UTAH MEDICAL PRODUCTS INC 10-Q

Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF JUNE 30, 2021 AND DECEMBER 31, 2020 (in thousands) (unaudited) (audited) JUNE 30, 2021 DECEMBER 31, 2020 ASSETS Current assets: Cash & Investments $ 59,506 $ 51,590 Accounts & other receivables, net 4,606 4,104 Inventories 6,118 6,222 Other current assets 357 346 Total current assets 70,587 62,262 Property and equipment, net 10,812 10,949 Operating lease – right-of-use assets, net 356 377 Goodwill 14,236 14,164 Other intangible assets 56,510 56,159 Other intangible assets - accumulated amortization ( 35,707 ) ( 32,166 ) Other intangible assets, net 20,803 23,993 Total assets $ 116,794 $ 111,745 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,186 $ 788 Accrued expenses 3,245 3,003 Total current liabilities 4,431 3,791 Deferred tax liability – Femcare IIA 2,355 2,151 Other long term liabilities 1,835 1,995 Operating lease liability 322 335 Deferred income taxes 486 651 Total liabilities 9,429 8,923 Stockholders' equity: Common stock - $ 0.01 par value; authorized - 50,000 shares; issued - June 30, 2021, 3,646 shares and December 31, 2020, 3,643 shares 36 36 Accumulated other comprehensive loss ( 8,286 ) ( 8,281 ) Additional paid-in capital 289 115 Retained earnings 115,326 110,952 Total stockholders' equity 107,365 102,822 Total liabilities and stockholders' equity $ 116,794 $ 111,745 see notes to consolidated condensed financial statements 1 Table of Contents UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020 (in thousands, except per share amounts - unaudited) Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Sales, net $ 12,604 $ 8,787 $ 23,568 $ 19,689 Cost of goods sold 4,819 3,837 8,836 7,903 Gross profit 7,785 4,950 14,732 11,786 Operating expense Selling, general and administrative 2,892 2,857 5,821 5,696 Research & development 128 116 259 250 Total operating expenses 3,020 2,973 6,080 5,946 Operating income 4,765 1,977 8,652 5,840 Other income 60 - 71 125 Income before provision for income taxes 4,825 1,977 8,723 5,965 Provision for income taxes 1,399 664 2,273 1,513 Net income $ 3,426 $ 1,313 $ 6,450 $ 4,452 Earnings per common share (basic) $ 0.94 $ 0.36 $ 1.77 $ 1.21 Earnings per common share (diluted) $ 0.94 $ 0.36 $ 1.76 $ 1.21 Shares outstanding - basic 3,646 3,643 3,645 3,675 Shares outstanding - diluted 3,655 3,659 3,656 3,690 Other comprehensive income (loss): Foreign currency translation net of taxes of $ 0 in all periods $ 49 $ 522 $ ( 5 ) $ ( 1,927 ) Total comprehensive income $ 3,475 $ 1,835 $ 6,445 $ 2,525 see notes to consolidated condensed financial statements 2 Table of Contents UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020 (in thousands - unaudited) Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,450 $ 4,452 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 325 335 Amortization 3,335 3,242 Provision for (recovery of) losses on accounts receivable 8 ( 14 ) Amortization of Right-of-Use Assets 21 19 Deferred income taxes 22 51 Stock-based compensation expense 82 72 Tax benefit attributable to exercise of stock options 5 7 Changes in operating assets and liabilities: Accounts receivable and other receivables ( 517 ) 903 Inventories 75 387 Prepaid expenses and other current assets ( 14 ) 40 Accounts payable 399 ( 528 ) Accrued expenses 34 385 Total adjustments 3,775 4,899 Net cash provided by operating activities 10,225 9,351 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment ( 222 ) ( 711 ) Intangible assets - - Net cash used in investing activities ( 222 ) ( 711 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - options 92 79 Common stock purchased and retired - ( 6,426 ) Payment of dividends ( 2,077 ) ( 2,077 ) Net cash used in financing activities ( 1,985 ) ( 8,424 ) Effect of exchange rate changes on cash ( 102 ) ( 651 ) Net increase/(decrease) in cash and cash equivalents 7,916 ( 435 ) Cash at beginning of period 51,590 42,787 Cash at end of period $ 59,506 $ 42,352 