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Share Name | Share Symbol | Market | Type |
---|---|---|---|
American Medical Alert Corp. (MM) | NASDAQ:AMAC | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 8.56 | 0 | 01:00:00 |
x |
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
o |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
AMERICAN
MEDICAL ALERT CORP.
|
(Name
of Small Business Issuer in Its
Charter)
|
New
York
|
11-2571221
|
|
(State
or Other Jurisdiction of
|
(I.R.S.Employer
|
|
Incorporation
or Organization)
|
Identification
No.)
|
3265
Lawson Boulevard, Oceanside, New York
|
11572
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(516)
536-5850
|
(Issuer's
Telephone Number, Including Area
Code)
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
|
Common
Stock, $.01 per share
|
NASDAQ
|
Item 1. |
BUSINESS
|
·
|
Long
Island City, New York
|
·
|
Audubon,
New Jersey
|
·
|
Port
Jefferson, New York
|
· |
Newington,
Connecticut
|
· |
Springfield,
Massachusetts
|
· |
Cranston,
Rhode Island
|
· |
Rockville,
Maryland
|
· |
Chicago
,
Illinois
|
· |
Clovis,
New Mexico
|
Item 1A. |
RISK
FACTORS
|
Item 1B. |
UNRESOLVED
STAFF COMMENTS
|
Item 2. |
PROPERTIES
|
Item 3. |
LEGAL
PROCEEDINGS.
|
Item 4. |
SUBMISSION
OF MATTERS TO A VOTE OF
SECURITY-HOLDERS.
|
Item
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
High
|
Low
|
|||||||||
2007
|
First Quarter
|
$
|
6.74
|
5.83
|
||||||
|
Second Quarter
|
8.16
|
5.70
|
|||||||
|
Third Quarter
|
9.94
|
8.43
|
|||||||
|
Fourth Quarter
|
9.73
|
6.79
|
|||||||
|
||||||||||
2006
|
First Quarter
|
$
|
6.31
|
5.31
|
||||||
|
Second Quarter
|
7.29
|
5.95
|
|||||||
|
Third Quarter
|
6.16
|
4.95
|
|||||||
|
Fourth Quarter
|
6.90
|
5.56
|
Item 6. |
SELECTED
FINANCIAL DATA
|
Years
Ended December 31,
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||
Selected
Statement of Operations Data
|
||||||||||||||||
Revenue:
|
||||||||||||||||
Service
|
$
|
35,054,093
|
$
|
30,406,636
|
$
|
22,176,799
|
$
|
18,852,925
|
$
|
16,192,712
|
||||||
Product
|
591,172
|
387,752
|
270,843
|
275,078
|
375,640
|
|||||||||||
Total
Revenue
|
$
|
35,645,265
|
$
|
30,794,388
|
$
|
22,447,642
|
$
|
19,128,003
|
$
|
16,568,352
|
||||||
Net
Income
|
$
|
1,514,232
|
$
|
1,262,529
|
$
|
932,436
|
$
|
410,606
|
$
|
570,700
|
||||||
Net
Income Per Share - Basic
|
$
|
0.16
|
$
|
0.14
|
$
|
0.11
|
$
|
0.05
|
$
|
0.08
|
||||||
Net
Income Per Share - Diluted
|
$
|
0.16
|
$
|
0.13
|
$
|
0.10
|
$
|
0.05
|
$
|
0.07
|
||||||
Weighted
Average Number of Common Shares:
|
||||||||||||||||
Basic
|
9,276,712
|
8,948,328
|
8,452,435
|
7,903,267
|
7,455,038
|
|||||||||||
Diluted
|
9,732,386
|
9,386,142
|
9,124,905
|
8,478,824
|
7,678,252
|
|||||||||||
Selected
Balance Sheet Data as of Dec 31
|
||||||||||||||||
Total
Assets
|
$
|
34,953,221
|
$
|
32,607,745
|
$
|
26,595,336
|
$
|
19,501,016
|
$
|
17,936,580
|
||||||
Long-term
Liabilities
|
$
|
6,211,663
|
$
|
7,233,964
|
$
|
3,715,626
|
$
|
1,887,416
|
$
|
2,079,363
|
||||||
Shareholders’
Equity
|
$
|
23,670,665
|
$
|
21,345,190
|
$
|
18,383,926
|
$
|
15,277,899
|
$
|
13,707,287
|
Item 7. |
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Year
Ended Dec 31,
|
|||||||||||||||||||
In thousands (000’s)
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
|||||||||||||
Revenues
|
|||||||||||||||||||
HSMS
|
17,353
|
49
|
%
|
16,045
|
52
|
%
|
14,978
|
67
|
%
|
||||||||||
TBCS
|
18,292
|
51
|
%
|
14,749
|
48
|
%
|
7,470
|
33
|
%
|
||||||||||
Total
Revenues
|
35,645
|
100
|
%
|
30,794
|
100
|
%
|
22,448
|
100
|
%
|
||||||||||
Cost
of Services & Goods Sold
|
|||||||||||||||||||
HSMS
|
7,736
|
45
|
%
|
7,355
|
46
|
%
|
6,981
|
47
|
%
|
||||||||||
TBCS
|
9,733
|
53
|
%
|
7,491
|
51
|
%
|
3,991
|
53
|
%
|
||||||||||
Total
Cost of Services & Goods Sold
|
17,469
|
49
|
%
|
14,846
|
48
|
%
|
10,972
|
49
|
%
|
||||||||||
Gross
Profit
|
|||||||||||||||||||
HSMS
|
9,617
|
55
|
%
|
8,690
|
54
|
%
|
7,997
|
53
|
%
|
||||||||||
TBCS
|
8,559
|
47
|
%
|
7,258
|
49
|
%
|
3,479
|
47
|
%
|
||||||||||
Total
Gross Profit
|
18,176
|
51
|
%
|
15,948
|
52
|
%
|
11,476
|
51
|
%
|
||||||||||
Selling,
General & Administrative
|
16,125
|
45
|
%
|
14,001
|
46
|
%
|
10,098
|
45
|
%
|
||||||||||
Interest
Expense
|
481
|
1
|
%
|
394
|
1
|
%
|
53
|
0
|
%
|
||||||||||
Other
Income
|
(1,090
|
)
|
(3
|
)%
|
(578
|
)
|
(2
|
)%
|
(473
|
)
|
(2
|
)%
|
|||||||
Income
before Income Taxes
|
2,660
|
7
|
%
|
2,132
|
7
|
%
|
1,798
|
8
|
%
|
||||||||||
Provision
for Income Taxes
|
1,146
|
869
|
866
|
||||||||||||||||
Net
Income
|
1,514
|
1,263
|
932
|
·
|
In
2007, the Company entered into an exclusive arrangement with Walgreen
to
provide the Company’s PERS product which it believes will positively
impact the revenues generated from the HSMS services being provided
directly to the consumer. In 2007, the Company recognized revenue
of
$367,000 from this arrangement. The Company anticipates they will
continue
to see increased growth under this arrangement with
Walgreen.
|
·
|
In
late 2006, the Company executed a new agreement with a customer whereby
PERS were placed online. In 2007, the subscriber base associated
with this
agreement grew and accounted for an approximate $340,000 increase
in
revenue during 2007 as compared to the same period in the prior year.
The
Company anticipates that the growth from this new agreement will
continue
into 2008.
|
·
|
The
Company continues to experience growth primarily in its existing
customer
base. The largest growth in 2007 continued to be as a result of an
agreement with a west coast managed care organization, which was
executed
in November 2003. The number of Personal Emergency Response Systems
(“PERS”) in service under this agreement has more than doubled since its
inception and has resulted in approximately $270,000 more revenue
in 2007
as compared to the same period in 2006. The growth within this program
has
stabilized and the Company anticipates the number of subscribers
under
this agreement in 2008 to remain consistent with those achieved at
the end
of 2007.
|
·
|
In
the second half of 2006, the Company increased its product sales
to
retirement communities. During 2006, the Company developed new software
and is now selling this in conjunction with hardware to retirement
communities for the purposes of monitoring their residents. This
resulted
in approximately a $206,000 increase in product sales in 2007 as
compared
to the same period in 2006. The Company anticipates it will continue
to
see growth from these product sales in
2008.
|
·
|
During
2006, the Company purchased the assets of two separate telephone
answering
services businesses which resulted in additional revenue for 2007,
as
compared to the same period in 2006, of approximately $3,300,000.
The
acquisitions were as follows:
|
o
|
In
March 2006, the Company purchased the assets of MD OnCall and Capitol
Medical Bureau (collectively, “MD OnCall”). As a result of this
acquisition, the Company realized approximately $721,000 of additional
revenue in 2007 as compared to the same period in 2006. The Company
completed this acquisition to facilitate its expansion into the Northeast
geographical area.
|
o
|
In
December 2006, the Company purchased the assets of
American
Mediconnect, Inc. and PhoneScreen, Inc.
As
a result of this acquisition, the Company realized approximately
$2,579,000 of revenue in 2007. The Company completed this acquisition
to
further facilitate the expansion of its telephone answering services
businesses and allow it to increase its market base outside the Northeast
geographical area.
|
·
|
During
2006 and into 2007, the Company has increased the number of personnel
working in its Emergency Response Center (“ERC”) department which
accounted for increased costs of approximately $248,000 in 2007 as
compared to the same period in 2006. The Company hired additional
personnel due to the increased volume of calls which is directly
correlated to the increased subscriber base, as well as to prepare
for the
rollout of the Walgreen’s Ready Response™ Program, which is now in
progress. In 2008, the Company anticipates the ratio of ERC operators
to
the aggregate number of signals received will
decrease.
|
·
|
In
the second quarter of 2006, the Company relocated its fulfillment
and
warehouse distribution center into Long Island City, New York from
Mt.
Laurel, New Jersey. As part of this relocation process, the Company
also
took the upgrade and repairs of its PERS units in-house, which required
the Company to hire additional employees, including a Manager of
Engineering and Fulfillment. These items accounted for approximately
$106,000 of increased costs as compared to the same period in the
prior
year, which were offset by the reduction in costs related to repairs
and
upgrades of approximately $100,000 which were previously performed
by a
third party vendor.
|
·
|
During
the third quarter the Company recorded a write down of fixed assets
of its
PERS Buddy device in the approximate amount of $111,000. The Company
determined that the PERS Buddy would only be used on a minimal basis
due
to matters regarding product and warranty disputes relating to some
of the
boards associated with these
devices.
|
·
|
The
Company has incurred additional depreciation expense of approximately
$219,000 primarily due to the increased purchases made during the
latter
part of 2006 and 2007. The increased purchases are a result of the
increase in the number of subscribers
online.
|
·
|
During
2006, as discussed above, the Company purchased the assets of two
separate
telephone answering service businesses which resulted in additional
costs
related to services for 2007 of approximately $1,924,000. The increased
costs related to services in regard to the acquisitions were as follows:
MD OnCall approximated $419,000 and AMI approximated
$1,505,000.
|
·
|
In
July 2007 the Company opened a new call center. During the third
quarter
the Company hired call center operators which resulted in payroll
and
related payroll costs of approximately $228,000. The Company plans
to
continue to expand this call center throughout 2008. In connection
with
opening this new call center, the Company is eligible to receive
certain
incentives going forward which will help to offset some of these
costs.
|
·
|
During
the latter part of 2006 and into 2007, the Company reduced the number
of
telephone answering service operators at its existing call centers.
This
has been accomplished through overall efficiencies which are being
realized by the Company throughout its TBCS segment. Additionally,
the
Company is now utilizing its newly established call center and has
allocated some of the call volume to this location. This accounted
for a
reduction in costs of approximately $176,000 at its existing call
centers
for the period ended December 31, 2007 as compared to the same period
in
2006. As the Company continues to realize these operational efficiencies
and utilize its new call center, it will continue to evaluate personnel
levels and continue to evaluate the consolidation strategy of its
communications infrastructure, yielding greater per seat through-put
with
an associated reduction in overall labor
expense.
|
·
|
The
Company incurred approximately $1,599,000 of additional selling,
general
and administrative expenses in 2007, as compared to the same period
in
2006, as a result of the acquisition of two telephone answering service
businesses during 2006. The more significant expenses relate to salaries
and related payroll taxes, commissions expense and amortization relating
to customer lists and non-compete
agreements.
|
·
|
In
conjunction with various new programs and agreements, the Company
has
hired additional marketing and sales personnel, increased its advertising
and incurred additional travel expense. As a result of this, the
Company
recorded an increase in this expense of approximately $334,000. In
an
effort to grow and expand these programs, the Company anticipates
to incur
increased marketing, advertising and travel expenses in 2008.
|
·
|
In
2007, the Company incurred approximately $258,000 of additional costs
as
compared to the same period in 2006. The majority of the increased
costs
related to the Company incurring expenses relating to the evaluation
of
its internal controls under Sarbanes Oxley Section 404 and tax related
work. The Company anticipates the fees relating to this matter will
be
less in 2008.
|
·
|
The
Company purchased subscriber accounts utilizing PERS from a third
party in
December 2006. As part of this transaction, it was agreed that the
third
party would continue to manage and service these accounts on behalf
of the
Company. As a result of this arrangement, the Company paid an
administrative fee to this third party amounting to approximately
$128,000.
|
·
|
The
Company continues to experience growth primarily in its existing
customer
base. The largest growth continues to be as a result of an agreement
with
a west coast managed care organization, which was executed in November
2003. The number of Personal Emergency Response Systems (“PERS”) in
service under this agreement has more than doubled since its inception
and
has resulted in approximately $335,000 more revenue in 2006 as compared
to
2005. The Company anticipates that the growth in this account will
continue through 2007.
|
·
|
In
2004, the Company initiated and executed a new agreement with a home
healthcare agency whereby PERS were placed online. Since inception,
this
account has grown to approximately 1,800 subscribers and accounted
for an
approximate $105,000 increase in revenue during 2006 as compared
to the
prior year.
|
·
|
In
the second half of 2006, the Company increased its product sales
to
retirement communities. During 2006, the Company developed new software
and is now selling this in conjunction with hardware to retirement
communities for the purpose of monitoring their residents. This resulted
in approximately a $75,000 increase in product sales in 2006 as compared
to the prior year. The Company anticipates that in 2007 it will continue
to grow its revenue with the sale of these products to retirement
communities.
|
·
|
During
2006 and the fourth quarter of 2005, the Company purchased the assets
of
four separate telephone answering service businesses which resulted
in
additional revenue for the year ended December 31, 2006, as compared
to
the same period in 2005, of approximately $6,699,000. The acquisitions
were as follows:
|
o
|
In
October 2005, the Company purchased the assets of North Shore Answering
Service (“NSAS”). As a result of this acquisition, the Company realized
approximately $1,540,000 of greater revenue in 2006 as compared to
the
same period in 2005. The Company believes the acquisition of NSAS
will
help facilitate its growth within the Long Island/New York geographical
area.
|
o
|
In
December 2005, the Company purchased the assets of Answer Connecticut,
Inc. (“ACT”). As a result of this acquisition, the Company realized
approximately $2,830,000 of greater revenue in 2006 as compared to
the
same period in 2005. The Company believes this acquisition will help
facilitate its expansion into the Northeast geographical
area.
|
o
|
In
March 2006, the Company purchased the assets of Capitol Medical,
Inc. and
Rhode Island Medical Bureau (“MD OnCall”). As a result of this
acquisition, the Company realized approximately $2,230,000 of revenue
in
2006. The Company believes this acquisition will further facilitate
its
expansion into the Northeast geographical
area.
|
o
|
In
December 2006, the Company purchased the assets of American Mediconnect,
Inc. and PhoneScreen, Inc. (“AMI”). As a result of this acquisition, the
Company realized approximately $99,000 of revenue in 2006.
|
·
|
The
Company continued to experience revenue growth within its existing
telephone answering service businesses (acquired prior to 2005) which
resulted in approximately $470,000 of increased revenue in 2006,
as
compared to 2005. This growth is primarily due to the execution of
new
agreements with healthcare and hospital organizations as a result
of
daytime communication service offerings. The Company has experienced
strong growth in the daytime communication service offerings and
anticipates that it will continue to grow this business segment with
further expansion into healthcare and hospital organizations. This
growth
was partially offset by a price reduction granted to one of its large
physician based customers.
|
·
|
During
2006, the Company hired a Manager of Engineering and Fulfillment
at a rate
of $95,000 per annum. In addition, during the second quarter of 2006,
the
Company moved its fulfillment and warehouse distribution center from
Mt.
