v2.4.0.6
Document and Entity Information Document
 3 Months Ended
Mar. 31, 2013
Jun. 27, 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 Mar. 31, 2013  
Document Fiscal Year Focus 2013  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   2,704,239
v2.4.0.6
Consolidated Balance Sheets (USD $)
Mar. 31, 2013
Dec. 31, 2012
Current assets:    
Cash and cash equivalents $ 319,991 $ 477,708
Trade and othe accounts receivable, net of allowance for doubtful accounts of $117,098 3,156,881 3,181,721
Inventory, net 2,759,653 2,415,104
Deferred income taxes 199,432 199,432
Prepaid taxes 194,912 194,912
Deposits, prepdaid expenses and other current assets 452,608 574,999
Current assets from discontinued operations 22,730 34,301
Total current assets 7,106,207 7,078,177
Property, plant and equipment, net 7,136,018 7,158,512
Other intangible assets, net 187,119 156,091
Long-term deferred tax assets, net 2,153,046 2,068,538
Other noncurrent assets 256,517 214,596
Non-current assets from discontinued operation 246,735 284,300
Total assets 17,085,642 16,960,214
Current liabilities:    
Demand line of credit 800,000 800,000
Current portion of equipment notes 1,093,526 267,043
Accounts payable 2,412,837 2,437,778
Accrued expenses 653,054 393,913
Customer deposits 10,731 121,779
Deferred revenue 307,232 315,268
Performance guarantee liability 1,000,000 1,000,000
Current liabilities from discontinued operations 579,835 600,571
Total current liabilities 6,857,215 5,936,352
Long-term liabilities:    
Long-term equipment note, net of current portion 209,389 991,213
Long-term portion of deferred gain on lease 7,817 8,934
Long-term deferred revenue 305,913 326,982
Total long-term liabilities 523,119 1,327,129
Total liabilties 7,380,334 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 11,124,821 11,110,575
Common stock held in treasury, 1,222,252 shares ar cost (3,335,268) (3,335,268)
Accumulated other comprehensive income from foreign currency translation 42,502 42,502
Retained earnings 1,833,988 1,839,659
Total shareholders' equity 9,705,308 9,696,733
Total liabilities and shareholders' equity $ 17,085,642 $ 16,960,214
v2.4.0.6
Consolidated Balance Sheet Parenthetical (Parentheticals) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Allowance for Doubtful Accounts Receivable $ 117,098 $ 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 $ 0
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
v2.4.0.6
Consolidated Statements of Operations (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenues $ 5,643,189 $ 5,831,622
Cost of sales 4,691,041 4,521,561
Gross profit 952,148 1,310,061
Selling and marketing 240,375 238,590
General and administrative 724,130 692,659
Research and development 59,402 133,409
Total operating expense 1,023,907 1,064,658
(Loss) income from operations (71,759) 245,403
Other (expense), net (10,683) (7,625)
(Loss) income from continuing operations before income tax benefit (82,442) 237,778
Income tax benefit (84,509) (96,340)
Income from continuing operations 2,067 334,118
Loss from discontinued operations, net of tax benefit of $5,031 and $207,000, respectively (7,738) (770,037)
Net loss $ (5,671) $ (435,919)
(Loss) income per share - basic and diluted    
Continuing operations $ 0.00 $ 0.12
Discontinued operations $ 0.00 $ (0.28)
Loss per share - basic and diluted $ 0.00 $ (0.16)
Weighted average common shares outstanding - basic and diluted 2,704,239 2,790,514
v2.4.0.6
Consolidated Statements of Operations Parenthetical (Parentheticals) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Income tax benefit, discontinued operations $ 5,031 $ 207,000
v2.4.0.6
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
Stock, Shares, Issued at Dec. 31, 2012 3,926,491 3,926,491   1,222,252    
Share-based compensation 14,246   14,246      
Net loss (5,671)         (5,671)
Stockholders' Equity Attributable to Parent at Mar. 31, 2013 $ 9,705,308 $ 39,265 $ 11,124,821 $ (3,335,268) $ 42,502 $ 1,833,988
Stock, Shares, Issued at Mar. 31, 2013 3,926,491 3,926,491   1,222,252    
v2.4.0.6
Consolidated Statements of Cash Flows (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:    
Net loss $ (5,671) $ (435,919)
Loss from discontinued operations 7,738 770,037
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Loss on sale of fixed asset 0 6,026
Amortization of the gain on lease (1,117) (1,117)
Depreciation and amortization 338,543 349,396
Provision for doubtful accounts 0 15,000
Deferred income taxes (84,508) (91,840)
Share-based compensation 14,246 37,520
Changes in operating assets and liabilities:    
Trade accounts receivable 24,840 (851,895)
Inventories (344,549) (183,648)
Deposits, prepaid expenses and other assets 122,391 (555,541)
Other non-current assets (41,921) (124,198)
Accounts payable (24,940) 658,726
Accrued expenses and other current liabilities 140,521 72,948
Other non-current liabilities (21,069) 168,199
Net cash provided by (used in) operating activities of continuing operations 124,504 (166,306)
Net cash used in operating activities of discontinued operations (46,178) (632,745)
Net cash provided by (used in) operating activities 78,326 (799,051)
Cash flows from investing activities:    
Purchases of property, plant and equipment (63,568) (97,710)
Proceeds from sale of fixed asset 0 303,885
Cash paid for patents and trademarks (32,828) (32,509)
Net cash (used in) provided by investing activities of continuing operations (96,396) 173,666
Net cash provided by (used in) investing activities of discontinued operations 78,814 (425,898)
Net cash used in investing activities (17,582) (252,232)
Cash flows from financing activities:    
Proceeds from equipment note 0 262,960
Principle payments on equipment note (186,657) 0
Cash dividend paid 0 (84,119)
Net cash (used in) provided by financing activities of continuing operations (186,657) 178,841
Net cash (used in) provided by financing activities of discontinued operations (41,183) 0
Net cash (used in) provided by financing activities (227,840) 178,841
Net decrease in cash and cash equivalents (167,096) (872,442)
Cash and cash equivalents at beginning of period 508,590 1,358,223
Cash and cash equivalents at end of period 341,494 485,781
Less cash and cash equivalents of discontinued operations at end of period (21,503) (70,824)
Cash and cash equivalents of continuing operations at end of period $ 319,991 $ 414,957
v2.4.0.6
Note 1. Basis of Presentation
 3 Months Ended
Mar. 31, 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.
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 has experienced net losses, including the discontinued operations of WirelessDx. The Company had borrowings of $800,000 under its line of credit with a bank at March 31, 2013. Borrowings under the line of credit had a maturity date of April 30, 2013, however, the line of credit was paid off on April 4, 2013 and replaced by a new credit facility as outlined below.
On March 29, 2013, the Company entered into a multi-year credit facility with a Massachusetts based bank. The new credit facility includes a revolving line of credit ("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.
The $4.0 million revolver, which provides for borrowings up to 80% of net eligible receivables and 50% of net eligible raw materials inventory, replaces the previous $3.0 million demand line of credit which was scheduled to expire April 30, 2013. The revolver has a maturity date of June 30, 2015.
The $1.5 million commercial term loan was used to refinance existing Equipment notes and to fund other current liabilities of continuing operations. The term loan has a five year term with a maturity date of March 29, 2018.
The equipment line of credit of $1.0 million is for the purchase of capital equipment. Advances on the equipment line shall not exceed 80% of the invoice amount of the equipment being purchased. The term of the equipment line of credit is six years, maturing on March 29, 2019, inclusive of a one year maximum draw period.
The Company expects that its current and anticipated financial resources, including the new credit facility, are adequate to maintain current and planned operations through March 31, 2014. However, if the Company is not successful in generating sufficient revenues, it may not be able to fund its debt obligations or fund operations beyond March 31, 2014. The Company expects to continue to expand its product offerings and improve sales with new and existing channels. The Company expects to meet its goals in these areas and generate the additional cash needed to fund operations into 2013 and beyond; however, there can be no assurance that the Company will be able to do so. The ability of the Company to realize the carrying value of its assets depends on its ability to successfully execute the Company's long-term business plan.
v2.4.0.6
Note 2. Accounting Policies (Notes)
 3 Months Ended
Mar. 31, 2013
Accounting Policies [Abstract]  
Accounting Policies
Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of ART and it's wholly owned subsidiary, Micron Products, Inc. ("Micron", and collectively with ART, the "Company"). 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.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.
Revenue 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 defers revenue recognition on the sale of certain molds and tools, as well as certain engineering and validation services, until customer acceptance, including inspection and installation requirements, as defined, are achieved. The Company evaluates revenue arrangements with potential multi-element deliverables to determine if there is more than one unit of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and there are no customer-negotiated refunds or return rights for the undelivered elements. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or best estimate of selling price (“BESP”) if neither VSOE or TPE is available.
When possible, revenue is allocated to the elements based on VSOE or TPE for each element. For arrangements where VSOE or TPE cannot be established, the Company uses BESP for the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would typically transact a standalone sale of the product or service. BESP is determined by considering a number of factors including the Company's pricing policies, internal costs and gross margin objectives, current market conditions, information gathered from experience in customer negotiations and the competitive landscape.
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 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 evaluates the merits and individual uniqueness of each transaction, the related product(s), and the customer, to determine if the arrangement qualifies for revenue recognition as multiple element arrangements. The Company determined that the estimated product life-cycle, and historical knowledge of the customer will determine the appropriate life over which the deferred revenue will be amortized into revenue, which generally takes place within two to five years of the initiation of the arrangement. Revenue for the production units is recognized upon shipment.
The Company cannot adequately predict short-term or long-term future production units in a consistent and meaningful manner given the prototyping and sampling nature of these molds and associated products. Many of these products require validation of a new design or acceptable end product and their viability in their respective competitive marketplaces. Therefore, the future production possibilities are unpredictable and sometimes volatile making the Company unable to account for the transactions under the Units of Production method. Therefore, management has determined that the most appropriate method of amortizing the amounts into revenue is the straight-line method. The life over which the deferred revenue will be amortized into revenue will be determined based upon the terms of the arrangement, estimated product life-cycle, historical knowledge of the customer and any other relevant information. Management estimates that the amortization of the arrangements will generally take place over a two to five year period.
Furthermore, the Company will use these factors in determining when it may be appropriate to accelerate remaining deferred revenue into income for products for customers who may have excessive time lags between the making of the mold and the production of units from the mold. Product life-cycles, customer supply chains, customer financial performance and other items may be indicators to management that realization of future production orders for the product may be more likely than not or improbable. At such point, management may determine, in its estimates, that it is appropriate to recognize the remaining revenue.
In connection with the preparation of the consolidated financial statements for the year ended December 31, 2012, the Company reviewed the accounting treatment of revenue recognition for certain molds, tooling and validation services (collectively “Tooling”) and their relation to molding or machining of production units for sale to the customer. As a result of such review, management determined that the Company had been incorrectly recognizing revenue for certain Tooling transactions by not deferring the related revenue in accordance with guidance set forth in ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.”
In 2012, the Company determined that the errors were immaterial to the overall presentation of prior year financial statements and therefore revised the prior years as more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The revised March 31, 2012 financial statements are presented in this Form 10-Q as more fully described in Note 11.
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 amount of the Company's long-term and respective short-term portion of Equipment notes were $209,389 and $1,093,526, at March 31, 2013 as compared to 991,213 and $267,043 at December 31, 2012. These amounts approximate the fair value of these instruments as these notes were paid in full on April 4, 2013.
In addition to the Equipment notes, the Company had a line of credit with an outstanding balance of $800,000 at both March 31, 2013 and December 31, 2012 which approximates the fair value of this instrument due to the variable interest rates.
The Equipment notes and the line of credit were both paid off and closed on April 4, 2013 as part of the new bank facility as more fully described in Note 5.
Concentration of credit risk
Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by Accounting Standards Codification (“ASC”) 310 “Receivables”, 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.
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 $117,098 as of March 31, 2013 and December 31, 2012 is adequate.
Inventories
The Company values its inventory at the lower of average cost (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.
Prepaid Tooling
Costs related to the pre-production design and development for certain molds, tooling and validation services (collectively “Tooling”) are classified as other current and other non-current assets as applicable. Prepaid Tooling costs include such costs associated with the production of tools sold to customers, for which the Company is recording corresponding deferred revenue. As deferred revenue is amortized into revenue, the associated prepaid tooling costs are expensed to cost of sales.
Plant, property 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
In accordance with ASC 360, "Long-Lived 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. There were no such triggering events for the three months ended March 31, 2013 or 2012.
Intangible assets consist of the following:
 
