ | .06 | |||||||
Effect
of dilutive securities -
|
||||||||||||
Options
|
- | 250,921 | ||||||||||
Diluted
EPS - Income available to
|
||||||||||||
common
stockholders and
|
||||||||||||
assumed
conversions
|
$ | 603,385 | 9,720,829 | $ | .06 |
11
6.
|
Goodwill
|
Changes
in the carrying amount of goodwill, all of which relates to the Company’s TBCS
segment, for the six months ended June 30, 2010 and 2009 are as
follows:
Six Months Ended June 30,
2010
|
||||
Balance
as of January 1, 2010
|
$ | 10,255,983 | ||
Additional
Goodwill
|
38,298 | |||
Balance
as of June 30, 2010
|
$ | 10,294,281 | ||
Six Months Ended June 30,
2009
|
||||
Balance
as of January 1, 2009
|
$ | 9,996,152 | ||
Additional
Goodwill
|
203,148 | |||
Balance
as of June 30, 2009
|
$ | 10,199,300 |
The
addition to goodwill during the six months ended June 30, 2010 and 2009 relates
to the additional purchase price of American Mediconnect, Inc. based on the cash
receipts from the clinical trials portion of the business.
7.
|
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 $130,731 in professional fees to acquire a minority interest 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. See Note 8 below.
The Company recorded a loss from
investment in limited liability company of $116,127 for the six months ended
June 30, 2010.
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.
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.
12
8.
|
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 is 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. 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. The term
loan which was entered into in March 2006 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 an investment relating to the development of a
mobile PERS system. See Note 7 above. 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 consistent with the
previous term loans secured by the Company.
As of
June 30, 2010 and March 31, 2010, the Company was in compliance with its
financial covenants in its loan agreement. As of June 30, 2009 and
March 31, 2009, the Company was in compliance with its financial covenants in
its loan agreement.
9.
|
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 which
will be payable to the shareholders of record as of September 13,
2010. The dividend will be paid on or about October 1,
2010.
13
10.
|
Segment Reporting:
|
The
Company has two reportable segments, (i) Health and Safety Monitoring Systems
(“HSMS”) and (ii) Telephone Based Communication Services (“TBCS”).
The table
below provides a reconciliation of segment information to total consolidated
information for the six and three months ended June 30, 2010 and
2009:
2010
|
||||||||||||
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Six Months Ended June 30,
2010
|
||||||||||||
Revenue
|
$ | 10,233,896 | $ | 9,389,496 | $ | 19,623,392 | ||||||
Income
before provision for income taxes
|
1,906,142 | 823,133 | 2,729,275 | |||||||||
Total
assets
|
18,840,211 | 18,461,741 | 37,301,952 | |||||||||
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Three Months Ended June 30,
2010
|
||||||||||||
Revenue
|
$ | 5,083,836 | $ | 4,628,309 | $ | 9,712,145 | ||||||
Income
before provision for income taxes
|
846,764 | 385,139 | 1,231,903 |
2009
|
||||||||||||
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Six Months Ended June 30,
2009
|
||||||||||||
Revenue
|
$ | 10,135,352 | $ | 9,312,943 | $ | 19,448,295 | ||||||
Income
before provision for income taxes
|
1,645,177 | 697,458 | 2,342,635 | |||||||||
Total
assets
|
14,870,915 | 20,370,168 | 35,241,083 | |||||||||
HSMS
|
TBCS
|
Consolidated
|
||||||||||
Three Months Ended June 30,
2009
|
||||||||||||
Revenue
|
$ | 5,045,867 | $ | 4,472,339 | $ | 9,518,206 | ||||||
Income
before provision for income taxes
|
873,147 | 158,238 | 1,031,385 |
14
11.
|
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 our latest Annual Report
on Form 10-K for the year ended December 31, 2009, as well as the quarterly Condensed
Consolidated Financial Statements and notes thereto which appear elsewhere in
this Quarterly Report on Form 10-Q.
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, Quarterly Reports on Form 10-Q and other
public filings. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
15
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,
medication management systems and objective and subjective data/ telehealth/
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, pharmaceutical companies and other healthcare
oriented organizations. The Company also offers certain products and
services directly to consumers.
About
HSMS:
Personal
Emergency Response Systems (PERS)
The
Company’s core business is the sales and marketing of our Personal Emergency
Response System. The system consists of a console unit and a wireless activator
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 the two-way
voice system that connects their home telephone with the Company’s Response
Center. The Company sells three PERS devices for use in either private homes or
independent and assisted living facilities. The Company’s PERS is sold through
its primary brand VoiceCare® and direct to consumer under Walgreens Ready
Response™, Response Call™, and most recently ApriaAlert™.
