SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required)

DECEMBER 31, 1995 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 (no fee required)

ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 72-0925679
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)

5910 COURTYARD DRIVE #300 78731
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)

(512) 343-6912
(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.
---

On February 29, 1996, there were 3,564,511 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 February 29, 1996, the aggregate
market value of the voting stock of the registrant held by non-affiliates was
$14,336,755 based upon the closing price of the shares of common stock on the
American Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

Exhibits of a Registration Statement on Form S-18 as filed with the
Commission in April 1988, Registration Statement No. 33-20945-FW, a
Registration Statement on Form S-1 as filed with the Commission in August
1990, Registration Statement No. 33-36607, a Registration Statement on Form
S-8 as filed with the Commission in October 1992, Registration Statement No.
33-53810, and a Registration Statement on Form S-3 filed with the Commission
in October 1993, Registration Statement No. 33-69970, are incorporated by
reference into Part IV, Item 14.

PART I

ITEM 1. BUSINESS

BACKGROUND

Arrhythmia Research Technology, Inc. ("ART") was incorporated under
the laws of the State of Louisiana in 1981 and reincorporated under the laws
of the State of Delaware in 1987. ART is engaged in marketing and
manufacturing computerized medical instruments which acquire data and analyze
electrical impulses of the heart to detect and aid in the treatment of
potentially lethal arrhythmias. ART's product-line includes signal-averaging
electrocardiographic (SAECG) equipment, cardiac catheterization equipment,
and electrophysiology equipment. ART's patented and proprietary signal-
averaging product line is comprised of the 1200 EPX-TM-, the LP-Pac Q-TM-,
the PREDICTOR IIc-TM-, and the PREDICTOR-Registered Trademark- I. ART
is the exclusive distributor for the Astro-Med, Inc. proprietary K3 Cardiac
Catheterization product line for the United States and Canada. Additionally,
ART is the exclusive distributor for the CardioMapp-TM- and CardioLab-TM-,
Prucka Engineering, Inc.'s electrophysiology products.

ART's wholly-owned subsidiary, Micron Products Inc. ("Micron"), is a
manufacturer and distributor of silver/silver chloride-plated sensor elements
("sensors") used in the manufacture of disposable electrodes constituting a
part of ECG diagnostic and monitoring instruments. Micron also acts as a
distributor of metal snap fasteners ("snaps"), another component used in the
manufacture of disposable electrodes. Micron was incorporated in the State
of Massachusetts in 1972 and is located in Fitchburg, Massachusetts.

The following table sets forth for the periods specified, the net
sales derived from the products of ART and its subsidiary Micron
(collectively the "Company"):

YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 % 1994 % 1993 %
----------- --- ----------- --- ----------- ---

SAECG equipment........... $ 808,043 3 $ 901,608 5 $ 1,071,062 6
CardioLab & CardioMapp.... 13,671,703 60 8,714,896 50 9,466,260 53
Sensors & Snaps........... 8,448,343 37 7,764,163 45 7,259,295 41
----------- --- ----------- --- ----------- ---
Total $22,928,089 100 $17,380,667 100 $17,796,617 100
----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- ---

The Company believes that the continued growth in the fields of
cardiology and electrophysiology will result in significant opportunities for
the Company to supply equipment and related disposables to hospitals, clinics
and physicians. The Company is actively seeking to acquire additional
product lines to supply this market.

RECENT DEVELOPMENTS

EXCLUSIVE DISTRIBUTION AGREEMENT WITH ASTRO-MED, INC.

In November 1995, ART signed an agreement ("the Agreement") with
Astro-Med, Inc. ("Astro-Med"), to exclusively distribute its family of
proprietary K3 Cardiac Catheterization products (K3 Cath-Lab). The agreement
is for an initial term of eighteen months and can be extended under certain
conditions for an additional three years. Astro-Med is a manufacturer of
specialty printer systems and related equipment which display, monitor,
analyze and print data for aerospace, industrial and medical applications.
The Astro-Med K3 Cath-Lab is an advanced hemodynamics system for use in a
standard hospital Cath-Lab. The FDA issued a 510(k) in November 1994, which
allows the K3 to be sold to the medical community in the United States.
Astro-Med is a publicly traded company listed on the NASDAQ National Market
System under the symbol ALOT.

CONSOLIDATED BANK FINANCING COMPLETED IN NOVEMBER 1995

In November 1995, the Company obtained funding for a consolidated
$3.5 million working capital line of credit and a $375,000 term loan with a
bank. The line of credit is collateralized by the accounts receivable and
inventory of ART and Micron and bears interest at prime plus .75%. The
consolidated working capital line of credit replaced the individual lines of
credit maintained by ART and Micron. Previously the individual lines of
credit maintained by the parent and its subsidiary hampered the Company's
ability to maximize its overall credit capacity to meet its liquidity needs.
The new working capital line of credit originally matured October 31, 1996,
however, the maturity has been extended to September 30, 1997 based primarily
on the Company's performance since closing and the agreement to distribute
the Astro-Med K3 Cath-Lab. The new working capital line of credit is
expected to enhance profitability and significantly improve financial
flexibility and liquidity.

COMPLETION OF PRIVATE PLACEMENT OFFERING OF $600,000 IN DEBENTURES

In August 1995, the Company completed a $600,000 private bond
placement. The bonds are subordinated to the bank, carry an 11% interest
rate, and are payable in 5 years. ART issued the bondholders an aggregate
of 279,000 warrants to purchase ART stock at $3.00 per share as part of the
private placement. The warrants expire 5 years from the date of the bond.
The bond proceeds were used to help ART meet common stock repurchase
commitments and to provide working capital for new product acquisitions and
development.

ACC EXPERT CONSENSUS REPORT RELEASED

A report from an ACC expert panel of cardiologists, released in
January 1996, deemed that the signal-averaged electrocardiography (SAECG)
test employing the bidirectional Butterworth filter is a valuable tool in
several cardiac disease clinical indications. ART holds the US and
international patents for the use of the bidirectional Butterworth filter.
The filtering technique employed in the Simson Method for late potential
analysis of the SAECG is the only method recommended by this recent expert
consensus, as well as by a previous "Standards" paper issued jointly by the
American College of Cardiology, American Heart Association, and the European
Society of Cardiology. The new report stated that the SAECG test is
established as being valuable for identifying patients after a heart attack
who are at high risk for developing sustained ventricular arrhythmias, and
also for identifying patients with ischemic heart disease and unexplained
syncope, who are likely to have inducible ventricular tachycardia.
Furthermore, the SAECG test has been found to be valuable in risk stratifying
nonischemic cardiomyopathy patients who may develop sustained ventricular
arrhythmias, and also for assessment of the success of operations for
ventricular arrhythmias. Other promising indications include the detection
of tissue rejection in heart transplant patients, and the effects of
anti-arrhythmic drugs. The SAECG non-invasive test, which now has its own
CPT code for reimbursement, was shown to be more cost effective than other
tests used for similar type of risk stratification, such as invasive
programmed stimulation, ejection fraction and Holter tests. The consensus
paper also said that Medicare reimbursement for this test has shown an upward
trend from 1992 to 1994.

DESCRIPTION OF BUSINESS

SIGNAL-AVERAGING ELECTROCARDIOGRAPHIC (SAECG) PRODUCTS

Sudden cardiac death afflicts over 400,000 individuals in the United
States alone each year. As described in an Expert Consensus on
Signal-Averaged Electrocardiography published in the Journal of the American
College of Cardiology (Vol. 27, No. 1, 1996), these occurrences are due to
sustained ventricular tachycardia (abnormally rapid heartbeat) or ventricular
fibrillation (very fast, completely irregular heartbeat) which severely
affect the capability of the heart's pumping chambers or ventricles.
Ventricular arrhythmias are distinguished from arrhythmias affecting the
atrium (the non-pumping chambers of the heart), which generally are not
life-threatening. The majority of ventricular arrhythmias occur in patients
who have survived a prior heart attack or have significant coronary artery
disease. However, individuals with primary electrical disturbances of the
heart comprise an additional subset of patients. Thus, various techniques
have evolved to detect and treat individuals at risk of the development of
sustained ventricular arrhythmias which may cause marked interference with
the proper functioning of blood circulation, resulting, in some cases, in
sudden cardiac death.

By analyzing the electrical signals from the hearts of animal and
human survivors of heart attacks, researchers have found that, in contrast to
the relatively discrete, narrow high amplitude signals recorded from normal
subjects, low amplitude, high frequency signals persisted well after the
heartbeats were recorded in approximately 20% to 25% of heart attack
survivors. These latter signals became known as "late potentials." Since
directly recorded late potentials had been documented in subjects with
malignant ventricular arrhythmias, the hypothesis arose that late potentials
would be recorded in subjects with, or at risk of, sustained ventricular
arrhythmias. After successful surgical treatment of ventricular arrhythmias,
these late potential signals disappeared, which indicated an association
between these abnormal signals and the underlying condition.

Signal-averaged surface (non-invasive) electrocardiography has become
well established as a means of evaluating and diagnosing those individuals at
risk for potentially lethal ventricular arrhythmias as documented by an
Expert Consensus on SAECG (noted above). The steps involved in obtaining a
SAECG include: recording, digitization, averaging, amplification, and
filtering. Conventional surface electrocardiography generally cannot detect
late potentials. A major limitation stems from the inability to isolate the
low amplitude signals. Amplification of the standard electrocardiogram to
detect late potentials results in contamination by coincident electrical
noise. The SAECG processes enable late potentials to be amplified and
enhanced, while eliminating undesired electrical noise. At the annual
American Heart Association Scientific Sessions in November 1995, abstracts of
studies were presented which described potential new areas of effective use
of ART's SAECG technology. Of primary interest were (1) SAECG as a predictor
of sudden cardiac death after coronary arterial bypass surgery; (2) SAECG as
a tool for determining the effectiveness of ACE inhibitor drug therapy; and

(3) as a non-invasive method of detecting rejection after heart transplant
surgery. These studies have the potential to broaden the uses of SAECG
technology and applications of ART's SAECG products. ART's patented
technology is considered the standard in medicine for SAECG. ART's SAECG
products are described in detail below.

1200 EPX

The 1200 EPX is a specialized high resolution ECG system used to
detect late potentials which cannot be detected by conventional surface ECG
instruments. The 1200 EPX is used in conjunction with an MS-DOS based
personal computer utilizing the patented Simson bi-directional Butterworth
filtering technique. The 1200 EPX acquires, digitizes, averages and filters
the cardiac signals providing late potential analysis with its time domain
and frequency-domain analysis software. ART has the rights to the use of the
Simson bi-directional Butterworth filtering technique for the detection of
late potentials in the terminal portion of the QRS cycle. This method,
characterized as the "Standard", was pioneered by Michael Simson, MD, and has
been built into each 1200 EPX. Hard copy reports are generated using
laserjet printers. See "EPSoft-TM- Software Library" for post-processing
applications available for the 1200 EPX.

LP-PAC Q AND PREDICTOR IIc

The LP-Pac Q is a low-cost signal-averaging kit for MS-DOS based
personal computers which consists of a "smart" SAECG pre-amplifier/patient
cable, lead wires, a data acquisition system (DAS) card to receive ECG
signals in real-time, time domain late-potential analysis software and an
isolation safety transformer. The LP-Pac Q uses the patented Simson
bi-directional Butterworth filtering technique, the recognized standard for
the detection of late potentials, and provides results which are
substantially equivalent to the 1200EPX. All software modules for the 1200
EPX are also available for the LP-Pac Q, with the exception of Heart Rate
Variability analysis. See "EPSoft-TM- Software Library". In January 1996,
ART received CE mark certification for the LP-Pac Q. The certification of
the CE mark is required to export products to the European community.

The PREDICTOR IIc is a cart-based patient-isolated system comprised
of the same components as the LP-Pac Q kit, but running PREDICTOR software on
a notebook computer with a docking station. A Hewlett-Packard laserjet
printer is supplied as part of the cart-based system.

PREDICTOR I

The PREDICTOR I is a personal computer-based signal-averaging device
that records and analyzes cardiac late potentials. The PREDICTOR I consists
of a computer, digitizing hardware, programmable amplifiers, QRS detection
hardware/firmware, preamplifiers, and a printer. Software is provided to
facilitate the use of these components. The PREDICTOR I is designed to give
the physician a flexible tool for the research setting as well as for
clinical use.

EPSOFT-TM- SOFTWARE LIBRARY

ART's research and development staff has recently developed
breakthrough digital signal processing techniques to enhance the overall
analytical power of the SAECG test. Two such new developments are the
IntraSpect-TM- and Early Potential Analysis software packages.

IntraSpect-TM- permits visualization and quantification of electrical
fragmentation within the entire QRS complex (entire ventricular
depolarization cycle), using individual-lead Acceleration Spectrum Analysis
(ASA). Hence, micropotential detection is no longer limited to the "late
potential" region. Furthermore, patients with conduction delay problems
(i.e. "bundle branch block") can have SAECG analysis performed on them. This
covers 25% of a patient population which previously could not be analyzed
with SAECG.

The Early Potential Analysis software has been designed specifically
for P wave-triggered SAECG acquisition and analysis and is used as a research
tool in assessing patients at risk for atrial fibrillation and flutter. ART
continues to offer other optional post-processing signal averaging software
packages for the 1200 EPX and LP-Pac Q, including Cal-ABS-TM- Plus software
for individual lead time domain analysis and FFT-Plus-TM- spectral temporal
mapping software; and Heart Rate Variability (HRV) software for the 1200EPX.
These optional signal-averaging software packages are not approved by the FDA
and are for research purposes, not clinical diagnosis.

ART also offers the PREDICTOR Heart Rate Variability ECG software
("PREDICTOR HRVECG"), which is marketed under a 510(k) granted by the FDA in
1989. PREDICTOR HRVECG provides time and frequency domain mathematical tools
for the non-invasive assessment of R wave to R wave in sequential QRS
complexes. PREDICTOR HRVECG can be used alone or in conjunction with a
PREDICTOR I, PREDICTOR IIc, and LP-Pac Q signal-averaging systems.

Software upgrades are provided at no charge to customers with systems
under warranty. Sales of post-processing software products were not material
to the Company's business in 1995.

K3 CATH-LAB

In November 1995, ART signed a four and one-half year agreement ("the
Agreement") with Astro-Med, Inc. ("Astro-Med"), to exclusively distribute its
family of proprietary K3 Cardiac Catheterization products (K3 Cath-Lab). The
Agreement may be terminated by the Manufacturer, at the discretion of
Manufacturer on ninety (90) days' written notice, at the end of a
then-current contract year in the event Buyer does not meet certain minimum
sales requirements set forth in the agreement. Astro-Med is a manufacturer of
specialty printer systems and related equipment which display, monitor,
analyze and print data for aerospace, industrial and medical applications.
The Astro-Med K3 Cath-Lab is an advanced hemodynamics system for use in a
standard hospital Cath-Lab. The K3 is designed to produce complete
hemodynamic analysis and comprehensive reports, including chronological logs,
preliminary findings, full inventory control reports, letter generation and
medical records, in a simplified drop-down menu format. The FDA issued a
510(k) in November 1994, which allows the K3 to be sold to the medical
community in the United States. Astro-Med is a publicly traded company
listed on the NASDAQ National Market System under the symbol ALOT.

ELECTROPHYSIOLOGY PRODUCTS

CARDIOLAB

The CardioLab was introduced and received a 510(k) from the FDA in
early 1991. The CardioLab is a computerized recording and analysis system
used by electrophysiologists in the diagnosis and treatment of arrhythmias.
The CardioLab is used in conjunction with a stimulator and catheters inserted
through a blood vessel, allowing an electrophysiologist to electronically
induce, monitor, record, analyze and treat arrhythmias under controlled
conditions. The CardioLab records cardiac electrical activity which is
amplified, digitized and transmitted to a computer for real time analysis and
display on a high resolution color graphics monitor or laser printer.
Because the CardioLab can be used to accurately detect the presence and
location of diseased or damaged heart tissue, in some cases, a procedure can
be performed less invasively via catheter, as compared to open heart
exploratory surgery, to treat the condition.

The CardioLab components include an amplifier, computer, monitor and
printer. These hardware components are manufactured by various suppliers and
are, to a large extent, interchangeable. The CardioLab has a list price of
$108,950 to $181,000, depending upon the configuration of the system
purchased. The CardioLab is manufactured by Prucka Engineering, Inc. of
Houston and distributed exclusively by ART until December 31, 1996 pursuant
to an agreement dated April 1, 1994. During 1997, 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. During
1998, ART will receive a commission of 4% on CardioLab systems 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.

CARDIOMAPP

The CardioMapp was introduced and received a 510(k) from the FDA in
November 1989. The CardioMapp is a computerized cardiac mapping system used
during open heart surgery to assist surgeons in locating and treating
electrical malfunctions of the heart. The system uses several types of
electrode arrays placed on the heart to monitor and record cardiac electrical
activity. The electrical activity is amplified, digitized and transmitted to
a computer for real-time analysis and display in the operating room during
surgery on a high resolution color graphics display or color printer. The
graphics display, or map, is presented to the surgeon within one to two
minutes after the data is recorded.

The CardioMapp components include fiber optic cable and electrodes,
an amplifier, junction box, computer, monitor and printer. The CardioMapp
has a list price of $125,000 to $155,000, depending upon the configuration of
the system purchased. The CardioMapp is manufactured by Prucka Engineering,
Inc. of Houston and distributed exclusively by ART until December 31, 1996
pursuant to an agreement dated April 1, 1994. During 1997, ART will receive
commissions on net sales of CardioMapp systems and accessories sold anywhere
in the world, up to a ceiling of $10,000,000 in total net sales.

SENSORS AND SNAPS

SILVER/SILVER CHLORIDE-PLATED SENSOR ELEMENTS

Micron is a manufacturer and distributor of silver/silver
chloride-plated sensor elements for use in the manufacture of disposable
electrodes for ECG diagnostic, monitoring and related instrumentation.

