Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
1. De
scription of Business
Arrhythmia Research Technology
®
, Inc., (“ART”), through its wholly-owned subsidiary, Micron Products
®
, Inc. ("Micron", and collectively with ART, the "Company") is a diversified contract manufacturing organization (“CMO”) that produces highly-engineered, innovative components requiring precision machining and
thermoplastic
injection molding. The Company also manufactures components, devices and equipment for military, law enforcement, automotive and consumer products applications.
The Company's capabilities include
the
production and sale of silver/silver chloride coated and conductive resin sensors used as consumable component parts in the manufacture of integrated disposable electrophysiological sensors
. T
he Company’s machining operations produce
quick-turn
, high volume and patient-specific
orthopedic implant component
s and instruments. The Company also
has
custom thermoplastic injection molding capabilities as well as a full array of design, engineering, production services and management
.
The Company competes globally, with nearly
forty
percent of its revenue derived from exports.
The Company
’s
shares have traded on the NYSE MKT
since 1992 under t
he symbol HRT.
The Company has grown organically and through acquisitions. Today, the Company has diversified manufacturing capabilities with the capacity to participate in full product life-cycle activities from early stage development and engineering and prototyping to full scale manufacturing as well as packaging and product fulfillment services.
The Company's subsidiary, RMDDxUSA Corp. and its Prince Edward Island subsidiary RMDDx Corporation (collectively "WirelessDx"), discontinued operations in 2012, filed for relief under Chapter 7 (Liquidation) of the United States Bankruptcy Code in May 2014 and in March 2015, the Chapter 7 Order was formally discharged and the case was closed (see Note 12).
Operating matters and liquidity
The revolver under the Company's credit facility has a maturity date of June 2017 (see Note 5). At December 31,
2016
, the outstanding balance on the revolver was
$1,785,795
. The Company believes that cash flows from its operations, together with its existing working capital
, increased booked orders
, the
renewal of the
revolver and other resources, will be sufficient to fund operations at current levels and repay debt obligations over the next twelve months and beyond; however, there can be no assurance that the Company will be able to do so.
Assessment
of going concern
In 2016, the Company adopted new accounting standard ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The n
ew accounting
standard
requires management to evaluate
whether there are conditions that give rise to substantial doubt as to the Company
’
s ability to continue as a going concern within one year from the date of issuance of these financial statements. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date.
Management evaluations include
identifying
relevant conditions and events that were known and reasonably knowable as of the date these financial statements have been issued
.
The Company identified certain
conditions and events
which in the aggregate required management to perform a
n
assessment of the Company’s ability to continue as a going concern. These conditions in
clud
e
the Company
’
s
ability to
renew
the revolver which matures in June 2017,
negative financial
history
and
the Company’s
limited liquidity to meet the working capital needs to support the Company
’
s
operations
.
Management’s assessment included an analysis of the Company’s
financial
forecasts.
Management’s assessment
also considered
the Company’s history of meeting financial covenants and being able to renew and refinance its debt obligations.
Based on t
he anticipated renewal of the Company’s revolver,
cash forecast
s,
expected
fulfillment of booked orders from existing customers, new customer prospects,
and
the
closing on the
sale
of certain real estate held for sale, the Company expects to continue to meet its financial covenants and its obligations
for
the next year.
2.
Accounting Policies
Principles of consolidation
The consolidated financial statements (the "financial statements") include the accounts of ART, Micron and WirelessDx. WirelessDx is presented herein as discontinued operations. All intercompany balances and transactions have been eliminated in consolidation.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Revenue
r
ecognition
Revenue
is recorded when all criteria for revenue recognition have been
satisfied
. R
evenue is recognized
in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred
or when exclusive control has been transferred to the customer
,
the price is fixed or determinable
and collection is probable.
The Company has entered into supply agreements with certain foreign customers where revenue is not recognized when the product is shipped but instead is recognized when the customer consumes the product.
The Company enters into arrangements containing multiple elements which may include a combination of the sale of molds,
tooling, engineering and validation services ("tooling") and production
units. The Company has determined that certain
engineering and
tooling arrangements, and the related production units, represent one unit of accounting
, based on an assessment of the respective standalone value. When the Company determines that an arrangement represents one unit of accounting, the revenue is deferred over the estimated product life-cycle, based upon historical knowledge of the customer, which is generally
one to
three
years. The Company carries the sales and tooling costs, associated with the related arrangement, as deferred revenue and other current and non-current assets, respectively, on the Company's balance sheet. As the deferred revenue is amortized to sales
over the product lifecycle
, the associated prepaid tooling costs are amortized to cost of sales.
The
Company cannot effectively predict short-term or long-term production volume in a consistent and meaningful manner
,
due to the nature of these molds and associated products. Therefore, the Company is unable to account for the transactions under the Units of Production method and management has determined the most appropriate amortization method
to be the Straight-Line method.
The Company may from time to time, at the customer's request, enter into a bill and hold arrangement. The Company evaluates the nature of the arrangement including, but not limited to (i) the customer's business purpose, (ii) the transfer of risk of ownership to the customer and (iii) the segregation of inventory, along with other elements in accordance with relevant accounting guidance to determine the appropriate method of revenue recognition for each arrangement.
