SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K A1
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
DECEMBER 31, 2000 1-9731
(FOR THE FISCAL YEAR ENDED) (COMMISSION FILE NUMBER)
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-0925679
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OF ORGANIZATION)
1101 SOUTH CAPITAL OF TEXAS HIGHWAY 78746
BUILDING G, SUITE 200 (ZIP CODE)
AUSTIN, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(512) 347-9640
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
On March 1, 2001, there were 3,072,120 shares of the registrant's
common stock outstanding, par value $.01, which is the only class of common or
voting stock of the registrant. As of March 1, 2001, the aggregate market value
of the voting stock of the registrant held by non-affiliates was $4,388,540
based upon the closing price of the shares of common stock on the American Stock
Exchange.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The title of the Company's Consolidated Balance Sheets has been amended.
REPORT OF INDEPENDENT ACCOUNTANTS 17
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets 18
Statements of operations 19
Statements of changes in shareholders' equity 20
Statements of cash flows 21
Notes to consolidated financial statements 22-38
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Arrhythmia Research Technology, Inc.
We have audited the accompanying consolidated balance sheets of Arrhythmia
Research Technology, Inc. and Subsidiary as of December 31, 2000 and 1999, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ending December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arrhythmia
Research Technology, Inc. and Subsidiary as of December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ending December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/BDO Seidman, LLP
Gardner, Massachusetts
February 16, 2001
17
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 1999
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,999,292 $ 455,674
Trade and other accounts receivable, net of allowance
for doubtful accounts of $52,827 and $83,203 1,604,141 1,653,098
Inventories (Note 4) 860,161 1,082,517
Deposits, prepaid expenses and other current assets 62,728 52,172
Income taxes recoverable 100,000 329,408
---------------------------------------------------------------------------------------------------------------------------
Total current assets 4,626,322 3,572,869
PROPERTY, PLANT AND EQUIPMENT, net (Notes 5 and 7) 3,310,958 3,835,831
GOODWILL, net of accumulated amortization (Note 6) 1,456,833 1,586,723
OTHER INTANGIBLES, net of accumulated amortization (Note 6) 48,030 122,887
DEFERRED INCOME TAXES, net (Note 8) 444,923 423,923
OTHER ASSETS 31,518 159,453
---------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,918,584 $ 9,701,686
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 23,882 $ 23,811
Current maturities of bonds payable and other
long-term debt (Note 7) 178,279 711,464
Accounts payable 344,821 412,933
Accrued expenses 407,897 250,714
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 954,879 1,398,922
BONDS PAYABLE AND OTHER LONG-TERM DEBT, net of current maturities (Note 7) 399,490 46,815
CAPITAL LEASE OBLIGATIONS, net of current portion - 25,530
DEFERRED REVENUE 4,621 8,680
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,358,990 1,479,947
---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 9, 10 and 13):
SHAREHOLDERS' EQUITY (Note 13):
Preferred stock, $1 par value; 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value; 10,000,000 shares authorized;
3,729,681 and 3,711,883 issued, respectively 37,297 37,119
Additional paid-in-capital 9,166,615 8,946,293
Common stock held in treasury, 563,446 and 298,406 shares at cost (1,654,664) (1,151,892)
Retained earnings 1,010,346 390,219
---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 8,559,594 8,221,739
---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,918,584 $ 9,701,686
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
NET SALES $ 8,521,863 $ 9,994,986 $8,875,265
COMMISSIONS AND RELATED REVENUE (Note 10) 1,000,000 384,598 485,331
---------------------------------------------------------------------------------------------------------------------------
Total Revenue (Note 14) 9,521,863 10,379,584 9,360,596
COST OF SALES 5,987,579 6,757,519 6,127,451
---------------------------------------------------------------------------------------------------------------------------
Gross profit 3,534,284 3,622,065 3,233,145
---------------------------------------------------------------------------------------------------------------------------
SELLING AND MARKETING 192,862 392,851 247,340
GENERAL AND ADMINISTRATIVE 2,169,217 2,142,607 2,140,804
RESEARCH AND DEVELOPMENT 229,659 297,568 342,914
AMORTIZATION OF GOODWILL 129,889 130,519 129,890
---------------------------------------------------------------------------------------------------------------------------
LOSS FROM IMPAIRMENT OF LONG-LIVED ASSETS (Note 3) - - 192,201
Income from operations 812,657 658,520 179,996
OTHER INCOME (EXPENSE):
Interest expense (91,477) (132,919) (219,627)
Other income (expense), net (56,053) (80,243) 102,776
---------------------------------------------------------------------------------------------------------------------------
Total other expense, net (147,530) (213,162) (116,851)
---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 665,127 445,358 63,145
INCOME TAX PROVISION (Note 8):
Current 66,000 69,313 115,583
Deferred (21,000) (49,000) 84,000
---------------------------------------------------------------------------------------------------------------------------
45,000 20,313 199,583
