10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2019

or

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from to

Commission File Number 001-32982

Atrion Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	63-0821819
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

One Allentown Parkway, Allen, Texas 75002

(Address of Principal Executive Offices) (Zip Code)

(972) 390-9800

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, Par Value $0.10 per share	ATRI	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☑

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of Each Class	Number of Shares Outstanding at April 20, 2019
Common stock, Par Value $0.10 per share	1,852,756

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. Financial Information	1
Item 1. Financial Statements	2
Consolidated Statements of Income (Unaudited) For the Three Months Ended March 31, 2019 and 2018	2
Consolidated Balance Sheets (Unaudited) March 31, 2019 and December 31, 2018	3
Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2019 and 2018	4
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three Months Ended March 31, 2019 and 2018	5
Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II. Other Information	15
Item 1. Legal Proceedings	15
Item 1A. Risk Factors	15
Item 6. Exhibits	15
SIGNATURES	16
Exhibit Index	17

PART I

FINANCIAL INFORMATION

1

Item 1.    Financial Statements

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 (Unaudited)

	Three Months Ended March 31,
	2019	2018
	(in thousands, except per share amounts)
Revenues	$41,614	$39,401
Cost of goods sold	22,911	20,450
Gross profit	18,703	18,951
Operating expenses:
Selling	2,384	2,018
General and administrative	4,187	4,229
Research and development	1,095	1,338
	7,666	7,585
Operating income	11,037	11,366
Interest and dividend income	582	313
Other investment income/(losses)	211	(772)
	793	(459)
Income before provision for income taxes	11,830	10,907
Provision for income taxes	(2,392)	(2,420)
Net income	$9,438	$8,487
Net income per basic share	$5.09	$4.58
Weighted average basic shares outstanding	1,853	1,852
Net income per diluted share	$5.07	$4.57
Weighted average diluted shares outstanding	1,862	1,856
Dividends per common share	$1.35	$1.20

The accompanying notes are an integral part of these statements.

2

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets	March 31, 2019	December 31, 2018
	(in thousands)
Current assets:
Cash and cash equivalents	$44,043	$58,753
Short-term investments	24,779	9,684
Accounts receivable	21,240	17,014
Inventories	32,801	33,572
Prepaid expenses and other current assets	1,803	3,242
	124,666	122,265
Long-term investments	27,466	21,048
Property, plant and equipment	184,631	181,582
Less accumulated depreciation and amortization	108,691	106,689
	75,940	74,893
Other assets and deferred charges:
Patents	1,629	1,659
Goodwill	9,730	9,730
Other	1,587	1,621
	12,946	13,010
Total assets	$241,018	$231,216
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$9,917	$9,601
Accrued income and other taxes	1,096	619
	11,013	10,220
Line of credit	--	--
Other non-current liabilities	11,922	10,229
Stockholders’ equity:
Common stock, par value $0.10 per share; authorized10,000 shares, issued 3,420 shares	342	342
Paid-in capital	50,772	50,391
Retained earnings	298,690	291,761
Treasury shares,1,567 at March 31, 2019 and 1,567 at December 31, 2018, at cost	(131,721)	(131,727)
Total stockholders’ equity	218,083	210,767
Total liabilities and stockholders’ equity	$241,018	$231,216

The accompanying notes are an integral part of these financial statements.

3

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months EndedMarch 31,
	2019	2018
	(In thousands)
Cash flows from operating activities:
Net income	$9,438	$8,487
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,546	2,183
Deferred income taxes	627	(138)
Stock-based compensation	380	316
Net change in unrealized gains and losses on investments	(147)	789
Net change in accrued interest, premiums, and discounts
on investments	184	(104)
	13,028	11,533
Changes in operating assets and liabilities:
Accounts receivable	(4,226)	(3,528)
Inventories	771	(553)
Prepaid expenses	1,439	1,135
Other non-current assets	34	(252)
Accounts payable and accrued liabilities	316	(668)
Accrued income and other taxes	477	2,229
Other non-current liabilities	1,066	470
	12,905	10,366
Cash flows from investing activities:
Property, plant and equipment additions	(3,563)	(3,269)
Purchase of investments	(28,218)	(25,521)
Proceeds from maturities of investments	6,667	10,691
	(25,114)	(18,099)
Cash flows from financing activities:
Dividends paid	(2,501)	(2,222)
	(2,501)	(2,222)
Net change in cash and cash equivalents	(14,710)	(9,955)
Cash and cash equivalents at beginning of period	58,753	30,136
Cash and cash equivalents at end of period	$44,043	$20,181
Cash paid for:
Income taxes	$56	$24

The accompanying notes are an integral part of these financial statements.

4

ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock		Treasury Stock
	Shares Outstanding	Amount	Shares	Amount	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Total
Balances, January 1, 2018	1,836	$342	1,584	$(131,663)	$48,730	$(1,215)	$268,194	$184,388
Net income							8,487	8,487
Reclass from adopting ASO 2016-01						1,215	(1,215)	--
Stock-based compensation transactions				5	314			319
Dividends							(2,226)	(2,226)
Balances, March 31, 2018	1,836	$342	1,584	$(131,658)	$49,044	$0	$273,240	$190,968

Balances, January 1, 2019	1,853	$342	1,567	$(131,727)	$50,391	--	$291,761	$210,767
Net income							9,438	9,438
Stock-based compensation transactions				6	381			387
Dividends							(2,509)	(2,509)
Balances, March 31, 2019	1,853	$342	1,567	$(131,721)	$50,772	--	$298,690	$218,083

The accompanying notes are an integral part of these financial statements

5

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)            

Basis of Presentation

The accompanying unaudited consolidated financial statements of Atrion Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 ("2018 Form 10-K"). References herein to "Atrion," the "Company," "we," "our," and "us" refer to Atrion Corporation and its subsidiaries.

(2)            

Inventories

Inventories are stated at the lower of cost or market. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):

	March 31,	December 31,
	2019	2018
Raw materials	$14,789	$14,994
Work in process	7,582	7,214
Finished goods	10,430	11,364
Total inventories	$32,801	$33,572

(3)            

Income per share

The following is the computation for basic and diluted income per share:

(1)	Three months EndedMarch 31,
(2)	2019	2018
	(in thousands, except per share amounts)
Net income	$9,438	$8,487
Weighted average basic shares outstanding	1,853	1,852
Add: Effect of dilutive securities	9	4
Weighted average diluted shares outstanding	1,862	1,856
Earnings per share:
Basic	$5.09	$4.58
Diluted	$5.07	$4.57

6

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Dilutive securities representing zeroand 1,200 shares of common stock for the quarters ended March 31, 2019 and 2018, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

(4)            

Investments

As of March 31, 2019, we held investments in commercial paper, bonds and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheet. The equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheet. These investments are considered Level 1 or Level 2 as detailed in the table below. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets including our investment in equity securities we intend to hold longer than 12 months. The fair values of these investments were estimated using recently executed transactions and market price quotations. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):

			Gross Unrealized
	Level	Cost	Gains	Losses	Fair Value
As of March 31, 2019:
Money Market	1	7,811	$--	$--	$7,811
Commercial paper	2	22,717	$2	$--	$22,719
Bonds	2	36,886	$--	$(179)	$36,707
Mutual funds	1	924	$--	$(16)	$908
Equity investments	2	5,675	$--	$(2,706)	$2,969
As of December 31, 2018:
Money Market	1	12,319	$--	$--	$12,319
Commercial paper	2	4,393	$--	$--	$4,393
Bonds	2	25,921	$--	$(321)	$25,600
Mutual funds	1	795	$--	$(121)	$674
Equity investments	2	5,675	$--	$(2,814)	$2,861

7

The above long-term bonds represent investments in various issuers at March 31, 2019. The unrealized losses in these investments relate to a rise in interest rates which resulted in a lower market price for these securities.

The commercial paper has maturities from less than a month to 5.5 months. The bonds have maturities from less than a month to 26.5 months.

(5)            

Patents and Licenses

Purchased patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license. The following tables provide information regarding patents and licenses (dollars in thousands):

March 31, 2019			December 31, 2018
Weighted Average Original Life (years)	Gross Carrying Amount	Accumulated Amortization	Weighted Average Original Life (years)	Gross Carrying Amount	Accumulated Amortization
15.67	$13,840	$12,211	15.67	$13,840	$12,181

Aggregate amortization expense for patents and licenses was $30,000 in each of the three months ended March 31, 2019 and 2018.

Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

2020	$119
2021	$119
2022	$117
2023	$113
2024	$113

(6)            

Revenues

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.

8

A summary of revenues by geographic area, based on shipping destination, for the first quarter of 2019 and 2018 is as follows (in thousands):

	2019	2018
United States	$26,989	$24,607
Germany	2,164	2,671
Other countries less than 5% of revenues	12,461	12,123
Total	$41,614	$39,401

A summary of revenues by product line for first quarter in each of 2019 and 2018 is as follows (in thousands):

	2019	2018
Fluid Delivery	$18,161	$18,800
Cardiovascular	15,420	13,210
Ophthalmology	2,283	2,785
Other	5,750	4,606
Total	$41,614	$39,401

The vast majority (98%) of our revenue is driven by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time, and is presented as a receivable on the balance sheet. Payment is typically due within 30 days.

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. On an ongoing basis, the collectability of accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability of specific accounts. An account is written off when it is determined the receivable will not be collected. Historically, bad debt has been immaterial.

We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.

We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of insignificant detail in attempting to disclose information about immaterial contracts would potentially obscure more useful and important information.

9

(7)            

Recent Accounting Pronouncements

ASU 2016-02, Leases

On February 25, 2016 the FASB issued ASU 2016-02, Leases (ASC 842).  We early-adopted this standard as of January 1, 2018. In July 2018, we adopted the practical expedient in ASU 2018-11 - Leases: Targeted Improvements which allows lessors to combine lease and non-lease components into a single performance obligation. The impact of these changes on our consolidated financial statements was not material.

ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The main objective of this update is to enhance the reporting model for financial instruments in order to provide users of financial statements with more decision-useful information. Changes to the previous guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The primary impact of this change for us relates to our available-for-sale equity investment and resulted in unrecognized gains and losses from this investment being reflected in our income statement beginning in 2018.  We adopted ASU 2016-01 as of January 1, 2018, applying the update by means of a cumulative-effect adjustment to the balance sheet by reclassifying the balance of our Accumulated Other Comprehensive Loss in the shareholders’ equity section of the balance sheet to Retained Earnings. The balance reclassified of $1,215,000 was a result of prior-period unrealized losses from our equity investment. In the first quarter of 2018 we recorded an unrealized loss on our equity investment of $778,000 as a result of a drop in the market value of this investment during the quarter. This loss is reflected in other investment income (loss) in our income statement. This change in accounting is expected to create greater volatility in our investment income each quarter in the future.

From time to time, new accounting pronouncements applicable to us are issued by the FASB, or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

10

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

Overview

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular and ophthalmology markets. Our other medical and non-medical products include instrumentation and disposables used in dialysis and valves and inflation devices used in marine and aviation safety products.

Our products are used in a wide variety of applications by numerous customers. We encounter competition in all of our markets and compete primarily on the basis of product quality, price, engineering, customer service and delivery time.

Our strategy is to provide a broad selection of products in the areas of our expertise. Research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce and payoff indebtedness, to fund capital expenditures, to repurchase stock and to pay dividends.

Our strategic objective is to further enhance our position in our served markets by:

●

Focusing on customer needs;

●

Expanding existing product lines and developing new products;

●

Manufacturing products to exacting quality standards; and

●

Preserving and fostering a collaborative and entrepreneurial culture.

For the three months ended March 31, 2019, we reported revenues of $41.6 million, operating income of $11.0 million and net income of $9.4 million, up 6 percent, down 3 percent and up 11 percent, respectively, from the three months ended March 31, 2018.

Results for the three months ended March 31, 2019

Consolidated net income totaled $9.4 million, or $5.09 per basic and $5.07 per diluted share, in the first quarter of 2019. This is compared with consolidated net income of $8.5 million, or $4.58 per basic and $4.57 per diluted share, in the first quarter of 2018. The income per basic share computations are based on weighted average basic shares outstanding of 1,853,000 in the 2019 period and 1,852,000 in the 2018 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,862,000 in the 2019 period and 1,856,000 in the 2018 period.

11

Consolidated revenues of $41.6 million for the first quarter of 2019 were 6 percent higher than revenues of $39.4 million for the first quarter of 2018.

Revenues by product line were as follows (in thousands):

	Three Months endedMarch 31,
	2019	2018
Fluid Delivery	$18,161	$18,800
Cardiovascular	15,420	13,210
Ophthalmology	2,283	2,785
Other	5,750	4,606
Total	$41,614	$39,401

Cost of goods sold of $22.9 million for the first quarter of 2019 was 12 percent higher than cost of goods sold of $20.5 million for the first quarter of 2018 primarily due to higher sales volumes and a less favorable product sales mix partially offset by the impact of continued cost improvement projects. Our cost of goods sold in the first quarter of 2019 was 55.1 percent of revenues compared with 51.9 percent of revenues in the first quarter of 2018.