The disposable electrode has proven to be more accurate and reliable
than the reusable electrodes available in the market. Additionally,
disposable electrodes are faster and easier to use as compared to reusable
electrodes, which require cleaning after each use. As a result, the
disposable electrode has replaced the reusable electrode in many
applications. A disposable electrode generally consists of an adhesive for
attachment to the patient's body, a gel to insure maximum signal acquisition,

a conductor or snap for attachment to the transfer wires and the sensor
element. The type of sensor element manufactured by Micron consists of a
molded plastic substrate plated with a silver/silver chloride surface which
is a highly sensitive conductor of electrical signals. Silver/silver
chloride-plated disposable electrodes are utilized in coronary care units and
for other monitoring purposes. In most of these ECG procedures, up to ten
electrodes are used and after each test, all such electrodes are discarded.

In addition to the traditional ECG tests, disposable electrodes
incorporating Micron's sensor elements are used in connection with the stress
and "Holter" tests. The Holter test utilizes a portable ECG heart monitoring
device that is worn by a patient for up to 24 hours during the patient's
normal activity and is designed to record data from the patient's heart. The
stress test monitors the human heart during rest followed by exercise and
again at rest. Both the Holter and stress tests employ disposable
silver/silver chloride disposable electrodes.

METAL SNAP FASTENERS

In February, 1991, Micron entered into a non-exclusive world-wide
distribution agreement with a manufacturer of metal snap fasteners used to
attach the disposable electrode to the lead wires of the ECG machine. As a
component of the finished silver/silver chloride disposable electrode, the
snaps are sold to some of the same customers that use Micron's sensor
elements. Micron purchases finished snap fasteners from its supplier,
performs quality control procedures and repackages the snaps for shipment to
customers. Snap shipments are often included along with Micron's sensor
shipment to a customer. While Micron is attempting to increase the market
penetration of this product, there can be no guarantee that the snap fastener
product line will produce increased revenues or profits in future periods.

The following table shows sales of sensors and snaps by Micron for the years
ended December 31:

1995 % 1994 % 1993 %
---------- --- ---------- --- ---------- ---

Sensors.......... $7,296,163 86 $6,620,729 85 $6,210,481 86
Snaps............ 1,152,180 14 1,143,434 15 1,048,814 14
---------- --- ---------- --- ---------- ---
Total.......... $8,448,343 100 $7,764,163 100 $7,259,295 100
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---

ENVIRONMENTAL REGULATION

Like many industrial processes, the Micron 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 operation
of its manufacturing facility is in compliance with currently applicable
safety, health and environmental laws and regulations.

GROUNDWATER

During September 1992, as a requirement for obtaining a mortgage to
repurchase its Fitchburg, Massachusetts manufacturing facility, Micron
performed an environmental 21-E Site Assessment. A 21-E Site Assessment
includes an analysis of ground water samples for the presence of certain
petroleum based products, metals and solvents. The analysis detected levels
of petroleum products and metals in excess of the minimum allowable
standards. Micron filed a release report and a Preliminary Assessment and
Interim Site Classification form with the Massachusetts Department of
Environmental Protection ("DEP"). The DEP classified the site as a disposal
site within the meaning of the Massachusetts Oil and Hazardous Material
Release Prevention and Response Act and identified Micron as a potentially
responsible party with liability.

On January 21, 1993, Micron filed its Phase I Limited Site
Investigation and Waiver Application ("Application"). The Application
contained an historical overview of past uses of the site and its surrounding
area. The facility is located in the center of a heavily developed
industrial area and use of the site and surrounding properties predates the
early 1900's. Micron has occupied the site from 1982 to the present. The
Application identified several potential off-site sources for the discharge
and demonstrated that none of the types of chemicals found on the property
are used in the Micron manufacturing process. During February, 1993, the
representatives of the DEP visited the site. On February 18, 1993, the DEP
classified the site as a non-priority disposal site and granted Micron's
waiver application with the stipulation that Micron evaluate the upgradient,
off-site sources which may have caused the contamination.

As a condition of the waiver approved by the DEP, Micron was required
to prepare a five-year plan of remediation for the property. Micron retained
an environmental consulting firm to organize, design, and implement a plan of
remediation and to represent Micron in its dealings with the regulatory
authorities. Initial Phase II activities were undertaken in 1993, including
drilling two borings and installing three monitoring wells. In 1994, an
elevation and location survey was conducted on the monitoring wells. This
data was used in conjunction with the depth to groundwater in each of the
wells to construct a groundwater contour plan. The groundwater contour plan
is used to estimate the rate and direction of groundwater movement. In 1995,
permeability testing was conducted on the monitoring wells. This data is
used in evaluating the transport of contaminants via groundwater. Additional
Phase II activities, which will be conducted over approximately the next two
years, will likely include further site history data collection, review and
evaluation; evaluation of upgradient potential sources as required by the DEP
waiver; additional soil sample collection to further define source areas;
groundwater monitoring, report and required document preparation; risk
assessment; and regulatory agency coordination. Upon the completion of Phase
II activities Micron will apply for final approval and clearance from the
DEP. The Massachusetts Contingency Plan allows closure of sites only after a
condition of "no significant risk" is demonstrated. If the DEP determines
that the Company needs to implement the last phase of remediation (Phase
III), the Company could incur approximately $200,000 of clean-up costs to
remove contaminated property as estimated by the environmental engineering
firm hired to represent the Company in its dealings with the DEP. Although
the ultimate outcome is uncertain until Phase II is completed, as of December
31, 1995, the engineering firm and management of the Company believe that
Phase III remediation will not be required.

Prior to its acquisition by the Company, Micron recorded a charge
against earnings of $233,000 to cover estimated costs associated with site
monitoring and remediation through Phase II. Prior to December 31, 1992,
Micron incurred costs of $60,600 on site analysis and preparation of the
site assessment and waiver application. During 1995, 1994, and 1993 Micron
spent approximately $24,900, $14,000, and $58,000, respectively, for site
assessment, monitoring, and remediation. At December 31, 1995, the accrued
liabilities include approximately $75,200 to cover the estimated future costs
associated with site monitoring and remediation. Management estimates that
these costs could approximate from $65,000 to $360,000 depending upon the
final decision by the DEP.

Micron may seek recovery from other responsible parties if the source
of the ground water pollution can be identified. However the likelihood of
the collection of damages cannot be evaluated at this time.

OPERATIONS

During 1995, Micron spent approximately $139,000, of which
approximately $5,000 was capitalized at December 31, 1995, on an extensive
program to evaluate its manufacturing process, employee training, health and
safety programs, air and waste water treatment systems, and to ensure
compliance with current and future federal, state and local regulations, as
well as to evaluate the adequacy of such systems to facilitate future growth.
Certain of the above expenditures are classified as "one time" charges while
others are normal recurring expenses associated with industrial producers in
the Commonwealth of Massachusetts. The capitalized costs relate to
expenditures to improve the efficiency of the manufacturing process and to
help mitigate or prevent possible future environmental contamination. Such
costs are amortized over their estimated useful lives of five years.

Using the results of the study, Micron expects to undertake a
manufacturing process and air and waste water treatment redesign. The actual
redesign, which will take place over the next two years, will require the
purchase of capital equipment to upgrade, augment or replace existing
manufacturing and waste treatment equipment. All such expenditures are
expected to be financed through an equipment capital lease arrangement. The
Company expects to spend up to approximately $480,000 in total for such
capital improvements. It is expected that Micron will benefit from a certain
level of improved efficiency and savings related to recovery and recycling of
water, silver and other chemicals to help offset some of the costs of the
improvements.

GENERAL

CUSTOMERS AND SALES

ART sells its electrocardiographic, cardiac catheterization, and
electrophysiology products primarily to hospitals where purchasing decisions
are typically made on the advice of physicians affiliated with such
hospitals. ART's sales cycle, which generally commences at the time a
hospital issues a request for proposal and ends upon submission of a purchase
order, may take up to nine months. ART generally fills orders within
approximately 30 days of receipt of customer orders for electrocardiographic
products and within approximately 60-90 days for cardiac catheterization and
electrophysiology products. Because orders are filled shortly after receipt,
backlog is not usually material to ART's business.

Micron manufactures its sensor elements against specific customer
purchase orders in accordance with supply agreements between Micron and the
electrode manufacturers. There are approximately 50 significant
manufacturers of silver/silver chloride-plated disposable electrodes
world-wide. Micron sells its sensor elements to most of these manufacturers.
During the year ended December 31, 1995, three major customers accounted for
32%, 18%, and 14% of net sales of Micron.

The following table sets forth, for the periods indicated, the
approximate consolidated net sales and percentages of net sales derived from
sales of the Company's products in its geographic markets:

NET SALES YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 % 1994 % 1993 %
----------- --- ----------- --- ----------- ---

United States....................... $16,380,540 71 $11,813,557 68 $12,699,599 72
Europe.............................. 4,325,860 19 2,938,187 17 1,804,633 10
Canada, Mexico & South America...... 1,078,263 5 1,210,068 7 1,430,150 8
Far East............................ 1,101,085 5 1,349,310 8 1,790,747 10
Other............................... 42,341 - 69,545 - 71,488 -
----------- --- ----------- --- ----------- ---
Total........................... $22,928,089 100 $17,380,667 100 $17,796,617 100
----------- --- ----------- --- ----------- ---
----------- --- ----------- --- ----------- ---

INSTALLATION AND SERVICE

ELECTROCARDIOGRAPHIC, CARDIAC CATHETERIZATION AND ELECTROPHYSIOLOGY PRODUCTS

INSTALLATION. When a purchase order is received for SAECG products,
ART or its independent sales representatives and distributors are responsible
for installation of the systems. The period from the time of execution of
the purchase order until completion of installation of such system typically
ranges from one to four weeks. Astro-Med is responsible for installation of
the K3 Cath-Lab at the customer location. The period from the time of
execution of the purchase order until completion of installation of a K3
Cath-Lab is approximately 30-45 days. Prucka is responsible for installation
of the CardioMapp and CardioLab systems at the customer location. The period
from the time of execution of the purchase order until completion of
installation of the electrophysiology system is approximately 90-120 days.

TRAINING. Ordinarily, the sales representative provides training to
customers in the use of SAECG products. ART personnel are sometimes used to
provide additional training support, as necessary. Generally one day of
training is provided on-site on the day of installation. ART provides
training for both the operation and use of the hardware and of all standard
applications of the software. When a K3 Cath-Lab is installed, two to four
days of training is provided by Astro-Med and ART personnel. In connection
with the installation of CardioMapp and CardioLab systems, three days of
training are provided by Prucka's personnel.

WARRANTY AND MAINTENANCE. ART provides a one-year warranty which
covers parts and labor for all of its SAECG software and hardware products.
Customers may renew the warranty annually at a cost of approximately $1,000
to $2,700 depending on the service level and type of system. The K3 Cath-Lab
comes with a standard one-year labor and parts warranty included in the
purchase price. All K3 Cath-Lab repairs are made by Astro-Med personnel.
The CardioMapp and CardioLab systems and components are serviced by Prucka
personnel. CardioLab and CardioMapp systems are warranted for the first year
with annual renewals available for a fee.

SENSORS AND SNAPS

Micron sells its sensors and snaps to original equipment
manufacturers of disposable electrodes who assemble the finished product.
Micron sales, manufacturing and customer service personnel provide the
electrode manufacturers with technical support whenever necessary.

PRODUCT SUPPLIERS AND MANUFACTURING

ELECTROCARDIOGRAPHIC

ART currently has limited manufacturing capabilities for its signal
averaging products and relies upon established inventories to fill current
sales orders. When additional units are required, ART plans to sub-contract
the basic unit production and perform final assembly and quality-control
testing in-house.

CARDIAC CATHETERIZATION SYSTEMS

ART is dependent upon Astro-Med as the sole supplier of the K3 Cath
Lab.

ELECTROPHYSIOLOGY

ART is dependent upon Prucka as the sole supplier of CardioMapp and
CardioLab systems. Under the distribution agreement between ART and Prucka,
ART will continue to exclusively distribute the CardioLab and CardioMapp
systems and accessories (the "Products") through December 31, 1996.
Thereafter, ART will receive royalties on Products sales through December 31,
2002.

SENSORS AND SNAPS

Micron manufactures its sensor elements at its Fitchburg,
Massachusetts facility employing a proprietary non-patented seven-step
process. The raw materials used by Micron in its sensors are (1) plastic
resins used to mold the substrates and (2) silver/silver chloride chemical
solutions for plating the molded plastic substrates. Both the plastic used
by Micron and the silver/silver chloride solutions are in adequate supply.
Fluctuations in the price of silver are contractually passed on to customers.

During February, 1991, Micron entered into a non-exclusive world-wide
distribution agreement for medical snap fasteners manufactured by TRW Inc.
("TRW"). TRW later sold its entire fastener operation and Micron's medical
snap fasteners are currently manufactured by Scovill, Inc. ("Scovill"). The
agreement allows Micron to buy the various snap fasteners in bulk and to
repackage and resell them to its customers. The agreement has a provision
for annual renewals and Micron and its supplier are cooperating to increase
market penetration of the Scovill snap products.

MARKETING AND COMPETITION

ART engages independent sales representatives and distributors of
medical instruments in various regions throughout the United States and
foreign distributors to market all of ART's products. Sales representatives,
who are paid on a commission basis, are generally responsible for identifying
customers and demonstrating products in their respective geographic markets.
ART has arrangements with 25 independent sales organizations in the United
States, which sell ART's products. ART has arrangements with 29 foreign
distributors who sell ART's products in most of the significant foreign
markets. To date, ART's independent sales organization has accounted for
substantially all of ART's sales. ART believes that the use of independent
representatives and distributors, which typically specialize in specific
products and areas and, accordingly, have specific knowledge of and contacts
in particular markets, enhances the quality and scope of ART's marketing and
sales efforts and permits ART to avoid the significant costs associated with
creating a direct distribution network. Pursuant to agreements with
independent sales representatives and distributors, such sales force is
prohibited from engaging in the promotion or sale of products that compete
with ART's products.

ART directly employs sales, marketing and management personnel who
are responsible for making sales presentations and working in conjunction
with independent sales representatives in marketing and selling products to
doctors and hospitals. ART's staff prepares advertising copy, full-color
sales brochures, technical bulletins, reimbursement documentation, and
sponsors training programs. In addition, the in-house marketing department
sets sales goals and manages the independent sales organizations as well as
making marketing decisions with respect to present and future products.

SAECG PRODUCTS

ART's marketing efforts with respect to SAECG products have focused
primarily on those hospitals with an electrophysiology laboratory and
electrophysiologists with the ability to apply the late potential test in a
clinical environment. ART believes that this market segment is a relatively
small percentage of the potential market for signal-averaging instruments.
ART is expanding its marketing focus to include buying groups, cardiologists,
and other physicians involved in the diagnosis of heart problems. In the
United States there are approximately 9,000 cardiologists certified by the
American Board of Internal Medicine. ART markets its SAECG products at
regional and national trade shows in the United States and Europe. In
addition, ART markets its SAECG products through the use of direct mail
campaigns to selected cardiologists.

ART is aware of certain other companies which have developed or are
developing technologies and products which are competitive with ART's
products. Other technologies or products which are functionally similar to
ART's signal-averaging products are currently available from a number of
competitors, including Del Mar Avionics, Marquette Electronics, Inc., and
Hewlett-Packard Company, most of which are well established, have
substantially greater financial and other resources than ART and have
established reputations for success in the development, sale and service of
products. ART believes that its competitive advantage is based on a number
of factors, including price, ease of use, and clinical acceptance of the
methodology employed in ART's signal-averaging products.

CARDIAC CATHETERIZATION PRODUCTS

The K3 Cath-Lab product is marketed through national trade shows in
the United States. Additionally, ART has placed full-page advertisements in
trade journals that have drawn an excellent response to the K3 which has
certain major advantages over other, like products currently available.
Competitors for the K3 include the Midas system from E for M Corp., the
MAC-Lab/Cath Lab Manager from Marquette, Inc., the Horizon 9000 WS from
Mennen Medical, the Q-Cath-DS from Quinton Instrument, the Cathcor C & T from
Siemens Medical, and the Series II from Witt Biomedical. Most of these
competitors are well established and have substantially greater financial and
other resources than ART. ART believes that its competitive advantage is
based on a number of factors, including price, ease of use, and clinical
acceptance of the methodology employed in the K3.

ELECTROPHYSIOLOGY PRODUCTS

Electrophysiology products are marketed at regional and national
trade shows in the United States and Europe, usually in conjunction with
Prucka. ART believes that the CardioMapp currently is competitive in terms
of performance features and price. Also, the CardioLab system, distributed
by ART, faces competition from other competitors who manufacture and market
similar products, with digital technology, including C. R. Bard, Inc. and
Quinton Instrument Co., which have greater financial and other resources than
ART and have established reputations in the manufacture, sale and service of
medical instruments. ART believes that the features and price of the
CardioLab compare favorably with products marketed by these competitors.

SENSORS AND SNAPS

Micron sells its sensor elements to most major manufacturers of
disposable silver/silver chloride ECG electrodes. Micron employs one
full-time salesperson for sensors and snaps. The Company believes that it
has two competitors for sensors and that its sales of sensors greatly exceed
those of its competition.

ENGINEERING AND RESEARCH AND DEVELOPMENT

During 1995, ART's engineering and research and development efforts
focused primarily on enhancing and improving the post-processing software
used for SAECG equipment. ART currently employs two engineers engaged in
software and hardware development and one technician for customer telephone
support, warranty repairs, and limited manufacturing. ART also engages
outside consultants for specific projects. For the fiscal years ended
December 31, 1995, 1994 and 1993, ART expensed approximately $183,000,
$235,000, and $196,000, respectively, in connection with engineering and
research and development activities, which consisted principally of the
salaries of its employees and consultants.

