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, 2004 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 27, 2004 there were
2,638,573 shares of the Companys common stock outstanding. 
Transitional Small Business Disclosure Format    Yes  
No X

---

# ARRHYTHMIA RESEARCH
TECHNOLOGY, INC.

TABLE OF CONTENTS

FORM 10-QSB

March 31, 2004

|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
        2002
|                                                                                                                                 
|Exhibit 31.2 
        Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of
        2002
|                                                                                                                                 
|Exhibit 32.1 
        Certification of Chief Executive Officer pursuant to section 906 of
        the Sarbanes-Oxley Act of 2002
|                                                                                                                                 
|Exhibit 32.2 
        Certification of Chief Financial Officer pursuant to section 906 of
        the Sarbanes-Oxley Act of 2002
|                                                                                                                                 
|Exhibit 99.1 - Press
        Release as issued on May 7, 2004                                                                    

---

# 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 $6,830 and $15,173                                         |           |             
|Inventories, net                                                                |           |             
|Deposits, prepaid
        expenses and other current assets                     |           |             
|                                                                                |           |             
|Total
        current assets                                                    |           |             
|Property and equipment, net of
        accumulated depreciation of              |           |             
|$4,998,168 and
        $4,873,203                                               |           |             
|Goodwill                                                                        |           |             
|Deferred income taxes, net                                                      |           |             
|Other assets                                                                    |           |             
|                                                                                |           |             
|Total assets                                                                    |           |             
|                                                                                |           |             
|                                                                               
|LIABILITIES AND SHAREHOLDERS' EQUITY                                            |           |             
|                                                                               
|Current liabilities:                                                            |           |             
|Accounts payable                                                                |           |             
|Accrued expenses                                                                |           |             
|                                                                                |           |             
|Total current liabilities                                                       |           |             
|                                                                                |           |             
|Shareholders' equity:                                                           |           |             
|Preferred stock, $1
        par value; 2,000,000 shares authorized, none issued |           |             
|Common stock, $.01
        par value; 10,000,000 shares authorized,             |           |             
|3,926,491
        shares and 3,917,491 shares issued                            |           |             
|Additional
        paid-in-capital                                              |           |             
|Common stock held
        in treasury, 1,287,918 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.

---

ARRHYTHMIA RESEARCH
TECHNOLOGY, INC. AND SUBSIDIARY

Consolidated Statements
of Income

(Unaudited)

|                                                             | Three Months Ended March 31,
|------------------------------------------------------------ | ----------------------------
|
|
|Revenue                                                      |                             
|Cost of sales                                                |                             
|                                                             |                             
|Gross profit                                                 |                             
|                                                            
|Selling and marketing                                        |                             
|General and administrative                                   |                             
|Research and development                                     |                             
|                                                             |                             
|Income from operations                                       |                             
|                                                             |                             
|Other income (expense)                                       |                             
|Interest expense                                             |                             
|Other income, net                                            |                             
|                                                             |                             
|Other income and interest expense                            |                             
|                                                             |                             
|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.

---

ARRHYTHMIA RESEARCH
TECHNOLOGY, INC. AND SUBSIDIARY

Consolidated
Statements of Cash Flows

(Unaudited)

|                                                                 | Three Months Ended March 31,
|---------------------------------------------------------------- | ----------------------------
|
|
|Cash flows from operating activities:                            |                             
|Net income                                                       |                             
|Adjustments to reconcile net income
        to net cash          |                             
|provided by
        operating activities:                        |                             
|Depreciation                                                     |                             
|Changes in assets
        and liabilities:                       |                             
|Trade and other accounts receivable                              |                             
|Inventories                                                      |                             
|Deposits, prepaid expenses and other assets                      |                             
|Accounts payable and accrued expenses                            |                             
|                                                                 |                             
|Net cash 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 and warrants |                             
|Purchase of
        treasury stock                               |                             
|                                                                 |                             
|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               |                             
|                                                                 |                             
|Non-cash financing and investing activities                     
|At March 31, 2004 the company has $857 of dividends payable.    

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

---

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, 2003.

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 independent
certified public accountants.