Gross profit of $18.7 million in the first quarter of 2019 was $248,000, or 1 percent, lower than in the comparable 2018 period. Our gross profit percentage in the first quarter of 2019 was 44.9 percent of revenues compared with 48.1 percent of revenues in the first quarter of 2018. The decrease in gross profit percentage in the 2019 period compared to the 2018 period was primarily related to the less favorable product sales mix partially offset by cost improvement projects mentioned above.

Our first quarter 2019 operating expenses of $7.7 million were $81,000 higher than the operating expenses for the first quarter of 2018. This increase was attributable to a $366,000 increase in Selling expenses partially offset by a $42,000 decrease in General and Administrative, or G&A, expenses and a $243,000 decrease in Research and Development, or R&D, expenses. The increase in Selling expenses was principally attributable to increased commissions, compensation, outside services, trade show expenses and travel costs. The decrease in G&A expenses for the first quarter of 2019 was principally attributable to decreased outside services partially offset by increased travel and information technology costs. The decrease in R&D expenses was primarily related to decreased outside services and decreased materials and supplies costs partially offset by increased travel costs.

Operating income in the first quarter of 2019 decreased $329,000 to $11.0 million, a 3 percent decrease compared to our operating income in the quarter ended March 31, 2018. Operating income was 27 percent of revenues for the first quarter of 2019 and 29 percent of revenues for the first quarter of 2018.

Interest and dividend income in the first quarter of 2019 was $582,000, compared with $313,000 for the same period in the prior year. Increased levels of investment and increased interest rates were the primary reasons for the increase.

12

Other investment income in the first quarter of 2019 was $211,000 compared with an investment loss of $772,000 in the first quarter of 2018. We adopted ASU 2016-01 as of January 1, 2018 (see Note 6). For the first quarter of 2018 we recorded an unrealized loss on an equity investment of $778,000 as a result of a drop in the market value of this investment during the quarter.

Income tax expense was $2.4 million for the first quarter in each of 2019 and 2018. The effective tax rate for the first quarter of 2019 was 20.2 percent, compared with 22.2 percent for the first quarter of 2018. We expect the effective tax rate for the remainder of 2019 to be approximately 20.0 percent.

Liquidity and Capital Resources

As of March 31, 2019, we had a $75.0 million revolving credit facility with a money center bank pursuant to which the lender is obligated to make advances until February 28, 2022. We had no outstanding borrowings under our credit facility at March 31, 2019. Our ability to borrow funds under the credit agreement from time to time is contingent on meeting certain covenants in the loan agreement, the most restrictive of which is the ratio of total debt to earnings before interest, income tax, depreciation and amortization. At March 31, 2019, we were in compliance with all financial covenants

At March 31, 2019, we had a total of $96.3 million in cash and cash equivalents, short-term investments and long-term investments, an increase of $6.8 million from December 31, 2018. The principal contributor to this increase was operating results.

Cash flows from operating activities of $12.9 million for the three months ended March 31, 2019 were primarily comprised of net income plus the net effect of non-cash expenses, decreases in prepaid expenses and increases in other non-current liabilities partially offset by increases in accounts receivable. During the first three months of 2019, we expended $3.6 million for the addition of property and equipment, $28.2 million for the purchase of investments and $2.5 million for dividends. During the same period, maturities of investments generated $6.7 million in cash.

At March 31, 2019, we had working capital of $113.7 million, including $44.0 million in cash and cash equivalents and $24.8 million in short-term investments. The $1.6 million increase in working capital during the first three months of 2019 was primarily related to an increase in accounts receivable. This increase was partially offset by decreases in prepaid expenses and inventories and increases in accounts payable, accrued liabilities and accrued income and other taxes. The increase in accounts receivable was primarily related to increased revenues for the first quarter of 2019 as compared to the fourth quarter of 2018. The increases in accounts payable and accrued liabilities are primarily related to the timing of payments for replenishment of inventories and operating expenses. The increases in accrued income and other taxes are primarily related to accrued federal and state income taxes relating to operating results.

We believe that our $96.3 million in cash, cash equivalents, short-term investments and long-term investments, along with cash flows from operations and available borrowings of up to $75.0 million under our credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future, including the costs associated with the planned expansion of one of our manufacturing facilities. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary. Additionally, we believe that our cash and cash equivalents, short-term investments and long-term investments, as a whole, will continue to increase during the remainder of 2019

13

Forward-Looking Statements

Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our effective tax rate for the remainder of 2019, our ability to fund our cash requirements for the foreseeable future with our current assets, long-term investments, cash flow and borrowings under the credit facility, our access to equity and debt financing, and the increase in cash, cash equivalents, and investments during the remainder of 2019. Words such as “expects,” “believes,” “anticipates,” “intends,” “should,” “plans,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events to differ materially, including, but not limited to, the following: changing economic, market and business conditions; acts of war or terrorism; the effects of governmental regulation; the impact of competition and new technologies; slower-than-anticipated introduction of new products or implementation of marketing strategies; implementation of new manufacturing processes or implementation of new information systems; our ability to protect our intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, or any material reduction in sales to, any significant customers. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause us to alter our marketing, capital expenditures or other budgets, which in turn may affect our results of operations and financial condition. The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not undertake any obligation, and disclaim any duty, to supplement, update or revise such statements, whether as a result of subsequent events, changed expectations or otherwise, except as required by applicable law.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

For the quarter ended March 31, 2019, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2018 Form 10-K.

Item 4.    Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2019. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting for the quarter ended March 31, 2019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

14

PART II

OTHER INFORMATION

Item 1.    Legal Proceedings

From time to time, we may be involved in claims or litigation that arise in the normal course of business. We are not currently a party to any legal proceedings, which, if decided adversely, would have a material adverse effect on our business, financial condition, or results of operations.

Item 1A.    Risk Factors

There were no material changes to the risk factors disclosed in our 2018 Form 10-K.

Item 6.    Exhibits

Exhibit Number	Description
10.1	Second Amended and Restated Change in Control Agreement between Atrion Corporation and David A. Battat
10.2	Second Amended and Restated Employment Agreement between Atrion Corporations and Emile A Battat
10.3	Severance Plan for Jeffery Strickland, as amended March 11, 2019
10.4	Atrion Corporation Short-Term Incentive Compensation Plan, as last amended March 11, 2019
31.1	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2	Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

15

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Atrion Corporation
	(Registrant)
Date: May 8, 2019	By:	/s/ David A. Battat
		David A. Battat
		President and Chief Executive Officer

Date: May 8, 2019	By:	/s/ Jeffery Strickland
		Jeffery Strickland
		Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)

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Exhibit Index

Exhibit Number	Description
10.1	Second Amended and Restated Change in Control Agreement between Atrion Corporation and David A. Battat
10.2	Second Amended and Restated Employment Agreement between Atrion Corporations and Emile A Battat
10.3	Severance Plan for Jeffery Strickland, as amended March 11, 2019
10.4	Atrion Corporation Short-Term Incentive Compensation Plan, as last amended March 11, 2019
31.1	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2	Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

17

EX-10.1

Exhibit 10.1

SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT

THIS SECOND AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT (the “Agreement”) is entered into as of the 11th day of March, 2019 (the “Effective Date”) by and between ATRION CORPORATION, a Delaware corporation (the “Company”) and DAVID A. BATTAT (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive is currently employed as the President and Chief Executive Officer of the Company; and

WHEREAS, the Company and the Executive are parties to an Amended and Restated Change in Control Agreement dated as of the 3rd day of September, 2014 (the “Current Agreement”) providing for certain benefits to the Executive in the event the Executive’s employment with the Company is terminated in connection with a change in control of the Company; and

WHEREAS, the Company and the Executive desire to amend and restate the Current Agreement as set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual provisions contained herein, and for other good and valuable considerations, the parties hereto agree as follows:

1.

Term of Agreement.

(a)

The term of this Agreement shall commence on the Effective Date and shall terminate on the second anniversary of the Effective Date, provided, however, that commencing on the day after the Effective Date and continuing on each day thereafter (each such day being hereinafter referred to as a “Renewal Date”), the term of this Agreement shall be automatically extended so as to terminate on the second anniversary of such Renewal Date unless the Company shall give written notice to the Executive that the term of this Agreement shall not be so extended as of a specified Renewal Date, in which event this Agreement shall automatically terminate on the second anniversary of such specified Renewal Date.

(b)

Notwithstanding subsection (a) hereof, this Agreement shall continue in effect (i) until the date two years beyond the initial or any extended date of termination in the event of a Change in Control (as defined in Exhibit A hereto) prior to such date of termination, and (ii) thereafter until the date that all obligations of the Company hereunder have been paid in full.

2.Termination of Employment.

(a)

As set forth in detail in this Section 2, if the Executive’s employment by the Company is terminated in contemplation of or within two years following a Change in Control, the Executive shall be entitled to the compensation provided in Section 3 of this Agreement unless such termination is as a result of (i) the Executive’s death, (ii) the Executive’s Disability (as defined below), (iii) termination of the Executive for Just Cause (as defined below), or (iv) termination of employment by the Executive other than for Good Reason (as defined below).

(b)

The Executive shall be considered to be subject to a "Disability" if, as a result of physical or mental sickness or incapacity or accident, the Executive is unable to perform the normal duties of his employment with the Company for a period of ninety (90) days in any one hundred twenty (120) day period. If there is any disagreement between the Company and the Executive as to whether the Executive was unable to perform the normal duties of his employment due to Disability, the same shall be determined after examination of the Executive by a physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by the Executive's spouse or, if the Executive is not married or if his spouse is unable or unwilling to make the selection, by any other adult member of the Executive's immediate family) and approved by the Company. The costs and expenses of such examination shall be borne by the Company. The determination of such physician shall be conclusive evidence as to whether the Executive was unable to perform the normal duties of his employment due to Disability. If the Executive does not permit such examination by such physician, then, for purposes hereof, the determination as to whether the Executive was unable to perform the normal duties of his employment due to Disability shall be made by the Board of Directors of the Company (the “Board”). Nothing herein shall have any effect upon the Executive's eligibility to receive any disability benefits from the Company pursuant to the terms and conditions of any disability plan or other arrangement which the Company may have in effect from time to time.

(c)

In the event the Executive’s employment with the Company is terminated by the Company, whether or not in contemplation of or within two years following a Change in Control, (i) for Just Cause, (ii) by the Executive for other than Good Reason (as defined below), or (iii) due to the Executive’s death of Disability, then the Executive shall not be entitled to the compensation provided in Section 3 below or other compensation or benefits hereunder. The term “Just Cause” shall mean (A) the Executive's continuing willful failure to perform his material duties and obligations as President and Chief Executive Officer of the Company (except by reason of his death or incapacity due to his Disability) after written notice thereof by the Company to the Executive, and the Executive's failure or refusal to perform such duties and obligations within thirty (30) days after the receipt of such notice by the Executive or (B) the conviction of, or the entering of a plea of nolo contendere by, the Executive with respect to a felony (other than as a result of a traffic violation or as a result of vicarious liability), provided that on or after a Change in Control, Just Cause shall be limited to only clause (B) above. For purposes of this Section 2(c), no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. The Company must assert a Just Cause termination event no later than ninety (90) days after discovery of such event.

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(d)

In the event the Executive’s employment with the Company is terminated in contemplation of or within two years following a Change in Control (i) by the Company without Just Cause or (ii) by the Executive for Good Reason, the Executive shall be entitled to the compensation and other benefits provided in Section 3 below. The term “Good Reason” shall mean any one or more of the following: (A) without the Executive's express written consent, any diminution in the Executive's titles, authorities, responsibilities or the assignment of the Executive to any duties inconsistent with his position, duties, responsibilities and status with the Company as its President and Chief Executive Officer or the removal by the Board, or the failure or refusal of the Board to re-elect, the Executive as the President and Chief Executive Officer of the Company at any time during the term of this Agreement; (B) the Company's breach of any provision of this Agreement or any other breach by the Company of any provision of any agreement between the Company and the Executive and failure, within the ten (10) day period following its receipt of written notice from the Executive describing such breach in reasonable detail, to promptly commence in good faith to cure such breach (if curable); provided that such cure must be effected no later than thirty (30) days following such notice and provided further that such cure right shall not be available on more than one occasion in any twelve (12) month period; (C) failure of the Company to obtain the assumption in writing (a copy of which is delivered to the Executive) of the Company's obligations hereunder to the Executive by any successor to the Company prior to or at the time of a merger, acquisition, consolidation, disposition of substantially all of the assets of the Company or similar transaction. For purposes of clause (A) above, a "diminution in the Executive's titles, authorities or responsibilities" shall be deemed to have occurred if the Company is no longer required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended.