---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 620,127 $ 425,045 $ (136,438)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE (Note 2):
Basic $ 0.19 $ 0.12 $ (0.04)
Diluted $ 0.18 $ 0.12 $ (0.04)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NOTES 9 AND 13)
Retained
Additional Unearned Earnings
Paid-in Treasury ESOP (Accumulated
Shares Amount Capital Stock Compensation Deficit) Total
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 3,679,216 $36,792 $8,909,307 $ (878,787) $ (82,134) $ 101,612 $8,086,790
Treasury stock purchase of
28,400 shares - - - (34,297) - - (34,297)
ESOP payments - - - - 42,857 - 42,857
Net loss - - - - - (136,438) (136,438)
---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 3,679,216 36,792 8,909,307 (913,084) (39,277) (34,826) 7,958,912
Issuance of common stock 32,667 327 36,986 - - - 37,313
Treasury stock purchase of
153,891 shares - - - (238,808) - - (238,808)
ESOP payments - - - - 39,277 - 39,277
Net income - - - - - 425,045 425,045
---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 3,711,883 37,119 8,946,293 (1,151,892) - 390,219 8,221,739
Issuance of common stock 17,798 178 26,322 - - - 26,500
Treasury stock purchase of
265,040 shares - - - (502,772) - - (502,772)
Value of warrants issued
with bond renewal - - 194,000 - - - 194,000
Net income - - - - - 620,127 620,127
---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000 3,729,681 $37,297 $9,166,615 $(1,654,664) $ - $1,010,346 $8,559,594
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 11)
YEARS ENDED DECEMBER 31, 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 620,127 $ 425,045 $ (136,438)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Director fees paid in stock 26,500 37,313 -
Depreciation 771,531 693,648 683,418
Provision for doubtful accounts (30,376) 11,011 10,874
Amortization 277,087 194,092 198,500
Loss from impairment of long-lived assets - - 192,201
Deferred income tax provision (21,000) (49,000) 84,000
Deferred revenue (4,059) (18,356) (26,860)
Changes in assets and liabilities:
Trade and other accounts receivable 79,333 (356,441) 1,078,727
Inventories 222,356 390,209 528,397
Deposits, prepaid expenses and other assets 117,379 (1,147) (19,562)
Income taxes recoverable 229,408 (66,598) -
Accounts payable and accrued expenses 89,071 (340,427) (754,648)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,377,357 919,349 1,838,609
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (246,658) (540,713) (477,017)
Other intangibles (8,850) (42,397) (46,677)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (255,508) (583,110) (523,694)
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under credit facilities - - (467,135)
Principal payments on long-term debt and capital leases (75,459) (238,567) (513,745)
Purchase of treasury stock (502,772) (238,808) (34,297)
Reduction of unearned ESOP compensation - 39,277 42,857
---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (578,231) (438,098) (972,320)
---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,543,618 (101,859) 342,595
CASH AND CASH EQUIVALENTS, beginning of year 455,674 557,533 214,938
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 1,999,292 $ 455,674 $ 557,533
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF Arrhythmia Research Technology, Inc.
BUSINESS ("ART"), a Delaware corporation, is
engaged in marketing computerized
medical instruments for monitoring,
analyzing and treating heart disease.
Micron Products, Inc. ("Micron"), a
Massachusetts corporation, a wholly-owned
subsidiary of ART, is a manufacturer of
silver/silver chloride-plated sensor
elements, a component used in the
manufacture of disposable medical
electrodes designed for electrocardiograph
("ECG") and other instrumentation.
Additionally, Micron also acts as a
distributor of metal snap fasteners,
another component used in the manufacture
of disposable medical electrodes. Micron
manufactures and leases high speed
electrode assembly machines to its sensor
and snap customers.
2. ACCOUNTING POLICIES
PRINCIPLES OF The consolidated financial statements
CONSOLIDATION include the accounts of ART and Micron
(collectively the "Company"). All
intercompany balances and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION Revenue from product sales is recognized
upon shipment of the product when
independent sales representatives or
distributors are responsible for
installation of systems, as the title
and risk of loss passes to the customer
at the time of shipment. However, in
cases where ART personnel are scheduled
to perform this in-service/installation,
the revenue is not recognized until
completion of such obligations. Revenue
from the sale of extended warranties is
deferred and amortized ratably over the
life of the warranty.
CASH AND CASH Cash and cash equivalents consist of cash
EQUIVALENTS on hand and on deposit in high quality
financial institutions. The Company
considers highly liquid investments that
can be readily converted to cash at par
value to be cash equivalents.
INVENTORIES Inventories are stated at the lower of
cost or market. Cost of inventories is
determined by the first-in, first-out
method.
Financial instruments, which potentially
CONCENTRATION OF expose the Company to concentrations of
CREDIT RISK credit risk, as defined by SFAS No. 105,
consist primarily of trade accounts
receivable, cash and cash equivalents.
ART's customer base for ECG and
electrophysiology products is primarily
comprised of hospitals and to a much
lesser extent of cardiologists and office
based practitioners. Micron products are
sold to manufacturers of disposable
electrodes, who are typically large
diversified medical product manufacturers.
