v2.4.0.8
Document and Entity Information Document
 9 Months Ended
Sep. 30, 2013
Nov. 18, 2013
Document Information [Line Items]    
Entity Registrant Name Arrhythmia Research Technology Inc /DE/  
Entity Central Index Key 0000819689  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Document Type 10-Q  
Document Period End Date Sep. 30, 2013  
Document Fiscal Year Focus 2013  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   2,704,239
v2.4.0.8
Consolidated Balance Sheets (USD $)
Sep. 30, 2013
Dec. 31, 2012
Current assets:    
Cash and cash equivalents $ 455,817 $ 477,708
Restricted Cash 1,000,000 0
Trade and othe accounts receivable, net of allowance for doubtful accounts of $40,000 and $117,098, respectively 2,541,889 3,181,721
Inventories, net 2,654,011 2,415,104
Deferred income taxes 0 199,432
Income tax receivable 127,961 194,912
Deposits, prepdaid expenses and other current assets 689,596 574,999
Current assets from discontinued operations 4,285 34,301
Total current assets 7,473,559 7,078,177
Property, plant and equipment, net 7,545,275 7,158,512
Other intangible assets, net 183,467 156,091
Long-term deferred tax assets, net 0 2,068,538
Other non-current assets 258,767 214,596
Non-current assets from discontinued operations 0 284,300
Total assets 15,461,068 16,960,214
Current liabilities:    
Demand line of credit 0 800,000
Equipment line of credit 177,251  
Current portion of long-term debt 280,006 0
Current portion of equipment notes 51,108 267,043
Accounts payable 2,540,359 2,437,778
Accrued expenses 619,756 393,913
Customer deposits 19,509 121,779
Current portion of deferred revenue 269,498 315,268
Performance guarantee liability 1,000,000 1,000,000
Current liabilities from discontinued operations 319,937 600,571
Total current liabilities 5,277,424 5,936,352
Long-term liabilities:    
Revolving line of credit 2,399,493 0
Long-term debt, net of current portion 1,083,903 0
Long-term equipment note, net of current portion 183,538 991,213
Long-term portion of deferred gain on lease 0 8,934
Long-term deferred revenue, net of current portion 240,744 326,982
Total long-term liabilities 3,907,678 1,327,129
Total liabilties 9,185,102 7,263,481
Shareholders’ equity:    
Preferred stock, $1 par value; 2,000,000 shares authorized, none issued 0 0
Common stock, $0.01 par value; 10,000,000 shares authorized, 3,926,491 shares issued, 2,704,239 shares outstanding 39,265 39,265
Additional paid-in-capital 11,151,221 11,110,575
Common stock held in treasury, 1,222,252 shares at cost (3,335,268) (3,335,268)
Accumulated other comprehensive income 42,502 42,502
Retained (deficit) earnings (1,621,754) 1,839,659
Total shareholders' equity 6,275,966 9,696,733
Total liabilities and shareholders' equity $ 15,461,068 $ 16,960,214
v2.4.0.8
Consolidated Balance Sheet Parenthetical (Parentheticals) (USD $)
Sep. 30, 2013
Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Allowance for Doubtful Accounts Receivable $ 40,000 $ 117,098
Preferred stock, par value $ 1 $ 1
Preferred stock, shares authorized 2,000,000 2,000,000
Preferred Stock, Shares Issued 0 0
Common Stock, Par or Stated Value per Share $ 0.01 $ 0.01
Common Stock, Shares Authorized 10,000,000 10,000,000
Common Stock, Shares, Issued 3,926,491 3,926,491
Common Stock, Shares, Outstanding 2,704,239 2,790,514
Treasury Stock, Shares 1,222,252 1,222,252
v2.4.0.8
Consolidated Statements of Operations (USD $)
 3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Net revenues $ 4,728,217 $ 4,959,034 $ 15,251,851 $ 15,585,157
Cost of sales 4,178,406 4,197,937 13,192,226 12,884,526
Gross profit 549,811 761,097 2,059,625 2,700,631
Selling and marketing 209,498 186,178 696,712 692,272
General and administrative 727,664 720,515 2,037,139 2,141,089
Research and development 131,077 115,034 251,772 380,266
Goodwill impairment 0 1,479,727 0 1,479,727
Total operating expense 1,068,239 2,501,454 2,985,623 4,693,354
Loss from operations (518,428) (1,740,357) (925,998) (1,992,723)
Interest expense (51,393) (7,969) (258,940) (14,855)
Other income (expense), net 293 (359) 8,063 (8,276)
Other expense, net (51,100) (8,328) (250,877) (23,131)
Loss from continuing operations before income tax (benefit) provision (569,528) (1,748,685) (1,176,875) (2,015,854)
Income tax (benefit) provision 0 (296,133) 2,267,969 (609,623)
Loss from continuing operations (569,528) (1,452,552) (3,444,844) (1,406,231)
Discontined Operations:        
Income (Loss) from discontinued operations, net of tax provision of $0 and $0, respectively, for the three and nine months ended September 30, 2013 and a tax benefit of $1,190,580 and $1,731,580, respectively, for the three and nine months ended September 30, 2012 3,977 (1,996,055) (16,569) (3,523,380)
Net loss $ (565,551) $ (3,448,607) $ (3,461,413) $ (4,929,611)
Loss per share - basic and diluted        
Continuing operations $ (0.21) $ (0.52) $ (1.27) $ (0.50)
Discontinued operations $ 0.00 $ (0.72) $ (0.01) $ (1.26)
Loss per share - basic and diluted $ (0.21) $ (1.24) $ (1.28) $ (1.76)
Weighted average common shares outstanding - basic and diluted 2,704,239 2,790,514 2,704,239 2,790,514
v2.4.0.8
Consolidated Statements of Operations Parenthetical (Parentheticals) (USD $)
 3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Income Tax Expense (Benefit) $ 0 $ 0 $ (1,190,580) $ (1,731,580)
v2.4.0.8
Statement of Changes in Shareholders' Equity (USD $)
Total
Common Stock
Additional Paid-in Capital
Treasury Stock
Accumulated other comprehensive income
Retained Earnings
Stockholders' Equity Attributable to Parent at Dec. 31, 2012 $ 9,696,733 $ 39,265 $ 11,110,575 $ (3,335,268) $ 42,502 $ 1,839,659
Shares at Dec. 31, 2012 3,926,491 3,926,491   1,222,252    
Share-based compensation 40,646   40,646      
Net loss (3,461,413)         (3,461,413)
Stockholders' Equity Attributable to Parent at Sep. 30, 2013 $ 6,275,966 $ 39,265 $ 11,151,221 $ (3,335,268) $ 42,502 $ (1,621,754)
Shares at Sep. 30, 2013 3,926,491 3,926,491   1,222,252    
v2.4.0.8
Consolidated Statements of Cash Flows (USD $)
 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Cash flows from operating activities:    
Net loss $ (3,461,413) $ (4,929,611)
Loss from discontinued operations 16,569 3,523,380
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Gain (loss) on sale if fixed assets 174 0
Amortization of the gain on lease (8,934) (3,350)
Goodwill impairment 0 1,479,727
Depreciation and amortization 1,074,339 1,074,764
Changes in allowance for doubtful accounts (77,098) 45,000
Deferred income taxes 2,267,969 (605,123)
Share-based compensation 40,646 84,650
Changes in operating assets and liabilities:    
Trade accounts receivable 716,930 194,148
Inventories (238,907) 47,002
Deposits, prepaid expenses and other assets (91,817) (476,528)
Accounts payable 102,581 405,665
Accrued expenses and other liabilities (8,435) 176,506
Net cash provided by operating activities of continuing operations 332,604 1,016,230
Net cash used in operating activities of discontinued operations (277,215) (2,514,591)
Net cash provided by (used in) operating activities 55,389 (1,498,361)
Cash flows from investing activities:    
Purchases of property, plant and equipment (1,200,346) (893,887)
Proceeds from sale of fixed asset 1,528 306,285
Cash paid for patents and trademarks (33,902) 0
Net cash used in investing activities of continuing operations (1,232,720) (587,602)
Net cash provided by (used in) investing activities of discontinued operations 284,300 (484,481)
Net cash used in investing activities (948,420) (1,072,083)
Cash flows from financing activities:    
