Table of Contents

# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549

# FORM 10-QSB

[ x ]  Quarterly report under
Section 13 or 15(d) of the Securities Exchange Act of 1934 
For the quarterly period ended March 31, 2005 or

[   ]  Transition report under Section
13 or 15(d) of the Securities Exchange Act of 1934 
For the transition period from ______ to ______

1-9731(Commission file No.)

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

|DELAWARE                                                       | 72-0925679                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.)

25 Sawyer Passway
Fitchburg, Massachusetts 01420(Address of principal executive offices)

(978) 345-5000(Issuers telephone number, including area code)

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes  X    No_____.

As of April 15, 2005 there were
2,666,194 shares of the Companys common stock outstanding.

Transitional Small Business Disclosure Format   Yes 

  No  X

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# ARRHYTHMIA RESEARCH
TECHNOLOGY, INC.

TABLE OF CONTENTS

FORM 10-QSB

March 31, 2005

|PART I - FINANCIAL INFORMATION
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|PART II - OTHER INFORMATION   
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Exhibit 31.1 - Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2 - Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1 - Certification of Chief Executive Officerpursuant to section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2 - Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

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# PART I  FINANCIAL INFORMATION

# Item 1. Consolidated Financial Statements

# ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Unaudited)

|ASSETS                                                     | March 31,                                                               | December 31,
|---------------------------------------------------------- | ----------------------------------------------------------------------- | ------------
|
|Current assets:                                            |                                                                        
|                                                           | Cash and cash equivalents                                               |             
|                                                           | Trade and other accounts receivable, net of allowance for               |             
|                                                           | doubtful accounts
        of $18,594 and $20,724                        |             
|                                                           | Inventories, net                                                        |             
|                                                           | Deposits, prepaid expenses and other current assets                     |             
|                                                           |                                                                         |             
|                                                           | Total current assets                                                    |             
|                                                          
|Property and equipment, net of accumulated depreciation of |                                                                         |             
|                                                           | $5,542,140 and $5,370,142                                               |             
|Goodwill                                                   |                                                                         |             
|Other intangible assets, net                               |                                                                         |             
|Deferred income taxes, net                                 |                                                                         |             
|Other assets                                               |                                                                         |             
|                                                           |                                                                         |             
|                                                           | Total assets                                                            |             
|                                                           |                                                                         |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                       |                                                                         |             
|Current liabilities:                                       |                                                                         |             
|                                                           | Accounts payable                                                        |             
|                                                           | Accrued expenses                                                        |             
|                                                           | Acquisition price payable                                               |             
|                                                           |                                                                         |             
|                                                           | Total current liabilities                                               |             
|                                                           |                                                                         |             
|Shareholders' equity:                                      |                                                                         |             
|                                                           | Preferred stock, $1 par value; 2,000,000 shares authorized, none issued |             
|                                                           | Common stock, $0.01 par value; 10,000,000 shares authorized,            |             
|                                                           | 3,926,491 shares issued                                                 |             
|                                                           | Additional paid-in-capital                                              |             
|                                                           | Common stock held in treasury, 1,260,297 and 1,266,622 shares at cost . |             
|                                                           | Retained earnings                                                       |             
|                                                           |                                                                         |             
|                                                           | Total shareholders' equity                                              |             
|                                                           |                                                                         |             
|                                                           | Total liabilities and shareholders' equity                              |             
|                                                           |                                                                         |             

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

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# ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

Consolidated
Statements of Income

(Unaudited)

|                                  | Three Months Ended
|--------------------------------- | ------------------
|
|
|Revenue                           |                   
|Cost of sales                     |                   
|                                  |                   
|Gross profit                      |                   
|                                 
|Selling and marketing             |                   
|General and administrative        |                   
|Research and development          |                   
|                                  |                   
|Income from operations            |                   
|                                 
|Other income, net                 |                   
|                                  |                   
|Income before income taxes        |                   
|                                 
|Income tax provision              |                   
|                                  |                   
|Net income                        |                   
|                                  |                   
|Net income per share - basic      |                   
|                                  |                   
|Net income per share - diluted    |                   
|                                  |                   
|Cash dividends declared per share |                   
|                                  |                   
|Weighted average common shares    |                   
|outstanding - basic               |                   
|Weighted average common shares    |                   
|outstanding - diluted             |                   