Revenue for software license sales is recognized when licenses are sold as the revenue cycle is completed with no warranty, returns or technical support to customers. Total revenue from software sales was immaterial in relation to consolidated revenues.
Fair value of financial instruments
The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the immediate or short-term nature of such instruments. The carrying value of debt approximates fair value since it provides for market terms and interest rates.
Concentration of credit risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable and cash and cash equivalents. It is the Company’s policy to place its cash in high quality financial institutions. The Company does not believe significant credit risk exists above federally insured limits with respect to these institutions.
Accounts receivable are customer obligations due under normal trade terms. A large portion of the Company's products are sold to large diversified medical, military and law enforcement 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 credit risk.
While the Company has a strong record of collecting on its receivables, the Company maintains Accounts Receivables insurance in order to mitigate concentration of credit risk where our top
five
customers in revenue constituted
46%
of the Accounts Receivables at December 31, 2016 as compared to
51%
at December 31, 2015.
During the year ended
December 31, 2016
, the Company had net sales to
two
customers constituting
19%
and
12%
of total
2016
net sales. Accounts
receivable from these
two
customers at
December 31, 2016
was
26%
and
7%
, respectively
,
of the total accounts receivable balance at year end. During the year ended
December 31, 2015
, the Company had net sales to
two
customers
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
constituting
16%
and
13%
, respectively, of total
2015
net sales. Accounts receivable from the
two
customers at
December 31, 2015
was
9%
for
each
of the total accounts receivable balance at year end.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and on deposit in high quality financial institutions with maturities of three months or less at the time of purchase.
Accounts
r
eceivable and
a
llowance for
d
oubtful
a
ccounts
Accounts receivable represent amounts invoiced by the Company. Management maintains an allowance for doubtful accounts based on information obtained regarding individual accounts and historical experience. Amounts deemed uncollectible are written off against the allowance for doubtful accounts. Bad debts have not had a significant impact on the Company’s financial position, results of operations and cash flows.
The Company insures receivables for certain customers based upon several factors. Such factors include the customer’s payment term
s, ordering patterns and volume requirements, the customer’s payment history, or general economic conditions of the region in which a customer is located.
Inventories
The Company values its inventory at the lower of average cost, first-in-first-out (FIFO) or net realizable value. The Company reviews its inventory for quantities in excess of production requirements, obsolescence and for compliance with internal quality specifications. A review of inventory on hand is made at least annually and obsolete inventory may be disposed of and/or recycled. Any adjustments to inventory would be equal to the difference between the cost of inventory and the estimated net market value based upon assumptions about future demand, market conditions and expected cost to distribute those products to market.
The Company
also has supply agreements with
certain foreign customers
to hold inventory at the customer’s warehouses.
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 r
epairs are charged to earnings as incurred. When equipment is retired or sold, the resulting gain or loss is reflected in earnings.
Assets held for sale
Property classified as held for sale is measured at the lower of its carrying value or fair value less cost to sell. Gains or losses are recognized for any subsequent changes to fair value less cost to sell; however, gains that may be recognized are limited by cumulative losses previously recognized. Property held for sale is not depreciated.
Property is classified as held for sale in the period in which management with the appropriate authority commits to a plan to sell the asset; the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; an active program to locate a buyer and other actions required to complete the plan of sale have been initiated; the sale of the property or asset within one year is probable and will qualify for accounting purposes as a sale; the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Long-lived assets classified as held for sale are presented separately in the statement of financial position of the current period
(see Note 4)
.
Fair value hierarchy
The Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. The Company recognizes transfers between levels at the end of the reporting period. There were no changes in levels in 2016.
At December 31, 2016 and 2015, assets held for sale is the only item in the financial statements reflected at fair value. Assets held for sale are considered level 3.
The fair value of assets held for sale was determined using the sales price per the amended purchase and sale agreement, less the estimated cost to sell
(see Note 4)
.
Long-lived and intangible assets
The Company assesses the impairment of long-lived and intangible assets with finite lives annually or whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Based upon the annual review, the Company recorded
no
impairment charges in 2016 and recorded
$118,318
in
impairment charges in
201
5
.
In 2015, the Company reviewed unamortized costs for patents pending. As a result of this review, the Company determined that the patents pending related to the Triggering Recharging and Wireless Transmission of Remote Patient Monitoring Device, as well as the Seed-Beat Selection Method for Signal-Averaged Electrocardiography were no longer patentable and recorded an impairment charge of
$103,287
for the full costs of these patents pending. Additionally, after a review of trade names, the Company determined that the Leominster Tool & Die
name
no longer provided any future economic benefit and recorded an impairment charge of
$15,031
for the remaining unamortized balance of the trade names.
