FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended MARCH 31, 2001 or
--------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______
1-9731
(Commission file No.)
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-0925679
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1101 SOUTH CAPITAL OF TEXAS HIGHWAY
BUILDING G - SUITE 200
AUSTIN, TEXAS 78746
(Address of principal executive office) (Zip code)
(512) 347-9640
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___.
--
As of May 7, 2001 there were 3,017,785 shares of common stock outstanding.
This report consists of 9 pages.
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
TABLE OF CONTENTS
FORM 10-Q
March 31, 2001
PART I - FINANCIAL INFORMATION............................................ 3
Item 1. Financial Statements........................................... 3
CONSOLIDATED BALANCE SHEETS............................................. 3
CONSOLIDATED STATEMENTS OF OPERATIONS................................... 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY.............. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS................................... 6
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 7
PART II - OTHER INFORMATION............................................... 9
Item 1. Legal Proceedings.............................................. 9
Item 2. Changes in Securities - none................................... 9
Item 3. Defaults Upon Senior Securities - none......................... 9
Item 4. Submission of Matters to a Vote of Security Holders - none..... 9
Item 5. Other Information - none....................................... 9
Item 6. Exhibits and Reports on Form 8-K............................... 9
SIGNATURES.............................................................. 9
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 2001 2000
------------------------------
Current assets:
Cash and cash equivalents.................................................................... $ 2,027,011 $ 1,999,292
Trade and other accounts receivable, net of allowance for doubtful accounts..................
of $49,074 and $52,827.................................................................... 1,291,872 1,604,141
Inventories, net............................................................................. 934,895 860,161
Deposits, prepaid expenses and other current assets.......................................... 43,337 62,728
Income tax recoverable....................................................................... 100,000 100,000
------------ --------------
Total current assets........................................................................ 4,397,115 4,626,322
Property and equipment, net of accumulated depreciation of $4,194,686 and $4,028,956.......... 3,226,777 3,310,958
Goodwill, net of accumulated amortization of $1,048,965 and $1,016,493........................ 1,424,361 1,456,833
Other intangibles, net of accumulated amortization of $564,502 and $558,419................... 41,947 48,030
Deferred income taxes, net.................................................................... 444,923 444,923
Other assets.................................................................................. 57,898 31,518
------------ --------------
Total assets................................................................................ $ 9,593,021 $ 9,918,584
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations................................................. $ 18,862 $ 23,882
Current maturities of bonds payable and other long-term debt................................. 178,279 178,279
Accounts payable............................................................................. 288,389 344,821
Accrued expenses............................................................................. 343,130 407,897
------------ --------------
Total current liabilities................................................................... 828,660 954,879
Bonds payable, and other long-term debt, net of current maturities............................ 420,963 399,490
Deferred revenue.............................................................................. 2,738 4,621
------------ --------------
Total liabilities........................................................................... 1,252,361 1,358,990
------------ --------------
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized, none issued...................... - -
Common stock, $.01 par value; 10,000,000 shares authorized;
3,729,681 issued........................................................................... 37,297 37,297
Additional paid-in-capital................................................................... 9,166,615 9,166,615
Common stock held in treasury, 690,446 and 563,446 shares at cost............................ (1,907,650) (1,654,664)
Retained earnings............................................................................ 1,044,398 1,010,346
------------ --------------
Total shareholders' equity.................................................................. 8,340,660 8,559,594
------------ --------------
Total liabilities and shareholders' equity.................................................. $ 9,593,021 $ 9,918,584
============ ==============
The accompanying notes are an integral part of the consolidated
financial statements.
3
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
----------------------------
Revenues............................................................................. $ 1,753,974 $ 2,543,826
Cost of sales........................................................................ 1,249,467 1,738,634
------------ ------------
Gross profit......................................................................... 504,507 805,192
------------ ------------
Selling and marketing................................................................ 23,738 105,580
General and administrative........................................................... 360,042 425,138
Research and development............................................................. 44,129 52,927
Amortization of goodwill............................................................. 32,472 32,472
------------ ------------
Total expenses....................................................................... 460,381 616,117
------------ ------------
Income from operations............................................................... 44,126 189,075
Other income (expense):
Interest expense.................................................................... (559) (7,239)
Other income (expense), net......................................................... (1,515) (28,105)
------------ ------------
Income before income taxes........................................................... 42,052 153,731
Income taxes......................................................................... 8,000 52,000
------------ ------------
Net income........................................................................... $ 34,052 $ 101,731
============ ============
Net income per share - basic......................................................... $ 0.01 $ 0.03
============ ============
Weighted average number of common
shares outstanding.................................................................. 3,111,505 3,405,377
============ ============
Net income per share - dilutive...................................................... $ 0.01 $ 0.03
============ ============
Dilutive average number of common
equivalent shares outstanding....................................................... 3,233,023 3,465,921
============ =============
The accompanying notes are an integral part of the consolidated financial statements.