Laurel, New Jersey into its Long Island City facility. As part of
this
process, the Company hired personnel for the LIC location while winding
down operations in Mt. Laurel and, therefore incurred additional
payroll
costs while transitioning this change in location. As part of this
transition, the Company also took the upgrade and repairs of its
PERS
units in-house, which required the Company to hire additional employees.
These items accounted for approximately $210,000 of increased costs
as
compared to the same period in the prior year. The Company believes
that
it will realize cost efficiencies as a result of it overall consolidation
initiative.
|
·
|
The
relocation of the Company’s fulfillment and warehouse distribution center
into Long Island City resulted in increased rent expense due to the
Company leasing more space, paying a higher rate per square foot
for rent
as well as incurring overlapping rents while transitioning from one
facility to the other. The increase in expense, as compared to 2005,
was
approximately $150,000. As part of this move, the Company did transition
the upgrades and repairs performed by outside third parties to in-house.
The Company believes this relocation was necessary as part of its
strategy
to consolidate some of its facilities relating to the HSMS
segment.
|
·
|
During
2005 and into 2006, the Company has increased the number of personnel
working in its Emergency Response Center (“ERC”) department which
accounted for increased costs of approximately $145,000 in 2006 as
compared to the same period in 2005. The Company hired additional
personnel due to the increased volume of calls which is directly
correlated to the increased subscriber base. The Company believes
it
currently has the appropriate number of personnel to handle the increased
call volume.
|
·
|
With
the continued increase in business in its existing telephone answering
services (acquired prior to 2005), specifically in its daytime answering
service, the Company continued to hire additional telephone answering
service supervisors and operators in its Long Island City, New York
location, especially in the second half of 2005 as a result of the
Company
executing agreements with hospital organizations throughout 2005
and into
2006. In addition, in July 2005 the Company initiated a pay rate
increase
to all its supervisors and operators in an effort to stabilize employee
tenure with the Company. These personnel additions along with general
pay
rate increases and associated payroll taxes has accounted for
approximately $430,000 of increased costs as compared to the same
period
in 2005. As the Company continues to grow its customer base and revenues,
it will continue to evaluate personnel levels and determine if additional
personnel are necessary.
|
·
|
During
2006 and the fourth quarter of 2005, as discussed above, the Company
purchased the assets of four separate telephone answering service
businesses which resulted in additional costs related to sales for
the
year ended December 31, 2006, as compared to the same period in 2005
of
approximately $2,685,000. The costs related to sales in regard to
the
acquisitions were as follows: NSAS - $542,000; ACT - $1,148,000,
MD OnCall
- $952,000 and AMI - $43,000.
|
·
|
The
Company incurred approximately $2,761,000 of additional selling,
general
and administrative expenses, as compared to the same period in 2005,
as a
result of the acquisition of four telephone answering service businesses
during 2006 and the fourth quarter of 2005. The largest expenses
relate to
salaries and related payroll taxes and amortization relating to customer
lists and non-compete agreements.
|
·
|
During
the second quarter of 2006, the Company relocated its accounting
department from its Oceanside, New York location to its Long Island
City,
New York facility. As part of this process, the Company hired personnel
for the LIC location while winding down operations in Oceanside and,
therefore incurred additional payroll costs while transitioning this
change in location. These items along with general rate increases
for
existing personnel accounted for approximately $154,000 of increased
payroll and associated payroll tax costs as compared to the same
period in
the prior year. The Company believes the hiring of these employees
was
necessary to handle the increased
workload.
|
·
|
In
the third quarter of 2006, the Company expanded its health benefit
options
to its employees. As a result of these expanded benefits, the Company
experienced an increase in the number of employees participating
in these
plans. This, along with increased benefits costs, resulted in
approximately a $136,000 increase as compared to the same period
in the
prior year. Although the Company believed this would reduce employee
turnover, it has only had a minimal impact on the rate of employee
turnover. The Company will continue to monitor this rate of turnover
and
evaluate its health benefit offerings.
|
·
|
Certain
executives entered into new employment agreements whereby effective
January 1, 2006 their salaries were increased and they received certain
stock grants. As a result of these new agreements, the Company recorded
approximately $258,000 of additional compensation expense, including
payroll taxes, as compared to the same period in 2005.
|
·
|
The
Company was required to pay additional commissions to sales personnel
of
approximately $197,000 during 2006 as compared to 2005. This is primarily
a result of the Company executing new agreements with healthcare
and
hospital organizations in 2006 in its TBCS
segment.
|
|
Payments Due by Period
|
|||||||||||||||
Contractual Obligations
|
Total
|
Less than 1
year
|
1-3 years
|
4-5 years
|
After 5 years
|
|||||||||||
Revolving
Credit Line
|
$
|
1,300,000
|
|
$
|
1,300,000
|
|
||||||||||
Debt
(a)
|
$
|
4,808,735
|
$
|
1,414,419
|
$
|
3,394,316
|
||||||||||
Capital
Leases (b)
|
$
|
74,440
|
$
|
42,015
|
$
|
32,425
|
||||||||||
Operating
Leases (c)
|
$
|
8,704,925
|
$
|
1,037,260
|
$
|
2,574,594
|
$
|
1,581,376
|
$
|
3,511,695
|
||||||
Purchase
Commitments (d)
|
$
|
1,129,283
|
$
|
1,129,283
|
||||||||||||
Interest
Expense (e)
|
$
|
561,845
|
$
|
271,816
|
$
|
290,029
|
||||||||||
Acquisition
related Commitment (f)
|
$
|
73,896
|
$
|
73,896
|
||||||||||||
Total
Contractual Obligations
|
$
|
16,653,124
|
$
|
3,968,689
|
$
|
7,591,364
|
$
|
1,581,376
|
$
|
3,511,695
|
(a) |
– Debt
includes the Company’s aggregate outstanding term loans which mature in
2010 and 2011, as well as loans associated with the purchase of
automobiles.
|
(b) |
–
Capital lease obligations related to telephone answering service
equipment. These capital lease obligations expire in the second
quarter of 2009.
|
(c)
|
–
Operating leases include rental of facilities at various locations
within
the United States. These operating leases include the rental of the
Company’s call center, warehouse and the office facilities. These
operating leases have various maturity dates. The Company currently
leases
office space from the Chairman and principal shareholder pursuant
to a
lease. This lease expires in September
2008.
|
(d) |
–
Purchase
commitments relate to orders for the Company’s traditional
PERS.
|
(e) |
-
Interest expense relates to interest on the Company’s revolving credit
line and debt at the Company’s current rate of
interest.
|
(f) |
-
Acquisition related commitment involving payments due based on
collections of the clinical trial business relating to the American
Mediconnect, Inc acquisition in December 2006.
|
Item 7A. |
Quantitative
and Qualitative Disclosure About Market
Risk
|
Item 8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA.
|
Item 9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
ITEM 9A(T). |
CONTROLS
AND PROCEDURES.
|
ITEM 10. |
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Name
|
Age
|
Position
with the Company
|
||
|
|
|||
Howard
M. Siegel
|
74
|
Chairman
of the Board,
Senior
Advisor and Director
|
||
Jack
Rhian
|
53
|
Chief
Executive Officer, President
and
Director
|
||
Frederic
S. Siegel
|
38
|
Executive
Vice President and Director
|
||
Ronald
Levin
|
73
|
Director
|
||
Yacov
Shamash, Ph.D.
|
58
|
Director
|
||
John
S.T. Gallagher
|
76
|
Director
|
||
Gregory
Fortunoff
|
37
|
Director
|
||
Richard
Rallo
|
43
|
Chief
Financial Officer
|
||
Randi
Baldwin
|
39
|
Senior
Vice President – Marketing and Program
Development
|
ITEM 11. |
EXECUTIVE
COMPENSATION
|
· |
base
salary
|
· |
nonperformance-based
stock compensation
|
· |
performance-based
incentive stock compensation
|
·
|
Comparable
salaries of executives of similar positions employed by companies
of
similar size as the Company;
|
·
|
internal
review of the executives' compensation, both individually and relative
to
other officers; and
|
·
|
Past
performance of the executive.
|
·
|
Evaluation
of past individual performance and expected future contribution.
|
·
|
Use
of an outside third party
consultant
|
·
|
Overall
past performance and desired future performance of the Company
|
·
|
Evaluation
of past individual performance and expected future contribution.
|
·
|
A
review of compensation packages with comparable
companies.
|
·
|
Use
of an outside third party
consultant
|
·
|
Overall
past performance and desired future performance of the Company
|
·
|
Evaluation
of past individual performance and expected future contribution.
|
·
|
A
review of compensation packages with comparable
companies.
|
·
|
Use
of an outside third party
consultant
|
·
|
Overall
past performance and desired future performance in the HSMS segment
as
well as the Company
|
·
|
Evaluation
of past individual performance and expected future
contribution.
|
·
|
A
review of compensation packages with comparable
companies.
|
·
|
Use
of an outside third party
consultant
|
·
|
Evaluation
of past individual performance and expected future
contribution.
|
·
|
A
review of compensation packages with comparable
companies.
|
·
|
Use
of an outside third party
consultant
|
Name And Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
(1)
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
|||||||||||||
Howard
Siegel,
|
2007 |
$
|
300,000
|
-
|
-
|
$
|
1,459
|
(2)
|
$
|
301,459
|
|||||||||
Senior
Advisor
|
2006 |
$
|
347,288
|
-
|
-
|
$
|
1,441
|
(2)
|
$
|
348,729
|
|||||||||
2005 |
$
|
330,750
|
$
|
1,296
|
(2)
|
$
|
332,046
|
||||||||||||
Jack
Rhian, President and
|
2007 |
$
|
260,000
|
-
|
$
|
98,935
|
(7) |
$
|
13,558
|
(3)
|
$
|
372,493
|
|||||||
Chief
Executive Officer
|
2006 |
$
|
240,000
|
-
|
$
|
168,000
|
$
|
13,463
|
(3)
|
$
|
421,463
|
||||||||
2005 |
$
|
220,000
|
-
|
$ |
$
|
10,199
|
(3)
|
$
|
230,199
|
||||||||||
Frederic
Siegel, Executive
|
2007 |
$
|
190,000
|
$
|
5,253
|
$
|
86,538
|
$
|
12,046
|
(4)
|
$
|
293,837
|
|||||||
Vice
President
|
2006 |
$
|
200,000
|
-
|
-
|
$
|
12,000
|
(4)
|
$
|
212,000
|
|||||||||
2005 |
$
|
200,000
|
$
|
12,046
|
(4)
|
$
|
212,046
|
||||||||||||
Richard
Rallo,
|
2007 |
$
|
185,000
|
-
|
$
|
41,390
|
$
|
10,708
|
(5)
|
$
|
237,098
|
||||||||
Chief
Financial Officer
|
2006 |
$
|
170,000
|
$
|
5,000
|
$
|
20,000
|
$
|
10,686
|
(5)
|
$
|
205,686
|
|||||||
2005 |
$
|
145,000
|
-
|
$ |
$
|
6,903
|
(5)
|
$
|
151,903
|
||||||||||
Randi
Baldwin, Senior Vice President,
|
2007 |
$
|
141,167
|
$
|
10,100
|
$
|
21,390
|
$
|
9,247
|
(6)
|
$
|
181,904
|
|||||||
Marketing
and Program Development
|
2006 |
$
|
127,500
|
-
|
$
|
7,500
|
$
|
7,200
|
(6)
|
$
|
142,200
|
||||||||
2005 |
$
|
111,458
|
-
|
$
|
7,200
|
(6)
|
$
|
118,658
|
(1) |
The
amounts in the “Stock Awards” column reflect the dollar amounts recognized
as compensation expense for financial statement reporting purposes
for
stock grants for the fiscal year ended December 31, 2007 and 2006
in
accordance with SFAS 123R. The assumptions we used to calculate these
amounts are discussed in Note 1 to our consolidated financial statements
included in this Annual Report on Form 10-K for the year ended December
31, 2007.
|
(2) |
Includes
employer 401(k) contribution of $1,459, $1,441 and $1,296 for 2007,
2006
and 2005, respectively.
|
(3) |
Includes
auto stipend of $12,000, $12,000 and $8,976 for 2007, 2006 and 2005
and
employer 401(k) contribution of $1,558, $1,463 and $1,223 in 2007,
2006
and 2005, respectively.
|
(4) |
Includes
auto stipend of $11,400 for 2007, 2006 and 2005 and employer 401(k)
contribution of $646, $600 and $646 in 2007, 2006 and 2005,
respectively.
|
(5) |
Includes
auto stipend of $9,600 for 2007 and 2006 and $6,000 for 2005 and
employer
401(k) contribution of $1,086, $1,086 and $903 in 2007, 2006 and
2005,
respectively.
|
(6) |
Includes
auto stipend of $8,400, $7,200 and $7,200 for 2007, 2006 and 2005
and
employer 401(k) contribution of $847 in
2007.
|
(7) |
In
December 2007, Mr. Rhian forfeited 6,000 bonus shares that had been
earned
based upon Company performance, which bonus shares had a value on
the date
of the grant of $36,000.
|
|
Estimated Future
Payouts Under
Non-Equity
Incentive Plan Awards
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
All
Other
Stock
Awards
Number
Of Shares
|
Grant
Date
Fair
Value
|
||||||||||||||||||||||||
Name
|
Grant
Date
|
Thresh-
Old
(#)
|
Target
(#)
|
Maxi-
Mum
(#)
|
Thresh-
Old
(#)
|
Target
(#)
|
Maxi-
Mum
(#)
|
of Stock
or Units
(#)
|
Of Stock
and Option
Awards
(1)
|
|||||||||||||||||||
Howard Siegel
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Jack
Rhian
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Frederic
Siegel
|
5/24/07
|
-
|
-
|
-
|
-
|
-
|
-
|
22,000
|
(2)
|
$
|
177,100
|
|||||||||||||||||
|
5/24/07
|
- |
$
|
21,012
|
(7) | - |
2,000
|
(3) |
21,000
|
(4)
|
46,000
|
(5)
|
$
|
370,300
|
||||||||||||||
Richard
Rallo
|
12/27/07
|
-
|
-
|
-
|
-
|
-
|
-
|
3,000
|
(6)
|
$
|
21,390
|
|||||||||||||||||
Randi
Baldwin
|
12/27/07
|
-
|
-
|
-
|
-
|
-
|
-
|
3,000
|
(6)
|
$
|
21,390
|
(1)
|
The
amounts in the “Grant Date Fair Value of Stock and Stock Option Awards”
column reflect the grant date fair value of the applicable award
as of the
date of grant as determined in accordance with SFAS 123R. The assumptions
we used to calculate these amounts are discussed in Note 1 to our
consolidated financial statements included in this Annual Report
on Form
10-K for the year ended December 31, 2007 and
2006.
|
(2)
|
Represents
stock granted subject to repurchase rights. The repurchase right
lapse
with respect to 5,500 shares each on December 31, 2007, 2008, 2009
and
2010.
|
(3)
|
Represents
the minimum amount of shares (500) that may be earned in each year
ending
December 31, 2007, 2008, 2009 and 2010, based on the Company's EBIT
for
the HSMS segment increasing by 5% year over year for each such period.
|
(4)
|
Represents
the total number of shares to assuming the Company's overall EBIT
growth
is equal to the growth experienced in 2007. 5,250 shares were earned
for
the year ended December 31, 2006.
|
(5)
|
Represents
the total number of shares that can be awarded under the executive's
employment agreement if all of the highest performance thresholds
are
met.
|
(6)
|
Represents
stock grants awarded on December 27,
2007.