Intangible assets consist of the following:
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|
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|
|
|
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|
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|
|
|
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|
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Estimated
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Useful Life
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
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|
(in years)
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Gross
|
|
Amortization
|
|
Net
|
Patents and trademarks
|
|
10
|
|
$
|
26,290
|
|
$
|
9,738
|
|
$
|
16,552
|
|
$
|
26,290
|
|
$
|
7,981
|
|
$
|
18,309
|
Patents and trademarks pending
|
|
—
|
|
|
13,541
|
|
|
—
|
|
|
13,541
|
|
|
336
|
|
|
—
|
|
|
336
|
Total intangible assets
|
|
|
|
$
|
39,831
|
|
$
|
9,738
|
|
$
|
30,093
|
|
$
|
26,626
|
|
$
|
7,981
|
|
$
|
18,645
|
Amortization expense related to intangible assets, excluding the above noted
2015
impairment charge
s
, was
$1,757
and
$3,235
in
2016
and
2015
, respectively. Estimated future annual amortization expense for currently amortizing intangible assets is expected to approximate
$1,757
.
Income taxes
The Company recognizes 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 bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse.
The Company follows the provisions of FASB ASC 740, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB No. 109.” FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods.
No
interest and penalties related to uncertain tax positions were accrued at December 31, 201
6
.
The Company
’s
primary
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
operations are located in the US. Tax years ended December 31, 201
3
or later remain subject to examination by the IRS and state
taxing authori
ties.
Share-based compensation
Share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the share-based grant).
Comprehensive
loss
In 201
6
and 201
5
, the Company has other comprehensive
loss
of
$0
and
$42,502
, respectively. In 2016
, the change in comprehensive
loss
was a result of the bankruptcy
of
RMDDx
USA Corp
.
(see Note 12).
Earnings per share data
Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding. The computation of diluted earnings (loss) per share is similar to the computation of basic earnings (loss) per share except that the denominator is increased to include the average number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, the numerator is adjusted for any changes in net income (loss) that would result from the assumed conversions of those potential shares.
Research and development
Research and development expenses include costs directly attributable to conducting research and development programs primarily related to the development of a unique process to improve silver coating during the manufacturing processes, including the design and testing of specific process improvements for certain medical device components. Such costs include salaries, payroll taxes, employee benefit c
osts, materials, supplies, depreciation on research equipment, and services provided by outside contractors. All costs associated with research and development programs are expensed as incurred.
Recently Issued Accounting Pronouncements
In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”), or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Consolidated Financial Statements. Based upon this review, except as noted below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-15, “
Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”
. This standard provides guidance for eight cash flow classification issues in current GAAP. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
“Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The standard is intended to reduce the cost and complexity with maintaining or improving the usefulness of information provided to users of financial statements. The standard is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. The standard retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
In November 2015, the
FASB issued
ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes" which requires the presentation of deferred tax assets and deferred tax liabilities, and any related valuation allowances, as noncurrent on the consolidated balance sheets. The standard
is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” which simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This standard is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs". ASU 2015-03 requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as deferred charge assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs. The Company adopted ASU 2015-03 as of December 31, 2016, and applied its provisions retrospectively. The adoption of ASU 2015-03 did not have an impact on the Company’s financial results nor did it represent a material change to the consolidated balances sheets.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The standard provides guidance on evaluating whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern. Substantial doubt exists when conditions or events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The new standard is effective for the annual and interim periods ending after December 15, 2016. The Company adopted the standard in 2016 and management’s assessment has determined that certain disclosures required are included in these statements (see Note 1).
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The core principle behind ASU No. 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU allows two methods of adoption; a full retrospective approach where historical financial information is presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements. In August 2015, the FASB issued ASU No 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016. The Company is currently assessing the financial impact of adopting ASU 2014-09 and the methods of adoption; however, given the scope of the new standard, the Company is currently unable to provide a reasonable estimate regarding the financial impact or which method of adoption will be elected.
Reclassification of prior period balances
Amounts in prior year financial statements are reclassified when necessary to conform to the current year presentation
, most notably debt issuance costs in according with ASU 2015-03 as described more fully above
.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
3.
Inventories
Inventories consist of the following:
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December 31,
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December 31,
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2016
|
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2015
|
Raw materials
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$
|
1,027,474
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$
|
775,427
|
Work-in-process
|
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|
537,858
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265,113
|
Finished goods
|
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|
1,494,753
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1,078,172
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Total
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$
|
3,060,085
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$
|
2,118,712
|
The
total
cost of silver in our inventory as raw materials,
as
work-in-process or as a plated surface on finished goods had an estimated cost of
$521,746
and
$313,738
at December 31,
2016
and
2015
, respectively.
The increase in inventory was due i
n part to increased finished goods inventory for sensors as a result of c
ertain
supply agreements
with foreign
customers.
4.