March 31, 2013
 
December 31, 2012
 
Weighted average remaining life (years)
Gross
Accumulated Amortization
Net
 
Gross
Accumulated Amortization
Net
Patents and Trademarks
13
$
445,063

$
(421,892
)
$
23,171

 
$
445,063

$
(420,675
)
$
24,388

Patents and Trademarks*
—
143,531

—

143,531

 
110,703

—

110,703

Trade names
9
33,250

(12,833
)
20,417

 
33,250

(12,250
)
21,000

     Total Intangible assets:
 
$
621,844

$
(434,725
)
$
187,119

 
$
589,016

$
(432,925
)
$
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 liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. For the periods ended March 31, 2013 and December 31, 2012, no valuation allowance has been recorded against deferred tax assets from continuing operations.
The Company recorded a valuation allowance against certain foreign and state deferred tax assets associated with discontinued operations. For the year ended December 31, 2012, a valuation allowance of $470,900 was maintained against these assets for which the realization of tax benefit is not more likely than not. Management determined that no change was necessary in the valuation allowance for the period ended March 31, 2013.
Share-based compensation
The Company accounts for share-based compensation under the provisions of ASC 718 “Stock Compensation,” which establishes accounting for equity instruments exchanged for employee services.  Under ASC 718, 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 follows the provisions of ASC 220 “Comprehensive Income,” which establishes standards for reporting and display of comprehensive income, its components, and accumulated balances.  Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners.  There were no changes in comprehensive income in the three months ended March 31, 2013. The Company has accumulated comprehensive income of $42,502 from changes in currency valuations with our discontinued Canadian operations as of March 31, 2013 and December 31, 2012.
Preferred stock
The Company has 2,000,000 shares of $1 par value preferred stock authorized.  No shares have been issued.
(Loss) earnings per share data
The Company follows the provisions of ASC 260 “Earnings Per Share,” which requires the Company to present its basic earnings per share and diluted earnings per share, and certain other earnings per share disclosures for each year presented.  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 March 31, 2013 and December 31, 2012 there were 263,000and 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 March 31,
 
2013
 
Revised     2012
Net loss available to common shareholders
$
(5,671
)
 
$
(435,919
)
Weighted average common shares outstanding
 
2,704,239

 
2,790,514

(Loss) income per share - basic
 
 
 
 
Continuing Operations
 
0.00

 
0.12

Discontinued Operations
 
0.00

 
(0.28
)
Loss per share - basic
$
0.00

 
$
(0.16
)
 
 
 

 
 
Net loss available to common shareholders
$
(5,671
)
 
$
(435,919
)
Weighted average common shares outstanding, basic
 
2,704,239

 
2,790,514

Assumed conversion of net common shares issuable under stock option plans
 
—

 
—

Weighted average common and common equivalent shares outstanding, diluted
 
2,704,239

 
2,790,514

(Loss) income per share - diluted
 
 
 
 
Continuing Operations
 
0.00

 
0.12

Discontinued Operations
 
0.00

 
(0.28
)
Loss per share - diluted
$
0.00

 
$
(0.16
)

Segments
The Company follows the provisions of ASC 280 “Segment Reporting,” which requires reporting of selected information about operating segments in interim and annual financial statements issued to the public.  It also establishes standards for disclosures regarding products and services, geographic areas, and major customers.  ASC 280 defines operating segments as components of an enterprise that engage in business activities that may earn revenues and incur expenses, which have separate financial information available, and are evaluated regularly by the Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance.
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 CODM. The results of the three months ended March 31, 2012 have been reclassified accordingly.
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.
Recent accounting pronouncements
In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-01 Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The main objective of this update is to address implementation issues about the scope of ASU 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities as well as to clarify the scope of the offsetting disclosures and address any unintended consequences of ASU 2011-11. This update helps clarify the scope of disclosures as they apply to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013 and provide the required disclosures retrospectively for all comparative periods presented. At present the Company does not have any derivatives as outlined in Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, or securities borrowings or securities lending transactions. As such, the Company does not expect this update to have a material impact on the Company's results of operations or financial position.
Reclassifications
     Certain reclassifications have been made to prior period amounts to conform to the current period presentation, primarily related to discontinued operations and deferred revenue. In the third quarter of 2012, the Company discontinued the operations of the Company's WirelessDx subsidiaries and has therefore reclassified the March 31, 2012 results of the WirelessDx subsidiaries as discontinued operations. In 2012, the Company revised prior period balances to correct errors in the revenue recognition of certain Tooling transactions (Note 11).
v2.4.0.6
Note 3. Inventories
 3 Months Ended
Mar. 31, 2013
Inventories [Abstract]  
Inventories
Inventories
Inventories consist of the following:
 
March 31,
2013
 
December 31, 2012
Raw materials
$
1,037,061

 
$
521,908

Work-in-process 
334,284

 
248,159

Finished goods
1,388,308

 
1,645,037

Total
$
2,759,653

 
$
2,415,104


The value of silver in inventory at March 31, 2013 and December 31, 2012 as a part of finished goods as plated sensors, work in process, or raw materials was $551,399 and $541,804, respectively. Inventories are stated at their net realizable value, net of a reserve for slow moving and obsolete inventory of $339,984 and $317,484 at March 31, 2013 and December 31, 2012, respectively.
v2.4.0.6
Note 4. Plant, Property & Equipment, net (Notes)
 3 Months Ended
Mar. 31, 2013
Plant, Property & Equipment, net [Abstract]  
Property, Plant & Equipment, net
Plant, property and equipment, net
Property, plant and equipment consist of the following:
 
Asset lives (in years)
March 31, 2013
 
December 31, 2012
Machinery and equipment
 
3
to
15
 
$
12,578,110

 
$
12,298,011

Building and improvements
 
 
20
 
 
4,293,725

 
4,293,725

Vehicles
 
3
to
5
 
94,227

 
94,227

Furniture, fixtures, computers and software
 
3
to
5
 
1,250,471

 
1,246,807

Land
 
 
 