The Executive must assert a "Good Reason" termination event no later than ninety (90) days after the Executive discovers such event.

(e)

Any termination of the Executive’s employment by the Company as set forth in Section 2(c)(i) or 2(d)(i) or by the Executive as set forth in Section 2(c)(ii) or 2(d)(ii) shall be communicated to the other party by a Notice of Termination. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall state the specific termination provision in this Agreement pursuant to which such termination allegedly falls and which sets forth in reasonable detail the facts and circumstances which form the basis for such termination.

3.

Termination Payment.

(a)In the event the Executive’s employment is terminated pursuant to Section 2(d), the Executive shall be entitled to receive the following payments from the Company, such payments to be made as soon as practicable following the termination date but in any event within ten (10) days after the date the Executive's employment terminates:

the Executive’s base salary and annual bonus for the calendar year in which the date of termination falls, in each case prorated for the number of days of the calendar year that elapsed prior to the date of termination, accrued vacation pay and unreimbursed business expenses,; and

two times the sum of (A) the Executive’s base salary for the twelve (12) months immediately preceding the month in which the Executive’s employment is terminated and (B) the sum of the (i) average of the annual bonuses paid, or that would have been paid had the Executive’s employment with the Company not been terminated, to the Executive under the Atrion Corporation Short-Term Incentive Compensation Plan for the three calendar years prior to the calendar year in which such termination occurs and (ii) average of the annual bonuses received by the Executive under any other bonus or incentive plan of the Company for the three calendar years prior to the calendar year in which such termination occurs.

(b)In addition to the payments provided for in Section 3(a), in the event the Executive’s employment is terminated as set forth in Section 2(d), (i) all stock options and/or equity granted to the Executive shall fully vest and become exercisable on the termination date; (ii) the Company shall pay one-hundred percent (100%) of the premiums for twelve (12) months of continuation coverage for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 for the Executive and his eligible dependents; (iii) any amounts or benefits due to the Executive pursuant to the Company’s Nonqualified Deferred Compensation Plan (the “NQDC Plan”) shall be paid to the Executive in accordance with the terms of the NQDC Plan; and (iv) the Company shall direct that payment be made to the Executive of amounts due to him pursuant to, and in accordance with the terms of, the Company’s Section 401(k) Savings Plan.

4.Withholding. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state, or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law in light of the circumstances. The Company shall be entitled to rely on an opinion of tax counsel if any question as to the amount or requirement of any such withholding shall arise.

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5.Notices. All notices provided for by this Agreement shall be in writing and shall be (a) personally delivered to the party thereunto entitled or (b) deposited in the United States mail, postage prepaid, addressed to the party to be notified at the address listed below (or at such other address as may have been designated by written notice), certified or registered mail, return receipt requested. The notice shall be deemed to be received (a) if by personal delivery, on the date of its actual receipt by the party entitled thereto or (b) if by mail, two (2) days following the date of deposit in the United States mail.

To the Company:	Atrion Corporation
	One Allentown Parkway
	Allen, Texas 75002
	Attention: Chief Financial Officer
To Executive:	David A. Battat
	To the most recent address
	on file with the Company.

6.Parties Bound. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the Company, Executive, and their respective heirs, personal representatives, successors and assigns; provided, however, that Executive may not assign any rights or obligations hereunder without the express written consent of Company. This Agreement shall also bind and inure to the benefit of any successor of the Company by merger or consolidation, or any assignee of all or substantially all of the Company's properties.

7.Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom.

8.No Mitigation; No Set-Off.

(a)In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain.

(b)Any amounts or benefits payable to the Executive under this Agreement are in addition to, and are not in lieu of, amounts payable to the Executive under any other salary continuation or cash severance arrangement of the Company or any other type of agreement entered into between the parties, and to the extent paid or provided under any other such arrangement or agreement shall not be offset from the amounts or benefits due hereunder, except to the extent expressly provided in such other arrangement or agreement.

9.Attorneys' Fees And Costs. In the event that it becomes necessary for the Executive to seek legal counsel with regard to a dispute, claim or issue under this Agreement or the Executive deems it necessary to initiate arbitration in order to enforce his rights hereunder, then the Company shall bear and, upon notification to the Company by the Executive, immediately advance to the Executive all expenses of such dispute, claim, issue or arbitration, including the reasonable fees and expenses of the counsel of the Executive incurred in connection with such dispute, claim, issue or arbitration, unless an arbitrator determines that the Executive's position was frivolous or otherwise taken in bad faith, in which case an arbitrator may determine that the Executive shall bear his own legal fees. Notwithstanding any existing or prior attorney-client relationship between the Company and the counsel selected by the Executive, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel.

10.Arbitration. All disputes and controversies arising under or in connection with this Agreement, shall be settled by arbitration conducted before one (1) arbitrator sitting in New York, New York, or such other location agreed to by the parties hereto, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company unless the arbitrator determines that the Executive's position was frivolous or otherwise taken in bad faith, in which case the arbitrator may determine that the Executive shall bear his own legal fees.

11.Section Headings. The headings contained in this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.

12.Multiple Counterparts. This Agreement may be executed in counterparts, each of which for all purposes is to be deemed an original, and both of which constitute, collectively, one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

13.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its conflict-of-law rules.

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14.Section 409A. The intent of the parties is that this Agreement will be in full compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and in the event that any provision of this Agreement, or any payment of compensation or benefits paid pursuant to this Agreement, is determined to be inconsistent with the requirements of Section 409A of the Code, the Company shall reform this Agreement to the extent necessary to comply therewith and to avoid the imposition of any penalties or taxes pursuant to Section 409A of the Code, provided that any such reformation shall to the maximum extent possible retain the originally intended economic and tax benefits to the Executive and the original purpose of this Agreement without violating Section 409A of the Code or creating any unintended or adverse consequences to the Executive. Notwithstanding any other provision of this Agreement to the contrary, if the Executive is a “specified employee” within the meaning of Section 409A of the Code and the regulations thereunder at the relevant time, then, solely to the extent required to comply with applicable provisions Section 409A of the Code with respect to any amounts or benefits not exempt under Section 409A of the Code, payments provided for herein on account of the termination of the Executive’s employment shall not commence until the date that is first day of the seventh month following the Executive’s “separation from service” as determined in accordance with Section 409A of the Code.

15.Entire Agreement. This Agreement contains the entire agreement of the parties hereto, and supersedes all prior agreements , including the Current Agreement, and understandings, oral or written, if any, between the parties hereto, with respect to the subject matter hereof. No modification or amendment of any of the terms, conditions, or provisions herein may be made otherwise than by written agreement signed by the parties hereto.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.

ATRION CORPORATION
By:	/s/ Emile A Battat
	Name: Emile A Battat
	Title: Chairman
	/s/  David A. Battat
	DAVID A. BATTAT

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Exhibit A

(a)           For purposes of the Agreement, the term “Change in Control” shall mean the occurrence of any one of the following events:

(i)           any person (as the term “person” is used in Section 13(d) (3) or Section 14(d) (2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, or any trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company or any of its subsidiaries) becomes the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities of the Company representing 25% or more of the combined voting power of the then-outstanding voting securities of the Company

(ii)           the Company is merged, consolidated or reorganized into or with another corporation or other person and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction;

(iii)           the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells all or substantially all of its assets to any other corporation or other person and as a result of such sale less than 50% of the combined voting power of the then-outstanding voting securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale; or

(iv)           during any period of two consecutive years, individuals who, at the beginning of any such period, constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the Company's stockholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.

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EX-10.2

Exhibit 10.2

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of the 11th day of March, 2019 by and between Atrion Corporation, a Delaware corporation (the “Company”), and Emile A Battat (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive and the Company are currently parties to an employment agreement dated as of the 7th day of August, 2006, as amended (the “Current Employment Agreement”), pursuant to which the Executive is employed by the Company as the Chairman of the Board of Directors of the Company (the “Board”); and

WHEREAS, the Company and the Executive desire to amend and restate the Current Employment Agreement as set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual provisions contained herein, and for other good and valuable consideration, the parties hereto agree as follows:

1.             EMPLOYMENT.

(a)             Continuation of Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby accepts continued employment by the Company until expiration of the Employment Term (as defined below). The Executive is and will continue to be a senior executive officer of the Company and, subject to his election as a director by the stockholders and his election by the Board as its Chairman of the Board ("Chairman"), the Executive shall serve as Chairman on the terms and conditions hereinafter set forth. The Executive shall perform such duties, and have such powers, authority, functions and responsibilities (commensurate with his position and title) as may be reasonably assigned to him from time to time by the Board which are not (except with the Executive's prior written consent) inconsistent with, and which do not interfere with or detract from, those vested in or being performed by the Executive for the Company.

(b)             Duties. During the remainder of the Employment Term, the Executive shall be a full time employee of the Company; provided, however that the Executive shall be allowed, to the extent that such activities do not materially interfere with the performance of his duties and responsibilities hereunder, to manage his personal financial affairs and to serve on corporate, civic, not-for-profit, charitable and industry boards and advisory committees. In addition to such duties as may be assigned to him by the Board, consistent with the provisions of Section 1(a) above, the Executive shall provide guidance to the Company's Chief Executive Officer, consult and advise on, and assist with the evaluation, planning and implementation of, corporate strategy and operational matters as requested by the Chief Executive Officer, provide leadership to the Board and preside over meetings of the Company's stockholders and Board.

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2.             TERM. The current term of the Executive's employment began on January 1, 2017 and shall continue until December 31, 2021(the "Current Term"). The term of the Executive's employment under this Agreement shall be automatically renewed for additional one (1) year terms (each referred to as an “Additional Term”) at the end of the Current Term and at the end of each Additional Term, as the case may be, unless either party delivers written notice of termination to the other at least six (6) months prior to the end of the Current Term or Additional Term, as the case may be. The Current Term and the Additional Terms together constitute the “Employment Term.”

3.             COMPENSATION. The Company shall pay the Executive the following, subject to withholding and other applicable employment taxes:

(a)             Base Salary. The Company shall pay the Executive a base salary (the "Base Salary") of Six Hundred Thousand and No/100 Dollars ($600,000.00) for each calendar year in the Current Term.

(b)             Bonuses. In addition to the Base Salary, the Company shall pay the Executive a cash bonus (the “Annual Bonus”) for each calendar year in the Employment Term equal to the amount that is 8% of the Increase in Operating Income for such calendar year. For purposes of this Agreement, “Increase in Operating Income” shall be equal to the excess, if any, of the Company’s operating income for the calendar year of determination over the Company’s operating income for the previous calendar year. The Compensation Committee of the Board shall have discretion to adjust the Increase in Operating Income calculated pursuant to the previous sentence to disregard one-time, non-recurring extraordinary adjustments and shall make such equitable adjustments as are required to give effect to acquisitions, divestitures, or similar corporate transactions by or involving the Company.

The Base Salary shall be payable in intervals consistent with the Company's normal payroll schedules (but in no event less frequently than monthly). The Base Salary, as in effect from time to time, may be increased but not reduced without the written consent of the Executive. The Annual Bonus for each calendar year in the Employment Term shall be payable as soon as practicable following the date on which the Annual Bonus can be determined, but in no event later than March 15 of the year following such calendar year.

In addition to the Base Salary and the Annual Bonus, the Company shall pay the Executive such other incentive compensation as the Company may from time to time determine.

(c)             Benefits and Expenses. The Executive shall have the right to participate in the employee benefit plans, equity and incentive plans, insurance contracts, policies, arrangements or agreements maintained by the Company for the benefit of its employees and relating to retirement, health, disability and other employee benefits, subject to the Executive's qualification for participation in such benefit plans pursuant to the terms and conditions under which such benefit plans are offered, at a level commensurate with the Executive's position. The Executive's rights and entitlements with respect to any such benefits shall be subject to the provisions of the relevant agreements, contracts, policies, arrangements or plans providing such benefits. Nothing contained herein shall be deemed to impose any obligation on the Company to adopt or maintain any such plans, policies, arrangements, contracts or agreements. In accordance with its policies and procedures, the Company shall pay or reimburse the Executive for all reasonable or necessary travel and other out-of-pocket expenses incurred by the Executive in performing his obligations under this Agreement. The Executive shall comply with all such policies and procedures applicable to the Company's senior executive employees relating to the nature and extent of reimbursable expenses, the manner of accounting therefor and the manner or reimbursement of same. The Company shall also furnish the Executive with such office and clerical assistance as shall be suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder.

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(d)             Vacation and Holidays. The Executive shall be entitled to such vacation and holidays with pay during each fiscal year of the Company as the Company makes available to its other salaried employees, such vacation to be taken at such time or times as shall be approved by the Company, which approval shall not be unreasonably withheld. Unless otherwise agreed between the parties, unused days of vacation and unused holidays may not be carried over from one fiscal year of the Company to another.