2. Inventories:

Inventories consist of the following as of:

|                | March 31, |   | December 31,
|--------------- | --------- | - | ------------
|
|                |           |   |             
|Raw materials   |           | $ | 192,586     
|Work-in-process |           |   | 291,018     
|Finished goods  |           |   | 487,081     
|                |           |   |             
|Total           |           | $ | 970,685     
|                |           |   |             

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 related interpretations. 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 Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (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                              |                             

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, 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, 2003.

---

Results of Operations

Revenue
for the quarter ended March 31, 2004 was $2,152,117 versus $1,875,568 for the quarter
ended March 31, 2003, an increase of 14.7%. The increase in revenue in the first quarter
is due to continued growth the sensor product line, and increases in other unique
electrode applications to our existing customer base. There were no significant sales of the
Companys signal-averaging ECG products in the first quarter 2004.

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

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

Cost of saleswas 62% of revenue for the quarter ended March 31, 2004 compared to 63% of
revenues for the same period in 2003. The reduction was directly attributable to the
lowering of the cost to manufacture product. The process improvements instituted over the
last 18 months continue to maintain margins, and result in the more efficient use of
energy, materials and chemicals. These improvements have had significant impact on the
total cost of goods sold, and management continues to explore methods to increase gross
margins without sacrificing product quality.

Selling and  marketing  expensewas $41,942 for the quarter ended March 31, 2004 as compared to $47,313 for the same period in
2003.  The  reduction  of $5,371 is directly  attributable  to lower travel  expenses.  The travel  schedule  was not reduced,  but the
timing of the travel will fall in a different period.

General and  administrative  expense was  $274,803  for the quarter  ended March 31, 2004 as compared to $271,166 for the same
period  in  2003.  The  increase  of  $3,637  cannot  be  attributed  to any  single  expense  and at less  than a 2%  increase  is not
significant.  Management will continue to work to contain and reduce these costs.

Research  and  development  expensewas $7,096 for the quarter  ended March 31, 2004 as compared to $1,497 for the same period
in 2003.  The  increase  of $5,599 in the first  quarter  of 2004 was  related to  research  expenditures  related  to ART's  principal
product, Predictor®7 as well as depreciation associated with the research equipment at Micron.

Other income  (expense) was $7,140 of income for the quarter ended March 31, 2004 as compared to $3,291 of income in the same
period of 2003.  The increase of $3,849 is attributed to elimination  of the unused  borrowing base fee from the revolving  credit line
and an increase in interest income associated with greater cash balances.

Income taxesas a percent of income before income taxes were 36% and 27% for the
quarters ended March 31, 2004 and 2003, respectively. The reduction of the deferred tax
asset valuation allowance in the year ended December 31, 2003 and the increase in pretax
earnings has increased the corporate income taxes. Management will continue to maximize
any tax incentive programs that could effectively reduce the Companys tax liability.

Liquidity and Capital Resources

Working
capital was $4,151,049 March 31, 2004 compared to $4,122,793 at December 31, 2003, an
increase of $28,296. Capital investment could decrease working capital with any significant obligation
resulting from an acquisition, significant expansion of production capacity, a medical
study, or further software development.

---

Net
capital expenditures were $366,878 for the first three months of 2004 as compared to
$17,408 for the same period in 2003. Capital expenditures in the first three months of
2004 include $121,323 incurred in the renovation of 45,000 square feet of space expected
to be completed in the summer of 2004, and $245,555 in new tools, machinery and equipment.

The
Companys stock buyback program announced in June of 2003 resulted in the use of
$438,640 of operating cash flows to acquire 148,200 shares of common stock in the first
nine months of 2003. There has been no stock buy back in the first quarter of 2004.

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.
This non-collateralized financial vehicle was in place in December of 2003. No funds have
been drawn down on the line as of March 31, 2004.

The
Company expects to meet cash demands with current operating cash flows for the foreseeable
future with one exception. 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 New England Molders, Inc. (NEMI) of Shrewsbury,
Massachusetts. Micron paid NEMI a total purchase price of $1,500,000, including $1,100,000
in cash and $400,000 in ART common stock or cash at ARTs option. Micron funded the
cash portion of the purchase out of working capital.

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.