 
 
202,492

 
202,492

Construction in progress
 
 
 
 
 
125,046

 
103,269

Total property, plant and equipment
 
 
 
 
 
18,544,071

 
18,238,531

Less: accumulated depreciation
 
 
 
 
 
(11,408,053
)
 
(11,080,019
)
Property, plant and equipment, net
 
 
 
 
 
$
7,136,018

 
$
7,158,512


For the three months ended March 31, 2013 and 2012 the Company recorded $336,743 and $347,797 of depreciation expense, respectively.
v2.4.0.6
Note 5. Debt
 3 Months Ended
Mar. 31, 2013
Debt [Abstract]  
Debt
Debt
As of March 31, 2013 and December 31, 2012, the Company had the following outstanding debt:
 
March 31, 2013

December 31, 2012

Demand line of credit
$
800,000

$
800,000

 
 
 
Debt:
 
 
Equipment notes
$
1,302,915

$
1,258,256

Less current portion
1,093,526

267,043

Total long-term debt
$
209,389

$
991,213


At March 31, 2013, the Company had a demand line of credit that provided for borrowings up to 80% of eligible accounts receivable and eligible finished goods inventory up to $700,000 at a rate of 2% over LIBOR.  The interest rate at March 31, 2013 and December 31, 2012 was4.20% and 2.21%, respectively. This facility has no borrowing base charge.  There were no additional borrowings on this line during the three months ended March 31, 2013. The outstanding principal balance at March 31, 2013 was $800,000. The demand line of credit had a maturity date of April 30, 2013.
The borrowing agreement contained covenants that applied upon drawing on the line. The covenants related to various matters including notice prior to executing further borrowings and security interests, merger or consolidation, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing, changes in ownership and payment of dividends. This line of credit was paid off and closed on April 4, 2013 as it was refinanced by a new bank facility as described more fully below.
Also, secured by this credit line, the Company had a $1,000,000 letter of credit for a performance guarantee associated with the discontinued operations. This liability is being carried on the balance sheet of continuing operations, as the letter of credit is guaranteed by ART.
During the three months ended March 31, 2013, the Company entered into two new Equipment notes totaling $272,500 with a financing company, to acquire production equipment. As of March 31, 2013, the outstanding balance of these Equipment notes was $259,321. The term of these Equipment notes is five years.
At March 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. During the three months ended March 31, 2012, the Company entered into a new Equipment note for $523,269. This note was structured in such a way that the Company received a cash payout for amounts already paid to vendors of $262,960, with the remaining $260,309 paid by the bank directly to the vendors making total principal amount of the Equipment note entered into $523,269. The cash payout is shown as proceeds from Equipment note on the statement of cash flows for the three months ended March 31, 2012. The remaining amount of $260,309 was a non-cash event and is disclosed in the supplemental cash flow schedule.
The outstanding balances of all Equipment notes under this master lease agreement at March 31, 2013 and December 31, 2012 were $1,302,915 and $1,258,256, respectively. The term of these Equipment notes is five years. The Equipment notes under this master lease agreement were paid off on April 4, 2013, as part of a new bank facility as described more fully below.
On, March 29, 2013, the Company entered into a multi-year credit facility with a Massachusetts based bank to replace the existing demand line of credit. The new credit facility 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.
The $4.0 million revolver, which provides for borrowings up to 80% of net eligible receivables and 50% of net eligible raw materials inventory, replaces the previous $3.0 million demand line of credit which was scheduled to expire April 30, 2013. The revolver has a maturity date of June 30, 2015.
The $1.5 million commercial term loan was used to refinance existing Equipment notes and to fund other current liabilities of continuing operations. The term loan has a five year term with a maturity date of March 29, 2018.
The equipment line of credit of $1.0 million is for the purchase of capital equipment. Advances on the equipment line shall not exceed 80% of the invoice amount of the equipment being purchased. The term of the equipment line of credit is six years, maturing on March 29, 2019, inclusive of a one year maximum draw period.
On April 4, 2013, the commercial term loan of $1.5 million was used to refinance certain equipment notes. Additionally, the new line of credit facility was used to pay off the existing line of credit. The amounts reflected as current at March 31, 2013, reflect the debt balances that were refinanced with a new debt agreement noted above.  The new debt agreement entered into on March 29, 2013, requires the Company to submit its March 31, 2013 quarterly financial statements accompanied by an accountant's review report within 45 days of March 31, 2013.  Thus, the Company is currently not compliant with this covenant.  The Company believes it has a good working relationship with its bank, and as a result, management believes the filing of its March 31, 2013 quarterly financial statements in this form 10Q will cure noncompliance.
v2.4.0.6
Note 6. Income Taxes
 3 Months Ended
Mar. 31, 2013
Income Taxes [Abstract]  
Income Taxes
Income Taxes
The following table sets forth certain information regarding income tax benefit for the three months ended March 31, 2013 and 2012:
 
 
March 31, 2012
 
March 31, 2013
Revised
Income tax (benefit) from continuing operations
$
(84,509
)
$
(96,340
)
The Company accounts for income taxes in accordance with ASC 740 “Income Taxes,” which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse.
As of December 31, 2012, the Company had recorded a valuation allowance against the Canadian portion of its deferred tax assets, consisting of a net operating loss carry forward. Based on the Company's pre-tax losses for the years since the acquisition of WirelessDx, management determined that realization of the assets cannot be considered more likely than not at this time. As of March 31, 2013, management assessed the valuation allowance and determined a full valuation allowance was still necessary. If and when management determines the valuation allowance should be reversed, the adjustment would result in a tax benefit in the consolidated statements of comprehensive income (loss).
For the three months ended March 31, 2013 the tax benefit increased as compared to the prior period due to the extension of the research and development tax credit in January 2013. As of March 31, 2013, management assessed whether a valuation allowance was necessary for the US portion of its deferred tax assets resulting from the net operating losses. Management believes that no valuation allowance is required as the assets are expected to be used by income from continuing operations over the next three years.
The Company files income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. The periods from 2009 to 2012 remain open to examination by the IRS, state, and foreign jurisdictions. The Company believes it is not subject to any significant tax risks related to uncertain tax positions. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the three months ended March 31, 2013 and 2012, respectively.
The Company has also recorded an additional income tax benefit for the three months ended March 31, 2013 and 2012 of $5,031 and $207,000 for discontinued operations which are reflected in the net loss from discontinued operations, net of tax, in the Company's statement of operations.
v2.4.0.6
Note 7. Commitments and Contingencies (Notes)
 3 Months Ended
Mar. 31, 2013
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Legal Matters
The Company is from time to time 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 March 31, 2013.  Management believes that the ultimate resolution of these matters, including like 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 vehicles and equipment under non-cancelable lease arrangements ranging from three to five years.  Lease expense under all operating leases was approximately $50,781 and $52,854 for the three months ended March 31, 2013 and 2012, respectively.
v2.4.0.6
Note 8. Share-Based Compensation
 3 Months Ended
Mar. 31, 2013
Share-based Compensation [Abstract]  
Share-Based Compensation
Share-Based Compensation
     The Company accounts for non-cash share based compensation under Accounting Standards Codification ("ASC") 718 “Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services.  Under the provisions of ASC 718, 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).
The Company recognized share-based compensation expense of $14,246 and $37,520 for the three months ended March 31, 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 months ended March 31, 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 simplified method for estimated option life, which qualifies as "plain vanilla" options and there were no new grants issued for the three months ended March 31, 2013 or 2012.
Share-based Incentive Plan
At March 31, 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 was approved by stockholders at the 2010 Annual Meeting. 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 March 31, 2013, there were 376,000 shares available for future grants under the above stock option plan.
The following table sets forth the stock option transactions for the three months ended March 31, 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
 
—

 
—

 
—
 
—

  Exercised
 
—

 
—

 
—
 
—

  Forfeited/expired
 
(22,000
)
 
$
14.01

 
—
 
—

Outstanding at March 31, 2013
 
263,000

 
$
6.37

 
4.74
 
$
—

Exercisable at March 31, 2013
 
144,000

 
$
6.13

 
2.78
 
$
—


During the three months ended March 31, 2013 and 2012, no options were exercised.  At March 31, 2013 and 2012, the intrinsic value of the exercisable options is $0 and $5,738, respectively.
The following table sets forth the status of the Company’s non-vested options for the three months ended March 31, 2013:
 
 
 
Number of shares
 
Weighted average fair value
Non-vested at December 31, 2012
 
146,100

 
$
2.04

Granted
 
—

 
—

Vested
 
(24,300
)
 
1.90

Forfeited/expired
 
(2,800
)
 
1.60

Non-vested at March 31, 2013
 
119,000

 
$
2.08


The following table presents the average price and contractual life information about options outstanding and exercisable at March 31, 2013: 
Exercise Price
 
Number of Outstanding Shares
 
Weighted Average Remaining Contractual Life (years)
 