The Company does not generally require
collateral for its sales; however, the
Company believes that its terms of sale
provide adequate protection against
significant credit risk.
22
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
(Continued)
CONCENTRATIONS OF It is the Company's policy to place its
CREDIT RISK cash and cash equivalents in high quality
(CONTINUED) financial institutions. The Company does
not believe significant credit risk exists
with respect to these institutions.
ADVERTISING Advertising expenses consist primarily of
EXPENSES costs incurred in promoting the Company's
products, printed brochures and other
activities. The Company expenses
advertising costs as incurred. The
Company's advertising expense was
approximately $16,000, $52,000 and $72,000
in 2000, 1999 and 1998, respectively.
PROPERTY, PLANT Property, plant and equipment are recorded
AND EQUIPMENT at cost and include expenditures which
substantially extend their useful lives.
Depreciation on property, plant and
equipment is calculated using the
straight-line method over the estimated
useful lives of the assets. Expenditures
for maintenance and repairs are charged to
earnings as incurred. When equipment is
retired or sold, the resulting gain or
loss is reflected in earnings.
GOODWILL The excess of the aggregate purchase price
over the fair value of net assets of
businesses acquired is amortized over 20
years using the straight-line method. The
Company periodically reviews goodwill of
acquired businesses to assess
recoverability based on future operating
projections. Impairments would be
recognized in operating results if a
permanent diminution in value were to
occur on an undiscounted basis.
OTHER INTANGIBLES Direct costs to acquire patent technology
and legal costs associated with securing
and defending patents are capitalized and
amortized using the straight-line method
over the remaining useful life of the
patents. The Company periodically reviews
its patent assets to assess recoverability
based on future undiscounted projected
earnings from operations. Impairments are
recognized in operating results when a
permanent diminution in value occurs.
Certain software development costs
incurred subsequent to establishment of
technological feasibility are capitalized
and amortized using the straight-line
method over the estimated economic life of
the related product, generally three
years. Amortization commences when the
product is available for general release.
Costs to establish the technological
feasibility of the product are expensed as
research and development.
LONG-LIVED ASSETS The Company reviews the carrying values of
its long-lived and identifiable intangible
assets for possible impairment whenever
events or changes in circumstances
indicate that the carrying amount of the
assets may not be recoverable.
23
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
(Continued)
INCOME TAXES The Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting
for Income Taxes," which requires
recognition of deferred tax liabilities
and assets for the expected future tax
consequences of events that have been
included in the financial statements or
tax returns. Under this method, deferred
tax liabilities and assets are determined
based on the difference between the
financial statement and tax basis of
assets and liabilities using enacted tax
rates in effect for the year in which the
differences are expected to reverse.
NET INCOME (LOSS) The Company follows the provisions of SFAS
PER SHARE DATA No. 128 "Earnings Per Share", which
requires the Company to present its basic
earnings per share and diluted earnings
per share, and certain other earnings per
share disclosures for each year presented.
Basic earnings per share is computed by
dividing income available to common
shareholders by the weighted average
number of common shares outstanding. The
computation of diluted earnings per share
is similar to the computation of basic
earnings per share except that the
denominator is increased to include the
number of additional common shares that
would have been outstanding if the
dilutive potential common shares had been
issued. In addition, the numerator is
adjusted for any changes in income or loss
that would result from the assumed
conversions of those potential shares.
Basic and diluted EPS computation for the
years ended December 31, 2000, 1999, and
1998 are as follows:
YEARS ENDED DECEMBER 31, 2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Net income (loss) available
to common shareholders $ 620,127 $ 425,045 $ (136,438)
=========== =========== ===========
Weighted average common
shares outstanding 3,333,317 3,488,650 3,560,713
=========== =========== ===========
Basic EPS $ 0.19 $ 0.12 $ (0.04)
=========== =========== ===========
Diluted EPS:
Net income (loss) available
to common shareholders $ 620,127 $ 425,045 $ (136,438)
=========== =========== ============
Weighted average common
share outstanding 3,333,317 3,488,650 3,560,713
Assumed conversion of
common shares issuable
under stock option plan 97,084 60,544 -
----------- ----------- ------------
Weighted average common
and common equivalent
shares outstanding 3,430,401 3,549,194 3,560,713
=========== =========== ============
Diluted EPS $ 0.18 $ 0.12 $ (0.04)
=========== =========== ============
24
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
(Continued)
NET INCOME (LOSS) The following table summarizes securities
PER SHARE DATA that were outstanding but not included in
(Continued) the calculation of diluted earnings per
share because their effect would have been
antidilutive:
DECEMBER 31, 2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Stock options 7,000 14,000 209,000
Stock warrants - 279,000 279,000
USE OF 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 periods. Actual results could
differ from those estimates.
FAIR VALUE OF The carrying amount reported in the
FINANCIAL balance sheets for cash and cash
INSTRUMENTS equivalents, accounts receivable, accounts
payable and accrued liabilities
approximate their fair value due to the
immediate or short-term maturity of such
instruments. The carrying amounts reported
for the promissory note and bonds payable
approximate fair value based on the
Company's incremental borrowing rates.