4.             TERMINATION.

(a)             Termination by the Company. The Company may terminate the employment of the Executive prior to the expiration of the Employment Term (i) for “just cause” (as defined below) by delivering written notice of termination to the Executive or (ii) without “just cause” upon thirty (30) days written notice of termination to the Executive.

(b)             Termination by Executive. The Executive may terminate his employment under this Agreement prior to the expiration of the Employment Term (i) for “good reason” (as defined below) by giving the Company ninety (90) days written notice of his intention to terminate such employment or (ii) without “good reason” by giving the Company ninety (90) days written notice of his intention to terminate such employment.

(c)             Termination Upon Retirement, Death, or Disability. The Executive's employment shall terminate immediately upon his Retirement (as defined below) or his death. In the event that the Executive becomes subject to a Disability (as defined below), the Executive's employment may be terminated upon thirty (30) days written notice by either party to the other.

(d)             Definitions. For purposes of this Agreement, the following terms shall have the respective meanings indicated below:

(i)             Just Cause. The term “just cause” shall mean (A) the Executive's continuing willful failure to perform his material duties and obligations under this Agreement (except by reason of his death or incapacity due to his Disability) after written notice thereof by the Company to the Executive, and the Executive's failure or refusal to perform such duties and obligations within thirty (30) days after the receipt of such notice by the Executive or (B) the conviction of, or the entering of a plea of nolo contendere by, the Executive with respect to a felony (other than as a result of a traffic violation or as a result of vicarious liability), provided that on or after a Change in Control (as defined in Exhibit A hereto), “just cause” shall be limited to only subsection (B) above. For purposes of this Section 4(d)(i), no act, or failure to act, on the Executive's part shall be considered “willful” unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. The Company must assert a “just cause” termination event no later than ninety (90) days after discovery of such event.

The date of termination for a termination for “just cause” shall be the date indicated in the Notice of Termination (as defined herein). A “Notice of Termination” for “just cause” shall mean a notice that shall indicate the specific termination provision in Section 4(d)(i) relied upon and shall set forth in reasonable detail the facts and circumstances which provide for a basis for termination for “just cause.” Further, a Notice for Termination for “just cause” shall be required to include a copy of a resolution duly adopted by the Board, with at least two-thirds (2/3) of the non-management members of the Board voting in favor thereof, at a meeting of the Board which was called for the purpose of considering such termination and which the Executive and his representative had the right to attend and address the Board, finding that, in the good faith of the Board, the Executive engaged in conduct set forth in the definition of “just cause” herein and specifying the particulars thereof in reasonable detail. Any purported termination for “just cause” which is held by an arbitrator not to have been based on the grounds set forth in this Agreement or not to have followed the procedures set forth in this Agreement shall be deemed a termination by the Company without “just cause.”

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(ii)             Good Reason. The term “good reason” shall mean any one or more of the following:

(A)             Without the Executive's express written consent, any diminution in the Executive's titles, authorities, responsibilities or the assignment of the Executive to any duties inconsistent with his position, duties, responsibilities and status with the Company as its Chairman, or the removal by the Board, or the failure or refusal of the Board to re-elect, the Executive as the Chairman of the Company at any time during the term of this Agreement. For purposes hereof, a “diminution in the Executive's titles, authorities or responsibilities” shall be deemed to have occurred if the Company is no longer required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended.

(B)             The Company's breach of any provision of this Agreement or any other agreement between the Company and the Executive and failure, within the ten (10) day period following its receipt of written notice from the Executive describing such breach in reasonable detail, to promptly commence in good faith to cure such breach (if curable); provided that such cure must be effected no later than thirty (30) days following such notice and provided further that such cure right shall not be available on more than one occasion in any twelve (12) month period.

(C)             Adoption by a majority of the Board of any resolution or series of related resolutions that, individually or collectively, has or could reasonably be expected to have a material effect on the strategic direction, operations, financial condition or results of operations of the Company and that is voted against by the Executive in a good faith exercise of his fiduciary duty or the failure or refusal of a majority of the Board to adopt a proposed resolution or series of related resolutions that, individually or collectively, has or could reasonably have been expected to have a material effect on the strategic direction, operations, financial condition or results of operations of the Company and that the Executive proposed, by a motion or series of motions (whether or not seconded), be adopted by the Board in a good faith exercise of his fiduciary duty.

(D)             Failure of the Company to obtain the assumption in writing (a copy of which is delivered to the Executive) of the Company's obligations hereunder to the Executive by any successor to the Company prior to or at the time of a merger, acquisition, consolidation, disposition of substantially all of the assets of the Company or similar transaction.

The Executive must assert a “good reason” termination event no later than ninety (90) days after the Executive discovers such event.

(iii)             Disability. The Executive shall be considered to be subject to a “Disability” if, as a result of physical or mental sickness or incapacity or accident, the Executive is unable to perform the normal duties of his employment with the Company for a period of ninety (90) days in any one hundred twenty (120) day period. If there is any disagreement between the Company and the Executive as to whether the Executive was unable to perform the normal duties of his employment due to Disability, the same shall be determined after examination of the Executive by a physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by the Executive's spouse or, if the Executive is not married or if his spouse is unable or unwilling to make the selection, by any other adult member of the Executive's immediate family) and approved by the Company. The costs and expenses of such examination shall be borne by the Company. The determination of such physician shall be conclusive evidence as to whether the Executive was unable to perform the normal duties of his employment due to Disability. If the Executive does not permit such examination by such physician, then, for purposes hereof, the determination as to whether the Executive was unable to perform the normal duties of his employment due to Disability shall be made by the Board. Nothing herein shall have any effect upon the Executive's eligibility to receive any disability benefits from the Company pursuant to the terms and conditions of any disability plan or other arrangement which the Company may have in effect from time to time.

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(iv) Retirement. The term “Retirement” shall mean voluntary termination of employment with the Company and its Subsidiaries after attaining the age of 65.

(e)             Termination Payment. In the event of the termination of the Executive’s employment as hereinabove set forth, the Executive shall be entitled to receive the following payments from the Company, such payments to be made within ten (10) days following the date on which the Executive’s employment terminates, subject to the provisions of Section 18 of this Agreement and the Company’s Nonqualified Deferred Compensation Plan (the “NQDC Plan”):

(i)             Termination for Just Cause. In the event the Company terminates the Executive's employment pursuant to Section 4(a)(i) of this Agreement, the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay the Executive any compensation earned but not yet paid, including without limitation, the Base Salary and Annual Bonus for the calendar year in which the date of termination falls, in each case prorated for the number of days of the calendar year that elapsed prior to the date of termination, any accrued vacation pay payable pursuant to the Company's policies, any unreimbursed business expenses, and any amounts or benefits due to him pursuant to the NQDC Plan (collectively the “Accrued Amounts”).

(ii)             Termination Without Just Cause. In the event the Company terminates the Executive's employment pursuant to Section 4(a)(ii) of this Agreement, the Executive's employment under this Agreement shall terminate at the expiration of said thirty (30) day period, and the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay to the Executive a cash lump sum amount (except as otherwise provided in the NQDC Plan) equal to the sum of:

(A)             the Accrued Amounts; and

(B)             the Executive's Base Salary and the average of the annual bonuses received by the Executive for the three years prior to the year in which such termination occurs (collectively, the “Severance Payment”); which sum shall be paid by the Company as soon as practicable after the termination date, but in no event later than ten (10) days after the termination of the Executive's employment; provided, however, that in the event of any termination without just cause that occurs in contemplation of or within two years following a Change in Control, the Company shall instead pay to the Executive a cash lump sum amount equal to the sum of the Accrued Amounts and two times the Severance Payment. Notwithstanding the foregoing, in the event the Company terminates the Executive's employment pursuant to Section 4(a)(ii), the Company may, at its option, require the Executive to cease providing services hereunder and serving as an employee of the Company at any time during said thirty (30) day period. In addition, all stock options and/or equity granted to the Executive shall fully vest and become exercisable upon the termination date. The Company shall continue to provide the Executive (and his spouse and dependents) with group health plan benefits (or substantially similar substitute arrangements), at its sole expense, for one year (the “One Year Medical Benefits”).

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(iii)             Termination for Good Reason. In the event the Executive terminates the Executive's employment pursuant to Section 4(b)(i) of this Agreement, the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay to the Executive a cash lump sum equal to the Accrued Amounts and the Severance Payment, which shall be paid by the Company as soon as practicable after the termination date, but in no event later than ten (10) days after the termination of the Executive's employment; provided, however, that in the event of any termination for good reason that occurs in contemplation of or within two years following a Change in Control, the Company shall instead pay to the Executive a cash lump sum amount equal to the sum of the Accrued Amounts and two times the Severance Payment. In addition, all stock options and/or equity granted to the Executive shall fully vest and become exercisable upon the termination date. The Company shall also provide the Executive (and his spouse and dependents) with the One Year Medical Benefits.

(iv)             Termination Without Good Reason. In the event the Executive terminates the Executive's employment pursuant to Section 4(b)(ii) of this Agreement, the Executive's employment under this Agreement shall terminate at the expiration of said thirty (30) day period, and the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay the Executive a cash lump sum equal to the Accrued Amounts. Notwithstanding the foregoing, in the event the Executive terminates his employment pursuant to Section 4(b)(ii), the Company may, at its option, require the Executive to cease providing services hereunder and serving as an employee of the Company at any time during said thirty (30) day period; provided that the Executive shall be entitled to such payments as would have otherwise been due to him had he continued in the employment of the Company for such thirty (30) day period, including, without limitation, payments of the Accrued Amounts and amounts to be paid under any other plan, agreement or policy which survives the termination of this Agreement.

(v)             Termination upon Retirement, Death, or Disability. In the event the Executive's employment is terminated pursuant to Section 4(c) hereof, the Company shall have no further obligation under Sections 3 and 4 of this Agreement except to pay to the Executive (or his personal representative or guardian) a cash lump sum amount equal to the Accrued Amounts and the Severance Payment In addition, all stock options and/or equity granted to the Executive shall fully vest and become exercisable upon the termination date. The Company shall also provide the Executive (and/or his spouse and dependents as applicable) with the One Year Medical Benefits.

(f)              Section 401(k) Savings Plan. Notwithstanding any other provision of this Agreement to the contrary, in the event of the termination of the Executive’s employment for any reason or no reason, the Company shall direct that payment be made to the Executive of amounts due him pursuant to the Company’s Section 401(k) Savings Plan.

(g)             COBRA. In the event that the Company’s group health plan does not permit the Company to provide continuation coverage for the Executive for the one (1) year period in which the One Year Medical Benefits are to be provided and does not permit the Executive to elect COBRA coverage within sixty (60) days after the expiration of said one (1) year period and for COBRA coverage to begin on the first day following the expiration of said one (1) year period, the Company shall use reasonable good faith efforts within ninety (90) days after the Commencement Date to amend its group health plan to permit the Company to provide continuation coverage for the Executive for said one (1) year period and to permit the Executive to make such election and, if made, for COBRA coverage to begin on the first day following the expiration of said one (1) year period; provided, however, that the Company shall not be required to change health insurance companies or to pay additional premiums for any employee or former employee other than the Executive in order to effect, or as a result of, such amendment. Nothing herein shall be construed as limiting the COBRA rights of the Executive (or his spouse and dependents).

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(h)             Health Benefits. Notwithstanding any other provision of this Agreement to the contrary, if the provision of any health benefit hereunder would cause any group health plan of the Company to be deemed "discriminatory" under applicable law, and would thereby cause the Company to incur penalties thereunder, then the Company shall have the right unilaterally to amend this Agreement to prevent the group health plan from being discriminatory by eliminating any continued health benefits hereunder or subsidy thereof, other than such continuation coverage as the Executive shall be entitled to under COBRA.

5.             WITHHOLDING. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state, or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law in light of the circumstances. The Company shall be entitled to rely on an opinion of tax counsel if any question as to the amount or requirement of any such withholding shall arise.

6.             NOTICES. All notices provided for by this Agreement shall be in writing and shall be (a) personally delivered to the party thereunto entitled or (b) deposited in the United States mail, postage prepaid, addressed to the party to be notified at the address listed below (or at such other address as may have been designated by written notice), certified or registered mail, return receipt requested. The notice shall be deemed to be received (a) if by personal delivery, on the date of its actual receipt by the party entitled thereto or (b) if by mail, two (2) days following the date of deposit in the United States mail.

To the Company:  Atrion Corporation

One Allentown Parkway

Allen, TX 75002

Attention: Chief Financial Officer

To the Executive: Emile A Battat

To the most recent address on file with the Company.

7.             PARTIES BOUND. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the Company, the Executive, and their respective heirs, personal representatives, successors and assigns; provided, however, that the Executive may not assign any rights or obligations hereunder without the express written consent of Company. This Agreement shall also bind and inure to the benefit of any successor of the Company by merger or consolidation, or any assignee of all or substantially all of the Company's properties.

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8.             INVALID PROVISIONS. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom.