Options Currently
Exercisable
 
Average Fair Value
at Grant Date
$
3.41

 
65,000
 
2.76
 
42,000
 
$
0.96

5.73

 
52,000
 
8.18
 
16,000
 
1.42

7.15

 
72,000
 
0.76
 
74,000
 
2.74

9.86

 
74,000
 
8.13
 
12,000
 
0.65

 
 
263,000
 
 
 
144,000
 
 

 
At March 31, 2013, there was $101,433 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 3.13 years.
v2.4.0.6
Note 9. Discontinued Operations
 3 Months Ended
Mar. 31, 2013
Discontinued Operations [Abstract]  
Discontinued Operations
Discontinued Operations
In the third quarter of 2012 the Company discontinued the operations of its WirelessDx subsidiaries. The financial statements presented herein are adjusted for discontinued operations. Management expects the remaining assets to be sold by the end of 2013.
Net revenues from discontinued operations for the three months ended March 31, 2013 and 2012 were $0 and $89,042, respectively. Loss from discontinued operations is presented net of income tax benefits of $5,031 and $207,000 for the the three months ended March 31, 2013 and 2012, respectively.
At March 31, 2013 and December 31, 2012, the Company is carrying a $1.0 million contingent liability, for an unmet performance obligation related to an economic incentive package, related to the discontinued operations. The liability has been guaranteed by ART and is therefore carried on the balance sheet of continuing operations. The outcome of this liability will be determined on or before June 2014.
The assets and liabilities of the discontinued operations are presented in the unaudited March 31, 2013 and audited December 31, 2012 condensed consolidated balance sheet excluding intercompany loans which exceed net book value listed below:
 
March 31, 2013
 
December 31, 2012
Cash
$
21,503

 
$
30,882

Prepaid expenses and other assets
1,227

 
3,419

     Total current assets from discontinued operations
22,730

 
34,301

 
 
 
 
Property and equipment, net of impairment and accumulated depreciation of $812,277 and $1,434,937, respectively
241,704

 
284,300

Deferred taxes, non-current
5,031

 
—

     Total non-current assets from discontinued operations
246,735

 
284,300

     Total assets from discontinued operations
$
269,465

 
$
318,601

Accounts payable
579,835

 
477,324

Accrued expenses
—

 
123,247

    Total current liabilities from discontinued operations
579,835

 
600,571

    Total liabilities from discontinued operations
$
579,835

 
$
600,571
v2.4.0.6
Note 10. Supplemental Cash Flow Disclosure (Notes)
 3 Months Ended
Mar. 31, 2013
Supplemental Cash Flow [Abstract]  
Supplemental Cash Flow
Supplemental Cash Flow Disclosures
 
Three months ended March 31,
 
2013
2012 Revised
Cash paid for interest
$
10,536

$
—

Cash paid for income taxes
—

130,000

Acquisition of fixed assets with an equipment note
272,500

260,309

 
 
 
v2.4.0.6
Note 11. Reclassification of prior periods (Notes)
 3 Months Ended
Mar. 31, 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 discontinued operations and deferred revenue. In the third quarter of 2012 the Company discontinued the operations of the Company's WirelessDx subsidiaries and has therefore reclassified the March 31, 2012 results of the WirelessDx subsidiaries as discontinued operations. 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
During the year end audit of the Company's 2012 balance sheet and statement of operations, the Company identified prior period errors relating to the accounting for certain Tooling transactions. The Company had been incorrectly recognizing revenue for certain Tooling transactions by not deferring the related revenue in accordance with guidance set forth in ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” As a result of the error in revenue recognition of multiple element arrangements, reported revenue and costs of sales as well as total assets and total liabilities have been misstated.
In evaluating whether the Company's previously issued consolidated financial statements were materially misstated, the Company considered the guidance in ASC 250, "Accounting for Changes and Error Corrections," ASC 250-10-S99-1, "Assessing Materiality" and ASC 250-10-S99-2 "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." 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 March 31, 2012 is summarized below:
March 31, 2012
 
As originally reported
Adjusted for discontinued operations
Correction of error adjustment
As revised
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
  Deferred income taxes
 
$
64,100

$
—

$
69,710

$
133,810

  Deposits, prepaid expenses and other current assets
 
1,109,653

(77,239
)
290,756

1,323,170

    Total current assets
 
9,632,253

(325,078
)
360,466

9,667,641

  Other non-current assets
 
—

—

212,176

212,176

    Total assets
 
19,887,615

2,489,614

572,642

22,949,871

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
  Deferred revenue
 
—

—

375,363

375,363

    Total current liabilities
 
3,775,994

(513,679
)
375,363

3,637,678

Long-term liabilities:
 
 
 
 
 
  Long-term deferred revenue
 
—

—

304,274

304,274

    Total Long-term liabilities
 
681,169

415,000

304,274

1,400,443

    Total liabilities
 
4,457,163

(98,679
)
679,637

5,038,121

Shareholders’ equity:
 
 
 
 
 
  Retained earnings
 
7,648,669

3,181,376

(106,995
)
10,723,050

    Total shareholders’ equity
 
15,430,452

2,588,293

(106,995
)
17,911,750

    Total liabilities and shareholders’ equity
 
19,887,615

2,489,614

572,642

22,949,871


The impact of the errors on the Company's statement of operations for the three months ended March 31, 2012 is summarized below:
 
Three months ended March 31, 2012
 
As originally reported
Adjusted for discontinued operations
Correction of error adjustment
As revised
Net revenues
$
6,305,182

$
(89,042
)
$
(384,518
)
$
5,831,622

Cost of sales
5,194,757

(388,652
)
(284,544
)
4,521,561

Gross profit
1,110,425

299,610

(99,974
)
1,310,061

(Loss) income from operations
(631,660
)
977,037

(99,974
)
245,403

(Loss) income before taxes
(639,285
)
977,037

(99,974
)
237,778

Income tax benefit (provision)
(263,900
)
207,000

(39,440
)
(96,340
)
(Loss) income before discontinued operations
(375,385
)
770,037

(60,534
)
334,118

Net loss
(375,385
)
—

(60,534
)
(435,919
)
Loss per share - basic and diluted
(0.13
)
—

(0.03
)
(0.16
)
Weighted average shares outstanding, basic and diluted
2,790,514

—

2,790,514

2,790,514


The impact of the errors on the Company's statement of cash flows for three months ended March 31, 2012 is summarized below:
 
 
Three months ended March 31, 2012
 
 
As originally reported
Adjusted for discontinued operations
Correction of error adjustment
As revised
Net loss
 
$
(375,385
)
$
—

$
(60,534
)
$
(435,919
)
Deferred income taxes
 
(259,400
)
207,000

(39,440
)
(91,840
)
Changes in operating assets and liabilities:
 
 
 
 
—

     Deposits, prepaid expenses and other assets
 
(446,126
)
50,931

(160,346
)
(555,541
)
     Other non-current assets
 
—

—

(124,198
)
(124,198
)
Accounts payable
 
945,194

(286,468
)
 
