Forward-Looking Statements

Any forward looking statements made herein are based on current expectations of the Company that involve a number of risks and uncertainties and should not be considered as guarantees of future performance. These statements are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements may be identified by the use of words such as "expect," "anticipate," "believe," "intend," "plans," "predict," or "will". Although the Company believes that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Several of these factors include, without limitation: our ability to maintain our current pricing model and/or decrease our cost of sales; continued availability of supplies or materials used in manufacturing at competitive prices; volatility in commodity and energy prices and our ability to offset higher costs with price increases; the costs inherent with complying with new statutes and regulations applicable to public reporting companies, such as the Sarbanes-Oxley Act of 2002; variability of customer delivery requirements; our ability to efficiently integrate future acquisitions and other new lines of business that the Company may enter in the future, if any; and other risks referenced from time to time elsewhere in this report and in our filings with the SEC.

The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. More information about factors that potentially could affect the Company's financial results is included in the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

Arrhythmia Research Technology, Inc. ("ART") is engaged in the licensing of medical software, which acquires data and analyzes electrical impulses of the heart to detect and aid in the treatment of potentially lethal arrhythmias. Micron Products, Inc. ("Micron"), a wholly owned subsidiary, is the primary source of consolidated revenues. Micron manufactures disposable electrode sensors used as a component part in the manufacture of integrated disposable electro-physiological electrodes. These disposable medical devices are used world wide in the monitoring of electric signals in various medical applications. Micron has expanded into custom plastic injection molded products and product life cycle management. Revenues in this sector are primarily custom injection molding, tooling, and end-to-end product life cycle management through a comprehensive portfolio of value-added services such as design, engineering, prototyping, manufacturing, machining, assembly and packaging.

Results of Operations

Revenue for the three months ended March 31, 2009 was $4,683,454 versus $5,459,742 for the three months ended March 31, 2008, a decrease of 14%. Revenues associated with Micron's medical sensors and snaps with silver surcharge decreased by $271,100 and high volume precision molded products and other miscellaneous sales decreased by $21,400. The change in revenues from sensors and snaps is due to price concessions to several large customers. Revenue from the Micron Integrated Technology's (MIT) product life cycle management programs decreased $438,000 partially a result of eliminating the distribution of an unprofitable forging product. The MIT division in Micron Products includes the custom manufacturing and product life cycle businesses. The revenue is derived from the custom molding, precision metal machining and mold making activities. Other sales, including the snap attaching machine business unit, decreased $45,700 when compared to the same period in 2008. There were no sales of the Company's SAECG products in the first three months of 2009 or 2008.

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

                                        Three Months Ending March 31,
                                 2009           %          2008            %
              United States   $ 2,615,989       56      $ 3,066,751        56
              Canada              946,678       20        1,341,015         25
              Europe              801,546       17          793,608       14
              Pacific Rim         151,430        3           99,653         2
              Other               167,811        4          158,715         3
              Total           $ 4,683,454       100     $ 5,459,742        100

The decrease in domestic sales was largely a result of the MIT division's elimination of an unprofitable forging product. Canadian sales decrease is the result of price concessions and a decrease in silver surcharge collected for Micron's electrophysiological sensor product lines.

Cost of sales was $3,739,132 for the three months ended March 31, 2009 as compared to $4,348,304 for the same period in 2008. The cost of sales percentage was 80% of revenue for the three months ended March 31, 2009 and for the same period in 2008. Cost of manufacturing has been stabilized with recent success of a company-wide cost reduction team. The stabilization and reduction of costs remains a priority of management efforts. The inability to increase our sensor prices in the competitive global marketplace hinders passing additional material and utility cost increases to our customers, excluding the escalating cost of silver. Management continues to investigate ways to improve the overall gross margin by elimination of low contribution products while expanding higher margin product lines. Increased investment in automated equipment necessary to lower manufacturing costs and improve gross margin is planned for the balance of 2009.

Selling and marketing expense was $150,449 for the three months ended March 31, 2009 as compared to $190,374 for the same period in 2008. The selling and marketing expense was 3.2% of sales in the three months ended March 31, 2009 and 3.5% for the same period in 2008. Selling expenses continue to be stable as a percentage of sales. The decrease in selling expenses reflect a decrease in personnel and travel costs. Selling expenses as a percentage of sales has been and is expected to remain stable in 2009.

General and administrative expense was $575,505 for the three months ended March 31, 2009 as compared to $616,864 for the same period in 2008. The general and administrative expense was 12% of sales in the three months ended March 31, 2009 and 11% for the same period in 2008. The decrease in expense included a net reduction in personnel cost from the same period in 2008 as well as lower period over period costs related to Section 404 of the Sarbanes-Oxley Act of 2002 compliance.

Research and development expense was $68,758 for the three months ended March 31, 2009 as compared to $83,622 for the same period in 2008. The research and development expense was 1.5% of sales in the three months ended March 31, 2009 and in the same period in 2008. Approximately 11% of the expense was related to ART's product, Predictor®7. Although base development work on Predictor 7 has been completed, product testing costs were expended to support a National Institute of Health research project utilizing ART's proprietary Signal Averaged ECG products and patented algorithms. The remaining portion of the research and development expense is associated with continued work on process improvements to Micron sensor and snap product line. This work is expected to continue through the end of 2009.

Other expense, net was $13,836 versus income of $4,794 for the three months ended March 31, 2009 and 2008, respectively. Interest income in the period ended March 31, 2009 was offset by a loss on disposal of assets of $9,304 and interest expense of $10,253 associated with an equipment note compared with $12,353 interest expense in the period ended March 31, 2008.

Income taxes as a percent of income before income taxes were 40% for the three months ended March 31, 2009 as compared to 34% for the same period in 2008. This difference was the result of tax credits earned in 2008. Management will continue to seek to implement any tax planning opportunities that could effectively reduce the Company's income tax obligations in the future.

Liquidity and Capital Resources

Working capital was $7,686,961 at March 31, 2009 compared to $7,440,721 at December 31, 2008, an increase of $246,240. The increase resulted from the operational cash flows exceeding our capital investment and reduction of debt. Capital investment will decrease working capital with any significant investment resulting from future acquisition of assets or businesses, significant expansion of production capacity, a medical study, or further software development. Capital investment in automation equipment is expected to reduce working capital over the next 6 months of 2009.

Net capital expenditures were $193,932 for the first three months of 2009 as compared to $157,272 for the same period in 2008. The largest portion of the capital expenditures in the first three months of 2009 resulted from the routine replacement of tooling on our sensor product line. In addition, 2009 capital expenditures included deposits on production equipment to be installed in the second and third quarters. Included in the capital expenditures for the same period in 2008 was the continued installation of the Enterprise Resource Planning software, including shop floor bar code acquisition devices, as well as upgrades to and replacement of existing machinery and tooling. Capital expenditures for the three months ended March 31, 2009 were made with cash on hand.

The Company has an unsecured $1,000,000 credit line with a large multinational bank. No funds have been drawn down on the line as of March 31, 2009 or December 31, 2008. The Company has a one year term note secured by equipment with a limit of $813,000. The loan was drawn down by $383,000 for equipment delivered and installed in October 2007. A second payment of $383,000 was made in January of 2008 for this equipment. In the third quarter of 2008 the equipment note was extended for one year with a decrease in the fixed rate from 6.75% to 6.5% per annum. The equipment note is amortized over 6 years with a balloon payment for the remaining balance at September 15, 2009. The acquisition note related to the acquisition of Leominster Tool in December of 2006 was paid in full in March 2008.

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

In October 2008, the Company's Board of Directors authorized the repurchase in the open market from time to time of up to $650,000 of the Company's outstanding stock. An aggregate of 23,389 shares were purchased in the fourth quarter of 2008 under the program for an aggregate of $53,975. No purchases were made in the first three months of 2009.

Critical Accounting Policies

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

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

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

Management believes that the following are critical accounting policies:

Revenue Recognition and Accounts Receivable

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

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

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

Stock-Based Compensation

The Company accounts for share based compensation under SFAS No. 123R, "Share Based Payment" ("FAS 123R"). FAS 123R requires that companies recognize and measure compensation expense for all share-based payments at the grant date based on the fair market value of the award. This share-based compensation expense must be included in the Company's statement of operations over the requisite service period.

The Company uses the Black-Scholes option pricing model which requires extensive use of financial estimates and accounting judgment, including the expected volatility of the Company's common stock over the estimated term, and estimates on the expected time period that employees will retain their vested options prior to exercising them. The use of alternative assumptions could produce significantly different estimates of the fair value of the stock-based compensation and as a result, provide significantly different amounts recognized in the Company's statement of income.

Inventory and Inventory Reserves

The Company values its inventory at the lower of cost or market. The Company reviews its inventory for quantities in excess of production requirements, obsolescence and for compliance with internal quality specifications. Any adjustments to inventory would be equal to the difference between the cost of inventory and the estimated net market value based upon assumptions about future demand, market conditions and expected cost to distribute those products to market. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required.

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

Deferred Tax Assets

The Company assesses its deferred tax assets based upon a more likely than not to be realized criteria. The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In accordance with FIN 48 we recognize the benefits of a tax position if that position is more likely than not to be sustained on audit, based on the technical merit of the position.

Asset Impairment - Goodwill

The Company reviews the valuation of goodwill and intangible assets to assess potential impairments on an annual basis. The management evaluates the carrying value of goodwill and other intangible assets in accordance with the guidelines set forth in SFAS 142. The value assigned to intangible assets is determined by a valuation based on estimates and judgment regarding expectations for the success and life cycle of products and businesses acquired. To test for impairment, present values of an estimate of future discounted cash flows related to the intangible assets are calculated compared to the value of the intangible asset. When impairment exists it could have a material adverse effect on the Company's business, financial condition and results of operations. As of March 31, 2009, no impairment of goodwill was required.

Asset Impairment - Long Lived Assets

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. When it is determined that the carrying value of such assets may not be recoverable, the Company generally measures any impairment based on projected undiscounted future cash flows attributed to the asset and its carrying value. If the carrying value exceeds the future discounted cash flows, asset impairment would be recorded.