9.             NO MITIGATION; NO SET-OFF.

(a)             No Duty to Mitigate. In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain.

(b)             Other Payments. Any amounts or benefits payable to the Executive under this Agreement are, in addition to, and are not in lieu of, amounts payable to the Executive under any other salary continuation or cash severance arrangement of the Company or any other type of agreement entered into between the parties, and to the extent paid or provided under any other such arrangement or agreement shall not be offset from the amounts or benefits due hereunder, except to the extent expressly provided in such other arrangement or agreement.

10.             ATTORNEYS' FEES AND COSTS. In the event that it becomes necessary for the Executive to seek legal counsel with regard to a dispute, claim or issue under this Agreement or the Executive deems it necessary to initiate arbitration in order to enforce his rights hereunder, then the Company shall bear and, upon notification to the Company by the Executive, immediately advance to the Executive all expenses of such dispute, claim, issue or arbitration, including the reasonable fees and expenses of the counsel of the Executive incurred in connection with such dispute, claim, issue or arbitration, unless an arbitrator determines that the Executive's position was frivolous or otherwise taken in bad faith, in which case an arbitrator may determine that the Executive shall bear his own legal fees. Notwithstanding any existing or prior attorney-client relationship between the Company and the counsel selected by the Executive, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel.

11.             ARBITRATION. All disputes and controversies arising under or in connection with this Agreement, shall be settled by arbitration conducted before one (1) arbitrator sitting in New York, New York, or such other location agreed by the parties hereto, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. The determination of the arbitrator shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company unless the arbitrator determines that the Executive's position was frivolous or otherwise taken in bad faith, in which case the arbitrator may determine that the Executive shall bear his own legal fees.

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12.             LEGAL FEES. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement.

13.             INDEMNIFICATION. The Company shall indemnify and hold harmless the Executive to the fullest extent permitted under the Company's Bylaws as in effect on the date hereof or the date of termination of employment, if on such date the Bylaws provide the Executive with greater rights to indemnification, and to the fullest extent permitted by law for any action or inaction of the Executive while serving as an officer or director of the Company or, at the Company's request, as an officer or director of any other entity or as a fiduciary of any benefit plan. The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term (but in no event for a period which is less than six (6) years after termination) in the same amount and to the same extent as the Company covers its other officers and directors as of the Commencement Date or the date of termination of employment, if on such date the Executive will receive greater coverage under such insurance.

14.             WAIVERS AND CONSENTS. One or more waivers of any breach of any covenant, term or provision of this Agreement by any party shall not be construed as a waiver of a subsequent breach of the same covenant, term or provision, nor shall it be considered a waiver of any other then existing or subsequent breach of a different covenant, term or provision. The consent or approval of either party to or of any act by the other party requiring such consent or approval shall not be deemed to waive or render unnecessary consent to or approval or any subsequent similar act. No custom or practice of the parties shall constitute a waiver of either party's rights to insist upon strict compliance with the terms hereof.

15.             SECTION HEADINGS. The headings contained in this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.

16.             MULTIPLE COUNTERPARTS. This Agreement may be executed in counterparts, each of which for all purposes is to be deemed an original, and both of which constitute, collectively, one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

17.             GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its conflict-of-law rules.

18.             SECTION 409A. The intent of the parties is that this Agreement will be in full compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and in the event that any provision of this Agreement, or any payment of compensation or benefits paid pursuant to this Agreement is determined to be inconsistent with the requirements of Section 409A of the Code, the Company shall reform this Agreement and to the extent necessary to comply therewith and to avoid the imposition of any penalties or taxes pursuant to Section 409A of the Code, provided that any such reformation shall to the maximum extent possible retain the originally intended economic and tax benefits to the Executive and the original purpose of this Agreement without violating Section 409A of the Code or creating any unintended or adverse consequences to the Executive. Notwithstanding any other provision of this Agreement to the contrary, if the Executive is a “specified employee” within the meaning of Section 409A of the Code and the regulations thereunder at the relevant time, then, solely to the extent required to comply with applicable provisions Section 409A of the Code with respect to any amounts or benefits not exempt under Section 409A of the Code, payments made hereunder on account of the termination of the Executive’s employment shall not commence until the date that is first day of the seventh month following the Executive’s “separation from service” as determined in accordance with Section 409A of the Code.

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19.             ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties hereto, and supersedes all prior agreements, including the Current Employment Agreement, and understandings, oral or written, if any, between the parties hereto, with respect to the subject matter hereof. No modification or amendment of any of the terms, conditions, or provisions herein may be made otherwise than by written agreement signed by the parties hereto.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.

ATRION CORPORATION

By: /s/ David A. Battat                                                                               

Name: David A. Battat

Title: President and Chief Executive Officer

/s/ Emile A Battat                                                                    

EMILE A BATTAT

10

Exhibit A

(a)             For purposes of the Agreement, the term “Change in Control” shall mean the occurrence of any one of the following events:

(i)             any person (as the term “person” is used in Section 13(d) (3) or Section 14(d) (2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, or any trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company or any of its subsidiaries) becomes the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities of the Company representing 25% or more of the combined voting power of the then-outstanding voting securities of the Company

(ii)             the Company is merged, consolidated or reorganized into or with another corporation or other person and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction;

(iii)             the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells all or substantially all of its assets to any other corporation or other person and as a result of such sale less than 50% of the combined voting power of the then-outstanding voting securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale; or

(iv)             during any period of two consecutive years, individuals who, at the beginning of any such period, constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the Company's stockholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.

11

EX-10.3

Exhibit 10.3

SEVERANCE PLAN

Effective April 25, 2000

(As amended on March 11, 2019)

1.

PURPOSE OF PLAN

While Atrion Corporation (the “Company”) is of the view that its business provides an optimistic outlook for the Company’s future profitability and growth and while the Company has no present plans for any Extraordinary Event (as defined below), the Company wishes to provide certain assurances to Jeffery Strickland (the “Executive”), who is currently serving as Vice President and Chief Financial Officer, Secretary and Treasurer of the Company, by adopting this Severance Plan in the event one of these Extraordinary Events should occur. The purpose of this Severance Plan (the “Plan”) is to ensure that the Executive, who the Company recognizes has made and is expected to continue making a significant contribution to the growth and financial success of the Company, will be able to evaluate objectively any proposed Extraordinary Event without being distracted by the potential economic impact of such Extraordinary Event upon the Executive’s personal circumstances.

2.            

DEFINITIONS.

(a)

“Board” means the Board of Directors of the Company.

(b)

“Committee” means the Compensation Committee of the Board of Directors of the Company.

(c)          

“Extraordinary Event” shall mean any of the following events:

(i)

The Company is merged, consolidated or reorganized into or with another corporation or other person and as a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction;

(ii)

The Company sells all or substantially all of its assets to any other corporation or other person and as a result of such sale less than 50% of the combined voting power of the then-outstanding voting securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale;

(iii)

Individuals who, as of the date hereof, constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the Company's stockholders of each director of the Company first elected after the date hereof was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company as of the date hereof; or

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(iv)

Dissolution of the Company under Delaware law.

(d)          

“Post Event Period” shall mean the period commencing on the date of the occurrence of the first event which constitutes an Extraordinary Event and ending upon the earliest to occur of the following:

(i)

The Executive’s death;

(ii)

The Executive’s attainment of age 65; or

(iii)

The expiration of two (2) years after the occurrence of an Extraordinary Event.

3.            

ADMINISTRATION

The Plan shall be administered by the Committee. Subject to the provisions hereof, the Committee shall have the power and authority to direct the payment by the Company of severance pay hereunder and shall have the authority, in its sole discretion, in accordance with the provisions hereof, to make any and all determinations deemed necessary or desirable for the administration of the Plan.

4.

TERMINATION BY COMPANY FOLLOWING AN EXTRAORDINARY EVENT

In the event of the occurrence of an Extraordinary Event, the Company may terminate the Executive's employment by the Company during the Post Event Period without incurring the obligation to make the payments set forth in Paragraph 5 below only for Cause. For purposes of this Plan, "Cause" shall mean (i) an act of dishonesty by the Executive resulting in gain or personal enrichment of the Executive, or (ii) failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive's incapacity due to mental or physical illness).

5.

SEVERANCE PAYMENT

In the event of an Extraordinary Event as defined in Paragraph 2(c)(iv) above during the term of this Plan or if, during the Post Event Period, the Executive's employment by the Company is terminated by the Company other than pursuant to Paragraph 4 above (for Cause) or is terminated by the Executive for Good Reason (as defined in Paragraph 6 below), the Company shall pay to the Executive in a lump sum within ten (10) business days of the effective date of the Extraordinary Event as defined in Paragraph 2(c)(iv) above or the date of termination of the Executive's employment with the Company during the Post Event Period (the "Termination Date"), in lieu of any further payments of salary to the Executive for periods subsequent to such Extraordinary Event or Termination Date, as the case may be, an amount which is equal to the annual base salary paid by the Company to the Executive in the twelve (12) month period preceding such Extraordinary Event or the Termination Date, as the case may be; provided, however, that such lump sum payment shall not be in lieu of any accrued vacation pay that may be due to the Executive for periods prior to such Extraordinary Event or Termination Date, as the case may be. Any such accrued vacation pay shall be paid to the Executive when the above-described lump sum payment is made to the Executive.

.

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6.

GOOD REASON

For purposes of this Plan, “Good Reason” shall mean any one or more of the following:

(a)            

A reduction by the Company in the Executive's annual base salary during the Post Event Period from the annual base salary in effect for Executive immediately preceding the Post Event Period.

(b)            

The relocation of the Executive's principal office to a location outside of the Dallas, Texas metropolitan area unless such relocation is effected as a result of a request for such relocation by the Executive or a request for such relocation that is made by the Company and agreed to by the Executive.

(c)            

The failure by any successor as contemplated in Paragraph 10(c) hereof to assume this Plan and agree to perform the Company’s obligations hereunder.

(d)            

Termination of this Plan except as permitted in Paragraph 9(a) below.

7.            

EMPLOYMENT RIGHTS

Nothing expressed or implied in this Plan shall create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company prior to any Extraordinary Event.

8.

WITHHOLDING OF TAXES

The Company may withhold from any amounts payable under this Plan all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling.

9.            

TERM

(a)            

This Plan shall terminate upon the earliest to occur of the following:

(i) 

The termination of the Executive's employment by the Company prior to any Extraordinary Event; provided, however, that any termination of employment of the Executive following the commencement of any discussions with a third party authorized by the Board that is followed by an Extraordinary Event in which such third party (or an associate or affiliate thereof) is a party within six (6) months of the commencement of such discussions shall be deemed to be a termination of the Executive’s employment after an Extraordinary Event for purposes of this Plan; provided further, however, that any termination of the Executive’s employment without Cause (as defined in Paragraph 4 above) within six (6) months preceding the earlier of (A) an Extraordinary Event defined in Paragraph 2(c)(iv) hereof or (B) the adoption by the Board of a resolution to dissolve the Company that is followed by an Extraordinary Event defined in Paragraph 2(c)(iv) hereof shall be deemed to have occurred after the Extraordinary Event defined in Paragraph 2(c)(iv) hereof;

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(ii) The termination of the Post Event Period; and

(iii) The termination of the Executive's employment by the Company after an Extraordinary Event pursuant to the provisions of Paragraph 4 herein (for Cause).

(b)            

Notwithstanding the foregoing, the Company may give written notice of termination of this Plan to the Executive at any time after April 25, 2001, and in such event this Plan shall terminate on the last day of the twelfth (12th) month following the date such written notice is given.

10.            

MISCELLANEOUS

(a)            

The validity, interpretation, construction and performance of this Plan shall be governed by the laws of the State of Texas.

(b)            

No member of the Board or the Committee nor any officer or employee of the Company acting on behalf of the Board or the Committee shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan; and all members of the Board and the Committee and each officer and employee acting on their behalf shall, to the extent permitted by law, be indemnified and held harmless by the Company in respect of any such action, determination or interpretation.

(c)            

The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company to assume this Plan and the Company’s obligations hereunder in the same manner and to the same extent the Company would be required to perform hereunder if no such succession had taken place.

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EX-10.4

Exhibit 10.4

ATRION CORPORATION

SHORT-TERM INCENTIVE COMPENSATION PLAN

Effective January 1, 2013

(As last amended on March 11, 2019)

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ATRION CORPORATION SHORT-TERM INCENTIVE COMPENSATION PLAN

Introduction

Atrion Corporation (the “Corporation”) adopts this Atrion Corporation Short-Term Incentive Compensation Plan (the “Plan”) effective as of January 1, 2013. The purposes of the Plan are (1) to provide performance bonuses to selected Executive Officers, Key Employees, and Critical-Needs Individuals whose performance has a direct impact on the Corporation's objectives of achieving a high level of annual profitability and sustained long-term growth; (2) to attract and retain Executive Officers, Key Employees and Critical-Needs Individuals; and (3) to maintain a corporate-wide pool of profits that will be available to pay various types of performance bonuses, contractual bonuses, holiday gifts, severance payments, moving expenses, other employment-related expenses, and similar types of payments approved by the Corporate Board or the Subsidiary Board.