658,726

     Accrued expenses and other current liabilities
 
(166,177
)
22,806

216,319

72,948

     Other non-current liabilities
 
—

—

168,199

168,199

Net cash used in operating activities
 
(805,077
)
(5,731
)
—

(799,051
)
v2.4.0.6
Note 2. Accounting Policies (Policies)
 3 Months Ended
Mar. 31, 2013
Accounting Policies [Abstract]  
Principles of Consolidation
Principles of Consolidation
The consolidated financial statements include the accounts of ART and it's wholly owned subsidiary, Micron Products, Inc. ("Micron", and collectively with ART, the "Company"). 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.
Use of Estimates
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.
Revenue 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 defers revenue recognition on the sale of certain molds and tools, as well as certain engineering and validation services, until customer acceptance, including inspection and installation requirements, as defined, are achieved. The Company evaluates revenue arrangements with potential multi-element deliverables to determine if there is more than one unit of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and there are no customer-negotiated refunds or return rights for the undelivered elements. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or best estimate of selling price (“BESP”) if neither VSOE or TPE is available.
When possible, revenue is allocated to the elements based on VSOE or TPE for each element. For arrangements where VSOE or TPE cannot be established, the Company uses BESP for the allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would typically transact a standalone sale of the product or service. BESP is determined by considering a number of factors including the Company's pricing policies, internal costs and gross margin objectives, current market conditions, information gathered from experience in customer negotiations and the competitive landscape.
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 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 evaluates the merits and individual uniqueness of each transaction, the related product(s), and the customer, to determine if the arrangement qualifies for revenue recognition as multiple element arrangements. The Company determined that the estimated product life-cycle, and historical knowledge of the customer will determine the appropriate life over which the deferred revenue will be amortized into revenue, which generally takes place within two to five years of the initiation of the arrangement. Revenue for the production units is recognized upon shipment.
The Company cannot adequately predict short-term or long-term future production units in a consistent and meaningful manner given the prototyping and sampling nature of these molds and associated products. Many of these products require validation of a new design or acceptable end product and their viability in their respective competitive marketplaces. Therefore, the future production possibilities are unpredictable and sometimes volatile making the Company unable to account for the transactions under the Units of Production method. Therefore, management has determined that the most appropriate method of amortizing the amounts into revenue is the straight-line method. The life over which the deferred revenue will be amortized into revenue will be determined based upon the terms of the arrangement, estimated product life-cycle, historical knowledge of the customer and any other relevant information. Management estimates that the amortization of the arrangements will generally take place over a two to five year period.
Furthermore, the Company will use these factors in determining when it may be appropriate to accelerate remaining deferred revenue into income for products for customers who may have excessive time lags between the making of the mold and the production of units from the mold. Product life-cycles, customer supply chains, customer financial performance and other items may be indicators to management that realization of future production orders for the product may be more likely than not or improbable. At such point, management may determine, in its estimates, that it is appropriate to recognize the remaining revenue.
In connection with the preparation of the consolidated financial statements for the year ended December 31, 2012, the Company reviewed the accounting treatment of revenue recognition for certain molds, tooling and validation services (collectively “Tooling”) and their relation to molding or machining of production units for sale to the customer. As a result of such review, management determined that the Company had been incorrectly recognizing revenue for certain Tooling transactions by not deferring the related revenue in accordance with guidance set forth in ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.”
In 2012, the Company determined that the errors were immaterial to the overall presentation of prior year financial statements and therefore revised the prior years as more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The revised March 31, 2012 financial statements are presented in this Form 10-Q as more fully described in Note 11.
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 amount of the Company's long-term and respective short-term portion of Equipment notes were $209,389 and $1,093,526, at March 31, 2013 as compared to 991,213 and $267,043 at December 31, 2012. These amounts approximate the fair value of these instruments as these notes were paid in full on April 4, 2013.
In addition to the Equipment notes, the Company had a line of credit with an outstanding balance of $800,000 at both March 31, 2013 and December 31, 2012 which approximates the fair value of this instrument due to the variable interest rates.
The Equipment notes and the line of credit were both paid off and closed on April 4, 2013 as part of the new bank facility as more fully described in Note 5.
Concentration of Risk
Concentration of credit risk
Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by Accounting Standards Codification (“ASC”) 310 “Receivables”, 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.
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 $117,098 as of March 31, 2013 and December 31, 2012 is adequate.
Inventories
Inventories
The Company values its inventory at the lower of average cost (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.
Prepaid Tooling
Prepaid Tooling
Costs related to the pre-production design and development for certain molds, tooling and validation services (collectively “Tooling”) are classified as other current and other non-current assets as applicable. Prepaid Tooling costs include such costs associated with the production of tools sold to customers, for which the Company is recording corresponding deferred revenue. As deferred revenue is amortized into revenue, the associated prepaid tooling costs are expensed to cost of sales.
Plant, property and equipment
Plant, property 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
In accordance with ASC 360, "Long-Lived 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. There were no such triggering events for the three months ended March 31, 2013 or 2012.
Intangible assets consist of the following:
 
March 31, 2013
 
December 31, 2012
 
Weighted average remaining life (years)
Gross
Accumulated Amortization
Net
 
Gross
Accumulated Amortization
Net
Patents and Trademarks
13
$
445,063

$
(421,892
)
$
23,171

 
$
445,063

$
(420,675
)
$
24,388

Patents and Trademarks*
—
143,531

—

143,531

 
110,703

—

110,703

Trade names
9
33,250

(12,833
)
20,417

 
33,250

(12,250
)
21,000

     Total Intangible assets:
 
$
621,844

$
(434,725
)
$
187,119

 
$
589,016

$
(432,925
)
$
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 liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. For the periods ended March 31, 2013 and December 31, 2012, no valuation allowance has been recorded against deferred tax assets from continuing operations.
The Company recorded a valuation allowance against certain foreign and state deferred tax assets associated with discontinued operations. For the year ended December 31, 2012, a valuation allowance of $470,900 was maintained against these assets for which the realization of tax benefit is not more likely than not. Management determined that no change was necessary in the valuation allowance for the period ended March 31, 2013.
Share-based compensation
Share-based compensation
The Company accounts for share-based compensation under the provisions of ASC 718 “Stock Compensation,” which establishes accounting for equity instruments exchanged for employee services.  Under ASC 718, 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 follows the provisions of ASC 220 “Comprehensive Income,” which establishes standards for reporting and display of comprehensive income, its components, and accumulated balances.  Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners.  There were no changes in comprehensive income in the three months ended March 31, 2013. The Company has accumulated comprehensive income of $42,502 from changes in currency valuations with our discontinued Canadian operations as of March 31, 2013 and December 31, 2012.
Preferred stock
Preferred stock
The Company has 2,000,000 shares of $1 par value preferred stock authorized.  No shares have been issued.
(Loss) earnings per share data
(Loss) earnings per share data
The Company follows the provisions of ASC 260 “Earnings Per Share,” which requires the Company to present its basic earnings per share and diluted earnings per share, and certain other earnings per share disclosures for each year presented.  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 March 31, 2013 and December 31, 2012 there were 263,000and 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 March 31,
 
2013
 
Revised     2012
Net loss available to common shareholders
$
(5,671
)
 
$
(435,919
)
Weighted average common shares outstanding
 
2,704,239

 
2,790,514

(Loss) income per share - basic
 
 
 
 
Continuing Operations
 
0.00

 
0.12

Discontinued Operations
 
0.00

 
(0.28
)
Loss per share - basic
$
0.00

 
$
(0.16
)
 
 
 

 
 
Net loss available to common shareholders
$
(5,671
)
 
$
(435,919
)
Weighted average common shares outstanding, basic
 
2,704,239

 
2,790,514

Assumed conversion of net common shares issuable under stock option plans
 
—

 
—

Weighted average common and common equivalent shares outstanding, diluted
 
2,704,239

 
2,790,514

(Loss) income per share - diluted
 
 
 
 
Continuing Operations
 
0.00

 
0.12

Discontinued Operations
 
0.00

 
(0.28
)
Loss per share - diluted
$
0.00

 
$
(0.16
)
Segments
Segments
The Company follows the provisions of ASC 280 “Segment Reporting,” which requires reporting of selected information about operating segments in interim and annual financial statements issued to the public.  It also establishes standards for disclosures regarding products and services, geographic areas, and major customers.  ASC 280 defines operating segments as components of an enterprise that engage in business activities that may earn revenues and incur expenses, which have separate financial information available, and are evaluated regularly by the Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance.
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 CODM. The results of the three months ended March 31, 2012 have been reclassified accordingly.
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.
Recent accounting pronouncements
Recent accounting pronouncements
In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-01 Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The main objective of this update is to address implementation issues about the scope of ASU 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities as well as to clarify the scope of the offsetting disclosures and address any unintended consequences of ASU 2011-11. This update helps clarify the scope of disclosures as they apply to derivatives accounted for in accordance with Topic 815 Derivatives and Hedging. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013 and provide the required disclosures retrospectively for all comparative periods presented. At present the Company does not have any derivatives as outlined in Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, or securities borrowings or securities lending transactions. As such, the Company does not expect this update to have a material impact on the Company's results of operations or financial position.
Reclassification
Reclassifications
     Certain reclassifications have been made to prior period amounts to conform to the current period presentation, primarily related to discontinued operations and deferred revenue. In the third quarter of 2012, the Company discontinued the operations of the Company's WirelessDx subsidiaries and has therefore reclassified the March 31, 2012 results of the WirelessDx subsidiaries as discontinued operations. In 2012, the Company revised prior period balances to correct errors in the revenue recognition of certain Tooling transactions (Note 11).
v2.4.0.6
Note 2. Accounting Policies (Tables)
 3 Months Ended
Mar. 31, 2013
Intangible Assets [Abstract]  
Intangible Assets
Intangible assets consist of the following:
 
March 31, 2013
 
December 31, 2012
 
Weighted average remaining life (years)
Gross
Accumulated Amortization
Net
 
Gross
Accumulated Amortization
Net
Patents and Trademarks
13
$
445,063

$
(421,892
)
$
23,171

 
$
445,063

$
(420,675
)
$
24,388

Patents and Trademarks*
—
143,531

—

143,531

 
110,703

—

110,703

Trade names
9
33,250

(12,833
)
20,417

 
33,250

(12,250
)
21,000

     Total Intangible assets:
 
$
621,844

$
(434,725
)
$
187,119

 
$
589,016

$
(432,925
)
$
156,091

* Patents and Trademarks not yet in service.
Basic and diluted EPS
Basic and diluted EPS computations are as follows:
Three months ended March 31,
 
2013
 
Revised     2012
Net loss available to common shareholders
$
(5,671
)
 
$
(435,919
)
Weighted average common shares outstanding
 
2,704,239

 
2,790,514

(Loss) income per share - basic
 
 
 
 
Continuing Operations
 
0.00

 
0.12

Discontinued Operations
 
0.00

 
(0.28
)
Loss per share - basic
$
0.00

 
$
(0.16
)
 
 
 

 
 
Net loss available to common shareholders
$
(5,671
)
 
$
(435,919
)
Weighted average common shares outstanding, basic
 
2,704,239

 
2,790,514

Assumed conversion of net common shares issuable under stock option plans
 
—

 
—

Weighted average common and common equivalent shares outstanding, diluted
 
2,704,239

 
2,790,514

(Loss) income per share - diluted
 
 
 
