What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-25 compared with 2021-03-26 · 40 added, 76 removed, 546 unchanged (18% of the section changed)

33 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

We did not audit portions of the consolidated financial statements for Femcare Group Limited, a wholly owned subsidiary.

The portions not audited by us include assets of $26,752,000 and $28,666,000 as of December 31, 2021 and 2020, respectively and total revenues of $4,419,000 and $4,871,000 for the years ended December 31, 2021 and 2020, respectively.

Those portions of the consolidated financial statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for Femcare Group Limited is based solely on the reports of the other auditors.

Basis for Opinion

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We did not audit portions of the consolidated financial statements for Femcare Group Limited, a wholly owned subsidiary.

The portions not audited by us include assets of $28,666,000 and $40,845,000 as of December 31, 2020 and 2019, respectively and total revenues of $4,871,000 and $8,768,000 for the years ended December 31, 2020 and 2019, respectively.

We conducted our audits in accordance with the standards of the PCAOB.

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of revenue recognition

Evaluation of income taxes

Description of the Matter:

As discussed in Notes 1 to the consolidated financial statements, the Company is party to contractual performance obligations which include sales to domestic and foreign countries.

Auditing management’s assessment and recognition of revenue can be complex, involves judgment, and is based on a thorough understanding of the Company’s contracts.

As discussed in Note 1 to the consolidated financial statements, the Company operates in many parts in the world through its’ subsidiaries.

The Company or one of its’ subsidiaries will file a tax return in the U.S.

federal jurisdiction, in the United Kingdom, in Australia, in Ireland, and in Canada.

Due to the complexity with dealing in multiple currencies/countries, along with the various tax laws and significant management judgment, we believe the account to be a critical audit matter.

How We Addressed the Matter in Our Audit:

We evaluated the design and implementation of certain internal controls over the Company's estimation of the costs to be incurred in satisfying performance obligations including walkthroughs of the key controls.

We selected certain performance obligations and read the underlying contract with the customer, evaluated the determination of the method for measuring revenue, confirmed certain foreign transactions with customers and agreed recorded amounts of revenue to shipping documents, invoices and where collection has occurred, to cash receipts.

We evaluated the appropriateness and consistency of management's methods and assumptions used in the identification, recognition, measurement, and disclosures of its' taxes.

We read and evaluated management's documentation, including relevant accounting policies and information obtained by management from the outside tax specialists engaged to assist with their taxes.

/s/ Haynie & Company

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Total liabilities

Commitments and contingencies (note 6 and 12)

Commitments and contingencies (notes 6 and 12)

Stockholders' equity:

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Dividend and interest income

Gains on investments

Royalty income (note 12)

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CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE

YEAR ENDED DECEMBER 31, 2020, 2019 AND 2018

YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019

(In thousands)

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cash provided by operating activities:

Gain on investments

Provision for losses on accounts receivable

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Intangible assets

Proceeds from the sale of investments

Proceeds from the sale of property and equipment

Net cash provided by (used in) investing activities

Net cash (used in) investing activities

Cash flows from financing activities:

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stock options for cash

Shares received and retired upon exercise

of stock options

Stock option compensation expense

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stock options for cash

Shares received and retired upon exercise

of stock options

Stock option compensation expense

Common stock purchased and retired

Foreign currency translation adjustment

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For purposes of the consolidated statement of cash flows, the Company considers cash on deposit and short-term investments with original maturities of three months or less to be cash and cash equivalents.

The Company classifies its investments as “available-for-sale.” Securities classified as “available-for-sale” are carried in the financial statements at fair value.

Realized gains and losses, determined using the specific identification method, are included in operations;

unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive income.

Declines in fair value below cost that are other-than-temporary are included in operations.

As of December 31, 2020 the Company held no investments other than short maturity money market funds which are part of cash and cash equivalents.

Concentration of Credit Risk

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thus, accounts receivable do not bear interest although a late charge may be applied to such receivables that are past the due date.

Accounts receivable are periodically evaluated for collectibility based on past credit history of customers and current market conditions.

Accounts receivable are periodically evaluated for collectability based on past credit history of customers and current market conditions.

Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions (see note 2).

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As demonstrated by decades of experience in successful and consistent collections, there is very minor and insignificant uncertainty regarding the collectability of invoiced amounts reasonably within the terms of the Company’s contracts.

There are circumstances under which insignificant revenue may be recognized when product is not shipped, which meet the criteria of ASU 2014-09:

There are circumstances under which insignificant revenue may be recognized when product is not shipped, which meet the criteria of ASC 606:

the Company provides engineering services, for example, design and production of manufacturing tooling that may be used in subsequent UTMD manufacturing of custom components for other companies.

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The Company accounts for income taxes under ASC 740, “Accounting for Income Taxes,” whereby deferred taxes are computed under the asset and liability method.

The Company accounts for deferred taxes under ASU 2015-17, Income Taxes (Topic 740):

Balance Sheet Classification of Deferred Taxes, which requires that all deferred income taxes are classified as noncurrent in a classified statement of financial position.

The Company accounts for deferred taxes under ASC 740, “Accounting for Income Taxes,” which requires that all deferred income taxes are classified as noncurrent in a classified statement of financial position.

The TCJA contains a deemed repatriation transition tax (REPAT tax) on accumulated earnings and profits of the Company’s non-U.S.

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The Company has elected to pay its net REPAT tax over eight years.

On December 22, 2017, the SEC issued SAB 118 which provided guidance on accounting for the impact of the TCJA.

SAB 118 provides a measurement period of up to one year from enactment for a company to complete its tax accounting under ASC 740.