The Plan is designed to provide annual performance bonuses to three groups:

●

Executive Officers

●

Key Employees

●

Critical-Needs Individuals

The Corporation intends the Plan to be an unfunded plan maintained primarily for the purpose of providing incentive compensation to a select group of individuals, which is exempt from the minimum participation, vesting and funding standards of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Plan is designed to be unfunded within the meaning of Internal Revenue Code (“IRC”) § 404(a)(5). If the Corporation sets aside monies in a separate account to fund benefits due under the Plan, such monies will remain subject to claims of the general creditors of the Corporation or any Subsidiary. The Corporation reserves the right to interpret and operate the Plan accordingly, and to amend the Plan as necessary to maintain its status as an unfunded incentive compensation plan as defined under ERISA and the IRC and any other applicable law, and to qualify for the tax deduction under IRC § 404(a)(5) for payments made under the Plan. The Plan is designed to be a short-term deferral plan within the meaning of IRC § 409A and will be administered accordingly, in compliance with Treasury Regulations § 1.409A-1(b)(4).

ii

ATRION CORPORATION INCENTIVE COMPENSATION AND AWARDS PLAN

Table of Contents

ARTICLE 1 - DEFINITIONS	Page
1.1 Adjustment Factor for Subsidiary Profitability	1
1.2 Awards Pool	1
1.3 Board or Corporate Board	1
1.4 Board Chairman	1
1.5 Bonus	1
1.6 Bonus Allocation Formula	1
1.7 Compensation Committee	2
1.8 Corporation	2
1.9 Critical-Needs Individual	2
1.10 Discretionary Expenses	2
1.11 Effective Date	2
1.12 Employee	2
1.13 Employment	2
1.14 ERISA	3
1.15 Executive Officer	3
1.16 Formula Bonus	3
1.17 Formula Table	3
1.18 Independent Contractor	3
1.19 Individual Bonus Rate	3
1.20 Individual Performance	3
1.21 Individual Pool Points	3
1.22 IRC	3
1.23 Key Employee	3
1.24 Participant	4
1.25 Performance Year	4
1.26 Plan	4
1.27 Plan Administrator	4
1.28 Plan Year	4
1.29 Salary	4
1.30 Subsidiary	4
1.31 Subsidiary Board	4
1.32 Termination Date	4
1.33 Total Pool Points	4

iii

ARTICLE 2 - PLAN ADMINISTRATION
2.1 Purposes of the Awards Pool	5
2.2 Carry-Over of Unused Amounts	5
2.3 Duties of the Corporate Board	5
2.4 Duties of the Subsidiary Board	5
2.5 Duties of the Compensation Committee	5
2.6 Duties of the Board Chairman	5
ARTICLE 3 - CONTRIBUTIONS TO THE AWARDS POOL
3.1 Determination of each Subsidiary’s Contributions	6
3.2 Timing of Contributions	6
ARTICLE 4 - DETERMINATION AND PAYMENT OF ANNUAL BONUSES
4.1 Eligibility for Bonus	7
4.2 Determination of Annual Bonus Amounts	7
(a) Executive Officer’s Bonus	7
(b) Key Employee’s Bonus	7
(c) Critical-Needs Individual’s Bonus	7
4.3 Payment of Annual Bonuses	7
(a) Minimum Payment	7
(b) Bonuses for Executive Officers and Key Employees	8
(c) Bonuses for Critical-Needs Individuals	8
(d) Short-Term Deferral Plan	8
4.4 Vesting in Bonus Awards	8
ARTICLE 5 - AMENDMENT AND TERMINATION
5.1 Amendment of the Plan	9
5.2 Termination of the Plan	9
ARTICLE 6 - MISCELLANEOUS
6.1 Headings	10
6.2 Construction and Choice of Law	10
6.3 Severability	10
6.4 Effect of Bonuses on Other Plans	10
6.5 Status as an Unfunded Top-Hat Plan	10
6.6 Nonalienation	10
6.7 No Implied Rights	10
6.8 Contractual Limitation Period	10
ADDENDUM A Formula Table - Bonus Allocation Formula

iv

ARTICLE 1

Definitions

As used in the Plan, the following words and phrases and any derivatives thereof will have the meanings set forth below unless the context clearly indicates otherwise. Definitions of other words and phrases are set forth throughout the Plan. Section references indicate sections of the Plan unless otherwise stated. The masculine pronoun includes the feminine, and the singular number includes the plural and the plural the singular, whenever applicable.

1.1 

“Adjustment Factor for Subsidiary Profitability” means a percentage that is a component of the Bonus Allocation Formula based on one or more factors including a Subsidiary’s profitability for a given Performance Year, a Subsidiary's contribution to the Awards Pool in a Plan Year relative to the total of all such contributions in that Plan Year, and accomplishments of a Subsidiary in executing meaningful corporate transactions and addressing business risks and other extraordinary items, as determined by the Subsidiary Board.

1.2 

“Awards Pool” means the aggregate amounts contributed by the Subsidiaries for each Plan Year, which Atrion Corporation records and maintains in a separate account and uses for the payment of Bonuses and Discretionary Expenses.

1.3 

“Board” or” Corporate Board” means the Board of Directors of Atrion Corporation.

1.4 

“Board Chairman” means the Chairman of the Board of Directors of Atrion Corporation.

1.5 

“Bonus” means (a) for an Executive Officer, a performance bonus in an amount equal to the Formula Bonus, as such amount may be adjusted by the Corporate Board based on the recommendation of the Compensation Committee; (b) for a Key Employee, a performance bonus in an amount equal to the Formula Bonus, as such amount may be adjusted by the Subsidiary Board; and (c) for a Critical-Needs Individual, a performance bonus in such amount as is determined by the Subsidiary Board.

1.6 

“Bonus Allocation Formula” means the formula used to calculate Formula Bonuses for Executive Officers and Key Employees, which is reflected in the Formula Table, the steps in the determination of which are as follows:

1

Step 1: 

Salary X Individual Bonus Rate X Adjustment Factor for Subsidiary Profitability = Individual Pool Points;

Step 2: 

Ratio of Individual Pool Points to Total Pool Points X total amount of the Awards Pool = Preliminary Bonus Amount;

Step 3: 

Preliminary Bonus Amount X Individual Performance = Formula Bonus.

1.7 

“Compensation Committee” means the Compensation Committee of the Corporate Board.

1.8 

“Corporation” means Atrion Corporation.

1.9 

“Critical-Needs Individual” means (a) a manager, director, supervisor, engineer, or other Employee designated as such, who is not an Executive Officer or a Key Employee but whose skills have special value and are relatively unique in the labor market; or (b) an Independent Contractor (such as a member of an advisory board), whom the Subsidiary Board selects to receive a Critical-Needs Individual Bonus under Article 4 for a given Plan Year.

1.10 

“Discretionary Expenses” means the following expenses that may be paid from the Awards Pool:

(a)

Various bonuses to be paid under employment agreements;

(b) 

Various types of special bonuses, including but not limited to signing bonuses, relocation bonuses, safety bonuses, referral bonuses, quarterly bonuses, and spot bonuses;

(c)

Holiday gifts in the form of cash or gift cards or merchandise;

(d)

Severance payments;

(e)

Various types of employment-related expenses;

(f) 

The expense amortization of each Subsidiary’s allocation of the cost of restricted stock unit awards to its Employees, over the vesting period; and

(g) 

Such other payments and expenses as the Subsidiary Board determines to be appropriate.

1.11 

“Effective Date” means January 1, 2013.

1.12 

“Employee” means an individual (a) who is regularly employed by the Corporation or a Subsidiary as a common-law employee, and (b) who has FICA taxes withheld by his or her employer.

1.13 

“Employment” means the period during which a Participant is employed as a regular, full-time employee of the Corporation or a Subsidiary.

2

1.14 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and regulations and rulings issued under ERISA.

1.15 

“Executive Officer” means the Chief Executive Officer of the Corporation and the Chief Financial Officer of the Corporation.

1.16 

“Formula Bonus” means the performance bonus determined under the Bonus Allocation Formula.

1.17 

“Formula Table” means the table set forth in Addendum A to this Plan that sets forth the Bonus Allocation Formula.

1.18 

“Independent Contractor” means an individual who performs services for the Corporation or a Subsidiary in a capacity other than that of an Employee.

1.19 

“Individual Bonus Rate” means a percentage that is a component of the Bonus Allocation Formula as determined (a) for Executive Officers by the Compensation Committee after taking into account the recommendation of the Board Chairman and (b) for Key Employees by the Subsidiary Board.

1.20 

“Individual Performance” means a percentage that is a component of the Bonus Allocation Formula which constitutes the rating assigned to a Participant for a given Performance Year based on his or her performance as determined (a) for Executive Officers by the Compensation Committee after taking into account the recommendation of the Board Chairman and (b) for Key Employees by the Subsidiary Board.

1.21 

“Individual Pool Points” means the number of points calculated for each eligible Executive Officer and Key Employee for each Performance Year, determined as set forth in Step 1 of the Bonus Allocation Formula.

1.22 

“IRC” means the Internal Revenue Code of 1986, as amended from time to time, and regulations and rulings issued under the Code.

1.23 

“Key Employee” means an Employee other than an Executive Officer or a Critical-Needs Individual, who is employed by the Corporation or a Subsidiary, who has responsibility for the management, supervision, profitability, or growth of all or part of the Subsidiary’s business operations, and who is eligible to receive a Formula Bonus for a given Plan Year under Section 4.1.

3

1.24 

“Participant” means an Executive Officer whom the Corporate Board has determined is eligible to receive a Bonus for one or more Plan Years and a Key Employee or Critical-Needs Individual whom the Subsidiary Board has determined is eligible to receive a Bonus for one or more Plan Years.

1.25 

“Performance Year” means the 12 months ending on September 30 of each Plan Year.

1.26 

“Plan” means the Atrion Corporation Short-Term Incentive Compensation Plan, as set forth in this document and as amended from time to time.

1.27 

“Plan Administrator” means the Subsidiary Board, unless the Subsidiary Board has appointed an individual to serve in that role for purposes of any litigation that has or may arise from this Plan.

1.28 

“Plan Year” means calendar year 2013 and each succeeding calendar year.

1.29 

“Salary” means a Participant's base salary for the Plan Year, determined without regard to any bonus or award under this Plan or any benefits accrued under any other deferred compensation plan, retirement plan or welfare benefit plan.

1.30 

“Subsidiary” means (a) Halkey-Roberts Corporation, (b) Quest Medical, Inc., (c) Atrion Medical Products, Inc., and (d) any other company of which the Corporation owns at least 80% of the outstanding common stock, which common stock represents at least 80% of the total value of the stock of such company, and which has been designated as a participant in the Plan.

1.31 

“Subsidiary Board” means a committee the members of which are the members of the Boards of Directors of the participating Subsidiaries.

1.32 

“Termination Date” means the date (a) of termination of Employment in the case of Participant who is an Employee, or (b) in the case of an Independent Contractor, when he or she stops performing services for the Corporation and its Subsidiaries. A Participant who is on an approved leave of absence is not treated as terminated.

1.33 

“Total Pool Points” means the total of all Individual Pool Points.

4

ARTICLE 2

Plan Administration

2.1 

Purposes of the Awards Pool. The Corporation will make, or cause to be made, the following payments from the Awards Pool:

(a) 

Bonuses to Executive Officers in amounts determined by the Corporate Board;

(b) 

Bonuses to Key Employees in amounts determined by the Subsidiary Board;

(c) 

Bonuses to Critical-Needs Individuals in amounts determined by the Subsidiary Board; and

(d) 

Discretionary Expenses.

2.2 

Carry-Over of Unused Amounts. In its sole discretion, the Corporation may carry over from Plan Year to Plan Year amounts contributed to the Awards Pool with respect to a Plan Year and may use such amounts for any purpose under the Plan at such times as it considers proper.

2.3 

Duties of the Corporate Board. TheCorporate Board will have the following responsibilities for Plan administration:

(a)       Approve and adopt the Plan;

(b) 

Approve amendments to the Plan;

(c) 

Determine the amount and timing of Bonuses for Executive Officers for each Plan Year; and

(d) 

Perform such other functions to be performed by it as set forth in the Plan.

2.4 

Duties of the Subsidiary Board. The Subsidiary Board will have the following responsibilities for Plan administration:

(a) 

Determine each Subsidiary’s return-on-investment goal for each Performance Year, at the 15% level or at a higher level that reflects a risk adjustment considered appropriate for certain investments;

(b) 

Determine certain components of the Bonus Allocation Formula as provided in the Plan;

(c) 

Determine each Subsidiary’s bonus sharing percentage;

(d) 

Determine the date or dates that each Subsidiary is to make contributions to the Awards Pool;

(e) 

Determine the amount and timing of the Bonus for each eligible Key Employee for each Plan Year;

(f) 

Determine the amount and timing of the Bonus for each eligible Critical-Needs Individual for each Plan Year; and

(g) 

Perform such other functions to be performed by it as set forth in the Plan or as may be directed by the Board.