 
Continuing Operations
 
0.00

 
0.12

Discontinued Operations
 
0.00

 
(0.28
)
Loss per share - diluted
$
0.00

 
$
(0.16
)
v2.4.0.6
Note 3. Inventories (Tables)
 3 Months Ended
Mar. 31, 2013
Inventories [Abstract]  
Inventories
 
March 31,
2013
 
December 31, 2012
Raw materials
$
1,037,061

 
$
521,908

Work-in-process 
334,284

 
248,159

Finished goods
1,388,308

 
1,645,037

Total
$
2,759,653

 
$
2,415,104
v2.4.0.6
Note 4. Plant, Property & Equipment, net (Tables)
 3 Months Ended
Mar. 31, 2013
Property, Plant and Equipment [Abstract]  
Property, Plant & Equipment, net
Property, plant and equipment consist of the following:
 
Asset lives (in years)
March 31, 2013
 
December 31, 2012
Machinery and equipment
 
3
to
15
 
$
12,578,110

 
$
12,298,011

Building and improvements
 
 
20
 
 
4,293,725

 
4,293,725

Vehicles
 
3
to
5
 
94,227

 
94,227

Furniture, fixtures, computers and software
 
3
to
5
 
1,250,471

 
1,246,807

Land
 
 
 
 
 
202,492

 
202,492

Construction in progress
 
 
 
 
 
125,046

 
103,269

Total property, plant and equipment
 
 
 
 
 
18,544,071

 
18,238,531

Less: accumulated depreciation
 
 
 
 
 
(11,408,053
)
 
(11,080,019
)
Property, plant and equipment, net
 
 
 
 
 
$
7,136,018

 
$
7,158,512
v2.4.0.6
Note 5. Debt (Tables)
 3 Months Ended
Mar. 31, 2013
Outstanding Debt [Abstract]  
Outstanding Debt
As of March 31, 2013 and December 31, 2012, the Company had the following outstanding debt:
 
March 31, 2013

December 31, 2012

Demand line of credit
$
800,000

$
800,000

 
 
 
Debt:
 
 
Equipment notes
$
1,302,915

$
1,258,256

Less current portion
1,093,526

267,043

Total long-term debt
$
209,389

$
991,213
v2.4.0.6
Note 6. Income Taxes (Tables)
 3 Months Ended
Mar. 31, 2013
Income Taxes [Abstract]  
Income Taxes
The following table sets forth certain information regarding income tax benefit for the three months ended March 31, 2013 and 2012:
 
 
March 31, 2012
 
March 31, 2013
Revised
Income tax (benefit) from continuing operations
$
(84,509
)
$
(96,340
)
v2.4.0.6
Note 8. Share-Based Compensation (Tables)
 3 Months Ended
Mar. 31, 2013
Share-based Compensation [Abstract]  
Stock Option Transactions
The following table sets forth the stock option transactions for the three months ended March 31, 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
 
—

 
—

 
—
 
—

  Exercised
 
—

 
—

 
—
 
—

  Forfeited/expired
 
(22,000
)
 
$
14.01

 
—
 
—

Outstanding at March 31, 2013
 
263,000

 
$
6.37

 
4.74
 
$
—

Exercisable at March 31, 2013
 
144,000

 
$
6.13

 
2.78
 
$
—
Non Vested Stock Options
The following table sets forth the status of the Company’s non-vested options for the three months ended March 31, 2013:
 
 
 
Number of shares
 
Weighted average fair value
Non-vested at December 31, 2012
 
146,100

 
$
2.04

Granted
 
—

 
—

Vested
 
(24,300
)
 
1.90

Forfeited/expired
 
(2,800
)
 
1.60

Non-vested at March 31, 2013
 
119,000

 
$
2.08
Average Price and Contractual Life for Options
The following table presents the average price and contractual life information about options outstanding and exercisable at March 31, 2013: 
Exercise Price
 
Number of Outstanding Shares
 
Weighted Average Remaining Contractual Life (years)
 
Options Currently
Exercisable
 
Average Fair Value
at Grant Date
$
3.41

 
65,000
 
2.76
 
42,000
 
$
0.96

5.73

 
52,000
 
8.18
 
16,000
 
1.42

7.15

 
72,000
 
0.76
 
74,000
 
2.74

9.86

 
74,000
 
8.13
 
12,000
 
0.65

 
 
263,000
 
 
 
144,000
 
 
v2.4.0.6
Note 9. Discontinued Operations (Tables)
 3 Months Ended
Mar. 31, 2013
Discontinued Operations [Abstract]  
Discontinued Operations
The assets and liabilities of the discontinued operations are presented in the unaudited March 31, 2013 and audited December 31, 2012 condensed consolidated balance sheet excluding intercompany loans which exceed net book value listed below:
 
March 31, 2013
 
December 31, 2012
Cash
$
21,503

 
$
30,882

Prepaid expenses and other assets
1,227

 
3,419

     Total current assets from discontinued operations
22,730

 
34,301

 
 
 
 
Property and equipment, net of impairment and accumulated depreciation of $812,277 and $1,434,937, respectively
241,704

 
284,300

Deferred taxes, non-current
5,031

 
—

     Total non-current assets from discontinued operations
246,735

 
284,300

     Total assets from discontinued operations
$
269,465

 
$
318,601

Accounts payable
579,835

 
477,324

Accrued expenses
—

 
123,247

    Total current liabilities from discontinued operations
579,835

 
600,571

    Total liabilities from discontinued operations
$
579,835

 
$
600,571
v2.4.0.6
Note 10. Supplemental Cash Flow Disclosure (Tables)
 3 Months Ended
Mar. 31, 2013
Supplemental Cash Flows [Abstract]  
Supplemental Cash Flows
 
Three months ended March 31,
 
2013
2012 Revised
Cash paid for interest
$
10,536

$
—

Cash paid for income taxes
—

130,000

Acquisition of fixed assets with an equipment note
272,500

260,309

 
 
 
v2.4.0.6
Note 11. Reclassification of prior periods (Tables)
 3 Months Ended
Mar. 31, 2013
Reclassification of prior periods [Abstract]  
Revisions and Reclassification of prior periods, balance sheet
The impact of the errors on the Company's balance sheet as of March 31, 2012 is summarized below:
March 31, 2012
 
As originally reported
Adjusted for discontinued operations
Correction of error adjustment
As revised
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
  Deferred income taxes
 
$
64,100

$
—

$
69,710

$
133,810

  Deposits, prepaid expenses and other current assets
 
1,109,653

(77,239
)
290,756

1,323,170

    Total current assets
 
9,632,253

(325,078
)
360,466

9,667,641

  Other non-current assets
 
—

—

212,176

212,176

    Total assets
 
19,887,615

2,489,614

572,642

22,949,871

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
  Deferred revenue
 
—

—

375,363

375,363

    Total current liabilities
 
3,775,994

(513,679
)
375,363

3,637,678

Long-term liabilities:
 
 
 
 
 
  Long-term deferred revenue
 
—

—

304,274

304,274

    Total Long-term liabilities
 
681,169

415,000

304,274

1,400,443

    Total liabilities
 
4,457,163

(98,679
)
679,637

5,038,121

Shareholders’ equity:
 
 
 
 
 
  Retained earnings
 
7,648,669

3,181,376

(106,995
)
10,723,050

    Total shareholders’ equity
 
15,430,452

2,588,293

(106,995
)
17,911,750

    Total liabilities and shareholders’ equity
 
19,887,615

2,489,614

572,642

22,949,871
Revisions and Reclassification of prior period, statement of operations
The impact of the errors on the Company's statement of operations for the three months ended March 31, 2012 is summarized below:
 
Three months ended March 31, 2012
 
As originally reported
Adjusted for discontinued operations
Correction of error adjustment
As revised
Net revenues
$
6,305,182

$
(89,042
)
$
(384,518
)
$
5,831,622

Cost of sales
5,194,757

(388,652
)
(284,544
)
4,521,561

Gross profit
1,110,425

299,610

(99,974
)
1,310,061

(Loss) income from operations
(631,660
)
977,037

(99,974
)
245,403

(Loss) income before taxes
(639,285
)
977,037

(99,974
)
237,778

Income tax benefit (provision)
(263,900
)
207,000

(39,440
)
(96,340
)
(Loss) income before discontinued operations
(375,385
)
770,037

(60,534
)
334,118

Net loss
(375,385
)
—

(60,534
)
(435,919
)
Loss per share - basic and diluted
(0.13
)
—

(0.03
)
(0.16
)
Weighted average shares outstanding, basic and diluted
2,790,514

—

2,790,514

2,790,514
Revisions and Reclassification of prior period, statement of cash fows
The impact of the errors on the Company's statement of cash flows for three months ended March 31, 2012 is summarized below:
 
 
Three months ended March 31, 2012
 
 
As originally reported
Adjusted for discontinued operations
Correction of error adjustment
As revised
Net loss
 
$
(375,385
)
$
—

$
(60,534
)
$
(435,919
)
Deferred income taxes
 
(259,400
)
207,000

(39,440
)
(91,840
)
Changes in operating assets and liabilities:
 
 
 
 
—

     Deposits, prepaid expenses and other assets
 
(446,126
)
50,931

(160,346
)
(555,541
)
     Other non-current assets
 
—

—

(124,198
)
(124,198
)
Accounts payable
 
945,194

(286,468
)
 
658,726

     Accrued expenses and other current liabilities
 
(166,177
)
22,806

216,319

72,948

     Other non-current liabilities
 
—

—

168,199

168,199

Net cash used in operating activities
 
(805,077
)
(5,731
)
—

(799,051
)
v2.4.0.6
Note 1. Basis of Presentation (Details) (USD $)
Mar. 31, 2013
Mar. 29, 2013
Dec. 31, 2012
Borrowings under line of credit $ 800,000   $ 800,000
Revolving Line of Credit   4,000,000  
Commercial Term Loan   1,500,000  
Equipment Line of Credit   $ 1,000,000  
Percent Borrowable of net Elegible Recievable, Revolving Loan   80.00%  
Percent Borrowable of net Eligible Raw Materials Inventory, Revolving Loan   50.00%  
v2.4.0.6
Note 2. Accounting Policies Intangible Assets (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Patents and Trademarks [Member]
    
Weighted Average Remaining Life (years) 13  
Intangible Assets, Net (Excluding Goodwill) $ 445,063 $ 445,063
Finite-Lived Intangible Assets, Accumulated Amortization (421,892) (420,675)
Finite-Lived Intangible Assets, Net 23,171 24,388
Patents and Trademarks not yet in service [Member]
    
Weighted Average Remaining Life (years) 0  
Intangible Assets, Net (Excluding Goodwill) 143,531 110,703
Finite-Lived Intangible Assets, Accumulated Amortization 0 0
Finite-Lived Intangible Assets, Net 143,531 110,703
Trade Names [Member]
    
Weighted Average Remaining Life (years) 9  
Intangible Assets, Net (Excluding Goodwill) 33,250 33,250
Finite-Lived Intangible Assets, Accumulated Amortization (12,833) (12,250)
Finite-Lived Intangible Assets, Net 20,417 21,000
Total Intangible Assets [Member]
    
Intangible Assets, Net (Excluding Goodwill) 621,844 589,016
Finite-Lived Intangible Assets, Accumulated Amortization (434,725) (432,925)
Finite-Lived Intangible Assets, Net $ 187,119 $ 156,091
v2.4.0.6
Note 2. Accounting Policies Basic and Diluited EPS (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Basic and Diluted EPS [Line Items]    
Net loss available to common shareholders $ (5,671) $ (435,919)
Weighted average common shares outstanding 2,704,239 2,790,514
(Loss) income per share - basic [Abstract]    
Continuing operations $ 0.00 $ 0.12
Discontinued operations $ 0.00 $ (0.28)
Loss per share - basic $ 0.00 $ (0.16)
Net loss available to common shareholders (5,671) (435,919)
Weighted average common shares outstanding, basic 2,704,239 2,790,514
Assumed conversion of net common shares issuable under stock option plans $ 0 $ 0
Weighted average common and common equivalent shares outstanding, diluted 2,704,239 2,790,514
(Loss) income per share - diluted [Abstract]    
Continuing operations $ 0.00 $ 0.12
Discontinued operations $ 0.00 $ (0.28)
Loss per share - diluted $ 0.00 $ (0.16)
v2.4.0.6
Note 2. Accounting Policies In text values (Details) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Long-term portion of equipment note $ 209,389 $ 991,213
Current portion of equipment notes 1,093,526 267,043
Line of credit, amount outstanding 800,000 800,000
Allowance for doubtful accounts 117,098 117,098
Deferred tax assets, valuation allowance   470,900
Accumulated comprehensive income, from foreign currency translation $ 42,502 $ 42,502
Preferred stock, shares authorized 2,000,000 2,000,000
Preferred stock, par value $ 1 $ 1
Number of shares outsanding 263,000 285,000
v2.4.0.6
Note 3. Inventories (Details) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Inventories [Line Items]    
Raw materials $ 1,037,061 $ 521,908
Work-in-process 334,284 248,159
Finished goods 1,388,308 1,645,037
Total 2,759,653 2,415,104
Silver intentory 551,399 541,804
Reserve for slow moving and obsolete inventory $ (339,984) $ (317,484)
v2.4.0.6
Note 4. Plant, Property & Equipment, net (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Property, Plant and Equipment [Line Items]      
Machinery and equipment $ 12,578,110   $ 12,298,011
Buildings and improvements 4,293,725   4,293,725
Vehicles 94,227   94,227
Furniture, fixtures, computers and software 1,250,471   1,246,807
Land 202,492   202,492
Construction in progress 125,046   103,269
Total property, plant and equipment 18,544,071   18,238,531
Less: accumulated depreciation (11,408,053)   (11,080,019)
Property, plant and equipment, net 7,136,018   7,158,512
Depreciation expense $ (336,743) $ 347,797  
Minimum [Member]
      
Property, Plant and Equipment [Line Items]      
Machinery and equipment, asset life, years 3    
Vehicles, asset life, years 3    
Furniture, fixtures, computers and software, asset life, years 3    
Maximum [Member]
      
Property, Plant and Equipment [Line Items]      
Machinery and equipment, asset life, years 15    
Vehicles, asset life, years 5    
Furniture, fixtures, computers and software, asset life, years 5    
Service Life [Member]
      
Property, Plant and Equipment [Line Items]      
Building and improvement, asset life, years 20    
v2.4.0.6
Note 5. Debt (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Mar. 29, 2013
Dec. 31, 2012
Debt [Line Items]        
Demand line of credit $ 800,000     $ 800,000
Equipment notes 1,302,915     1,258,256
Less current portion 1,093,526     267,043
Total long-term debt 209,389     991,213
Outstanding Debt Details [Abstract]        
Amount Borrowable Against Finished Goods Inventories 700,000      
Debt Instrument, Interest Rate, Stated Percentage 4.20%     2.21%
Line of Credit, based on performance gaurentee 1,000,000      
Equipment notes, new 272,500      
Outstanding balance, new equipment notes 259,321      
Sale Leaseback Transaction, Gross Proceeds   523,269    
Sale Leaseback Transaction, payment to vendors   260,309    
Proceeds from Sale Lease Back   262,960    
Revolving Line of Credit     4,000,000  
Commercial Term Loan     1,500,000  
Equipment Line of Credit     1,000,000  
Percent Borrowable of net Elegible Recievable, Revolving Loan     80.00%  
Percent Borrowable of net Eligible Raw Materials Inventory, Revolving Loan     50.00%  
Previous Demand Line of Credit       $ 3,000,000
v2.4.0.6
Note 6. Income Taxes (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Income Taxes    
Income Tax Expense (Benefit) $ (84,509) $ (96,340)
Income tax benefit, discontinued operations $ 5,031 $ 207,000
v2.4.0.6
Note 7. Commitments and Contingencies (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Commitments and Contingencies [Line Items]    
Legal matters, approximate costs $ 700,000  
Lease Expense $ 50,781 $ 52,854
v2.4.0.6
Note 8. Share-Based Compensation Stock Option Transactions (Details) (USD $)
 3 Months Ended 3 Months Ended 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Mar. 31, 2013
Number of shares [Member]
Dec. 31, 2012
Number of shares [Member]
Mar. 31, 2013
Weighted Average Exercise Price [Member]
Dec. 31, 2012
Weighted Average Exercise Price [Member]
Mar. 31, 2013
Weighted Average Remaining Contractual Term (Years) [Member]
Dec. 31, 2012
Weighted Average Remaining Contractual Term (Years) [Member]
Mar. 31, 2013
Aggregate Intrinsic Value [Member]
Dec. 31, 2012
Aggregate Intrinsic Value [Member]
Share-based Compensation [Line Items]                    
Number of share outstanding     263,000 285,000            
Weighted average exercise price, shares outstanding         $ 6.37 $ 2.44        
Weighted average remaining contractual term (years), shares outstanding             4.74 4.8    
Aggregate intrinsic value, shares outstanding                 $ 0 $ 0
Number of shares exercisable     144,000 138,900            
Weighted average exercise price, exercisable shares         $ 6.13 $ 2.53        
Weighted average remainging contractual term (years), exercisable shares             2.78 3.1    
Aggregate intrinsic value, exercisable shares                 0 0
Number of shares granted     0              
Weighted average exercise price of granted shares         $ 0.00          
Aggregate intrinsic value of granted shares                 $ 0  
Number of shares exercised     0              
Weighted average exercise price of exercised shares         $ 0          
Aggregate intrinsic value of exercised shares                 0  
Number of shares forfeited/expired     (22,000)              
Weighted average exercise price of forfeited/expired shares         $ 14.01          
Aggregate intrinsic value of shares forfeited/expired                 $ 0  
Intrinsic Value $ 0 $ 5,738                
v2.4.0.6
Note 8. Share-Based Compensation Non- Vested Options (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Stock Options [Member]
    
Share-based Compensation [Line Items]    
Non-vested Stock Options 119,000 146,100
Non-vested options, Granted During Period, Shares 0  
Non-vested options, Vested During Period, number (24,300)  
Non-vested Options, Forfeited/Expired during period, number (2,800)  
Weighted Average [Member]
    