Proceeds from revolving line of credit 2,399,493 0
Proceeds from (payments on) demand line of credit, net (800,000) 800,000
Proceeds from equipment line of credit 177,251 0
Proceeds from long-term debt 1,500,000 0
Payments on long-term debt (136,091) 0
Proceeds from equipment notes 0 262,960
Payments on equipment notes (1,296,110) (48,119)
Cash dividend paid 0 (84,119)
Restricted cash (1,000,000) 0
Net cash provided by financing activities of continuing operations 844,543 930,722
Net cash (used in) provided by financing activities of discontinued operations 0 631,897
Net cash provided by financing activities 844,543 1,562,619
Net decrease in cash and cash equivalents (48,488) (1,007,825)
Cash and cash equivalents at beginning of period, (including $30,882 and $102,972 of cash of discontinued operations) 508,590 1,358,223
Cash and cash equivalents at end of period 460,102 350,398
Less cash and cash equivalents of discontinued operations at end of period (4,285) (72,021)
Cash and cash equivalents of continuing operations at end of period 455,817 278,377
Supplemental Cash Flow Information [Abstract]    
Cash Paid for Interest 91,751 15,097
Proceeds from Income Tax Refunds 66,951 0
Acquisition of equipment with equipment notes $ 272,500 $ 476,687
v2.4.0.8
Consolidated Statements of Cash Flows (Parentheticals) Statement (USD $)
Sep. 30, 2013
Sep. 30, 2012
Consolidated Statements of Cash Flows Parenthetical [Abstract]    
Cash and cash equivalents, discontinued operations $ 30,882 $ 102,972
v2.4.0.8
Note 1. Basis of Presentation
 9 Months Ended
Sep. 30, 2013
Basis of Presentation [Abstract]  
Basis of Presentation
Basis of Presentation
The unaudited interim consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC").  Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") 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 Arrhythmia Research Technology, Inc. ("ART") and subsidiaries (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on May 31, 2013.
The information presented reflects, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial results for the interim periods presented.
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 revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Operating results for interim periods are not necessarily indicative of results that may be expected for the entire fiscal year.
Operating matters and liquidity
The Company expects that its current and anticipated financial resources, including the Company's bank facility, are adequate to maintain current and planned operations through September 30, 2014. The multi-year credit facility entered into on March 29, 2013, includes a revolving line of credit of up to $4.0 million, a commercial term loan of $1.5 million and an equipment line of credit of $1.0 million (see Note 5).
The Company believes that cash flows from its operations, together with its existing working capital and other resources, will be sufficient to fund operations at current levels and repay debt obligations over the next twelve months. The Company expects improvements in sales within new and existing channels to continue as a result of the Company's prior and future investments in capital equipment and human resources. The Company expects to meet its goals in these areas, realize returns on its capital investments over the last nine months and generate the additional cash needed to fund operations into 2014 and beyond; however, there can be no assurance that the Company will be able to do so.
v2.4.0.8
Note 2. Accounting Policies (Notes)
 9 Months Ended
Sep. 30, 2013
Accounting Policies [Abstract]  
Accounting Policies
Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of ART and its wholly owned subsidiary, Micron Products, Inc. ("Micron"). The Company's Pennsylvania subsidiary, RMDDxUSA Corp., and its Prince Edward Island subsidiary, RMDDx Corporation, collectively "WirelessDx", discontinued operations in the third quarter of 2012 and are presented herein as discontinued operations. All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recorded when all criteria for revenue recognition have been satisfied, which is generally when goods are shipped to the Company's customers. Product revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred to the customer, the price is fixed or determined and collection is probable.
The Company enters into arrangements containing multiple elements which may include a combination of the sale of molds, tooling, engineering and validation services and production units. The Company has determined that the sale of certain molds, tooling, engineering and validation services, and the production units, represent one unit of accounting, based on an assessment of the respective standalone value, as defined in ASC 605-25, “Revenue Recognition: Multiple - Element Arrangements.”
The Company determines the estimated product life-cycle, based upon historical knowledge of the customer, over which the deferred revenue will be amortized into revenue, which is generally three years. The Company carries prepaid tooling costs associated with the related arrangement as other assets on the Company's balance sheet. These costs are amortized to expense at the same time as the deferred revenue is amortized into revenue.
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, associated products and customer ordering patterns. 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 also recognizes revenue in accordance with ASC 985-605 "Software - Revenue Recognition" for software licenses it sells. Revenue 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 trade accounts receivable and cash.
Accounts receivable are customer obligations due under normal trade terms. A large portion of the Company's products are sold to large diversified medical and defense 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. Currently, the Company generally does not receive purchase volume commitments extending beyond several months. Large corporations can shift focus away from a need for the Company’s products and services with little or no warning. The loss of any one or more of these customers may have an immediate significant adverse effect on our financial results.
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.
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.
Restricted cash
Restricted cash consists of cash on deposit at the Bank of Nova Scotia in lieu of a letter of credit associated with a performance guarantee liability (Note 9).
Allowance for doubtful accounts
Management regularly reviews accounts receivable to determine if any receivables will potentially be uncollectible.  The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in the Company's overall allowance for doubtful accounts.  After all attempts to collect a receivable have failed, the receivable is written off against the allowance.  Based on the information available to the Company, management believes the allowance for doubtful accounts of $40,000 and $117,098 as of September 30, 2013 and December 31, 2012, respectively, are adequate.
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. 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 records adjustments to account for potential scrap during normal manufacturing operations or potential obsolescence for slow moving inventory.
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.
Long-lived and intangible assets
The Company assesses the impairment of long-lived assets and intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Intangible assets consist of the following:
 