MedSmart
The
second component of AMAC’s remote patient monitoring (“RPM”) platform addresses
another serious healthcare need-medication adherence. During 2009, the Company
commercially released AMAC’s new monitored medication management tool,
MedSmart™. MedSmart is a system that organizes, reminds and dispenses pills in
accordance with prescribed treatment regimens. With MedSmart‘s event reporting
and notification option, family caregivers and healthcare professionals can
monitor a client’s adherence to their medication regimen. 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. Through AMAC’s personalized notification system, alerts can be sent
to track adherence, address dosing errors and predict refill requirements. The
Company plans to market MedSmart directly to consumers and through its national
business to business network.
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 telehealth
technologies into a patient’s plan of care. Later this year, AMAC
plans to release a new low-cost telehealth solution that combines vital sign
reporting and personalized questions about the patient’s health. 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. Moving forward, AMAC plans to
integrate its telehealth monitoring and medication management reporting feature
sets to deliver the most robust solution for our customers.
16
About
TBCS
Telephony
Based Communication Services (TBCS)
AMAC’s
TBCS division offers call center solutions that enhance the patient/provider
communication experience. As part of our business development strategy,
management continues to employ advanced telephony technology and information
systems to develop services. In addition to technology, a critical component for
expansion is the Company’s professionally trained call agent
staff. The overall infrastructure has allowed AMAC to expand its
services beyond traditional telephone answering services to provide more
innovative, clinically oriented call center offerings. For the six
months ended June 30, 2010, the TBCS segment accounted for 48% of the Company’s
gross revenues. The Company’s TBCS division is comprised of three
service offerings:
After
Hours Answering Services
AMAC’s
after hours services are classified as essential call center services. 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 conveniences using the OnCall web
portal. Through this portal, clients can also access the account’s
call history, specifications and messages. Enhanced ala carte services including
daytime overflow and broadcast messaging services which have proven to enhance
value and facilitate stronger patient provider relations.
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. Services range from supporting insurance
eligibility verification programs; to enhancing patient self care activities via
post discharge follow-up programs, to 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
PhoneScreen clinical trial solutions service is an integral component of our
overall growth strategy to drive revenue enhancement and expand our visibility.
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.
17
In 2009,
the TBCS division commenced new relationships with two premiere pharmaceutical
companies. We anticipate our pharmaceutical support programs will be utilized to
deliver enhanced patient-centric healthcare communication experiences on behalf
of certain brands. Based upon new demand, we are recruiting for nurses, health
educators and other healthcare professionals that will allow us to provide
additional turn-key solutions for our clients.
The
Company has completed ten acquisitions to date to facilitate growth within the
TBCS division. For the remainder of 2010, the Company will focus on growing this
segment through internally driven sales and marketing efforts and will also
continue to search for additional acquisition opportunities.
Operating
Segments
For the
six months ended June 30, 2010, HSMS accounted for 52% of the Company’s revenue
and TBCS accounted for 48% 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. Management also believes that
while the details of the newly enacted healthcare legislation is awaiting
regulation, the Company’s products and services should be in greater demand over
the next several years.
Components of Statements of
Income by Operating Segment
The
following table shows the components of the Statement of Income for the six and
three months ended June 30, 2010 and 2009.
In
thousands (000’s)
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||||||||||||||||||||
2010
|
%
|
2009
|
%
|
2010
|
%
|
2009
|
%
|
|||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||||||
HSMS
|
5,084 | 52 | % | 5,046 | 53 | % | 10,234 | 52 | % | 10,135 | 52 | % | ||||||||||||||||||||
TBCS
|
4,628 | 48 | % | 4,472 | 47 | % | 9,389 | 48 | % | 9,314 | 48 | % | ||||||||||||||||||||
Total
Revenues
|
9,712 | 100 | % | 9,518 | 100 | % | 19,623 | 100 | % | 19,449 | 100 | % | ||||||||||||||||||||
Cost
of Services and Goods Sold
|
||||||||||||||||||||||||||||||||
HSMS
|
2,058 | 40 | % | 2,083 | 41 | % | 4,067 | 40 | % | 4,286 | 42 | % | ||||||||||||||||||||
TBCS
|
2,465 | 53 | % | 2,464 | 55 | % | 4,979 | 53 | % | 4,899 | 53 | % | ||||||||||||||||||||
Total
Cost of Services and Goods Sold
|
4,523 | 47 | % | 4,547 | 48 | % | 9,046 | 46 | % | 9,185 | 47 | % | ||||||||||||||||||||
Gross
Profit
|
||||||||||||||||||||||||||||||||
HSMS
|
3,026 | 60 | % | 2,963 | 59 | % | 6,167 | 60 | % | 5,849 | 58 | % | ||||||||||||||||||||
TBCS
|
2,163 | 47 | % | 2,008 | 45 | % | 4,410 | 47 | % | 4,415 | 47 | % | ||||||||||||||||||||
Total
Gross Profit
|
5,189 | 53 | % | 4,971 | 52 | % | 10,577 | 54 | % | 10,264 | 53 | % | ||||||||||||||||||||
Selling,
General & Administrative
|
3,857 | 40 | % | 3,941 | 41 | % | 7,765 | 40 | % | 7,993 | 41 | % | ||||||||||||||||||||
Interest
Expense
|
14 | - | % | 21 | - | % | 26 | - | % | 44 | - | % | ||||||||||||||||||||
Equity
in net loss from investment in limited liability
company
|
116 | 1 | % | - | - | 116 | 1 | % | - | - | ||||||||||||||||||||||
Other
Income
|
(30 | ) | - | % | (22 | ) | - | % | (59 | ) | - | % | (116 | ) | (1 | )% | ||||||||||||||||
Income
before Income Taxes
|
1,232 | 13 | % | 1,031 | 11 | % | 2,729 | 14 | % | 2,343 | 12 | % | ||||||||||||||||||||
Provision
for Income Taxes
|
509 | 423 | 1,119 | 961 | ||||||||||||||||||||||||||||
Net
Income
|
723 | 608 | 1,610 | 1,382 |
18
Results of
Operations:
The
Company has two distinct operating business segments, which are HSMS and
TBCS.