COMPREHENSIVE The Company follows the provisions of
INCOME Statement of Financial Accounting
Standards No. 130, REPORTING COMPREHENSIVE
INCOME, ("SFAS No. 130") which establishes
standards for reporting and display of
comprehensive income, its components, and
accumulated balances. Comprehensive income
is defined to include all changes in
equity except those resulting from
investments by owners and distributions to
owners. Among other disclosures, SFAS No.
130 stipulates that all items that are
required to be recognized under current
accounting standards as components of
comprehensive income be reported in a
financial statement that is displayed with
the same prominence as other financial
statements. The Company did not have any
components of comprehensive income for the
years ended December 31, 2000, 1999 and
1998.
INDUSTRY SEGMENTS The Company follows the provisions of
Statement of Financial Accounting
Standards No. 131, "Disclosure about
Segments of an Enterprise and Related
Information" ("SFAS No. 131") which
requires reporting of selected information
about operating segments in interim
financial statements issued to the public.
It also establishes standards for
disclosures regarding products and
services, geographic areas, and major
customers. SFAS No. 131 defines operating
segments as components of an enterprise
about which separate financial information
is available that is evaluated regularly
by the chief operating decision maker in
deciding how to allocate resources and in
assessing performance.
25
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
(Continued)
SHIPPING AND Shipping and handling costs include
HANDLING COSTS primarily freight and are classified as a
cost of sales in the consolidated
statements of operations.
NEW ACCOUNTING
STANDARD NOT In June 1998, the Financial Accounting
YET ADOPTED Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments
and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires companies to
recognize all derivatives contracts as
either assets or liabilities in the
balance sheet and to measure them at fair
value. If certain conditions are met, a
derivative may be specifically designated
as a hedge, the objective of which is to
match the timing of gain or loss
recognition on the hedging derivative with
the recognition of (i) the changes in the
fair value of the hedged assets or
liability or (ii) the earnings effect of
the hedged forecasted transaction. For a
derivative not designated as a hedging
instrument, the gain or loss is recognized
in income in the period of change. SFAS
No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of
fiscal years beginning after June 15,
2000.
Historically, the Company has not entered
into derivative contracts either to hedge
existing risks or for speculative
purposes. Accordingly, the Company does
not expect adoption of the new standard to
affect its financial statements.
3. ACQUISITION On April 14, 1997, ART acquired from
ACTIVITY Astro-Med, Inc. substantially all of the
assets related to the following products
(i) the basic cardiac catheterization
monitoring system (the "K3-I"), (ii) the
stand-alone hemodynamic analysis package
(the "K3-II"), (iii) the network ready
hemodynamic analysis package (the
K3-III"), and (iv) the control work
station (the K3-WI") (collectively, the
"K3 Products"). The purchase price for the
assets was $350,000, with $50,000 paid at
closing and a promissory note issued in
the amount of $300,000 (see Note 7).
During the year ended December 31, 1998,
the Company recorded an impairment loss on
the long-lived assets related to the
Astro-Med acquisition. The impairment was
the result of the K3 Products technology
failing to meet competitive demands.
Included in the 1998 results of operations
is an impairment loss of $192,201 which
was due primarily to the reduction of the
goodwill carrying value to zero. The
Company also recorded a charge in 1998 of
approximately $261,000 in cost of sales
for the write-down of the related
inventory to its net realizable value.
4. INVENTORIES Inventories consist of the following:
DECEMBER 31, 2000 1999
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Raw materials $ 123,962 $ 252,237
Work-in-process 197,254 233,966
Finished goods 538,945 596,314
--------------------------------------------------------------------------------------
Total $ 860,161 $ 1,082,517
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
26
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY, PLANT Property, plant and equipment consist of
AND EQUIPMENT the following:
Asset
DECEMBER 31, Lives 2000 1999
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Machinery and equipment 5 to 15 years $ 4,481,941 $ 4,355,011
Equipment held for lease 10 years 403,708 539,222
Building and improvements 20 years 1,856,585 1,903,221
Vehicles 3 to 5 years 28,855 28,855
Furniture and fixtures 3 to 5 years 568,825 708,804
--------------------------------------------------------------------------------------
7,339,914 7,535,113
Less accumulated
Depreciation (4,028,956) (3,699,282)
--------------------------------------------------------------------------------------
Net property, plant and
Equipment $ 3,310,958 $ 3,835,831
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
The Company had $87,770 and $135,400 of
assets under capital leases, included in
machinery and equipment, at December 31,
2000 and 1999. Accumulated depreciation on
these assets was $24,868 and $33,307 at
December 31, 2000 and 1999, respectively.
EQUIPMENT The Company leases attaching machines to
LEASING customers under operating leases for
periods of up to one year with renewable
terms. The cost of the leased equipment is
depreciated on a straight-line basis over
ten years. Accumulated depreciation on
leased equipment was $113,936 and $106,721
at December 31, 2000 and 1999.