 
September 30, 2013
 
December 31, 2012
 
Estimated Useful Life (in years)
Gross
Accumulated Amortization
Net
 
Gross
Accumulated Amortization
Net
Patents and Trademarks
13
$
443,201

$
(420,936
)
$
22,265

 
$
480,750

$
(456,361
)
$
24,389

Patents and Trademarks*
—
141,923

—

141,923

 
110,702

—

110,702

Trade names
8
33,250

(13,971
)
19,279

 
33,250

(12,250
)
21,000

     Total Intangible assets:
 
$
618,374

$
(434,907
)
$
183,467

 
$
624,702

$
(468,611
)
$
156,091

* Patents and Trademarks not yet in service.
Income taxes
The Company accounts for income taxes in accordance with ASC 740 “Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities 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.
As of June 30, 2013, the Company had recorded twelve consecutive quarters of pre-tax losses. Additionally, management’s projections of future income in the face of challenging market conditions, and the impact of identified tax planning strategies, creates uncertainty regarding the Company's ability to realize its deferred tax assets pursuant to the “more-likely-than-not” standard, as defined in ASC 740-10-30-5. Accordingly, in the second quarter the Company recorded tax expense of $2,267,969 to establish a full valuation allowance on its deferred tax assets.
Management evaluated and weighted all available evidence, both positive and negative, through June 30, 2013, and determined that the weight of negative evidence occurring in the second quarter made it difficult to form a supportable conclusion that a valuation allowance was not needed. Factors such as projected increases in cost of sales, overall sales volumes from key customers and the continued volatility in the silver market negatively impacted the second quarter re-forecast of pre-tax earnings and the analysis of future taxable income. Consequently, management determined that the Company could not support the realization of its deferred tax assets, at a more-likely-than-not standard, and identified the second quarter of 2013 as the appropriate period to record a full valuation allowance, on its deferred tax assets of $2,267,969. Management determined that no change was necessary for the three months ended September 30, 2013.
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 equity grant).
Comprehensive income
The Company has accumulated comprehensive income of $42,502 from changes in currency valuations with our discontinued Canadian operations as of September 30, 2013 and December 31, 2012. There were no changes in comprehensive income in the three or nine months ended September 30, 2013.
(Loss) earnings per share data
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding.  The computation of diluted earnings per share is similar to the computation of basic earnings 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 income that would result from the assumed conversions of those potential shares. As of September 30, 2013 and December 31, 2012 there were 226,500 and 285,000 options outstanding, respectively, that were anti-dilutive and were not included in the calculation of earnings or loss per share.
Basic and diluted EPS computations are as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
(unaudited)
 