Three Months Ended June 30,
2010 Compared to Three Months Ended June 30, 2009
Revenues:
HSMS
Revenues,
which consist primarily of monthly rental revenues, increased approximately
$38,000, or 1%, for the three months ended June 30, 2010 as compared to the same
period in 2009. The increase is primarily attributed to the following
factors:
|
§
|
The
Company experienced revenue growth in its PERS business to business
service of approximately $144,000 primarily from its existing long-tem
care programs as well as execution of new agreements. This
increase in service revenue was partially offset by a decrease of
approximately $132,000 in service revenue from a managed care organization
as a result of State funding being cancelled under their
program. Nevertheless, the Company was able to maintain many of
the existing subscribers who were associated with this organization at
reduced rates.
|
|
§
|
The
Company continued to realize increased revenue from its agreement with
Walgreen to provide the Company’s PERS product under the Walgreen brand
name directly to the consumers. The revenue increase from this
program accounted for approximately $51,000 during the three months ended
June 30, 2010 as compared to the same period in 2009. Commencing
in the third quarter of 2010, the Company plans to launch an advertising
campaign under the Walgreen brand name to generate increased revenue from
this program. The Company entered into another similar
private label program with Apria Healthcare during 2009 and continues to
pursue other opportunities within this area as the Company believes
private label marketing channels facilitate greater revenue
growth.
|
19
|
§
|
In
2009, the Company commercialized its MedSmart medication and management
system and for the three months ended June 30, 2010, the Company generated
approximately $24,000 of increased product sales as compared to the same
period in 2009. The Company plans to launch an aggressive
advertising campaign to promote its MedSmart medication and management
system commencing in the second half of 2010 and as a result anticipates
increased revenue being generated from this
product.
|
These
increases in service and product sales revenue were partially offset by a
decrease in product sales of its enhanced senior living products of
approximately $28,000 as a result of the housing and credit crisis encountered
in the economy.
TBCS
The
increase in revenues of approximately $156,000, or 3%, for the three months
ended June 30, 2010 as compared to the same period in 2009 was primarily due
to:
|
§
|
The
Company realized an increase in revenue within its non-traditional
day-time service offering of approximately $433,000 for the three months
ended June 30, 2010 as compared to the same period in prior year primarily
due to certain hospital organizations expanding their services with
us. In addition to a recently executed agreement with a new
hospital organization and through further service expansion from existing
hospital solution customers, the Company anticipates it will continue to
realize growth in this area throughout 2010 and into
2011.
|
This
increase in revenue was partially offset by a decrease in revenue from its
traditional after hours service of approximately $335,000 for the three months
ended June 30, 2010 as compared to the same period in prior year due to customer
attrition. The customer attrition was primarily the result of the
general economic conditions and certain service issues whereby certain customers
moved their service in-house or to other alternatives. The Company
has been performing certain re-structuring and re-organizational procedures and
strategies to reduce and stabilize the attrition.
Additionally,
in the second quarter of 2010, the Company executed agreements with a customer
relating to pharmaceutical support service projects. The Company realized
approximately $62,000 of revenue in the second quarter of 2010 from one of the
projects which commenced in June 2010. As a result of these agreements,
increased revenue within the pharmaceutical support area is anticipated in the
third quarter of 2010.