6. GOODWILL AND OTHER Goodwill and other intangibles consist of
INTANGIBLES the following:
DECEMBER 31, 2000 1999
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Goodwill $ 2,473,326 $ 2,661,073
Accumulated amortization (1,016,493) (1,074,350)
--------------------------------------------------------------------------------------
Net goodwill $ 1,456,833 $ 1,586,723
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Other intangibles $ 606,449 $ 597,599
Accumulated amortization (558,419) (474,712)
--------------------------------------------------------------------------------------
Net other intangibles $ 48,030 $ 122,887
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
27
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEBT
REVOLVING CREDIT The Company has available $800,000 from a
FACILITY revolving credit facility with a bank,
which is renewable in June 2001. The
agreement provides for borrowings up to
85% of eligible accounts receivable plus
40% of raw material and finished goods
inventories. There were no outstanding
borrowings on the working capital line of
credit as of December 31, 2000 and 1999
and no borrowings during 2000.
The agreement contains covenants that,
among various matters, restrict further
borrowings and security interests, merger
or consolidation, acquisitions,
guarantees, sales of assets other than in
the normal course of business, leasing,
changes in ownership and payment of
dividends.
LONG-TERM DEBT Long-term borrowings, excluding capital
lease obligations, consist of:
DECEMBER 31, 2000 1999
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Bonds payable $399,490 $580,000
$300,000 promissory note bearing interest at 8%
per annum, payable in monthly installments of
$9,551 through May 2001, collateralized by
equipment purchased. 178,279 178,279
--------------------------------------------------------------------------------------
577,769 758,279
Less current maturities 178,279 711,464
--------------------------------------------------------------------------------------
Long-term bonds payable and debt $ 399,490 $ 46,815
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
BONDS PAYABLE In August 1995, the Company completed a
$600,000 private bond placement. The bonds
carried an 11% interest rate and matured
in May 2000. In connection with the
private bond placement, ART issued an
aggregate of 279,000 warrants to the
bondholders to purchase ART common stock
at $3.00 per share. The warrants were
exercisable upon issuance and expired in
five years. The Company recorded the
allocation between the detachable warrants
and debt securities based on their
relative fair values. The $202,000 related
to the warrants was reported as additional
paid-in capital and a discount on the
bonds payable which was amortized to
interest expense over the five-year term
of the bonds. In 2000, the Company renewed
$550,000 of the private placement bonds
for a two-year period maturing May 31,
2002. New warrants were issued to the
bondholders for 254,980 shares of the
Company's stock at $1.50 per share. The
warrants also expire May 31, 2002. The
fair-value allocated to the warrants was
$194,000 which is reported as additional
paid-in capital and a discount on the debt
securities being amortized to interest
expense over the two year term of the
bonds. For the years 2000, 1999 and 1998,
the Company recorded amortization of bond
discount of $63,490, $46,065 and $48,000,
respectively and interest expense of
$63,250 in 2000 and $66,000 in 1999 and
1998. The unamortized bond discount
remaining as of December 31, 2000 and 1999
was $150,510 and $20,000, respectively.
--------------------------------------------------------------------------------
28
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEBT
(Continued)
NOTE PAYABLE On April 14, 1997, ART incurred a
promissory note in the amount of $300,000,
bearing interest of 8% per annum, through
the acquisition of property and equipment
from a manufacturer. No payments were made
during 2000 as payment of the note is
being contested. The unpaid principal is
included in current liabilities.
8. INCOME TAXES The income tax provision for each of the
three years in the period ended December
31, 2000 consists of the following:
2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Current:
Federal $ - $ - $ -
State 66,000 69,313 115,583
--------------------------------------------------------------------------------------
Total 66,000 69,313 115,583
Deferred (21,000) (49,000) 84,000
--------------------------------------------------------------------------------------
Total income tax expense $ 45,000 $ 20,313 $ 199,583
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
The Company's federal net operating loss
("NOL") carryforwards were approximately
$1,500,000 at December 31, 2000. During
the three years ended December 31, 2000,
the Company utilized approximately
$482,000, $0 and $137,000, of its NOL
carryforwards. The NOL carryforwards
expire through 2007. The use of the loss
carryforwards to reduce future income tax
obligations are limited in any given year
due to restrictions defined in the
Internal Revenue Code related to a change
in ownership control.
The components of deferred income taxes
were as follows as of December 31:
2000 1999
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Deferred income taxes:
Inventories $ 66,164 $ 218,560
Property, plant and equipment 61,000 124,215
Patents 288,238 294,560
Other 265,741 162,024
Net operating loss carryforwards 513,016 680,680
Valuation allowance (749,236) (1,056,116)
--------------------------------------------------------------------------------------
Deferred income taxes $ 444,923 $ 423,923
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
29
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES Deferred tax assets are recognized by
(Continued) reducing the valuation allowance as the
Company generates income, or when, in the
opinion of management, significant
positive evidence exists that the Company
will be more likely than not to realize
the tax benefits related to temporary
differences which give rise to deferred
tax assets.
