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UTAH MEDICAL PRODUCTS, INC.

INDEX TO FORM 10-Q

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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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-K10 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 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 March 31,June 30, 2022 and December 31, 2021 consisted of the following:

(4) Stock-Based Compensation. At March 31,June 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.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 March 31,June 30, 2022 and 2021, the Company recognized $43$40 and $41, respectively, in stock based compensation cost.

 In the six months ended June 30, 2022 and 2021, the Company recognized $83 and $82, 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 March 31,June 30, 2022.

(6) 1QGlobal 2Q 2022 global revenues (USD) by product category:

Global 1H 2022 revenues (USD) by product category:

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(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 representsrepresented an identifiable intangible asset which is being straight-line amortized and recognized as part of G&A expenses over the now 1.58a remaining 1.33 year remaining life as of June 30, 2022 of the prior CSI distribution agreement with Femcare.

(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 first quarteron June 30, 2022.

The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share:

(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.

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Utah Medical Products, Inc. (UTMD) manufactures and markets a well-established range of specialty medical devices.  The Company’s Form 10-K Annual Report for the year ended December 31, 2021 providedprovides a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report.  Because of the relatively short span of time, results for any given three or six month period in comparison with a previous three or six month period may not be indicative of comparative results for the year as a whole. Currency amounts in the report are in thousands, except per share amounts or where otherwise noted.  Currencies in this report are denoted as $ or USD = U.S. Dollars; AUD = Australia Dollars; £ or GBP = UK Pound Sterling; C$ or CAD = Canadian Dollars; and € or EUR = Euros.  

Analysis of Results of Operations

a)Overview 

Income statement results in the first quarter (1Q) of2Q and 1H 2022 compared to 1Qthe same periods of 2021 were as follows:

Profit marginsThe comparisons of 2Q and 1H 2022 results with the results in 1Qthe same periods of 2021, according to U.S. Generally Accepted Accounting Principles (US GAAP), were affected by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) in 2Q 2021.  The 2Q 2021 $390 increase in deferred UK taxes over the next five years resulted from the fact that the UK decided to increase its corporate income tax rate from 19% to 25% beginning on April 1, 2023.  Therefore, the remaining amortization of Femcare intangible assets from April 1, 2023 through March 11, 2026 will have a 6% ($390) higher income tax impact.  According to US GAAP, a deferred tax liability increase must be booked in the quarter in which the tax law change is enacted. UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustments to its 2021 income tax provisions provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2022 compared to 1Q 2021 follow:2021. Please note that the non-US GAAP exclusion of tax provision adjustments only affects Net Income and Earnings Per Diluted Share (EPS), as follows:

The non-US GAAP comparisons of Net Income and EPS with the prior year’s same periods were consistent with the Income Before Tax comparisons.  Income Before Tax obviously is not affected by income tax provisions.

DomesticConsolidated USD sales were 6.5% higher in 2Q 2022 and 9.3% higher in 1H 2022 higher compared to the same periods in 2021, despite the fact that sales invoiced in foreign currencies in 2022 were hindered by a stronger USD compared to other currencies. An unfavorable foreign currency exchange (FX) rate impact decreased total consolidated 2Q 2022 USD sales by 3.3% ($456) and 1H 2022 sales by 2.3% ($608). Sales invoiced in foreign currencies represented 29% of total consolidated sales (when expressed in USD) during 2Q 2022, and 26% during 1H 2022.

Sales in all product categories, except for sales of the Filshie Clip System which declined in the U.S., were up in 2Q and 1H 2022 compared to the same periods in 2021.

U.S. domestic sales in 1Q2Q 2022 were up 18%,2.4% lower than in 2Q 2021, and sales6.8% higher in 1H 2022 than in 1H 2021.  Sales in 2Q 2022 to customers outside the U.S. (OUS) were up 4%, compared to 1Q 2021.  Using22.2% higher in USD terms, but 32.2% higher using the same foreign currency exchange (FX)FX rates for sales not invoicedas in 2Q 2021 (“constant currency”).   Sales in 1H 2022 to OUS customers were 13.4% higher in USD i.e.terms, but 20.4% higher in “constant currency” terms, sales outsideconstant currency.  

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Gross profits (GP) increased less than revenues primarily due to inflation in the U.S. (OUS) were up 7%. Because 24%variable costs of consolidated sales were invoiced in foreign currencies, the change in FX rates for OUS sales did have an impact on period-to-period relative financial results. FX rates for income statement purposes are transaction-weighted averages. The average FX rates from the applicable foreign currency to USD during 1Q 2022 and 1Q 2021 follow:  

The weighted-average negative impact on foreign currency sales was 5.0%, reducing reported USD sales by $152 relative to the same foreign currency sales in 1Q 2021.  In constant currency terms, total consolidated 1Q 2022 sales were up $1,512 (+14%).

Despite UTMD increasing the unit pricesmanufacturing, despite better absorption of its devices and components approximately 6% across-the-board, its 1Q 2022 Gross Profit Margin (GPM) suffered as the result of significantly higher incremental direct labor, direct materials andfixed manufacturing overhead costs inwith higher sales.  On the U.S.   

UTMD’s Operating Income Margin benefitted from higher sales given thatline, the lower GP margins (GP divided by sales) in both 2Q and 1H periods were offset by the impact of a significant portionstronger USD on the foreign currency expenses of operating expenses are fixed. The $1,105 per quarter straight-line amortizationUTMD’s overseas subsidiaries, as well as better absorption of the $21,000 purchase price that UTMD paid CSI in early 2019 to acquire the remaining 4.75 years’ exclusive U.S. Filshie distribution rights was 9.0% of 1Q 2022 sales compared to 10.1% of 1Q 2021 sales. The purchase price of CSI’s remaining exclusive distribution rights was recognized as anUSD fixed identifiable intangible asset (IIA) amortization expenses which will be fully amortized in 3Q 2023. IIA amortization expense in total, including that remainingresulted from UTMD’s February 2019 acquisition of CooperSurgical Inc’s (CSI’s) U.S. exclusive distribution rights for the 2011 Femcare acquisition, which comprises a significant portion of General & Administrative (G&A) operating expenses, was 13.3% of 1Q 2022 consolidated sales compared to 15.1% of 1Q 2021 consolidated sales.  In other words, UTMD’sFilshie Clip System.  Operating Income Margin excluding IIA amortization expense was 50.0%represented 37.7% of sales in 1Q2Q 2022 compared to 50.6%37.8% of sales in 1Q2Q 2021, and 37.2% of sales in 1H 2022 compared to 36.7% of sales in 1H 2021. UTMD was able to maintain consistent Operating Income margins despite the lower GPMs and litigation expenses which it did not have in the prior year.  