20
Costs Related to Services
and Goods Sold:
HSMS
Costs
related to services and goods sold decreased by approximately $25,000 for the
three months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 1%, primarily due to the following:
|
§
|
The
Company recorded a decrease in depreciation expense by approximately
$31,000 primarily as a result of the Company purchasing its PERS equipment
at reduced prices through an alternative supplier as well as purchasing
less PERS equipment as compared to prior
years.
|
TBCS
Costs
related to services and goods sold increased by approximately $1,000 for the
three months ended June 30, 2010 as compared to the same period in 2009, an
increase of less than 1%, primarily due to the following:
|
§
|
The
Company recognized an increase in payroll and related expenses associated
with non-traditional after-hours service of approximately $122,000 during
the three months ended June 30, 2010 primarily due to a corresponding
increase in revenue in this area. As the Company continues to grow
revenues in this area, it will continue closely monitor the personnel
requirements to perform these services effectively. The Company
also incurred increased payroll with respect to account programming which
was partially offset by a decrease in the payroll associated with the
traditional day time service.
|
This
increase was partially offset by a decrease in communication expense of
approximately $57,000 which primarily due to the Company performing a detail
analysis with respect to its Pager services which resulted in reduced
costs. In addition, TBCS recorded a decrease in rent expense of
approximately $25,000 during the second quarter of 2010 as compared to the same
period in the prior year as a result of the TBCS allocating a portion of its
rent expense to the HSMS division. In the last quarter of 2009,
the Company relocated the HSMS Customer Service and Emergency Response Center
(“ERC”) employees to floor space within the TBCS rented space. The
space previously occupied by the HSMS employees was sublet to an independent
third party.
Selling, General and
Administrative Expenses:
Selling,
general and administrative expenses decreased by approximately $84,000 for the
three months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 2%. The decrease is primarily attributable to the
following:
21
|
§
|
The
Company realized a decrease in consulting expense of approximately $98,000
during the second quarter of 2010 as compared to the same period in
2009. This was primarily as a result of the Company incurring
consulting expense relating to the upgrade of existing websites and
accounting system as well as utilizing sales and public relation
consulting firms in prior year.
|
|
§
|
The
Company recorded a decrease in amortization expense of approximately
$36,000 during the second quarter of 2010 as compared to the same period
in 2009 primarily due to certain intangible assets associated with
previous telephone answering service acquisitions and a license agreement
being fully amortized.
|
|
§
|
These
decreases were partially offset by an increase in sales and marketing
salaries of approximately $84,000 during the second quarter of 2010 as
compared to the same period in 2009 primarily due to the Company expanding
its sales and marketing team during 2010 in an effort to facilitate sales
growth.
|
There
were other decreases in selling, general and administrative expenses which arose
out of the normal course of business such as repairs and maintenance as well as
research and development expense which were partially offset by increases in
advertising and convention expenses. Commencing
in the third quarter of 2010, the Company plans to launch an advertising
campaign under the PERS and MedSmart products and anticipates that advertising
expense will increase significantly in the second half of 2010 and into
2011.
Interest
Expense:
Interest
expense for the three months ended June 30, 2010 and 2009 was approximately
$14,000 and $21,000, respectively. The decrease of $7,000 was as a
result of the Company’s loan balance being less in the current year than in
the prior year primarily due to the Company continuing to pay down its term
loan. The Company obtained an additional loan in May 2010 for the
partial funding of the investment in a limited liability company and as a result
interest expense is expected to increase.
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
June 30, 2010 of approximately $116,000 was related to the Company’s investment
in Lifecomm LLC in May 2010 which represents the Company’s share of research and
development cost as well as other selling, general and administrative expenses
incurred for the development of the next generation mobile PERS for the
quarter. The
Company anticipates it will continue to incur losses, at an increased level,
over the next twelve to eighteen months, at which time it is anticipated that
the next generation mobile PERS will be completed and
commercialized.
Other
Income:
Other
income for the three months ended June 30, 2010 and 2009 was approximately
$30,000 and $22,000, respectively, which primarily consists of miscellaneous
non-operational income.
22
Income Before Provision for
Income Taxes:
The
Company’s income before provision for income taxes for the three months ended
June 30, 2010 was approximately $1,232,000 as compared to $1,031,000 for the
same period in 2009. The increase of $201,000 for the three months ended June
30, 2010 primarily resulted from an increase in the Company's revenue as well as
a decrease in the Company’s costs related to services and product sales,
selling, general and administrative costs and interest expense which was
partially offset by the equity in net loss from investment in limited liability
company.