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

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# ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY

Consolidated
Statements of Cash Flows

(Unaudited)

|                                                             | Three Months Ended
|------------------------------------------------------------ | ------------------
|
|
|Cash flows from operating activities:                       
|Net income                                                   |                   
|Adjustments to reconcile net income to net cash provided by 
|operating activities, net of effects of acquisition:         |                   
|Depreciation and amortization                                |                   
|Changes in operating assets and liabilities:                 |                   
|Trade and other accounts receivable                          |                   
|Inventories                                                  |                   
|Deposits, prepaid expenses and
        other assets          |                   
|Accounts payable and accrued
        expenses                |                   
|                                                             |                   
|Net cash (used for)
        provided by operating activities |                   
|                                                             |                   
|Cash flows from investing activities:                        |                   
|Capital expenditures, net of disposals                       |                   
|                                                             |                   
|Net cash used in
        investing activities                |                   
|                                                             |                   
|Cash flows from financing activities:                        |                   
|Cash dividend paid                                           |                   
|Proceeds from the exercise of stock options                  |                   
|                                                             |                   
|Net cash used in
        financing activities                |                   
|                                                             |                   
|Net increase (decrease) in cash and cash equivalents         |                   
|                                                            
|Cash and cash equivalents at beginning of period             |                   
|                                                             |                   
|Cash and cash equivalents at end of period                   |                   
|                                                             |                   

|Supplemental Information:
|-------------------------
|                         
|                         

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

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Notes to the Consolidated Financial Statements

1. 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.
Accordingly, certain information and footnote disclosures normally included in complete
financial statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The accompanying unaudited
interim consolidated financial statements and related notes should be read in conjunction
with the consolidated financial statements and notes thereto included in the Arrhythmia
Research Technology, Inc. (the Company) Annual Report on Form 10-KSB for the
year ended December 31, 2004.

The
information furnished reflects, in the opinion of the management of the Company, all
adjustments necessary for a fair presentation of the financial results for the interim
period presented.

Interim
results are subject to year-end adjustments and audit of year-end results by our
independent registered accounting firm.

2. Inventories:

| | March 31,       | December 31,
| | --------------- | ------------
|
| | Raw materials   |             
| | Work-in-process |             
| | Finished goods  |             
| |                 |             
| | Total           |             
| |                 |             

3. Stock-Based Compensation:

The
Company accounts for stock options at intrinsic value in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25), and complies with the disclosure provisions of Statement of Financial Acounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123)
 and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. (SFAS 148) Had
compensation cost for the Companys stock options been determined based upon the fair
value at the grant date for awards under the plans consistent with the methodology
prescribed under SFAS 123, the
Companys net income would have been adjusted to the pro forma amounts indicated
below:

|                                                 | Three months ended March 31,
|------------------------------------------------ | ----------------------------
|
|Net income - as reported                         |                             
|Deduct: Total stock-based compensation expense   |                             
|determined under fair value
        based method |                             
|                                                
|Net income - pro forma                           |                             
|                                                
|Basic earnings per share:                        |                             
|                                                 | as reported                 
|                                                 | pro forma                   
|Diluted earnings per share:                      |                             
|                                                 | as reported                 
|                                                 | pro forma                   

4. Acquisition:

On
May 7, 2004, the Companys wholly-owned subsidiary, Micron Products, Inc., completed
the purchase of substantially all of the operating assets of privately-held Shrewsbury
Molders Inc. formerly known as New England Molders, Inc. (NEMI) of Shrewsbury,
Massachusetts. Micron paid NEMI a total purchase price of $1,546,000, including $1,146,000
in cash, $400,000 in ART common stock. The final payment of $100,000 in ART stock was made
in February 2005. A final adjustment to the value of the intangible assets was made on
March 31, 2005. The adjustment increased the goodwill and decreased the backlog, customer
relationship, and non-compete intangible assets by $46,000. The adjustment resulted in a
decrease of amortization expense of $13,500 in the period ending March 31, 2005.

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Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Any
forward looking statements made herein are based on current expectations of the Company,
involve a number of risks and uncertainties and should not be considered as guarantees of
future performance. The factors that could cause actual results to differ materially
include: interruptions or cancellation of existing contracts, inability to integrate
acquisitions, impact of competitive products and pricing, product demand and market
acceptance, risks, the presence of competitors with greater financial resources than the
Company, product development and commercialization risks, changing economic conditions in
developing countries, and an inability to arrange additional debt or equity financing.
More information about factors that potentially could affect the Companys financial
results is included in the Companys filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-KSB for the year ended December 31,
2004.

Results of Operations

Revenue
for the three months ended March 31, 2005 was $3,107,699 versus $2,152,117 for the three
months ended March 31, 2004, an increase of 44%. The New England Molders division
contributed revenues of $435,016 in the three month period ending March 31, 2005. The
remaining increase in revenue of $520,566 or 24% for the three months is due to continued
growth in the Micron sensor product line and increases in sales to our growing high volume
custom molding business. There were no sales of the Companys signal-averaging ECG
products in 2005.

Revenue from domestic and foreign
sales for the first three months is as follows:

|              | Three Months Ending March 31,
|------------- | -----------------------------
|              |                              
|Europe        |                              
|Canada        |                              
|United States |                              
|Pacific Rim   |                              
|Other         |                              
|              |                              
|Total         |                              
|              |                              

The
shift in distribution of sales to the domestic market was not just a result of the new
divisions higher percentage of domestic sales, but also reflects the increase of
Micron Products new high volume precision custom molding business.

Cost of saleswas 63% of revenue for the three months ended March 31, 2005
compared to 62% of revenue for the same period in 2004. The process improvements made
during the past year continue to contribute to the stability of the cost to manufacture
product. These programs instituted over the last 24 months continue to maintain margins,
and improvements continue to offset increases in material costs. Management continues to
investigate new methods to increase the overall gross margin without sacrificing product
quality.

Selling and marketing expense was $160,858 for the
three months ended March 31, 2005 as compared to $41,942 for the same period in 2004. The
increased expense of $118,916 is directly attributable to the sales staff in the new
division. The selling and marketing expense was 5% of sales in the three months ended
March 31, 2005 as compared to 2% of sales for the same period in 2004. With the progress
in the integration of the new division, the consolidation of efforts in selling is
expected to result in selling expenses decreasing as a percentage of sales as duplicate
efforts are eliminated.

General and administrative expensewas $331,755 for the three months ended
March 31, 2005 as compared to $274,803 for the same period in 2004. The increase of
$56,952 in the three months ended March 31, 2005 includes the administrative cost of
$34,000 for the new division and an increase in other corporate expenses. Management
expects a decrease in general and administrative expenses in future periods with the
continued consolidation of office operations of the new division to the Fitchburg complex.

---

Research and development expensewas $16,961 for the three months ended
March 31, 2005 as compared to $7,096 for the same period in 2004. The increase was related
to research expenditures for ARTs product, Predictor® 7.

Other income, netwas $6,497 and $7,140 of income for the three months
ended March 31, 2005 and March 31, 2004, respectively. The other income is slightly lower
due to the decrease in the cash balances in the first quarter of 2005.

Income taxesas a percent of income before income taxes were 35% and 36%
for the three months ended March 31, 2005 and March 31, 2004, respectively. Management
will continue to seek to maximize any tax planning opportunities that could effectively
reduce the Companys income tax provision in the future.