The Company files a consolidated federal
income tax return. For financial statement
purposes, the actual effective
consolidated tax rates have been applied
to the income before income taxes when
calculating the tax provision. The actual
income tax provision differs from the
statutory income tax rate (34%) as
follows:
2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Tax provision computed at
Statutory rate $ 226,143 $ 151,422 $ 21,470
Increases (reductions) due to:
Nondeductible expenses 5,358 3,850 2,034
Amortization of goodwill 39,054 39,054 39,054
State income taxes net of
federal benefit 43,560 45,747 76,285
Changes in valuation
allowance estimates (306,880) (240,172) 112,309
Other 37,765 20,412 (51,569)
--------------------------------------------------------------------------------------
Income tax expense $ 45,000 $ 20,313 $ 199,583
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT Micron established an Employee Stock
PLANS Ownership Plan ("ESOP") as a result of a
previous plan of reorganization. The ESOP
is non-contributory on the part of its
participants. All employees of the Company
are eligible for participation in the
ESOP. The ESOP borrowed $300,000 to
purchase the Company's shares. The
proceeds were used to pay creditors
electing to receive cash under the ESOP
plan. The shares issued by the Company to
the ESOP are reflected as a reduction in
shareholders' equity. The Company accounts
for its ESOP in accordance with Statement
of Position 76-3. Accordingly, all shares
held by the ESOP, allocated or
unallocated, are treated as outstanding in
the earnings per share calculation. The
Company has elected to recognize
compensation expense based on
contributions made. There are no
repurchase obligations by the Company. The
Company contributed and recorded
compensation expense of $0, $39,277 and
$42,857 during the years ended December
31, 2000, 1999 and 1998, respectively.
The Company sponsors an Employee Savings
and Investment Plan under Section 401(k)
of the Internal Revenue Code covering all
eligible employees of the Company.
Employees can contribute up to 20% of
their eligible compensation or up to the
maximum allowable by the IRS. The
Company's matching contributions are at
the discretion of management. The Company
did not make any contributions for the
years ended December 31, 2000, 1999 and
1998, respectively.
30
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND
CONTINGENCIES
ROYALTIES ART licenses its signal-averaging
technology from an unrelated entity for a
royalty fee of 4.5% of gross sales, less
certain allowances for selling commissions
and discounts. Costs of obtaining patents
are offset against royalties due. To
retain an exclusive license for the
technology, ART is obligated to pay a
minimum royalty of $30,000 annually. The
royalties paid were $30,000, $30,000 and
$35,000 for 2000, 1999 and 1998,
respectively.
ELECTROPHYSIOLOGY ART and Prucka Engineering, Inc.
PRODUCTS CONTRACT ("Prucka"), the manufacturer of the
CardioLab and CardioMapp products (the
"Products") had an agreement related to
ART's exclusive distribution of the
Products. The agreement provided for ART
to receive a 3% commission on CardioLab
sales through December 31, 2002. The
commissions earned for the years 1999 and
1998 were approximately $385,000, and
$485,000, respectively. In 2000, Prucka
(now owned by GE Marquette) negotiated to
buy out the remainder of the agreement for
$1,000,000 with no further obligations to
either party.
ENVIRONMENTAL Like many industrial processes, the Micron
GROUNDWATER manufacturing process utilizes hazardous
and non-hazardous chemicals, the treatment
and disposal of which are subject to
federal and state regulation. Since its
inception, Micron has expended significant
funds to train its personnel, install
waste treatment and recovery equipment and
to retain an independent environmental
consulting firm to constantly review,
monitor and upgrade its air and waste
water treatment activities. As a result,
Micron believes that the operations of its
manufacturing facility are in compliance
with currently applicable safety, health
and environmental laws and regulations.
Micron has been identified as a "potential
responsible party" (PRP) under the
Comprehensive Environmental Response and
may be required to share in the cost of
cleanup with respect to its Fitchburg,
Massachusetts manufacturing facility. In
January 1998, Micron filed information
with the Massachusetts Department of
Environmental Protection (DEP) to allow
further subsurface investigation and a
subsequent risk assessment to be
performed. During 2000, Micron filed it's
Phase II Report with the DEP. The Phase II
Report included a Massachusetts
Contingency Plan (MCP) Method 3 Risk
Characterization and Response Action
Outcome Statement that demonstrated a
condition of "No Significant Risk" at the
site. The site has been closed out under
the MCP and is now awaiting a mandatory
audit by the DEP. At December 31, 2000 and
1999, the consolidated balance sheets
include an accrual for these costs of
$50,000.
Based on the Company's analyses and
subject to the difficulty in estimating
these future costs, the Company expects
that any sum it may be required to pay in
connection with environmental matters is
not reasonably likely to exceed the
amounts disclosed in an amount which would
have a material adverse effect on
financial condition, result of operations
or liquidity.
31
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND
CONTINGENCIES
(Continued)
OPERATING LEASES The Company leases certain office space,
facilities, vehicles and equipment under
non-cancelable lease arrangements. Rent
expense under all operating leases was
approximately $117,000, $115,000 and
$106,000 in 2000, 1999 and 1998,
respectively.