(unaudited)
 
 
2013
 
2012 Revised
 
2013
 
2012 Revised
Net loss available to common shareholders
$
(565,551
)
$
(3,448,607
)
$
(3,461,413
)
$
(4,929,611
)
Weighted average common shares outstanding
 
2,704,239

 
2,790,514

 
2,704,239

 
2,790,514

Loss per share - basic and diluted
 
 
 
 
 
 
 
 
Continuing operations
 
(0.21
)
 
(0.52
)
 
(1.27
)
 
(0.50
)
Discontinued operations
 
—

 
(0.72
)
 
(0.01
)
 
(1.26
)
Loss per share - basic and diluted
$
(0.21
)
$
(1.24
)
$
(1.28
)
$
(1.76
)

Segments
In 2012, the Company determined that the Company's results will be reported as one segment due to the discontinued operations of its WirelessDx segment and since the results of its previously reported ART segment were not quantitatively material and were not regularly reviewed by the Chief Operating and Decision Maker ("CODM").
Research and development
Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our manufacturing processes.  Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, and services provided by outside contractors.  All costs associated with research and development programs are expensed as incurred.
Reclassifications
     Certain reclassifications have been made to prior period amounts to conform to the current period presentation. In 2012, the Company revised prior period balances to correct errors in the revenue recognition of certain Tooling transactions (Note 10).
v2.4.0.8
Note 3. Inventories
 9 Months Ended
Sep. 30, 2013
Inventories [Abstract]  
Inventories
Inventories
Inventories consist of the following:
 
September 30,
2013
 
December 31, 2012
Raw materials
$
1,062,042

 
$
521,908

Work-in-process 
302,891

 
248,159

Finished goods
1,289,078

 
1,645,037

Total
$
2,654,011

 
$
2,415,104


The value of silver in inventory at September 30, 2013 and December 31, 2012 as a part of finished goods as plated sensors, work in process, or raw materials was $446,664 and $541,804, respectively. Inventories are stated at their net realizable value, net of a reserve for slow moving and obsolete inventory of $373,000 and $317,484 at September 30, 2013 and December 31, 2012, respectively.
v2.4.0.8
Note 4. Plant, Property & Equipment, net (Notes)
 9 Months Ended
Sep. 30, 2013
Plant, Property & Equipment, net [Abstract]  
Property, Plant & Equipment, net
Property, Plant and Equipment, net
Property, plant and equipment consist of the following:
 
Asset lives (in years)
September 30, 2013
 
December 31, 2012
Machinery and equipment
 
3
to
15
 
$
13,492,740

 
$
12,298,011

Building and improvements
 
 
20
 
 
4,298,556

 
4,293,725

Vehicles
 
3
to
5
 
94,227

 
94,227

Furniture, fixtures, computers and software
 
3
to
5
 
1,263,879

 
1,246,807

Land
 
 
 
 
 
202,492

 
202,492

Construction in progress
 
 
 
 
 
264,750

 
103,269

Total property, plant and equipment
 
 
 
 
 
19,616,644

 
18,238,531

Less: accumulated depreciation
 
 
 
 
 
(12,071,369
)
 
(11,080,019
)
Property, plant and equipment, net
 
 
 
 
 
$
7,545,275

 
$
7,158,512


For the nine months ended September 30, 2013 and 2012, the Company recorded $1,067,812 and $1,069,967 of depreciation expense, respectively.
v2.4.0.8
Note 5. Debt
 9 Months Ended
Sep. 30, 2013
Debt [Abstract]  
Debt
Debt
On March 29, 2013, the Company entered into a multi-year credit facility with a Massachusetts based bank. The credit facility includes a revolver of up to $4.0 million, a commercial term loan of $1.5 million and an equipment line of credit of $1.0 million and is secured by substantially all assets of the Company with the exception of real property.
The revolver provides for borrowings up to 80% of eligible accounts receivable and 50% of eligible raw materials inventory.  This revolver replaced the previous $3.0 million demand line of credit which was scheduled to expire April 30, 2013. The interest rate on the revolver at September 30, 2013 was 3.50% and the outstanding principal balance was $2,399,493. This revolver has a maturity date of June 30, 2015.
The commercial term loan from the bank facility was used to refinance existing equipment notes, operating leases, and to fund other current liabilities of continuing operations. At September 30, 2013, the outstanding amount remaining on the term loan was $1,363,909. The term loan has a five year term with a maturity date of March 29, 2018. The interest rate on the loan is a fixed 4.25% per annum.
The equipment line of credit allows for advances on the equipment line that shall not exceed 80% of the invoice amount of the equipment being purchased. The interest rate at September 30, 2013 was 3.50% and the outstanding principal balance was $177,251. The term of the equipment line of credit is six years, maturing on March 29, 2019, inclusive of a one year maximum draw period during which payments are interest only. This equipment line of credit will convert to a five year term loan at the end of the one year draw period, or when the $1.0 million line is fully drawn upon.
In January 2013, the Company entered into two equipment notes totaling $272,500 with a financing company to acquire production equipment. The outstanding balance of these equipment notes at September 30, 2013 was $234,646. The term of these equipment notes is five years.
The borrowing agreement, under the bank facility as described above, 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. As a result of the third quarter results, the Company was not in compliance with a financial covenant. On November 19, 2013, the Company received a formal waiver as to the non-compliance.
At December 31, 2012, the Company had a master lease agreement with its bank that allowed for money to be drawn on standard terms for the purchase of equipment. The equipment notes under the master lease agreement were paid off in April 2013 using the commercial term loan under bank facility.
v2.4.0.8
Note 6. Income Taxes
 9 Months Ended
Sep. 30, 2013
Income Taxes [Abstract]  
Income Taxes
Income Taxes
The following table sets forth certain information regarding the Company's income tax (benefits) provision:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
2012 Revised
 