A comparison of 1Q period-to-periodNet Income Before Tax (EBT) was consistent with the Operating Income comparison as 1Qand Earnings per Diluted Share (EPS) per US GAAP increased 19.7% and 19.9% respectively in 2Q 2022 non-operating income was $8 compared to $10 in 1Q2Q 2021. UTMD’s Net Income Marginand EPS per US GAAP increased 18.4% and 18.3% respectively in 1Q1H 2022 was higher than in 1Q 2021 duecompared to a combined1H 2021.   Non-US GAAP Net Income and EPS, which ignores the $390 additional income tax provision rateadjustment in 1Q2021, increased 7.5% and 7.7% respectively in 2Q 2022 that was 22.0% compared to 22.4%a 2Q 2021 normal non-US GAAP operating result.  Non-US GAAP Net Income and EPS increased 11.7% and 11.6% respectively in 1H 2022 compared to a 1H 2021 non-US GAAP operating result.  The non-US GAAP increases in operating income were greater than the increases in sales as a result of EBT$82 higher non-operating income in 1Q2Q 2022 compared to 2Q 2021, and $79 higher non-operating income in 1H 2022 compared to 1H 2021. The primary reason forconsolidated average income tax rates (income tax provision divided by Earnings Before Taxes) follow:

The impact of the lower2Q 2021 deferred tax adjustment is apparent when comparing the US GAAP income tax provision raterates with the non-US GAAP rates.

The percentage increase in 2Q 2022 EPS compared to 2Q 2021 EPS was slightly higher than the distribution mixincrease in Net Income because of subsidiary EBT.shares repurchased in 2Q 2022.

UTMD profit margins in 2Q 2022 and 1H 2022 compared to 2Q 2021 and 1H 2021 follow:

UTMD’s March 31,June 30, 2022 Balance Sheet in the absence of debt, remained strong.continued strong, with no debt. Ending Cash and Investments were $65.9$66.2 million on March 31,June 30, 2022 compared to $61.0 million on December 31, 2021.  Stockholders’ Equity was up $2.0The June 30, 2022 cash balance resulted after paying $1.1 million in cash dividends to stockholders and repurchasing $2.5 million in UTMD stock during 2Q 2022. During the first three month calendar period from December 31, 2021.  FXlast twelve months (TTM) since June 30, 2021, UTMD has returned $12,943 to stockholders in the form of cash dividends and UTMD share repurchases.

Foreign currency exchange (FX) rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 1Q2Q 2022 compared to the end of calendar year 2021 and the end of 1Q2Q 2021 follow:were

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b)Revenues 

Terms of sale are established in advance of UTMD’s acceptance of customer orders. In the U.S., Ireland, UK, France, Canada, Australia and New Zealand, UTMD generally acceptedaccepts orders directly from and shippedships directly to end user clinicalmedical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale. UTMD’s T&C of Sale during 1Q 2022. to end user facilities are substantially the same in the U.S. and OUS. UTMD also has standard T&C of Sale for OEM customers, other medical device and non-medical device customers for components manufactured by UTMD, which are substantially the same, except that prices are generally quoted prior to acceptance of each order.

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UTMD may have separate discounted pricing agreements with a specific clinical facility, or group of affiliated facilities or large OEM customers based on volume of purchases.  Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities or OEM customers, if applicable, are established in advance of orders accepted or shipments made. For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year. For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD’s disclosure that the selling price is fixed prior to the acceptance of a specific customer order.  

2Q 2022 Sales

Total consolidated 1Q2Q 2022 UTMD worldwide (WW) sales were $1,360$824 (+12.4%6.5%) higher than in 1Q2Q 2021. ConstantWithout the negative impact of a stronger USD in converting foreign currency sales, WW constant currency sales were $1,512$1,280 higher (+13.8%10.2%) higher.than in 2Q 2021, which was the second highest sales quarter of 2021.  “Constant currency” sales means exchanging foreign currency sales into USD-denominated sales at the same FX rate as was in the previous period of time being compared.

Overall 2Q 2022 U.S. domestic sales were 17.7%2.4% lower and outside the U.S. (OUS) sales were 22.2% higher, anddespite an FX rate $456 (10.6%) negative impact on sales invoiced in foreign currencies. In other words, 2Q 2022 constant currency OUS sales were 3.8%32.2% higher despite an average 5% stronger USD. Because ofthan in 2Q 2021. In 2021, U.S. domestic sales recovered from the relatively short span of time, results for any given three month period in comparisonCOVID-19 pandemic faster than OUS sales.  In 2022, it appears that OUS sales are catching up with a previous three month period may not be indicative of comparative results for the year as a whole.U.S. recovery.

Domestic U.S. sales in 1Q2Q 2022 were $7,984$7,829 compared to $6,783$8,023 in 1Q2Q 2021.  Domestic sales are invoiced in USD and not subject to FX rate fluctuations. The components of domestic sales include 1) “direct non-Filshie device sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), excluding Filshie device sales, 2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and 3) “Filshie“domestic Filshie device sales”, manufactured by. UTMD separates domestic Filshie device sales from other medical device sales direct to medical facilities because UTMD is simply a distributor for Femcare and distributed in the U.S.  by UTMD.

1)Direct non-Filshie device sales, representing 50%51% of total domestic sales, were $593$266 (+17.5%7.1%) higher in 1Q2Q 2022 than in 1Q2Q 2021.

2)Domestic OEM sales, representing 34% of total domestic sales, were $782 (+41.1%$16 (0.6%) higher.  