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 2,279 $ 786 Cash paid during the period for interest - - see notes to consolidated condensed financial statements 3 Table of Contents UTAH MEDICAL PRODUCTS, INC. CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (In thousands - unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income (Loss) Earnings Equity Balance at December 31, 2020 3,643 $ 36 $ 115 $ ( 8,281 ) $ 110,952 $ 102,822 Shares issued upon exercise of employee stock options for cash 3 - 89 - - 89 Stock option compensation expense - - 41 - - 41 Foreign currency translation adjustment - - - ( 54 ) - ( 54 ) Common stock dividends - - - - ( 1,039 ) ( 1,039 ) Net income - - - - 3,024 3,024 Balance at March 31, 2021 3,646 $ 36 $ 245 $ ( 8,335 ) $ 112,937 $ 104,883 Shares issued upon exercise of employee stock options for cash - - 3 - - 3 Stock option compensation expense - - 41 - - 41 Foreign currency translation adjustment - - - 49 - 49 Common stock dividends - - - - ( 1,037 ) ( 1,037 ) Net income - - - - 3,426 3,426 Balance at June 30, 2021 3,646 $ 36 $ 289 $ ( 8,286 ) $ 115,326 $ 107,365 Balance at December 31, 2019 3,722 $ 37 $ 18 $ ( 9,783 ) $ 110,820 $ 101,092 Shares issued upon exercise of employee stock options for cash 1 - 48 - - 48 Stock option compensation expense - - 23 - - 23 Common stock purchased and retired ( 80 ) ( 1 ) ( 89 ) - ( 6,336 ) ( 6,426 ) Foreign currency translation adjustment - - - ( 2,449 ) - ( 2,449 ) Common stock dividends - - - - ( 1,042 ) ( 1,042 ) Net income - - - - 3,140 3,140 Balance at March 31, 2020 3,643 $ 36 $ - $ ( 12,232 ) $ 106,582 $ 94,386 Shares issued upon exercise of employee stock options for cash 1 - 32 - - 32 Stock option compensation expense - - 49 - - 49 Foreign currency translation adjustment - - - 522 - 522 Common stock dividends - - - - ( 1,013 ) ( 1,013 ) Net income - - - - 1,313 1,313 Balance at June 30, 2020 3,643 $ 36 $ 80 $ ( 11,710 ) $ 106,881 $ 95,287 see notes to consolidated condensed financial statements 4 Table of Contents UTAH MEDICAL PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (1) The unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States. These statements should be read in conjunction with the financial statements and notes included in the Utah Medical Products, Inc. ("UTMD" or "the Company") annual report on Form 10-K for the year ended December 31, 2020. In the opinion of management, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. Currency amounts are in thousands except per-share amounts and where noted. (2) Recent Accounting Standards. The Company has determined that recently issued accounting standards will either have no material impact on its consolidated financial position or results of operations or cash flows, or will not apply to its operations. (3) Inventories at June 30, 2021 and December 31, 2020 consisted of the following: June 30, 2021 December 31, 2020 Finished goods $ 1,088 $ 1,363 Work-in-process 1,263 1,375 Raw materials 3,767 3,484 Total $ 6,118 $ 6,222 (4) Stock-Based Compensation. At June 30, 2021, the Company has stock-based employee compensation plans which authorize the grant of stock options to eligible employees and directors. The Company accounts for stock compensation under FASB Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation . This statement requires the Company to recognize compensation cost based on the grant date fair value of options granted to employees and directors. In the quarters ended June 30, 2021 and 2020, the Company recognized $ 41 and $ 49 , respectively, in stock based compensation cost. In the six months ended June 30, 2021 and 2020, the Company recognized $ 82 and $ 72 , respectively, in stock based compensation cost. (5) Warranty Reserve. The Company’s published warranty is: “UTMD warrants its products to conform in all material respects to all published product specifications in effect on the date of shipment, and to be free from defects in material and workmanship for a period of