Six Months Ended June 30,
2010 Compared to Six Months Ended June 30, 2009
Revenues:
HSMS
Revenues,
which consist primarily of monthly rental revenues, increased approximately
$99,000, or 1%, for the six months ended June 30, 2010 as compared to the same
period in 2009. The increase is primarily attributed to the following
factors:
|
§
|
The
Company experiencing revenue growth in its PERS business to business
service of approximately $339,000 primarily from its existing third party
reimbursement and long-term care programs as well as execution of new
agreements. This increase in service revenue was primarily
partially offset by a decrease of approximately $267,000 in service
revenue from a managed care organization as a result of State funding
being cancelled under their program. Nevertheless, the Company
was able to maintain many of the existing subscribers who were associated
with this organization at reduced
rates.
|
|
§
|
The
Company continued to realize increased revenue from its agreement with
Walgreen to provide the Company’s PERS product under the Walgreen brand
name directly to the consumers. The revenue increase from this
program accounted for approximately $113,000 during the six months ended
June 30, 2010 as compared to the same period in 2009. Commencing
in the third quarter of 2010, the Company plans to launch an advertising
campaign under the Walgreen brand name to generate increased revenue from
this program. The Company entered into another similar
private label program with Apria Healthcare during 2009 and continues to
pursue other opportunities within this area as the Company believes
private label marketing channels facilitate greater revenue
growth.
|
|
§
|
In
2009, the Company commercialized its MedSmart medication and management
system and for the six months ended June 30, 2010, the Company generated
approximately $62,000 of increased product sales as compared to the same
period in 2009. The Company plans to launch an aggressive
advertising campaign to promote its MedSmart medication and management
system, commencing in the second half of 2010 and as a result anticipates
increased revenue being generated from this
product
|
23
These
increases in service and product revenue were partially offset by a
decrease in product sales of its enhanced senior living products of
approximately $126,000 as a result of the housing and credit crisis encountered
in the economy.
TBCS
The
increase in revenues of approximately $75,000, or 1%, for the six months ended
June 30, 2010 as compared to the same period in 2009 was primarily due
to:
|
§
|
The
Company realized an increase in revenue within its non-traditional
day-time service offering of approximately $753,000 for the six months
ended June 30, 2010 as compared to the same period in the prior year
primarily due to certain hospital organizations expanding their services
with us. In addition to a recently executed agreement with a
hospital organization, the Company anticipates further service expansion
from the existing hospital solution customers throughout 2010 and into
2011.
|
This
increase in revenue was partially offset by a decrease in revenue from its
traditional after hours service of approximately $554,000 for the six months
ended June 30, 2010 as compared to the same period in the prior year due to
customer attrition. The customer attrition was primarily the result of the
general economic conditions and certain service issues whereby certain customers
moved their service in-house or to other alternatives. The Company
has been performing certain re-structuring and re-organizational procedures and
strategies to reduce and stabilize the attrition. In addition, the
Company was awarded a one-time project from a State program in the prior year
whereby the Company generated approximately $119,000 in revenue which the
Company did not perform in the current year.
Additionally,
in the second quarter of 2010, the Company executed agreements with a customer
relating to pharmaceutical support services projects. The Company realized
approximately $62,000 of revenue in the second quarter of 2010 from one of the
projects which commenced in June 2010. As a result of these agreements,
increased revenue within the pharmaceutical support area is anticipated in the
third quarter of 2010.
Costs Related to Services
and Goods Sold:
HSMS
Costs
related to services and goods sold decreased by approximately $219,000 for the
six months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 5%, primarily due to the following:
|
§
|
The
Company recorded a decrease in depreciation expense by approximately
$85,000 primarily as a result of the Company purchasing its PERS equipment
at reduced prices through an alternative supplier as well as purchasing
less PERS equipment as compared to prior
years.
|
24
|
·
|
The
Company recognized a decrease in product costs of approximately $31,000
primarily due to a corresponding reduction in sales of enhanced senior
living products. This decrease in cost of products sold was
partially offset by an increase in cost of products sold related to
MedSmart medication and management systems which was commercialized in
2009.
|
|
·
|
The
Company realized a decrease of approximately $57,000 in costs primarily
related to testing, repairs and upgrades associated with the Company’s
PERS and MedSmart devices and associated
components.
|
TBCS:
Costs
related to services increased by approximately $80,000 for the six months ended
June 30, 2010 as compared to the same period in 2009, an increase of 2%,
primarily due to the following:
|
§
|
The
Company recognized an increase in payroll and related expenses associated
with non-traditional after hours service of approximately $196,000 during
the six months ended June 30, 2010 primarily due to a corresponding
increase in revenue in this area in 2010 as compared to the same period in
prior year. As the Company continues to grow in this area, we
will continue closely monitor the personnel requirements to perform these
services effectively. The Company also incurred increased
payroll with respect to account programming which was partially offset by
a decrease in the payroll associated with the traditional day time
service.
|
This
increase was partially offset by a decrease in communication expense of
approximately $72,000 which primarily due to the Company performing a detail
analysis with respect to its Pager services which resulted in reduced
costs. In addition, the TBCS division recorded a decrease in rent
expense of approximately $50,000 during the first half of 2010 as compared to
the same period in the prior year as a result of the TBCS allocating a portion
of its rent expense to the HSMS division. In the last quarter
of 2009, the Company relocated the HSMS Customer Service and Emergency Response
Center (“ERC”) employees to floor space within the TBCS rented
space. The space previously occupied by the HSMS employees was sublet
to an independent third party.