Future minimum operating lease payments as
of December 31, 2000 are approximately as
follows:
Operating
YEAR Leases
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
2001 $ 74,447
2002 36,896
2003 13,549
2004 7,491
--------------------------------------------------------------------------------------
Total $ 132,383
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
11. SUPPLEMENTAL Cash paid for income taxes and interest for the years ended December 31 is as follows:
CASH FLOWS
INFORMATION 2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Income taxes $ 59,091 $ 110,172 $ 94,860
Interest $ 68,889 $ 139,060 $ 218,447
Non-cash activities:
Bond discount resulting
from bond and stock
warrant renewal $ 194,000 $ - $ -
Directors fees paid in stock $ 26,500 $ 37,313 $ -
12. RELATED PARTY The Company obtains legal services with
TRANSACTIONS respect to its patents from a law firm, a
partner of which is a shareholder and
Director of the Company. Fees for services
and patent prosecution costs paid to this
firm were approximately $37,700, $41,000
and $3,300 for years 2000, 1999 and 1998,
respectively. The amounts owed to this
firm at December 31, 2000 and 1999 were
approximately $4,000 and $31,000,
respectively.
Cardio Digital Inc. ("CDI") has four
shareholders who are also shareholders of
the Company. Royalties paid CDI were
$6,100, $15,700 and $19,000 for years
2000, 1999 and 1998, respectively. The
amounts owed to CDI at December 31, 2000
and 1999 were $300 and $5,350,
respectively.
32
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RELATED PARTY During the years 2000, 1999 and 1998
TRANSACTIONS healthcare coverage premiums of
(Continued) approximately $11,670, $8,500 and $8,300,
respectively, were paid on behalf of a
Director of the Company in exchange for
consulting services.
The Company obtains consulting services
from a shareholder and Director of the
Company related to acquisitions and other
negotiations. No fees for services were
paid to this Director for the years 2000,
1999 and 1998, respectively.
13. STOCK OPTIONS
OPTION PLAN The Company has reserved 250,000 shares of
its common stock for issuance to officers
and key employees pursuant to an Incentive
Stock Option Plan (the "Option Plan").
Under the Option Plan, options become
exercisable commencing one year from the
date of grant at the rate of 20% of the
total granted per year and expire ten
years from the date of grant. The exercise
price is the fair market value of the
common stock on the date of grant. The
range of exercise prices was $1.06 to
$6.00 per share for all options
outstanding and granted under the Option
Plan with a weighted average exercise
price of $1.63 per share and weighted
average remaining life of 4.7 years. In
September 1998, the Board of Directors
repriced options outstanding to Directors
and Officers under the Option Plan to
reflect the fair market value on the
effective date of $1.06 per share.
The plan is no longer qualified for
deferred tax treatment for future option
grants unless amended by the Board of
Directors.
Transactions under the Option Plan are
summarized as follows:
2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Options outstanding at
Beginning of year 107,500 110,000 163,000
Granted - - -
Cancelled/expired (56,500) (2,500) (53,000)
--------------------------------------------------------------------------------------
Options outstanding at
end of year 51,000 107,500 110,000
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Options exercised to date 4,500 2,000 2,000
--------------------------------------------------------------------------------------
Available for grant at
end of year 194,500 140,500 138,000
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercisable at end of year 51,000 102,700 95,400
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Weighted-average fair value
of options granted $ - $ - $ -
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
33
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS
(Continued)
NON-PLAN OPTIONS During 1994, non-plan options for
144,000 shares, expiring in 2004, at an
exercise price of $3.00, were granted to
eight Directors. At December 31, 2000,
90,000 options remain outstanding.
During September 1998, the Board of
Directors repriced options outstanding to
Directors and Officers. All options were
repriced to reflect the fair market value
on the effective date of $1.06 per share.
As of December 31, 2000 the exercise price
for all non-plan options outstanding was
$1.06 per share with a weighted average
remaining life of 3.3 years.
Transactions relative to non-plan options
are summarized as follows:
2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Options outstanding at
Beginning of year 99,000 99,000 177,000
Granted - - -
Cancelled/expired (9,000) - (78,000)
--------------------------------------------------------------------------------------
Options outstanding at
end of year 90,000 99,000 99,000
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercisable at end of year 90,000 99,000 96,750
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
34
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS
(Continued)
NON-PLAN OPTIONS The Company accounts for stock options at
(CONTINUED) intrinsic value in accordance with
Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations.
Accordingly, no compensation expense has
been recognized for the plans. Had
compensation cost for the Company's stock
options been determined based upon the
fair value at the grant date for awards
under the plans consistent with the
methodology prescribed under Statement of
Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION,
the Company's net income (loss) would have
been adjusted to the pro forma amounts
indicated below:
2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Net income (loss) - as reported $ 620,127 $ 425,045 $ (136,438)
Net income (loss) - pro forma $ 614,685 $ 414,161 $ (269,539)
Basic income (loss)
per share - as reported $ 0.19 $ 0.12 $ (0.04)
Diluted income (loss) per
share - as reported $ 0.18 $ 0.12 $ (0.04)
Basic and diluted income (loss)
per share - pro forma $ 0.18 $ 0.12 $ (0.08)
The fair value of each stock option
granted is estimated on the date of grant
using the Black-Scholes option-pricing
model. The model uses assumptions for
dividend yield, expected volatility, and
the risk-free interest rate.