3)lower. Domestic Filshie device sales, representing 15% of total domestic sales, were $174 (11.7%$444 (27.9%) lower in 1Q2Q 2022 compared to 1Q2Q 2021.

OUS sales in 1Q2Q 2022 were $4,339$5,599 compared to $4,181$4,581 in 1Q2Q 2021. The increase in USD-denominated OUS sales is understated in constant currency terms.  The stronger USD subtracted $456 from 2Q 2022 OUS sales invoiced in GBP, EUR, AUD and CAD currencies were $152 lower as a result of changes incurrencies. FX rates resultingfor income statement purposes are transaction-weighted averages. The average FX rates from anthe applicable foreign currency to USD during 2Q 2022 and 2Q 2021 for revenue purposes follow:  

The weighted average 5% stronger USD.  In other words, constant currency OUS sales were $4,492, which was 7.4% higher than in 1Q 2021.  Theunfavorable impact on 2Q 2022 foreign currency OUS sales was 10.6%.  In constant currency terms, foreign currency sales in 1Q2Q 2022 were $2,906, which was 67%32.2% higher than in 2Q 2021. The portion of OUS sales and 24%invoiced in foreign currencies in USD terms were 29% of total consolidated worldwide (WW)2Q 2022 sales compared to 27% in 2Q 2021.

OUS sales invoiced in foreign currencies are due to direct end-user sales in Ireland, the UK, France, Canada, Australia and New Zealand, and to shipments to OUS distributors of products manufactured by UTMD subsidiaries in Ireland and the UK.  Export sales from the U.S. to OUS distributors are invoiced in USD.  Direct to end-user OUS 2Q 2022 sales in USD terms (including the negative impact of FX rate differences) were 11% lower in Ireland with the EUR FX rate down 12%, 1% lower in Canada with the CAD FX rate down 3%, about the same in the UK with the GBP FX rate down 10%, 23% lower in Australia/New Zealand with the AUD FX rate down 7%, and 15% higher in France with the EUR FX rate down 12%. Sales to OUS distributors were 41% higher in 2Q 2022 than in 2Q 2021.

1H 2022 Sales

Total consolidated 1H 2022 UTMD WW sales were $2,184 (+9.3%) higher than in 1H 2021. Constant currency sales were $2,792 (+11.8%) higher.  U.S. domestic sales were 6.8% higher and OUS sales were 13.4% higher in 1H 2022 compared to 1H 2021. In constant currency terms, 1H 2022 OUS sales were up 20.4%.  

Domestic U.S. sales in 1H 2022 were $15,813 compared to $14,805 in 1H 2021.  Direct non-Filshie device sales, representing 51% of total domestic sales, were $859 (+12.0%) higher in 1H 2022 than in 1H 2021, led by an increase in domestic neonatal device sales. ForeignOEM sales, representing 34% of total domestic sales, were $767 (+16.7%) higher.  Domestic Filshie device sales, representing 15% of total domestic sales, were $618 (20.1%) lower in 1H 2022 compared to 1H 2021.

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OUS sales in 1H 2022 were $9,938 compared to $8,762 in 1H 2021. The increase in USD-denominated OUS sales is understated in constant currency terms.  The stronger USD subtracted $608 from 1H 2022 OUS sales invoiced in GBP, EUR, AUD and CAD currencies. The transaction-weighted average FX rates from the applicable foreign currency to USD during 1H 2022 and 1H 2021 for revenue purposes follow:  

The weighted-average FX rate negative impact on 1H 2022 foreign currency OUS sales was 8.3%. In constant currency terms, foreign currency sales in 1Q 20211H 2022 were $3,032, which was 73%20.4% higher than in 1H 2021. The portion of OUS sales and 28%invoiced in foreign currencies in USD terms were 26% of total consolidated WW sales.  1H 2022 sales compared to 27% in 1H 2021. Direct to end-user OUS 1H 2022 sales in actual USD terms were 5% higher in Ireland with a 10% lower EUR, 8% lower in Canada with a 2% lower CAD, 3% lower in France with a 10% lower EUR, 23% higher in the UK with a 7% lower GBP, and 28% lower in Australia/New Zealand with a 7% lower AUD.  Sales to OUS distributors were 24% higher in 1H 2022 than in 1H 2021.

The following table provides USD consolidatedUSD-denominated sales amounts divided into general product categories for total worldwide salesrevenues and the subset of OUS sales:revenues:

WWGlobal revenues (USD) by product category:

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OUS revenues (USD) by product category:

*includes assemblies and molded components sold to OEM customers. 

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UTMD continues to be assembly labor limited in the U.S., in addition to continuing supply chain disruption worldwide for timely providing raw materials needed in manufacturing operations.  Also, a continued strengthening of the USD would create a drag on improved 2H 2022 OUS foreign currency sales.  Looking forward, without any additional price increases for UTMD devices (which is unlikely based on continuing cost increases), if UTMD is able to duplicate its 1H 2022 revenues in the 2H, sales for the 2022 year would be up about 5% compared to the 2021 year.

c)  Gross Profit (GP) 

GP results from subtracting the costs of production, manufacturing engineering, depreciation of equipment, maintenance and repairs, quality assurance including regulatory compliance, and purchasing including freight for receiving materials from suppliers. As expected, despite dilution of fixed overhead costs from higher sales, the 2Q and 1H significant inflationary increases in UTMD’s variable manufacturing costs squeezed UTMD’s GP Margin (GPM). UTMD’s 2Q 2022 GP was $365 (+4.7%) higher than in 2Q 2021. UTMD’s 1H 2022 GP was $951 (+6.5%) higher than in 1H 2021.  Although revenue was up more than GP in both 1Q and 1H periods, the resulting lower GPMs remained consistent with UTMD’s long term profitability goals.  Incremental direct labor costs increased significantly as a result of competition for a limited number of people currently seeking work, and the Company’s efforts to help mitigate the negative impact of inflation on its long-term employees. UTMD also experienced double-digit percentage cost increases in raw materials costs.  Incoming freight costs to receive raw materials doubled. The growing administrative burden of compliance with regulatory requirements, particularly OUS, continued to pressure UTMD’s GPM.  Although managing the rapid rise in variable manufacturing costs will apparently continue to be a significant challenge for the rest of 2022, the 1H 2022 GPM helps confirm that UTMD is likely to be able to successfully manage it.  