GOVERNMENT REGULATION

Diagnostic products such as those marketed by ART are subject to an
extensive regulatory clearance process by the FDA and comparable agencies in
other countries. ART believes that the products currently marketed in the
United States have all necessary governmental clearances required for the
sale of such products in the United States and each of the countries in which
its products are presently sold. The regulatory process for diagnostic
devices, which sometimes includes the requirements for pre-clinical and
clinical testing, can take many years and requires the expenditure of
substantial amounts of money. In the event ART seeks to market new products
or significantly modify a product currently in commercial distribution, ART
would be required to obtain regulatory clearance.

Federal legislation relating to medical devices could potentially
cause compliance with the pre-market clearance and approval processes to be
more time consuming, difficult and expensive. It is not anticipated that
ART's products will be subject to special controls or regulation, but there
can be no assurance that the FDA will not impose special controls or
regulation.

THIRD-PARTY REIMBURSEMENT

Hospitals, physicians and other health care providers that purchase
capital or other equipment, such as the products sold by ART, for use in
furnishing care to their patients typically rely on third-party payers,
principally Medicare, Medicaid, and private health insurance plans, to
reimburse all or part of the costs or fees associated with the medical
procedures performed with such equipment, and of the capital costs of
acquiring such equipment. Cost control measures adopted by third-party
payers in recent years and reductions in Medicare payments for hospital
outpatient services and capital costs have had and may continue to have a
significant effect on the purchasing practices of many such providers,
generally causing them to be more selective in the purchase of medical
equipment and to place increasing emphasis on maximizing the return on
investment in new equipment.

The Medicare statute prohibits payment for any items or services that
are not reasonable and necessary for the diagnosis or treatment of illness or
injury or to improve the functioning of a malformed body member. During
1995, a survey

conducted by the Company showed that SAECG medical tests were reimbursed
under Part B Medicare in 49 states. The procedures performed utilizing the
K3 Cath-Lab, CardioLab and CardioMapp systems are reimbursed under Part B
Medicare in all states. While third-party payers generally make their own
decisions regarding which items and services to cover, Medicaid and other
third-party payers often apply standards similar to Medicare's in determining
whether to provide coverage for a particular medical procedure.

ART is unable to predict the impact of additional legislation or
regulations, if any, which may be enacted or adopted in the future relating
to ART's business or the health care industry, including third-party coverage
and reimbursement.

INSURANCE

The Company may be exposed to potential product liability claims by
patients who use the Company's products. ART maintains a general liability
insurance policy, which includes product liability coverage of $1,000,000 per
occurrence and $2,000,000 per year in the aggregate. Micron also maintains a
general liability insurance policy which includes product liability coverage
of $1,000,000. To date, there have been no asserted or threatened claims
against the Company. Although Company management believes the present
insurance coverage is adequate for the types of products currently marketed
by the Company, there can be no assurance that such insurance will be
sufficient to cover potential claims or that the present level of coverage
will be available in the future at a reasonable cost.

ART has a directors and officers liability insurance policy with
coverage in the amount of $2,000,000.

PATENTS AND PROPRIETARY TECHNOLOGY

ART

The Simson Patent, which covers the core technology, including the
signal-averaging and filtering technologies, on which the 1200 EPX, LP-Pac Q,
and PREDICTOR I are based, is of material importance to ART. ART holds an
exclusive license for the Simson Patent, which expires in December 2000. In
connection with the 1200 EPX, ART is the assignee of three other U. S.
Patents, two of which expire in July 2001 and the other in January 2002. ART
currently holds a non-exclusive license to a fifth U. S. Patent and has three
patent applications pending. ART holds foreign patents issued in Austria,
Australia, Belgium, Canada, France, United Kingdom, Holland, Italy,
Liechtenstein, Spain, Sweden, Switzerland and Germany. ART believes that
patent protection is important to its business and anticipates that it will
apply for additional patents as deemed appropriate.

As part of the acquisition of substantially all of Corazonix's assets
in 1993, including those pertaining to high resolution ECG, ART acquired
four additional patents related to time and frequency domain analysis of
electrocardiogram signals. ART also owns two patents related to time and
frequency domain analysis software developed by Ralph Haberl, M.D. These
patents were allowed in 1993 by the U.S. Patent Office, and cover the
spectral-temporal mapping post-processing software packages sold by ART.

Rapid technological development in the medical industry results in
extensive patent filings and a rapid rate of issuance of new patents.
Although ART believes that ART's products do not and will not infringe
patents or violate proprietary rights of others, it is possible that its
existing patent rights may not be valid or that infringement of existing or
future patents or proprietary rights may occur. In the event that ART's
products infringe patents or proprietary rights of others, ART may be
required to modify the design of its products or obtain a license. There can
be no assurance that ART will be able to do so in a timely manner upon
acceptable terms and conditions. In addition, there can be no assurance that
ART will have the financial or other resources necessary to enforce or defend
a patent infringement or proprietary rights violation action. Moreover, if
ART's products infringe patents or proprietary rights of others, ART could,
under certain circumstances, become liable for damages, which could have a
material adverse effect on ART. ART does not own or have any license to any
patents relating to the K3 Cath-Lab technology incorporated in such systems
and is not aware of any patent or licenses to patents that Astro-Med may
hold. ART does not own or have any license to any patents relating to the
CardioMapp or CardioLab instruments or technology incorporated in such
instruments and it is not aware of any patents or licenses to patents that
Prucka may hold.

ART also relies on proprietary know-how and employs various methods
to protect the source codes, concepts, ideas and documentation of its
proprietary software. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to ART's know-how or software codes,
concepts, ideas and documentation. Furthermore, although ART has
confidentiality agreements with its employees and appropriate vendors, there
can be no assurance that such arrangements will adequately protect ART's
trade secrets.

ART is not aware of any new copyright registration or application for
the software incorporated in the 1200 EPX, LP-Pac Q, PREDICTOR I, K3
Cath-Lab, CardioMapp, or CardioLab.

MICRON

Micron employs a highly complex, proprietary non-patented seven step
manufacturing process for its silver/silver chloride-plated sensor elements.
Key employees have executed nondisclosure and non-competition agreements.
To maintain its leadership as a major supplier of sensors and snaps to the
manufacturers of disposable silver/silver chloride ECG electrodes, Micron
submitted a patent application for a radiographically translucent snap that
is manufactured from a flexible electrically conductive thermoplastic
polymeric compound in 1995. In early 1996, the patent for this innovative
product was granted to Micron. Micron has begun marketing and manufacturing
this product. Future increased acceptance for this product and its potential
applications is expected.

EMPLOYEES

ART has thirteen full-time employees, including ten administrative,
sales, marketing and supervisory personnel, and three engineering personnel.
Micron employs forty-one full time employees, including ten administrative,
sales and supervisory personnel, thirteen quality control personnel and
eighteen production personnel.

ITEM 2. PROPERTY

During 1995 ART leased approximately 5,700 square feet of space in an
office building in Austin, Texas from an unaffiliated landlord with monthly
rental payments of approximately $5,700. During 1996 ART will rent
approximately 4,800 square feet of office space in the same building with
monthly rental payments of approximately $6,100.

The manufacturing facility and offices of Micron are located in an
industrial area in Fitchburg, Massachusetts. The facility consists of a
22,000 square foot, six story building which was repurchased in April, 1994.
In August 1993, Micron entered into a lease for molding and quality control
space from an unaffiliated landlord. During 1995, the average monthly rent
was approximately $6,300 per month for a total of 18,800 square feet. During
1996, Micron will rent the 18,800 square feet at approximately $7,100 per
month. Micron is currently investigating the option of sub-leasing the
molding and quality control space and entering into a lease/purchase
transaction for a building located immediately adjacent to its six-story
manufacturing facility.

ITEM 3. LEGAL PROCEEDINGS

As further discussed under Environmental Regulation, Micron has been
identified as a potentially responsible party with liability by the DEP. On
February 18, 1993, the site was classified as a non-priority site and
Micron's waiver application was approved. As a condition of the waiver,
Micron was required to prepare a five-year plan of remediation for the
property. Micron has retained an environmental consulting firm, and in 1995
hired an internal consultant, to organize and implement the remediation plan
and to represent Micron in its dealings with the regulatory authorities.
Initial Phase II activities have been completed, including drilling two
borings and installing three monitoring wells. Additional Phase II
activities will likely include further site history data collection, review
and evaluation; evaluation of upgradient potential sources as required by the
DEP waiver; additional soil sample collection to further redefine source
areas; groundwater monitoring; report and required document preparation; a
risk assessment; and regulatory agency coordination. Upon the completion of
Phase II activities Micron will apply for final approval and clearance from
the DEP. The Massachusetts Contingency Plan allows closure of sites only
after a condition of "no significant risk" is demonstrated.

While the waiver application has been approved, the DEP still retains
jurisdiction and will oversee the remediation. Should Micron not comply with
the terms of the remediation plan, the DEP may institute a lawsuit to enforce
a site clean-up. Micron believes that it is currently in compliance with the
terms of the remediation plan.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

a. Annual meeting of shareholders was held on November 27, 1995

b. Julius Tabin and E.P. Marinos were elected as directors of the
Company at the meeting. Anthony A. Cetrone, Russell C. Chambers,
Robert A. Simms, Lawrence S. Black, Michael A. McManus, Jr., and
Paul F. Walter, M.D. continued to serve as directors.

c. (1) The election of board members Julius Tabin and E.P. Marinos were
elected as follows:

Julius Tabin 2,831,129 FOR, 68,819 WITHHELD
E.P. Marinos 2,853,089 FOR, 46,859 WITHHELD

(2) Approval of the 1995 Key Employee Stock Option Plan
2,729,533 FOR, 151,833 AGAINST, 18,582 WITHHELD

(3) Approval of the appointment of Coopers & Lybrand as the
Company's independent public accountants to audit the Company's
books for 1995.

2,852,220 FOR, 27,988 AGAINST, 19,740 WITHHELD

d. Not applicable

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ART's Common Stock was listed on the American Stock Exchange on March
3, 1992 and trades under the ticker symbol HRT. Prior to that, ART's stock
was listed on NASDAQ.

The following table sets forth, for the period indicated, the high
and low closing prices per share for ART's Common Stock as quoted by the
American Stock Exchange and the high and low bid prices as quoted by the
National Quotation Bureau, Inc. and the National Association of Securities
Dealers, Inc. The NASDAQ quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.

HIGH LOW
---- -----

Year Ended December 31, 1994
1st Quarter............... 8 1/2 6 5/8
2nd Quarter............... 7 4 1/2
3rd Quarter............... 4 3/4 2 7/8
4th Quarter............... 3 1/2 2 1/4

Year Ended December 31, 1995
1st Quarter............... 3 1/4 1 7/8
2nd Quarter............... 4 2 5/8
3rd Quarter............... 6 1/4 2 3/4
4th Quarter............... 6 3 3/4

As of February 29, 1996, the number of recordholders of ART's common
stock was estimated to be 1,500. On February 29, 1996 the closing price for
the common stock on the American Stock Exchange was $3 15/16.

DIVIDEND POLICY

To date, ART has not paid any dividends on its Common Stock. The
Company's long-term debt agreements contain various restrictions and
conditions including restrictions regarding the payment of dividends. ART
does not intend to declare any dividends in the foreseeable future, but
instead intends to retain all earnings, if any, for use in the Company's
business.

ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data presented below for each of the years
ended December 31 has been derived from the Company's audited financial
statements. The financial statements include the results of operations of
Micron from November 1, 1992 ( the acquisition date). The data should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements, including
the notes thereto, appearing elsewhere in this report.

STATEMENTS OF OPERATIONS DATA: YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- ------

Revenue..........................................$22,928 $17,381 $17,797 $10,735 $5,846
Cost of sales.................................... 17,947 13,389 11,188 6,395 2,853
------- ------- ------- ------- ------
Gross profit................................... 4,981 3,992 6,609 4,340 2,993
Selling and marketing............................ 474 1,128 2,285 2,345 1,690
General and administrative....................... 2,150 2,393 1,870 852 637
Research and development......................... 183 235 196 164 193
Amortization of goodwill......................... 115 115 127 33 -
Write-down of assets............................. - 3,751 - - -
------- ------- ------- ------- ------
Income (loss) from operations.................. 2,059 (3,630) 2,131 946 473
Acquisitions expense............................. - (164) 86 37 -
Other, net....................................... (116) 10 43 63 92
------- ------- ------- ------- ------
Income (loss) before income tax and cumulative
effect of accounting change................... 1,943 (3,784) 2,088 972 565
Income tax benefit (expense)..................... (818) 309 (843) (362) (193)
------- ------- ------- ------- ------
Income (loss) before cumulative effect of
accounting change............................. 1,125 (3,475) 1,245 610 372
Cumulative effect of accounting change........... - - - 22 -
------- ------- ------- ------- ------
Net income (loss)..............................$ 1,125 $(3,475) $1,245 $ 632 $ 372
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Income (loss) per share before cumulative effect
of accounting change............................$ .31 $ (.95) $ .34 $ .19 $ .14
Cumulative effect of accounting change........... - - - .01 -
------- ------- ------- ------- ------
Net income (loss) per share....................$ .31 $ (.95) $ .34 $ .20 $ .14
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Weighted average number of shares outstanding.... 3,683 3,653 3,716 3,225 2,655
------- ------- ------- ------- ------
------- ------- ------- ------- ------

BALANCE SHEET DATA: DECEMBER 31,
------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- ------

Total assets.....................................$12,968 $12,711 $15,835 $13,417 $5,330
Long term obligations (including current portion)$ 1,089 $ 1,018 $ 1,274 $ 1,363 $ -
Redeemable common stock..........................$ 10 $ 637 $ 1,241 $ 1,817 $ -
Working capital..................................$ 2,803 $ 1,149 $ 3,149 $ 2,290 $3,988
Shareholders' equity.............................$ 7,353 $ 5,845 $ 8,965 $ 6,281 $4,352

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, the
percentages of revenue represented by certain items reflected in the
Company's statements of operations.

YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
----- ----- -----

Revenue..................................... 100.0 100.0 100.0
Cost of sales............................... 78.3 77.0 62.9
Gross profit................................ 21.7 23.0 37.1
Selling and marketing....................... 2.1 6.5 12.8
General and administrative.................. 9.4 13.8 10.5
Research and development.................... .8 1.3 1.1
Amortization of goodwill.................... .5 .7 .7
Write-down of assets........................ - 21.6 -
Acquisitions expense........................ - .9 .5
Other, net.................................. (.5) - .2
----- ----- -----
Income (loss) before income taxes........... 8.5 (21.8) 11.7
Income tax (provision) benefit.............. (3.6) 1.8 (4.7)
----- ----- -----
Net income (loss)....................... 4.9 (20.0) 7.0
----- ----- -----
----- ----- -----

REVENUE

Revenue increased by approximately $5,547,000 or 32% from the year
ended December 31, 1995 as compared to 1994. The increase in revenues is
attributable primarily to increased electrophysiology system sales in the
domestic market and, to a lesser extent, an increase in sales of sensors by
Micron.

Revenue decreased by approximately $416,000 or 2% from the year ended
December 31, 1994 as compared to the year ended December 31, 1993. Although
revenues overall are comparable to the prior year, revenues from sales of
electrophysiology systems declined by approximately $690,000 due primarily to
low sales volumes domestically in the first quarter which was caused
primarily by concern in the marketplace over possible national healthcare
reform. The decrease in electrophysiology systems was partially offset by
increased unit sales of sensors and snaps of approximately $505,000.

Sales of signal averaging products have represented a declining
percentage of the Company's revenue since the introduction of the CardioLab
in 1991 and the acquisition of Micron in 1992, which resulted in a change in
product mix. Sales of signal-averaging products have declined in absolute
dollars since the year ended December 31, 1990. The Company believes that
the current primary market for the 1200 EPX, hospitals with an
electrophysiology laboratory, has been saturated and is looking to sell to
non-traditional markets, primarily physician's offices and clinics, to
increase revenues.

COST OF SALES

Cost of sales as a percentage of revenue increased from 77% in 1994
to 78% in 1995. The increase is due primarily to a contractual price
increase by Prucka to ART for the electrophysiology products exclusively sold
and distributed by ART on behalf of Prucka. The cost increase for the
electrophysiology products was partially offset by a decline in the cost of
sales of Micron's sensor manufacturing operation. The Company expects the
trend of increasing costs of sales as a percentage of revenue to continue
increasing as higher prices will be instituted under the Prucka contract.
Additionally, 1996 will be the final year in which ART will act as the
exclusive distributor under the Prucka contract. In 1997 the Company will
not report the gross revenues or the related cost of sales for CardioLab and
CardioMapp products which approximated $13,672,000 and $12,139,000 for the
year ended December 31, 1995, and $8,743,000 and $7,041,000 for the year
ended December 31, 1994.

Cost of sales as a percentage of revenue increased from 63% in 1993
to 77% in 1994. The increase is due principally to electrophysiology product
sales under the exclusive distribution agreement signed with Prucka,
effective April 1, 1994. The agreement calls for Prucka to perform more of
the marketing responsibilities related to the CardioLab and CardioMapp and,
in return, ART is required to purchase the products at a higher cost.
Additionally, during 1994, cost of sales for sensors increased due to higher
production costs, mainly environmental and raw material (chemical and resins)
costs, which the Company was unable to pass on to its customers.

SELLING AND MARKETING

Selling and marketing expenses declined to 2% of sales in 1995 as
compared to 6% of sales in 1994. The decline is attributable to the large
increase in electrophysiology sales under the Prucka contract without any
associated selling or marketing overhead costs. ART restructured its
marketing department in late 1994, which resulted in significant dollar
savings in 1995. Additionally, during part of 1995 several key marketing
positions were vacant for several months. During 1996, selling and marketing
costs are expected to remain consistent with 1995 amounts.