2013
2012 Revised
Income tax (benefit) provision from continuing operations
$
—

$
(296,133
)
 
$
2,267,969

$
(609,623
)
The tax provision for the nine months ended September 30, 2013 and the tax benefit for the nine months ended September 30, 2012 are attributable to the U.S. Federal, state and foreign income taxes on our continuing operations. The tax provision for the nine months ended September 30, 2013 includes the impact on tax expense of $2,267,969 associated with the establishment of a full valuation allowance of the Company’s deferred tax assets (see Note 2).
The Company files income tax returns in the U.S. Federal and various state and foreign jurisdictions and the periods from 2009 to 2012 remain open to examination by the taxing authorities in the various jurisdictions. The Company believes it is not subject to any significant tax risks related to uncertain tax positions. Accordingly, the Company has not accrued interest or penalties associated with unrecognized tax benefits.
The Company recorded no income tax provision or benefit for the three months ended September 30, 2013, due to the establishment of a full valuation allowance of the Company's deferred tax assets in the second quarter (see Note 2), as compared to a tax benefit of $296,133 for the three months ended September 30, 2012.
The Company recorded no income tax provision or benefit for discontinued operations for the three or nine months ended September 30, 2013, as compared to income tax benefits of $1,190,580 and $1,731,580, respectively for the three and nine months ended September 30, 2012, which is reflected in the net loss from discontinued operations, net of tax, in the Company's consolidated statements of operations.
v2.4.0.8
Note 7. Commitments and Contingencies (Notes)
 9 Months Ended
Sep. 30, 2013
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Legal Matters
From time to time, the Company is subject to legal proceedings, threats of legal action and claims which arise in the ordinary course of our business.   With respect to three specific matters, aggregate claims have been asserted of approximately $700,000.  Management believes the maximum reasonably possible loss related to these matters is substantially less than the amounts asserted.  Management, with its external legal counsel, intends to vigorously defend these matters and management believes that it has meritorious defenses in all such matters.  Accordingly, no accrual has been recorded for these matters as of September 30, 2013.  Management believes that the ultimate resolution of these matters, including likely recoveries from insurance carriers if unfavorable outcomes occur, will not have a material adverse effect on our results of operations or financial condition.
Operating Leases
The Company leases certain equipment under non-cancelable lease arrangements ranging from three to five years.  Lease expense under all operating leases was approximately $0 and $52,854 for the three months ended September 30, 2013 and 2012, respectively and $50,781 and $158,562 for the nine months ended September 30, 2013 and 2012, respectively.
v2.4.0.8
Note 8. Share-Based Compensation
 9 Months Ended
Sep. 30, 2013
Share-based Compensation [Abstract]  
Share-Based Compensation
Share-Based Compensation
     The Company recognized share-based compensation expense of $12,900 and $20,148 for the three months ended September 30, 2013 and 2012, respectively and $40,646 and $84,650 for the nine months ended September 30, 2013 and 2012, respectively. 
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model.  Key assumptions used to estimate the fair value of the stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk free interest rate over the option’s expected term, and the Company’s expected annual dividend yield.  The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options for the three and nine months ended September 30, 2013 and 2012.  Estimates of fair values are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.
The option life was determined using the historical data to determine an expected option life. Prior to 2013 the simplified method was used. During the three months ended September 30, 2013, no new grants were issued. During the nine months ended September 30, 2013, a total of 15,000 new grants were issued. No new grants were issued during the three and nine months ended September 30, 2012.
Share-based incentive plan
At September 30, 2013, the Company had one stock option plan that provides for both incentive and non-qualified stock options to be granted to certain eligible employees, non-employee directors, or consultants.  On March 10, 2010, the Company's Board of Directors adopted the Arrhythmia Research Technology, Inc. 2010 Equity Incentive Plan (the “2010 Plan”) upon the recommendation of the Compensation Committee. The 2010 Plan authorizes the issuance of an aggregate of 500,000 shares, namely, 400,000 shares of our common stock plus an aggregate of 100,000 shares previously reserved for issuance under the Company's 2005 Stock Award Plan (the “2005 Plan”). The 2010 Plan replaced in its entirety the 2005 Plan, under which no grants have been made. The Company's 2001 Stock Option Plan (the "2001 Plan"), which expired in 2011, will continue to govern outstanding options but no further options will be granted under the 2001 Plan. The options granted have either six or ten year contractual terms and either vest immediately or vest annually over a five-year term.
At September 30, 2013, there were 375,000 shares available for future grants under the 2010 Plan.
The following table sets forth the stock option transactions for the nine months ended September 30, 2013:
 
Number of shares
Weighted average exercise price
Weighted average remaining contractual term (years)
Aggregate intrinsic value
Outstanding at December 31, 2012
285,000