4
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Retained
Common Shares Additional Unearned Earnings
------------------------- Paid-in Treasury ESOP (Accumulated
Number Amount Capital Stock Compensation Deficit) Total
---------- ------------ ------------ ------------ -------------- -------------- -----------
December 31, 1997........... 3,679,216 $ 36,792 $ 8,909,307 $ (878,787) $ (82,134) $ 101,612 $ 8,086,790
Treasury stock purchase of (34,297) (34,297)
28,400 shares...........
ESOP payments............... 42,857 42,857
Net (loss).................. (136,438) (136,438)
---------- ------------ ------------ ------------ -------------- -------------- -----------
December 31, 1998........... 3,679,216 36,792 8,909,307 (913,084) (39,277) (34,826) 7,958,912
Issuance of common stock . 32,667 327 36,986 37,313
Treasury stock purchase of (238,808) (238,808)
153,891 shares.........
ESOP payments............... 39,277 39,277
Net income.................. 425,045 425,045
------------ ------------ ------------ ------------ -------------- -------------- -----------
December 31, 1999........... 3,711,883 37,119 8,946,293 (1,151,892) - 390,219 8,221,739
Issuance of common stock . 17,798 178 26,322 26,500
Treasury stock purchase of (502,772) (502,772)
265,040 shares.........
Value of warrants with......
bond renewal.............. 194,000 194,000
Net income.................. 620,127 620,127
------------ ------------- ------------ ------------ -------------- ------------- -----------
December 31, 2000........... 3,729,681 37,297 9,166,615 (1,654,664) - 1,010,346 8,559,594
Treasury stock purchase of
127,000 shares......... (252,986) (252,986)
Net income.................. 34,052 34,052
----------- ------------- ------------ ------------ -------------- ------------- -----------
March 31, 2001.............. 3,729,681 $ 37,297 $ 9,166,615 $ (1,907,650) $ - $ 1,044,398 $ 8,340,660
=========== ============ ============ ============= ============== ============= ===========
The accompanying notes are an integral part of the consolidated financial statements.
5
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
---------------------------------
2001 2000
-------------- ---------------
Cash flows from operating activities:
Net income................................................................................ $ 34,052 $ 101,731
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................ 165,730 189,088
Amortization............................................................................ 60,028 52,791
Changes in assets and liabilities:
Trade and other accounts receivable.................................................... 312,269 47,702
Inventories............................................................................ (74,734) (118,687)
Deposits, prepaid expenses and other assets............................................ (6,989) (23,515)
Accounts payable, accrued expenses and other current liabilities....................... (123,082) 88,797
------------------- ----------
Net cash provided by operating activities............................................ 367,274 337,907
------------------- ----------
Cash flows from investing activities:
Capital expenditures, net of disposals................................................... (81,549) (141,507)
Deposits on capital equipment, acquisitions and other.................................... - (140,489)
Patent and software development expenditures............................................. - (6,827)
------------------- ----------
Net cash used in investing activities................................................. (81,549) (288,823)
------------------- ----------
Cash flows from financing activities:
Principal payments on long-term debt, net................................................ (5,020) (9,052)
Purchase of treasury stock............................................................... (252,986) (18,200)
------------------- ----------
Net cash used in financing activities................................................. (258,006) (27,252)
------------------- ----------
Net increase in cash and cash equivalents.................................................. 27,719 21,832
Cash and cash equivalents at beginning of period........................................... 1,999,292 455,674
------------------- ----------
Cash and cash equivalents at end of period................................................. $ 2,027,011 $ 477,506
=================== ==========
The accompanying notes are an integral part of the consolidated financial statements.
6
SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements and related
notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations. The accompanying unaudited interim consolidated
financial statements and related notes should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
most recent Form 10-K covering the year ended December 31, 2000.
The information furnished reflects, in the opinion of the management
of Arrhythmia Research Technology, Inc. ("ART"), all adjustments necessary for a
fair presentation of the financial results for the interim period presented.
Interim results are subject to year-end adjustments and audit by
independent certified public accountants.
Reclassifications:
Certain accounts in the 2000 financial statements have been reclassified to
conform with the 2001 presentation.
Inventories:
Inventories consist of the following as of:
MARCH 31, DECEMBER 31,
2001 2000
--------------------------
Raw materials..................................... $ 154,630 $ 123,962
Work-in-process................................... 185,929 197,254
Finished goods.................................... 594,336 538,945
--------- ---------
Total........................................ $ 934,895 $ 860,161
========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company had working capital of $3,568,455 at March 31, 2001
compared to $3,671,443 at December 31, 2000. The slight decrease in working
capital is attributed to $252,986 of purchases of the Company's Common Stock in
the first quarter of 2001. In March, the Company announced the continuation of
its Stock Buy Back Program following an approval by the Board of Directors to
purchase up to 200,000 additional shares of the Company's Common Stock.
Capital expenditures (before disposals) were $101,048 in the first
quarter of 2001. These expenditures were part of a program to upgrade equipment
at the Micron division and expand its manufacturing capacity of ECG sensors.