Selling and marketing expenses declined to 6% of sales in 1994 as
compared to 13% in 1993. The decline was primarily attributable to the new
distribution agreement with Prucka. The agreement specifies that Prucka will
pay for the expenses related to marketing the electrophysiology products,
principally commissions, sales personnel, and trade shows, which ART paid in
prior years.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses decreased to $2,150,000 and 9% of
sales for the year ended December 31, 1995 from $2,393,000 and 14% for the
year ended December 31, 1994. The decrease in terms of dollars is due
principally to the fulfillment of an employment agreement with a former
officer of the corporation in December 1994, a decline in bad debt expense
and legal expenses. The percentage decline is due to the large increase in
electrophysiology sales without any additional overhead incurred by the
Company as noted above. The Company expects 1996 general and administrative
expenses to remain consistent with 1995.

General and administrative expenses increased to $2,393,000 and 14%
of sales for the year ended December 31, 1994 from $1,870,000 and 11% for the
year ended December 31, 1993. The increase was due primarily to a severance
package paid to a former officer of the corporation, increased legal
expenses, increased personnel costs, increased patent amortization costs, and
increased bad debt expense, all of which totaled approximately $483,000.

RESEARCH AND DEVELOPMENT

Research and Development costs as a percent of sales have remained
comparable for the years ended December 31, 1995, 1994, and 1993,
respectively. The decrease in gross dollars from 1995 as compared to 1994 is
due to the Company's termination of payments for consultants under old
agreements. The increase in amount from 1994 to 1993 is due to the hiring
of an additional engineer at the beginning of 1994 to assist with the
increased workload from the purchase of additional signal-averaging products
from Corazonix in 1993. Research and development costs are expected to
remain comparable in the coming year. Research and development costs have
not been material to the operations of Micron.

WRITE-DOWN OF ASSETS

In September, 1994, the Company recorded a charge against earnings of
approximately $2,973,000, consisting principally of the write-down of certain
intangibles and allowance for slow-moving inventory. The write-down of
intangibles of approximately $1,690,000, consisted primarily of patent costs
related to the acquisition of substantially all of the assets of Corazonix in
November, 1993 and patent infringement litigation incurred by ART to defend
its signal-averaging patents. In general, sales of signal-averaging products
have declined since 1990. The Company's management believes that the primary
market for its signal-averaging patented products has become saturated. The
Company is focusing its marketing efforts on secondary markets; however, the
ultimate ability of the Company to successfully sell its signal-averaging
products within such markets is unknown. As a result, the patent acquisition
and defense costs were written-off to an amount that is recoverable over the
remaining life of the patents based on estimated sales levels and
undiscounted operating income projections. These projections are
management's best estimates based on historical data and trends. Other
charges total approximately $1,283,000 consisting primarily of allowance for
slow-moving inventories of signal-averaging products, principally those
purchased under the Corazonix manufacturing agreement (see below), certain
parts inventory and other inventory deemed to be significantly impaired. No
further write-downs to patent assets or increases in inventory reserves were
made in 1995 and none are expected in the foreseeable future.

In connection with the Company's ongoing acquisition program, the
Company advanced $545,679 to or on behalf of Phoenix Polymers, Inc.
("Phoenix") as of December 31, 1994. The advances were supported by two
promissory notes with interest accruing at 8% per annum. The notes were
collateralized by a first lien and security interest in all business assets
and technology of the entity. The notes are convertible, at the Company's
option, into 40% of Phoenix's outstanding common stock. In 1993, the Company
entered into certain capital lease obligations on behalf of Phoenix for
equipment used by Phoenix totaling approximately $291,000. In December 1994,
the Company's Board of Directors voted to terminate its potential acquisition
of Phoenix. The Company recorded a charge against 1994 earnings of
approximately $778,000 as an allowance for losses related to the advances and
equipment lease obligations, net of estimated proceeds to be obtained from
the sale of the equipment. In August 1995, Phoenix was put into receivership
by its creditors and ceased operations. As a secured creditor, Micron
obtained possession of Phoenix's primary assets including the leased
equipment

and certain patents relating to Phoenix's proprietary plastics manufacturing
processes. Micron management is currently searching for a buyer for the
assets. No further write-downs are contemplated as management believes the
current allowance is adequate.

INTEREST EXPENSE

Interest expense increased to approximately $263,000 for 1995 as
compared to $244,000 in 1994. The increase is due primarily to the interest
due on the bonds in 1995. The majority of the interest costs incurred by the
Company stem from its borrowings under its line(s) of credit.

Interest expense increased to approximately $244,000 for 1994 as
compared to $160,000 in 1993. The increase is due to higher interest rates
in 1994 and higher balances carried on (i) ART's $1,500,000 revolving credit
facility with a financial institution used to finance inventory and accounts
receivable, (ii) Micron's $1,000,000 line of credit facility with a bank
used to finance inventory and accounts receivable, and (iii) interest expense
on capital equipment leased for use by Phoenix.

ACQUISITIONS EXPENSE

In August 1994, the Company elected to terminate acquisition
discussions with Lite Tech, L.P. In connection with the potential
acquisition, the Company had deferred advances and related costs. Due to the
termination of acquisition negotiations, the Company expensed approximately
$164,000 to write-off the previously deferred advances and related
acquisition costs.

The Company expensed $86,189 during the year ended December 31, 1993
related to terminated acquisition efforts of Professional Catheter
Corporation, a catheter manufacturer.

INCOME (LOSS) AND TAXES ON INCOME

The Company had income before income taxes of approximately
$1,943,000 for the year ended December 31, 1995 as compared to a loss before
income taxes of $3,784,000 for the year ended December 31, 1994. The
increase in income in 1995 is due primarily to the restructuring of the ART
operations in late 1994 and the lack of significant write-downs of assets
that the company experienced in 1994.

The Company had a loss before income taxes of approximately
($3,784,000) for the year ended December 31, 1994 as compared to income
before income taxes of $2,088,000 for the year ended December 31, 1993. The
decrease in income is attributable primarily to (i) the write-down of assets;
(ii) the new CardioLab/CardioMapp distribution agreement, effective April 1,
1994, which resulted in lower margins, however, the Company did not
substantially restructure its operations to comply with the new contract
until September, 1994; and (iii) increased production costs for sensors which
could not be passed on to customers.

For the year ended December 31, 1995 taxes on income approximate the
statutory rate paid by the Company. The rate is higher than the federal
maximum rate of 34% due to the Massachusetts state income tax of 9% on
Micron's earnings. For the year ended December 31, 1994 the Company received
a tax benefit of approximately $309,000. The Company did not record a
current benefit on the write-down of assets related to the intangible assets
and inventory reserves due to the specific tax rules governing such
write-downs and reserves.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of approximately $2,803,000 and
$1,149,000 and cash and cash equivalents of approximately $398,000 and
$23,000 at December 31, 1995 and 1994, respectively. The Company has
improved its liquidity and working capital due primarily to the restructuring
of the ART operations in late 1994 which significantly helped the Company's
return to profitability in 1995.

In November 1995, the Company obtained funding for a consolidated
$3.5 million working capital line of credit and a $375,000 term loan with a
bank. The line of credit is collateralized by the accounts receivable and
inventory of ART and Micron and bears interest at prime plus .75%. The
consolidated working capital line of credit replaced the individual lines of
credit maintained by ART and Micron. Previously, the individual lines of
credit maintained by the parent and it subsidiary hampered the Company's
ability to maximize its credit-worthiness to meet its liquidity needs. The
new working capital line of credit originally matured October 31, 1996,
however, the maturity has been extended to September 30, 1997. The new
working capital line of credit is expected to enhance profitability and
improve financial flexibility and liquidity.

In September 1995, ART repurchased 48,958 shares of its common stock
at $7.90 a share from a shareholder pursuant to a settlement agreement in
connection with the purchase of Micron by the Company in 1992. The funds
required to meet the repurchase obligation were obtained from cash on hand
from the bond proceeds. The Company intends to hold the shares in treasury
at this time. An additional 16,566 shares were repurchased in the fourth
quarter at a price of $7.13 per share. The funds required to repurchase the
shares were drawn under the Company's working capital line of credit. The
shares are held in treasury and are not expected to be retired.

During the third quarter of 1995, eight employees were granted
options to purchase an aggregate of 130,000 shares of Company common stock
for $3.00 pursuant to the 1987 Stock Option Plan (the "Option Plan"). Under
the Option Plan, options become exercisable commencing one year form the date
of grant at the rate of 20% of the total granted per year and expire ten
years form the date of grant. Under the Option Plan the exercise price is
the fair market value of the Common Stock on the date of grant.
Additionally, at the Annual Meeting of Shareholders options to purchase an
aggregate of 29,000 shares of Company common stock outside of the Option Plan
for $3.00 were granted to two officers of the Company by shareholder vote.
The market price at the date of grant approximated $3.00. Twenty-five
percent of the shares vested immediately and the remainder vest at
twenty-five percent on each anniversary date, until fully vested.

Net cash provided by operating activities for 1995, 1994, and 1993
was approximately $1,175,000, $12,000, and $210,000, respectively. The
increase in cash provided by operations was due primarily to the increase in
net income during 1995. The decrease in cash provided by operating
activities in 1994 as compared to 1993 was caused by a large decline in
operating profits and large inventory purchases which were partially offset
by collections on accounts receivable.

Net cash used in investing activities in 1995 was approximately
$232,000, principally as a result of expenditures on capital equipment for
Micron's manufacturing facility partially offset by the proceeds received
from the sales of investments and capital equipment. Net cash used in
investing activities in 1994 was approximately $277,000 stemming from
Micron's additional cash advances to Phoenix and purchase of capital
equipment of approximately $535,000 offset by proceeds from the sale of
investments.

Capital expenditures during 1995 and 1994 were due primarily to
Micron's need to upgrade and maintain its manufacturing equipment and
facilities. During 1995, the Company's capital expenditures were funded from
operating cash flows. Micron management is currently investigating the
option of entering into a lease/purchase transaction for a building located
immediately adjacent to its six-story manufacturing facility. Additionally,
during 1996 Micron expects to enter into a significant equipment capital
lease for a new water filtration system due to increased environmental
requirements.

As discussed under Environmental Regulation, Micron had approximately
$75,200 and $100,000 accrued at December 31, 1995 and 1994, respectively, to
cover estimated costs to be incurred related to site assessment, monitoring,
and remediation. Management estimates that these costs could approximate
from $65,000 to $360,000 depending upon the final decision by the DEP.

During 1995 and 1994, Micron spent approximately $139,000 and
$270,000, of which approximately $5,000 and $110,000, was capitalized at
December 31, 1995 and 1994, respectively, on an extensive program to evaluate
its manufacturing process, employee training, health and safety programs, air
and waste water treatment systems, and to ensure compliance with current and
future federal, state and local regulations as well as to evaluate the
adequacy of such systems to facilitate future growth. The capitalized
expenditures are related to future benefits as described below, whereas the
other environmental costs expensed during 1995 and 1994 are normal recurring
expenses associated with industrial producers in the Commonwealth of
Massachusetts. Using the results of the study, Micron expects to undertake a
manufacturing process and air and waste water treatment redesign. The actual
redesign, which will take place over the next two years, will require the
purchase of capital equipment to upgrade, augment or replace existing
manufacturing and waste treatment equipment. All such expenditures are
expected to be funded from operating cash flow. The Company expects to spend
approximately $480,000 for such capital improvements. It is expected that
Micron will benefit from a certain level of improved efficiency and savings
related to recovery and recycling of water, silver and other chemicals to
help offset some of the costs of the improvements. (See Environmental
Regulation and Note 11 to the Financial Statements.)

Net cash used in financing activities during 1995 totaled
approximately $567,000, principally as a result of repurchases of redeemable
common stock totaling $505,000 and repayment of debt of $773,000 offset by
the receipt of proceeds from a $600,000 private bond placement and $68,000 in
cash received from the exercise of stock options. Net cash provided by
financing activities for 1994 totaled approximately $99,000, principally a
result of borrowings under the revolving lines of credit of approximately
$589,000 and proceeds under notes payable of $253,000 which were offset by
principal payments on long-term debt of approximately $442,000 and the
purchase of treasury stock totaling approximately $364,000.

For information on the impact of future changes in accounting
principles, see Note 1 to the consolidated financial statements, appearing
elsewhere herein.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants......................................... 20

Consolidated Balance Sheets as of December 31, 1995 and 1994.............. 21

Consolidated Statements of Operations for the years ended
December 31, 1995, 1994, and 1993....................................... 22

Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993.................................. 23

Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993........................................ 24

Notes to the Consolidated Financial Statements............................ 25

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, 1995,
and 1994, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 generally accepted
auditing standards. Those standards require that we plan and perform the
audit 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, 1995
and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.

Austin, Texas
March 1, 1996

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

ASSETS

DECEMBER 31,
---------------------------
1995 1994
------------ ------------

Current assets:
Cash and cash equivalents..................................................................... $ 397,799 $ 22,790
Investments available for sale................................................................ - 111,623
Trade accounts receivable, net of allowance for doubtful
accounts of $18,820 and $126,665............................................................ 3,739,046 3,531,998
Inventories, net.............................................................................. 2,991,346 2,556,796
Deposits...................................................................................... 58,000 66,000
Prepaid expenses and other current assets..................................................... 283,184 343,318
------------ ------------
Total current assets........................................................................ 7,469,375 6,632,525
Property and equipment, net .................................................................... 2,591,888 2,677,232
Patent costs, net of accumulated amortization of $157,222 and $141,081.......................... 100,727 91,024
Software development costs, net of accumulated amortization of $199,280 and $156,871............ 15,638 58,047
Goodwill, net of accumulated amortization of $389,584 and $274,720.............................. 1,933,489 2,048,353
Deferred income taxes........................................................................... 670,683 1,095,272
Other .......................................................................................... 186,235 108,501
Total assets................................................................................ $ 12,968,035 $ 12,710,954
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Revolving credit facilities................................................................. $ 1,938,972 $ 2,132,914
Notes payable............................................................................... - 253,000
Current maturities of long-term debt........................................................ 199,486 357,861
Accounts payable............................................................................ 2,105,928 2,298,648
Payable to related parties.................................................................. 30,899 47,672
Accrued liabilities......................................................................... 390,981 393,145
------------ ------------
Total current liabilities................................................................. 4,666,266 5,483,240
Long-term debt, net of current maturities..................................................... 491,930 659,820
Bonds payable................................................................................. 398,000 -
Deferred revenue.............................................................................. 49,048 85,255
------------ ------------
Total liabilities......................................................................... 5,605,244 6,228,315
------------ ------------
Commitments & Contingencies................................................................... - -
Redeemable common stock....................................................................... 10,046 637,178
------------ ------------
Shareholders' equity:
Serial 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 and 3,662,216 issued ........................................................... 36,792 36,622
Additional paid-in-capital.................................................................. 8,899,261 8,002,299
Treasury stock.............................................................................. (868,740) (363,939)
Unearned ESOP compensation.................................................................. (167,848) (210,705)
Unrealized securities gains................................................................. - 53,130
Accumulated deficit......................................................................... (546,720) (1,671,946)
------------ ------------
Total shareholders' equity................................................................ 7,352,745 5,845,461
------------ ------------
Total liabilities and shareholders' equity................................................ $ 12,968,035 $ 12,710,954
------------ ------------
------------ ------------

The accompanying notes are an integral part of the
consolidated financial statements.

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------ ------------- ------------

Net sales................................................. $ 22,928,089 $ 17,380,667 $ 17,796,617
Cost of sales............................................. 17,947,294 13,388,548 11,187,760
------------ ------------- ------------
Gross Profit.............................................. 4,980,795 3,992,119 6,608,857
Selling and marketing..................................... 473,990 1,128,384 2,285,640
General and administrative................................ 2,150,251 2,392,528 1,869,886
Research and development.................................. 182,524 235,274 195,749
Amortization of goodwill.................................. 114,864 114,864 126,920
Write-down of assets...................................... - 3,751,007 -
------------ ------------- ------------
Income (loss) from operations............................. 2,059,166 (3,629,938) 2,130,662
Other income (expense):
Interest expense........................................ (263,493) (244,044) (160,168)
Acquisitions expense.................................... - (163,993) (86,189)
Other, net.............................................. 147,624 253,750 203,344
------------ ------------- ------------
Income (loss) before income taxes......................... 1,943,297 (3,784,225) 2,087,649
Income tax (provision) benefit
Current................................................ (359,202) 175,263 (171,676)
Deferred............................................... (458,869) 133,802 (670,827)
------------ ------------- ------------
(818,071) 309,065 (842,503)
------------ ------------- ------------
Net income (loss)......................................... $ 1,125,226 $ (3,475,160) $ 1,245,146
------------ ------------- ------------
------------ ------------- ------------
Per share amounts:

Net income (loss) per share............................... $ 0.31 $ (0.95) $ 0.34
------------ ------------- ------------
------------ ------------- ------------
Weighted average number of common and dilutive common
equivalent shares outstanding.......................... 3,683,371 3,653,186 3,715,983
------------ ------------- ------------
------------ ------------- ------------

The accompanying notes are an integral part of the
consolidated financial statements.