$
2.44

4.8
$
—

Exercisable at December 31, 2012
138,900

2.53

3.1
—

  Granted
15,000

2.58

9.75
—

  Exercised
—

—

—
—

  Forfeited/expired
(73,500
)


—
—

Outstanding at September 30, 2013
226,500

6.16

4.62
1,800

Exercisable at September 30, 2013
142,500

$
6.39

3.28
$
—


During the nine months ended September 30, 2013, 15,000 new options were granted as compared to zero new options for the same period in 2012.  At September 30, 2013 and 2012, the intrinsic value of the exercisable options is $1,800 and $0, respectively.
The following table sets forth the status of the Company’s non-vested options for the nine months ended September 30, 2013:
 
 
Number of shares
Weighted average fair value
Non-vested at December 31, 2012
146,100

$
1.22

Granted
15,000

0.82

Vested
(48,300
)
1.50

Forfeited/expired
(28,800
)
1.28

Non-vested at September 30, 2013
84,000

$
0.97


At September 30, 2013, there was $84,761 of total unrecognized cost related to non-vested share-based compensation arrangements granted under the Plan.  This cost is expected to be recognized over a weighted average period of 2.83 years.
v2.4.0.8
Note 9. Discontinued Operations
 9 Months Ended
Sep. 30, 2013
Discontinued Operations [Abstract]  
Discontinued Operations
Discontinued Operations
In the third quarter of 2012 the Company discontinued the operations of its WirelessDx subsidiaries.
Net revenues from discontinued operations for the three months ended September 30, 2013 and 2012 were $0 and $132,137, respectively. Net income from discontinued operations for the three months ended September 30, 2013 was $3,977 as compared to a net loss from discontinued operations of $1,996,055 for the same period in 2012, respectively, presented net of tax of $0 and a tax benefit of $1,190,580, respectively.
Net revenues from discontinued operations for the nine months ended September 30, 2013 and 2012 were $0 and $372,955, respectively. Loss from discontinued operations for the nine months ended September 30, 2013 and 2012 were $16,569 and $3,523,380, respectively, presented net of tax of $0 and a tax benefit of $1,731,580, respectively.
At September 30, 2013 and December 31, 2012, the Company has a $1.0 million liability for an unmet performance obligation related to the discontinued operations. This performance obligation was secured by a $1.0 million letter of credit at December 31, 2012. In April 2013, as part of a new bank facility, this letter of credit was replaced with $1.0 million in restricted cash. At both September 30, 2013 and December 31, 2012, the performance guarantee liability was carried on the balance sheet of continuing operations, as the liability is guaranteed by ART. The outcome of this liability will be determined on or before May 31, 2014.
The assets and liabilities of the discontinued operations are presented in the unaudited September 30, 2013 and audited December 31, 2012 condensed consolidated balance sheet excluding intercompany loans which exceed net book value listed below:
 
September 30, 2013

 
December 31, 2012
Cash
$
4,285

 
$
30,882

Prepaid expenses and other assets
—

 
3,419

     Total current assets from discontinued operations
4,285

 
34,301

 
 
 
 
Property and equipment, net of impairment and accumulated depreciation of $119,050 and $1,434,937, respectively
—

 
284,300

Deferred taxes, non-current
—

 
—

     Total non-current assets from discontinued operations
—

 
284,300

     Total assets from discontinued operations
$
4,285

 
$
318,601

Accounts payable
$
319,937

 
$
477,324

Accrued expenses
—

 
123,247

    Total current liabilities from discontinued operations
319,937

 
600,571

    Total liabilities from discontinued operations
$
319,937

 
$
600,571
v2.4.0.8
Note 10. Reclassification of prior periods (Notes)
 9 Months Ended
Sep. 30, 2013
Reclassification of prior periods [Abstract]  
Reclassification of prior periods
Revisions and Reclassification of Prior Period Balances
Certain revisions and reclassifications have been made to prior period amounts to conform to the current year presentation, primarily related to deferred revenue. In 2012, the Company revised prior period balances to correct errors in the revenue recognition of certain tooling transactions.
Revision of prior period financial statements
In 2012, the Company identified prior period errors relating to revenue recognition for certain tooling transactions that qualify for treatment as multiple-element arrangements. The Company concluded that these errors were not material individually or in the aggregate to any of the prior reporting periods, and therefore, amendments of previously filed reports were not required, as more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. As such, the revisions for these corrections to the applicable prior periods are reflected in the financial information included herein and have been provided in summarized format below.
The impact of the errors on the Company's balance sheet as of September 30, 2012 is summarized below:
September 30, 2012
 
As originally reported
Correction of error adjustment
As revised
Assets
 
 
 
 
Current assets:
 
 
 
 
  Deferred income taxes
 
$
—

$
59,493

$
59,493

  Deposits, prepaid expenses and other current assets
 
745,531

222,019

967,550

    Total current assets
 
7,962,690

281,512

8,244,202

  Other non-current assets
 
—

218,299

218,299

    Total assets
 
17,632,493

499,811

18,132,304

 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
  Deferred revenue
 
—

281,746

281,746

    Total current liabilities
 
5,595,292

281,746

5,877,038

Long-term liabilities:
 
 
 
 
  Long-term deferred revenue
 
—

309,377

309,377

    Total Long-term liabilities
 
1,068,992

309,377

1,378,369

    Total liabilities
 
6,664,284

591,123

7,255,407

Shareholders’ equity:
 
 
 