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c)Gross Profit 

Gross Profit results from subtracting the costs of manufacturing and shipping products to customers. UTMD’s Gross Profit was $586 (+8.4%) higher in 1Q 2022 than in 1Q 2021.  Gross Profit did not increase as much as revenues due primarily to the increases in raw material and incoming freight costs exceeding 20%. In addition, about half of the lower Gross Profit Margin in 1Q 2022 was due to an unfavorable experience in U.S. employee medical costs, for which UTMD self-insures. Otherwise, the Company maintained the productivity of its direct labor and manufacturing overhead costs as a result of raising product prices.  

d)Operating Income  

Operating Income results from subtracting Operating Expenses (OE) from Gross Profit.GP. After subtracting OE from higher 2Q and 1H 2022 GP, Operating ExpensesIncome in 2Q 2022 was $5,057 compared to $4,765 in 2Q 2021, an increase of 6.1%, representing a healthy Operating Income Margin (Operating Income as a percentage of sales) of 37.7%.  Operating Income in 1H 2022 was $9,579 compared to $8,652 in 1H 2021, an increase of 10.7%, representing an Operating Income Margin of 37.2%.  The increase in Operating Income was almost the same as the increase in sales despite a lower GPM and higher litigation expenses (included in G&A OE) because of two offsetting factors; 1) better absorption of fixed IIA amortization expenses (i.e. a lower percentage of sales for relatively fixed non-cash expenses), and 2) a reduction in USD-denominated foreign currency OE of foreign subsidiaries as a result of a stronger USD (i.e. lower FX rates for the EUR, GBP, AUD and CAD expenses).

OE are comprised of G&A expenses, salesSales and marketingMarketing (S&M) expenses, General and product developmentAdministrative (G&A) expenses and Product Development (R&D) expenses. Consolidated Operating Expenses were $3,010The following table summarizes OE in 1Q2Q and 1H 2022 (24.4% of sales) compared to $3,059the same periods in 1Q 2021 (27.9% of sales).  Ignoring the portion of Operating Expenses that were non-cash IIA amortization expenses, Operating Expenses in 1Q 2022 were 11.1% of consolidated sales compared to 12.8% of sales in 1Q 2021.  by OE category:

A stronger USD helped decrease foreign currency OE when converted to USD by $100 in this instance helped Operating Income performance2Q 2022 and $135 in 1H 2022. The following table summarizes “constant currency” OE in 2Q and 1H 2022 compared to the same periods in 2021 by reducing OE category:

OUS Operating ExpensesOE when converted to USD were decreased 10% in 2Q 2022 and 7% in 1H 22 by the FX rate change. Constant currency 2Q 2022 OE were 6% higher than in 2Q 2021, and 3% higher in 1H 2022 than in 1H 2021. In other words, the FX rate change which decreased foreign OE in USD terms almost offset the higher G&A expenses in the U.S.

The change in FX rates decreased 2Q 2022 OUS S&M expenses by $33, comprised of reducing IIA amortization$9, and 1H 2022 OUS S&M expense by $16 and all other OUS Operating Expenses by $17.$14. The lower constant currency S&M expenses were due primarily to a reduction of outside sales representatives in the UK.   

ConsolidatedA segmentation of USD-denominated G&A expenses by subsidiary location follows. Note that over 60% of G&A expenses were $2,551 (20.7% of sales) in 1Q 2022 compared to $2,545 (23.2% of sales) in 1Q 2021. The G&Anon-cash expenses in 1Q 2022 included $532 (4.3% of sales) of non-cash expense from the amortization of IIA resulting fromassociated with the 2011 Femcare acquisition, whichFilshie Clip System:

OUS G&A expenses were $550 (5.0% of sales)$804 in 1Q 2021.  The lower USD IIA amortization expense was mainly the result of a stronger USD, as the Femcare amortization expense in GBP was only £1 lower in 1Q2Q 2022 compared to 1Q$871 in 2Q 2021. In addition, G&A expenses in both periods included $1,105 IIA amortization expense resulting from the purchase of the CSI remaining U.S. exclusive Filshie distribution rights, which represented 9.0% of 1Q 2022 sales compared to 10.1% of 1Q 2021 sales.  Excluding the non-cash IIA amortization expenses,OUS G&A expenses were $914 (7.4% of sales)$1,634 in 1Q1H 2022 compared to $890 (8.1% of sales)$1,750 in 1Q1H 2021.  The change in FX rates reduced 1Q 2022table below identifies “constant currency” OUS G&A expenses by $28, comprised of reducing IIA amortization expense by $16for 2Q and all other G&A expenses by $12.

S&M expenses were $336 (2.7% of sales) in 1Q1H 2022 compared to $384 (3.5% of sales)the same periods in 1Q 2021.  The change in FX rates reduced 1Q 2022 OUS S&M expenses by $5.   

R&D expenses in 1Q 2022 were $123 (1.0% of sales) compared to $130 (1.2% of sales) in 1Q 2021. Since all R&D expense was incurred in the U.S., there was no FX impact.   

Summary comparison of (USD) consolidated Operating Expenses:

In summary, Operating Income in 1Q 2022 was $4,522 (36.7% of sales) compared to $3,887 (35.5% of sales) in 1Q 2021.  The greater absorption of relatively fixed Operating Expenses allowed expansion of an 8% growth in Gross Profit to a 16% increase in Operating Income.2021:

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Period to period product development (R&D) expenses varied slightly depending on specific project costs. Since almost all R&D is being carried out in the U.S., there was negligible FX rate impact.

e)Non-operating expense/ Non-operating income 

Net non-operatingNon-operating expense or net non-operating income, results from the combination of 1)includes bank fees and expenses from loan interest and bank fees; 2) expenses or income from losses, or gainsif applicable, from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms; and 3)terms.  Non-operating income includes 1) income from rent of underutilized property, 2) investment income (interest on cash balances), 3) royalties received from licensing the Company’s technology, and other miscellaneous income.4) income from gains, if applicable, from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms. Non-operating income or expense can also include gains or losses from the disposition of assets from time to time. Net non-operating income is non-operating income minus non-operating expense during a particular time period. Net non-operating income in 1Q2Q 2022 was $8$142 compared to $10$60 in 1Q2Q 2021. Net non-operating income in 1H 2022 was $150 compared to $71 in 1H 2021.