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

NET RETAINED
COMMON SHARES UNEARNED UNREALIZED EARNINGS
------------------- PAID-IN TREASURY ESOP SECURITIES (ACCUMULATED
OUTSTANDING AMOUNT CAPITAL STOCK COMPENSATION GAINS DEFICIT) TOTAL
--------- -------- ----------- ---------- ---------- -------- ---------- -----------

January 1, 1993.................. 3,541,279 $ 35,413 $ 5,987,665 $ (300,000) $ 558,068 $ 6,281,146
Exercise of options
and warrant rights.............. 38,250 382 121,118 121,500
Stock issued in connection with
the acquisition of Corazonix... 77,687 777 694,223 695,000
Maturity of redeemable
common stock................... 575,480 575,480
ESOP payments.................... 46,436 46,436
Net income....................... 1,245,146 1,245,146
--------- -------- ----------- ---------- ---------- -------- ---------- -----------
December 31, 1993................ 3,657,216 36,572 7,378,486 (253,564) 1,803,214 8,964,708
Exercise of options.............. 5,000 50 19,950 20,000
Maturity and repurchases of
redeemable common stock........ 603,863 603,863
ESOP payments.................... 42,859 42,859
Treasury stock purchase.......... (49,181) $ (363,939) (363,939)
Unrealized securities gain....... $ 53,130 (53,130)
Net loss......................... (3,475,160) (3,475,160)
--------- -------- ----------- ---------- ---------- -------- ---------- -----------
December 31, 1994................ 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
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)
Sale of securities............... (53,130) (53,130)
Net Income....................... 1,125,226 1,125,226
--------- -------- ----------- ---------- ---------- -------- ---------- -----------
December 31, 1995................ 3,564,511 $ 36,792 $ 8,697,261 $(868,740) $ (167,848) $ 0 $ (546,720) $ 7,150,745
--------- -------- ----------- ---------- ---------- -------- ---------- -----------
--------- -------- ----------- ---------- ---------- -------- ---------- -----------

The accompanying notes are an integral part of the
consolidated financial statements.

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------- ------------

Cash flows provided by (used in) operating activities:
Net income (loss)............................................................ $ 1,125,226 $ (3,475,160) $ 1,245,146
Adjustments to reconcile net income to net cash:
Write-down of assets...................................................... - 3,751,007 -
Depreciation.............................................................. 474,571 501,264 423,824
Amortization.............................................................. 173,414 289,666 225,754
Gain on sales of investments.............................................. (72,912) (306,210) (108,122)
(Gain) loss on sales of equipment......................................... (62,820) 13,719 -
Deferred income tax provision (benefit)................................... 458,869 (133,802) 670,827
Deferred revenue.......................................................... (36,207) (39,742) 2,459
Changes in assets and liabilities (net of effects of write-down of assets
and acquisition of Corazonix:)
Accounts receivable....................................................... (207,048) 588,313 (877,563)
Inventory................................................................. (434,550) (1,295,482) (1,148,965)
Deposits.................................................................. 8,000 59,000 (125,000)
Accounts payable and accrued liabilities.................................. (194,884) 118,071 (126,359)
Payable to related parties................................................ (16,773) (65,066) 93,688
Prepaid expenses and other................................................ (40,262) 6,419 (65,408)
------------ ------------- ------------
Net cash provided by operating activities............................. 1,174,624 11,997 210,281
------------ ------------- ------------
Cash flows provided by (used in) investing activities (net of write-down of
assets and of acquisition of Corazonix):
Acquisition of Corazonix, net of cash acquired.............................. - - (697,048)
Proceeds from sales of investments.......................................... 119,787 399,960 440,436
Proceeds from sale of equipment............................................. 77,822 43,250 -
Issuance of proceeds under note receivable ................................. 0 (108,710) (328,021)
Capital expenditures........................................................ (404,229) (534,903) (542,154)
Patent expenditures......................................................... (25,844) (76,978) (22,709)
Software development costs.................................................. - - (53,543)
------------ ------------- ------------
Net cash used in investing activities................................. (232,464) (277,381) (1,203,039)
------------ ------------- ------------
Cash flows provided by (used in) financing activities:
Net borrowings (repayments) under credit facilities......................... (193,942) 588,895 521,019
Proceeds from (repayment of) notes payable.................................. (253,000) 253,000 -
Proceeds from issuance of bonds payable..................................... 600,000 - -
Principal payments on long-term debt........................................ (326,265) (442,034) (286,922)
Proceeds from issuance of common stock under stock option plan.............. 68,000 20,000 121,500
Purchase of treasury stock.................................................. (504,801) (363,939) -
Reduction of unearned ESOP compensation..................................... 42,857 42,859 46,436
------------ ------------- ------------
Net cash provided by (used in) financing activities................... (567,151) 98,781 402,033
------------ ------------- ------------
Net increase (decrease) in cash and cash equivalents.......................... 375,009 (166,603) (590,725)

Cash and cash equivalents at beginning of year................................ 22,790 189,393 780,118
------------ ------------- ------------
Cash and cash equivalents at end of year...................................... $ 397,799 $ 22,790 $ 189,393
------------ ------------- ------------
------------ ------------- ------------

The accompanying notes are an integral part of the
consolidated financial statements.

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Arrhythmia Research Technology, Inc. ("ART") is engaged in marketing
computerized medical instruments which monitor, record and analyze electrical
impulses of the heart to detect and aid in the treatment of potentially
lethal arrhythmias. Micron Products Inc. ("Micron"), a wholly-owned
subsidiary, 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.
Micron also acts as a distributor of metal snap fasteners, another component
used in the manufacture of disposable medical electrodes.

2. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of ART and its wholly-owned subsidiary (collectively the
"Company"). All intercompany balances and transactions have been eliminated
in consolidation.

REVENUE Revenue from product sales is recognized upon shipment of
the product. Revenue from the sale of extended warranties is deferred and
amortized ratably over the life of the warranty.

INVESTMENTS In May, 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". A
significant provision of this statement is the change in accounting and
reporting for certain investments in debt securities and equity securities.
These securities shall be classified into one of three categories:
held-to-maturity, available-for-sale, or trading. Held-to-maturity securities
will be measured at amortized cost and available-for-sale and trading
securities shall be measured at fair value. Unrealized holding gains and
losses for trading securities shall be included in earnings. Unrealized
holding gains and losses for available-for-sale securities are excluded from
earnings and reported net of deferred taxes in a separate component of
shareholders' equity until realized. Realized gains and losses are computed
on a specific identified cost basis and are included in current period
income. The Company adopted and implemented SFAS No. 115 effective January 1,
1994.

INVENTORIES Inventories are stated at the lower of cost or market.
Cost of finished goods inventory of electrocardiographic products is
determined using the specific identification method. Cost of inventories at
Micron is determined by the first-in, first-out method.

CONCENTRATIONS OF CREDIT RISK Financial instruments which
potentially expose the Company to concentrations of credit risk, as defined
by SFAS No. 105, consist primarily of trade accounts receivable and temporary
cash investments.

ART's customer base for electrocardiographic 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.

It is the Company's policy to place its temporary investments in high
quality mutual funds, marketable equity securities and municipal revenue
bonds. The Company does not believe significant credit risk exists with
respect to these securities.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are
recorded 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 by
acquired business 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.

PATENTS 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 (see Note 9).

SOFTWARE DEVELOPMENT COSTS Certain software development costs
incurred subsequent to establishment of technological feasibility are
capitalized and amortized using the straight-line method over the three-year
estimated economic life of the product. 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. Amortization of software development costs amounted to $42,409,
$47,904, and $36,473 for the years ended December 31, 1995, 1994, and 1993,
respectively.

ACQUISITION EXPENSES Acquisition costs are deferred until the
related acquisition is completed, at which time such costs are included in
the total acquisition costs which are allocated to the net assets acquired.
Deferred acquisition costs related to unsuccessful acquisitions are charged
to expense in the period such acquisition is considered terminated.

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.

STATEMENT OF CASH FLOWS For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments and
certificates of deposit purchased with original maturities of three months or
less to be cash equivalents.

EARNINGS PER SHARE Earnings per share is calculated dividing the
net income by the weighted average number of common shares and common share
equivalents outstanding during the year.

RECLASSIFICATIONS Certain reclassifications were made to the 1993
and 1994 financial statements to conform to the 1995 presentation.

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 period. Actual results could differ from these
estimates.

FUTURE CHANGES IN ACCOUNTING PRINCIPLES In March 1995, the FASB
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 requires that entities review
long-lived assets, certain intangibles and goodwill for possible impairment
whenever circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS No. 121 also requires that long-lived assets and certain
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. Implementation of SFAS No. 121 is not expected
to have a material impact on the Company's financial condition or results of
operation.

In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 allows entities to adopt the fair value based
methods of accounting for stock compensation or continue under current
accounting practices. Entities electing to remain with the current method of
accounting must make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting in this Statement has
been applied. The Company has not yet determined which method it will adopt,
or the potential impact on future earnings should it elect the fair value
method of accounting for stock options.

3. ACQUISITIONS ACTIVITY

LITE TECH, L.P.

In August 1994, the Company elected to terminate acquisition
discussions with Lite Tech, L.P. The Company had entered into a letter of
intent with Lite Tech, L.P. to acquire certain assets and assume certain
liabilities in a transaction valued at approximately $2,000,000 in cash and
common stock. In connection with the potential acquisition, the Company had
deferred advances and related costs. Due to the termination of acquisition
negotiations, the Company expensed approximately $164,000 during 1994 to
write-off the previously deferred advances and related acquisition costs. As
of December 31, 1995, the Company, through its Micron subsidiary, has a note
receivable from Lite-Tech, in the amount of $92,000, for an initial
good-faith deposit. The note receivable is secured by a first lien and
security interest on Lite-Tech's accounts receivable. Management believes
that the advances are adequately collateralized and fully recoverable.

CORAZONIX CORPORATION

In November 1993, the Company acquired substantially all of the
assets of Corazonix Corporation ("Corazonix") for approximately $445,000 in
cash, settlement of an outstanding promissory note originated by Corazonix
and purchased by the Company in the amount of $110,000, and 77,687 shares of
the Company's common stock valued at $695,000. The acquisition was made
pursuant to an Asset Purchase Agreement dated July 9, 1993 and Corazonix's
First Modified Plan of

Reorganization and First Modified Disclosure Statement which were filed in
connection with the action entitled "Re: Corazonix Corporation in the
Bankruptcy Court for the Western District of Oklahoma, Chapter 11 Bankruptcy
No. 93-11214BH." The acquisition was accounted for using purchase
accounting. The primary assets of value purchased by ART are four patents
utilized in the Corazonix products; accordingly, the difference between
Corazonix' carrying value of the assets acquired and the purchase price paid
of $1,277,402 was recorded as patent costs. In 1994, due to the inability of
the Company to successfully market the patented products and the uncertainty
regarding future sales, the Company charged off the carrying value of such
patents against 1994 earnings.

Concurrent with the acquisition of Corazonix's assets the Company
entered into a manufacturing agreement with Corazonix which provided for the
manufacture of the PREDICTOR I line of signal averaged ECG devices (the
"Agreement"). In November 1994, the Company executed an amendment to the
Agreement with Corazonix (the "Amendment"). The renegotiation of the
Agreement was the result of ART's desire to change the product mix and
delivery dates under the Agreement for signal-averaging products manufactured
by Corazonix. Under the Amendment, ART was required to pay Corazonix
$100,000 upon the effective date and sign a note payable in the principal
amount of $238,000, with unequal monthly payments from $18,000 to $35,000
through May 1995. Purchase obligations under the Agreement, including the
note payable, totaled $895,375 for the year ended December 31, 1994. There
are no further purchase obligations on behalf of the Company under the
Agreement or Amendment.

PROFESSIONAL CATHETER CORPORATION

The Company entered into a letter of intent to acquire Professional
Catheter Corporation ("PCC") in 1992. PCC was a manufacturer of high grade
catheters, a complementary product to the CardioLab. The Company and PCC
were ultimately unable to agree on the terms of the potential acquisition.
As a result, the Company and PCC agreed to terminate the letter of intent.
The Company expensed $86,189 during the year ended December 31, 1993 to
write-off previously deferred costs related to this unsuccessful
acquisition.

4. INVENTORIES

Inventories consist of the following as of:

DECEMBER 31,
---------------------------
1995 1994
------------ ------------

Raw materials. . . . . . . . . . . . . . . $ 467,895 $ 373,723

Work-in-process. . . . . . . . . . . . . . 277,296 187,723
Finished goods . . . . . . . . . . . . . . 3,359,407 3,178,247
------------ ------------
Total . . . . . . . . . . . . . . . . 4,104,598 3,739,693
Allowance for slow-moving inventories. . . (1,113,252) (1,182,897)
------------ ------------
Total . . . . . . . . . . . . . . . . $ 2,991,346 $ 2,556,796
------------ ------------
------------ ------------

Allowance for slow-moving inventories relates principally to finished goods.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following as of:

DECEMBER 31,
-------------------------
ASSET LIVES 1995 1994
------------- ---------- ----------

Machinery and equipment. . . . 5 to 15 years $2,170,874 $1,861,391
Building . . . . . . . . . . . 20 years 1,355,814 1,341,736
Furniture and fixtures . . . . 3 to 4 years 328,564 673,550
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 3,855,252 3,876,677
Less accumulated depreciation . . . . . . . . . . 1,263,364 1,199,445
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . $2,591,888 $2,677,232
---------- ----------
---------- ----------

The Company had approximately $156,000 and $148,000 of assets under
capital leases, included in machinery and equipment, at December 31, 1995 and
1994, respectively. Accumulated depreciation on these assets was
approximately $25,300 and $20,100 at December 31, 1995 and 1994,
respectively. During 1994, equipment leased by the Company for Phoenix
Polymers, Inc. ("Phoenix"), totaling $290,535, with related accumulated
depreciation of $14,527, was written-down to its net realizable value of
$80,000 and is included in other non-current assets as of December 31, 1995
and 1994.

6. DEBT

In November 1995, the Company obtained a new credit facility from a
bank which includes a $3,500,000 working capital line of credit and a
$375,000 term loan. The line of credit is collateralized by the accounts
receivable and inventory of ART and Micron and bears interest at prime plus
.75% (9.25% at December 31, 1995). The working capital line of credit
replaced the individual lines of credit maintained by ART and Micron and
matures September 30, 1997.

The weighted average interest rate during the year for the Company's
credit facilities was approximately 9.3%. The new loan agreement contains
routine covenants which require ART to maintain certain specific financial
ratios and limit asset acquisitions to $50,000 or less for ART and $500,000
or less for Micron without prior written approval.

REVOLVING CREDIT FACILITIES

1995 1994
---------- ----------

$3,500,000 revolving line of credit maturing September 30, 1997. . . $1,938,972 $ -
$1,500,000 revolving line of credit matured May 31, 1995 . . . . . . $ - 1,210,992
$1,000,000 revolving line of credit matured May 31, 1995 . . . . . . - 921,922
---------- ----------
Total revolving credit facilities . . . . . . . . . . . . . . . $1,938,972 $2,132,914
---------- ----------
---------- ----------

NOTES PAYABLE

$238,000 note payable to Corazonix Corporation; due in non-interest
bearing, unequal monthly installments of $18,000-$35,000
through May, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 153,000
$100,000 demand note payable to the Marshalled-Cherubs Trust,
accruing interest at 11% per annum, payable on a quarterly basis
through November, 1999 (See Note 14) . . . . . . . . . . . . . . . . - 100,000
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 253,000
---------- ----------
---------- ----------

LONG-TERM DEBT

$242,000 note payable to bank in monthly installments of $5,500
through November, 1997 . . . . . . . . . . . . . . . . . . . . . . . $ - $ 192,500

$500,000 first mortgage payable to a bank, in monthly installments
of $10,000 through June 1, 1998 . . . . . . . . . . . . . . . . . . . - 230,000

$242,848 term note payable to bank, payable in monthly installments
of $3,572 through October 1999, borrowed by the ESOP, collateralized
by unallocated shares of the Company's common stock and guaranteed
by Micron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 210,705

$375,000 term note payable to a bank, payable in monthly
installments of $7,820 through, maturity, September 1997,
collateralized by Micron equipment and unallocated ESOP shares. . . . 367,188 -

Equipment leased under capital leases . . . . . . . . . . . . . . . . 298,660 339,164

Other obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 25,568 45,312

Less current maturities . . . . . . . . . . . . . . . . . . . . . . . (199,486) (357,861)
--------- ---------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . $ 491,930 $ 659,820
--------- ---------
--------- ---------

At December 31, 1995, total long-term debt maturing in each of the
next five years is as follows:

1996 . . . . . . . . . . . $ 199,486
1997 . . . . . . . . . . . 376,205
1998 . . . . . . . . . . . 84,971
1999 . . . . . . . . . . . 24,628
2000 . . . . . . . . . . . 6,127
---------
Total . . . . . . . . $ 691,416
---------
---------

7. BONDS PAYABLE

In August 1995, the Company completed a $600,000 private bond
placement. The bonds are subordinated to the new bank, carry an 11% interest
rate, and are payable in five years.

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 expire in
five years. The Company recorded the allocation between the detachable
warrants and debt securities based on their relative fair values, as
determined by a third party appraisal as of the issuance date. Accordingly,
the proceeds related to the warrants

are reported as additional paid in capital and a discount on the debt
secuirites of $202,000, which is being amortized to interest expense over
five years, the term of the warrants.

8. INCOME TAXES

The Company reports income taxes in accordance with Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The Statement
utilizes a tax liability (or asset) approach to inter-period tax allocations
and requires tax liabilities to be stated at current effective tax rates.

The income tax provision (benefit) for each of the three years in the
period ended December 31, 1995 consists of the following:

1995 1994 1993
-------- ---------- --------

Current:
Federal . . . . . . . . $340,346 $(175,263) $139,520
State . . . . . . . . . 18,856 - 32,156
-------- ---------- --------
Total . . . . . . . 359,202 (175,263) 171,676
Deferred . . . . . . . . . 458,869 (133,802) 670,827
-------- ---------- --------
Total income tax expense
(benefit) . . . . . . . . $818,071 $(309,065) $842,503
-------- ---------- --------
-------- ---------- --------

Micron's net operating loss ("NOL") carryforwards for income tax
purposes approximated $2,953,000 and $3,726,000 at December 31, 1995 and
1994, respectively. During the three years ended December 31, 1995, Micron
utilized approximately $773,000, $0, and $1,325,000 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.