Property, Plant and Equipment, Net
Property, plant and equipment
, net
consist of the following:
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Asset Lives
|
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December 31,
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December 31,
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(in years)
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2016
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2015
|
Machinery and equipment
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3
|
to
|
15
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$
|
16,647,302
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$
|
15,168,377
|
Building and improvements
|
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5
|
to
|
25
|
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|
3,986,715
|
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|
3,978,387
|
Vehicles
|
|
3
|
to
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5
|
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|
90,713
|
|
|
90,713
|
Furniture, fixtures, computers and software
|
|
3
|
to
|
5
|
|
|
1,504,776
|
|
|
1,437,692
|
Construction in progress
|
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|
|
|
|
|
402,099
|
|
|
682,069
|
Total property, plant and equipment
|
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|
|
|
|
|
22,631,605
|
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|
21,357,238
|
Less: accumulated depreciation
|
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|
(16,190,694)
|
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|
(14,731,169)
|
Property, plant and equipment, net
|
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|
$
|
6,440,911
|
|
$
|
6,626,069
|
For the year ended
December 31,
2016
, the Company recorded
$1,539,249
of depreciation expense compared to
$1,461,353
for the year ended
December 31,
2015
. There are no commitments related to the completion of construction in process as of
December 31,
2016
.
In
December 2015, the Company entered into a Letter of Intent
with a Buyer (collectively the “Parties”)
to sell
two
unoccupied buildings, with a total of approximately
52,000
square feet, and land, at its Fitchburg, Massachusetts
campus. Subsequently, i
n January 2016, the
Parties
entered into a Purchase and Sale Agreement
(“Agreement”)
for th
is real estate
to close within twelve months from the date of the Agreement
.
As these buildings were under agreement to be sold
at December 31, 2015
they were classified as Assets Held for Sale
valued at
$665,000
as of
December 31, 2015. The carrying value approximated the fa
ir value less the cost to sell.
I
n December 2016
,
the
Parties entered into a
First Amendment to the Purchase and Sale Agreement
(
the “
First Amendment”). The First Amendment extended the time to close to January 1
3
, 2018. As consideration for extending the Agreement
,
the
B
uyer
agreed to (i) release the
$25,000
being held as a deposit to the Company; (ii) increase the purchase price by
$25,000
; (iii) pay the Company
$4,000
per month as an extension fee
beginning
in
January 2017
through
January 2018
,
or
the
culmination of the Agreement, and (iv) pay the Company
$7,500
per month for a
150
day additional extension, to June 2018, only for the purpose of the
B
uyer securing historical tax credits until the termination or culmination of the Agreement
.
The
$25,000
deposit released to the Company is recorded as Other Income for the
year
ended December 31, 2016.
In
January 2017
,
the Parties entered into a Second Amendment to the Purchase and Sale Agreement (the “Second Amendment”).
The
Second Amendment
(i) permit
s
the Buyer
to assign the Agreement to a third party
; (ii) extend
s
the term of the
$4,000
per month
extension fee from January 2018 to March 2018 and (iii) and amend
s
the term of the additional extension fee of
$7,500
per month
to
April 2018 through
Ju
ly 2018.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
As a result of the increase in sale price and other considerations, the Company determined
t
he
carrying value at December 31, 2016
to be
$688,750
. The increase in the carrying value is recorded as Other Income for the
year
ended December 31, 2016
and did not exceed the amount of previously recorded losses in accordance with appropriate accounting guidance
.
5.
Debt
The following tables set forth the items which comprise debt for the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Revolving line of credit
|
|
$
|
1,785,795
|
|
$
|
1,511,495
|
Equipment line of credit
|
|
$
|
102,500
|
|
$
|
336,850
|
Subordinated promissory notes, net of discount
|
|
$
|
432,011
|
|
$
|
473,135
|
|
|
|
|
|
|
|
Term notes payable:
|
|
|
|
|
|
|
Commercial term loan, net of debt issuance costs
|
|
$
|
2,398,870
|
|
$
|
668,246
|
Equipment term loans
|
|
|
—
|
|
|
879,898
|
Equipment notes
|
|
|
59,461
|
|
|
116,214
|
Total term notes payable
|
|
$
|
2,458,331
|
|
$
|
1,664,358
|
|
|
|
|
|
|
|
Total Debt
|
|
$
|
4,778,637
|
|
$
|
3,985,838
|
Bank Debt
The Company has a multi-year credit facility with a Massachusetts based bank
. At December 31, 2016 this credit facility consisted of
a revolving line of credit (the "revolver"), a
commercial
term loan and an equipment line of
credit
. The debt is secured by substantially all assets of the Company with the exception of real property.
At December 31, 2015 the credit facility included a revolver, a commercial term loan,
two
equipment term loans and an equipment line of credit. In June of 2016 the equipment line of credit converted to a term loan
. In
November
2016 these
four
borrowings
, along with
$500,000
from the revolver, were consolidated into a single
commercial
term loan as
further
described below.
Revolver
The revolver provides for borrowings up to
80%
of eligible accounts receivable and
50%
of eligible raw materials inventory. The interest rate on the revolver is calculated at the bank's prime rate plus
0.25%
(
4.0
%
at December 31,
2016
). The revolver has a maturity date of June 201
7
. Amounts available to borrow under the revolver are
$727,156
at December 31,
2016
.
In November 2016 the Company refinanced and consolidated $500,000 from the revolver into a new term loan as further described below.
Commercial term loan
In
November 2016
,
th
e Company refinanced its bank term debt,
including
the
commercial term loan and
three
equipment term loans,
along with $500,000 from the revolver, into a new
$2,481,943
consolidated
five
yea
r commercial
term loan with a maturity date
in
November 2021. The interest rate on the loan is a fixed
4.65%
per annum and the loan requires monthly payments of principal and interest of approximately
$46,500
.