 
  Retained earnings
 
3,139,296

(91,312
)
3,047,984

    Total shareholders’ equity
 
10,968,209

(91,312
)
10,876,897

    Total liabilities and shareholders’ equity
 
17,632,493

499,811

18,132,304


The impact of the errors on the Company's statements of operations for the three and nine months ended September 30, 2012 is summarized below:
 
Three months ended September 30, 2012
 
Nine months ended September 30, 2012
 
As originally reported
Correction of error adjustment
As revised
 
As originally reported
Correction of error adjustment
As revised
Net revenues
$
4,839,812

$
119,222

$
4,959,034

 
$
15,881,161

$
(296,004
)
$
15,585,157

Cost of sales
4,112,599

85,338

4,197,937

 
13,106,456

(221,930
)
12,884,526

Gross profit
727,213

33,884

761,097

 
2,774,705

(74,074
)
2,700,631

Loss from operations
(1,774,241
)
33,884

(1,740,357
)
 
(1,918,649
)
(74,074
)
(1,992,723
)
Loss before taxes
(1,782,569
)
33,884

(1,748,685
)
 
(1,941,780
)
(74,074
)
(2,015,854
)
Income tax benefit
(309,500
)
13,367

(296,133
)
 
(580,400
)
(29,223
)
(609,623
)
Loss before discontinued operations
(1,473,069
)
20,517

(1,452,552
)
 
(1,361,380
)
(44,851
)
(1,406,231
)
Net loss
(3,469,124
)
20,517

(3,448,607
)
 
(4,884,758
)
(44,851
)
(4,929,611
)
Loss per share - basic and diluted
(1.24
)
0.01

(1.24
)
 
(1.75
)
(0.02
)
(1.76
)
Weighted average shares outstanding, basic and diluted
2,790,514

2,790,514

2,790,514

 
2,790,514

2,790,514

2,790,514



    
The impact of the errors on the Company's statement of cash flows for nine months ended September 30, 2012 is summarized below:
 
Nine months ended September 30, 2012
 
As originally reported
Correction of error adjustment
As revised
Net loss
$
(4,884,758
)
$
(44,853
)
$
(4,929,611
)
Deferred income taxes
(575,900
)
(29,223
)
(605,123
)
Changes in operating assets and liabilities:
 
 
 
     Deposits, prepaid expenses and other assets
(254,598
)
(221,930
)
(476,528
)
     Accrued expenses and other liabilities
(119,498
)
296,004

176,506

Net cash used in operating activities
(1,498,361
)
—

(1,498,361
)
v2.4.0.8
Note 11. Subsequent Events (Notes)
 9 Months Ended
Sep. 30, 2013
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events
As a result of the third quarter results, the Company was not in compliance with a financial covenant. On November 19, 2013, the Company received a formal waiver as to the non-compliance (see Note 5).
There were no other subsequent events or transactions that require adjustment to or disclosure in these financial statements.
v2.4.0.8
Note 2. Accounting Policies (Policies)
 9 Months Ended
Sep. 30, 2013
Accounting Policies [Abstract]  
Principles of Consolidation
Principles of Consolidation
The consolidated financial statements include the accounts of ART and its wholly owned subsidiary, Micron Products, Inc. ("Micron"). The Company's Pennsylvania subsidiary, RMDDxUSA Corp., and its Prince Edward Island subsidiary, RMDDx Corporation, collectively "WirelessDx", discontinued operations in the third quarter of 2012 and are presented herein as discontinued operations. All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue Recognition
Revenue is recorded when all criteria for revenue recognition have been satisfied, which is generally when goods are shipped to the Company's customers. Product revenue is recognized in the period when persuasive evidence of an arrangement with a customer exists, the products are shipped and title has transferred to the customer, the price is fixed or determined and collection is probable.
The Company enters into arrangements containing multiple elements which may include a combination of the sale of molds, tooling, engineering and validation services and production units. The Company has determined that the sale of certain molds, tooling, engineering and validation services, and the production units, represent one unit of accounting, based on an assessment of the respective standalone value, as defined in ASC 605-25, “Revenue Recognition: Multiple - Element Arrangements.”
The Company determines the estimated product life-cycle, based upon historical knowledge of the customer, over which the deferred revenue will be amortized into revenue, which is generally three years. The Company carries prepaid tooling costs associated with the related arrangement as other assets on the Company's balance sheet. These costs are amortized to expense at the same time as the deferred revenue is amortized into revenue.
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, associated products and customer ordering patterns. 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 also recognizes revenue in accordance with ASC 985-605 "Software - Revenue Recognition" for software licenses it sells. Revenue 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
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
Concentration of credit risk
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of trade accounts receivable and cash.
Accounts receivable are customer obligations due under normal trade terms. A large portion of the Company's products are sold to large diversified medical and defense 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. Currently, the Company generally does not receive purchase volume commitments extending beyond several months. Large corporations can shift focus away from a need for the Company’s products and services with little or no warning. The loss of any one or more of these customers may have an immediate significant adverse effect on our financial results.
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.
Cash and cash equivalents
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.
Restricted cash
Restricted cash
Restricted cash consists of cash on deposit at the Bank of Nova Scotia in lieu of a letter of credit associated with a performance guarantee liability (Note 9).
Allowance for doubtful accounts
Allowance for doubtful accounts
Management regularly reviews accounts receivable to determine if any receivables will potentially be uncollectible.  The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in the Company's overall allowance for doubtful accounts.  After all attempts to collect a receivable have failed, the receivable is written off against the allowance.  Based on the information available to the Company, management believes the allowance for doubtful accounts of $40,000 and $117,098 as of September 30, 2013 and December 31, 2012, respectively, are adequate.
Inventories
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. 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 records adjustments to account for potential scrap during normal manufacturing operations or potential obsolescence for slow moving inventory.
Property, plant and equipment
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.
Long-lived and intangible assets
Long-lived and intangible assets
The Company assesses the impairment of long-lived assets and intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Intangible assets consist of the following:
 