Liquidity and Capital Resources

Working
capital was $4,224,101 on March 31, 2005 compared to $3,726,950 at December 31, 2004, an
increase of $497,151. The working capital increase was a result of the increase of sales
contributing to higher accounts receivable and inventories as the business continues to
expand. The reduction to cash resulted from tax payments related to the prior year as well
as the first three months ending March 31, 2005. Capital investment could decrease working
capital further with any significant investment resulting from another acquisition,
significant expansion of production capacity, a medical study, or further software
development.

Net
capital expenditures were $214,100 for the first three months of 2005 as compared to
$366,878 for the same period in 2004. Capital expenditures in the first three months of
2005 included $93,000 of ongoing renovations of 45,000 square feet of space occupied at
the end of 2004 by the NEM Division. The remaining capital expenditures included $121,000
in additional machinery and equipment.

The
Companys stock buyback program announced in June of 2003 has not resulted in any
stock repurchases in the twelve months of 2004, or the first three months of 2005.

The
Company negotiated the terms of a demand line of credit with a different bank than that of
the same period in 2003. The new bank has agreed to an unsecured $1,000,000 credit line.
No funds have been drawn down on the line as of March 31, 2005.

A
cash dividend of $0.06 per share was announced in the first quarter of 2005, to be payable
to shareholders of record on April 28, 2005 with payments commencing on May 5, 2005.

The
Company expects to meet cash demands with current operating cash flows for the foreseeable
future.

Critical Accounting Policies

The
preparation of financial statements and related disclosures in conformity with generally
accepted accounting principles requires management to make judgments, assumptions and
estimates that affect the amounts reported. Certain of these significant accounting
policies are considered to be critical accounting policies, as defined below.

A
critical accounting policy is defined as one that is both material to the presentation of
the Companys financial statements and requires management to make difficult,
subjective or complex judgments that could have a material effect on the Companys
financial condition and results of operations. Specifically, critical accounting estimates
have the following attributes: 1) the Company is required to make assumptions about
matters that are highly uncertain at the time of the estimate; and 2) different estimates
the Company could reasonably have used, or changes in the estimate that are reasonably
likely to occur, would have a material effect on the Companys financial condition or
results of operations.

Estimates
and assumptions about future events and their effects cannot be determined with certainty.
The Company bases its estimates on historical experience and on various other assumptions
believed to be applicable and reasonable under the circumstances. These estimates may
change as new events occur, as additional information is obtained and as the
Companys operating environment changes. These changes have historically been minor
and have been included in the consolidated financial statements as soon as they became
known. In addition, management is periodically faced with uncertainties, the outcomes of
which are not within its control and will not be known for prolonged periods of time.
These uncertainties are discussed in the section above entitled Forward-looking
Statements. Based on a critical assessment of its accounting policies and the
underlying judgments and uncertainties affecting the application of those policies,
management believes that the Companys consolidated financial statements are fairly
stated in accordance with generally accepted accounting principles, and present a
meaningful presentation of the Companys financial condition and results of
operations.

---

Management
believes that the following are critical accounting policies:

Revenue Recognition
and Accounts Receivable

Revenues
from the sale of products are recorded when the product is shipped, title and risk of loss
have transferred to the purchaser, payment terms are fixed or determinable and payment is
reasonably assured.

The
financing of customer purchased tooling utilizes the direct financing method of revenue
recognition. This requires the gain or loss on the sale of the tooling to be recorded at
the time the tool is put into service while the customers stream of payments is
reflected as a lease receivable.

Based
on managements on-going analysis of accounts receivable balances, and after the
initial recognition of the revenue, if an event occurs which adversely affects the
ultimate collectibility of the related receivable, management will record an allowance for
the bad debt. Bad debts have not had a significant impact on our financial condition,
results of operations or cash flows.