During the year ended December 31, 1993, the Company recognized $1.6
million of deferred tax assets with a corresponding reduction of goodwill in
accordance with Statement of Financial Accounting Standards No. 109.
Approximately, $530,000 of the deferred tax assets recognized resulted from
1993 Micron earnings, and the remaining $1,070,000 represents NOL
carryforwards expected to be recovered from future earnings of Micron during
the following ten years of which approximately $408,100 is expected to be
realized after five years. Future adjustments to reduce or increase the
valuation allowance on deferred tax assets, resulting from the Micron
acquisition will be charged against or increase the Micron related goodwill.

The components of the net deferred tax assets were as follows as of
December 31:

1995 1994
------------ -----------

Deferred tax liabilities:
Software development costs . . . . . . . . . $ (5,317) $ (19,736)
Net Patent costs . . . . . . . . . . . . . . (29,761) (7,838)
Environmental consulting . . . . . . . . . . (17,260) (49,144)
Deferred rent . . . . . . . . . . . . . . . - (5,796)
------------ -----------
Total deferred tax liability . . . . . . . . (52,338) (82,514)
------------ -----------
Deferred tax assets:
Accounts receivable. . . . . . . . . . . . . 6,429 43,096
Inventory. . . . . . . . . . . . . . . . . . 381,906 350,566
Deferred revenue . . . . . . . . . . . . . . 16,676 24,916
Property, plant & equipment. . . . . . . . . 78,077 76,106
Mortgage participation certificates. . . . . 960,000 960,000
Corazonix Patents. . . . . . . . . . . . . . 386,041 400,537
Phoenix investment . . . . . . . . . . . . . 96,528 96,528
Other. . . . . . . . . . . . . . . . . . . . 103,766 34,850
Capital loss carryforwards . . . . . . . . . 88,640 96,555
Net operating loss carryforwards . . . . . . 1,004,079 1,182,131
Valuation allowance. . . . . . . . . . . . . (2,399,121) (2,087,499)
------------ -----------
Total deferred tax asset . . . . . . . . . . 723,021 1,177,786
------------ -----------
Net deferred tax asset . . . . . . . . . . . . $ 670,683 $ 1,095,272
------------ -----------
------------ -----------

Deferred tax assets are recognized by 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 acquired
Micron effective

November 1, 1992 which contained significant NOL carryforwards which are
limited in any given year due to restrictions defined in the Internal Revenue
Code.

The significant components of the deferred tax expense were as
follows for the years ended December 31:

1995 1994
-------- ---------

Utilization of net operating loss
carryforwards . . . . . . . . . . . $262,845 $ -
Valuation reserve . . . . . . . . . . - (133,802)
Other . . . . . . . . . . . . . . . . 196,024 -
-------- ---------
Total . . . . . . . . . . . . . . . $458,869 $(133,802)
-------- ---------
-------- ---------

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 from operations before taxes when calculating
the tax provision. The actual income tax provision differs from the
statutory income tax rate (34%) as follows:

1995 1994 1993
--------- ------------ --------

Tax provision computed at statutory rate . . . . . $ 660,721 $(1,286,637) $709,801
Increases (reductions) due to:
Nondeductible expenses. . . . . . . . . . . . 3,750 4,015 1,518
Amortization of goodwill. . . . . . . . . . . 39,054 39,054 43,153
State income taxes net of federal benefit . . 114,546 1,595 130,027
Increase in valuation allowance . . . . . . . - 906,086 -
Other . . . . . . . . . . . . . . . . . . . . - 26,822 (41,996)
-------- ------------ --------
Income tax expense (benefit) . . . . . . . . . . . $818,071 $ (309,065) $842,503
-------- ------------ --------
-------- ------------ --------

9. WRITE-DOWN OF ASSETS

In September, 1994, the Company recorded a charge against earnings of
approximately $2,973,000, consisting principally of the write-down of certain
intangibles and allowance for slow-moving inventory. The write-down of
intangibles, of approximately $1,690,000, consisted primarily of patent costs
related to the acquisition of substantially all of the assets of Corazonix in
November, 1993 and patent infringement litigation incurred by ART to defend
its signal-averaging patents. In general, sales of signal-averaging products
have declined since 1990. The Company's management believes that the primary
market for its signal-averaging patented products has become saturated. The
Company is focusing its marketing efforts on secondary markets; however, the
ultimate ability of the Company to successfully sell its signal-averaging
products within such markets is unknown. As a result, the patent acquisition
and defense costs were written-down to an amount that is recoverable over the
remaining life of the patents based on estimated sales levels and
undiscounted operating income projections. These projections are
management's best estimates based on historical data and trends. Other
charges total approximately $1,283,000 consisting primarily of an allowance
for slow-moving inventories of signal-averaging products, principally those
purchased under the Corazonix manufacturing agreement (see below), certain
parts inventory and other inventory deemed to be significantly impaired. No
further write-downs to patent assets or increases in inventory reserves were
made in 1995 and none are expected in the foreseeable future.

In connection with the Company's acquisition program, the Company
advanced $545,679 to or on behalf of Phoenix Polymers, Inc. ("Phoenix")
through December 31, 1994. The advances were supported by two promissory
notes with interest accruing at 8% per annum. The notes were collateralized
by a first lien and security interest in all business assets and technology
of the entity. The notes were convertible, at the Company's option, into 40%
of Phoenix's outstanding common stock. In 1993, the Company entered into
certain capital lease obligations on behalf of Phoenix for equipment used by
Phoenix totaling approximately $291,000. In December 1994, the Company's
Board of Directors voted to terminate its potential acquisition of Phoenix.
The Company recorded a charge against 1994 earnings of approximately $778,000
as an allowance for losses related to the advances and equipment lease
obligations, net of estimated proceeds to be obtained from the sale of the
leased equipment. In August 1995, Phoenix was petitioned into receivership
by its creditors and ceased operations. As a secured creditor, Micron
obtained possession of Phoenix's primary assets including the leased
equipment and certain patents relating to Phoenix's proprietary plastics
manufacturing processes. Micron management is currently searching for a buyer
for the assets. No further write-downs are contemplated as management
believes the current allowance is adequate.

10. EMPLOYEE BENEFIT PLANS

Under the Micron Reorganization Plan, an Employee Stock Ownership Plan
was established. The ESOP is noncontributory 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 Reorganization
Plan. The shares issued by the Company to the ESOP are reflected in
shareholders' equity, and an amount corresponding to the borrowings (the
guaranteed ESOP obligation) is reported as a reduction in shareholders'
equity. As the principal amount of the borrowings is repaid, the liability
and the guaranteed ESOP obligation are being reduced. The Company's
contributions are based on the ESOP's principal debt service. The Company
contributed and recorded compensation expense of $42,857, $42,859 and $46,436
during the years ended December 31, 1995, 1994, and 1993, respectively.

The Company sponsors an Employee Savings and Investment Plan under
Section 401(k) of the Internal Revenue Service Code covering all eligible
employees of the Company. Employees can contribute up to 15% of their
eligible compensation or up to the maximum allowable by the IRS. The Company
does not make any matching contributions.

11. 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 foreign patents are offset
against foreign royalties due. To retain an exclusive license for the
technology, ART is obligated to pay a minimum royalty of $60,000 annually.

ELECTROPHYSIOLOGY PRODUCTS CONTRACT

Effective April 1, 1994, ART and Prucka Engineering, Inc. ("Prucka"),
the manufacturer of the CardioLab and CardioMapp products (the "Products"),
executed an agreement related to ART's exclusive distribution of the
Products. Under the agreement, during the distribution period which expires
December 31, 1996, purchase orders for Products are received in ART's name;
PEI manufactures and invoices ART for the Products at a predetermined
discount and receives payment from ART; and ART invoices customers and
receives payments. Thereafter, ART will receive royalties on certain
Products sales through December 31, 2002.

ENVIRONMENTAL

GROUNDWATER

On January 21, 1993, Micron filed its Phase I Limited Site Investigation
and Waiver Application ("Application"). The Application contained an
historical overview of past uses of the site and its surrounding area. The
facility is located in the center of a heavily developed industrial area and
use of the site and surrounding properties predates the early 1900's. Micron
has occupied the site from 1982 to the present. The Application identified
several potential off-site sources for the discharge and demonstrated that
none of the types of chemicals found on the property are used in the Micron
manufacturing process. During February, 1993, the representatives of the
DEP visited the site. On February 18, 1993, the DEP classified the site as a
non-priority disposal site and granted Micron's waiver application with the
stipulation that Micron evaluate the upgradient, off-site sources which may
have caused the contamination.

areas; groundwater monitoring, report and required document preparation; risk
assessment; and regulatory agency coordination. Upon the completion of Phase
II activities Micron will apply for final approval and clearance from the
DEP. The Massachusetts Contingency Plan allows closure of sites only after a
condition of "no significant risk" is demonstrated. If the DEP determines
that the Company needs to implement the last phase of remediation (Phase
III), the Company could incur approximately $200,000 of clean-up costs to
remove contaminated property as estimated by the environmental engineering
firm hired to represent the Company in its dealings with the DEP. Although
the ultimate outcome is uncertain until Phase II is completed, as of December
31, 1995, the engineering firm and management of the Company believe that
Phase III remediation will not be required.

Prior to its acquisition by the Company, Micron recorded a charge
against earnings of $233,000 to cover estimated costs associated with site
monitoring and remediation through Phase II. Prior to December 31, 1992,
Micron incurred costs of $60,600 on site analysis and preparation of the
site assessment and waiver application. During 1995 and 1994, Micron spent
approximately $24,900 and $14,000 for site assessment, monitoring, and
remediation. At December 31, 1995, the accrued liabilities include
approximately $75,200 to cover the estimated future costs associated with
site monitoring and remediation. Management estimates that these costs could
approximate from $65,000 to $360,000 depending upon the final decision by the
DEP.

Micron may seek recovery from other responsible parties if the source of
the ground water pollution can be identified. However the likelihood of the
collection of damages cannot be evaluated at this time.

OPERATIONS

During 1995, Micron spent approximately $139,000, of which approximately
$5,000 was capitalized at December 31, 1994, on an extensive program to
evaluate its manufacturing process, employee training, health and safety
programs, air and waste water treatment systems, and to ensure compliance
with current and future federal, state and local regulations as well as to
evaluate the adequacy of such systems to facilitate future growth. Certain
of the above expenditures are classified as "one time" charges while others
are normal recurring expenses associated with industrial producers in the
Commonwealth of Massachusetts. The capitalized costs relate to expenditures
to improve the efficiency of the manufacturing process and to help mitigate
or prevent possible future environmental contamination. Such costs are
amortized over their estimated useful lives of five years.

OPERATING LEASES

The Company leases certain facilities and equipment under non-cancelable
lease arrangements. During 1995, the Company leased 5,700 square feet of
office space in an office building in Austin, Texas and 18,800 square feet of
manufacturing and quality control space in an industrial building in
Fitchburg, Massachusetts. The lease on the office space will expire in
November, 1998 and the manufacturing facility lease will expire in July 1997.
Rent expense under all operating leases was approximately $177,000,
$132,000, and $130,000 in 1995, 1994, and 1993 respectively. Future minimum
operating lease payments as of December 31, 1995 are as follows:

OPERATING
YEAR LEASES
------------------------------- ---------

1996. . . . . . . . . . . . . . $166,219
1997. . . . . . . . . . . . . . 133,679
1998. . . . . . . . . . . . . . 64,600
1999. . . . . . . . . . . . . . -
2000. . . . . . . . . . . . . . -
--------
Total . . . . . . . . . . . . $364,498
--------
--------

12. EARNINGS PER SHARE

The following table reconciles the number of common shares shown as
outstanding on the balance sheet with the number of common and common
equivalent shares used in computing primary earnings per share for the years
ended December 31:

1995 1994 1993
--------- --------- ---------

Common shares outstanding . . . . . . . 3,564,511 3,613,035 3,657,216
Effect of using weighted common and
common equivalent shares outstanding . 36,827 40,151 (89,322)
Effect of shares issuable to option
holders. . . . . . . . . . . . . . . . 82,033 - 148,089
--------- --------- ---------
Shares used in computing primary
earnings per share . . . . . . . . . . 3,683,371 3,653,186 3,715,983
--------- --------- ---------
--------- --------- ---------

The difference between shares for primary and fully diluted earnings per
share was not significant in any year. Shares of redeemable common stock are
included in the weighted average number of shares outstanding at December 31,
1995, 1994, 1993.

13. SUPPLEMENTAL CASH FLOWS INFORMATION

Cash paid for income taxes and interest for the years ended December 31:

1995 1994 1993
-------- -------- --------

Income taxes . . . . . . . . . . . $440,513 $136,050 $267,500
-------- -------- --------
-------- -------- --------
Interest . . . . . . . . . . . . . $256,878 $175,990 $160,168
-------- -------- --------
-------- -------- --------

Non-cash activities:

1995 1994 1993
-------- -------- ----------

Recognition of deferred tax assets
related to NOL carryforwards and
corresponding reduction of
Goodwill. . . . . . . . . . . . . $ - $ - $1,625,555
-------- -------- ----------
-------- -------- ----------
Charges to allowance for doubtful
accounts. . . . . . . . . . . . . $122,256 $191,586 $ 69,000
-------- -------- ----------
-------- -------- ----------
Capital asset addition and related
obligation. . . . . . . . . . . . $ 47,635 $185,667 $ 197,805
-------- -------- ----------
-------- -------- ----------

Non-cash portion of Write-down of assets:

1994
----------

Patents . . . . . . . . . . . . . $1,689,516
Inventory . . . . . . . . . . . . 1,181,497
Note receivable . . . . . . . . . 436,731
Deposits on equipment . . . . . . 100,000
Leased assets, net. . . . . . . . 196,008
Other . . . . . . . . . . . . . . 147,255
----------
Total . . . . . . . . . . . . . $3,751,007
----------
----------

Details of Corazonix acquisition made (see note 3) during the year ended
December 31:

1993
----------

Assets acquired . . . . . . . . . $1,250,000
Common stock issued . . . . . . . (695,000)
----------
Cash paid . . . . . . . . . . . . 555,000
Fees and expenses . . . . . . . . 142,048
----------
Net cash paid . . . . . . . . . $ 697,048
----------
----------

14. RELATED PARTY TRANSACTIONS

The Company obtains legal services with 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 $43,000, $49,000, and $53,000 for years 1995, 1994, and 1993.
The amounts owed to this firm at the end of 1995, 1994, and 1993 were
approximately $23,000, $37,000, and $82,000, respectively.

Cardio Digital Inc. ("CDI") has four shareholders who are also
shareholders of the Company. Royalties to CDI were $8,400, $10,950, and
$12,150 for years 1995, 1994, and 1993. The amounts owed to CDI at the end
of 1995, 1994 and 1993 were $8,400, $10,950, and $30,625, respectively.

During 1993 the Company forgave advances of approximately $20,225 made
to an affiliated company.

During the years 1995, 1994, and 1993 healthcare coverage premiums of
$5,300, $6,300, and $7,400 were paid on behalf of a Director of the Company
in exchange for consulting services. During 1994 and 1993, a Director of the
Company received approximately $2,400, and $3,600 for medical consulting
services.

In October, 1994, the Marshalled Cherubs Trust loaned the Company
$100,000, with interest accruing at 11% per annum, under a demand note. The
Marshalled Cherubs Trust is for the benefit of the son of a director and
shareholder. However, the director holds no voting or dispositive power with
respect to Company shares held by the Trust. The note, plus accrued
interest, was repaid in August 1995.

15. STOCK OPTIONS

The Company has reserved 250,000 shares of its Common Stock for issuance
to officers and key employees pursuant to a 1987 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, which was $3.00 to $6.50 per share for all options outstanding and
granted under the Option Plan.

Transactions under the Option Plan are summarized as follows:

1995 1994 1993
------- ------- -------

Options outstanding at beginning of year . . 131,250 150,250 41,250
Granted. . . . . . . . . . . . . . . . . . . 130,000 - 111,000
Exercised . . . . . . . . . . . . . . . . . - - 2,000
Terminated . . . . . . . . . . . . . . . . . 20,500 19,000 -
------- ------- -------
Options outstanding at end of year . . . . . 240,750 131,250 150,250
------- ------- -------
Available for grant at end of year . . . . . 7,250 116,750 97,750
------- ------- -------
------- ------- -------
Exercisable at end of year . . . . . . . . . 52,550 48,950 21,500
------- ------- -------
------- ------- -------

During 1989, and 1988, options outside the Option Plan (the "Non-plan
options") were granted by the board of Directors to six employees and an
independent sales person. These Non-plan options were for 41,250 shares at
an exercise price ranging from $2.00 to $4.00, the approximate market price
at the date of grant. The options were approved by the shareholders and have
all expired. During 1990, options for 61,000 shares at an exercise price of
$4.00 were granted to the President and a Director. During 1991, options for
219,000 shares, expiring in 1996, at an exercise price of $4.00 were granted
to the Directors, the President and three employees. During 1994, options
for 144,000 shares, expiring in 2004, at an exercise price of $3.00, were
granted to eight current Directors. Additionally, options to purchase 5,200
shares of common stock, expiring in 1996, at an exercise price of $6.00, were
granted to a former officer of the Company under a separation agreement.
During 1995, Non-plan options for 29,000 shares, expiring in 2005, at an
exercise price of $3.00 were granted to two key officers of the Company.

During 1993, options for 48,000 shares at an exercise price of $4.00
were granted to two directors. The options vest at 1,000 per month to an
aggregate of 24,000 per director. At the date of the grant the market price
was $5.75. The difference between the grant price and the market price is
compensation which is being amortized over the vesting period. Total
compensation expense incurred for these options during the years ended
December 31, 1995, 1994 and 1993 was $22,750, $29,750, and $31,500,
respectively.