 
September 30, 2013
 
December 31, 2012
 
Estimated Useful Life (in years)
Gross
Accumulated Amortization
Net
 
Gross
Accumulated Amortization
Net
Patents and Trademarks
13
$
443,201

$
(420,936
)
$
22,265

 
$
480,750

$
(456,361
)
$
24,389

Patents and Trademarks*
—
141,923

—

141,923

 
110,702

—

110,702

Trade names
8
33,250

(13,971
)
19,279

 
33,250

(12,250
)
21,000

     Total Intangible assets:
 
$
618,374

$
(434,907
)
$
183,467

 
$
624,702

$
(468,611
)
$
156,091

* Patents and Trademarks not yet in service.
Income taxes
Income taxes
The Company accounts for income taxes in accordance with ASC 740 “Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities 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.
As of June 30, 2013, the Company had recorded twelve consecutive quarters of pre-tax losses. Additionally, management’s projections of future income in the face of challenging market conditions, and the impact of identified tax planning strategies, creates uncertainty regarding the Company's ability to realize its deferred tax assets pursuant to the “more-likely-than-not” standard, as defined in ASC 740-10-30-5. Accordingly, in the second quarter the Company recorded tax expense of $2,267,969 to establish a full valuation allowance on its deferred tax assets.
Management evaluated and weighted all available evidence, both positive and negative, through June 30, 2013, and determined that the weight of negative evidence occurring in the second quarter made it difficult to form a supportable conclusion that a valuation allowance was not needed. Factors such as projected increases in cost of sales, overall sales volumes from key customers and the continued volatility in the silver market negatively impacted the second quarter re-forecast of pre-tax earnings and the analysis of future taxable income. Consequently, management determined that the Company could not support the realization of its deferred tax assets, at a more-likely-than-not standard, and identified the second quarter of 2013 as the appropriate period to record a full valuation allowance, on its deferred tax assets of $2,267,969. Management determined that no change was necessary for the three months ended September 30, 2013.
Share-based compensation
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 equity grant).
Comprehensive income
Comprehensive income
The Company has accumulated comprehensive income of $42,502 from changes in currency valuations with our discontinued Canadian operations as of September 30, 2013 and December 31, 2012. There were no changes in comprehensive income in the three or nine months ended September 30, 2013.
(Loss) earnings per share data
(Loss) earnings per share data
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding.  The computation of diluted earnings per share is similar to the computation of basic earnings 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 income that would result from the assumed conversions of those potential shares. As of September 30, 2013 and December 31, 2012 there were 226,500 and 285,000 options outstanding, respectively, that were anti-dilutive and were not included in the calculation of earnings or loss per share.
Basic and diluted EPS computations are as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
(unaudited)
 
(unaudited)
 
 
2013
 
2012 Revised
 
2013
 
2012 Revised
Net loss available to common shareholders
$
(565,551
)
$
(3,448,607
)
$
(3,461,413
)
$
(4,929,611
)
Weighted average common shares outstanding
 
2,704,239

 
2,790,514

 
2,704,239

 
2,790,514

Loss per share - basic and diluted
 
 
 
 
 
 
 
 
Continuing operations
 
(0.21
)
 
(0.52
)
 
(1.27
)
 
(0.50
)
Discontinued operations
 
—

 
(0.72
)
 
(0.01
)
 
(1.26
)
Loss per share - basic and diluted
$
(0.21
)
$
(1.24
)
$
(1.28
)
$
(1.76
)
Segments
Segments
In 2012, the Company determined that the Company's results will be reported as one segment due to the discontinued operations of its WirelessDx segment and since the results of its previously reported ART segment were not quantitatively material and were not regularly reviewed by the Chief Operating and Decision Maker ("CODM").
Research and development
Research and development
Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our manufacturing processes.  Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, and services provided by outside contractors.  All costs associated with research and development programs are expensed as incurred.
Reclassification
Reclassifications
     Certain reclassifications have been made to prior period amounts to conform to the current period presentation. In 2012, the Company revised prior period balances to correct errors in the revenue recognition of certain Tooling transactions (Note 10).
v2.4.0.8
Note 2. Accounting Policies (Tables)
 9 Months Ended
Sep. 30, 2013
Intangible Assets [Abstract]  
Intangible Assets
Intangible assets consist of the following:
 
 
September 30, 2013
 
December 31, 2012
 
Estimated Useful Life (in years)
Gross
Accumulated Amortization
Net
 
Gross
Accumulated Amortization
Net
Patents and Trademarks
13
$
443,201

$
(420,936
)
$
22,265

 
$
480,750

$
(456,361
)
$
24,389

Patents and Trademarks*
—
141,923

—

141,923

 
110,702

—

110,702

Trade names
8
33,250

(13,971
)
19,279

 
33,250

(12,250
)
21,000

     Total Intangible assets:
 
$
618,374

$
(434,907
)
$
183,467

 
$
624,702

$
(468,611
)
$
156,091

* Patents and Trademarks not yet in service.
Basic and diluted EPS
Basic and diluted EPS computations are as follows: