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Arrhythmia Research Technology reports 28.1% revenue growth

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– Net sales increased 28.1% over second quarter 2013 to $6.3 million; Net sales were up 16.7% year to date – Gross margin in the second quarter of 2014 expanded 6.7 points to 18.1%

Arrhythmia Research Technology, Inc. (NYSE:HRT), operating through its wholly-owned subsidiary, Micron Products, Inc., is a diversified manufacturer of proprietary, highly-engineered technologies, such as machined orthopedic implants, injection molded medical disposables and sensors for bio-monitoring electrodes.

Today, the Company announced results for its second quarter ended June 30, 2014. The Company’s consolidated financial results include certain operations that were discontinued in September 2012.

Salvatore Emma, Jr., President and CEO, commented, “We continue to drive innovation and accountability, and I believe that is clearly demonstrated in our results. In addition to measurably higher sales volume, we had a favorable mix of product sales and improved productivity that supported strong margin expansion.”

Second quarter 2014 sales of $6,253,757 increased $1,373,312, or 28.1%, compared with the second quarter of 2013. Growth was driven by two major product lines, sensors and machined orthopedic implants. Sales of sensors, the Company’s base product line, increased $803,437, or 32.7%, over the same period the prior year. Volume increased 43.2% as a result of the Company gaining market share. Excluding the impact of silver surcharge billed, sensor sales increased $738,959, or 48.5%, for the quarter. Sales of machined orthopedic implants increased $732,067, or 81.7% over the same period of the prior year due to increased order volume.

Mr. Emma noted, “We had an exceptional quarter with Micron Products’ two leading product lines. We are gaining market share with our sensors that are used in biomedical monitoring applications. We have won new customers and more business from existing customers as we consistently demonstrate the quality of our product and reliability of our deliveries. We intend to grow our higher margin machined orthopedic implant solutions business, despite an established customer’s implementation of an in-house manufacturing strategy.”

Gross profit more than doubled to $1,134,023, or 18.1% of sales. Gross margin expanded 6.7 points when compared with the prior-year period. Higher volume, improved productivity and cost efficiencies drove gross margin expansion.

Selling and marketing expenses were down 2.6% to $240,408, or 3.8% of sales. The reduction in spending highlights the Company’s cost discipline. This more than offset increased costs associated with Micron Products’ advancement of its marketing program aimed at promoting the machined orthopedic implant business during the quarter.

During the second quarter of 2014, the Company’s general and administrative expenses declined $42,110 to $543,235, or 8.7% of sales, compared with $585,345, or 12.0% of sales, for the same period last year. Wages, taxes, benefits and travel decreased $49,474 over the prior period, due primarily to the resignations of both the former Interim CEO and former Chief Financial Officer in 2013.

Research and Development (“R&D”) expenses for the quarter were up $24,401 to $85,694, or 1.4% of net sales. Commenting on R&D investments, Mr. Emma noted, “We are leveraging our strong engineering and design expertise to bring new products and services to market for our medical, military and law enforcement customers. As a high-precision, high-speed custom manufacturer, we can help our customers from product concept through prototype to full-rate production on a very compressed schedule. These qualities are central to our value proposition. Because speed to market can be the key differentiator of product success, we believe our agility will position us to be a lead partner with our customers for proprietary product development.”

Interest expense was $70,529 in 2014 compared with $196,999 in 2013. Last year’s interest expense included $111,989 from the payoff of equipment notes and operating leases as part of entering into a new credit facility in March 2013.

Income before taxes from continuing operations was $240,844, or 3.9% of sales, compared with a $524,905 loss from continuing operations in the same period last year. The significant improvement in operating income and margin reflect the leverage gained from higher volume.

The tax provision for the second quarter 2014 was $1,030, compared with $2,352,478, or $0.87 per diluted share, for the same period last year. The second quarter of 2013 included an adjustment of $2,267,969 for a full valuation allowance against deferred tax assets. The Company has federal, state and foreign net operating loss carry-forwards totaling $7,420,000, $10,471,000 and $1,039,000, respectively, which begin to expire in 2030.

Net income was $240,460, or $0.09 per diluted share, for the second quarter of 2014 compared with a net loss of $2,890,191, or $1.06 per diluted share, in the same period last year.

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