The primarymain difference despitein net non-operating income during both 2Q and 1H 2022 was due to greater rental income received from renting underutilized warehouse space in Ireland to a third party, and to more interest received on cash bank balances. Because UTMD owns its own facilities with space in excess of current needs, this sort of opportunistic rental income occurs from time to time. UTMD Ireland realized $17 more in 2Q 2022 rental income than in 2Q 2021, and $69 more in 1H 2022 rental income than in 1H 2021.  With higher cash balances and higher interest rates in 1Q 2022 compared to 1Q 2021, was due to the fact that UTMD received $68 less$90 more in investment2Q 2022 interest income and other miscellaneous$34 more in 1H interest income. UTMD received $54 higher non-operating income in 1QIn 2Q 2022, from renting underutilized property compared to 1Q 2021, and $5 higher non-operating income from royalties. UTMD realized a loss of $3 at the end of 1Q 2022 from remeasurement of$2 on remeasured foreign currency bank balances was recognized compared to a gain of $5 in 2Q 2021.  In both 1H 2022 and 1H 2021, a loss of $5 on remeasured foreign currency balances was recognized.  Royalties received were $5 in 2Q 2022 and $10 loss at the end of 1Qin 1H 2022 compared to $0 in both 2Q and 1H 2021.  Bank fees were $25 in 2Q 2022 compared to $18 in 2Q 2021.  Bank fees were $49 in 1H 2022 compared to $35 in 1H 2021.

f)Income Before Income Taxes (EBT) 

Consolidated EBT results from subtracting net non-operating expense or adding Non-operatingnet non-operating income from or to, as applicable, Operating Income.  Consolidated 1Q2Q 2022 EBT was $4,530 (36.8%$5,199 (38.7% of sales) compared to $3,898 (35.6%$4,825 (38.3% of sales) in 1Q2Q 2021. The $632 (+16.2%) higher 1QConsolidated 1H 2022 EBT was $9,729 (37.8% of sales) compared to 1Q 2021 was consistent with the higher Operating Income.     $8,723 (37.0% of sales) in 1H 2021.

The EBT of Utah Medical Products, Inc. in the U.S. was $2,916$5,981 in 1Q1H 2022 compared to $2,453$5,466 in 1Q1H 2021. The EBT of Utah Medical Products, Ltd (Ireland) was EUR 1,8063,825 in 1Q1H 2022 compared to EUR 1,7313,122 in 1Q1H 2021. The EBT of Femcare Group Ltd (Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP (159)(GBP 232) in 1Q1H 2022 compared to GBP (231)(GBP 295) in 1Q1H 2021.  The 1Q 2022 EBT of Utah Medical Products Canada, Inc. (dba Femcare Canada) was CAD 154332 in 1Q1H 2022 compared to CAD 150303 in 1Q1H 2021. EBT of subsidiaries includes the result of intercompany shipments which are netted out of consolidated results.

EBITDA is a non-US GAAP metric that measures profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. Management believes that this operating performance metric provides meaningful supplemental information to both management and investors and confirms UTMD’s ongoing excellent financial operating performance, as well as its ability to sustain performance during a challenging economic time. Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 1Q2Q 2022 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated EBITDA”) was $6,371$7,005 (+4.6%) compared to $5,776$6,695 in 1Q2Q 2021.  Adjusted consolidated EBITDA at $13,376 in 1H 2022 was 7.3% higher compared to $12,471 in 1H 2021. Adjusted consolidated TTM EBITDA was $27,435 as of June 30, 2022.  TTM EBITDA as of June 30, 2021, a year earlier, was $3,411 lower.

UTMD’s non-US GAAP adjusted consolidated EBITDA as a percentage of sales (EBITDA margin) was 51.7%52.2% in 1Q2Q 2022 compared to 52.7%53.1% in 1Q2Q 2021. UTMD’s EBITDA margin was 51.9% in 1H 2022 compared to 52.9% in 1H 2021. The slightly lower 2022 EBITDA percent of sales was due tomargins reflect the lower Gross Profit Margin.  Management2022 GPM squeeze. Nevertheless, management believes that this operating metric provides meaningful supplemental information to both management and investors and confirms UTMD’scurrent EBITDA margins demonstrate continued excellent financialoutstanding operating performance.

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UTMD’s non-US GAAP adjusted consolidated EBITDA is the sum of the elements in the following table, each element of which is a US GAAP number:

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All UTMD income statement measures from GP through EBT, including non-US GAAP adjusted consolidated EBITDA, for both 2022 and 2021 time periods were unaffected by the 2Q 2021 enacted change in the UK corporate income tax rate.

g)Net Income 

Net Income in 1Q2Q 2022 of $3,534$4,103 (30.6% of sales) was 16.9%19.7% higher than the US GAAP Net Income of $3,024$3,426 (27.2% of sales) in 1Q2Q 2021.  UTMD’sExcluding the “one-time” income tax provision increase recognized in 2Q 2021 as a result of a future UK tax rate increase and resulting DTL adjustment, diluted Net Income Margin,in 2Q 2022 was $4,103 (30.6% of sales) compared to non-US GAAP Net Income of $3,817 (30.3% of sales) in 2Q 2021, a 7.7% increase, which is consistent with the increase in EBT per US GAAP.

As a reminder, in 2Q 2021, because the UK reset its corporate tax rate from 19% to 25% beginning with 2Q 2023, it caused UTMD to have to book an additional $390 in its 2Q 2021 income tax provision that represents the additional tax which would be paid in the UK over the remaining IIA amortization life of the 2011 Femcare acquisition. Excluding the $390 DTL increase in 2Q 2021 which reduced Net Income divided by consolidated sales,that same amount, 2Q 2021 non-US GAAP Net Income was 28.7%$3,817 (30.3% of sales) compared to 2Q 2021 US GAAP Net Income of $3,427 (27.2% of sales).  Excluding the same tax provision increase in 1Q 2022 and 27.6% in 1Q 2021. 1H 2021 due to the DTL adjustment, non-US GAAP 1H 2021 Net Income was $6,840 (29.0% of sales), compared to US GAAP 1H 2021 Net Income of $6,450 (27.4% of sales).

The average consolidated income tax provision ratesprovisions (as a % of the same period EBT) per US GAAP in 1Q2Q 2022 and 1Q2Q 2021 were 22.0%21.1% and 22.4%,29.0% respectively, and were 21.5% and 26.1% in 1H 2022 and 1H 2021 respectively. As the tax rates for 2Q and 1H 2021 are not directly related to EBT generated in the same periods, UTMD provides the following tax rates excluding the 2Q 2021 $390 tax provision adjustment: The slightly lowerresulting non-GAAP income tax provision rates were 21.1% and 20.9% for 2Q 2022 and 2Q 2021 respectively, and were 21.5% and 21.6% for 1H 2022 and 1H 2021 respectively.

The consolidated income tax provision rate resulted fromvaries as the distribution mix of EBT of UTMD’sin taxable income among U.S. and foreign subsidiaries subject towith differing income tax rates.rates differs from period to period. The basic corporate income tax rates in each of the sovereignties were the same as in the prior year.

h)  Earnings Per Share (EPS) 

EPS are consolidated Net Income divided by the weighted average number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value). Diluted EPS in 2Q 2022 were $1.124 compared to US GAAP diluted EPS of $0.937 in 2Q 2021, a 19.9% increase.  Excluding the “one-time” income tax provision increase recognized in 2Q 2021 as a result of a future UK tax rate increase and a DTL adjustment, diluted EPS in 2Q 2022 were $1.124 compared to non-US GAAP diluted EPS of $1.044 in 2Q 2021, 7.7% higher, consistent with the increase in EBT.

Diluted EPS in 1Q1H 2022 were 16.6% higher than$2.088 compared to US GAAP diluted EPS of $1.765 in 1Q1H 2021, an 18.3% increase.  Excluding the “one-time” income tax provision increase recognized in 2Q 2021 as a result of a future UK tax rate increase and a DTL adjustment, diluted EPS in 1H 2022 were $2.088 compared to non-US GAAP diluted EPS of $1.871 in 1H 2021, an 11.6% increase, also consistent with the increase in Net Income because diluted shares used to calculate EPS were only slightly higher. EBT per US GAAP.

Diluted shares were 3,664,9153,650,242 in 1Q2Q 2022 compared to 3,655,2563,655,319 in 1Q2Q 2021.  Diluted shares were 3,657,864 in 1H 2022 compared to 3,655,514 in 1H 2021.  The slightly higherlower diluted shares in 1Q2Q 2022 were the result of employee option exercisesshares repurchased during the previous four calendar quarters2Q 2022 offset by employee options exercised, and a slightly lower dilution factor for unexercised options. The number of shares added as a dilution factor in 1Q2Q 2022 was 10,1257,375 compared to 11,1689,526 in 1Q2Q 2021. The number of shares added as a dilution factor in 1H 2022 was 9,069 compared to 10,569 in 1H 2021.

Outstanding shares at the end of 1Q 2022 were 3,654,987 compared to 3,654,737 at the end of calendar year 2021. The difference was due to employee option exercises during 1Q 2022. Outstanding shares were 3,645,760 at the end of 1Q 2021. The number of shares used for calculating EPS was higher than ending shares because of a time-weighted calculation of average outstanding shares plus dilution from unexercised employee and director options. Outstanding shares at the end of 2Q 2022 were 3,624,932 compared to 3,654,737 at the end of calendar year 2021. The difference was due to 300 shares added from employee option exercises during 1H 2022, offset by 30,105 shares repurchased in the open market and retired during 2Q 2022. For comparison, outstanding shares were 3,645,798 at the end of 2Q 2021. The total number of outstanding unexercised employee and outside director options at March 31,June 30, 2022 was 51,28350,408 at an average exercise price of $69.17,$69.07, including shares awarded but not yet vested.  This compares to 51,85863,874 unexercised option shares at the end of 2Q 2021 at an average exercise price of $69.24/$68.38/ share, including shares awarded but not vested.  No options were awarded in 1Q 2022 or2021 and to date in all of calendar year 2021.2022.

UTMD did not pay a cash dividendpaid $1,060 ($0.290/share) in dividends to stockholders in 1Q2Q 2022 because thecompared to $1,039 ($0.285/ share) paid in 2Q 2021. The dividends paid to stockholders during 2Q 2022 were 26% of NI. UTMD paid $1,060 ($0.290/share) in dividends to stockholders in 1H 2022 compared to $2,077 ($0.285/ share) paid in 1H 2021. The 1H 2022 dividend total excludes a dividend normally paid in January. A special dividend of $7,309 ($2.00/share) dividend, which was declared in 4Q 2021, was paid in December before the end2021 in lieu of the 2021 calendar year instead of in January 2022. In 1Q 2021, a $1,038 ($0.285/ share) dividend, which was declared in 4Q 2020, was paid to stockholders.    

During 1QIn 2Q 2022, and allUTMD repurchased 30,105 of calendar year 2021,its shares for $2,495, an average cost of $82.88/ share.  No UTMD did not repurchase its shares.shares were repurchased in 2021. The Company retains the strong desire and financial ability for repurchasing its shares at a price it believes is attractive for remaining stockholders. UTMD’s closing share price at the end of 2Q 2022 was $85.90, down 4.4% from the closing price of $89.86 at the end of 1Q 2022, was $89.86,and down 10%14.1% from the $100.00 closing price of $100.00 at the end of 2021.  The closing share price one year ago at the end of 1Q2Q 2021 was $86.60.$85.04.

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i)  Return on Equity (ROE) 

ROE is the portion of Net Incomenet income retained by UTMD to internally finance its growth, divided by the average accumulated Stockholders’ Equitystockholders’ equity for the applicable time period.  Annualized ROE (before(using non-GAAP net income in 2021 and before stockholder dividends) in 1Q1H 2022 was 14% compared to 13% and in 1Q 2021 was 12%.1H 2021.  The higher ROE in 1Q1H 2022 was due to 17%the higher Net Income divided1H 2022 net income, despite being diluted by 4% higher average Stockholders’Stockholder’s Equity. Targeting a high ROE of 20% remains a key financial objective for UTMD management.  ROE can be increased by increasing Net Income, and/net income, or by reducing Stockholders’ Equitystockholders’ equity by paying cash dividends to stockholders or by repurchasing shares.   

Liquidity and Capital Resources

j)Cash flows 

Net cash provided by operating activities, including adjustments for depreciation and amortization and other non-cash expenses along with changes in working capital, totaled $5,046$9,878 in 1Q1H 2022 compared to $5,533$10,225 in 1Q1H 2021.  Although UTMD achieved a $1,187 higher increase in US GAAP Net Income provided $511 morein 1H 2022 and  a $591 higher contribution to cash provided by a $102 decrease in 1Qaccounts receivable compared to a $489 increase in 1H 2021, a $347 lower net increase in operating cash in 1H 2022 than in 1Q 2021.  Other1H 2021 was due to offsetting working capital change differences in cash provided during the two periods wereincluding 1) a $643 higher increase in accounts payable and a $157 lower increase in accrued expenses, offset by an $809$929 increase in inventories compared to a $207$75 decrease in 1Q1H 2021, 2) a $357 decrease in accrued expenses compared to a $34 increase in 1H 2021, 3) a $335 smaller increase in accounts payable than in 1H 2021, and 4) a $521 greater$286 decrease in deferred income taxes compared to a $22 increase in trade accounts receivable.1H 2021.    

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Capital expenditures for property and equipment (PP&E) were $237$450 in 1Q1H 2022 compared to $10$222 in 1Q1H 2021. The amount spent in 1H 2021 as UTMD continueswas for typical expenditures required to investkeep facilities and equipment, particularly in molding operations, in good working order. The larger capital expenditures in 1H 2022 were primarily due to purchasing new equipment for manufacturing specialized pressure transducers for its bio-pharmaceutical OEM customer.  During the remainder of 2022, UTMD intendsand tooling needed to make additional investments in increasingexpand production capacity for the sameUTMD’s largest OEM customer. Depreciation of PP&E was $149$302 in 1Q1H 2022 compared to $163$325 in 1Q1H 2021.

Cash dividends paid to stockholdersUTMD made cash dividend payments of $1,060 in 1Q1H 2022 were zero compared to $1,038$2,077 in 1Q1H 2021.  The difference was due to an earlier payment of a special dividend in December 2021, becausewhich in the special $7,309 dividend declared in 4Q 2021prior year was paid in DecemberJanuary 2021. UTMD’s normal quarterly dividend in 1H 2022 was 1.8% higher per share than in the previous year (excluding the 2021 instead of in January 2022.year-end special dividend).

In 1Q1H 2022, UTMD received $19$23 and issued 250300 shares of its stock upon the exercise of employee and director stock options. Option exercises in 1Q1H 2022 were at an average price of $76.33$76.25 per share. In comparison, in 1Q1H 2021, UTMD received $89$92 and issued 2,7252,763 shares of its stock upon the exercise of employee and director stock options. Option exercises in 1Q1H 2021 were at an average price of $32.59$33.17 per share.  

Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to meet the challenges of the current economic environment in achieving operating objectives, to maintain the capability to make opportunistic investments that will provide forfinance internal growth in future profits and to continue to allocate capital in a way that will maximize stockholder value over time. During the remainder of 2022 theplans. The Company may utilize cash not needed to support normal operations in one or a combination of the following:  1) in general, to continue to invest at an opportune time in ways that will enhance future profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD’s existing infrastructure.  If there are no better strategic uses for UTMD’s cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.

k)Assets and Liabilities 

UTMD’s March 31, 2022 Balance Sheet, in the absence of debt, continued to strengthen.

March 31, 2022 total consolidated assets increased $4,167 from December 31, 2021 to $119,803. The increase was due to a $4,898 increase in cash and investments and a $1,425 increase in current assets other than cash, offset by $70 lower net fixed assets (property, plant and equipment) and $2,086 lower net intangible assets.

The increase in cash was due to cash generated from operations and the fact that a dividend to stockholders normally paid in 1Q 2022 was paid in 4Q 2021, lowering 2021 year-end cash, plus some changes in working capital. Current assets as a whole increased $6,323 while current liabilities as a whole increased $2,353, yielding a $3,970 increase in working capital to $73,383.  The increase in current assets other than cash resulted primarily from a $589 increase in receivables and a $771 increase in consolidated inventories. Average inventory turns were 2.7 in 1QAt June 30, 2022 compared to 2.8 for the 2021 year.  Accounts receivable increased $589 due to slower collections with the average age of trade receivables at 42 days from date of invoice at March 31, 2022 compared to 36 days at December 31, 2021.  Despite the working capital increase, UTMD’s extraordinary 19.5 current ratio at December 31, 2021 declined to 13.0 at March 31, 2022 primarily due to current assets which increased 9% when current liabilities increased 63%.  The much higher current liability increase resulted from a lower accrued liabilities balance on December 31, 2021 from the early payment of a stockholder dividend before the end of 2021, UTMD’s cash and investments increased $5,249 to $66,224 primarily as a much higher accounts payable balance on March 31,result of 1H 2022 from building inventoryNet Income of $7,638 less $3,555 use of cash for dividends to hedge against supply chain disruption.    