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 records a valuation allowance to reduce its deferred tax assets to the amount that
is more likely than not to be realized. While the Company has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance, in the event the Company were to determine that it would be able
to realize its deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such a
determination was made.

Asset Impairment
 Goodwill

The Company
reviews the valuation of goodwill and intangible assets to assess potential impairments.
The management reassesses the useful lives 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 from Micron Products Inc. or others in
the future. If the actual sale of products and market acceptance differs significantly
from the estimates, management may be required to record an impairment charge to write
down the asset to its realizable value. To test for impairment, a present value of an
estimate of future cash flows related to the intangible asset 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. A review of goodwill
determined impairment was not necessary as of March 31, 2004.

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.

# Item 3. Controls and
Procedures

As
of the end of the period covered by this interim report on Form 10-QSB, the Company carried out,
under the supervision of, and with the participation of the Companys Chief Executive
Officer and Chief Financial Officer (the
Certifying Officers), an evaluation of the effectiveness of its
disclosure controls and procedures (as the term is defined under Rules 13a
 15(e) and 15d  15(e) promulgated under the Securities Exchange Act of 1934 as
amended (the Exchange Act)). Based on this evaluation, the Certifying Officers
have concluded that the Companys disclosure controls and procedures were effective
to ensure that material information required to be disclosed in the Company filings under
the Exchange Act with respect to the Company and its consolidated
subsidiaries is recorded, processed, summarized and reported 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 5. Other
Information

| | On
May 6, 2004, the Company filed a registration statement on Form S-3 with the Securities
and Exchange Commission to register 500,000 shares of its Common Stock using a
shelf registration process. The Company may offer shares of its common stock
from time to time under the prospectus at prices and on terms to be determined by market
conditions at the time of the offering. However, the securities subject of the
registration statement may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 7, 2004, the Company issued a press release reporting that its wholly-owned
subsidiary, Micron Products, Inc., completed the purchase of substantially all of the
operating assets of privately-held New England Molders, Inc. (NEMI) of
Shrewsbury, Massachusetts. Micron paid NEMI a total purchase price of $1,500,000,
including $1,100,000 in cash and $400,000 in ART common stock or cash at ARTs
option. Micron funded the cash portion of the purchase out of working capital. A copy of
the press release is attached as Exhibit 99.1. At closing $900,000 was paid, and 7,559 shares
were issued to NEMI with the remaining balance subject to adjustments and payable over the next 12 months.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 6. Exhibits and
Reports on Form 8-K

| | (a) | Exhibits                                                                                                           |                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------
|
| |     | Exhibit 31.1 
        Certification of the CEO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) on page X-1        
|
| |     | Exhibit 31.2 
        Certification of the CFO pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) on page X-2        
|
| |     | Exhibit 32.1  Certification
        pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the        
| |     |                                                                                                                    | Sarbanes-Oxley Act of 2002 on page X-3                                                      
|
| |     | Exhibit 32.2 
        Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the        
| |     |                                                                                                                    | Sarbanes-Oxley Act of 2002 on page X-4                                                      
|
| |     | Exhibit 99.1  Press Release issued on May 7, 2004 on page X-5                                                    
|
| | (b) | Reports filed in the
        first quarter on Form 8-K                                                            
|
| |     | 1.   On March 3, 2004 the
        Company filed a current report on form 8-K reporting the issuance of a press    
| |     |                                                                                                                    | release announcing a proposed
        asset purchase.                                       
|
| |     | 2.   On February 27, 2004
        the Company filed a current report on form 8-K reporting the issuance of a press
| |     |                                                                                                                    | release announcing a cash
        dividend, and the issuance of press release announcing its
| |     |                                                                                                                    | financial results for the
        4th quarter and year ended December 31, 2003              

# SIGNATURES

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

| | ARRHYTHMIA RESEARCH TECHNOLOGY, INC.        
| | --------------------------------------------
| | By:      
        /s/ James E. Rouse        
| | James E. Rouse                              
| | President and Chief Executive Officer       
| | (Principal Executive Officer)               
|
|
| | By:      
        /s/ David A. Garrison     
| | David A. Garrison                           
| | Chief Financial Officer                     
| | (Principal Financial and Accounting Officer)

May 14, 2004