Once a company was able to make a reasonable estimate and record a provisional amount for effects of the TCJA, it was required to do so.

During the fourth quarter of 2017, the Company recorded a provisional tax charge for the REPAT tax of $ 6,288 and a provisional tax credit of $ 230 for the re-measurement of its U.S.

deferred tax balances.

Both provisional tax amounts were the Company’s reasonable estimate of the impact of the TCJA based on its understanding and available guidance.

During the third quarter of 2018, the Company recognized a benefit of $ 3,230 from adjustments to the provisional amount recorded for the REPAT tax at December 31, 2017, and included this adjustment as a component of income tax expense from continuing operations.

During the fourth quarter of 2019, after consultation with specialists in Utah most knowledgeable of Utah State Tax Commission rules, UTMD’s estimate of the State portion of the REPAT tax was reduced by $ 403 .

The Company recognized a net benefit of $ 266 from its adjustment to the provisional amount recorded for the REPAT tax at December 31, 2017 because the reduced deductibility of the State REPAT tax increased the Federal REPAT tax estimate by $ 137 .

The net $ 266 benefit was included in 4Q 2019 as a component of income tax expense from continuing operations.

The Company or one of its subsidiaries files income tax returns in the U.S.

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The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and any related penalties in income taxes.

The Company did not recognize any tax-related interest expense or have any tax penalties in any of the two years 2018 through 2019.

The Company did not recognize any tax-related interest expense or have any tax penalties in 2019 or 2021.

In 2020 the Company paid tax penalties of $ 4 .

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US Taxes on foreign income

Change in Rate

The domestic and foreign components of income before income tax expense were as follows:

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Changes in stock options were as follows:

77.05 - 77.05

Expired or canceled

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33.30 - 77.05

77.05 - 77.05

Expired or canceled

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26.52 - 74.64

74.64 - 74.64

Expired or canceled

58.50 - 74.64

24.00 - 58.50

Total outstanding at December 31

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Expected life of options

The per share weighted average fair value of options granted during 2020 is $ 16.17 and in 2018 is $ 15.77 .

No options were granted in 2019.

The per share weighted average fair value of options granted during 2020 is $ 16.17 .

No options were granted in 2021 or 2019.

All UTMD options vest over a four-year service period.

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There are no options to extend or terminate the leases.

The parking lot lease contains a provision that requires an adjustment every five years to the lease payment based on the change in the Consumer Price Index.

This adjustment occurred in 2021 requiring an increase of $ 87 to the value of the right-of-use asset and lease liabilities.

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:

As of December 31, 2020

Operating Lease Cost ( in thousands )

Right of Use Assets obtained in exchange for new operating lease obligations

Other Information

Operating lease costs for the years ended December 31, 2021, 2020, and 2019 were $ 63 , $ 61 , and $ 60 , respectively.

Supplemental balance sheet information related to operating leases was as follows ( in thousands ):

As of December 31, 2021

Weighted Average Remaining Lease Term - Operating Leases

Weighted Average Discount Rate – Operating Leases

Operating lease liabilities/ payments ( in thousands )

Operating lease payments, 2021

Operating lease payments, 2022

Operating lease payments, 2023

Operating lease payments, 2024

Operating lease payments, 2025

Reconciliation of operating lease liabilities/ payments to operating lease liabilities ( in thousands )

Total operating lease liabilities/ payments

Operating lease right-of-use assets

Operating lease liabilities – current (included in Accrued Expenses)

Operating lease liabilities – long term

Present value adjustment

Maturities of lease liabilities were as follows ( in thousands ):

Year ending December 31,

Total operating lease liabilities

Maturities of operating lease liabilities at December 31, 2021 were as follows ( in thousands ):

As of December 31, 2021

Total lease payments

imputed interest

Total lease liabilities

The following table provides information on the lease terms and discount rates:

As of December 31, 2021

Weighted average remaining lease term (in years)

Weighted average discount rate

Note 15 – Distribution Agreement Purchase

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Note 17 – Recent Accounting Pronouncements

In May 2014, new accounting guidance (ASU 2014-09) was issued that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.

The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.

UTMD adopted this new standard on January 1, 2018, using a modified retrospective approach.

In accordance with ASU 2014-09, UTMD’s revenue recognition is based on its contracts and the performance obligations identified in them.

With very insignificant and limited exceptions, the Company’s performance obligation is met when it ships a physical product to a customer’s designated location.

The basis on which UTMD recognizes revenue was updated on January 1, 2018, but it did not result in a change to the process and timing of revenue recognition, because the previous revenue recognition method complies with ASU 2014-09.

Therefore, the adoption of ASU 2014-09 did not have an impact on UTMD’s financial statements.

In accordance with this adoption disaggregated revenue is presented in Note 11.

In February 2016, new accounting guidance (ASU 2016-02, Leases (Topic 842)) was issued which requires recording most leases on the balance sheet.

The new lease standard requires disclosure of key information about lease arrangements and aligns many of the underlying principles of this new model with those in the new revenue recognition standard.

This guidance is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted.

The new guidance became effective for UTMD on January 1, 2019.

UTMD applied the requirements using the modified retrospective method and so will not restate comparative financial statements.

Implementation of the standard resulted in addition of right of use assets and lease liabilities of $ 452 to the consolidated condensed balance sheet and will require additional disclosures but will have no effect on the income statement.

UTMD’s only leases are for a portion of the parking lot at the Midvale facility and an automobile in Ireland (see Note 14)

The Company has determined that other recently issued accounting standards will either have no material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations.

Note 18 – Subsequent Events

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data