Transactions relative to Non-plan options are summarized as follows:

1995 1994 1993
------- ------- -------

Options outstanding at beginning of year . . 131,250 150,250 41,250
Options outstanding at beginning of year . . 366,700 222,500 295,000
Granted. . . . . . . . . . . . . . . . . . . 29,000 149,200 48,000
Exercised. . . . . . . . . . . . . . . . . . 17,000 5,000 21,250
Terminated . . . . . . . . . . . . . . . . . 25,000 - 99,250
------- ------- -------
Options outstanding at end of year . . . . . 353,700 366,700 222,500
------- ------- -------
------- ------- -------
Exercisable at end of year . . . . . . . . . 331,950 363,700 187,500
------- ------- -------
------- ------- -------

The underwriter of the June 1991 public offering was granted warrants to
purchase 75,000 shares at $4.40 per share, expiring in 1996. The Common Stock
to be issued upon exercise of the warrants was registered with the Securities
and Exchange Commission under Form S-3 during 1993. The underwriter exercised
warrant rights and shares were issued for 15,000 shares of common stock
during 1993. The underwriter's warrants expire in June 1996. In August 1995,
warrants were issued to bondholders to purchase an aggregate of 279,000
shares of common stock at $3.00 per share. The bondholder's warrants expire
five years from the date of the bond.

16. EXPORT SALES AND SIGNIFICANT CUSTOMERS

The following table sets forth the geographic distribution of the
Company's net sales:

YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------

United States. . . . . . . . $16,380,540 $11,813,557 $12,699,599
Europe . . . . . . . . . . . 4,325,860 2,938,187 1,804,633
Canada, Mexico & South
America . . . . . . . . . . 1,078,263 1,210,068 1,430,150
Far East & other . . . . . . 1,143,426 1,418,855 1,862,235
----------- ----------- -----------
Net Sales. . . . . . . . . $22,928,089 $17,380,667 $17,796,617
----------- ----------- -----------
----------- ----------- -----------

During the year ended December 31, 1995, three major customers accounted
for 32%, 18%, and 14% of net sales of Micron. During the year ended December
31, 1994, three major customers accounted for 34%, 18%, and 10%, of net sales
of Micron. During the year ended December 31, 1993, four major customers
accounted for 35%, 15%, 14%, and 12% of net sales of Micron. There were no
single significant customers for ART during the three years in the period
ended December 31, 1995.

17. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

There were no significant fourth quarter adjustments during 1995.
During the fourth quarter of 1994, the Company recorded a charge against 1994
earnings of approximately $778,000 as an allowance for losses related to the
advances and equipment lease obligations made to or on behalf of Phoenix.

During the fourth quarter of 1993, the Company recorded an adjustment to
expense in the amount of $86,189 for costs previously deferred related to the
unsuccessful merger attempt with Professional Catheter Corporation.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

During the three year period ended December 31, 1995, no independent
accountant, who was previously engaged as the principal accountant to audit
the Company's financial statements, has resigned (or indicated it has
declined to stand for reelection after completion of the current audit) or
was dismissed.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

NAME AGE POSITION WITH THE COMPANY
----------------------------- --- -----------------------------------------------

Robert A. Simms.............. 57 Chairman of the Board of Directors
E.P. (Lou) Marinos........... 53 President and Chief Executive Officer, Director
Anthony A. Cetrone........... 67 Chief Executive Officer of Micron, Director
Eric K. Y. Chan, Ph.D........ 38 Vice President of Engineering
Nancy C. Garbade............. 48 Secretary and General Counsel
William E. Cooper, CPA....... 30 Vice President of Finance
Julius Tabin, Ph.D........... 76 Director
Paul F. Walter, MD........... 58 Director
Russell C. Chambers, MD...... 52 Director
Michael McManus.............. 52 Director
Larry Black.................. 56 Director

The Directors are divided into three classes with rotating three-year
terms. Dr. Chambers, Mr. Cetrone, and Mr. Simms have been elected to serve as
Directors until the 1996 annual meeting of shareholders. Dr. Walter, Mr.
Black, and Mr. McManus have been elected to serve until the 1997 annual
meeting of shareholders. Dr. Tabin and Mr. Marinos have been elected to serve
as Directors until the 1998 annual meeting of shareholders. The Company's
executive officers are appointed by the Board of Directors and serve at the
pleasure of the Board.

ROBERT A. SIMMS was appointed as Chairman of the Board during
January, 1993. Prior to that, Mr. Simms had been a director of the Company
since April 1990. Mr. Simms has been chairman of Simms Capital Management.
Ltd. since 1984.

E.P. (LOU) MARINOS was appointed President and Chief Executive
Officer of the Company in March 1995. Mr. Marinos has also served in the
capacity of Chief Financial Officer and Chief Operating Officer since joining
the Company in May, 1994. Prior to joining the Company Mr. Marinos held
senior executive management or Director positions with Intermedics, Inc.,
Carbon Implants, Inc., Bio-International, Inc. and Endevco, Inc. He was also
a senior partner with Deloitte & Touche.

ANTHONY A. CETRONE has been President of Micron sine 1988 and
chairman of its Board from June 1990 to the present, Mr. Cetrone also served
as President and Chief Executive Officer of the Company from January 1993 to
March 1995. Prior to joining Micron, he was President of Dartco
Manufacturing, Inc.

NANCY C. GARBADE has been Secretary of the Company since March 1988
and General Counsel since January 1990. From 1984 to March 1988, Ms. Garbade
was Corporate Counsel for CarboMedics, Inc.

ERIC K. Y. CHAN, PH.D. has been Vice President of Engineering since
April 1993, and was Director of Engineering from August 1991. Prior to
joining the Company in 1991, Dr. Chan was obtaining his Ph.D. from the
University of Texas at Austin. He was on the engineering staff of
Schlumberger-ASC between 1985 and 1986. He is a member of the AAMI ECG
Committee on Signal Averaging.

WILLIAM E. COOPER, CPA has been Vice President of Finance since
November, 1995 and has been Controller and Chief Accounting Officer since
joining the Company in April 1993. Prior to joining the Company, he was a
Senior Associate with Coopers & Lybrand.

JULIUS TABIN, PH.D. has been a director of the Company since its
inception. Since 1949, Dr. Tabin has been a partner in the law firm of Fitch,
Even, Tabin & Flannery.

PAUL F. WALTER, MD. has been a director of the Company since its
inception. Dr. Walter is a Professor of Medicine at Emory University where he
has been on the faculty since 1971.

RUSSELL C. CHAMBERS, MD. has been a director of the Company since its
inception and served as the Company's Chairman of the Board until August
1990. For more than the past five years, Dr. Chambers has been primarily
engaged in the management of his personal investments.

MICHAEL A. MCMANUS, JR. has been a director of the Company since
October 1994. He has been President and Chief Executive Officer of New York
Bancorp Inc. since 1991 and a member of its Board of Directors since 1990. He
was elected Vice Chairman of the Board of Directors of New York Bancorp Inc.
in 1991. Prior to becoming associated with New York Bancorp Inc., Mr. McManus
was President of Galwag Investment Group from July 1990 to October 1991. From
December 1990 to October 1991 he was President of Jamcor Pharmaceutical and
from July 1986 until July 1990 he was Vice President of Business Planning and
Development, Consumer Division of Pfizer, Inc.

LAWRENCE S. BLACK has been a director of the Company since October
1994. He is the Chairman and founder of Black & Company, Inc., investment
bankers. Mr. Black is also a director of International Yogurt Company and
Mt. Bachelor Corp.

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth certain information concerning
compensation of and stock options held by the Company's President and Chief
Executive Officer and the President of the Company's subsidiary, Micron:

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ------- ----------
STOCK LONG-TERM ALL
OPTIONS INCENTIVE OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) (SH) PAYOUTS COMPENSATION
- --------------------------- ---- -------- ------- ---------- ------- ---------- ------------

E.P. Marinos, President and
Chief Executive Officer(3).......... 1995 $ 92,300 $ - - 80,000 $ - $ -

Anthony A. Cetrone, President
Micron Products, Inc. (3)........... 1995 $ 98,000 $ - 5,250 29,000 $ - $ -

E.P. Marinos, President and
Chief Executive Officer(2).......... 1994 $ 38,215 $ - - 18,000 $ - $ -

Anthony A. Cetrone, President
Micron Products, Inc. (2)........... 1994 $ 98,000 $22,075 21,000 18,000 $ - $ 628

Wayne Schroeder, Former
Chief Operating Officer............. 1994 $ 95,833 $ - 26,250 5,200 $ - $10,790

Anthony A. Cetrone,
Chief Executive Officer............. 1993 $ 98,000 $ 5,000 15,750 51,000 $ - $ 699

Wayne Schroeder,
Chief Operating Officer............. 1993 $100,000 $ - 15,750 24,000 $ - $ 1,326

(1) In April 1993, Mr. Cetrone and Mr. Schroeder were each granted 24,000
options to purchase shares at an exercise price of $4.00. At the date of the
grant the market price was $5.75. The options vest at 1,000 shares per month
to an aggregate of 24,000 per director. The difference between the grant
price and the market price is compensation and is being amortized over the
vesting period.

(2) Options for the purchase of 18,000 shares at $3.00 per share were granted
to all current directors of the Company, at the Annual Meeting of
Shareholders on October 25, 1994. The options were immediately exercisable on
the date of grant. In the event the value of the Common Stock reaches $6.00
per share, then the exercise price of one share of the Common Stock shall be
the fair market value of the Common Stock on the date the Option is granted
less the difference between the average closing price of the Common Stock for
the twenty trading days immediately preceding the date on which the Optionee
gives notice of his intention to exercise an option and $6.00 per share.
There is a floor of $1.00 per share.

(3) Mr. Marinos and Mr. Cetrone were granted 60,000 and 20,000 options to
purchase shares, respectively, under the Option Plan. The shares vest at the
rate of 20% per year for five years until fully vested. The exercise price
approximated the market price on the date of grant. Mr. Marinos and Mr.
Cetrone were granted 20,000 and 9,000 options to purchase shares at an
exercise price of $3.00, respectively, outside the Option Plan. Twenty-five
percent of the shares vest immediately and the remainder vest at twenty-five
percent on each anniversary date, until fully vested. The shares granted
outside the Option Plan were approved by the shareholders. The market price
at the date of grant was $3.00.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM
--------------------------------------------------------------- ----------------------------------
% OF TOTAL
OPTIONS
GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE
NAME GRANTED 1995 PRICE EXPIRATION DATE 5% 10%
- ------------------------- --------- ------------ -------- ----------------- ---------------- ---------------

E.P. Marinos............. 80,000(1) 50% $3.00 November 27, 2005 $150,935 $382,498
Anthony A. Cetrone....... 29,000(1) 18% $3.00 November 27, 2005 $ 54,714 $138,656

(1) Mr. Marinos and Mr. Cetrone were granted 60,000 and 20,000 options to
purchase shares, respectively, under the Option Plan. The shares vest at the
rate of 20% per year for five years until fully vested. The exercise price
approximated the market price on the date of grant. Mr. Marinos and Mr.
Cetrone were granted 20,000 and 9,000 options to purchase shares,
respectively, outside the Option Plan. Twenty-five percent of the shares vest
immediately and the remainder vest at twenty-five percent on each anniversary
date, until fully vested. The shares granted outside the Option Plan were
approved by the shareholders. The market price at the date of grant was $3.00.

OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

VALUE REALIZED NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
SHARES (MARKET PRICE AT HELD AT DECEMBER 31, 1995 OPTIONS AT DECEMBER 31, 1995 (1)
ACQUIRED EXERCISE LESS ----------------------------- ---------------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ---------------- ----------- ------------- ----------- -------------

E.P. Marinos.......... - $ - 23,000 75,000 $28,750 $93,750
Anthony A. Cetrone.... - $ - 55,050 42,950 $31,313 $33,438

__________________

(1) Calculated on the basis of the closing sale price per share for the
Common Stock on the American Stock Exchange of $4.25 on December 31, 1995.

Mr. David Jenkins, previous President and Chairman of the Board of
Directors, submitted his resignation effective on January 25, 1993. He
exercised options for 7,500 shares at $2.00 per share, in January 1993, and
relinquished the balance of his options, except for 22,000 options he is
fully vested in which were granted him as a director of the Company. In
March, 1994, Mr. Jenkins exercised options for 5,000 shares at $4.00 per
share. In August 1995, Mr. Jenkins exercised options for 12,000 shares at
$4.00 per share. In September 1995, Mr. Jenkins exercised the balance of his
options for 5,000 shares at $4.00 per share.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Based solely upon the Company's review of the copies of such forms it
has received, the Company believes that all its officers, directors and
greater than ten percent beneficial owners complied with the filing
requirements applicable to them pursuant to Section 16(a) of the Securities
Exchange Act during 1995, except for Russell C. Chambers who has beneficial
ownership of 5,000 shares which were sold in November 1995, but inadvertently
failed to file the pertinent SEC report until March 1996.

EMPLOYMENT ARRANGEMENTS

Anthony A. Cetrone entered into a four-year employment agreement with
the Company, effective November 24, 1992, which provides for his employment
as President of Micron at a base salary of $98,000 per year. In addition to
his base compensation, Mr. Cetrone is entitled to annual bonus compensation
in the amount of 5% of net income of Micron above $500,000, after goodwill
amortization. Mr. Cetrone has agreed not to compete with Micron for a period
of five years after the expiration or termination of his employment.

STOCK OPTIONS

1987 INCENTIVE STOCK OPTION PLAN

In 1987, the Company adopted a stock option plan (the "Option Plan")
pursuant to which 250,000 shares of Common Stock have been reserved for
issuance to officers and other key employees and to certain other persons who
are employed or engaged by the Company. Options are designated as "incentive
stock options" within the meaning of the Internal Revenue Code of 1986, as
amended. The purpose of the Option Plan is to encourage stock ownership by
persons instrumental to the

success of the Company, in order to give them a greater personal interest in
the Company's business. The exercise price of any stock option granted to an
eligible employee may not be less than 100% of the fair market value of the
shares underlying such option on the date of grant, unless such employee owns
more than 10% of the outstanding Common Stock, in which case the exercise
price of any incentive stock option may not be less than 110% of such fair
market value. The term of each option and the manner in which it may be
exercised is determined by the Board of Directors provided that no option may
be exercisable more than 10 years after the date of grant and, in the case of
a stock option granted to an eligible employee owning more than 10% of the
Common Stock, no more than five years. Generally, options become exercisable
one year from the date of grant and each year thereafter at a rate of 20% per
year. Options are not transferable, except upon death of the option holder.

Options to purchase an aggregate of 242,750 shares of Common Stock at
an exercise price of $3.00 to $6.50 per share have been granted under the
Option Plan to twenty current and former employees. Of these, options for
2,000 shares were exercised and options to purchase 48,500 shares granted to
eight former employees were canceled due to termination of employment or
death of the employees. During 1993, 2,000 shares were exercised. As of
December 31, 1995, included in the total are options to purchase 98,000,
98,000, 25,000, and 30,000 shares, granted to E.P. Marinos, Anthony Cetrone,
Nancy C. Garbade, and William E. Cooper, respectively. As of December 31,
1995, included in the total are options to purchase 8,750 shares, granted to
Wayne Schroeder, a former director and officer of the Company. During the
year ended December 31, 1995, options to purchase 130,000 shares were granted
to eight employees. During the year ended December 31, 1994, no options to
purchase shares were granted. During the year ended December 31, 1993,
options to purchase 111,000 shares were granted to 12 employees.

OTHER OPTIONS

In addition, options to purchase an aggregate of 518,450 shares of
Common Stock have been granted at exercise prices ranging from $2.00 to
$4.00; such options were not granted under the Option Plan. At December 31,
1995, options for 58,250 shares have been exercised and options for 135,500
shares have been terminated.

During 1988 and 1989 options to purchase 18,750 shares were granted
to four employees, all of which have been exercised or terminated as of
December 31, 1993. During 1988, options to purchase 7,500 shares were granted
to Wayne Schroeder at an exercise price of $2.00 per share. The options were
exercised during 1993.

During 1990, options to purchase 25,000 shares of Common Stock were
granted to Robert A. Simms, at an exercise price of $4.00 per share, all of
which are currently exercisable. Options to purchase an aggregate of 125,000
shares were granted to David Jenkins, from 1988 to 1991, at exercise prices
ranging from $2.00 to $4.00 per share, of which 95,500 were terminated in
January, 1993 when Mr. Jenkins resigned as President of the Company. Also in
January, 1993, Mr. Jenkins exercised options for 7,500 shares at $2.00, and
relinquished the balance of his options, except for 22,000 options in which
he is fully vested, which were granted him as a director of the Company. In
March, 1994, Mr. Jenkins exercised 5,000 options at an exercise price of
$4.00 per share. In August 1995, Mr. Jenkins exercised 12,000 options at an
exercise price of $4.00 per share. In September 1995, Mr. Jenkins exercised
the balance of his options for 5,000 shares at an exercise price of $4.00 per
share.

During 1991, options to purchase 25,000 shares of common stock were
granted to three employees, of which 17,500 shares have been exercised or
terminated.

In March 1991, five-year options to purchase 24,000 shares were
granted to each of the six current directors of the Company (including Mr.
Jenkins), exercisable at a rate of 1,000 shares per month at an exercise
price of $4.00 per share. During 1991, options to purchase 25,000 shares at
$4.00, expiring in 1996, were granted to three employees.

In March 1993, options for 48,000 shares at an exercise price of
$4.00 were granted to two directors. The options vest at 1,000 per month to
an aggregate of 24,000 per director. At the date of the grant the market
price was $5.75. The difference between the grant price and the market price
is compensation which is being amortized over the vesting period. Total
compensation expense incurred for these options recorded during 1995, 1994,
and 1993 was $22,750, $29,750, and $31,500.

In October 1994, options for 144,000 shares, expiring in 2004, at an
exercise price of $3.00, were granted to eight current Directors. The shares
were immediately exercisable. Additionally, options to purchase 5,200 shares
of common stock, expiring in 1996, at an exercise price of $6.00, were
granted to a former officer of the Company under a separation agreement.