Equipment line of credit and equipment term loan
s
In
March 2013, the Company entered into an equipment line of credit that allowed for advances of up to
$1.0
million and included a
one
-year draw period during which payments were interest only. The draw period ended
in
March
2
014 and the then outstanding balance on the equipment line of credit of
$740,999
was converted to an equipment term loan with a
five
-year term, maturing
in
March 2019
.
In November 2016,
the outstanding principal and accrued interest of
$380,791
on
the equipment term loan was refinanced and consolidated into a ne
w term loan as described above.
In
June 2014, the Company entered into an equipment line of credit that allowed for advances of up to
$1.0
million and included a
one
-year draw period during which payments were interest only. The draw period ended
in
June 2015 and the then
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
outstanding balance on the equipment line of credit of
$415,785
was converted to an equipment term loan with a
five
-year term, maturing
in
June 2020
.
In November 2016, the outstanding principal and accrued interest of
$315,272
on the equipment term loan was refinanced and consolidated into a new term loan as described above.
In
June 2015, the Company entered into a
n
equipment line of credit
that allowed for advances of up to
$1.0
million
and included a
one
-year draw period during which payments were interest only.
At December 31, 2015, the Company ha
d
drawn
$336,850
on the equipment line of credit.
The draw period ended
in
June 2016 and the then outstanding balance on the equipment line of credit of
$881,701
was converted to an equipment term loan with a five-year term, maturing
in
June 2021. In November 2016, the outstanding principal and accrued interest of
$832,420
on the equipment term loan was refinanced and consolidated into a new term loan as described above.
In
November
2016, the Company entered into a new equipment line of credit
that allows for advances of up to
$1.0
million under the Company's multi-year credit facility. At December 31, 201
6
,
$102,500
has been drawn on the new equipment line of credit. The term of this equipment line of credit is
six
years, maturing
in
November 2022, inclusive of a maximum
one
-year draw period. Repayment shall consist of monthly interest only payments, equal to the bank's prime rate plus
0.25%
as to each advance commencing on the date of the loan through the earlier of: (i)
one
year from the date of the loan or (ii) the date upon which the equipment line of credit is fully advanced (the “Conversion Date”). On the Conversion Date, principal and interest payments will be due and payable monthly in an amount sufficient to pay the loan in full based upon an amortization schedule commensurate with the remaining term of the loan.
Debt issuance costs
The amount of the commercial term loan presented in the table above
is
net of debt issuance costs of
$45,858
and
$45,929
at December 31, 2016 and 2015 respectively
.
Bank covenants
The bank facility contains both financial and non-financial covenants. The financial covenants include maintaining certain debt coverage and leverage ratios. The non-financial covenants relate to various matters including notice prior to executing further borrowings and security interests, mergers or consolidations, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing, changes in ownership and payment of dividends. The Company was in compliance with all bank covenants as of December 31, 2016
.
Other debt
Equipment notes
In January 2013, the Company entered into
two
equipment notes totaling
$272,500
with a financing company to acquire production equipment. The notes bear interest at
4.66%
and require monthly payments of principal and interest
totaling
approximately
$
5
,
0
00
over the term of
five
years.
Subordinated promissory notes
In December 2013, the Company completed a private offering in which the Company sold an aggregate of
$500,000
in subordinated promissory notes. The
unsecured
notes require
d
quarterly interest-only payments at a rate of
10%
per annum
for the first two years
. I
n
December 2015,
the interest rate increased to
12%
per annum
.
The Company’s
two
largest beneficial owners
of stock
and a director participated in the private offering
as follows:
REF Securities, LLP, beneficial owner of approximately
13%
of the Company’s common stock, invested
$100,000
in the offering
; t
he Chambers Medical Foundation (the “Foundation”), beneficial owner of approximately
10%
of the Company’s common stock, invested
$100,000
in the offering
; and
Mr. E.P. Marinos, a director, invested
$50,000
in the offering. The Company’s Chairman of the Board is a co-trustee o
f the Foundation but has held no
dispositive powers since his appointment as such.
In October 2016
,
the Company and
six
of the
seven
investors in the private offering, aggregating
$450,000
of the notes,
including
the three related parties
holding
$250,000
of the notes
,
agreed to extend the maturity dates of the notes to
December 31, 2018
at a rate of
10%
per annum.
One
investor did not extend the maturity date and that
$50,000
note was paid at maturity in December 2016.
The notes are subordinated to all indebtedness of the Company pursuant to its multi-year bank credit facility.
In connection with the subordinated promissory notes, the Company issued
100,000
warrants to purchase the Company's common stock
, including
20,000
warrants to R
EF Securities, LLP
,
20,000
warrants to
the Foundation
and
10,000
warrants to
Mr. Marin
os
.
The warrants were exercisable through December 2016 at an exercise price of
$3.51
per share. In 2014,
30,000
warrants were exercised
, including 20,000
by the Foundation
.