Selling, General and
Administrative Expenses:
Selling,
general and administrative expenses decreased by approximately $228,000 for the
six months ended June 30, 2010 as compared to the same period in 2009, a
decrease of 3%. The decrease is primarily attributable to the
following:
25
|
§
|
The
Company realized a decrease in consulting expense of approximately
$217,000 for the first six months of 2010 as compared to the same period
in 2009. This was primarily as a result of the Company
incurring consulting expense relating to the upgrade of existing websites
and accounting system as well as utilizing sales and public relation
consulting firms in prior year.
|
|
§
|
The
Company recognized a decrease in commission expense of approximately
$86,000 for the first six months of 2010 as compared to the same period in
2009 primarily due to less commission related referrals incurred in 2010
as compared to prior year.
|
|
§
|
The
Company recorded a decrease in amortization expense of approximately
$118,000 for the first six months of 2010 as compared to the same period
in 2009 primarily due to certain intangible assets associated with
previous telephone answering service acquisitions and a license agreement
being fully amortized.
|
|
§
|
The
Company recorded a decrease in research and development expense of
approximately $121,000 primarily as a result of the Company incurring
charges relating to the research and development with respect to its
MedSmart medication and management system during 2009. No such costs were
recorded in 2010 as such research and development work had been completed
in 2009 and MedSmart has been
commercialized.
|
|
§
|
These
decreases were partially offset by an increase in sales and marketing
salaries of approximately $270,000 during the first six months of 2010 as
compared to the same period in 2009 primarily due to the Company expanding
its sales and marketing team during 2010 in an effort to facilitate sales
growth.
|
There
were other decreases in selling, general and administrative expenses which arose
out of the normal course of business such as utility expense as well as repair
and maintenance expense which were partially offset by increases in advertising
and convention expenses. Commencing
in the third quarter of 2010, the Company palns to launch an advertising
campaign for its PERS and MedSmart products and anticipates that advertising
expense will increase significantly in the second half of 2010 and into
2011.
Interest
Expense:
Interest
expense for the six months ended June 30, 2010 and 2009 was approximately
$26,000 and $44,000, respectively. The decrease of $18,000 was as a
result of the Company’s loan balance being less in the current year than in the
prior year primarily due to the Company continuing to pay down its term
loan. The Company obtained an additional loan in May 2010 for the
partial funding of the investment in a limited liability company and as a result
interest expense is expected to increase.
Equity in Net Loss from
Investment in Limited Liability Company:
Equity in
net loss from investment in limited liability company for the six months ended
June 30, 2010 of approximately $116,000 was related to the Company’s investment
in Lifecomm LLC in May 2010 which represents the Company’s share of research and
development cost as well as other selling, general and administrative expenses
incurred for the development of the next generation mobile PERS for the six
months ended June 30, 2010. The
Company anticipates it will continue to incur losses, at an increased level,
over the next twelve to eighteen months, at which time it is anticipated that
the next generation mobile PERS will be completed and
commercialized.
26
Other
Income:
Other
income for the six months ended June 30, 2010 and 2009 was approximately $59,000
and $116,000, respectively. The decrease in other income was primarily the
result of the Company receiving approximately $73,000 with respect to a training
incentive from the State of New Mexico for hiring and training employees within
the State and an economic development incentive through the City of Clovis
during the first six months of 2009. These incentives were not
provided for in the first six months of 2010.
Income Before Provision for
Income Taxes:
The
Company’s income before provision for income taxes for the six months ended June
30, 2010 was approximately $2,729,000 as compared to $2,343,000 for the same
period in 2009. The increase of $386,000 for the six months ended June 30, 2010
primarily resulted from an increase in the Company's revenue as well as a
decrease in the Company’s costs related to services and product sales, selling,
general and administrative costs and interest expense which were partially
offset by an increase in equity in net loss from investment in limited liability
company and a decrease in other income.
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) and a $3,000,000 term loan 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.
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. The term
loan which was entered into in March 2006 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.
27
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 the Company’s investment in Lifecomm, as described
in more detail under Part II, Item 5 of this Form 10-Q. 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 consistent
with the previous term loans secured by the Company.
As of
June 30, 2010 and 2009, the Company was in compliance with its financial
covenants in its loan agreement.
