UTAH MEDICAL PRODUCTS INC 10-Q

Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 (in thousands) (unaudited) (audited) SEPTEMBER 30, 2022 DECEMBER 31, 2021 ASSETS Current assets: Cash & investments $ 69,511 $ 60,974 Accounts & other receivables, net 6,034 5,132 Inventories 8,310 6,596 Other current assets 387 456 Total current assets 84,242 73,158 Property and equipment, net 9,852 10,618 Operating lease – right-of-use assets, net 406 449 Goodwill 12,871 14,098 Other intangible assets 50,078 55,865 Other intangible assets - accumulated amortization ( 39,036 ) ( 38,552 ) Other intangible assets, net 11,042 17,313 Total assets $ 118,413 $ 115,636 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,289 $ 761 Accrued expenses 4,980 2,984 Total current liabilities 6,269 3,745 Deferred tax liability – Femcare IIA 1,479 2,105 Other long term liabilities 1,675 1,675 Operating lease liability 354 396 Deferred income taxes 450 577 Total liabilities 10,227 8,498 Stockholders' equity: Common stock - $ 0.01 par value; authorized - 50,000 shares; issued - September 30, 2022, 3,625 shares and December 31, 2021, 3,655 shares 36 37 Accumulated other comprehensive income (loss) ( 14,430 ) ( 9,054 ) Additional paid-in capital 58 841 Retained earnings 122,522 115,314 Total stockholders' equity 108,186 107,138 Total liabilities and stockholders' equity $ 118,413 $ 115,636 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021 (in thousands, except per share amounts - unaudited) Three Months Ended Nine Months Ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Sales, net $ 12,955 $ 12,572 $ 38,707 $ 36,140 Cost of goods sold 4,769 4,499 14,838 13,336 Gross profit 8,186 8,073 23,869 22,804 Operating expense Selling, general and administrative 2,933 2,848 8,779 8,669 Research & development 112 127 370 385 Total operating expenses 3,045 2,975 9,149 9,054 Operating income 5,141 5,098 14,720 13,750 Other income 198 59 348 130 Income before provision for income taxes 5,339 5,157 15,068 13,880 Provision for income taxes 1,059 951 3,150 3,224 Net income $ 4,280 $ 4,206 $ 11,918 $ 10,656 Earnings per common share (basic) $ 1.18 $ 1.15 $ 3.27 $ 2.92 Earnings per common share (diluted) $ 1.18 $ 1.15 $ 3.26 $ 2.91 Shares outstanding - basic 3,625 3,647 3,641 3,645 Shares outstanding - diluted 3,634 3,658 3,650 3,656 Other comprehensive income (loss): Foreign currency translation net of taxes of $ 0 in all periods $ ( 2,572 ) $ ( 782 ) $ ( 5,377 ) $ ( 787 ) Total comprehensive income $ 1,708 $ 3,424 $ 6,541 $ 9,869 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021 (in thousands - unaudited) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,918 $ 10,656 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 454 483 Amortization 4,837 4,996 Provision for (recovery of) losses on accounts receivable 21 20 Amortization of right-of-use assets 39 32 Deferred income taxes ( 409 ) ( 160 ) Stock-based compensation expense 121 123 Tax benefit attributable to exercise of stock options - 11 Changes in operating assets and liabilities: Accounts receivable and other receivables ( 1,059 ) ( 802 ) Inventories ( 2,065 ) ( 161 ) Prepaid expenses and other current assets ( 5 ) ( 35 ) Accounts payable 540 242 Accrued expenses 1,075 811 Total adjustments 3,549 5,560 Net cash provided by operating activities 15,467 16,216 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment ( 771 ) ( 299 ) Intangible assets ( 9 ) - Net cash used in investing activities ( 780 ) ( 299 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - options 43 281 Common stock purchased and retired ( 2,495 ) - Payment of dividends ( 2,112 ) ( 3,116 ) Net cash used in financing activities ( 4,564 ) ( 2,835 ) Effect of exchange rate changes on cash ( 1,586 ) ( 351 ) Net increase in cash and cash equivalents 8,537 12,731 Cash at beginning of period 60,974 51,590 Cash at end of period $ 69,511 $ 64,321 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 3,502 $ 3,094 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021 (In