|
(7)
|
Mr. Siegel’s non-equity incentive award
provides for a single estimated payout, comprised of a component
related
to HSMS revenue and a component related to HSMS EBIT. Since the target
is
not currently determinable, except for fiscal year 2007, the target
amount
set forth on the table includes a representative amount for fiscal
years
2008, 2009 and 2010, respectively, based on the Company’s fiscal year 2007
performance. In 2007, Mr. Siegel received $5,253. The terms of the
award
are as follows. For the component related to HSMS revenue, Mr. Siegel
is
entitled to receive in 2008, 2009 and 2010, respectively, as follows:
a
cash bonus equal to one of the following percentages of the dollar
amount
of the yearly revenue growth in excess of 7% in the Company’s HSMS segment
- (i) 2%, if the HSMS revenue grows by more than 7% but less than
10%;
(ii) 3%, if the HSMS revenue grows by 10% or more but less than 13%;
(iii)
4.25%, if the HSMS revenue grows by 13% or more but less than 16%;
(iv)
5.75%, if the HSMS revenue grows by 16% or more but less than 19%;
or (v)
7.5%, if the HSMS revenue grows by 19% or more. For the component
related
to HSMS EBIT, Mr. Siegel is entitled to receive in 2008, 2009 and
2010,
respectively, as follows: a cash bonus equal to one of the following
percentages of the Company’s EBIT from the HSMS segment - (a) 2%, if the
HSMS EBIT equals 5% or more but less than 6% of the HSMS revenues
for such
year; (b) 2.5%, if the HSMS EBIT equals 6% or more but less than
7% of the
HSMS revenues for such year; (c) 3.0%, if the HSMS EBIT equals 7%
or more
but less than 8% of the HSMS revenues for such year; (d) 3.5%, if
the HSMS
EBIT equals 8% or more but less than 9% of the HSMS revenues for
such
year; (e) 4.0%, if the HSMS EBIT equals 9% or more but less than
10% of
the HSMS revenues for such year; or (f) 4.5%, if the HSMS EBIT equals
10%
or more of the HSMS revenues for such
year.
|
EBIT growth over prior fiscal year
|
# of Shares
|
|||
15.0 –
17.49%
|
8,000 shares
|
|||
17.5 – 19.99%
|
9,000 shares
|
|||
20.0 – 22.49%
|
10,500 shares
|
|||
22.5 – 24.99%
|
13,000 shares
|
|||
25.0% - or more
|
16,000 shares
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or Units
of Stock
that Have
Not
Vested
(#)
(2)
|
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)
(3)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#)
(4)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
(3)
|
|||||||||||||||
Howard
Siegel
|
8,500
|
$
|
2.519
|
1/27/08 | ||||||||||||||||||
Jack
Rhian
|
30,000
|
$
|
210,900
|
72,000
|
$
|
506,160
|
||||||||||||||||
50,000
|
$
|
2.00
|
1/31/08 | |||||||||||||||||||
4,343
|
$
|
2.87
|
12/31/11 | |||||||||||||||||||
30,000
|
$
|
3.25
|
1/30/12 | |||||||||||||||||||
25,000
|
$
|
3.50
|
1/30/13 | |||||||||||||||||||
25,000
|
$
|
4.00
|
1/30/14 | |||||||||||||||||||
3,856
|
$
|
2.30
|
8/12/12 | |||||||||||||||||||
5,000
|
$
|
2.29
|
1/27/13 | |||||||||||||||||||
Frederic
Siegel
|
16,500
|
$
|
115,995
|
34,500
|
$
|
242,535
|
||||||||||||||||
25,000
|
$
|
2.87
|
12/31/11 | |||||||||||||||||||
8,252
|
$
|
2.87
|
12/31/11 | |||||||||||||||||||
4,827
|
$
|
2.30
|
8/12/12 | |||||||||||||||||||
6,400
|
$
|
2.29
|
1/27/13 | |||||||||||||||||||
13,917
|
$
|
1.98
|
4/08/13 | |||||||||||||||||||
65,530
|
$
|
4.24
|
5/27/14 | |||||||||||||||||||
Richard
Rallo
|
4,000
|
$
|
28,120
|
|||||||||||||||||||
5,088
|
$
|
2.87
|
12/31/11 | |||||||||||||||||||
10,000
|
$
|
3.25
|
1/30/12 | |||||||||||||||||||
3,038
|
$
|
2.30
|
8/12/12 | |||||||||||||||||||
3,800
|
$
|
2.29
|
1/27/13 | |||||||||||||||||||
10,000
|
$
|
2.00
|
2/01/08 | |||||||||||||||||||
30,000
|
$
|
2.50
|
11/14/13 | |||||||||||||||||||
5,000
|
$
|
4.24
|
5/27/14 | |||||||||||||||||||
25,000
|
$
|
5.96
|
12/07/10 | |||||||||||||||||||
Randi
Baldwin
|
1,845
|
$
|
2.87
|
12/31/11 | ||||||||||||||||||
25,000
|
$
|
3.64
|
3/12/12 | |||||||||||||||||||
2,135
|
$
|
2.30
|
8/12/12 | |||||||||||||||||||
2,200
|
$
|
2.29
|
1/27/13 | |||||||||||||||||||
4,000
|
$
|
3.98
|
3/25/14 | |||||||||||||||||||
12,500
|
$
|
6.20
|
12/29/10 | |||||||||||||||||||
7,500
|
$
|
6.09
|
11/14/11 |
(1) |
All
stock options were fully vested at December 31,
2007.
|
(2) |
The
stock grants for Mr. Rhian and Mr. Siegel vest on a yearly basis
on each
December 31 at 10,000 and 5,500 shares, respectively, per year for
the
next three years. The stock grants for Mr. Rallo vest on December
31,
2008.
|
(3) |
Based
on the closing market price of the Company's common stock at the
end of
the last completed fiscal year ($7.03), multiplied by the number
of shares
reported.
|
(4) |
Mr.
Rhian may earn up to a potential maximum of 18,000 shares per year
based
on certain performance criteria as described in the Narrative Disclosure
to Summary Compensation Table and Grants of Plan-Based Awards. Mr.
Siegel
may earn to a potential maximum of 11,500 shares per year based on
certain
performance criteria as described in the Narrative Disclosure to
Summary
Compensation Table and Grants of Plan-Based Awards.
|
Option Awards
|
Stock Awards
|
||||||||||||
Name
|
Number of
Shares
Acquired on
Exercise
(#)
|
Value Realized
On Exercise
($)
(1)
|
Number of
Shares Acquired
on Vesting
(#)
|
Value Realized
on Vesting
($)
(2)
|
|||||||||
Howard
Siegel
|
27,942
|
$
|
100,173
|
-
|
-
|
||||||||
Jack
Rhian
|
10,000
|
$
|
70,300
|
||||||||||
18,000
|
$
|
107,820
|
|||||||||||
Fred
Siegel
|
5,500
|
$
|
38,665
|
||||||||||
Rich
Rallo
|
5,000
|
$
|
10,000
|
6,500
|
$
|
45,995
|
|||||||
Randi
Baldwin
|
3,000
|
$
|
21,390
|
(1) |
Based
on the difference between the market price of the underlying securities
at
exercise and the exercise price of the
options.
|
(2) |
Based
on the market value of the shares on the day of
vesting.
|
Name
|
Fees Earned
or Paid In
Cash($)
|
Stock
Awards
(1)
($)
|
Option
Awards
($)
|
Total
($)
|
|||||||||
Ronald
Levin
|
-
|
$
|
34,047
|
-
|
$
|
34,047
|
|||||||
Yacov
Shamash, Ph.D.
|
-
|
$
|
34,047
|
-
|
$
|
34,047
|
|||||||
James
LaPolla
|
-
|
-
|
-
|
$
|
-
|
||||||||
John
S.T. Gallagher
|
-
|
$
|
34,047
|
-
|
$
|
34,047
|
|||||||
Gregory
Fortunoff
|
-
|
$
|
28,794
|
-
|
$
|
28,794
|
(1) |
Represents
the compensation expense recognized for the fiscal year ended December
31,
2007 in accordance with SFAS 123R for restricted stock awards granted
as
long-term incentives pursuant to our Equity Compensation Plan.
|
(2) |
Mr.
LaPolla, while serving on the Board of Directors from January 1,
2007 to
April 3, 2007, waived his compensation.
|
(3) |
Mr.
Fortunoff’s compensation reflects his membership on fewer committees of
the Board of Directors than Mr. Levin, Mr. Shamash and Mr.
Gallagher.
|
Yacov
Shamash
|
Ronald
Levin
|
John
S.T. Gallagher
|
ITEM 12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Plan Category
|
Number of Securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available for the
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|||||||
Equity
Compensation plans approved by security holders
|
972,773
|
(1)
|
$
|
4.17
|
(2)
|
456,573
|
||||
Equity
Compensation plans not approved by security holders
|
-
|
-
|
-
|
(1) |
This
amount includes 922,273 shares subject to outstanding stock options
and
50,500 shares subject to future vesting
measures.
|
(2) |
This
amount combines the shares subject to outstanding stock options at
a
weighted average price of $4.01 and the shares subject to future
vesting
measures at a weighted average price of
$7.03.
|
Name and Address
|
Amount and Nature of
|
Percent of
|
||||||||
Title of Class
|
Beneficial Owner
(1)
|
Beneficial Ownership
|
Class
(2)
|
|||||||
Common
Stock
|
Howard
M. Siegel
|
1,106,731
|
11.8
|
%
|
||||||
Common
Stock
|
Ronald
Levin
|
176,104
|
(3)
|
1.9
|
%
|
|||||
184
Greenway Road
|
||||||||||
Lido
Beach, NY 11561
|
||||||||||
Common
Stock
|
John
S.T. Gallagher
|
25,504
|
(4)
|
*
|
||||||
26
Woodfield Road
|
||||||||||
Stony
Brook, NY 11790
|
||||||||||
Common
Stock
|
Frederic
S. Siegel
|
381,126
|
(5)
|
4.0
|
%
|
Common
Stock
|
Yacov
Shamash, Ph.D.
|
53,104
|
(6)
|
*
|
||||||
|
7
Quaker Hill Road
|
|||||||||
|
Stony
Brook, NY 11790
|
|||||||||
Common
Stock
|
Jack
Rhian
|
327,853
|
(7)
|
3.5
|
%
|
|||||
Common
Stock
|
Richard
Rallo
|
119,926
|
(8)
|
1.3
|
%
|
|||||
Common
Stock
|
Randi
Baldwin
|
58,351
|
(9)
|
*
|
||||||
Common
Stock
|
Gregory
Fortunoff
|
805,259
|
(10)
|
8.2
|
%
|
|||||
|
200
East 72nd Street
|
|||||||||
|
New
York, NY 10021
|
|||||||||
Common
Stock
|
Discovery
Group
|
861,418
|
9.2
|
%
|
||||||
|
191
North Wacker Drive
|
|||||||||
|
Suite
1685
|
|||||||||
|
Chicago,
IL 60606
|
|||||||||
|
All
directors and named executive
|
3,053,958
|
(11)
|
31.0
|
%
|
|||||
|
officers
as a group
|
|||||||||
|
(10
persons)
|
(1)
|
Except
as otherwise indicated, the address of each individual listed
is c/o the
Company at 3265 Lawson Boulevard, Oceanside, New York
11572.
|
(2)
|
Asterisk
indicates less than 1%. Shares subject to options are considered
outstanding only for the purpose of computing the percentage
of
outstanding Common Stock which would be owned by the optionee
if the
options were so exercised, but (except for the calculation of
beneficial
ownership by all directors and executive officers as a group)
are not
considered outstanding for the purpose of computing the percentage
of
outstanding Common Stock owned by any other person.
|
(3)
|
Includes
40,000 shares subject to currently exercisable stock options.
Includes
15,200 shares owned by Mr. Levin's wife, to which Mr. Levin disclaims
beneficial ownership.
|
(4)
|
Consists
of 20,000 shares subject to currently exercisable stock options.
|
(5)
|
Includes
123,926 shares subject to currently exercisable stock
options.
|
(6) |
Includes
40,000 shares subject to currently exercisable stock
options.
|
(7) |
Includes
93,199 shares subject to currently exercisable stock options,
and 48,000
shares owned by Mr. Rhian's
wife.
|
(8)
|
Includes
81,926 shares subject to currently exercisable stock
options.
|
(9)
|
Includes
55,180 shares subject to currently exercisable stock
options.
|
(10)
|
Includes
10,000 shares subject to currently exercisable stock options.
Includes
10,700 shares owned by Mr. Fortunoff's son, for which Mr. Fortunoff
is the
custodian.
|
(11)
|
Includes
currently exercisable options indicated in notes (3), (4), (5),
(6), (7),
(8), (9), (10) and
(11).
|
ITEM 13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Item 14. |
Principal
Accounting Fees and
Services
|
Fiscal Year Ended
|
|||||||
December 31, 2007
|
December 31, 2006
|
||||||
Audit
Fees (a)
|
$
|
238,000
|
$
|
195,000
|
|||
Audit-Related
Fees (b)
|
55,000
|
45,900
|
|||||
Total
Audit and Audit-Related Fees
|
$
|
293,000
|
$
|
240,900
|
|||
Tax
Fees (c)
|
58,000
|
50,000
|
|||||
All
Other Fees (d)
|
172,713
|
-
|
|||||
Total
Fees
|
$
|
523,713
|
$
|
290,900
|
(a)
|
Audit
fees include the audit of the Company’s annual consolidated financial
statement and review of the quarterly consolidated financial
statements.
|
(b)
|
Audit-related
fees include services for employee
benefit
plan audits, due diligence relating to acquisition transactions and
consultations concerning financial accounting and
reporting.
|
(c)
|
Tax
fees include services for the preparation of Company’s tax
returns.
|
(d)
|
Other
fees include fees incurred for an evaluation of the Company’s internal
controls under Sarbanes Oxley Section 404 and other tax related matters.
|
Item 15. |
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
.
|
(a)
|
Financial
|
1.
Financial Statements:
|
|
Statements
|
Report
of Independent Registered Accounting Firm
|
||
Consolidated
Balance Sheets
|
|||
Consolidated
Statements of Income
|
|||
Consolidate
Statements of Shareholders' Equity
|
|||
Consolidated
Statements of Cash Flows
|
|||
Notes
to Financial Statements
|
|||
2.
Financial Statements Schedules: None.
|
|||
3.
Exhibits: The required exhibits are included at the end of this report
and
are described in the Exhibit Index below.
|
Exhibit
Index
|
|||
Exhibit No.
|
Identification of Exhibit
|
||
3(a)(i)
|
Articles
of Incorporation of Company, as amended. (Incorporated by reference
to
Exhibit 3(a) to the Company's Form S-1 Registration Statement under
the
Securities Act of 1933, filed on September 30, 1983 – File No.
2-86862)
|
||
3(a)(ii)
|
Certificate
of Amendment to the Company’s Articles of Incorporation. (Incorporated by
reference to Exhibit 3.1 of the Company’s Form 10-QSB filed with the SEC
on November 14, 2002).
|
||
3(b)*
|
Amended
and Restated By-Laws of Company, as further amended.
|
||
3(c)
|
Articles
of Incorporation of Safe Com Inc. (Incorporated by reference to Exhibit
3(c) to the Company's Form 10-KSB for the year ended December 31,
1999).
|
||
3(d)
|
Certificate
of Incorporation of HCI Acquisition Corp. (Incorporated by reference
to
Exhibit 3(d) of the Company’s Form 10-KSB for the year ended December 31,
2000).
|
||
3(e)
|
Certificate
of Incorporation of Live Message America Acquisition Corp. (Incorporated
by reference to Exhibit 3(e) of the Company’s Form 10-KSB/A filed with the
SEC on November 17, 2004)
|
||
3(f)
|
Certificate
of Incorporation of North Shore Answering Service, Inc. (incorporated
by
reference to Exhibit 3(f) to the Company’s Form 10-KSB for the year ended
December 31, 2005)
|
||
3(g)
|
Certificate
of Incorporation of Answer Connecticut Acquisition, Corp. (incorporated
by
reference to Exhibit 3(g) to the Company’s Form 10-KSB for the year ended
December 31, 2005)
|
||
3(h)
|
Certificate
of Incorporation of MD OnCall Acquisition Corp. (incorporated by
reference
to Exhibit 3(h) to the Company’s Form 10-KSB for the year ended December
31, 2005)
|
||
3(i)
|
Certificate
of Incorporation of American Mediconnect Acquisition Corp. (incorporated
by reference to Exhibit 3(i) to the Company’s Form 10-K for the year ended
December 31, 2006)
|
||
4.1
|
Stock
and Warrant Purchase Agreement, dated as of March 27, 2002, between
the
Company and certain investors. (Incorporated by reference to the
Company’s
Registration Statement on Form S-3 filed with the SEC on May 14,
2002).
|
4.2
|
Form
of Warrant to purchase shares of Common Stock, issued to certain
investors. (Incorporated by reference to the Company’s Registration
Statement on Form S-3 filed with the SEC on May 14,
2002).
|
||
10(a)(i)+
|
Employment
Agreement dated November 11, 2005, between the Company and Jack Rhian
(Incorporated by reference to Exhibit 10.1 of the Company's Form
10-QSB
for the quarter ended September 30, 2005).
|
||
10(a)(ii)+
|
Stock
Purchase Agreement dated January 20, 2006, between the Company and
Jack
Rhian (Incorporated by reference to Exhibit 10.3 of the Company's
Form 8-K
filed on January 26, 2006).
|
||
10(b)+
|
Employment
Agreement dated December 13, 2006 between the Company and Howard
M.
Siegel. (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on December 19, 2006).
|
||
10(c)(i)+
|
Employment
Agreement dated as of June 15, 2004, between the Company and Frederic
S.
Siegel. (Incorporated by reference to Exhibit 10(c)(i) of the Company’s
Form 10-QSB for the quarter ended June 30, 2004).
|
||
10(c)(ii)+
|
Letter
dated July 16, 2004 confirming waiver of certain commissions by Frederic
Siegel. (Incorporated by reference to Exhibit 10(c)(ii) of the Company’s
Form 10-QSB for the quarter ended June 30, 2004).
|
||
10(c)(iii)+
|
Employment
Agreement, dated as of December 28, 2006, between the Company and
Frederic
Siegel. (Incorporated by reference to Exhibit 10.1 to the Company’s Form
8-K, filed on May 30, 2007)
|
||
10(c)(iv)+
|
Stock
Purchase Agreement, dated as of December 31, 2007, between the Company
and
Frederic Siegel. (Incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K, filed on January 7, 2008)
|
||
10(d)(i)+
|
Employment
Agreement dated January 20, 2006, between the Company and Richard
Rallo
(Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
on January 26, 2006).
|
||
10(d)(ii)+
|
Stock
Purchase Agreement dated January 20, 2006, between the Company and
Richard
Rallo (Incorporated by reference to Exhibit 10.2 of the Company's
Form 8-K
filed on January 26, 2006).
|
||
10(e)+
|
Employment
Agreement dated December 28, 2006 between the Company and Randi Baldwin.
(Incorporated by reference to Exhibit 10(e) to the Company’s Form 10-K for
the year ended December 31, 2006)
|
10(f)(i)
|
Lease
for the premises located at 3265 Lawson Boulevard, Oceanside, New
York.
(Incorporated by reference to Exhibit 10(h) to the Company’s Form 10-KSB
for the year ended December 31, 1994).
|
||
10(f)(ii)
|
Amendment
to Lease for the premises located at 3265 Lawson Boulevard, Oceanside,
New
York (Incorporated by reference to Exhibit 10(i) to the Company's
Form
10-KSB for the year ended December 31, 1997).
|
||
10(h)(i)
|
Lease
for the premises located at 910 Church Street, Decatur, Georgia
(Incorporated by reference to Exhibit 10(k) to the Company's Form
10-KSB
for the year ended December 31, 1997).
|
||
10(h)(ii)
|
Assignment
of Rents and Leases dated January 7, 1999 relating to the leased
premises
at 910 Church Street, Decatur, Georgia (Incorporated by reference
to
Exhibit 10(x) to the Company’s form 10-KSB for the year ended December 31,
1998).
|
||
10(j)
|
Lease
for the premises located at 475 West 55th Street, Countryside, Illinois.
(Incorporated by reference to Exhibit 10(k) to the Company's Form
10-KSB
for the year ended December 31, 1995.)
|
||
10(k)
|
Amendment
to Lease for the premises located at 475 West 55th Street, Countryside,
Illinois (Incorporated by reference to Exhibit 10(n) to the Company's
Form
10-KSB for the year ended December 31, 1997).
|
||
10(l)
|
Lease
for the premises located at Store Space No. 300, 12543 North Highway
83,
Parker, Colorado, dated March 9, 2000. (Incorporated by reference
to
Exhibit 10(l) of the Company’s Form 10-KSB for the year ended December 31,
2001).
|
||
10(m)(i)
|
Lease
for the premises located at 33-36 33
rd
Street, Long Island
City, New York, dated January 14, 2002. (Incorporated by reference
to
Exhibit 10(m)(i) of the Company’s Form 10-KSB for the year ended December
31, 2001).
|
||
10(m)(ii)
|
Lease
Amendment and Modification for the premises located at 33-36
33
rd
Street, Long Island City, New York. (Incorporated by
reference to Exhibit 10(m)(ii) of the Company’s Form 10-KSB for the year
ended December 31, 2001).
|
||
10(m)(iii)
|
Lease
for premises located at 36-36 33
rd
Street, Long Island City,
NY, dated August 10, 2005, (Incorporated by reference to Exhibit
10.3 of
the Company Form 10-QSB/A filed on November 18, 2005)
|
||
10(m)(iv)
|
Lease
for premises located at 36-36 33
rd
Street, Long Island City,
NY, dated October 25, 2005 (Incorporated by reference to Exhibit
10.4 of
the Company's Form 10-QSB/A filed on November 18,
2005).
|
10(n)+
|
Amended
1991 Stock Option Plan. (Incorporated by reference to Exhibit 10(l)
to the
Company’s Form 10-KSB for the year ended December 31,
1994).
|
||
10(o)+
|
1997
Stock Option Plan (Incorporated by reference to Exhibit 10(q) to
the
Company's Form 10-KSB for the year ended December 31,
1997).
|
||
10(p)+
|
2000
Stock Option Plan. (Incorporated by reference to Exhibit A of the
Company's Definitive Proxy Statement, filed with the Commission and
dated
June 1, 2000).
|
||
10(q)(i)+
|
2005
Stock Incentive Plan (Incorporated by reference to Exhibit A of the
Company's Definitive Proxy Statement, filed on June 30,
2005).
|
||
10(q)(ii)+
|
Text
of Amendment to 2005 Stock Incentive Plan (Incorporated by reference
to
Exhibit 10.4(iii) of the Company's Form 8-K filed on January 26,
2006).
|
||
10(r)
|
Agreement
between the Company and the City of New York, dated February 22,
2002.
(Incorporated by reference to Exhibit 10(p)(ii) of the Company’s Form
10-KSB for the year ended December 31, 2001).
|
||
10(t)(i)
|
Credit
Agreement, dated as of May 20, 2002, by and between the Company and
the
Bank of New York (Incorporated by reference to Exhibit 10(t) of the
Company’s Form 10-KSB for the year ended December 31,
2002).
|
||
10(t)(ii)
|
Amendment
to Credit Agreement dated March 28, 2005, between the Company and
the Bank
of New York (Incorporated by reference to Exhibit 10(t)(ii) of the
Company's Form 10-KSB for the year ended December 31,
2004).
|
||
10(t)(iii)
|
Amendment
to Credit Agreement dated December 9, 2005, between the Company and
the
Bank of New York, (Incorporated by reference to Exhibit 10.2 of the
Company's Form 8-K filed on December 14, 2005).
|
||
10(t)(iv)
|
Amendment
to Credit Agreement dated March 16, 2006, between the Company and
the Bank
of New York. (Incorporated by reference to Exhibit 10(t)(iv) to the
Company’s Form 10-KSB for the year ended December 31,
2005)
|
||
10(t)(v)
|
Amendment
to Credit Agreement dated December 22, 2006, between the Company
and
JPMorgan Chase. (Incorporated by reference to Exhibit 10(tv) of the
Company’s Form 10-K for year ended December 31, 2006).
|
||
10(t)(vi)*
|
Amendment
to Credit Agreement dated April 30, 2007, between the Company and
JPMorgan
Chase.
|
||
10(t)(vii)*
|
Amendment
to Credit Agreement dated November 9, 2007, between the Company and
JPMorgan Chase.
|
10(t)(viii)*
|
Amendment
to Credit Agreement dated March 27, 2008, between the Company and
JPMorgan
Chase.
|
||
10(v)
|
Cooperative
Licensing, Development, Services and Marketing Agreement, dated November
1, 2001, between the Company and Health Hero Network, Inc. (Incorporated
by reference to Exhibit 10.1 of the Company’s Form 10-QSB filed with the
SEC on November 14, 2001).
|
||
10(w)
|
Term
Promissory Note, dated June 24, 2002, issued by Howard M. Siegel
in favor
of the Company. (Incorporated by reference to Exhibit 10(x) of the
Company’s Form 10-KSB for the year ended December 31,
2002).
|
||
10(x)(i)
|
Asset
Purchase Agreement dated September 28, 2005, with WMR Associates,
Inc.
(Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
on October 4, 2005).
|
||
10(x)(ii)
|
Asset
Purchase Agreement dated December 9, 2005, with Answer Connecticut,
Inc.
(Incorporated by reference to Exhibit 10.1 of the Company's Form
8-K filed
on December 14, 2005).
|
||
10(x)(iii)
|
Asset
Purchase Agreement dated March 10, 2006, with Capitol Medical Bureau,
Inc.
and MD OnCall, LLC. (Incorporated by reference to Exhibit 10(x)(iii)
to
the Company’s Form 10-KSB for the year ended December 31,
2005)
|
||
10(x)(iv)
|
Asset
Purchase Agreement dated December 22, 2006, with American Mediconnect,
Inc. and PhoneScreen, Inc. (Incorporated by reference to Exhibit
10 (xiv)
of the Company’s Form 10-K for year ended December 31,
2006).
|
||
21
|
Subsidiaries
of the Company (Incorporated by reference to Exhibit 21 of the Company’s
Form 10-K for year ended December 31, 2006).
|
||
23.1*
|
Consent
of Margolin, Winer & Evens, LLP.
|
||
31.1*
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
||
31.2*
|
Certification
of the President pursuant to Section 302 of the Sarbanes-Oxley Act
of
2002.
|
||
31.3*
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
||
32.1*
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
32.2*
|
Certification
of President pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
||
32.3*
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
AMERICAN
MEDICAL ALERT CORP.
|
|
By:
|
/s/Jack
Rhian
|
Jack
Rhian
|
|
Chief
Executive Officer and President
|
/s/
Howard M. Siegel
|
Chairman
of the Board
|
March
31, 2008
|
||
Howard
M. Siegel
|
and
Director
|
|||
/s/
Jack Rhian
|
Chief
Executive Officer
|
March
31, 2008
|
||
Jack
Rhian
|
and
President
|
|||
/s/
Ronald Levin
|
Director
|
March
31, 2008
|
||
Ronald
Levin
|
||||
/s/John
S.T. Gallagher
|
Director
|
March
31, 2008
|
||
John
S.T. Gallagher
|
||||
/s/
Frederic S. Siegel
|
Executive
Vice President
|
March
31, 2008
|
||
Frederic
S. Siegel
|
and
Director
|
|||
/s/
Yacov Shamash
|
Director
|
March
31, 2008
|
||
Dr.
Yacov Shamash
|
||||
/s/
Gregory Fortunoff
|
Director
|
March
31, 2008
|
||
Gregory
Fortunoff
|
||||
/s/
Richard Rallo
|
Chief
Financial Officer
|
March
31, 2008
|
||
Richard
Rallo
|
Report
of Independent Registered Public Accounting
Firm
|
F-2
|
|
Financial
Statements:
|
||
Consolidated
Balance Sheets
|
F-3
and F-4
|
|
Consolidated
Statements of Income
|
F-5
|
|
Consolidated
Statements of Shareholders’ Equity
|
F-6
|
|
Consolidated
Statements of Cash Flows
|
F-7
|
|
Notes
to Consolidated Financial Statements
|
F-8
- F-32
|
|
Schedule
II - Valuation and Qualifying Accounts
|
F-33
|
December
31,
|
2007
|
2006
|
|||||
ASSETS
|
|||||||
Current
Assets:
|
|||||||
Cash
|
$
|
911,525
|
$
|
856,248
|
|||
Accounts
receivable (net of allowance for doubtful accounts of $554,000
in 2007 and
$547,000 in 2006)
|
5,655,286
|
4,920,950
|
|||||
Notes
receivable
|
26,954
|
25,642
|
|||||
Inventory
|
552,736
|
313,851
|
|||||
Prepaid
income taxes
|
309,260
|
434,631
|
|||||
Prepaid
expenses and other current assets
|
941,601
|
860,863
|
|||||
Deferred
income taxes
|
275,000
|
239,000
|
|||||
Total
Current Assets
|
8,672,362
|
7,651,185
|
|||||
Fixed
Assets - at cost:
|
|||||||
Medical
devices
|
19,003,292
|
17,350,168
|
|||||
Monitoring
equipment
|
3,322,049
|
2,864,310
|
|||||
Furniture
and equipment
|
2,536,993
|
2,454,499
|
|||||
Leasehold
improvements
|
1,073,283
|
1,009,178
|
|||||
Automobiles
|
271,542
|
275,712
|
|||||
Construction
in progress
|
66,010
|
-
|
|||||
26,273,169
|
23,953,867
|
||||||
Less
accumulated depreciation and amortization
|
15,473,856
|
14,645,955
|
|||||
10,799,313
|
9,307,912
|
||||||
Other
Assets:
|
|||||||
Long-term
portion of notes receivable
|
21,117
|
48,071
|
|||||
Intangible
assets (net of accumulated amortization of $4,393,073 and $3,194,677
in
2007 and 2006)
|
4,232,226
|
5,115,961
|
|||||
Goodwill
(net of accumulated amortization of $58,868)
|
9,766,194
|
9,532,961
|
|||||
Other
assets
|
1,462,009
|
1,386,286
|
|||||
15,481,546
|
16,083,279
|
||||||
Total
Assets
|
$
|
34,953,221
|
$
|
33,042,376
|
December 31, |
2007
|
2006
|
|||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
Current
Liabilities:
|
|||||||
Current
portion of long-term debt
|
$
|
1,414,419
|
$
|
1,527,327
|
|||
Accounts
payable
|
1,716,179
|
805,002
|
|||||
Accounts
payable - acquisitions
|
73,896
|
477,308
|
|||||
Accrued
expenses
|
1,550,283
|
1,509,887
|
|||||
Current
portion of capital lease obligations
|
42,015
|
39,183
|
|||||
Deferred
revenue
|
274,101
|
104,515
|
|||||
Total
Current Liabilities
|
5,070,893
|
4,463,222
|
|||||
Deferred
Income Tax Liability
|
947,000
|
992,000
|
|||||
Long-Term
Debt , Net of Current Portion
|
4,694,316
|
5,677,068
|
|||||
Long-Term
Portion of Capital Lease Obligations
|
32,425
|
74,440
|
|||||
Customer
Deposits
|
81,200
|
69,200
|
|||||
Accrued
Rental Obligation
|
446,722
|
381,256
|
|||||
Other
Liabilities
|
10,000
|
40,000
|
|||||
Total
Liabilities
|
11,282,556
|
11,697,186
|
|||||
Commitments
and Contingencies
|
-
|
-
|
|||||
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 Issued 9,385,880 shares in 2007 and 9,230,086 in
2006
|
93,859
|
92,302
|
|||||
Additional
paid-in capital
|
15,421,227
|
14,591,238
|
|||||
Retained
earnings
|
8,281,914
|
6,767,682
|
|||||
23,797,000
|
21,451,222
|
||||||
Less
treasury stock, at cost (46,798 shares in 2007 and 43,910 shares
in
2006)
|
(126,335
|
)
|
(106,032
|
)
|
|||
Total
Shareholders’ Equity
|
23,670,665
|
21,345,190
|
|||||
Total
Liabilities and Shareholders’ Equity
|
$
|
34,953,221
|
$
|
33,042,376
|
Years
Ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
||||
Revenue:
|
||||||||||
Services
|
$
|
35,054,093
|
$
|
30,406,636
|
$
|
22,176,799
|
||||
Product
sales
|
591,172
|
387,752
|
270,843
|
|||||||
35,645,265
|
30,794,388
|
22,447,642
|
||||||||
Costs
and Expenses (Income):
|
||||||||||
Costs
related to services
|
17,153,161
|
14,611,665
|
10,817,366
|
|||||||
Cost
of products sold
|
316,057
|
234,336
|
154,329
|
|||||||
Selling,
general and administrative expenses
|
16,124,898
|
14,000,600
|
10,098,082
|
|||||||
Interest
expense
|
481,166
|
394,613
|
52,638
|
|||||||
Other
income
|
(1,090,249
|
)
|
(578,355
|
)
|
(473,209
|
)
|
||||
32,985,033
|
28,662,859
|
20,649,206
|
||||||||
Income
Before Provision for
|
||||||||||
Income
Taxes
|
2,660,232
|
2,131,529
|
1,798,436
|
|||||||
Provision
for Income Taxes
|
1,146,000
|
869,000
|
866,000
|
|||||||
Net
Income
|
$
|
1,514,232
|
$
|
1,262,529
|
$
|
932,436
|
||||
Basic
Earnings Per Share
|
$
|
.16
|
$
|
.14
|
$
|
.11
|
||||
Diluted
Earnings Per Share
|
$
|
.16
|
$
|
.13
|
$
|
.10
|
COMMON
STOCK
|
ADDITIONAL
|
|
|
|
|||||||||||||||
|
NUMBER
OF
SHARES
|
AMOUNT
|
PAID-IN
CAPITAL
|
RETAINED
EARNINGS
|
TREASURY
STOCK
|
TOTAL
|
|||||||||||||
Balance
- January 1, 2005
|
8,078,043
|
$
|
80,780
|
$
|
10,730,434
|
$
|
4,572,717
|
$
|
(106,032
|
)
|
$
|
15,277,899
|
|||||||
Issuance
of Common Stock - Acquisitions
|
25,914
|
259
|
154,187
|
-
|
-
|
154,446
|
|||||||||||||
Exercise
of Stock Options
|
385,008
|
3,850
|
1,072,147
|
-
|
-
|
1,075,997
|
|||||||||||||
Exercise
of Warrants
|
276,450
|
2,765
|
803,583
|
-
|
-
|
806,348
|
|||||||||||||
Income
Tax Benefit of Stock Options Exercised
|
-
|
-
|
136,800
|
-
|
-
|
136,800
|
|||||||||||||
Net
Income for the Year Ended December 31, 2005
|
-
|
-
|
-
|
932,436
|
-
|
932,436
|
|||||||||||||
Balance
- December 31, 2005
|
8,765,415
|
87,654
|
12,897,151
|
5,505,153
|
(106,032
|
)
|
18,383,926
|
||||||||||||
Issuance
of Common Stock - Employees
|
31,333
|
313
|
187,687
|
-
|
-
|
188,000
|
|||||||||||||
Issuance
of Common Stock - Acquisitions
|
92,327
|
923
|
571,465
|
-
|
-
|
572,388
|
|||||||||||||
Issuance
of Stock Options
|
-
|
-
|
61,261
|
-
|
-
|
61,261
|
|||||||||||||
Exercise
of Stock Options
|
253,511
|
2,537
|
499,049
|
-
|
-
|
501,586
|
|||||||||||||
Exercise
of Warrants
|
87,500
|
875
|
331,625
|
-
|
-
|
332,500
|
|||||||||||||
|
|||||||||||||||||||
Income
Tax Benefit of Stock Options Exercised
|
-
|
-
|
43,000
|
-
|
-
|
43,000
|
|||||||||||||
Net
Income for the Year Ended December 31, 2006
|
-
|
-
|
-
|
1,262,529
|
-
|
1,262,529
|
|||||||||||||
Balance
- December 31, 2006
|
9,230,086
|
92,302
|
14,591,238
|
6,767,682
|
(106,032
|
)
|
21,345,190
|
||||||||||||
Issuance
of Common Stock - Employees
|
36,584
|
365
|
247,888
|
-
|
-
|
248,253
|
|||||||||||||
Issuance
of Common Stock - Directors
|
16,471
|
165
|
130,770
|
-
|
-
|
130,935
|
|||||||||||||
Issuance
of Stock Options
|
-
|
-
|
5,000
|
-
|
-
|
5,000
|
|||||||||||||
Exercise
of Stock Options
|
80,489
|
805
|
335,504
|
-
|
-
|
336,309
|
|||||||||||||
Exercise
of Warrants
|
22,250
|
222
|
84,327
|
-
|
-
|
84,549
|
|||||||||||||
Income
Tax Benefit of Stock Options Exercised
|
-
|
-
|
26,500
|
-
|
-
|
26,500
|
|||||||||||||
Purchase
of Treasury Stock (cost of 2,888 shares)
|
-
|
-
|
-
|
-
|
(20,303
|
)
|
(20,303
|
)
|
|||||||||||
Net
Income for the Year Ended December 31, 2007
|
-
|
-
|
-
|
1,514,232
|
-
|
1,514,232
|
|||||||||||||
Balance
- December 31, 2007
|
9,385,880
|
$
|
93,859
|
$
|
15,421,227
|
$
|
8,281,914
|
$
|
(126,335
|
)
|
$
|
23,670,665
|
Years
Ended December 31,
|
2007
|
|
2006
|
|
2005
|
|||||
Cash
Flows from Operating Activities:
|
||||||||||
Net
income
|
$
|
1,514,232
|
$
|
1,262,529
|
$
|
932,436
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
Provision
(benefit) for deferred income taxes
|
(81,000
|
)
|
91,000
|
149,000
|
||||||
Provision
for doubtful receivables
|
185,954
|
210,795
|
200,675
|
|||||||
Stock
compensation charge
|
384,187
|
249,261
|
-
|
|||||||
Depreciation
and amortization
|
4,302,118
|
3,515,262
|
3,061,668
|
|||||||
Provision
for valuation of put warrants
|
-
|
-
|
(10,000
|
)
|
||||||
Settlement
Agreement
|
(425,000
|
)
|
||||||||
Accrued
rental obligation
|
65,466
|
191,026
|
46,600
|
|||||||
Income
tax benefit from stock options exercised
|
26,500
|
43,000
|
136,800
|
|||||||
Decrease
(increase) in:
|
||||||||||
Accounts
receivable
|
(920,290
|
)
|
(626,204
|
)
|
(1,033,454
|
)
|
||||
Inventory
|
(238,885
|
)
|
18,472
|
364,413
|
||||||
Prepaid
Income taxes
|
125,371
|
434,631
|
-
|
|||||||
Prepaid
expenses and other current assets
|
161,087
|
(176,527
|
)
|
(250,279
|
)
|
|||||
Increase
(decrease) in:
|
||||||||||
Accounts
payable
|
911,177
|
(315,267
|
)
|
560,816
|
||||||
Accrued
expenses
|
52,395
|
(643,466
|
)
|
1,490
|
||||||
Deferred
revenue
|
169,586
|
(6,913
|
)
|
95,594
|
||||||
Other
liabilities
|
(30,000
|
)
|
(85,000
|
)
|
(60,000
|
)
|
||||
Net
Cash Provided by Operating Activities
|
6,202,898
|
4,162,599
|
4,195,759
|
|||||||
Cash
Flows from Investing Activities:
|
||||||||||
Repayments
of notes receivable
|
25,642
|
24,394
|
23,207
|
|||||||
Purchase
of American Mediconnect, Inc.
|
(159,337
|
)
|
(1,550,136
|
)
|
-
|
|||||
Purchase
of MD OnCall
|
-
|
(2,877,648
|
)
|
-
|
||||||
Purchase
of LIMC
|
-
|
-
|
(364,100
|
)
|
||||||
Purchase
of North Shore
|
-
|
-
|
(2,257,356
|
)
|
||||||
Purchase
of Answer Connecticut, Inc.
|
-
|
(30,493
|
)
|
(2,348,332
|
)
|
|||||
Purchase
- other
|
(321,593
|
)
|
(70,345
|
)
|
-
|
|||||
Payment
of accounts payable - acquisitions
|
(477,308
|
)
|
(1,489,635
|
)
|
(51,256
|
)
|
||||
Expenditures
for fixed assets
|
(4,543,084
|
)
|
(3,563,253
|
)
|
(2,983,451
|
)
|
||||
(Increase)
decrease in other assets
|
97,346
|
(266,425
|
)
|
(700,252
|
)
|
|||||
Deposits
on equipment and software
|
-
|
(321,987
|
)
|
-
|
||||||
Payment
for account acquisitions and licensing
|
||||||||||
agreement
|
(35,000
|
)
|
(438,996
|
)
|
(98,262
|
)
|
||||
Net
Cash Used in Investing Activities
|
(5,413,334
|
)
|
(10,584,524
|
)
|
(8,779,802
|
)
|
Years Ended December 31, |
2007
|
|
2006
|
|
2005
|
|||||
Cash
Flows from Financing Activities:
|
||||||||||
Proceeds
from long-term debt
|
550,000
|
4,850,000
|
3,000,000
|
|||||||
Repayment
of long-term debt
|
(1,645,660
|
)
|
(991,812
|
)
|
(751,051
|
)
|
||||
Principal
payments under capital lease
|
||||||||||
obligations
|
(39,183
|
)
|
(53,084
|
)
|
(95,119
|
)
|
||||
Purchase
of Treasury Stock
|
(20,303
|
)
|
-
|
-
|
||||||
Exercise
of stock options and warrants
|
420,859
|
834,085
|
1,882,345
|
|||||||
Net
Cash Provided by (Used in)
|
||||||||||
Financing
Activities
|
(734,287
|
)
|
4,639,189
|
4,036,175
|
||||||
Net
Increase (Decrease) in Cash
|
55,277
|
(1,782,736
|
)
|
(547,868
|
)
|
|||||
Cash
- beginning of year
|
856,248
|
2,638,984
|
3,186,852
|
|||||||
Cash
- end of year
|
$
|
911,525
|
$
|
856,248
|
$
|
2,638,984
|
||||
Supplemental
Disclosure of Cash Flow
|
||||||||||
Information:
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
519,426
|
$
|
364,702
|
$
|
68,325
|
||||
Income
taxes
|
950,095
|
1,542,774
|
211,509
|
|||||||
Supplemental
Schedule of Noncash Investing
|
||||||||||
and
Financing Activities:
|
||||||||||
Common
Stock issued in connection with acquisition
|
$
|
-
|
$
|
572,388
|
$
|
154,446
|
||||
Accounts
payable due sellers in connection
|
||||||||||
with
acquisitions
|
73,896
|
648,840
|
1,241,219
|
|||||||
Long-term
debt issued in connection with
|
||||||||||
acquisition
of PERS subscriber base
|
-
|
300,000
|
-
|
1.
Summary
of Significant Accounting Policies
|
Scope
of business -
The Company’s portfolio of services includes Health and Safety Monitoring
Systems (“HSMS”), which encompasses personal emergency response systems
(“PERS”), telehealth systems and pharmacy security monitoring systems
(Safe Com), and telephony based communication services (“TBCS”). The
Company’s PERS business is to sell, rent, install, service and monitor
remote communication systems with personal security and smoke/fire
detection capabilities, linked to an emergency response monitoring
center.
The telehealth system has two main components; the first is a patient
home
monitoring appliance and the second is a web based care management
software program. Safe Com provides personal safety and asset monitoring
to retail pharmacy establishments. TBCS provides after-hours telephone
answering services as well as newly developed “Daytime Service”
applications to the healthcare community. The Company markets its
products
primarily to institutional customers, including long-term care
providers,
retirement communities, hospitals, and government agencies, physicians
and
group practices and individual consumers across the United States.
Consolidation
policy -
The accompanying 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.
Accounts
receivable -
Accounts receivable are reported in the balance sheet at their
outstanding
principal balance net of an estimated allowance for doubtful accounts.
Sales terms usually provide for payment within 30 to 60 days of
billing.
An allowance for doubtful accounts is estimated based upon a review
of
outstanding receivables, historical collection information, and
existing
economic conditions. During the years ended December 2007, 2006
and 2005,
provisions for doubtful accounts of approximately $186,000, $211,000
and
$200,000, respectively, were charged to income and included in
general and
administrative expenses. Accounts receivable are charged against
the
allowance when substantially all collection efforts cease. Recoveries
of
accounts receivable previously charged off are recorded when
received.
Inventory
valuation -
Inventory, consisting of finished goods held for resale and component
parts, is valued at the lower of cost (first-in, first-out) or
market. At
December 31, 2007 and 2006, the Company had reserves on certain
component
parts inventory aggregating approximately $53,000 and $23,000,
respectively.
Fixed
assets -
Depreciation is computed by the straight-line method at rates adequate
to
allocate the cost of applicable assets over their expected useful
lives as
follows:
|
||
Medical devices | 3 - 7 years | ||
Monitoring equipment | 5 years | ||
Furniture and equipment | 5 - 7 years | ||
Automobiles | 3 years |
Amortization
of leasehold improvements is provided on a straight-line basis
over the
shorter of the useful life of the asset or the term of the
lease.
In
accordance with Financial Accounting Standards Board Statement
of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” the Company reviews its fixed assets and
intangible assets with finite lives for impairment when there are
indications that the carrying amounts of these assets may not be
recoverable. In 2007, the Company recorded a write-down on fixed
assets of
approximately $111,000. No impairment losses were recorded during
the
years ended December 31, 2006 and 2005.
The
Company’s PERS equipment is subject to approval from the Federal
Communication Commission (“FCC”). In November 2004, the Company received
an inquiry from the Federal Communications Commission. In response
to the
inquiry, the Company determined that certain versions of its PERS
equipment emitted levels of radio frequency energy that exceeded
applicable standards designed to reduce the possibility of interference
with radio communications; however, this issue posed no safety
or
functionality risk to subscribers.
In
July 2006, the Company reached an agreement with the FCC on a corrective
action plan to upgrade the affected PERS equipment and agreed upon
a
voluntary contribution of $75,000. The Agreement called for the
corrective
action plan to run substantially parallel with the normal recycling
of the
Company’s PERS equipment and, as such, the only additional cost to be
incurred would be the incremental cost of bringing the units into
compliance with the FCC regulations.
At December 31,
2007 and 2006, the Company had accrued liabilities related to the
incremental costs estimated to be incurred of $33,000 and $85,000,
respectively.
Through
December 31, 2007, the Company has expensed approximately $936,000
in
connection with this matter, primarily relating to costs associated
with
the replacement of equipment, legal fees and other professional
fees. For
the year ended December 31, 2007 the Company incurred minimal costs
while
in 2006 and 2005 the Company recorded expenses of approximately
$66,000
and $430,000, respectively,
Goodwill
and other intangible assets -
Goodwill
represents the cost in excess of the fair value of the tangible
and
identifiable intangible net assets of businesses acquired. Goodwill
and
indefinite life intangible assets are not amortized, but are subject
to
annual impairment tests. The Company completes the annual impairment
test
during the fourth quarter. As of December 31, 2007 and 2006, no
evidence
of impairment existed.
Other
intangible assets with finite lives are amortized on a straight-line
basis
over the periods of expected benefit. The Company's other intangible
assets include: (a) trade accounts and trade name (collectively,
“account
acquisitions”) which are amortized over their estimated lives of three to
ten years; (b) noncompete agreements which are being amortized
over their
contractual lives of five years; (c) customer lists which are being
amortized over five to seven years and (d) licensing agreement
which is
being amortized over the term of the related agreement (Note
2).
|
Other
assets -
As
of December 31, 2007 and 2006, included in other assets is approximately
$815,000 and $598,000, r
espectively
of
prepaid licensing fees and associated products in connection with
the
Company obtaining certain new remote monitoring products and
services.
Income
taxes -
The Company accounts for income taxes in accordance with Statement
of
Financial Accounting Standards No. 109, “Accounting for Income Taxes,”
pursuant to which deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities,
using enacted tax rates, as well as any net operating loss or tax
credit
carryforwards expected to reduce taxes payable in future
years.
In
July 2006, the FASB issued FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes — an Interpretation of FASB Statement
No. 109
(FIN 48).
FIN 48 prescribes a recognition threshold and measurement attribute
for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The impact, if
any, of adopting FIN 48 is required to be recorded as an adjustment
to the January 1, 2007 beginning balance of the Company’s retained
earnings rather than in the Company’s consolidated statement of income.
The adoption of FIN 48 had no effect on the Company’s retained
earnings. The Company recognizes interest and penalties related
to
uncertain tax positions, if any, in interest expense and general
and
administrative expenses, respectively.
Revenue
recognition -
HSMS
revenue principally consists of fixed monthly charges covering
the rental
of the PERS, telehealth units and Safe Com units as well as the
monitoring
of the PERS at the Company’s call center. With respect to certain
agreements, the Company may charge an activation fee. In instances
where
this occurs, the Company recognizes revenue on a straight-line
basis over
the estimated period a subscriber will be online.
The
remainder of revenue is derived from product sales and the installation
of
PERS equipment. The Company recognizes revenue from product sales
at the
time of delivery. Installation service revenue is recognized when
the
service is provided. Expenses incurred in connection with installation
services are also recognized at this time. Installation services
include
the actual installation of the monitoring equipment, the testing
of the
units and instructing the customer how to operate and use the equipment.
Installation services represented approximately 1%, 2% and 3% of
total
revenues for 2007, 2006 and 2005,
respectively.
|
In
the TBCS segment, revenue is primarily derived from monthly services
pursuant to contracts. Certain TBCS customers are billed in advance
on a
semi-annual and annual basis. Unearned revenue is deferred and recognized
as services are rendered.
None
of the Company’s billings are based on estimates.
Sales
taxes collected from customers and remitted to governmental authorities
are accounted for on a net basis, and therefore, are excluded from
revenues in the consolidated statements of income.
Advertising
-
The
Company expenses advertising costs as incurred. Advertising costs
for the
years ended December 31, 2007, 2006 and 2005 were approximately
$408,000, 275,000 and $72,000, respectively.
Research
and development costs -
Research and development costs, which are expensed and included
in
selling, general and administrative expenses, were $304,365, $240,487
and
$173,790 for the years ended December 31, 2007, 2006 and 2005,
respectively.
Income
per share -
Earnings per share data for the years ended December 2007, 2006
and 2005
are presented in conformity with SFAS No. 128, “Earnings Per
Share.”
The
following table is a reconciliation of the numerators and denominators
in
computing earnings per share:
|
Income
(Numerator)
|
Shares
(Denominator)
|
Per-Share
Amounts
|
||||||||
2007
|
||||||||||
Basic
EPS -
|
||||||||||
Income
available to common shareholders
|
$
|
1,514,232
|
9,276,712
|
$
|
.16
|
|||||
Effect
of dilutive securities -
|
||||||||||
Options
and warrants
|
-
|
455,674
|
||||||||
Diluted
EPS -
|
||||||||||
Income
available to common shareholders and assumed conversions
|
$
|
1,514,232
|
9,732,386
|
$
|
.16
|
|||||
2006
|
||||||||||
Basic
EPS -
|
||||||||||
Income
available to common shareholders
|
$
|
1,262,529
|
8,948,328
|
$
|
.14
|
|||||
Effect
of dilutive securities -
|
||||||||||
Options
and warrants
|
-
|
437,814
|
||||||||
Diluted
EPS -
|
||||||||||
Income
available to common shareholders and assumed conversions
|
$
|
1,262,529
|
9,386,142
|
$
|
.13
|
|||||
2005
|
||||||||||
Basic
EPS -
|
||||||||||
Income
available to common shareholders
|
$
|
932,436
|
8,452,435
|
$
|
.11
|
|||||
Effect
of dilutive securities -
|
-
|
672,470
|
||||||||
Options
and warrants
|
||||||||||
Diluted
EPS -
|
||||||||||
Income
available to common shareholders and assumed conversions
|
$
|
932,436
|
9,124,905
|
$
|
.10
|
Concentration
of credit risk -
Financial instruments which potentially subject the Company to
concentration of credit risk principally consist of accounts receivable
from state and local government agencies. The risk is mitigated
by the
Company’s procedures for extending credit, follow-up of disputes and
receivable collection procedures. In addition, the Company maintains
its
cash in various bank accounts that at times may exceed federally
insured
limits. (See Note 11).
Reclassifications
-
Certain amounts in the 2006 and 2005 consolidated financial statements
have been reclassified to conform to the 2007 presentation.
Estimates
-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Accounting estimates, in part, are
based upon
assumptions concerning future events. Among the more significant
are those
that relate to collectibility of accounts receivable, the estimated
lives
and recoverability of long-lived assets, including goodwill and
other
assets. Accounting estimates reflect the best judgment of management
and
actual results may differ from those estimates.
|
Fair
value of financial instruments -
Statement of Financial Accounting Standards No. 107, “Disclosures about
Fair Value of Financial Instruments,” requires all entities to disclose
the fair value of certain financial instruments in their financial
statements. The Company estimates that the fair value of its cash,
accounts and notes receivable, accounts payable and accrued expenses
approximates their carrying amounts due to the short maturity of
these
instruments. Substantially all long-term debt bears interest at
variable
rates currently available to the Company; accordingly, their carrying
amounts approximate their fair value.
Accounting
for stock-based compensation -
Prior to 2006, the Company followed Accounting Principles Board
Opinion
(“APB”) No. 25, “Accounting for Stock Issued to
Employees,”
and
related Interpretations in accounting for its stock-based compensation
plans. Under APB No. 25, no compensation expense was recognized for
stock options when the exercise price of the options equaled the
market
price of the stock at the date of grant. Compensation expense was
recognized on a straight-line basis for stock awards based on the
vesting
period and the market price at the date of the award.
On
January 1, 2006, the Company adopted FASB Statement No. 123
(revised 2004), “Share-Based Payment”
(“Statement
No. 123(R)”), which requires the measurement and recognition of
compensation expense for all share-based payments to employees,
including
grants of stock and employee stock options, based on estimated
fair
values. Statement No. 123(R) supersedes the Company’s previous
accounting under APB No. 25 for periods beginning in 2006. The
Company adopted Statement No. 123(R) using the modified
prospective transition method. The Company’s consolidated financial
statements for the years ended December 31, 2007 and 2006, reflect
the
impact of Statement No. 123(R). In accordance with the modified
prospective transition method, the Company’s consolidated financial
statements for prior periods have not been restated to reflect
the impact
of Statement No. 123(R).
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. Stock-based compensation expense recognized
in the
Company's consolidated statements for the years ended December
31, 2007
and 2006 includes compensation expense for share-based payment
awards
granted prior to, but not yet vested as of December 31, 2005 based on
the grant date fair value estimated in accordance with the pro
forma
disclosure provisions of Statement No. 123 and compensation expense
for the share-based payment awards granted subsequent to December 31,
2005 based on the grant date fair value estimated in accordance
with the
provisions of Statement No. 123(R).
|
The following table summarizes stock-based compensation expense, which is included in selling, general and administrative expense, related to all share-based payments recognized in the consolidated statements of income. |
2007
|
|
2006
|
|||||
Stock
options
|
$
|
5,000
|
$
|
61,261
|
|||
Stock
grants - other
|
173,714
|
-
|
|||||
Service
based awards
|
124,275
|
80,000
|
|||||
Performance
based awards
|
81,198
|
108,000
|
|||||
Tax benefits | (161,400 | ) | (103,694 | ) | |||
Stock-based compensation expense, net of tax | $ | 222,787 | $ | 145,567 | |||
Effect
on basic and diluted earnings per share
|
$
|
0.02
|
$
|
0.02
|
Stock
Grants - Other
The
outside Board of Directors are granted shares of common stock at
the end
of each quarter as compensation for services provided as members
of the
Board of Directors and other committees. These share grants vest
immediately. In addition, stock grants may be issued to employees
at the
Board of Directors discretion. In December 2007, the Board of Directors
granted shares of common stock to certain executives. These share
grants
vest immediately.
Service
Based Awards
In
January 2006 and May 2007, the Company granted 60,000 and 22,000
restricted shares, respectively, to certain executives at no cost.
These
shares vest ratably 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. The aggregate grant date fair value of restricted
stock
grants was $537,100. As of December 31, 2007 and 2006, the Company
had
$332,825 and $280,000, respectively, of total unrecognized compensation
costs related to unvested restricted stock expected to be recognized
over
a weighted average period of 2.87 years.
A
summary of the status of the Company’s nonvested service shares is as
follows:
|
Nonvested
Shares
|
Shares
|
Weighted-Average
Grant-Date
Fair
Value
|
|||||
|
|||||||
Nonvested
at January 1, 2006
|
-
|
$
|
-
|
||||
Granted
during 2006
|
60,000
|
6.00
|
|||||
Vested
during 2006
|
(12,500
|
)
|
6.00
|
||||
Forfeited
during 2006
|
-
|
-
|
|||||
Nonvested
at December 31, 2006
|
47,500
|
6.00
|
|||||
Granted
during 2007
|
22,000
|
8.05
|
|||||
Vested
during 2007
|
(19,000
|
)
|
6.59
|
||||
Forfeited
during 2007
|
-
|
-
|
|||||
Nonvested
at December 31, 2007
|
50,500
|
$
|
6.67
|
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 December 31, 2007
there
were 18,000 shares vested. As of December 31, 2006, no shares were
vested.
As of December 31, 2007 and 2006, there was $601,135 and $432,000,
respectively, of total unrecognized compensation costs related
to unvested
share awards; that cost is expected to be recognized over a period
of 3.00
years.
A
summary of the status of the Company’s nonvested performance shares is as
follows:
|
Nonvested
Shares
|
Shares
|
Weighted-Average
Grant-Date Fair
Value
|
|||||
Nonvested
at January 1, 2006
|
-
|
$
|
-
|
||||
Granted
during 2006
|
90,000
|
6.00
|
|||||
Vested
during 2006
|
-
|
-
|
|||||
Forfeited
during 2006
|
-
|
-
|
|||||
Nonvested
at December 31, 2006
|
90,000
|
6.00
|
|||||
Granted
during 2007
|
46,000
|
8.05
|
|||||
Vested
during 2007
|
(18,000
|
)
|
6.00
|
||||
Forfeited
during 2007
|
(
6,000
|
)
|
6.00
|
||||
Nonvested
at December 31, 2007
|
112,000
|
$
|
6.84
|
The
following table illustrates pro forma net income and pro forma
earnings
per share as if the Company had applied the fair value recognition
provisions of Financial Accounting Standards Board (“FASB”) Statement
No. 123, “Accounting for Stock-Based Compensation”
(“Statement
No. 123”), to stock-based employee compensation in
2005.
|
Year
Ended
December
31,
|
||||
2005
|
||||
Net
income, as reported
|
$
|
932,436
|
||
Deduct:
Total stock-based
|
||||
employee
compensation
|
||||
expense
determined under
|
||||
fair
value based method,
|
||||
net
of tax
|
(136,055
|
)
|
||
Pro
forma net income
|
$
|
796,381
|
||
Earnings
per share:
|
||||
Basic
- as reported
|
$
|
0.11
|
||
Basic
- pro forma
|
$
|
0.09
|
||
Diluted
- as reported
|
$
|
0.10
|
||
Diluted
- pro forma
|
$
|
0.09
|
The
weighted average grant date fair value of options granted in 2007,
2006
and 2005 was $5,000, $61,261 and $238,090, respectively.
The
fair value of options at date of grant was estimated by Chartered
Capital
Advisors, Inc. using the Black-Scholes model with the following
weighted
average assumptions:
|
2007
|
|
2006
|
|
2005
|
||||||
Expected
life (years)
|
2
|
2
|
2
|
|||||||
Risk
free interest rate
|
3.24
|
% |
4.94
|
%
|
4.31
|
%
|
||||
Expected
volatility
|
33.11
|
% |
23.26
|
%
|
18.39
|
%
|
||||
Expected
dividend yield
|
-
|
-
|
-
|
Recent
accounting pronouncements
-
In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections,” a replacement of APB No. 20 and SFAS No. 3. SFAS No. 154
applies to all voluntary changes in accounting principle and changes
the
requirements for accounting for and reporting of a change in accounting
principle to be applied retrospectively with all prior period financial
statements presented on the new accounting principle. SFAS No. 154
is
effective for accounting changes and correction of errors made in
fiscal
years beginning after December 15, 2005. The Company adopted SFAS
No. 154
and the adoption of this statement did not have a material impact
on the
consolidated results of operations or financial position.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
which defines fair value, establishes guidelines for measuring
fair value
and expands disclosure regarding fair value measurements. SFAS
No. 157
does not require new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements. SFAS No. 157 is effective for financial statements
issued
for fiscal years beginning after November 15, 2007. We do not expect
the
adoption of SFAS No. 157 to have a material effect on our financial
statements.
In
September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 108, “Financial Statements - Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements
in
Current Year Financial Statements.” SAB No. 108 provides interpretive
guidance on how the effects of prior year uncorrected misstatements
should
be considered when quantifying misstatements in the current year
financial
statements. SAB No. 108 is effective for years ending after November
15,
2006. The adoption of the provisions of SAB No. 108 did not have
a
material impact on the financial position or results of
operations.
|
In December 2007, the FASB issued SFAS No. 141(R) (revised 2007), “SFAS 141(R),” “Business Combinations,” which replaces SFAS 141. The statement provides a broader definition of the “Acquirer” and establishes principles and requirements of how the Acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed as well as how the acquirer recognizes and measures the goodwill acquired in the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or the beginning of the first annual reporting period beginning on or after December 15, 2008. |
2.
Intangible
Assets and Goodwill
|
Intangible
assets consist of the following:
|
December
31, 2007
|
December
31, 2006
|
||||||||||||
Gross
Carrying Amount
|
Accumulated
Amortization
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
||||||||||
Account
acquisitions
|
$
|
1,830,361
|
$
|
1,148,513
|
$ | 1,837,293 |
$
|
1,044,976
|
|||||
Noncompete
agreements
|
330,000
|
156,479
|
315,000
|
91,979
|
|||||||||
Customer
lists
|
5,349,938
|
2,161,773
|
5,043,345
|
1,234,337
|
|||||||||
Licensing
agreement (a)
|
1,115,000
|
926,308
|
1,115,000
|
823,385
|
|||||||||
Total
|
$
|
8,625,299
|
$
|
4,393,073
|
$ | 8,310,638 |
$
|
3,194,677
|
(a)
- On November 1, 2001, the Company entered into a five-year Cooperative
Licensing, Development, Services and Marketing Agreement with HHN
(the
“HHN Agreement”) pursuant to which the Company developed,
with the assistance of HHN
,
a
new integrated appliance combining the features of the Company’s PERS
product with HHN’s technology
.
The agreement was amended on June 30, 2005 and includes an extension
of
the initial term for an additional three years, through October
31, 2009.
Amortization
expense of intangible assets for the years ended December 2007,
2006 and
2005 was approximately $1,250,000, $1,014,000 and $632,000, respectively,
and annual estimated amortization, based on the current amount
of
intangible assets, is as follows:
|
Years
Ending December 31,
|
||||
2008
|
$
|
1,209,000
|
||
2009
|
1,025,000
|
|||
2010
|
852,000
|
|||
2011
|
443,000
|
|||
2012
|
339,000
|
|||
Thereafter
|
364,000
|
Changes in the carrying amount of goodwill, all of which relate to the Company’s TBCS segment, for the years ended December 31, 2007 and 2006 are as follows: |
Balance
as of January 1, 2006
|
$
|
6,086,428
|
||
Additional
Goodwill
|
3,446,533
|
|||
Balance
as of December 31, 2006
|
9,532,961
|
|||
Additional
Goodwill
|
233,233
|
|||
Balance
as of December 31, 2007
|
$
|
9,766,194
|
Additions
to goodwill during 2007 consist of $233,233 relating to the acquisition
of
American Mediconnect, Inc. The 2006 additions to goodwill include
$1,160,236, $2,255,804 and $30,493 relating to the acquisitions
of
American Mediconnect, Inc., Rhode Island Medical Bureau and Capital
Medical and Answer Connecticut, Inc.,
respectively.
|
3.
Long-Term
Debt
|
Long-term
debt consists of the following:
|
December
31,
|
|
||||||
|
|
2007
|
|
2006
|
|||
Term
loans - bank
|
$
|
4,586,667
|
$
|
6,125,000
|
|||
Revolving
credit line - bank
|
1,300,000
|
750,000
|
|||||
Note
payable - other
|
205,908
|
300,000
|
|||||
Auto
loans
|
16,160
|
29,395
|
|||||
6,108,735
|
7,204,395
|
||||||
Less
current portion of long-term debt
|
1,414,419
|
1,527,327
|
|||||
$
|
4,694,316
|
$
|
5,677,068
|
Term
loans payable and revolving credit line - bank -
As
of January 1, 2006 the Company had a credit facility arrangement
for
$4,500,000 which included a revolving credit line which permitted
borrowings of $1,500,000 (based on eligible receivables as defined)
and a
$3,000,000 term loan payable. The term loan is payable in equal
monthly
principal installments of $50,000 over five years commencing January
2006.
The revolving credit line was set to mature in May 2008.
In
March 2006 and December 2006, the credit facility was amended whereby
the
Company obtained an additional $2,500,000 and $1,600,000 of term
loans,
the proceeds of which were utilized to finance the acquisitions
of MD
OnCall and American Mediconnect, Inc. These term loans are payable
over
five years in equal monthly principal installments of $41,666.67
and
$26,666.67, respectively. Additionally, certain of the covenants
were
amended.
|
In
December 2006, the credit facility was amended to reduce the interest
rates charged by the bank such that borrowings under the term loan
will
bear interest at either (a) LIBOR plus 2.00% or (b) the prime rate
or the
federal funds effective rate plus .5%, whichever is greater, and
the
revolving credit line will bear interest at either (a) LIBOR plus
1.75% or
(b) the prime rate or the federal funds effective rate plus .5%,
whichever
is greater. The LIBOR interest rate charge shall be adjusted in .25%
intervals based on the Company’s ratio of Consolidated Funded Debt to
Consolidated EBITDA. In the third quarter of 2007, the interest
rate was
reduced by .25% based on this ratio. The Company has the option
to choose
between the two interest rate options under the amended term loan
and
revolving credit line. Borrowings under the credit facility are
collateralized by substantially all of the assets of the
Company.
On
April 30, 2007, the Company amended its credit facility whereby
the term
of the revolving credit line was extended through June 2010 and
the amount
of credit available under the revolving credit line was increased
to
$2,500,000.
As
of December 31, 2007, the Company was not in compliance with one
of its
financial covenants in its loan agreement. The lender waived the
non-compliance as of such date and entered into an amendment to
the credit
facility.
As
of December 31, 2006, the Company was in compliance with the financial
covenants in its loan agreement.
Note
payable - other -
In
December 2006, in connection with the acquisition of certain PERS
accounts, the Company executed a note in the amount of $300,000.
The note
is payable in twelve equal quarterly installments of $27,515 commencing
in
February 2007, which includes interest at a fixed rate of 6%.
Principal
payment requirements -
Aggregate maturities of long-term debt are as follows:
|
Years
ending December 31,
|
||||
2008
|
$
|
1,414,419
|
||
2009
|
1,529,316
|
|||
2010
|
2,720,000
|
|||
2011
|
445,000
|
|||
$
|
6,108,735
|
Covenants - The above agreements provide for negative and affirmative covenants including those related to working capital and other borrowings. |
4.
Acquisitions
|
On
December 21, 2006, the Company acquired substantially all of the
assets
of
American Mediconnect, Inc. and PhoneScreen, Inc., Illinois based
companies
under common ownership (collectively “AMI”)
,
AMI is a provider of telephone after-hour answering services primarily
focused on hospitals, physicians and other health care providers
and
PhoneScreen, Inc. is a provider of call center and compliance monitoring
services to hospitals, pharmaceutical companies and clinical resource
organizations. The purchase price was $2,028,830 and consisted
of an
initial cash payment of $1,493,730, common stock valued at $229,324
and a
future cash payment of $305,776, which was paid in December 2007.
In
addition, for the following three years the Company shall pay Seller
an
amount equal to twenty-five (25%) percent of the cash receipts
collected
by the Company, excluding sales taxes, from the PhoneScreen business.
For
the year ended December 31, 2007, the Company recorded $225,691
of
additional purchase price based on PhoneScreen cash receipts of
which
$73,896 was not paid as of December 31, 2007. The Company also
incurred
professional fees of approximately $65,000. A potential exists
for the
payment of additional purchase price consideration if certain thresholds
concerning revenue and earnings of the acquired business are met
as of
December 31, 2007, 2008 and 2009. The threshold was not met for
2007. The
results of operations of AMI are included in the TBCS segment as
of the
date of acquisition.
The
following table summarizes the fair values of the assets acquired
as of
December 31, 2007:
|
Fixed
assets
|
$
|
175,000
|
||
Non-compete
agreement
|
50,000 | |||
Customer
list
|
700,000 | |||
Goodwill
|
1,393,469 | |||
Cost
to acquire AMI
|
$
|
2,318,469
|
|
On
March 10, 2006, the Company acquired
substantially all of the assets of
MD
OnCall, a Rhode Island based company and Capitol Medical
Bureau,
a
Maryland based company (collectively “MD OnCall”)
,
providers of telephone after-hour answering services and stand-alone
voice
mail services. The purchase price was $3,382,443 and consisted
of an
initial cash payment of $2,696,315, common stock valued at $343,064
and
future cash payments of $343,064, which was paid in full as of
March 2007.
The Company also recorded finder and professional fees of approximately
$181,000. A potential exists for the payment of additional purchase
price
consideration if certain thresholds concerning revenues and earnings
of
the acquired business are met as of March 31, 2007, 2008 and 2009.
The
first threshold as of March 31, 2007 was not met. The results of
operations of MD OnCall are included in the TBCS segment as of
the date of
acquisition.
|
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. |
Accounts
receivable
|
$
|
138,798
|
||
Fixed
assets
|
260,000 | |||
Non-compete
agreement
|
50,000 | |||
Customer
list
|
1,050,000 | |||
Goodwill
|
2,255,804 | |||
Capital
lease obligations
|
(142,625 | ) | ||
Customer
deposits
|
(48,200 | ) | ||
Cost
to acquire MD OnCall
|
$
|
3,563,777
|
On
December 9, 2005, the Company acquired substantially all of the
assets of
Answer Connecticut, Inc. (“ACT”), a Connecticut based provider of
telephone after-hour answering services and stand-alone voice mail
services. The purchase price was $3,088,923 and consisted of an
initial
cash payment of $2,316,692, common stock valued at $154,446 and
future
cash payments of $617,785, which were paid as of December 2006.
The
Company also recorded professional fees of approximately $62,000.
A
potential exists for the payment of additional purchase price
consideration if certain thresholds concerning revenues and earnings
of
the acquired business are met as of December 31, 2006, 2007 and
2008. The
threshold was not met for 2007 and 2006. The results of operations
of ACT
are included in the TBCS segment as of the date of acquisition.
The
following table summarizes the fair values of the assets acquired
at the
date of acquisition.
|
Accounts
receivable
|
$
|
95,182
|
||
Fixed
assets
|
150,000
|
|||
Non-compete
agreement
|
50,000
|
|||
Customer
list
|
1,000,000
|
|||
Goodwill
|
1,855,873
|
|||
Cost
to acquire ACT
|
$
|
3,151,055
|
On October 3, 2005, the Company acquired substantially all of the assets of North Shore Answering Service (“NSAS”), a Long Island, New York based provider of telephone after-hour answering services. The purchase price was $2,719,461 and consisted of an initial cash payment of $2,175,569 and future cash payments of $543,892, which were paid as of December 2006. The Company also recorded professional fees of approximately $82,000. The results of operations of NSAS are included in the TBCS segment as of the date of acquisition. |
The
following table summarizes the fair values of the assets acquired
at the
date of acquisition.
|
Accounts
receivable
|
$
|
24,760
|
||
Fixed
assets
|
60,000
|
|||
Non-compete
agreement
|
50,000
|
|||
Customer
list
|
1,200,000
|
|||
Goodwill
|
1,466,489
|
|||
Cost
to acquire NSAS
|
$
|
2,801,249
|
On
May 17, 2005, the Company acquired substantially all of the assets
of Long
Island Message Center, Inc. (“LIMC”), a Long Island, New York based
provider of telephone after-hour answering services. The purchase
price
was $397,712 and consisted of an initial cash payment of $318,170
and a
future cash payment of $79,542, which was paid in February 2006.
The
Company also recorded finder and professional fees of approximately
$46,000. The results of operations of LIMC are included in the
TBCS
segment as of the date of acquisition.
The
following table summarizes the fair values of the assets acquired
at the
date of acquisition.
|
Accounts
receivable
|
$
|
12,948
|
||
Non-compete
agreement
|
25,000
|
|||
Customer
list
|
175,000
|
|||
Goodwill
|
230,695
|
|||
Cost
to acquire LIMC
|
$
|
443,643
|
In
the case of each of the acquisitions, the Company received a third
party
valuation from Chartered Capital Advisors, Inc. of certain intangible
assets in determining the allocation of purchase price.
The
purchase price of each acquisition exceeded the fair value of the
identifiable net assets acquired inasmuch as these acquisitions
were
consummated to enable the Company to expand its presence in the
telephone
answering service business into new regions or to strengthen its
position
in areas where it was already operating. Furthermore, the acquisitions
were done for the business' future cash flows and net earnings
as opposed
to solely for the identifiable tangible and intangible assets.
The Company
expects all goodwill arising from the above acquisitions will be
deductible for tax purposes.
|
Unaudited
pro forma results of operations for the years ended December 31,
2006 and
2005 as if Long Island Message Center, North Shore Answering Service,
Answer Connecticut, Inc., MD OnCall and American Mediconnect, Inc.
had
been acquired as of the beginning of 2005 follow. The pro forma
results
include estimates which management believes are
reasonable.
|
Years
Ended December 31,
|
|
|||||||||
|
|
2007
|
|
2006
|
|
2005
|
|
|||
|
|
Actual
|
|
Proforma
|
|
Proforma
|
||||
Revenue
|
$
|
35,645,265
|
$
|
34,381,000
|
$
|
32,633,000
|
||||
Net
income
|
1,514,232
|
1,304,000
|
1,238,000
|
|||||||
Net
income per share
|
||||||||||
Basic
|
$
|
.16
|
$
|
.15
|
$
|
.14
|
||||
Diluted
|
$
|
.16
|
$
|
.14
|
$
|
.13
|
The unaudited pro forma results of operations do not purport to represent what the Company’s results of operations would actually have been had the acquisitions been effected for the periods presented, or to predict the Company’s results of operations for any future period. |
5.
Related
Party Transactions
|
Notes
receivable at December 31, 2007 and 2006 of $48,071 and $73,713,
respectively, represent amounts due from the Chairman and principal
shareholder of the Company. In July 2002, the amount due from this
individual, plus accrued interest, was converted into a term loan,
which
bears interest at a rate of 5% per annum and is payable in monthly
installments of principal and interest through September
2009.
See
Note 7 for other related party
transactions.
|
6.
Income
Taxes
|
The
provision (benefit) for income taxes consists of the
following:
|
Years
Ended December 31,
|
|
|||||||||
|
|
2007
|
|
2006
|
|
2005
|
||||
Current:
|
||||||||||
Federal
|
$
|
915,000
|
$
|
575,000
|
$
|
594,000
|
||||
State
and local
|
312,000
|
203,000
|
123,000
|
|||||||
1,227,000
|
778,000
|
717,000
|
||||||||
Deferred:
|
||||||||||
Federal
|
(115,000
|
)
|
61,000
|
34,000
|
||||||
State
and local
|
34,000
|
30,000
|
115,000
|
|||||||
(81,000
|
)
|
91,000
|
149,000
|
|||||||
Total
|
$
|
1,146,000
|
$
|
869,000
|
$
|
866,000
|
The following is a reconciliation of the statutory federal income tax rate and the effective rate of the provision for income taxes: |
Years
Ended December 31,
|
|
|||||||||
|
|
2007
|
|
2006
|
|
2005
|
||||
Statutory
federal income tax rate
|
34
|
%
|
34
|
%
|
34
|
%
|
||||
State
and local taxes
|
8
|
7
|
9
|
|||||||
Permanent
differences
|
1
|
1
|
1
|
|||||||
Other
|
-
|
(1
|
)
|
4
|
||||||
Effective
income tax rate
|
43
|
%
|
41
|
%
|
48
|
%
|
The tax effects of significant items comprising the Company’s deferred taxes at December 31, 2007 and 2006 are as follows: |
December
31,
|
|||||||
2007
|
2006
|
||||||
Deferred
tax liabilities:
|
|||||||
Difference
between book and tax bases of property
|
$
|
(1,115,000
|
)
|
$
|
(1,184,000
|
)
|
|
Deferred
tax assets:
|
|||||||
Reserves
and accrued expenses not currently deductible
|
443,000
|
394,000
|
|||||
Other
|
-
|
37,000
|
|||||
Total
|
443,000
|
431,000
|
|||||
Net
deferred tax liabilities
|
$
|
(672,000
|
)
|
$
|
(753,000
|
)
|
7.
Commitments
|
Capital leases - The Company is obligated under certain capital lease agreements for monitoring equipment and computer software that expire on various dates through 2009. Equipment and computer software under capital leases included in fixed assets are as follows: |
December
31,
|
|||||||
|
2007
|
2006
|
|||||
Monitoring
equipment and software
|
$
|
160,000
|
$
|
160,000
|
|||
Less
accumulated depreciation
|
(48,000
|
)
|
(16,000
|
)
|
|||
$
|
112,000
|
$
|
144,000
|
The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 2007: |
Years
ending December 31,
|
||||
2008
|
$
|
45,895
|
||
2009
|
33,359
|
|||
Total
minimum lease payments
|
79,254
|
|||
Less
amounts representing interest
|
4,814
|
|||
Present
value of net minimum lease payments
|
74,440
|
|||
Less
current portion
|
42,015
|
|||
Obligation
under capital leases, less current portion
|
$
|
32,425
|
Operating
leases -
The
Company rents an office facility from its Chairman and principal
shareholder pursuant to a lease, which expired in September 2007.
The
lease called for minimum annual rentals, subject to 5% annual increases,
plus reimbursement for real estate taxes. The Company through contract
amendments has extended the term through September 30, 2008 under
the same
terms and conditions that existed at September 30, 2007.
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 New
York City based telephone answering service facility and Oceanside,
New
York Emergency Response Center and Customer Service facilities.
The
fifteen (15) year lease term commenced in April 2003. The lease
calls for
minimum annual rentals of $269,500, 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
$115,000, respectively, and are subject to increases in accordance
with
the terms of the agreements. The Company is also responsible for
the
reimbursement of real estate taxes.
The
Company has also entered into various other operating leases for
warehouse
and office space in Medford, New Jersey, Decatur, Georgia, Countryside,
Illinois, Parker, Colorado and Redondo Beach, California. Additionally,
the Company has entered into operating leases for its TBCS call
center
operations in Audubon, New Jersey, Port Jefferson, New York, Newington,
Connecticut, Springfield, Massachusetts, Rockville, Maryland, Cranston,
Rhode Island, Chicago, Illinois and Clovis, New Mexico.
|
Rent
expense was $1,340,506 in 2007, $1,270,767 in 2006 and $709,044
in 2005
which includes $138,545, $133,140 and $133,861, respectively, in
connection with the above noted leases with the principal shareholder.
Rent expense includes real estate taxes of $34,970 in 2007, $23,174
in
2006 and $17,831 in 2005.
The
aggregate minimum annual rental commitments under non-cancelable
operating
leases are as follows:
|
Years
ending December 31,
|
||||
2008
|
$
|
1,037,260
|
||
2009
|
909,991
|
|||
2010
|
864,852
|
|||
2011
|
799,751
|
|||
2012
|
816,791
|
|||
Thereafter
|
4,276,280
|
|||
$
|
8,704,925
|
Approximately
1% of the minimum annual rental commitments relate to the above
noted
lease with the principal shareholder.
Employment
agreements -
On
November 11, 2005, the Company entered into a five-year employment
agreement (which became effective January 1, 2006) with the Company’s
President and now Chief Executive Officer. During the term of the
agreement, the base salary will range from $240,000 to $300,000.
In
addition, the agreement provides for an annual stock grant and
includes
incentive compensation, in the form of stock, based on the Company
meeting
certain operating criteria. (See Note 1)
The
Company has also entered into other employment agreements with
certain
officers and other employees in the ordinary course of business.
The
aggregate annual base salaries under these agreements are as
follows:
|
Years
ending December 31,
|
||||
2008
|
$
|
2,343,000
|
||
2009
|
1,519,000
|
|||
2010
|
589,000
|
|||
$
|
4,451,000
|
In
addition, certain of these employees are entitled to receive additional
cash and stock compensation if certain performance criteria are
met.
During 2007, one officer earned approximately $48,000 in cash and
stock
compensation. No additional compensation was paid during the years
ended
December 31, 2006 and 2005.
Purchase
commitments -
In
the normal course of business the Company issues purchase orders
to
purchase its traditional PERS systems. At December 31, 2007 and
2006, the
Company had commitments to third party vendors in the amount of
approximately $1,130,000 and $1,850,000, respectively.
|
8.
Common
Stock and Options
|
The
Company has one stock option plan, the 2000 Stock Option Plan (“2000
Plan”). The Company’s 1991 Stock Option Plan (“1991 Plan”) and 1997 Stock
Option Plan (“1997 Plan”) expired in 2001 and 2007, respectively.
Additionally, the Company has a stock incentive plan, the 2005
Stock
Incentive Plan.
Under
the 1991 Plan, as amended, a maximum of 750,000 shares underlying
stock
options were available for grant as either Incentive Stock Options
or
Nonstatutory Stock Options. The last options granted under this
Plan were
issued in 2001 and expired in 2006. All options under this Plan
were
granted at exercise prices equal to the fair market value of the
Company’s
common shares at the date of grant.
Under
the 1997 Plan a maximum of 750,000 shares underlying stock options
were
available for grant as either Incentive Stock Options or Nonstatutory
Stock Options. The last options granted under this Plan were issued
in
2005 and expire in 2015. All options under this Plan were granted
at
exercise prices equal to the fair market value of the Company’s common
shares at the date of grant.
Under
the 2000 Plan, a maximum of 1,250,000 shares underlying stock options
may
be granted. Options granted under this Plan may either be Incentive
Stock
Options (“ISOs”) or Nonqualified Stock Options.
Under
the 2005 Plan, a maximum of 750,000 shares of the Company's Common
Stock
may be granted to employees (including officers and directors who
are
employees) and non-employee directors of the Company. No grants
may be
made pursuant to the 2005 Plan after June 22, 2015. The Plan provides
for
the grant of (i) incentive stock options ("ISOs"), (ii) nonqualified
stock
options, (iii) stock awards, and (iv) stock appreciation rights
(“SARS”).
All
of the Company's plans are administered by the Board of Directors
or a
committee of the Board of Directors (the "Administrator"). In general,
the
Administrator determines all terms for the grant of awards under
the
plans. The exercise price of an ISO or SAR may not be less than
the fair
value of the Company's common stock on the date of grant (110%
of such
fair market value for an ISO if the optionee owns (or is deemed
to own)
more than 10% of the voting power of the
Company).
|
Information
with respect to options outstanding under plans is as
follows:
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Term(years)
|
|
Aggregate
Intrinsic Value
|
|||||||
Balance
- January 1, 2005
|
1,440,845
|
2.87
|
4.77
|
$
|
3,395,054
|
||||||||
Granted
during 2005
|
254,758
|
6.32
|
|||||||||||
Forfeitures/expiration
during 2005
|
(23,312
|
)
|
3.01
|
||||||||||
Exercised
during 2005
|
(385,008
|
)
|
2.80
|
||||||||||
Balance
- December 31, 2005
|
1,287,283
|
3.56
|
5.13
|
$
|
3,393,074
|
||||||||
Granted
during 2006
|
66,000
|
5.37
|
|||||||||||
Forfeitures/expiration
during 2006
|
(46,954
|
)
|
4.35
|
||||||||||
Exercised
during 2006
|
(253,511
|
)
|
1.97
|
||||||||||
Balance
- December 31, 2006
|
1,052,818
|
$
|
4.02
|
5.12
|
$
|
2,805,698
|
|||||||
Granted
during 2007
|
5,000
|
7.13
|
|||||||||||
Forfeitures/expiration
during 2007
|
(55,056
|
)
|
4.33
|
||||||||||
Exercised
during 2007
|
(80,489
|
)
|
4.18
|
||||||||||
Balance
- December 31, 2007
|
922,273
|
$
|
4.01
|
4.13
|
$
|
2,785,633
|
At
December 31, 2007, 2006 and 2005, 922,273, 1,052,818, and 1,279,783
options were exercisable, respectively.
The
aggregate intrinsic value of options exercised during the years
ended
December 31, 2007, 2006 and 2005 was $307,465, $993,080 and $1,357,957,
respectively. At January 1, 2006 there were 7,500 nonvested stock
options
outstanding. During the year ended December 31, 2006, 2,500 options
vested and 5,000 options were forfeited. There are no nonvested
stock
options outstanding as of December 31, 2007 and
2006.
|
The following table summarizes information about the stock options outstanding at December 31, 2007: |
Options
Outstanding
|
|
Options
Exercisable
|
||||||||||||||
Range
of Exercise Prices
|
Number
Outstanding
|
|
Weighted-Average
Remaining Contractual Term
|
|
Weighted-Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|||||||
$2.00
- $3.00
|
315,318
|
3.96
|
$
|
2.42
|
315,318
|
$
|
2.42
|
|||||||||
$3.00
- $4.50
|
336,355
|
5.02
|
3.83
|
336,355
|
3.83
|
|||||||||||
$4.50
- $6.75
|
240,600
|
3.24
|
5.98
|
240,600
|
5.98
|
|||||||||||
$6.75
- $10.13
|
30,000
|
3.13
|
6.96
|
30,000
|
6.96
|
|||||||||||
922,273
|
4.13
|
$
|
4.01
|
922,273
|
$
|
4.01
|
As
of December 31, 2007, 106,644 and 349,929 shares of common stock
are
available for future grants under the 2000 and 2005 Plans,
respectively.
|
9.
Other
Income
|
Other
income for the years ended December 2007, 2006 and 2005 includes
Relocation and Employment Assistance Program (“REAP”) credits in the
approximate amounts of $530,000, $458,000 and $392,000, respectively.
In
connection with the relocation of certain operations to Long Island
City,
New York, the Company became eligible for the REAP credit which
is based
upon the number of employees relocated to this designated REAP
area. The
REAP is in effect for a twelve year period; during the first five
years,
ending on December 31, 2007, the Company will be refunded the full
amount
of the eligible credit and, thereafter, the benefit will be available
only
as a credit against New York City income taxes.
In
addition, other income for 2007 includes $425,000 from a settlement
agreement. In August 2007, the Company entered into a settlement
agreement
whereby a third party has agreed to reimburse the Company a net
amount of
$425,000 for matters related to certain product and warranty disputes.
This reimbursement is associated with costs that have primarily
been
incurred in previous years relating to engineering, payroll and
related
costs and depreciation pertaining to the affected assets. The Company
anticipates receiving this reimbursement over approximately two
years.
During the third quarter 2007, the Company has recorded a write-down
on
the assets affected of approximately $111,000 which is reflected
in the
Cost of Services.
|
10.
Employee
Savings Plan
|
The
Company sponsors a 401(k) savings plan that is available to all
eligible
employees. Participants may elect to defer a portion of their
compensation, subject to an annual limitation provided by the Internal
Revenue Service. The Company may make matching and/or profit sharing
contributions to the plan at its discretion. The Company contributed
$27,010, $21,682 and $21,336 for the years ended December 31, 2007,
2006
and 2005, respectively.
|
11.
Major
Customers
|
Since
1983, the Company has provided Personal Emergency Response Systems
(“PERS”) services to the City of New York’s Human Resources Administration
Home Care Service Program ("HCSP"). The Company has been operating
since
1993 with a contract, and related extensions, to provide HCSP with
these
services. During the years ended December 31, 2007, 2006 and 2005,
the
Company’s revenue from this contract represented 7%, 8
%
and 12
%,
respectively,
of its total revenue.
In
September 2006, Human Resource Administration (“HRA”) issued a bid
proposal relating to the providing of the PERS services which are
the
subject of the Company’s contract. In October 2007, the Company was
informed they were awarded the contract with respect to this proposal
and
executed such contract. The contract term is two years, commencing
September 21, 2007, with two options to renew in favor of HRA for
two
additional two year terms. Under the terms of the agreement, a
downward
rate adjustment was made in conjunction with reduced equipment
requirements from previous years. The estimated impact of this
lower rate
is to reduce this contract’s contribution to gross revenues by
approximately $270,000 and its contribution to net income by approximately
$150,000 on an annual basis.
The
Company was notified that one of the bidders has filed an Article
78
proceeding seeking a reversal of HRA's determination that the Company
was
the lowest qualified bidder. HRA and the Company are defending
the
proceeding. The Company’s management believes the claim to be without
merit.
As
of December 31, 2007 and 2006, accounts receivable from the contract
represented 10% and 9%, respectively, of accounts receivable and
medical
devices in service under the contract represented approximately
13% and
14%, respectively, of medical devices. Legal and other fees of
approximately $97,000, $90,000 and $120,000 relating to the contract
extensions were expensed in 2007, 2006 and 2005,
respectively.
|
12.
Segment
Reporting
|
Effective
January 1, 2007, the Company has two reportable segments, (i) Health
and
Safety Monitoring Systems (“HSMS”) and (ii) Telephone Based Communication
Services (“TBCS”). Prior to January 1, 2007, the Company reported three
reportable segments; HSMS, TBCS and Safe Com. Since the business
activities of Safe Com fall within Health and Safety monitoring,
the
Company included the activities of Safe Com in its HSMS segment.
|
The
table below provides a reconciliation of segment information to
total
consolidated information for the years ended 2007, 2006 and
2005:
|
2007
|
||||||||||
HSMS
|
TBCS
|
Consolidated
|
||||||||
|
|
|
|
|||||||
Revenue
|
$
|
17,353,241
|
$
|
18,292,024
|
$
|
35,645,265
|
||||
Interest
expense
|
94,851
|
386,315
|
481,166
|
|||||||
Depreciation
and amortization
|
2,788,298
|
1,513,820
|
4,302,118
|
|||||||
Income
tax expense
|
763,149
|
382,851
|
1,146,000
|
|||||||
Net
income
|
906,835
|
607,397
|
1,514,232
|
|||||||
Total
assets
|
16,447,638
|
18,505,583
|
34,953,221
|
|||||||
Additions
to fixed assets
|
4,237,782
|
305,302
|
4,543,084
|
|||||||
Additions
to goodwill and intangible assets
|
35,000
|
554,826
|
589,826
|
|
2006
|
|
||||||||
|
|
|
|
|||||||
|
HSMS
|
TBCS
|
Consolidated
|
|||||||
Revenue
|
$
|
16,044,971
|
$
|
14,749,417
|
$
|
30,794,388
|
||||
Interest
expense
|
38,118
|
356,495
|
394,613
|
|||||||
Depreciation
and amortization
|
2,358,392
|
1,156,870
|
3,515,262
|
|||||||
Income
tax expense
|
171,081
|
697,919
|
869,000
|
|||||||
Net
income
|
204,656
|
1,057,873
|
1,262,529
|
|||||||
Total
assets
|
14,818,050
|
18,224,326
|
33,042,376
|
|||||||
Additions
to fixed assets
|
3,238,164
|
760,088
|
3,998,252
|
|||||||
Additions
to goodwill and intangible assets
|
738,996
|
5,354,878
|
6,093,874
|
2005
|
|
|||||||||
|
|
|
|
|||||||
|
HSMS
|
TBCS
|
Consolidated
|
|||||||
Revenue
|
$
|
14,977,542
|
$
|
7,470,100
|
$
|
22,447,642
|
||||
Interest
expense
|
50,953
|
1,685
|
52,638
|
|||||||
Depreciation
and amortization
|
2,534,583
|
527,085
|
3,061,668
|
|||||||
Income
tax expense
|
381,878
|
484,122
|
866,000
|
|||||||
Net
income
|
289,728
|
642,708
|
932,436
|
|||||||
Total
assets
|
10,278,058
|
16,317,278
|
26,595,336
|
|||||||
Additions
to fixed assets
|
2,790,847
|
402,604
|
3,193,451
|
|||||||
Additions
to goodwill and intangible assets
|
85,262
|
5,962,564
|
6,047,826
|
13.
Contingencies
|
In
addition to the FCC inquiry described in Note 1, the Company is
aware of
various threatened or pending litigation claims against the Company
relating to its products and services and arising in the ordinary
course
of its business. At December 31, 2007 and 2006, no liability has
been
recorded in the accompanying financial statements as the conditions
for an
accrual have not been met. The Company has given its insurance
carrier
notice of such claims and the Company believes there is sufficient
insurance coverage to cover any such claims. In any event, the
Company
believes the disposition of these matters will not have a material
adverse
effect on the results of operations and financial condition of
the
Company.
|
14.
Quarterly Financial Data (Unaudited)
|
The
following information has been derived from unaudited financial
statements
that, in the opinion of management, include all recurring adjustments
necessary for a fair presentation of such
information.
|
Three
Months Ended
|
|||||||||||||
March
31,
|
June
30,
|
September
30,
|
December
31,
|
||||||||||
2007
|
2007
|
2007
|
2007
|
||||||||||
Revenue
|
$
|
8,702,836
|
$
|
8,898,093
|
$
|
8,771,670
|
$
|
9,272,666
|
|||||
Gross
Profit
|
$
|
4,408,568
|
$
|
4,607,108
|
$
|
4,403,849
|
$
|
4,756,522
|
|||||
Net
Income
|
$
|
366,708
|
$
|
407,260
|
$
|
422,929
|
$
|
317,335
|
|||||
Basic
EPS
|
$
|
0.04
|
$
|
0.04
|
$
|
0.05
|
$
|
0.03
|
|||||
Diluted
EPS
|
$
|
0.04
|
$
|
0.04
|
$
|
0.04
|
$
|
0.03
|
|
Three
Months Ended
|
||||||||||||
|
March
31,
|
June
30,
|
September
30,
|
December
31,
|
|||||||||
|
2006
|
2006
|
2006
|
2006
|
|||||||||
|
|
|
|
|
|||||||||
Revenue
|
$
|
7,150,211
|
$
|
7,796,317
|
$
|
7,784,660
|
$
|
8,063,200
|
|||||
Gross
Profit
|
$
|
3,658,555
|
$
|
4,138,040
|
$
|
4,075,442
|
$
|
4,076,350
|
|||||
Net
Income
|
$
|
279,767
|
$
|
244,776
|
$
|
279,421
|
$
|
458,565
|
|||||
Basic
EPS
|
$
|
0.03
|
$
|
0.03
|
$
|
0.03
|
$
|
0.05
|
|||||
Diluted
EPS
|
$
|
0.03
|
$
|
0.03
|
$
|
0.03
|
$
|
0.04
|
Column
B
|
Column
C -
|
Additions
|
Column
D
|
Column
E
|
||||||||||||
|
|
Balance
at Beginning of Period
|
Charge
to Costs and Expenses
|
Charged
to Other Accounts
|
Deductions
|
Balance
at
end
of Period
|
||||||||||
(1)
|
||||||||||||||||
Year
Ended December 31, 2005
|
||||||||||||||||
Allowance
for doubtful accounts
|
$
|
728,361
|
$
|
200,676
|
$
|
23,462
|
$
|
(501,728
|
)
|
$
|
450,771
|
|||||
Allowance
for inventory obsolescence
|
232,094 |
104,445
|
- |
-
|
336,539
|
|||||||||||
Year
Ended December 31, 2006
|
||||||||||||||||
Allowance
for doubtful accounts
|
450,771 |
210,795
|
11,706 |
(125,949
|
)
|
547,323
|
||||||||||
Allowance
for inventory obsolescence
|
336,539 |
-
|
- |
(313,506
|
)
|
23,033
|
||||||||||
Year
Ended December 31, 2007
|
||||||||||||||||
Allowance
for doubtful accounts
|
547,323 |
185,954
|
- |
(179,277
|
)
|
554,000
|
||||||||||
Allowance
for inventory obsolescence
|
$
|
23,033
|
$
|
30,294
|
- |
-
|
$
|
53,327
|
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