The
following table is a summary of contractual obligations as of June 30,
2010:
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)
|
$ | 2,420,000 | $ | 660,000 | $ | 1,360,000 | $ | 400,000 | ||||||||||||
Operating
Leases (b)
|
$ | 7,558,667 | $ | 1,134,098 | $ | 3,029,032 | $ | 1,808,083 | $ | 1,587,454 | ||||||||||
Purchase
Commitments (c)
|
$ | 639,801 | $ | 639,801 | ||||||||||||||||
Interest
Expense (d)
|
$ | 245,196 | $ | 70,081 | $ | 159,503 | $ | 15,612 | ||||||||||||
Total
Contractual Obligations
|
$ | 11,613,664 | $ | 2,503,980 | $ | 5,298,535 | $ | 2,223,695 | $ | 1,587,454 |
(a)
|
–
Debt includes the Company’s aggregate outstanding term loans which mature
in 2011 and 2015.
|
(b)
|
– Operating leases
include rental of facilities at various locations within the United
States. These operating leases include the rental of the
Company’s call center, warehouse and office facilities. These
operating leases have various maturity 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. The leases with these managers expire in December
2012 and December 2014,
respectively.
|
(c)
|
– Purchase commitments
relate to orders for the Company’s traditional PERS system and its
MedSmart pill dispenser.
|
28
(d)
|
–
Interest expense relates to interest on the Company’s revolving credit
line and debt at the Company’s current rate of
interest.
|
The
primary sources of liquidity are cash flows from operating activities. Net
cash provided by operating activities was approximately $3.4 million for the six
months ended June 30, 2010, as compared to approximately $4.6 million for the
same period in 2009. During 2010, the cash provided by operating
activities was primarily from net earnings of approximately $1.6 million and
depreciation and amortization of approximately $1.8 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. During
2009, the cash provided by operating activities was primarily from net earnings
of approximately $1.4 million, depreciation and amortization of approximately
$2.0 million, an increase in accounts payable and accrued expenses of
approximately $0.4 million and a decrease in accounts receivable of
approximately $0.4 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.
Net cash
used in investing activities was approximately $4.5 million for the six months
ended June 30, 2010 as compared to approximately $0.7 million for the same
period in 2009. 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 and
capital expenditures of approximately $0.4 million. The primary
component of net cash used in investing activities in 2009 was capital
expenditures of approximately $.07 million, net of deposits on equipment being
transferred to fixed assets. Capital expenditures for both 2010 and
2009 primarily related to the continued production and purchase of the
traditional PERS systems.
Cash
flows used in financing activities for the six months ended June 30, 2010 were
approximately $0.3 million compared to $1.3 million for the same period in
2009. The components of cash flow used in financing activities in
2010 were the payment of long-term debt of approximately $1.3 million and the
payment of a special dividend, which was declared on December 16, 2009, of
approximately $0.9 million. These financing cash outflow in 2010 were
partially offset by the proceeds from long-term debt of $2.0 million which was
obtained for the purpose of partially funding the investment in a limited
liability company. The primary component of cash flow used in
financing activities in 2009 was the payment of long-term debt of approximately
$1.2 million.
During
the next twelve months, the Company anticipates it will make capital
expenditures of approximately $1.25 – $1.75 million for the production and
purchase of traditional PERS systems, MedSmart medication and management
systems, and telehealth systems, as well as enhancements to its computer
operating systems. This amount is subject to fluctuations based on
customer demand. The Company plans to incur approximately $1.0 - $1.5
million of advertising expense for promotional campaigns related to its PERS and
MedSmart medication and management systems. The Company also
anticipates incurring approximately $0.1 - $0.2 million of costs primarily
relating to research and development of its telehealth products.
29
As of
June 30, 2010, the Company had approximately $4.0 million in cash and the
Company’s working capital was approximately $9.0 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 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 June
30, 2010.
Off-Balance
Sheet Arrangements:
As of
June 30, 2010, 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:
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.
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.
In
September 2009, the Company sublet a portion of its space under its operating
lease 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 and is
subject to annual increases in accordance with the terms of the
agreement. The sublease expires in March 2018.
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 to
acquire a minority interest in the new company, Lifecomm LLC. As part of this
transaction, the Company borrowed $2,000,000 from its bank to partially finance
this transaction.
The
Company recorded a loss from investment in limited liability company of $116,
127 as of June 30, 2010. This represents the Company's share, based
on the equity method, of loss relating to this investment. The loss
primarily relates to research and development as well as other selling general
and administrative fees incurred for the development of the next generation
mobile PERS. As the development continue to progress, the Company
expects it will continue to incur looses at greater levels over the next twelve
to eighteen months, at which time it is anticipated the next generation mobile
PERS will be completed and commercialized.
30
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.
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
Recent
Accounting Pronouncements:
During
the third quarter of 2009, the Company adopted ASC Topic 105, Generally Accepted
Accounting Principles, which establishes the FASB Accounting Standards
Codification (“ASC”) as the sole source of authoritative generally accepted
accounting principles ("GAAP") to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission ("SEC")
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. The codification did not change GAAP but reorganizes
the literature. References for FASB guidance throughout this document have been
updated for the codification.