No
warrants were exercised in 2015 or 2016. In October 2016, in connection
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
with the extension of the maturity dates of the subordinated promissory notes, the expiration date of the remaining
70,000
warrants
was extended to December
31, 2018. The exercise price remained unchanged at $3.51 per share. The 70,000 warrants remain unexercised at December 31, 2016.
The Company calculated the incremental fair value of extending the expiration date of the Notes and Warrants and determined that the amendment represented a debt modification in accordance with the guidance outlined in ASC
-470, “Debt”. Using the Black-Scholes model, and the 10% test, the Company determined that the incremental fair value of the warrants to be
$18,3
10
which was recorded as a reduction against the Notes and an increase in Additional Paid-in Capital.
Future maturities of debt for the years ending December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
Thereafter
|
|
Total
|
Revolver
|
$
|
1,785,795
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
—
|
|
$
|
1,785,795
|
Subordinated promissory notes
|
|
—
|
|
|
450,000
|
|
|
—
|
|
|
—
|
|
|
—
|
—
|
|
|
450,000
|
Term debt and equipment notes
|
|
513,602
|
|
|
493,337
|
|
|
516,975
|
|
|
541,616
|
|
|
520,782
|
20,376
|
|
|
2,606,688
|
Total
|
$
|
2,299,397
|
|
$
|
943,337
|
|
$
|
516,975
|
|
$
|
541,616
|
|
$
|
520,782
|
20,376
|
|
$
|
4,842,483
|
6.
Income Taxes
The income tax provision consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
—
|
State
|
|
|
—
|
|
|
932
|
Total current income taxes
|
|
|
—
|
|
|
932
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
—
|
State
|
|
|
—
|
|
|
—
|
Total deferred income taxes
|
|
|
—
|
|
|
—
|
Total income tax provision
|
|
$
|
—
|
|
$
|
932
|
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
The components of deferred income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
3,671,600
|
|
$
|
3,221,000
|
Federal and state tax credit carryforwards
|
|
|
493,800
|
|
|
608,000
|
Accruals and reserves
|
|
|
104,600
|
|
|
117,300
|
Stock based compensation
|
|
|
96,000
|
|
|
89,800
|
Patents and intangibles
|
|
|
51,100
|
|
|
68,100
|
Other long-term
|
|
|
500
|
|
|
45,500
|
Total long-term deferred tax assets
|
|
|
4,417,600
|
|
|
4,149,700
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
|
(3,812,900)
|
|
|
(3,472,300)
|
Deferred tax assets, net of allowance
|
|
|
604,700
|
|
|
677,400
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(544,000)
|
|
|
(612,800)
|
Prepaid expenses
|
|
|
(60,700)
|
|
|
(64,600)
|
Total deferred tax liabilities
|
|
|
(604,700)
|
|
|
(677,400)
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
—
|
|
$
|
—
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this asse
ssment. As of December 31, 2016
,
the
C
ompany continues to maintain a valuation allowance against all of its deferred tax assets.
In 2016, the Company adopted
ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes"
. Under this new guidance the Company is required to present
deferred tax assets and deferred tax liabilities, and any related valuation allowances, as noncurrent on
the
consolidated balance sheet
s
.
There was no cumulative effect of the change and no impact to shareholders’ equity, results of operations or cash flows.
For the year ended
December 31,
2016
, the Compan
y has federal and state
net operating loss carryforwards totaling
$9,124,000
and
$10,780,000
respecti
vely, which begin to expire in 203
1
. The Company also had federal and state tax credit carryovers of
$305,800
and
$188,000
, respectively. The federal and state credits begin to expire in 202
7
and 201
6
, respectively.
The Company files a consolidated federal income tax return. The actual income tax provision differs from applying the Federal statutory income tax rate (
34%
) to the pre-income tax loss from continuing operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Tax benefit computed at statutory rate
|
|
$
|
(250,071)
|
|
$
|
(145,442)
|
Increases (reductions) due to:
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
340,600
|
|
|
230,300
|
State income taxes, net of federal benefit
|
|
|
(27,646)
|
|
|
615
|
Permanent differences
|
|
|
15,124
|
|
|
479
|
Tax credits (federal and state)
|
|
|
(32,577)
|
|
|
(108,194)
|
Differences on prior returns (federal and state)
|
|
|
(45,430)
|
|
|
23,174
|
Income tax (benefit) provision
|
|
$
|
—
|
|
$
|
932
|
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
7.
Employee Benefit Plans
The Company sponsors an Employee Savings and Investment Plan under Section 401(k) of the Internal Revenue Code covering all eligible employees of the Company. Employees can contribute up to
90%
of their eligible compensation to the maximum allowable by the IRS. The Company’s matching contributions are at the discretion of the Company. The Company’s matching contributions in
2016
and
2015
we
re
$41,072
and
$47,858
, respectiv
ely.
8.
Commitments and Contingencies
Legal matters
In the ordinary course of its business, the Company is involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.
Operating lease agreements
In
2016
, the Company entered into
two
operating leases for office equipment. The
Company’s
leases require future minimum annual lease payments o
f
$24,036
for fiscal years
2017
and
2018
, respec
tively.