2.5 

Duties of the Compensation Committee. The Compensation Committee will have the responsibility to review the determinations by the Board Chairman of the Formula Bonuses for Executive Officers, to make recommendations to the Corporate Board with respect thereto, to determine certain components of the Bonus Allocation Formula as provided in the Plan and to perform such other functions to be performed by it as set forth in the Plan or as may be directed by the Board.

2.6

Duties of the Board Chairman. The Board Chairman, in addition to serving on the Subsidiary Board, shall determine the Formula Bonuses for the Executive Officers and report same to the Compensation Committee.

5

ARTICLE 3

Contributions to the Awards Pool

3.1 

Determination of each Subsidiary’s Contributions. Subject to any adjustment that the Subsidiary Board may make for any Plan Year, each Subsidiary will make contributions to the Awards Pool in amounts determined by the Subsidiary Board based on the following procedures for the month, calendar quarter, or the Plan Year:

Step One – Determine each Subsidiary’s bonus hurdle amount:

(A)	(1)	The Subsidiary’s average investment for the Performance Year as determined by the Subsidiary Board multiplied by
	(2)	15% annual return requirement, or such higher percentage fixed by the Subsidiary Board, equals
	(3)	The Subsidiary’s return hurdle.
(B)	(1)	The Subsidiary’s return hurdle, plus
	(2)	The Subsidiary’s charge for corporate expenses for the Performance Year as
		determined by the executive officers of the Corporation, equals
	(3)	The Subsidiary’s bonus hurdle amount.

Step Two – Determine each Subsidiary’s Contribution Amount:

(1)	(The Subsidiary’s pre-bonus operating income for the Performance Year minus the Subsidiary’s bonus hurdle amount) multiplied by
(2)	15% or lower bonus sharing percentage assigned to the Subsidiary by the Subsidiary Board, equals
(3)	The Subsidiary’s contribution for the period.

3.2 

Timing of Contributions. Each Subsidiary will make its contributions to the Awards Pool on the dates determined by the Subsidiary Board.

6

ARTICLE 4

Determination and Payment of Annual Bonuses

4.1 

Eligibility for Bonus. The Corporate Board will determine which Executive Officers are eligible to receive Bonuses, and the Subsidiary Board will determine which Key Employees and which Critical-Needs Individuals are eligible to receive Bonuses.

4.2 

Determination of Annual Bonus Amounts.

(a) 

Executive Officers Bonuses. A Formula Bonus will be determined for each eligible Executive Officer for the Plan Year by the Board Chairman. The Board Chairman shall advise the Compensation Committee of the Formula Bonus determined by him for each such Executive Officer. The Compensation Committee will review such Formula Bonuses, may recommend adjustments to the amount of such Formula Bonuses and shall advise the Corporate Board of the determinations made by the Board Chairman and of any recommendations it may have for adjustments to the Formula Bonuses determined by the Board Chairman. The Corporate Board will determine the amount of the Bonus to be paid to each eligible Executive Officer after taking into consideration the Formula Bonuses determined by the Board Chairman and any adjustments to the amount thereof as recommended by the Compensation Committee.

(b) 

Key Employees Bonuses. A Formula Bonus will be determined for each eligible Key Employee for the Plan Year. The Subsidiary Board will determine the amount of the Bonus to be paid to each eligible Key Employee after taking into consideration the Formula Bonus and adjusting the amount to be paid for any factors that the Subsidiary Board deems appropriate.

(c) 

Critical-Needs Individuals Bonuses. The Subsidiary Board will determine the amount of each eligible Critical-Needs Individual’s Bonus for the Plan Year based on his or her performance and any other factors the Subsidiary Board deems appropriate.

4.3            

Payment of Annual Bonuses.

(a) 

Minimum Payment. On or before the December 31 of each Plan Year, the Subsidiary Board, taking into account Bonuses for Key Employees and Critical-Needs Individuals as well as Bonuses to Executive Officers, may determine the minimum aggregate amount of Bonuses with respect to such Plan Year, and the prior Plan Year regarding the deferred portion of any Bonuses for such prior Plan Year, to be paid by the immediately following March 15, such minimum aggregate amount to be subject to approval by the Corporate Board.

7

(b) 

Bonuses for Executive Officers and Key Employees. For business reasons such as retention, motivation, cash flow, and similar matters, the Corporate Board and the Subsidiary Board may in their discretion cause there to be distributed to some or all Executive Officers and Key Employees, respectively, a cash payment of 75% of their Bonus on a date fixed by the Corporate Board in the case of the Executive Officers and a date fixed by the Subsidiary Board in the case of Key Employees, but in each case such date shall be no later than the April 15 immediately following the Plan Year, and a cash payment of the remaining 25% on a date fixed by the Corporate Board in the case of the Executive Officers and a date fixed by the Subsidiary Board in the case of Key Employees, but in each case such date shall be no later than the next succeeding April 15. All Executive Officers and Key Employees who are to receive Bonuses and who are not selected for such deferred payment for a given Plan Year will receive 100% of their Bonuses on a date fixed by the Corporate Board in the case of the Executive Officers and a date fixed by the Subsidiary Board in the case of Key Employees, but in each case such date shall be no later than the April 15 immediately following the Plan Year.

(c) 

Bonuses for Critical-Needs Individuals. Unless the Subsidiary Board determines otherwise, the Bonuses for Critical-Needs Individuals will be paid in full on a date fixed by the Subsidiary Board that is no later than the April 15 immediately following the Plan Year.

(d) 

Short-Term Deferral Plan. The Corporate Board and the Subsidiary Board will strictly comply with the payment schedule described in this Section 4.3 to preserve the Plan’s status as a short-term deferral plan within the meaning of IRC § 409A.

4.4 

Vesting in Bonus Awards. No Participant will have any vested or legally binding right in any type of Bonus, or a part thereof, until the date when such Bonus, or such part thereof, is actually paid to such Participant. Notwithstanding any other provision hereof, if a Participant’s Employment terminates before such Participant actually receives payment of his or her Bonus, or such part thereof, such Participant will forfeit the unpaid Bonus, or the unpaid part thereof, on such Participant’s Termination Date. However, for an Executive Officer or Key Employee who has had 25% of a Bonus withheld under Subsection 4.3(b), there will be full vesting for the withheld amount upon his or her death or total and permanent disability, and the Corporation will pay the amount withheld for a deceased Participant to such Participant’s surviving legal spouse, if any, or, if none, then to such Participant’s estate and for a disabled Participant to such Participant.

8

ARTICLE 5

Amendment or Termination of the Plan

5.1 

Amendment of the Plan. The Corporate Board may amend the Plan from time to time; provided that no amendment (a) will have the effect of eliminating or reducing any Plan benefit earned before the effective date of the amendment; or (b) will cause any violation of any rule or requirement under IRC § 409A or any other applicable law.

5.2 

Termination of the Plan. The Corporate Board may terminate all or any part of the Plan at any time, subject to the restrictions stated in Section 5.1 above.

9

ARTICLE 6

Miscellaneous

6.1 

Headings. The headings and subheadings in the Plan have been inserted for convenient reference, and, to the extent any heading or subheading conflicts with the text, the text will govern.

6.2 

Construction and Choice of Law. The Plan will be governed and construed in accordance with the laws of the State of Delaware, except to the extent such laws are preempted by ERISA or the IRC or any other federal law and excluding Delaware’s choice of law principles, and all claims relating to or arising out of this Plan or any violation of this Plan, whether sounding in contract, tort of otherwise, will be governed by the laws of Delaware, excluding choice of law principles.

6.3 

Severability. If any court of competent jurisdiction rules that any provision of this Plan is unenforceable, the remaining provisions will remain in full force and effect to the extent that deletion of the unenforceable provision does not substantially alter the Plan's purposes.

6.4 

Effect of Bonuses on Other Plans. Except to the extent expressly stated in such other plan, no Bonus payable under this Plan will be included in compensation for any purpose under any other plan sponsored by the Corporation or any Subsidiary, including but not limited to qualified and nonqualified retirement plans, life insurance plans and other welfare benefit plans.

6.5 

Status as an Unfunded Top-Hat Plan. Notwithstanding any other provision of the Plan, this Plan is adopted on the condition that, in the event of an audit or other review, the Internal Revenue Service will find that the entire Plan meets the requirements for an unfunded top-hat plan and short-term deferral plan under applicable provisions of the IRC and ERISA. In the event any contrary determination cannot be cured by revisions satisfactory to the Corporate Board, the Corporate Board may in its discretion declare the adoption of the Plan, or any part of the Plan, null and void. This Section 6.5 is not intended to require the Corporation to submit this Plan to the IRS or to any other governmental agency or department for approval.

6.6 

Non-alienation. No benefits payable under the Plan will be subject to the claim or legal process of any creditor of any Participant by execution, levy, garnishment, attachment, pledge, bankruptcy or otherwise. No Participant may alienate, transfer, anticipate or assign any benefits under the Plan.

6.7 

No Implied Rights. Participation in the Plan will not give any Participant the right to be retained in Employment or service as an Independent Contractor. No person will have any right or interest in any portion of the Plan except as specifically provided in the Plan.

6.8 

Contractual Limitation Period. If any active or former Employee, or any other person whomsoever, asserts any claim against the Plan that is denied by the Corporate Board or the Subsidiary Board, such person must file any lawsuit that is based directly or indirectly on such claim denial no later than 180 days after the date the Corporate Board or the Subsidiary Board, as applicable, issues the written denial or such person will be forever barred from filing any such lawsuit.

10

EX-31.1

Exhibit 31.1

Chief Executive Officer Certification

I, David A. Battat, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2019

/s/ David A. Battat

David A. Battat

President and

Chief Executive Officer

EX-31.2

Exhibit 31.2

Chief Financial Officer Certification

I, Jeffery Strickland, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2019

/s/ Jeffery Strickland

Jeffery Strickland

Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES – OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350, the undersigned officer of Atrion Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 8, 2019                                                         /s/ David A. Battat

David A. Battat

President and Chief Executive Officer

The foregoing certification is made solely for purpose of 18 U.S.C. § 1350 and not for any other purpose.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES – OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350, the undersigned officer of Atrion Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 8, 2019

Jeffery Strickland

Vice President and

Chief Financial Officer

The foregoing certification is made solely for purpose of 18 U.S.C. § 1350 and not for any other purpose.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 20, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	ATRION CORP
Entity Central Index Key	0000701288
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding		1,852,756
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Statement [Abstract]
Revenues	$ 41,614	$ 39,401
Cost of goods sold	22,911	20,450
Gross profit	18,703	18,951
Operating expenses:
Selling	2,384	2,018
General and administrative	4,187	4,229
Research and development	1,095	1,338
Operating Expenses, Total	7,666	7,585
Operating income	11,037	11,366
Interest and dividend income	582	313
Other investment income (losses)	211	(772)
Nonoperating Income	793	(459)
Income before provision for income taxes	11,830	10,907
Provision for income taxes	(2,392)	(2,420)
Net income	$ 9,438	$ 8,487
Net income per basic share	$ 5.09	$ 4.58
Weighted average basic shares outstanding	1,853	1,852
Net income per diluted share	$ 5.07	$ 4.57
Weighted average diluted shares outstanding	1,862	1,856
Dividends per common share	$ 1.35	$ 1.2

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 44,043	$ 58,753
Short-term investments	24,779	9,684
Accounts receivable	21,240	17,014
Inventories	32,801	33,572
Prepaid expenses and other current assets	1,803	3,242
Total Current Assets	124,666	122,265
Long-term investments	27,466	21,048
Property, plant and equipment	184,631	181,582
Less accumulated depreciation and amortization	108,691	106,689
Property plant and equipment net	75,940	74,893
Other assets and deferred charges:
Patents	1,629	1,659
Goodwill	9,730	9,730
Other	1,587	1,621
Prepaid Expense and Other Assets, Noncurrent, Total	12,946	13,010
Total assets	241,018	231,216
Current liabilities:
Accounts payable and accrued liabilities	9,917	9,601
Accrued income and other taxes	1,096	619
Total Current Liabilities	11,013	10,220
Line of credit
Other non-current liabilities	11,922	10,229
Stockholders' equity:
Common stock, par value $0.10 per share; authorized10,000 shares, issued 3,420 shares	342	342
Paid-in capital	50,772	50,391
Retained earnings	298,690	291,761
Treasury shares, 1,567 at September 30, 2018 and 1,568 at December 31, 2017, at cost	(131,721)	(131,727)
Total stockholders' equity	218,083	210,767
Total liabilities and stockholders' equity	$ 241,018	$ 231,216