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 $581,000 as of June 30, 2010, which is equal to 8.7% 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 $67,000. 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
$67,000.
31
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 $160,000 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 $155,000 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 $10,294,281 and
$10,255,983 at June 30, 2010 and December 31, 2009, 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
Stock
based compensation is recorded in accordance with ASC Topic 718 (formerly FASB
Statement No. 123(R), Share-Based Payment), 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.
32
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 $160,000 and $179,000 for the
six months ended June 30, 2010 and 2009, 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 June 30, 2010 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. As of June
30, 2010, we had outstanding debt with an aggregate face amount of approximately
$3,170,000, all of which is variable rate borrowings. As of June 30,
2010, the hypothetical impact of a one percentage point increase in interest
rates related to our outstanding variable rate debt would be to increase annual
interest expense for the remainder of fiscal 2010 by approximately $15,000. 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.
33
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 June 30, 2010 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 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 1A. Risk
Factors.
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,
2009, which was filed on March 31, 2010 with the Securities and Exchange
Commission and the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, which was filed with the Commission on May 17,
2010.
Item
5. Other Information
34
On August
11, 2010, the Company issued a press release announcing its financial results
for the quarter ended June 30, 2010. A copy of such press release is
attached hereto as Exhibit 99.1.
On August
11, 2010, the Company issued a press release announcing guidance for the fiscal
years ending December 31, 2010 and December 31, 2011. A copy of such
press release is attached hereto as Exhibit 99.2.
Also on
August 11, 2010, the Company hosted a conference call and webcast (the "Call")
to discuss its financial results for the quarter ended June 30, 2010, guidance
for fiscal 2010, longer term outlook for 2011, and other business
trends. A copy of the transcript of the Call is attached hereto as
Exhibit 99.3.
In
accordance with General Instruction B.2., the foregoing information is furnished
pursuant to Item 2.02 and Item 8.01 of Form 8-K and shall not be deemed “filed”
for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that Section. The
information disclosed under Item 2.02 and Item 8.01 of Form 8-K shall not be
incorporated by reference into any registration statement or other document
pursuant to the Securities Act of 1933, as amended, except as shall be expressly
set forth by a specific reference in such filing.
On June
29, 2010, the Company entered into Amendment No. 14 and Waiver to the Credit
Agreement, dated as of May 20, 2002, as thereafter amended from time to time, by
and between the Company and JPMorgan Chase Bank, N.A., as successor-in-interest
to The Bank of New York. Under the terms of this amendment, the
term of the revolving credit line under this credit agreement was extended
through June 30, 2013.
Item
6. Exhibits
.
No.
|
Description
|
|
10.1
|
Limited
Liability Company Agreement of Lifecomm LLC (confidential treatment will
be requested for certain portions of this exhibit pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended, which portions have
been omitted and will be filed separately with the Securities and Exchange
Commission)
|
|
10.2
|
Value
Added Reseller Agreement made and entered into as of the 12th day of May,
2010 by and between American Medical Alert Corp. and Lifecomm LLC.
(confidential treatment will be requested for certain portions of this
exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended, which portions have been omitted and will be filed separately
with the Securities and Exchange Commission)
|
|
10.3
|
Amendment
No. 13 and Waiver, dated as of May 12, 2010, to the Credit Agreement,
dated as of May 20, 2002, as thereafter amended from time to time, by and
between American Medical Alert Corp. and JPMorgan Chase Bank, N.A., as
successor-in-interest to The Bank of New
York.
|
35
10.4
|
Amendment
No. 14 and Waiver, dated June 29, 2010, to the Credit Agreement, dated as
of May 20, 2002, as thereafter amended from time to time, by and between
American Medical Alert Corp. and JPMorgan Chase Bank, N.A., as
successor-in-interest to The Bank of New York.
|
|
10.5
|
Waiver,
dated as of July 12, 2010 to the Credit Agreement, dated as of May 20,
2002, as thereafter amended from time to time, by and between American
Medical Alert Corp. and JPMorgan Chase Bank, N.A., as
successor-in-interest to The Bank of New York.
|
|
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
|
|
99.1
|
Press
release of American Medical Alert Corp., issued on August 11,
2010.
|
|
99.2
|
Press
release of American Medical Alert Corp., issued on August 11,
2010.
|
|
99.3
|
|
Transcript
of conference call and webcast held on August 11,
2010.
|
36
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:
August 16, 2010
|
By:
|
/s/ Jack
Rhian
|
Name:
Jack Rhian
|
||
Title:
Chief Executive Officer and
President
|
||
By:
|
/s/ Richard
Rallo
|
|
Name:
Richard Rallo
|
||
Title:
Chief Financial
Officer
|
37