The $70 lower net fixed assets at March 31, 2022 compared to December 31, 2021 resulted from $237 in capital expenditures, $149 in depreciationstockholders and the impact of the period-to-period foreign currency exchange (FX) rates for assets OUS.  FX rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 1Q 2022 and the end of 2021 follow:

UTMD share repurchases. At March 31,June 30, 2022, net Intangible Assets decreased to 24.5%22.9% of total consolidated assets from 27.2% on December 31, 2021 becausedue in part to a stronger USD which lowers the USD value of Femcare’s GBP IIA. UTMD’s still strong 17.8 current ratio at June 30, 2022 was lower than the 1Q 2022 $1,646 amortization of identifiable intangibles, a lower FX rate for remaining GBP intangible assets in the UK and aided by higher period end total asset denominator.

Current liabilities increased $2,35319.5 current ratio at December 31, 2021 as a result of $636 higher accrued liabilities. The average age of trade receivables was 33 days from date of invoice at June 30, 2022 compared to 36 days at December 31, 2021 based on the most recent calendar quarter of sales. Average inventory turns declined slightly to 2.9 in 2Q 2022 compared to 3.0 for the last quarter of 2021 due to increasing safety stocks of raw material.

June 30, 2022 total consolidated assets were $116,149, an increase of $513 from December 31, 2021. Current assets were $5,795 higher than at December 31, 2021 primarily because of a $1,660$5,249 increase in cash and a $741 increase in inventories.  The modest increase in total assets despite the large increase in current assets was primarily due to a $4,806 decline in net intangible assets from 1H 2022 IIA amortization and a 10% lower GBP/USD FX rate on the Femcare UK intangible asset balance, in addition to a $462 USD-value decline in UK and Ireland Property and Equipment from the difference in the foreign currency exchange (FX) rate at December 31, 2021 and June 30, 2022.

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For clarity, the net book value of consolidated property, plant and equipment decreased $476 at June 30, 2022 from the end of 2021 due to the net effect of period-ending changed FX rates, $450 in new asset purchases minus $302 in depreciation, including right of use assets totaling $420 (which were $449 at December 31, 2021).

June 30, 2022 net intangible assets (goodwill plus other intangible assets) declined $4,806 from the end of 2021 as a result of $3,240 in amortization and a 10.2% stronger USD/GBP FX rate on UK intangible asset balances. At June 30, 2022, net intangible assets including goodwill were 23% of total consolidated assets compared to 27% at year-end 2021 and 30% at June 30, 2021.

Working capital (current assets minus current liabilities) was $74,514 at June 30, 2022 compared to $69,412 at December 31, 2021. Cash balances were $66,224 of the June 30, 2022 working capital. Current assets at June 30, 2022 compared to December 31, 2021 were $5,795 higher primarily as the result of a $5,249 increase in cash and investments and a $742 increase in inventories. Current liabilities were $693 higher at June 30, 2022 compared to December 31, 2021 as the result of a $636 increase in accrued liabilities and $57 higher accounts payable.  The higher accrued liabilities resulted from no stockholder dividend, which was paid earlier than normal in December 2021, accrued at the end of 2021, whereas at the end of 2Q 2022 a $693$1,060 dividend, which was paid in July, was included in June 30, 2022 accrued liabilities.  The increase in accounts payable.accrued liabilities was less than the $1,060 accrued dividend primarily because the accrued profit-sharing bonus at the end of 2021, based on 2021 full year results, was $349 higher than the profit-sharing bonus accrued at June 30, 2022 based on 6 months’ results. UTMD management believes that its working capital remains more than sufficient to meet normal operating needs, new capital expenditures and projected cash dividend payments to stockholders.

June 30, 2022 total consolidated liabilities were $8,679, an increase of $180 from December 31, 2021. Current liabilities were $693 higher than at December 31, 2021.  Long term liabilities declined $216 to $4,537were $513 lower primarily as a result of $159 lowerthe deferred tax liability balance resulting from non-tax deductible Femcare remaining IIA amortization expense being $397 lower.

The deferred tax liability balance for the Femcare Ltd GBP IIA to $1,946 at March 31, 2022 compared to $9,084($9,084 on the date of the 2011 acquisition.acquisition), was $1,707 at June 30, 2022 compared to $2,105 at December 31, 2021 and $2,355 at June 30, 2021. Reduction of the deferred tax liability occurs as the book/tax difference of IIA amortization is eliminated over the remaining useful life of the Femcare Ltd IIA. IIA, i.e. as Femcare pays its taxes in the UK without the benefit of a deduction for IIA amortization expense.

UTMD’s total debt ratio (total liabilities/total assets) as of MarchJune 30, 2022 and December 31, 20222021 was 8.9%7%, compared to 7.3% as of December 31, 2021.

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June 30, 2021 at 8%.  

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l)Management's Outlook 

Based on the first quarter of 2022 results, UTMD expects to achieveAs outlined in its December 31, 2021 SEC 10-K report, UTMD’s plan for 2022 as a whole, as described in its 2021 Form SEC 10-K.  UTMD’s objectives for 2022 remainwas to

1)exploit  leverage distribution and manufacturing synergies by further integrating capabilities and resources in itsUTMD’s multinational operations;

2)  expand manufacturing capacity at a time when resources are particularly scarce;

3)  focus on effectively direct marketingdifferentiating the benefits of the Filshie Clip System in the U.S.;

3)4)  introduce additional products helpful to clinicians through internal new product development;

4)5)  continue to achieve profitableexcellent overall financial operating performance and a stable working environment for employees;  performance;

5)6)  utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when the UTMD share price seems undervalued; and

6)be7)  remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.

Despite continuing economic challenges created by government reaction to the current challenging economic environment on companies with more limited resources.  COVID-19 pandemic, especially including inflation in costs and lack of availability of workers, the Company continues to effectively execute its 2022 plan as outlined above.

m)Accounting Policy Changes 

None.

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Forward-Looking Information.Information.  This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by management based on information currently available.  When used in this document, the words “anticipate,” “believe,” “project,” “estimate,” “expect,” “intend” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements.  Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties stated throughout the document.  Although the Company has attempted to identify important factors that could cause the actual results to differ materially, there may be other factors that cause the forward statement not to come true as anticipated, believed, projected, expected or intended.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those described herein as anticipated, believed, projected, estimated, expected or intended.  Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results, and the Company assumes no obligation to update or disclose revisions to those estimates.