9.
Shareholders’ equity
Common stock
In 201
6
,
15,000
shares were issued out of treasury as a result of the exercise of stock options and
no
warrants were exercised. In 201
5
,
23,300
shares were issued out of treasury as a result of the exercise of stock options and
no
warrants were exercised
.
No
dividends were declared or paid in 201
6
or 201
5
.
Warrants
In connection with the subordinated promissory notes
issued in December 2013 (see Note 5)
, the Company issued warrants to purchase 100,000
shares of
the Company's common stock. The warrants were exercisable through December 2016 at an exercise price of $3.51 per share. In 2014,
30,000
warrants were exercised. No warrants were exercised in 2015 or 2016. In October 2016, in connection with the extension of the maturity dates of the subordinated promissory notes, the expiration date of the remaining 70,000 warrants
was extended to December
31, 2018.
The Company determined that the amendment represented a debt modif
ication
and did not constitute an extinguishment for accounting purposes
(see
Note 5
)
.
The exercise price remained unchanged at $3.51 per share. The 70,000 warrants remain unexercised at December 31, 2016.
Stock options and Share-Based Incentive Plan
In March 2010, the Company's Board of Directors adopted the Arrhythmia Research Technology, Inc. 2010
Equity Incentive Plan (the “
Plan”)
. The
Plan authorizes the issuance of an aggregate of
500,000
shares.
The Plan provides
the Company flexibility to award a mix of stock options, equity incentive grants, performance awards and other types of stock-based compensation to certain eligible employees, non-employee directors, or consultants and under which an aggregate of 500,000 shares have been reserved for such grants
.
The options granted have
ten
year contractual terms that vest annually
between
three
to
five-year
term
s
.
At December 31, 2016, there were options to acquire an aggregate
of 214,500 shares outstanding.
At December 31, 2016, there
were
273,000
shares available for future grants u
nder the
Plan
, after giving effect to shares which became available for reissuance due to expired or forfeited options
.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The expected term of options granted under the Company’s equity incentive plan, all of which qualify as “plain vanilla,” is based on the average of the contractual term and the vesting period as permitted under SEC Staff Accounting Bulletin Nos. 107 and 110. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
During
2016
and
2015
there were
45,000
and
62,500
new option grants, respectively. The assumptions used to measure the fair value of option grants in
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Expected option term
|
|
|
6.0 to 6.5
|
|
|
|
4.0 to 6.5
|
|
Expected volatility factor
|
|
|
23.7% to 24.4%
|
|
|
|
23.8% to 26.7%
|
|
Risk-free rate
|
|
|
.90% to .99%
|
|
|
|
.90% to 1.28%
|
|
Expected annual dividend yield
|
|
|
—%
|
|
|
|
—%
|
|
The following table sets forth the stock option transactions for the year ended December 31, 201
6
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
average
|
|
|
|
|
|
|
|
Average
|
|
remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
contractual
|
|
Intrinsic
|
|
|
options
|
|
Price
|
|
term (in years)
|
|
Value
|
Outstanding at December 31, 2015
|
|
184,500
|
|
$
|
6.21
|
|
6.80
|
|
$
|
235,293
|
Granted
|
|
45,000
|
|
|
4.07
|
|
|
|
|
|
Exercised
|
|
(15,000)
|
|
|
3.41
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
214,500
|
|
$
|
5.96
|
|
7.12
|
|
$
|
17,340
|
Exercisable at December 31, 2016
|
|
109,495
|
|
$
|
6.90
|
|
5.47
|
|
$
|
8,880
|
Exercisable at December 31, 2015
|
|
83,500
|
|
$
|
6.60
|
|
4.73
|
|
$
|
106,565
|
The total intrinsic value of options exercised during
2016
and 2015 were
$30,600
and
$
60,197
, respectively.
For the years ended December 31,
2016
and
2015
, share-based compensation expense related to stock options and the non-cash issuance of common stock amounted to
$47,256
and
$29,178
, respectively, and is included in general and administrative expenses. As of December 31,
2016
and
2015
, there was
$134,354
and
$134,160
of unrecognized compensation costs, respectively, related to non-vested share-based compensation arrangements granted under the stock option plan. This cost is expected to be recognized over a weighted average period of
2.7
years. The weighted average grant date fair value of options issued in
2016
was
$1.05
.
10.
Earnings per share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding. The computation of diluted earnings (loss) per share is similar to the computation of basic earnings (loss) per share except that the denominator is increased to include the average number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, the numerator is adjusted for any changes in net income (loss) that would result from the assumed conversions of those potential shares.
As of
December 31, 2016
,
there were options to purchase
214,500
shares and warrants to purchase
70,000
shares of the Company's common stock
outstanding, all of which were anti-dilutive. Therefore,
none
of these options or warrants were included in the calculation of loss per share in
2016
.
As of
December 31, 2015
,
there were options to purchase
184,500
shares and warrants to purchase
70,000
shares of the Company's common stock outstanding
, all of which were anti-dilutive
.
Therefore,
none
of these options or warrants were included in the calculation of loss
per share in
2015
.