thirty (30) days for supplies, or twenty-four (24) months for equipment, from date of shipment. During the warranty period UTMD shall, at its option, replace any products shown to UTMD's reasonable satisfaction to be defective at no expense to the Purchaser or refund the purchase price.” UTMD maintains a warranty reserve to provide for estimated costs which are likely to occur. The amount of this reserve is adjusted, as required, to reflect its actual experience. Based on its analysis of historical warranty claims and its estimate that existing warranty obligations were immaterial, no warranty reserve was made at December 31, 2020 or June 30, 2021. (6) Global 2Q 2021 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 946 $ 213 $ 1,159 Gynecology/Electrosurgery/Urology 2,873 2,801 5,674 Neonatal 1,303 339 1,642 Blood Pressure Monitoring and Accessories 2,901 1,228 4,129 Total $ 8,023 $ 4,581 $ 12,604 Global 1H 2021 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 1,850 $ 326 $ 2,176 Gynecology/Electrosurgery/Urology 5,486 5,316 10,802 Neonatal 2,476 753 3,229 Blood Pressure Monitoring and Accessories 4,993 2,368 7,361 Total $ 14,805 $ 8,763 $ 23,568 5 Table of Contents (7) Leases UTMD has operating leases for a portion of its parking lot at its Midvale facility and an automobile at its Ireland facility. The remaining lease term on the parking lot is 10 years and on the automobile is 6 months. There are no options to extend or terminate the leases. UTMD has no other leases yet to commence. As neither lease contains implicit rates, UTMD’s incremental borrowing rate, based on information available at adoption date, was used to determine the present value of the leases. The components of lease cost were as follows: Three Months Ended June 30, 2021 Operating Lease Cost ( in thousands ) $ 15 Right of Use Assets obtained in exchange for new operating lease Obligations - Other Information As of June 30, 2021 Weighted Average Remaining Lease Term – Operating Leases 10 years Weighted Average Discount Rate – Operating Leases 5.4 % Operating lease liabilities/ payments ( in thousands ) Operating lease payments, 2021 $ 60 Operating lease payments, 2022 $ 45 Operating lease payments, 2023 $ 45 Operating lease payments, 2024 $ 45 Operating lease payments, 2025 $ 45 Thereafter $ 254 Reconciliation of operating lease liabilities/ payments to operating lease liabilities ( in thousands ) Total operating lease liabilities/ payments $ 464 Operating lease liabilities – current (included in Accrued Expenses) $ 34 Operating lease liabilities – long term $ 322 Present value adjustment $ 108 Maturities of lease liabilities were as follows: ( in thousands ) Year ending December 31, 2021 $ 41 2022 $ 27 2023 $ 29 2024 $ 30 2025 $ 32 Thereafter $ 218 6 Table of Contents (8) Distribution Agreement Purchase. UTMD completed the purchase of exclusive U.S. distribution rights for the Filshie® Clip System from CooperSurgical, Inc. (CSI) on February 1, 2019. The $ 21,000 purchase price represented an identifiable intangible asset which is being straight-line amortized and recognized as part of G&A expenses over a remaining 2.33 year life as of June 30, 2021 of the prior CSI distribution agreement with Femcare. (9) Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to the common stockholders of the company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by assuming the exercise of stock options at the closing price of stock on June 30, 2021. The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share: (in thousands) Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Numerator Net income 3,426 1,313 6,450 4,452 Denominator Weighted average shares, basic 3,646 3,643 3,645 3,675 Dilutive effect of stock options 9 16 11 15 Diluted shares 3,655 3,659 3,656 3,690 Earnings per share, basic 0.94 0.36 1.77 1.21 Earnings per share, diluted 0.94 0.36 1.76 1.21 (10) Subsequent Events. UTMD has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements. 7 Table of Contents