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Arrhythmia Research Technology Inc Reports Operating Results (10-Q)

October 30, 2009 | About:
10qk

10qk

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Arrhythmia Research Technology Inc (HRT) filed Quarterly Report for the period ended 2009-10-29.

Arrhythmia Research Technology Inc. a Delaware corporation is engaged in the development of medical software which acquires data and analyzes electrical impulses of the heart to detect and aid in the treatment of potentially lethal arrhythmias. The Company's patented products consist of signal-averaging electrocardiographic (SAECG) software whose proprietary Windows based version is named the Predictor series. These systems and product lines have defined the industry and clinical standards for high resolution electrocardiography. The Company through its wholly owned subsidiary Micron Products Inc. manufactures silver plated and non-silver plated conductive resin sensors and distributes metal snaps used in the manufacture of disposable ECG EEG EMS and TENS. It operates primarily in the United States Canada Europe and the Pacific Rim and is based in Fitchburg Massachusetts. Arrhythmia Research Technology Inc has a market cap of $11 million; its shares were traded at around $4.104 with and P/S ratio of 0.5. Arrhythmia Research Technology Inc had an annual average earning growth of 25.2% over the past 10 years.

Highlight of Business Operations:

Revenue was $5,457,377 for the three months ended September 30, 2009 as compared to $5,838,390 for the same period in 2008, a decrease of 6.5% or $381,013. Sales of Micron s medical sensors and snaps with silver surcharge decreased by $377,292, while the volume increased by 1%. Management continues to focus on the protection and growth of its sensor market share. In addition, miscellaneous sales decreased by $64,529. Revenue from Micron Integrated Technology s (MIT) custom manufactured and assembled products increased by $60,812. The increase in MIT is net of the decrease in revenues from the discontinued unprofitable forging product that totaled $1,206,520 in the three months ended September 30, 2008. The MIT division of Micron Products includes the custom manufacturing and product life cycle businesses. This division s revenue is derived from the custom molding, precision metal machining, assembly and mold making activities.

Revenue was $15,512,270 for the nine months ended September 30, 2009 as compared to $17,724,252 for the same period in 2008, a decrease of 12.5% or $2,211,982. Sales of Micron s medical sensors and snaps with silver surcharge decreased by $1,039,351, while the associated volume increased by 9.6%. High volume precision molded products and other miscellaneous sales decreased by $72,380. The snap attaching machine business unit decreased $46,083 when compared to the same period in 2008. Despite a decrease from a discontinued unprofitable forging product of $2,684,501, MIT s custom manufactured and assembled products only decreased by $1,054,168. The offsetting increase of $1,630,333 is for continued growth of MIT s custom products for the nine months ended September 30, 2009 as compared to the same period in 2008. There were no sales of the Company s SAECG products in the first nine months of 2009 or 2008.

Cost of sales was $4,576,068 or 83.9% for the three months ended September 30, 2009 as compared to $4,996,830 or 85.6% for the same period in 2008. Cost of sales was $12,811,506 or 82.6% for the nine months ended September 30, 2009 as compared to $14,424,783 or 81.4% for the same period in 2008. Cost of manufacturing has stabilized due to an ongoing company-wide cost reduction effort. The reduction and stabilization of costs remains a priority of management. The inability to increase our sensor prices in the competitive global marketplace hinders passing additional material, utility, and other miscellaneous cost increases to our customers, excluding the escalating cost of silver. Management continues its efforts to improve the overall gross margin by elimination of low contribution products while expanding higher margin product lines. The investment in automated equipment is ongoing with the full benefit expected to begin the fourth quarter of 2009.

General and administrative expense was $509,037 or 9.3% of sales for the three months ended September 30, 2009 as compared to $521,548 or 8.9% of sales for the same period in 2008. General and administrative expense was $1,596,933 or 10.3% of sales for the nine months ended September 30, 2009 as compared to $1,917,496 or 10.8% of sales for the same period in 2008. Included in the expense for the nine months ended September 30, 2008 was a one time charge of $250,000 for costs associated with a terminated acquisition following due diligence. The general and administrative expense is expected to remain stable. The auditor attestation requirement in Section 404 of the Sarbanes-Oxley Act of 2002 was delayed until 2010; therefore the expense associated with the attestation will be delayed until 2010.

Research and development expense was $54,444 or 0.9% of sales for the three months ended September 30, 2009 as compared to $35,682 or 0.6% of sales for the same period in 2008. Research and development expense was $180,918 or 1.2% of sales for the nine months ended September 30, 2009 as compared to $248,355 or 1.4% of sales in the same period in 2008. The nine months ended September 30, 2008 included $52,000 of expense for equipment tested in a process improvement project with the sensor product line as well as the impairment of equipment used for final product testing. The proportion of expense related to ART s product, Predictor®7 was $3,041 and $14,691 for the three and nine months ended September 30, 2009, compared to $11,446 and $51,487 for the same periods in 2008. Although base development work on Predictor 7 has been completed, costs were incurred to support a National Institutes of Health research project utilizing ART s proprietary Signal Averaged ECG products and patented algorithms. The remaining portion of the research and development expense is associated with continued work on process improvements to the Micron sensor and snap product lines and new processes in MIT. This work is expected to continue through the end of 2009 and beyond.

Other expense, net was $15,291 for the three months ended September 30, 2009 as compared to $5,304 for the same period in 2008. Other expense, net was $34,504 for the nine months ended September 30, 2009 as compared to $6,073 for the same period in 2008. Interest income of $8,919 in the nine months ended September 30, 2009 compared to $25,987 for the same period in 2008. Interest expense associated with an equipment note was $31,699 and $35,481 for in the nine months ended September 30, 2009 and 2008, respectively. Other income of $6,915 was offset by a loss on disposal of assets of $18,639 for the nine months ended September 30, 2009 and other income of $3,421 in the same period in 2008.

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