In November 1995, options to purchase 29,000 shares, expiring in
2005, at an exercise price of $3.00, were granted to two Officers and
Directors of the Company. Twenty-five percent of the shares vest immediately
and the remaining shares vest at twenty-five percent per year on each
anniversary date until fully vested.

MEDICAL CONSULTANTS

The Company previously retained medical consultants who agreed to
advise the Company from time to time of advances in technology and in the
respective areas of their expertise. In August 1994, the Company canceled or
did not continue payment under the consulting retainer contracts due to their
expiration. The aggregate compensation paid by the Company to consultants
under their agreements during 1994 and 1993 was $58,533, and $67,475,
respectively. During 1995 the Company used consultants on a specific project
basis. Amounts paid to consultants during 1995 was not material.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of February 28, 1996
based on information obtained from the persons named below, with respect to
the beneficial ownership of shares of Common Stock by (i) each person known
by the Company to be the owner of more than five percent of the outstanding
shares of Common Stock, (ii) each director of the Company and (iii) all
officers and directors as a group.

BENEFICIAL
OWNERSHIP (1)
-----------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
----------------------------------------------------------- ------- -------

R.C. Chambers Irrevocable Trust (2)........................ 222,350 5.57
1807 Lake Street
Lake Charles, Louisiana 70601
Russell C. Chambers, M.D. (3).............................. 67,950 1.70
Julius Tabin, Ph.D......................................... 62,375 1.56
Paul F. Walter, M.D. ...................................... 93,375 2.34
Robert A. Simms............................................ 182,000 4.56
Anthony A. Cetrone (4)..................................... 127,112 2.79
E.P. Marinos............................................... 23,000 .58
Michael A. McManus, Jr. ................................... 18,000 .45
Lawrence S. Black.......................................... 19,500 .49
All officers and directors as a group (11 persons) (5)..... 617,812 15.48

1. Unless otherwise noted, each person has sole voting and investment power
with respect to the shares of Common Stock beneficially owned.

2. The beneficiary of all of the trust's income is Dr. Chambers' son. Dr.
Chambers son has a 50% ownership interest in the assets held by the trust
and Dr. Chamber's wife's estate has the remaining 50% ownership interest.
Dr. Chambers disclaims any beneficial ownership of the Common Stock held by
the trust.

3. Includes 2,500 shares over which Dr. Chambers has voting power pursuant to
an agreement, 12,500 shares held as custodian for his son and 2,500 shares
held as custodian for a niece.

4. Includes 66,662 shares held by the Micron Employee Stock Ownership Plan
over which Mr. Cetrone shares voting power as Trustee.

5. Includes options to purchase shares of Common Stock, all of which are
exercisable at December 31, 1995, as follows:

Russell C. Chambers, M.D(1)............ 42,000
Julius Tabin(1)........................ 42,000
Paul F. Walter, M.D.(1)................ 42,000
Robert A. Simms(1)..................... 42,000
Nancy C. Garbade....................... 5,000
Anthony A. Cetrone..................... 60,450
Eric Chan.............................. 13,500
E.P. Marinos........................... 23,000
William E. Cooper...................... 6,000
Michael A. McManus, Jr. ............... 18,000
Lawrence S. Black...................... 18,000
-------
Total................................ 311,950
-------
-------

(1) 24,000 shares expired unexercised on March 17, 1996 for each Mr.
Chambers, Mr. Tabin, Mr. Walter, and Mr. Simms.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

To date, all transactions between the Company and its officers,
directors, or their affiliates have been approved or ratified by a majority
of the directors who did not have an interest in, and who were not employed
by the Company at the time of, such transaction. The Company's Board of
Directors adopted resolutions providing that any transaction between the
Company and its officers, directors or their affiliates must be approved by a
majority of the Board of Directors who do not have an interest in, and who
are not employed by the Company at the time of, such transaction. The Company
believes that all transactions entered into with affiliates of the Company
were on terms no less favorable than could have been obtained from
unaffiliated third parties.

In May 1983, ART entered into an agreement with Cardiodigital
Industries, Inc., a Texas corporation ("CDI"), pursuant to which ART granted
an exclusive license to CDI to use the technology covered by the Simson
Patent in connection with research and development of signal-averaging
devices. In consideration for the license, CDI provided $175,000 of financing
and granted ART an option to acquire any technology developed by CDI on an
exclusive basis at a price of either $1,250,000 or a royalty fee of $150 per
cardiac signal-averaging device sold by ART, up to a maximum of $1,250,000.
ART exercised its option to purchase such technology at the fee of $150 per
signal-averaging device sold by ART. Mr. Tom M. Podl and Dr. Julius Tabin,
directors of ART are shareholders of CDI. In addition, the estate of G.
Russell Chambers (Dr. Chambers' father), is a principal shareholder of CDI.
Royalty fees for the years ended December 31, 1995, 1994 and 1993 were
$8,400, $10,950, and $12,150, respectively.

During 1993 ART forgave advances of approximately $20,225 made to
Calcasieu Technology Research and Investment Group ("CTRIG") The advances
were principally for rent paid on behalf of CTRIG and health insurance
premiums.

Dr. Julius Tabin, a member of the law firm of Fitch, Even, Tabin &
Flannery, the Company's patent counsel, has been a director of the Company
since its inception , and he and other members of the firm are shareholders
of the Company. For the years ended December 31, 1995, 1994 and 1993, the law
firm billed the Company approximately $43,000, $49,000, and $53,000,
respectively, for legal services rendered and patent prosecution costs. The
1993 payments included fees for services in connection with the Corazonix
litigation. The amounts owed to the firm at December 31, 1995, 1994, and 1993
were approximately $23,000, $37,000, and $82,000, respectively.

Dr. Paul Walter, a director and shareholder of the Company, was
engaged as a medical consultant to the Company during 1994 and 1993. For the
years ended December 31, 1994 and 1993, fees paid to Dr. Walter amounted to
approximately $2,400 and $3,600, respectively.

Dr. Russell C. Chambers, a director and shareholder of the Company,
is engaged as a consultant to the Company. For the years ended December 31,
1994, 1993 and 1992, health insurance premiums paid on Dr. Chambers behalf
amounted to approximately $5,300, $6,300, and $7,400, respectively.

In October, 1994, the Marshalled Cherubs Trust loaned the Company
$100,000, with interest accruing at 11% per annum, under a demand note. The
loan, plus accrued interest, was repaid in August 1995. The Marshalled
Cherubs Trust is for the benefit of the Jason Chambers, the son of Dr.
Russell C. Chambers, a director and shareholder of the Company. However, Dr.
Chambers holds no voting or dispositive power with respect to Company shares
hold by the Trust.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) List of documents filed as a part of this report:

(1) All Financial Statements

See index to financial statements on page 19 for a list of all
financial statements filed as part of this report.

(2) Financial Statement Schedules

(A) Schedule VIII

All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission not included here are omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.

(3) Exhibits

The following exhibits, required by Item 601 of Regulation S-K are
submitted herewith:

DESCRIPTION OF EXHIBIT
----------------------------------------------------------------------------------------

4.4 Bond Indenture and Bond Form............................................................
4.5 Form of Option for E. P. (Lou) Marinos under 1995 Key Employees Stock Option Plan.......
4.6 Form of Option for Anthony A. Cetrone under 1995 Key Employees Stock Option Plan........
10.33 Employment Agreement, dated March 1, 1996, between the Company and E. P. Marinos. ......

(b) Reports filed in the fourth quarter on Form 8-K:

None

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.

BY: /s/ E. P. Marinos
-------------------
E. P. Marinos
President & Chief Executive Officer

BY: /s/ William E. Cooper, CPA
----------------------------
William E. Cooper, CPA
Chief Financial & Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Capacity Date
- ------------------------- ------------------------------------- --------------

/s/ Robert A. Simms Chairman of the Board March 25, 1996
- -------------------------
Robert A. Simms

/s/ E. P. Marinos Director, President & Chief Executive
- ------------------------- Officer, Chief Financial Officer March 25, 1996
E. P. Marinos

/s/ Anthony A. Cetrone Director, President & Chief Executive
- ------------------------- Officer, Micron Products Inc. March 25, 1996
Anthony A. Cetrone

Director March 25, 1996
- -------------------------
Russell C. Chambers

/s/ Julius Tabin Director March 25, 1996
- -------------------------
Julius Tabin

/s/ Michael McManus Director March 25, 1996
- -------------------------
Michael A. McManus, Jr.

/s/ Lawrence S. Black Director March 25, 1996
- -------------------------
Lawrence S. Black

/s/ Paul F. Walter Director March 25, 1996
- -------------------------
Paul F. Walter

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ------------------------------------------------------------------------------------------------ ----

3.0 Articles of Incorporation....................................................................... (a)
3.1 By-laws......................................................................................... (a)
3.2 Certificate of Agreement of Merger of Arrhythmia Research Technology, Inc., a Louisiana
Corporation, and Arrhythmia Research Technology, Inc., a Delaware Corporation................... (a)
3.3 Articles of Merger of Arrhythmia Research Technology, Inc., a Louisiana Corporation, and
Arrhythmia Research Technology, Inc., a Delaware corporation.................................... (a)
4.0 Form of Certificate evidencing shares of the Company's Common Stock............................. (a)
4.1 Form of Non-plan Options to purchase Company Common Stock....................................... (c)
4.2 Form of Options to purchase Company Common Stock under the 1987 Incentive Stock Option
Plan............................................................................................ (a)
4.3 Form of Underwriter's Warrant................................................................... (c)
4.4 Bond Indenture and Bond Form....................................................................
4.5 Form of Option for E. P. (Lou) Marinos under 1995 Key Employees Stock Option Plan ..............
4.6 Form of Option for Anthony A. Cetrone under 1995 Key Employees Stock Option Plan................
10.0 Distribution Agreement by and between Prucka Engineering, Inc. and ART, dated November 20,
1989............................................................................................ (b)
10.1 Amendment to Distribution Agreement dated November 20, 1989..................................... (b)
10.2 Lockup Agreement................................................................................ (a)
10.3 Manufacturing Agreement by and between ART and Mortara Instrument, Inc. dated March 8,
1987............................................................................................ (a)
10.4 Amendment to Manufacturing agreement dated June 15, 1987........................................ (a)
10.5 Letter agreement by and between ART and Mortara Instrument, Inc. dated October 26, 1989......... (c)

10.6 Letter agreement by and between ART and Mortara Instrument, Inc. dated February 21, 1990........ (c)

10.7 Letter agreement by and between ART and Mortara Instrument, Inc. dated February 21, 1990....... (c)

10.8 Letter agreement by and between ART and Mortara Instrument, Inc. dated July 31, 1990............ (c)

10.9 License Agreement dated November 15, 1981 by and between University Patents, Inc., and ART...... (a)

10.10 Amendment to License Agreement dated June 1, 1985............................................... (a)
10.11 License of Cardiac Signal Average and Base Technology by ART to Cardiodigital Industries, Inc.
to ART.......................................................................................... (a)
10.12 Grant of Option to Acquire Exclusive License for Use of Signal Averaging Technology from
Cardiodigital Industries, Inc. to ART........................................................... (a)
10.13 Agreement and Plan of Merger executed by ART and Arrhythmia Research Technology, Inc., a
Louisiana corporation........................................................................... (a)
10.14 Settlement Agreement, dated February 23, 1990, by and among Baylor College of Medicine, The
Methodist Hospital Foundation and The Methodist Hospital and Matthew W. Prucka, Delphi
Computer Systems Inc., Prucka Engineering, Inc., Dr. Christopher Wyndham and Arrhythmia
Research Technology, Inc........................................................................ (c)
10.15 Form of Employment Agreement dated June 1, 1991, by and between the Company and David A.
Jenkins......................................................................................... (c)
10.16 Amendment No. 2 to License Agreement between ART and University Patents, Inc. dated
February 6, 1991................................................................................ (b)
10.17 O E M Agreement by and between Vascor Medical Corporation, Vascomed and ART dated
December 14, 1991............................................................................... (d)
10.18 Amendment to O E M Agreement dated December 14, 1991............................................ (d)
10.19 O E M agreement by and between Professional Catheter Corporation and ART dated September 11,
1992............................................................................................ (f)
10.20 Distribution Agreement by and between Prucka Engineering, Inc. and ART, dated May 28, 1992...... (f)

10.21 Employment Agreement, dated November 24, 1992, between the Company and Anthony A.
Cetrone......................................................................................... (f)

10.22 Asset Purchase Agreement, dated February 17, 1993, by and among Hubbard, Thurman,
Tucker & Harris, L.L.P. and ART................................................................ (f)
10.23 Agreement and Plan of Merger, dated November 25, 1992, among Arrhythmia Research
Technology, Inc., ART Merger Subsidiary II, Inc., Micron Products Inc. and Micron Medical
Products Inc. .................................................................................. (e)
10.24 Merger Agreement, dated November 25, 1992, between ART Merger Subsidiary II, Inc. and
Micron Products Inc............................................................................ (e)
10.25 Asset Purchase Agreement, dated July 9, 1993, between Arrhythmia Research Technology, Inc.
and Corazonix Corporation....................................................................... (g)
10.26 Amendment to Asset Purchase Agreement, dated November 5, 1993, between Arrhythmia
Research Technology, Inc. and Corazonix Corporation............................................. (i)
10.27 Manufacturing and Equipment Lease Agreement, dated November 5, 1993, between Arrhythmia
Research Technology, Inc. and Corazonix Corporation............................................ (i)
10.28 Letter of Intent dated September 28, 1993, between Arrhythmia Research Technology, Inc. and
Lite Tech, L. P. .............................................................................. (i)
10.29 Letter of Intent, dated September 28, 1993 by and between Arrhythmia Research Technology, Inc.
and Mr. John Curley and Mr. Thomas Krug......................................................... (i)
10.30 Agreement by and between Arrhythmia Research Technology, Inc. and Prucka Engineering, Inc.,
dated August 1994............................................................................... (j)
10.31 First and Second Amendments to Manufacturing and Equipment Lease, dated August 31, 1994
and October 6, 1994, respectively, between Arrhythmia Research Technology, Inc. and Corazonix
Corporation..................................................................................... (j)
10.32 Agreement and Modification of Second Amendment to Manufacturing and Equipment Lease
Agreement dated November 4, 1994, between Arrhythmia Research Technology, Inc. and
Corazonix Corporation........................................................................... (j)
10.33 Employment Agreement, dated March 1, 1996, between the Company and E. P. Marinos................
22. Subsidiaries.................................................................................... (f)
28.0 1987 Incentive Stock Option Plan................................................................ (a)
28.1 Option Agreement, dated March 18, 1991, between the Company and Julius Tabin.................... (f)
28.2 Option Agreement, dated March 18, 1991, between the Company and Robert A. Simms................. (f)
28.3 Option Agreement, dated March 18, 1991, between the Company and Tom Podl........................ (f)
28.4 Option Agreement, dated March 18, 1991, between the Company and Paul F. Walter.................. (f)
28.5 Option Agreement, dated March 18, 1991 between the Company and Russell C. Chambers.............. (f)
28.6 Option Agreement, dated August 21, 1990, between the Company and Robert A. Simms................ (f)
28.7 Option Agreement, dated March 8, 1993, between the Company and Anthony A. Cetrone............... (i)
28.8 Option Agreement, dated March 8, 1993, between the Company and Wayne Schroeder. ................ (i)
28.9 Merger Agreement, dated December 26, 1993, between Micron Products Inc. and Micron Medical
Products Inc. .................................................................................. (i)
28.10 Articles of Merger of Parent and Subsidiary..................................................... (i)
28.11 Consent Judgment signed by Arrhythmia Research Technology, Inc. and Corazonix Corporation
and entered on November 15, 1993................................................................ (h)
(a) Incorporated herein by reference from a Registration Statement on Form S-18 as filed with the
Commission in April, 1988, Registration Statement No. 33-20945-FW.
(b) Incorporated herein by reference from a Form 10-K as filed with the Commission in March 1990.
(c) Incorporated herein by reference from a Registration Statement on Form S-1 as filed with the
Commission in August 1990, Registration Statement No. 33-36607.
(d) Incorporated herein by reference from a Form 10-K as filed with the Commission in March 1992.
(e) Incorporated by reference from Form 8-K as filed with the Commission on December 10, 1992.
(f) Incorporated herein by reference from a Form 10-K as filed with the Commission in March 1993
(g) Incorporated by reference from Form 8-K as filed with the Commission on July 15, 1993.
(h) Incorporated by reference from Form 8-K as filed with the Commission on November 22, 1993.
(i) Incorporated by reference from Form 10-K as filed with the Commission in March, 1994.
(j) Incorporated by reference from Form 10-K as filed with the Commission in March 1995.

REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE

To the Shareholders
Arrhythmia Research Technology, Inc.

Our Report on the consolidated financial statements of Arrhythmia
Research Technology, Inc. and Subsidiary is included on page 20 of this Form
10-K. In connection with our audits of such financial statements, we have
also audited the financial statement schedule listed in Item 14(a)(2) herein.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

/s/ COOPERS & LYBRAND L.L.P.

Austin, Texas
March 1, 1996

ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

SCHEDULE VIII
VALUATION OF QUALIFYING ACCOUNTS

BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------- ------------ ----------- ---------- --------------

Allowance for doubtful accounts:

December 31, 1995........................ $ 126,665 $ 14,411 $ 122,256 $ 18,820
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
December 31, 1994........................ $ 71,344 $ 191,586 $ 136,265 $ 126,665
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
December 31, 1993........................ $ 82,604 $ 69,000 $ 80,260 $ 71,344
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------

Allowance for slow-moving inventories:

December 31, 1995........................ $ 1,182,897 $ - $ 69,645 $ 1,113,252
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
December 31, 1994........................ $ - $ 1,182,897 $ - $ 1,182,897
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------