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
The following table shows the calculation of earnings (loss) per share for the years ended
December 31,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 31,
|
|
2016
|
|
2015
|
Loss from continuing operations
|
$
|
(712,462)
|
|
$
|
(791,776)
|
Income from discontinued operations, net of tax
|
|
—
|
|
|
362,610
|
Net loss available to common shareholders
|
$
|
(712,462)
|
|
$
|
(429,166)
|
Basic EPS:
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
2,816,516
|
|
|
2,784,757
|
Earnings (loss) per share - basic
|
|
|
|
|
|
Continuing operations
|
$
|
(0.25)
|
|
$
|
(0.28)
|
Discontinued operations
|
|
—
|
|
|
0.13
|
Consolidated basic EPS
|
$
|
(0.25)
|
|
$
|
(0.15)
|
Diluted EPS:
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
2,816,516
|
|
|
2,784,757
|
Assumed conversion of net common shares issuable
under stock option plans
|
|
—
|
|
|
—
|
Assumed conversion of net common shares issuable
under warrants
|
|
—
|
|
|
—
|
Weighted average common and common equivalent shares
outstanding, diluted
|
|
2,816,516
|
|
|
2,784,757
|
Earnings (loss) per share - diluted
|
|
|
|
|
|
Continuing operations
|
$
|
(0.25)
|
|
$
|
(0.28)
|
Discontinued operations
|
|
—
|
|
|
0.13
|
Consolidated diluted EPS
|
$
|
(0.25)
|
|
$
|
(0.15)
|
11.
Industry and Geographic Segments
The Company’s Chief Operating and Decision Maker ("CODM") manages the operations and reviews the results of operations as a single reporting unit. While the Company operates its business as one segment, the Company has diversified manufacturing capabilities as evidenced by its product offerings across several industry categories support
ing customers around the globe.
The following table sets forth, for the periods indicated, the consolidated revenue and percentages of revenue from continuing operations derived from the sales of the Company's products and services in certain industries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the Years Ended December 31,
|
|
|
2016
|
|
%
|
|
2015
|
|
%
|
Medical
|
|
$
|
14,543,315
|
|
74
|
|
$
|
16,770,788
|
|
78
|
Automotive/Industrial
|
|
|
3,787,312
|
|
19
|
|
|
2,839,926
|
|
13
|
Consumer Products
|
|
|
744,738
|
|
4
|
|
|
647,190
|
|
4
|
Military and Law Enforcement
|
|
|
383,254
|
|
2
|
|
|
943,603
|
|
4
|
Other
|
|
|
179,598
|
|
1
|
|
|
293,677
|
|
1
|
Total
|
|
$
|
19,638,217
|
|
100
|
|
$
|
21,495,184
|
|
100
|
Table of Contents
Arrhythmia Research Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 201
6
and 201
5
The following table sets forth, for the periods indicated, the consolidated revenue and percentages of revenue from continuing operations derived from the sales of all of the Company's products and services by geographic market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the Years Ended December 31,
|
|
|
2016
|
|
%
|
|
2015
|
|
%
|
United States
|
|
$
|
12,206,761
|
|
62
|
|
$
|
13,199,188
|
|
61
|
Asia
|
|
|
4,283,180
|
|
22
|
|
|
4,774,910
|
|
22
|
Europe
|
|
|
1,677,100
|
|
9
|
|
|
1,662,318
|
|
9
|
Canada
|
|
|
1,268,817
|
|
6
|
|
|
1,607,445
|
|
7
|
Other
|
|
|
202,359
|
|
1
|
|
|
251,323
|
|
1
|
Total
|
|
$
|
19,638,217
|
|
100
|
|
$
|
21,495,184
|
|
100
|
12.
Discontinued Operations
The Company's subsidiary, RMDDxUSA Corp. and its Prince Edward Island subsidiary RMDDx Corporation (collectively "WirelessDx"), discontinued operations
in
2012, filed for relief under Chapter 7 (Liquidation) of the United States Bankruptcy Code in 2014 and
in
March 2015, the Chapter 7 Order was formally discharged and the case was closed.
In
2015
,
net income
of
$362,610
was recorded from discontinued operations as a result of
the
related write-off of the remaining liabilities and cumulative translation adjustment.
13. Subsequent Events
Assets held for sale
In January 2017, the Company entered into a Second Amendment to the Purchase and Sale Agreement (the “Second Amendment”) related to the sale of certain real estate recorded as assets held for sale (see Note 4). The Second Amendment (i) permits the Buyer to assign the Agreement to a third party; (ii) extends the term of the $4,000 per month extension fee from January 2018 to March 2018 and (iii) and amends the term of the additional extension fee of $7,500 per month to April 2018 through July 2018.
Company name change
On March 9, 2017,
Arrhythmia Research Technology, Inc. (
the
“
Company
”) fi
led a Certificate of Amendment
to its Certificate of
Incorporation, as amended, with the Delaware
Secretary of State
to amend Article Fi
r
st of the Company’s Certificate of Incorporation to change the name of the corporation to “Micron Solutions, Inc.”. The effective date of the amendment is March 24, 2017.