thousands - unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income Earnings Equity Balance at June 30, 2022 3,625 $ 36 $ - $ ( 11,858 ) $ 119,293 $ 107,471 Shares issued upon exercise of employee stock options for cash - - 20 - - 20 Stock option compensation expense - - 38 - - 38 Foreign currency translation adjustment - - - ( 2,572 ) - ( 2,572 ) Common stock dividends - - - - ( 1,051 ) ( 1,051 ) Net income - - - - 4,280 4,280 Balance at September 30, 2022 3,625 $ 36 $ 58 $ ( 14,431 ) $ 122,521 $ 108,185 Balance at December 31, 2021 3,655 $ 37 $ 841 $ ( 9,054 ) $ 115,314 $ 107,138 Shares issued upon exercise of employee stock options for cash 1 - 43 - - 43 Stock option compensation expense - - 121 - - 121 Common stock purchased and retired ( 30 ) ( 1 ) ( 947 ) - ( 1,548 ) ( 2,495 ) Foreign currency translation adjustment - - - ( 5,377 ) - ( 5,377 ) Common stock dividends - - - - ( 3,162 ) ( 3,162 ) Net income - - - - 11,918 11,918 Balance at September 30, 2022 3,625 $ 36 $ 58 $ ( 14,431 ) $ 122,521 $ 108,185 Balance at June 30, 2021 3,646 $ 36 $ 289 $ ( 8,286 ) $ 115,326 $ 107,365 Shares issued upon exercise of employee stock options for cash 3 - 189 - - 189 Stock option compensation expense - - 41 - - 41 Foreign currency translation adjustment - - - ( 782 ) - ( 782 ) Common stock dividends - - - - ( 1,040 ) ( 1,040 ) Net income - - - - 4,206 4,206 Balance at September 30, 2021 3,649 $ 36 $ 520 $ ( 9,068 ) $ 118,492 $ 109,980 Balance at December 31, 2020 3,643 $ 36 $ 115 $ ( 8,281 ) $ 110,951 $ 102,822 Shares issued upon exercise of employee stock options for cash 6 - 281 - - 281 Stock option compensation expense - - 123 - - 123 Foreign currency translation adjustment - - - ( 787 ) - ( 787 ) Common stock dividends - - - - ( 3,116 ) ( 3,116 ) Net income - - - - 10,656 10,656 Balance at September 30, 2021 3,649 $ 36 $ 520 $ ( 9,068 ) $ 118,492 $ 109,980 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, 2021. 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 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. (3) Inventories at September 30, 2022, and December 31, 2021, consisted of the following: September 30, 2022 December 31, 2021 Finished goods $ 1,699 $ 1,468 Work-in-process 1,275 1,398 Raw materials 5,336 3,730 Total $ 8,310 $ 6,596 (4) Stock-Based Compensation. At September 30, 2022, 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 September 30, 2022, and 2021, the Company recognized $ 38 and $ 41 , respectively, in stock based compensation cost. In the nine months ended September 30, 2022, and 2021, the Company recognized $ 121 and $ 123 , 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, 2021, or September 30, 2022. (6) Global 3Q 2022 revenues (USD) by product category: Domestic Outside US Total Labor & Delivery $ 1,115 $ 153 $ 1,268 Gynecology/Electrosurgery/Urology 2,724 2,981 5,705 Neonatal 1,514 312 1,826 Blood Pressure Monitoring and Accessories 3,262 894 4,156 Total: $ 8,615 $ 4,340 $ 12,955 Global 9M 2022 revenues (USD) by product category: Domestic Outside US Total Labor & Delivery $ 3,045 $ 479 $ 3,524 Gynecology/Electrosurgery/Urology 7,699 8,531 16,230 Neonatal 4,610 1,002 5,612 Blood Pressure Monitoring and Accessories 9,075 4,266 13,341 Total: $ 24,429 $ 14,278 $ 38,707 5 Table of Contents (7) 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 1.08 year life as of September 30, 2022 of the prior CSI distribution agreement with Femcare Ltd. (8) 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 at the end of 3rd quarter 2022. The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share: ( in thousands ) Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Numerator Net income 4,280 4,206 11,918 10,656 Denominator Weighted average shares, basic 3,625 3,647 3,641 3,645 Dilutive effect of stock options 9 11 9 11 Diluted shares 3,634 3,658 3,650 3,656 Earnings per share, basic 1.18 1.15 3.27 2.92 Earnings per share, diluted 1.18 1.15 3.26 2.91 (9) 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. 6 Table of Contents