Share-based Compensation [Line Items]    
Non-Vested Stock Options, Fair Value $ 2.08 $ 2.04
Non-vested options, Granted During Period, Fair Value $ 0  
Non-vested options, Vested During Period, Fair Value $ 1.90  
Non-vested options, Forfeited/Expired during period, Fair Value $ 1.60  
v2.4.0.6
Note 8. Share-Based Compensation Average Price and Contractual Life By Expiration Date (Details) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Number of Outstanding Shares 263,000 285,000
Unrecognized cost related to non-vested share-based compensation arrangements granted under the Plan $ 101,433  
Exercise Price $3.41 [Member]
    
Exercise Price $ 3.41  
Number of Outstanding Shares 65,000  
Weighted Average Remaining Contractual Life ( years) 2.76  
Options Currently Exercisable 42,000  
Average Fair Value at Grant Date $ 0.96  
Exercise Price $5.73 [Member]
    
Exercise Price $ 5.73  
Number of Outstanding Shares 52,000  
Weighted Average Remaining Contractual Life ( years) 8.18  
Options Currently Exercisable 16,000  
Average Fair Value at Grant Date $ 1.42  
Exercise Price $7.15 [Member]
    
Exercise Price $ 7.15  
Number of Outstanding Shares 72,000  
Weighted Average Remaining Contractual Life ( years) 0.76  
Options Currently Exercisable 74,000  
Average Fair Value at Grant Date $ 2.74  
Exercise Price $9.86 [Member]
    
Exercise Price $ 9.86  
Number of Outstanding Shares 74,000  
Weighted Average Remaining Contractual Life ( years) 8.13  
Options Currently Exercisable 12,000  
Average Fair Value at Grant Date $ 0.65  
Total Options [Member]
    
Number of Outstanding Shares 263,000  
Options Currently Exercisable 144,000  
v2.4.0.6
Note 8. Share-Based Compensation Share-Based Compensation Expense (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Share-based Compensation Expense [Line Items]    
Share-based Compensation Expense $ 14,246 $ 37,520
v2.4.0.6
Note 9. Discontinued Operations (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Condensed Consolidated Balance Sheet      
Cash $ 21,503   $ 30,882
Prepaid expenses and other assets 1,227   3,419
Total current assets from discontinued operations 22,730   34,301
Property and equipment, net of accumulated depreciation of $812,277 and $1,434,937, respectively 241,704   284,300
Deferred taxes, non-current 5,031   0
Total non-current assets from discontinued operations 246,735   284,300
Total assets from discontinued operations 269,465   318,601
Accounts payable 579,835   477,324
Accrued expenses 0   123,247
Total current liabilities from discontinued operations 579,835   600,571
Total liabilities from discontinued operations 579,835   600,571
Discontinued Operations, revenues, expenses, and liabilities      
Net revenues from discontinued operations 0 89,042  
Loss from discontinued opoerations, net of tax 5,031 207,000  
Unmet performance obligation $ 1,000,000    
v2.4.0.6
Note 10. Supplemental Cash Flow Disclosure (Details) (USD $)
 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Supplemental Cash Fows [Line Items]    
Cash paid for interest $ 10,536 $ 0
Cash paid for income taxes 0 130,000
Acquisition of fixed assets with an equipment note $ 272,500 $ 260,309
v2.4.0.6
Note 11. Reclassification of prior periods Balance Sheet, period reclassification (Details) (USD $)
Mar. 31, 2012
As Originally Reported [Member]
  
Current Assets:  
Deferred income taxes $ 64,100
Deposits, prepaid expenses and other current assets 1,109,653
Total current assets 9,632,253
Other non-current assets 0
Total assets 19,887,615
Current liabilities:  
Deferred revenue 0
Total current liabilities 3,775,994
Long-term liabilities:  
Long-term deferred revenue 0
Total Long-term liabilities 681,169
Total liabilities 4,457,163
Retained earning 7,648,669
Total shareholders' equity 15,430,452
Total liabilities and shareholders' equity 19,887,615
Adjusted for Discontinued Operations [Member]
  
Current Assets:  
Deferred income taxes 0
Deposits, prepaid expenses and other current assets (77,239)
Total current assets (325,078)
Other non-current assets 0
Total assets 2,489,614
Current liabilities:  
Deferred revenue 0
Total current liabilities (513,679)
Long-term liabilities:  
Long-term deferred revenue 0
Total Long-term liabilities 415,000
Total liabilities (98,679)
Retained earning 3,181,376
Total shareholders' equity 2,588,293
Total liabilities and shareholders' equity 2,489,614
Correction of error adjustment [Member]
  
Current Assets:  
Deferred income taxes 69,710
Deposits, prepaid expenses and other current assets 290,756
Total current assets 360,466
Other non-current assets 212,176
Total assets 572,642
Current liabilities:  
Deferred revenue 375,363
Total current liabilities 375,363
Long-term liabilities:  
Long-term deferred revenue 304,274
Total Long-term liabilities 304,274
Total liabilities 679,637
Retained earning (106,995)
Total shareholders' equity (106,995)
Total liabilities and shareholders' equity 572,642
As Revised [Member]
  
Current Assets:  
Deferred income taxes 133,810
Deposits, prepaid expenses and other current assets 1,323,170
Total current assets 9,667,641
Other non-current assets 212,176
Total assets 22,949,871
Current liabilities:  
Deferred revenue 375,363
Total current liabilities 3,637,678
Long-term liabilities:  
Long-term deferred revenue 304,274
Total Long-term liabilities 1,400,443
Total liabilities 5,038,121
Retained earning 10,723,050
Total shareholders' equity 17,911,750
Total liabilities and shareholders' equity $ 22,949,871
v2.4.0.6
Note 11. Reclassification of prior periods Statement of Operations, period reclassification (Details) (USD $)
 3 Months Ended
Mar. 31, 2012
As Originally Reported [Member]
  
Reclassification of Prior Periods, Statment of Operations [Line Items]  
Net revenues $ 6,305,182
Cost of sales 5,194,757
Gross profit 1,110,425
(Loss) income from operations (631,660)
(Loss) income before taxes (639,285)
Income tax benefit (provision) (263,900)
(Loss) income before discontinued operations (375,385)
Net loss (375,385)
Loss per share - basic and diluted $ (0.13)
Weighted average shares outstanding, basic and diluted 2,790,514
Adjusted for Discontinued Operations [Member]
  
Reclassification of Prior Periods, Statment of Operations [Line Items]  
Net revenues (89,042)
Cost of sales (388,652)
Gross profit 299,610
(Loss) income from operations 977,037
(Loss) income before taxes 977,037
Income tax benefit (provision) 207,000
(Loss) income before discontinued operations 770,037
Net loss 0
Loss per share - basic and diluted $ 0.00
Weighted average shares outstanding, basic and diluted 0
Correction of error adjustment [Member]
  
Reclassification of Prior Periods, Statment of Operations [Line Items]  
Net revenues (384,518)
Cost of sales (284,544)
Gross profit (99,974)
(Loss) income from operations (99,974)
(Loss) income before taxes (99,974)
Income tax benefit (provision) (39,440)
(Loss) income before discontinued operations (60,534)
Net loss (60,534)
Loss per share - basic and diluted $ (0.03)
Weighted average shares outstanding, basic and diluted 2,790,514
As Revised [Member]
  
Reclassification of Prior Periods, Statment of Operations [Line Items]  
Net revenues 5,831,622
Cost of sales 4,521,561
Gross profit 1,310,061
(Loss) income from operations 245,403
(Loss) income before taxes 237,778
Income tax benefit (provision) (96,340)
(Loss) income before discontinued operations 334,118
Net loss $ (435,919)
Loss per share - basic and diluted $ (0.16)
Weighted average shares outstanding, basic and diluted 2,790,514
v2.4.0.6
Note 11. Reclassification of prior periods Statement of Cash Flows, period reclassification (Details) (USD $)
 3 Months Ended
Mar. 31, 2012
As Originally Reported [Member]
  
Statement of cash flows, period reclassification [Line Items]  
Net loss $ (375,385)
Deferred income taxes (259,400)
Deposits, prepaid expense and other assets (446,126)
Other non-current assets 0
Accounts payable 945,194
Accrued expenses and other current liabilities (166,177)
Other non-current liabilities 0
Net cash used in operating activities (805,077)
Adjusted for Discontinued Operations [Member]
  
Statement of cash flows, period reclassification [Line Items]  
Deferred income taxes 207,000
Deposits, prepaid expense and other assets 50,931
Accounts payable (286,468)
Accrued expenses and other current liabilities 22,806
Other non-current liabilities 0
Net cash used in operating activities (5,731)
Correction of error adjustment [Member]
  
Statement of cash flows, period reclassification [Line Items]  
Net loss (60,534)
Deferred income taxes (39,440)
Deposits, prepaid expense and other assets (160,346)
Other non-current assets (124,198)
Accrued expenses and other current liabilities 216,319
Other non-current liabilities 168,199
Net cash used in operating activities 0
As Revised [Member]
  
Statement of cash flows, period reclassification [Line Items]  
Net loss (435,919)
Deferred income taxes (91,840)
Deposits, prepaid expense and other assets (555,541)
Other non-current assets (124,198)
Accounts payable 658,726
Accrued expenses and other current liabilities 72,948
Other non-current liabilities 168,199
Net cash used in operating activities $ (799,051)