The total capital expenditures for 2001 are forecast to approximate $500,000,
which is planned to be funded from operating cash flows.
The Company has available $800,000 from a revolving credit facility
with a bank, which is renewable in June 2001. Any borrowings on the credit
facility are collateralized by accounts receivable and inventory. However, the
Company has yet to make any borrowings under the credit facility due to the high
liquidity provided by its operating cash flows.
Results of Operations
- ---------------------
Revenues for the first quarter ended March 31, 2001 were $1,753,974 or
a decrease of 31% from revenues of $2,543,826 for the first quarter of 2000.
Sales of ECG sensors represented a majority of the decrease as two of Micron's
major customers went through management and ownership changes that led to a
balancing of inventory levels. Sales of metal snaps distributed by Micron also
represented a significant portion of the decrease due to a large customer who
has initiated direct purchases from the manufacturer. ART exhibited its Windows
version Predictor(R) 7 software at the recent American Cardiologist College
convention and received a number of inquires about the purchase or license of
the Predictor(R) 7 products.
Domestic and foreign sales for the first quarter are as follows:
FIRST QUARTER
-------------
2001 % 2000 %
---------- --- ---------- ---
Domestic................. $ 340,859 19 $ 791,588 31
Foreign.................. 1,413,115 81 1,752,238 69
---------- --- ---------- ---
Total.................... $1,753,974 100 $2,543,826 100
========== === ========== ===
The lower percentage of U.S. sales in 2001 reflects the transfer of a
major Micron customer who closed a plant in the U.S. and moved substantially all
its volume to Canada.
7
Cost of sales was 71% for the quarter ended March 31, 2001 compared to
68% for the same period in 2000. Actual overhead spending for the quarter
decreased by approximately $40,000, however, the decrease in sales of Micron's
manufactured sensors resulted in higher unit costs due to fixed overhead
expenses such as depreciation, salaried payroll and group insurance benefits.
Selling and marketing expenses were $23,738 in the first quarter of
2001, which is $81,842 lower than the same period for 2000. ART's direct sales
staff and related customer support costs were reduced significantly in 2000
while more modern software applications for ART's ECG signal-averaged products
were being completed.
General and administrative expenses decreased $65,096 in the first
quarter ended March 31, 2001 as compared to the same period in 2000. The key
factors in this decrease of general and administrative expenses are the absence
of legal and consulting expenses of $44,540 in 2000 incurred in connection with
an environmental investigation by the Attorney General's office of Massachusetts
which was closed out in 2000, and savings of $15,238 from the contraction of the
operations in the Texas facility.
Research and development expense decreased $8,798 for the first
quarter ended March 31, 2001 as compared to the same period in 2000.
Other income (expenses) were $33,270 more favorable in the three
months ended March 31, 2001 compared to the three months ended March 31, 2000.
This is principally due to $25,644 of greater interest income in 2001 earned on
approximately $1,700,000 of cash invested in highly liquid investments. The
large cash balance was a result of a one-time payment of $1,000,000 related to
the termination of a commission agreement and operating funds generated in the
second half of 2000.
Safe Harbor Under the Private Securities Litigation Reform Act of 1995.
- ----------------------------------------------------------------------
Any forward looking statements made herein are based on current expectations
of the Company that involves a number of risks and uncertainties and should not
be considered as guarantees of future performance. These statements are made
under the Safe Harbor Provisions of the Private Securities Litigation Reform Act
of 1995. The factors that could cause actual results to differ materially
include: interruptions or cancellation of existing contracts, impact of
competitive products and pricing, product demand and market acceptance risks,
the presence of competitors with greater financial resources than the Company,
product development and commercialization risks and an inability to arrange
additional debt or equity financing.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - In 1997, ART acquired assets from Astro-Med Inc.
relating to a hemodynamics system for cardiac catherization monitoring (Cath
Lab Systems). Included as part of the purchase price of $350,000 was a
Promissory Note for $300,000. In 1999, ART discontinued the sales of the Cath
Lab Systems due to major deficiencies in the Astro-Med products and
subsequently stopped payments under the Note. In 2000, Astro-Med filed a
complaint in the Rhode Island Superior Court, which was removed by ART to the
United States District Court in Rhode Island to have the Note enforced. ART
contested the complaint claiming breach of obligations under the Asset Purchase
Agreement and ART filed a Counterclaim against Astro-Med. In May, 2001, the
matter was satisfactorily settled with both parties agreeing to voluntarily
dismiss all litigation and the Company making a settlement payment on its
obligations to Astro-Med.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - The Company filed a Form 8-K dated
March 2, 2001 related to the
adoption of the Company's Stock
Buy-Back Program.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Arrhythmia Research Technology, Inc.
------------------------------------
/s/ E. P. Marinos
------------------
Chairman of the Board of Arrhythmia
Research Technology, Inc.
and Acting Chief Executive Officer
May 15, 2001
9