In August 1995, warrants were issued to
bondholders to purchase an aggregate of
279,000 shares of common stock at $3.00
per share which expire five years from the
date of the bond. In 2000, the warrants
were extended to bondholders to purchase
an aggregate of 254,980 shares of common
stock at $1.50 per share which expire May
31, 2002.
35
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INDUSTRY AND The Company's operations are classified
GEOGRAPHIC into two business segments: medical
SEGMENTS electrodecomponents and computerized
medical instruments.
The following table shows sales, operating
income (loss) and other financial
information by industry segment as of and
for the years ended December 31, 2000,
1999 and 1998:
Medical Computerized
Electrode Medical
Components Instruments Corporate Consolidated
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Sales $ 8,407,040 $ 1,114,823(A) $ - $ 9,521,863
--------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 589,402 $ 353,144 $ (129,889) $ 812,657
--------------------------------------------------------------------------------------------------------------------
Capital Expenditures $ 246,658 $ - $ - $ 246,658
Depreciation and Amortization $ 777,576 $ 12,778 $ 258,264 $ 1,048,618
Identifiable assets at
December 31, 2000 $ 6,079,844 $ 227,819 $3,610,921 $ 9,918,584
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999
Sales $ 9,718,408 $ 661,176 $ - $10,379,584
--------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 1,529,928 $ (740,889) $ (130,519) $ 658,520
--------------------------------------------------------------------------------------------------------------------
Capital Expenditures $ 504,817 $ - $ 35,896 $ 540,713
Depreciation and Amortization $ 637,381 $ 13,975 $ 236,384 $ 887,740
Identifiable assets at
December 31, 1999 $ 7,076,354 $ 473,374 $2,151,958 $ 9,701,686
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998
Sales $ 8,444,870 $ 915,726 $ - $ 9,360,596
--------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 1,263,650 $ (953,764) $ (129,890) $ 179,996
--------------------------------------------------------------------------------------------------------------------
Capital Expenditures $ 453,112 $ - $ 23,905 $ 477,017
Depreciation and Amortization $ 650,705 $ 27,053 $ 204,160 $ 881,918
Identifiable assets at
December 31, 1998 $ 6,188,950 $ 574,019 $3,227,175 $ 9,990,144
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
(A) Includes a $1,000,000 buyout of Prucka commission agreement.
36
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INDUSTRY AND The following table sets forth the
GEOGRAPHIC geographic distribution of the Company's
SEGMENTS net sales:
(Continued)
REGION 2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
United States $ 3,422,711(A) $ 3,349,427 $ 4,898,191
Europe 2,987,559 2,951,797 2,678,710
Canada, Mexico &
South America 2,840,434 3,679,873 1,557,356
Pacific Rim 248,343 315,256 173,966
Other 22,816 83,231 52,373
--------------------------------------------------------------------------------------
Net Sales $ 9,521,863 $ 10,379,584 $ 9,360,596
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
(A) Includes a $1,000,000 buyout of Prucka
commission agreement.
The following table sets forth the
percentage of net sales to significant
customers of the medical electrode
components segment in relation to total
segment sales:
CUSTOMERS 2000 1999 1998
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
A 36% 37% 32%
B 25% 28% 15%
C 14% 11% 11%
D - - 25%
The only single significant customer for
the computerized medical instruments
segment was revenue from the Prucka
commission agreement, which was terminated
in 2000. For the years ended December 31,
2000, 1999 and 1998, this was 90%, 58% and
53% of computerized medical instrument net
sales, respectively.
37
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. QUARTERLY
FINANCIAL DATA
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
2000
----
Revenues $ 2,543,826 $ 2,863,091 $ 2,108,247 $ 2,006,699
Gross profit 867,192 1,582,495 588,157 496,440
Net income(loss) 101,731 644,842 21,933 (148,379)
Net income(loss) per share .03 .19 .01 (.04)
1999
----
Revenues $ 2,441,683 $ 2,922,771 $ 2,609,674 $ 2,405,456
Gross profit 712,589 1,110,376 1,135,071 664,029
Net income(loss) (1,131) 197,382 175,938 52,856
Net income(loss) per share (.00) .06 .05 .01
The second quarter results in 2000 include
$1,000,000 of revenue associated with the
termination of a commission agreement with
Prucka. During the fourth quarter of 2000,
the Company determined that $90,000 of
costs related to a previous version of ART
software had no future value and was
charged to expense. In addition, $106,000
of severance costs was provided for in the
fourth quarter of 2000.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
------------------------------------
/s/ E. P. MARINOS
-----------------
Chairman of the Board and
Acting Chief Executive Officer
April 12, 2001
39