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.10	$ 0.10
Common stock, authorized	10,000	10,000
Common stock, issued	3,420	3,420
Treasury shares, shares	1,567	1,567

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 9,438	$ 8,487
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,546	2,183
Deferred income taxes	627	(138)
Stock-based compensation	380	316
Net change in unrealized gains and losses on investments	(147)	789
Net change in accrued interest, premiums, and discounts on investments	184	(104)
Total adjustments	13,028	11,533
Changes in operating assets and liabilities:
Accounts receivable	(4,226)	(3,528)
Inventories	771	(553)
Prepaid expenses	1,439	1,135
Other non-current assets	34	(252)
Accounts payable and accrued liabilities	316	(668)
Accrued income and other taxes	477	2,229
Other non-current liabilities	1,066	470
Net Cash Provided by (Used in) Operating Activities, Continuing Operations, Total	12,905	10,366
Cash flows from investing activities:
Property, plant and equipment additions	(3,563)	(3,269)
Purchase of investments	(28,218)	(25,521)
Proceeds from maturities of investments	6,667	10,691
Net Cash Provided by (Used in) Investing Activities, Continuing Operations, Total	(25,114)	(18,099)
Cash flows from financing activities:
Dividends paid	(2,501)	(2,222)
Net Cash Provided by (Used in) Financing Activities, Continuing Operations, Total	(2,501)	(2,222)
Net change in cash and cash equivalents	(14,710)	(9,955)
Cash and cash equivalents at beginning of period	58,753	30,136
Cash and cash equivalents at end of period	44,043	20,181
Cash paid for:
Income taxes	$ 56	$ 24

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Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Common Stock	Treasury Stock	Additional Paid-In Capital	Other Comprehensive Income (Loss)	Retained Earnings	Total
Beginning Balance, shares at Dec. 31, 2017	1,836	1,584
Beginning Balance, amount at Dec. 31, 2017	$ 342	$ (131,663)	$ 48,730	$ (1,215)	$ 268,194	$ 184,388
Net income					8,487	8,487
Reclass from adopting ASU 2016-01				1,215	(1,215)
Stock-based compensation transactions, amount		$ 5	314			319
Dividends					(2,226)	(2,226)
Ending Balance, Shares at Mar. 31, 2018	1,836	1,584
Ending Balance, Amount at Mar. 31, 2018	$ 342	$ (131,658)	49,044	0	273,240	190,968
Beginning Balance, shares at Dec. 31, 2018	1,853	1,567
Beginning Balance, amount at Dec. 31, 2018	$ 342	$ (131,727)	50,391	0	291,761	210,767
Net income					9,438	9,438
Stock-based compensation transactions, amount		$ 6	381			387
Dividends					(2,509)	(2,509)
Ending Balance, Shares at Mar. 31, 2019	1,853	1,567
Ending Balance, Amount at Mar. 31, 2019	$ 342	$ (131,721)	$ 50,772	$ 0	$ 298,690	$ 218,083

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1. Basis of Presentation

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited consolidated financial statements of Atrion Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 ("2018 Form 10-K"). References herein to "Atrion," the "Company," "we," "our," and "us" refer to Atrion Corporation and its subsidiaries.

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2. Inventories

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories are stated at the lower of cost or market. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):

	March 31,		December 31,
	2019		2018
Raw materials	$	14,789	$	14,994
Work in process		7,582		7,214
Finished goods		10,430		11,364
Total inventories	$	32,801	$	33,572

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3. Income per share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Income per share

The following is the computation for basic and diluted income per share:

(1)	Three months EndedMarch 31,
(2)	2019		2018
	(in thousands, except per share amounts)
Net income	$	9,438	$	8,487
Weighted average basic shares outstanding		1,853		1,852
Add: Effect of dilutive securities		9		4
Weighted average diluted shares outstanding		1,862		1,856
Earnings per share:
Basic	$	5.09	$	4.58
Diluted	$	5.07	$	4.57

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Dilutive securities representing zeroand 1,200 shares of common stock for the quarters ended March 31, 2019 and 2018, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

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4. Investments

3 Months Ended

Mar. 31, 2019

Investments Schedule [Abstract]

Investments

As of March 31, 2019, we held investments in commercial paper, bonds and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheet. The equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheet. These investments are considered Level 1 or Level 2 as detailed in the table below. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets including our investment in equity securities we intend to hold longer than 12 months. The fair values of these investments were estimated using recently executed transactions and market price quotations. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):

					Gross Unrealized
	Level		Cost		Gains		Losses			Fair Value
As of March 31, 2019:
Money Market		1		7,811	$	--	$	--		$	7,811
Commercial paper		2		22,717	$	2	$	--		$	22,719
Bonds		2		36,886	$	--	$	(179	)	$	36,707
Mutual funds		1		924	$	--	$	(16	)	$	908
Equity investments		2		5,675	$	--	$	(2,706	)	$	2,969
As of December 31, 2018:
Money Market		1		12,319	$	--	$	--		$	12,319
Commercial paper		2		4,393	$	--	$	--		$	4,393
Bonds		2		25,921	$	--	$	(321	)	$	25,600
Mutual funds		1		795	$	--	$	(121	)	$	674
Equity investments		2		5,675	$	--	$	(2,814	)	$	2,861

The above long-term bonds represent investments in various issuers at March 31, 2019. The unrealized losses in these investments relate to a rise in interest rates which resulted in a lower market price for these securities.

The commercial paper has maturities from less than a month to 5.5 months. The bonds have maturities from less than a month to 26.5 months.

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5. Patents and Licenses

3 Months Ended

Mar. 31, 2019

Patents And Licenses

Patents and Licenses

Purchased patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license. The following tables provide information regarding patents and licenses (dollars in thousands):

March 31, 2019						December 31, 2018
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,211		15.67	$	13,840	$	12,181

Aggregate amortization expense for patents and licenses was $30,000 in each of the three months ended March 31, 2019 and 2018.

Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

2020	$	119
2021	$	119
2022	$	117
2023	$	113
2024	$	113

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6. Revenues

3 Months Ended

Mar. 31, 2019

Revenues [Abstract]

Revenues

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.

A summary of revenues by geographic area, based on shipping destination, for the first quarter of 2019 and 2018 is as follows (in thousands):

	2019		2018
United States	$	26,989	$	24,607
Germany		2,164		2,671
Other countries less than 5% of revenues		12,461		12,123
Total	$	41,614	$	39,401

A summary of revenues by product line for first quarter in each of 2019 and 2018 is as follows (in thousands):

	2019		2018
Fluid Delivery	$	18,161	$	18,800
Cardiovascular		15,420		13,210
Ophthalmology		2,283		2,785
Other		5,750		4,606
Total	$	41,614	$	39,401

The vast majority (98%) of our revenue is driven by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time, and is presented as a receivable on the balance sheet. Payment is typically due within 30 days.

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. On an ongoing basis, the collectability of accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability of specific accounts. An account is written off when it is determined the receivable will not be collected. Historically, bad debt has been immaterial.

We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.

We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of insignificant detail in attempting to disclose information about immaterial contracts would potentially obscure more useful and important information.

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2. Inventories (Tables)

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventories

	March 31,		December 31,
	2019		2018
Raw materials	$	14,789	$	14,994
Work in process		7,582		7,214
Finished goods		10,430		11,364
Total inventories	$	32,801	$	33,572

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3. Income per share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Computation for Basic and Diluted Income Per Share

(1)	Three months EndedMarch 31,
(2)	2019		2018
	(in thousands, except per share amounts)
Net income	$	9,438	$	8,487
Weighted average basic shares outstanding		1,853		1,852
Add: Effect of dilutive securities		9		4
Weighted average diluted shares outstanding		1,862		1,856
Earnings per share:
Basic	$	5.09	$	4.58
Diluted	$	5.07	$	4.57

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4. Investments (Tables)

3 Months Ended

Mar. 31, 2019

Investments Schedule [Abstract]

Investments, Held-to-Maturity Securities

					Gross Unrealized
	Level		Cost		Gains		Losses			Fair Value
As of March 31, 2019:
Money Market		1		7,811	$	--	$	--		$	7,811
Commercial paper		2		22,717	$	2	$	--		$	22,719
Bonds		2		36,886	$	--	$	(179	)	$	36,707
Mutual funds		1		924	$	--	$	(16	)	$	908
Equity investments		2		5,675	$	--	$	(2,706	)	$	2,969
As of December 31, 2018:
Money Market		1		12,319	$	--	$	--		$	12,319
Commercial paper		2		4,393	$	--	$	--		$	4,393
Bonds		2		25,921	$	--	$	(321	)	$	25,600
Mutual funds		1		795	$	--	$	(121	)	$	674
Equity investments		2		5,675	$	--	$	(2,814	)	$	2,861

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5. Patents and Licenses (Tables)

3 Months Ended

Mar. 31, 2019

Patents And Licenses Tables Abstract

Patents and Licenses

March 31, 2019						December 31, 2018
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,211		15.67	$	13,840	$	12,181

Future Amortization Expense

2020	$	119
2021	$	119
2022	$	117
2023	$	113
2024	$	113

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6. Revenues (Tables)

3 Months Ended

Mar. 31, 2019

Recent Accounting Pronouncements Tables Abstract

Revenues by Geographic Territory

	2019		2018
United States	$	26,989	$	24,607
Germany		2,164		2,671
Other countries less than 5% of revenues		12,461		12,123
Total	$	41,614	$	39,401

Revenue by Product Line

	2019		2018
Fluid Delivery	$	18,161	$	18,800
Cardiovascular		15,420		13,210
Ophthalmology		2,283		2,785
Other		5,750		4,606
Total	$	41,614	$	39,401

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2. Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 14,789	$ 14,994
Work in process	7,582	7,214
Finished goods	10,430	11,364
Total inventories	$ 32,801	$ 33,572

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3. Income Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net income	$ 9,438	$ 8,487
Weighted average basic shares outstanding	1,853	1,852
Add: Effect of dilutive securities	9	4
Weighted average diluted shares outstanding	1,862	1,856
Earnings per share:
Basic	$ 5.09	$ 4.58
Diluted	$ 5.07	$ 4.57

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3. Income per share (Details Narrative) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Shares Excluded from Computation of Weighted average diluted Shares outstanding	0	1,200

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4. Investments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Money Market [Member] | Short Term Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Cost	$ 7,811	$ 12,319
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	7,811	12,319
Commercial Paper [Member] | Short Term Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Cost	22,717	4,393
Gross Unrealized Gains	2	0
Gross Unrealized Losses	0	0
Fair Value	22,719	4,393
Corporate Bond Securities [Member] | Short Term Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Cost	36,886	25,921
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(179)	(321)
Fair Value	36,707	25,600
Mutual Funds [Member] | Long Term Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Cost	924	795
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(16)	(121)
Fair Value	908	674
Equity Investments [Member] | Long Term Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Cost	5,675	5,675
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(2,706)	(2,814)
Fair Value	$ 2,969	$ 2,861

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4. Investments (Details Narrative)	3 Months Ended
	Mar. 31, 2019
Commercial Paper [Member]
Schedule of Investments [Line Items]
Securities maturity length	5 months 15 days
Minimum | Corporate Bond Securities [Member]
Schedule of Investments [Line Items]
Securities maturity length	1 month
Maximum | Corporate Bond Securities [Member]
Schedule of Investments [Line Items]
Securities maturity length	26 months 15 days

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5. Patents and Licenses (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Investments Details 1Abstract
Weighted Average Original Life (years)	15 years 8 months 1 day	15 years 8 months 1 day
Gross Carrying Amount	$ 13,840	$ 13,840
Accumulated Amortization	$ 12,211	$ 12,181

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5. Patents and Licenses (Details 1) $ in Thousands	Mar. 31, 2019 USD ($)
Investments Details 3Abstract
2020	$ 119
2021	119
2022	117
2023	113
2024	$ 113

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5. Patents and Licenses (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Patents And Licenses Details Narrative Abstract
Amortization expense for patents and licenses	$ 30,000	$ 30,000

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6. Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Segment Reporting Information [Line Items]
Revenues	$ 41,614	$ 39,401
U S
Segment Reporting Information [Line Items]
Revenues	26,989	24,607
Germany
Segment Reporting Information [Line Items]
Revenues	2,164	2,671
Other Countries [Member]
Segment Reporting Information [Line Items]
Revenues	$ 12,461	$ 12,123

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6. Revenues (Details 1) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue from External Customer [Line Items]
Revenues	$ 41,614	$ 39,401
Fluid Delivery [Member]
Revenue from External Customer [Line Items]
Revenues	18,161	18,800
Cardiovascular [Member]
Revenue from External Customer [Line Items]
Revenues	15,420	13,210
Ophthalmology [Member]
Revenue from External Customer [Line Items]
Revenues	2,283	2,785
Other Products [Member]
Revenue from External Customer [Line Items]
Revenues	$ 5,750	$ 4,606