Inventory and
Inventory Reserves

The
Company values its inventory at the lower of cost or market. 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. If actual market conditions are less favorable than
those projected by management, additional inventory reserves may be required.

The
Company maintains a reserve for excess, slow moving, and obsolete inventory as well as
inventory with a carrying value in excess of its net realizable value. A review of
inventory on hand is made at least annually and a provision for excess, slow moving, and
obsolete inventory is recorded. The review is based on several factors including a current
assessment of future product demand, historical experience, and product expiration.

Deferred Tax Assets

The
Company assesses its deferred tax assets based upon a more likely than not to be realized
criteria. The Company considers future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance.

Asset Impairment
 Goodwill

The Company
reviews the valuation of goodwill and intangible assets to assess potential impairments on
an annual basis. The management evaluates the carrying value of goodwill and other
intangible assets in accordance with the guidelines set forth in SFAS 142. The value
assigned to intangible assets is determined by a valuation based on estimates and judgment
regarding expectations for the success and life cycle of products acquired. To test for
impairment, a present value of an estimate of future cash flows related to the intangible
assets are calculated compared to the value of the intangible asset. Impairment may have a
material adverse effect on the Companys financial condition or results of
operations. There was no impairment at March 31, 2005.

Asset Impairment
 Long Lived Assets

The Company
assesses the impairment of long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be fully recoverable. When it is determined that
the carrying value of such assets may not be recoverable, the Company generally measures
any impairment on a projected discounted cash flow method using a discount rate determined
by our management to be commensurate with the risk inherent in our current business model.

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# Item 3. Controls and
Procedures

As of the end of the period covered by this Quarterly Report the Companys management, with the
participation of the Companys Chief Executive Officer and Chief Financial Officer (the Certifying Officers), conducted
evaluations of the Companys disclosure controls and procedures. As defined under Sections 13a  15(e) and 15d  15(e) of
the Securities Exchange Act of 1934, as amended (the Exchange Act), the term disclosure controls and procedures means
controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the
issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include without
limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management,
included the Certifying Officers, to allow timely decisions regarding required disclosures. Based on this evaluation, the
Certifying Officers have concluded that the Companys disclosure controls and procedures were effective to ensure that
material information is recorded, processed, summarized and reported by management of the Company on a timely basis in
order to comply with the Companys disclosure obligations under the Exchange Act and the rules and regulations promulgated
thereunder.

Further,
there were no changes in the Companys internal control over financial reporting
during the Companys first fiscal quarter that materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.

# PART II  OTHER INFORMATION

# Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The
Company, as previously reported, in connection with the acquisition of the operating
assets of Shrewsbury Molders, Inc. issued on or about February 1, 2005, as partial
consideration for the assets, an aggregate of 6,325 unregistered shares of its common
stock, par value $0.01 per share, with a value of $100,000 from shares held in treasury.
This was the final issuance of unregistered shares as required by the terms of the May 7,
2004 acquisition agreement.

In
connection with the issuance, the Company relied upon the exemption from registration
pursuant to Regulation D promulgated under the Securities Act of 1933.

# Item 6. Exhibits

| | Exhibit
31.1 - Certification of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
| | ---------------------------------------------------------------------------------------

| | Exhibit
31.2 - Certification of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
| | ---------------------------------------------------------------------------------------

| | Exhibit
32.1 - Certification  pursuant to 18 U.S.C.ss.1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
| | --------------------------------------------------------------------------------------------------------------------------------

| | Exhibit
32.2 - Certification  pursuant to 18 U.S.C.ss.1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
| | --------------------------------------------------------------------------------------------------------------------------------

# SIGNATURES

In accordance with the requirements
of the Securities Exchange Act of 1934, the registrant caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

| | ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
| | ------------------------------------
| |                                     
| | By:                                 
| |                                     
| |                                     
| |                                     
| |                                     
| |                                     
| | By:                                 
| |                                     
| |                                     
| |                                     
| |                                     

May 16, 2005