<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ______
1-9731
(COMMISSION FILE NO.)
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-0925679
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5910 COURTYARD DRIVE #300
AUSTIN, TEXAS 78731
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(512) 343-6912
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of August 1, 1997 there were 3,563,101 shares of common stock outstanding.
This report consists of 10 pages.
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
June 30, 1997
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .3
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . .3
CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . . . . .3
CONSOLIDATED STATEMENTS OF OPERATIONS. . . . . . . . . . . . . . . . . .4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY . . . . . . .5
CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . . . . .6
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . .8
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities - none. . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities - none. . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders - none. . 10
Item 5. Other Information - none. . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K - none . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Page 2 of 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Unaudited)
June 30, December 31,
ASSETS 1997 1996
----------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 413,948 $ 232,135
Trade and other accounts receivable, net of allowance for doubtful accounts
of $29,608 and $29,864 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,757,147 4,447,624
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,581,991 2,238,436
Deposits, prepaid expenses and other current assets. . . . . . . . . . . . . . . . 267,125 164,879
---------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,020,211 7,083,074
Property and equipment, net of accumulated depreciation of $2,029,283 and
$1,744,302. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,151,715 3,177,862
Patent, software development costs, net of accumulated amortization of $408,192
and $394,122. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,333 99,613
Goodwill, net of accumulated amortization of $564,963 and $504,448 . . . . . . . . . 1,943,110 1,818,625
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493,767 493,767
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,217 291,298
---------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,795,353 $12,964,239
---------- -----------
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 921,558 $ 1,158,660
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . 196,806 256,327
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,355,495 2,390,188
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,587 34,161
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428,784 353,101
---------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,960,230 4,192,437
Bonds payable, and other long-term debt, net of current maturities . . . . . . . . . 1,465,916 671,915
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,965 87,706
---------- -----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,514,111 4,952,058
---------- -----------
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized, none issued. . . . . . - -
Common stock, $.01 par value; 10,000,000 shares authorized;
3,679,216 issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,792 36,792
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,909,307 8,909,307
Treasury stock, 116,115 shares at cost . . . . . . . . . . . . . . . . . . . . . . . (878,786) (878,786)
Unearned ESOP compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,562) (124,991)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,491 69,859
---------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,281,242 8,012,181
---------- -----------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . $12,795,353 $12,964,239
---------- -----------
---------- -----------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Page 3 of 10
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . $2,829,610 $6,670,317 $6,703,141 $12,103,175
Cost of sales. . . . . . . . . . . . . 1,784,481 5,493,525 4,522,616 9,850,088
---------- ---------- ---------- ----------
Gross profit . . . . . . . . . . . . . 1,045,129 1,176,792 2,180,525 2,253,087
---------- ---------- ---------- ----------
Selling and marketing. . . . . . . . . 170,913 146,393 311,867 297,093
General and administrative . . . . . . 556,335 595,686 1,139,879 1,151,062
Research and development . . . . . . . 77,077 42,146 123,296 85,228
Amortization of goodwill . . . . . . . 31,799 28,716 60,515 57,432
---------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . 836,124 812,941 1,635,557 1,590,815
---------- ---------- ---------- ----------
Income from operations . . . . . . . . 209,005 363,851 544,968 662,272
Other income (expense):
Interest expense . . . . . . . . . . (59,998) (79,701) (112,193) (144,395)
Other. . . . . . . . . . . . . . . . (1,913) (2,005) (5,668) (3,360)
---------- ---------- ---------- ----------
Income before income taxes . . . . . . 147,094 282,145 427,107 514,517
Income taxes . . . . . . . . . . . . . (66,301) (143,437) (179,475) (268,977)
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . $ 80,793 $ 138,708 $ 247,632 $ 245,540
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share . . . . . . . . . $ 0.02 $ 0.04 $ 0.07 $ 0.07
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common
and dilutive common equivalent
shares outstanding . . . . . . . . . 3,563,101 3,563,101 3,563,101 3,592,443
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
Page 4 of 10
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
Net Retained
Common Shares Additional Unearned Unrealized Earnings
------------------- Paid-in Treasury ESOP Securities (Accumulated
Number Amount Capital Stock Compensation Gains Deficit) Total
--------- ------- ---------- --------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995................ 3,613,035 $36,622 $8,002,299 $(363,939) $(210,705) $ 53,130 $(1,671,946) $5,845,461
Exercise of options............ 17,000 170 67,830 68,000
Issuance of warrants........... 202,000 202,000
Maturity and repurchases of
redeemable common stock...... 627,132 627,132
ESOP payments.................. 42,857 42,857
Treasury stock purchase........ (65,524) (504,801) (504,801)
Unrealized securities gain..... (53,130) (53,130)
Net loss....................... 1,125,226 1,125,226
--------- ------- ---------- --------- --------- -------- ----------- ----------
December 31, 1995.............. 3,564,511 36,792 8,899,261 (868,740) (167,848) 0 (546,720) 7,352,745
Exercise of options............
Maturity and repurchases of
redeemable common stock...... 10,046 10,046
ESOP Payments.................. 42,857 42,857
Treasury stock purchase........ (1,410) (10,046) (10,046)
Sale of securities............. 0
Net income..................... 616,579 616,579
--------- ------- ---------- --------- --------- -------- ----------- ----------
December 31, 1996.............. 3,563,101 36,792 8,909,307 (878,786) (124,991) 0 69,859 8,012,181
ESOP Payments.................. 21,429 21,429
Net income..................... 247,632 247,632
June 30, 1997 (Unaudited)...... 3,563,101 $36,792 $8,909,307 $(878,786) $(103,562) $ 0 $ 317,491 $8,281,242
--------- ------- ---------- --------- --------- -------- ----------- ----------
--------- ------- ---------- --------- --------- -------- ----------- ----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
Page 5 of 10
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six months ended June 30,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,632 $ 245,540
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,981 241,324
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,585 76,610
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 30,844
Changes in assets and liabilities (net of effect of acquisitions):
Trade and other accounts receivable. . . . . . . . . . . . . . . . . . . . 1,690,477 (633,171)
Deposits, prepaid expenses and other current assets. . . . . . . . . . . . (102,246) 4,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (178,555) 486,734
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . (959,010) (432,813)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,426 121,414
Bonds payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 16,370
Payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . (24,065)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,081 91,455
---------- ---------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . 1,310,630 224,242
---------- ---------
Cash flows provided by (used in) investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (858,834) (177,874)
Astro-Med acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,000)
Newmark acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200,000)
Patent and software development expenditures . . . . . . . . . . . . . . . . (14,790) (6,972)
---------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (1,123,624) (184,846)
---------- ---------
Cash flows provided by (used in) financing activities:
Net repayments of revolving credit facilities. . . . . . . . . . . . . . . . (237,102) (211,924)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . (10,047)
Reduction of unearned ESOP compensation. . . . . . . . . . . . . . . . . . . 21,429 21,429
Principal proceeds on long term debt, net. . . . . . . . . . . . . . . . . . 400,000
Principal payments on long-term debt, net. . . . . . . . . . . . . . . . . . (189,520) (210,736)
---------- ---------
Net cash provided by (used in) financing activities. . . . . . . . . . . . (5,193) (411,278)
---------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 181,813 (371,882)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 232,135 397,799
---------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 413,948 $ 25,917
---------- ---------
---------- ---------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Astro-med acquisition and related note payable. . . . . . . . . . . . . . $ 300,000
Newmark acquisition and related note payable. . . . . . . . . . . . . . . 200,000
----------
Total non-cash activity. . . . . . . . . . . . . . . . . . . . . . . . $ 500,000
----------
----------
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
Page 6 of 10
<PAGE>
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements and related notes
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The accompanying unaudited interim consolidated
financial statements and related notes should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
most recent Form 10-K covering the year ended December 31, 1996.
The information furnished reflects, in the opinion of the management of
Arrhythmia Research Technology, Inc. ("ART"), all adjustments necessary for a
fair presentation of the financial results for the interim period presented.
Interim results are subject to year-end adjustments and audit by
independent certified public accountants.
INVENTORIES:
Inventories consist of the following as of:
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
Raw materials.......................... $ 247,536 $ 320,736
Work-in-process........................ 782,746 354,838
Finished goods......................... 2,445,573 2,475,814
---------- ----------
Total............................... 3,475,855 3,151,388
Allowance for slow-moving inventories.. (893,864) (912,952)
---------- ----------
Total............................... $2,581,991 $2,238,436
---------- ----------
---------- ----------
RECENT PRONOUNCEMENTS:
In February of 1997, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 128 "Earnings Per Share" ("SFAS No. 128") which
establishes standards for computing and presenting earnings per share. SFAS
No. 128 is effective for fiscal years beginning after December 15, 1997.
Management does not believe the implementation of SFAS No. 128 will have a
material effect on its financial statements.
In February 1997, the FASB issued FASB Statement No. 129 "Disclosure of
Information About Capital Structure" ("SFAS No. 129") which establishes
disclosure requirements for an entity's capital structure. SFAS No. 129 is
effective for fiscal years beginning after December 15, 1997. Management
does not believe the implementation of SFAS No. 129 will have a material
effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS no. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for
the way the public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997.
Page 7 of 10
<PAGE>
PRODUCT LINE ACQUISITIONS:
ART acquired from Astro-Med, Inc. the K-3 product family of hemodynamic
systems for the cath lab. ART has been the exclusive distributor in the
U.S., Canada, Eastern Block countries and Russia since December, 1995. The
K-3 cath lab product line will now be sold worldwide by ART. It is a fully
optioned, competitive state-of-the-art system with a price benchmark
significantly less than similar systems on the market. The system is
currently installed in locations overseas and locations in the U.S. ART's
gross margins on K-3 sales will improve significantly over margins under the
previous distribution agreement. In addition, ART has contracted with a
third party developer to convert the K-3 operating software from a DOS
platform to a Windows platform in order to respond to changes in the
marketplace and meet customer needs. Completion of this software conversion
is expected in the first quarter of 1998.
ART'S Micron Products Inc. ("Micron") subsidiary acquired a product line from
Newmark related to its high-speed electrode assembly machines. Newmark will
continue to manufacture and service the machines for one year. The
acquisition of this product line is consistent with ART's long-term growth
strategy into related product and market areas.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of approximately
$3,060,000. At June 30, 1997, the Company had a $3,500,000 working capital
line of credit with a bank, collateralized by accounts receivable and
inventory of ART and Micron which bears interest at prime plus .75% (9.25%
at June 30, 1997). The working capital line of credit matures September 30,
1997 and had an outstanding balance of approximately $922,000 at June 30,
1997. The Company's lines of credit are its primary source of operating
funds and liquidity. The Company is currently negotiating and expects to
obtain an extension on the line of credit.
Capital expenditures excluding assets acquired in asset purchase agreements
during the first six months of 1997 were approximately $859,000 compared to
$178,000 in 1996. Capital expenditures have increased in the first six months
of 1997 compared to 1996 as a result of additional equipment acquired by
Micron in the installation of a waste-water treatment and filtration system
completed in the second quarter. Capital expenditures are expected to be
higher in 1997 than they were in 1996. Normal capital expenditures are
funded from operating cash flows and capital projects, such as the new
waste-water treatment and filtration system, are typically financed by
capital equipment leases. The waste water treatment facility equipment was
purchased at a cost of $480,000 of which $400,000 was financed by a bank
facility. This note is payable in equal monthly installments over four
years and bears interest at a rate of prime plus .75% (9.25% at June 30,
1997).
The Astro-Med and Newmark product line acquisitions were financed in part
through seller originated notes of $300,000 and $200,000 respectively. The
Astro-Med note bears interest at a rate of 8% per annum with quarterly
interest only payments in the first year beginning on June 30, 1997.
Principal and interest payments are due quarterly thereafter to amortize the
note in full by the April 30, 2000. The promissory note with Newmark is non
interest bearing and is payable in twenty equal installments beginning in May
1997.
RESULTS OF OPERATIONS
REVENUES for the six months ended June 30, 1997 decreased approximately 45%
when compared to the six months ended June 30, 1996. The reason for the
reduced sales revenues is that 1996 was the final year in which ART acted as
the exclusive distributor for CardioLab products under its contract with
their manufacturer, Prucka Engineering, Inc. In 1997, ART will not report
the gross revenues nor the related cost of sales for CardioLab products
except for certain carry over orders shipped in 1997 of approximately
$872,000. CardioLab product sales and cost of sales approximated $7,134,000
and $6,568,000, respectively for the six months ended June 30, 1996. During
1997 and 1998, ART will receive a 4% commission on net sales of CardioLab
systems and accessories sold anywhere in the world, up to a ceiling of
$10,000,000 in total annual net sales. From January 1, 1999 through December
31, 2002, ART will receive a commission of 3% of the net sales of CardioLab
systems sold anywhere in the world, up to a ceiling of $10,000,000 in total
net sales. ART will receive 25% of the commissions it would otherwise be
entitled to receive for revenues attributable to CardioLab sales that exceed
$10,000,000 in any given year.
Revenues from sales of ECG sensors increased 8% for the six months ended June
30, 1997, as compared to the same period in 1996. The increase in sensor
sales is due to increased demand in the international market. Pricing on all
products remained approximately the same for the first six months of 1997 as
compared to 1996. The sales mix for the Company has
Page 8 of 10
<PAGE>
changed with ECG sensors making up a greater proportion of sales and the
related cost of sales, as a result of the reduction in CardioLab sales.
<TABLE>
SECOND QUARTER FIRST SIX MONTHS
------------------------------------- ------------------------------------
1997 % 1996 % 1997 % 1996 %
---------- --- ---------- --- ---------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic............. $1,625,218 57 $4,329,663 65 $4,262,107 63 $ 7,926,360 65
Foreign.............. 1,204,392 43 2,340,654 35 2,441,034 37 4,176,815 35
---------- --- ---------- --- ---------- --- ----------- ---
Total................ $2,829,610 100 $6,670,317 100 $6,703,141 100 $12,103,175 100
---------- --- ---------- --- ---------- --- ----------- ---
---------- --- ---------- --- ---------- --- ----------- ---
</TABLE>
COST OF SALES decreased significantly for the six months ended June 30,
1997, as compared to the same period in 1996 because of the reduced CardioLab
sales as noted above. Overhead costs for the six months ended June 30, 1997,
increased slightly as compared to the same period of the prior year due
higher maintenance, environmental and utility costs. The increased costs
were in preparation for an ISO 9000 certification which was obtained in the
second quarter. Cost of sales as a percent of sales is expected to remain
similar for the remainder of the year.
SELLING AND MARKETING expenses have increased as a percent of sales during
the six months ended June 30, 1997 as compared to the same period for 1996.
The increase is due primarily to higher rebates at Micron. The primary
components of marketing and selling expenses for the six months ended June
30, 1997 are salaries and trade show expenses. The current level of marketing
operations is expected to continue to increase for the remainder of the year
as a result of the acquisition of the K-3 product line and increased
worldwide marketing and sales efforts.
GENERAL AND ADMINISTRATIVE expenses have decreased slightly for the six
months ended June 30, 1997, as compared to 1996 primarily because of lower
administrative costs. These lower costs are in part offset by increased
environmental monitoring expenses. The primary components of general and
administrative expenses are salaries and related payroll taxes and benefits,
environmental monitoring expenses, professional fees, and insurance costs.
General and administrative expenses are expected to continue at this level
for the remainder of the year.
RESEARCH AND DEVELOPMENT expenses have increased slightly for the six months
ended June 30, 1997, as compared to the same period in 1996. The increase is
due primarily to higher outside consulting fees and software development.
The thrust of the research and development effort is to develop new software
applications for existing signal averaging products and new products
utilizing the patented Simson method of signal averaging.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Forward looking statements made herein are based on current expectations of
the Company that involve a number of risks and uncertainties and should not
be considered as guarantees of future performance. These statements are made
under the Safe Harbor Provisions of the Private Securities Litigation Reform
Act of 1995. The factors that could cause actual results to differ materially
include: interruptions or cancellation of existing contracts, impact of
competitive products and pricing, product demand and market acceptance risks,
the presence of competitors with greater financial resources than the Company,
product development and commercialization risks and an inability to arrange
additional debt or equity financing.
Page 9 of 10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, plaintiffs Susan and Kevin McGann filed suit in the
Philadelphia Court of Common Pleas naming 216 defendants, including ART and
Micron Medical Products Inc. ("MMPI"). Plaintiff Susan McGann claims to be
suffering Type-1 latex allergy as a result of having worn latex gloves in
connection with her duties as an emergency room nurse from June, 1990. A
dissolved subsidiary of MMPI at one time distributed latex gloves. MMPI was
merged with and into Micron in 1993. The complaint involves allegations of
negligence, strict liability, breach of implied warranty of merchantability,
breach of implied warranty of fitness for a particular purpose, breach of
express warranty, misrepresentation, fraudulent concealment, and violation of
unfair trade practice/consumer protection laws. In July, 1997 the Plaintiff
executed Stipulations of Discontinuance as to Fewer than All Parties for ART
and MMPI.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
SID BARBANEL, PRESIDENT
ANTHONY A. CETRONE,
President, Micron Products Inc.
Chairman of the Board
August 13, 1997
Page 10 of 10
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